The Blackstone Groups IPO Harvard Case Solution & Analysis

Question No. 2: If you were an LP in Blackstone, how would you view the structure Blackstone has put in place to go public?


Following seems to be some advantages and disadvantages that the company and the investor will faceafter the IPO:

The company will enjoy the access to the capital markets, as an additional source of funds, although Blackstone can use its own stock. That will change the compensation structure and will deliver more incentives to the management and assistthe professionals to continue their jobs. Another benefit of adopting MLP company structure that it will allow the company to establish a governance structure that will not be too different from the prevailing structure. If it was a limited partner of the company, it would be suggested that the companyshould go against this idea of going public because if the company will ever come under the market pressure then it will affect the fees, supporting the return negatively, most importantly in the case of guaranteed dividends.Due to the increase in pressure from the compliance requirements, the company might increase fees.If we talk about the market pressure and market expectations, these are yet different forces that will lead the company to use different risk management approaches.

Question No. 3: Would you rather be a unit holder in Blackstone or an LP?


In the case, we have seen an opinion that one should not just invest and buy shares i.e. retention of risk and exposure without any extra fees. But on the other hand,shareholders should have certain concerns, because the investors invest in the company on the basis of past performance of the company but that cannot provide assurance about the future performance. If we have to opt from being a unit holder or an LP, then we would rather prefer to be an LP of the company. As an LP we would only be concerned about the performance of the fund we invest in and in return stay save from the risk ofdeteriorationin the performance of other segments. Meanwhile, being an LP, we would be saved from the potential external factors that also affects negatively on the market price of the shares.

Question No. 4: As a potential employee, how you evaluate the Blackstone compensation package against a commensurate offer from a similar large-scale private equity firm that was not public?


In the case, if we were a potential employee, we wouldnot favor for the option that will link us to the firm for a long term period. In case of the partnership, we would like to have a structure of our remuneration based on the salary packages and a carried interest with a shorter time horizon. We believe that the vesting period is too longto carry on than to receive our share, as longer time horizon will link us for longer period to the firm, as we want to be mobile and switch our jobs in case better opportunity comes up, without losing any potentialincrease in remuneration...................................

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