As a former partner in a private equity firm, I have seen greed at all levels.

In my opinion, there is no greater exemplification of private equity greed than the taking public of a portion of the management companies of private equity firms.  Blackstone and Fortress were two that pulled it off.  KKR filed documents to go public and several others, including The Carlyle Group, were rumored to do IPOs; however, market conditions kept the latter few from swindling the public markets to line their pockets.  The moves by Blackstone and Fortress proved prescient: They made out like bandits.

Blackstone went public at $31 a share on June 22, 2007.  This netted the firm’s partners $3.7 billion.  The two founders had the best paydays.  Steve Schwarzman had a nearly $450 million payday with a residual 24% ownership in the company valued at $7.5 billion.  According to public filings, Schwarzman received cash payouts of $400 million the year prior.  His co-founder partner, Peter Peterson, cashed out $1.9 billion and retained a 4% stake in the company.   

Fortress came out in February 2007.  Their five founders had a payday of $409 million.  This was after taking combined distributions of $447 million the year prior.

Both companies had a short spike in stock price post-close and have since been trading below its IPO price.  Did most institutions cash out at the spike leaving the crumbs for the average investor that has lost money?

Articles on Steve Schwarzman estimated his net worth at $10 billion before the IPO.  The IPO nearly doubled his net worth.  

Stay tuned – how the Blackstone partners cashed out $3.7 billion in its IPO and avoided paying taxes on it.