Friday, January 4, 2008

Still Greater Fools

"On Wall Street, buyout professionals are seen as the smart money. But their shareholders after buying into the businesses through initial public offerings, are starting to look like the dumb money. ... And hedge funds ... have been losers for the investing public as well. ... The Blackstone Group, the private-equity powerhouse lead by Stephen Schwartzman, has lost a quarter of its value since it went public in June. ... The tightening credit squeeze has sent the buyout industry into a funk and left some hedge funds with steep losses. ... Schwartzman, by contrast, cashed out in June, a few weeks after he said that public markets were 'overrated'. He and his partner Peter Peterson sold while business was still booming. 'These are sophisticated investors, and they certainly know how to time their own exists,' said Adam Zoia, managing partner and founder of Glocap, an executive search firm focusing on the alternative asset industry. ... Wall Street, after all, adheres to the theory that you can always make money selling securities, whether they are overvalued or not, because there will always be someone willing to buy them. ... Or as [John] Fitzgibbon [founder and publisher of] put it: 'What Wall Street is about is smart guys thinking about ways to make money from dumb ones'," Eric Dash at, 20 December.

I saw Blackstone's IPO as an ominous sign for the private-equity indutry. Like Sam Zell's (SZ) selling Equity Office Properties in January 2007 for $38.3 billion, indicated SZ thought real estate was overvalued. Wall Street has some smart guys. However, they work for themselves.

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