Tuesday, May 22, 2007

China and Blackstone, what else

What does it mean? Well... not a lot, actually. First, from Blackstone's perspective:

- Helps them win deals in China? No I don't think so. I believe that Schwartzman has been (like so many before him) duped into thinking that cutting a deal with the Chinese means that they are now his buddies and he will be able to get all sorts of sweetheart deals from them. Wrong. He will have to stand in line along with KKR and TPG and Carlyle (and CITIC and CDH for that matter). The vast bureaucratic and regulatory animal that is China will continue to frustrate the big bad Americans. And aside from all the execution hurdles, I don't think Beijing has the slightest intention of favoring Blackstone in handing choice deals to acquire the best SOEs. Sorry Steve...

- Hurts Blackstone in the US? Sure. They are already public enemy number one. How does this headline read, "Blackstone, the Chinese government funded LBO firm, acquires American Chemical Company, promises no layoffs but says some plants will be relocated to China". Ouch. Ah Steve, those congressional hearings about taxing GP carry as income? Consider it done.

Now from the Chinese perspective: Though at first this feels new and amazing, in reality it shouldn't be surprising at all. Beijing is just doing what Singapore, Malaysia and Abu Dhabi have all done before. Investing excess foreign exchange reserves in foreign equities. The GIC has been investing in public and private equities (including Blackstone funds btw) for decades. The only noteworthy thing I can think of about this deal is that it is SMART on the part of Beijing to buy Blackstone Inc instead of invest in a Blackstone fund. As a shareholder they will be collecting a piece of all those fees paid by Blackstone fund LPs. Plus getting a piece of the fees from all the Blackstone hedge fund of funds and other investment activities. Who needs another LBO fund? Better to invest in the fees. Smart. The last thing to note - which isn't news to me but might be to some - is that the Blackstone deal shows (once again) Beijing is fully committed to free markets, capital markets, globalization, free capital flows, etc., etc. Why? Because it's in their own interests to participate in and support this system.

So... no news here!

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