A booming market in widgets makes most widget company management look good. It turns out to be the same with private equity. The people who run Blackstone (BX) looked like rocket scientists when almost all private equity firms were doing well. Now, with the company’s stock down about 40% from its post-IPO high, Blackstone management looks no better than the management at Ford (F). Both are in struggling industries. Neither is likely to do well soon.
The Wall Street Journal writes that Blackstone put money into Financial Guaranty Insurance Corp which is now in trouble. The paper reports "like other bond insurers that guarantee interest and payment in the event of default, FGIC is under scrutiny by credit-ratings firms over whether it has enough capital to cover potential losses in its portfolio of complex debt securities backed by subprime mortgages."
All of that means that BX may have to come up with $200 million to help out.
Much of the trouble at Blackstone is not going to go away, not over the next two or three years. Tight credit will hurt buy-outs and it will also curtail that ability of BX and rivals to sell or IPO companies which they bought over the last couple of years.
Wall St. needs to get used to Blackstone’s stock at $20 or so. It’s staying there.
Douglas A. McIntyre
Top Gaining Stocks
Top Losing Stocks