BX's James: Why private equity firms go public

Questions have arisen about the benefits of private equity firms going public after the underwhelming debut of Oaktree Capital Management, prompting Blackstone president Tony James to explain recently the rationale behind his firm's IPO.

The Blackstone Group’s president Tony James got a bit animated last week during an earnings call while explaining the motivations behind private equity firms going public and why the firm’s share price has remained stagnant since its IPO in 2007.

Firms “go public for strategic reasons … to have currency for acquisitions … for ways of retaining and motivating employees … those reasons aren’t cyclical and market-driven”, James said during a media call Thursday.

James lamented the subdued stock performance public firms have displayed over the years, ever since Blackstone’s initial public offering debuted in 2007 at $31 per share and dropped to $15.28 about a year later. Shares of Blackstone were trading at $13.95 early Friday.

“The last thing anyone going public wants is to price their deal at a level and have the stock fall, that’s terrible. We’re in the business of earning money for shareholders, not losing it,” he said. “We have complicated businesses with lots of moving parts driven by forces beyond our control … [and] complicated accounting which is imposed on us.”

The last thing anyone going public wants is to price their deal at a level and have the stock fall, that's terrible.

Tony James

James also blamed the market cycle, which is “not exactly the best time to sell your assets, you want to sell when the markets are strong”, he said, adding the market for mergers and acquisitions was “weak” and the stock market was “relatively weak”.

“We’re supposed to be smart about when we harvest that value and [it] hasn’t looked to us as the greatest of times yet,” James said. “There will be a cycle when you see a lot of realisations … a lot of dividends … and that’ll make the stock go higher.”

James also mentioned Oaktree Capital Management’s recent IPO, which came in under the Los Angeles-based firm’s expectations. Oaktree sold around 20 percent fewer shares than anticipated and the stock has suffered from general market volatility since its debut. 

“Oaktree went public last week and they got it off … the stock traded down … it’s not an ebullient market,” James said.

Oaktree’s underwhelming IPO results could be a bellwether for the next big private equity public float, that of The Carlyle Group. Carlyle has priced its shares in the $23 to $25 range for its IPO, but has not set a date for the offering. The firm expects to raise between $695 million and $800 million in the offering, according to the firm’s filing with the US Securities and Exchange Commission.