Taking Private, Public

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What do you do when your private equity returns are dwindling because you have billions of idle cash sitting around and no deals to invest in? Invest in public equities, of course. Well, "of course," is sort of strong, particularly when your core competency isn't public equity analysis.
Believe it or not, public equity analysis as a preamble to non-control investments in publicly held firms is a much different and more difficult, different endeavor than LBO analysis. Going to the second-string of private equities because your offering memorandum is quite broad and because your traditional 30% returns are being degraded by the amount of cash you've left sitting around doesn't really inspire much confidence. Ask Blackstone, for instance, what they think of their Deutsche Telekom investment, picked up two years ago at $17.27 (a premium to the stock price at the time- which makes it an interesting PIPE deal). Today DT's ADRs are floating around $17.90- and something like 25% of that value is underpinned by the Dollar's sad exchange rate against the Euro. On pure equity analysis, Blackstone would be looking at a 25% loss over two years. Well, unless some genius over there actually figured on the sad prospects for the dollar and planned carefully for a basically break-even investment after two years. Ouch.
I would say I'd be selling my Blackstone shares, if I owned any. I'd say short Blackstone, but, well, it's probably a bit late for that.
Schwarzman, Kravis Cash Pile Grows With Risk of Reduced Returns [Bloomberg]

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