Blackstone Group stock closed around $35afterits debut on the New York Stock Exchange.
The New York-based buyout shop fluctuated in the first few minutes of trading as investors scrambled to get a piece of the nation's second-largest private equity firm. After pricing at $31 late Thursday, the stock opened up $5.45, or 17.6%, at $36.45.
“I think it’s a good level,” David Joy of Riversource Investments, told CNBC. “I think it’s attractive at these prices. It has not spiked as people feared. I think it’s an attractive offering at these levels in the secondary market.”
An estimated 33.3 million shares exchanged hands in early trading, reflecting heavy demand from institutions and money managers to own a piece of the biggest private-equity firm to tap the public markets.
The offering marks the biggest U.S. IPO in five years, and could open the floodgates for other alternative investment funds to go public. CNBC reported Thursday that rival Kohlberg Kravis Roberts has hired its own bankers to pursue an IPO. Carlyle Group is also mulling a public offering.
“I think (Blackstone) was priced in a very savvy say, particularly in comparison to Fortress which might have been priced without full recognition of how wide the institutional interest is,” Don Putnam, managing partner at Grail Partners told CNBC. “This is a situation where almost everybody has more emotional and economic involvement in where this company is in six months than they do in where it is tonight.”
So far, exuberance about the booming private-equity industry has been able to overshadow mounting criticism about the lavish lifestyles of top executives on Capitol Hill, among labor unions, and in the media.
Terms of the IPO, which were set late Thursday by the 17 major Wall Street banks underwriting the deal, valued Blackstone at $31 a share--giving it about a $33 billion market value. It will go down as the biggest U.S. IPO in five years, easily eclipsing public offerings by Goldman Sachs Group and Lehman Brothers Holdings.
"The odd-lot theory is that this has been so hyped up that everyone wants to get in," said Jay Suskind, head trader at Ryan Beck. "But, it doesn't matter how it will do on the first day. The relevance, obviously, is what does it mean going forward for the hedge fund and private equity industries."
The offering represents the growing power of private equity firms, and the escalating clout of the executives who run them. CNBC reported Thursday that rival Kohlberg Kravis Roberts had hired its own bankers to pursue an initial public offering.
Other private equity players, like Carlyle Group, are also said to be looking at a public offering. Floating shares of these firms enables top executives to cash out, spreads the firm's risk, and also provides a new capital-raising tool to fund more buyouts.
For Blackstone's founders--who launched the private equity firm in 1985 with a $400,000 investment--the IPO means a big payout. Chief Executive Stephen Schwarzman's stake in the company is worth around $7 billion, putting him among the richest of the rich on Wall Street.
The big appeal of the IPO was that it gave investors a chance to participate in the private equity industry, where firms buy companies, turn them around, and seek to sell them at a profit. And investor appetite was strong to buy a part of Blackstone, even though the stake in its management business has little voting power or any direct connection to its portfolio of companies.
It also came amid a growing fight by lawmakers to stop the deal. The New York-based buyout shop acknowledged Thursday it could face much higher taxes as early as next year if it is taxed as a corporation instead of as a partnership, as a new bill in the U.S. House of Representatives proposes to do.
The proposal would effectively bring Blackstone's tax rate to as much as 35 percent, from 15 percent now. That came on top of a previous warning from Blackstone that compensation and other costs related to going public would cause it to not be profitable for years.