Business Blog: Hoover’s Business Insight Zone

The Epicurean Dealmaker offers this (mildly-PG13) take on the declining share price of Blackstone in the months since its hyperventilative IPO:

Unlike the typical public company CEO, PE guys are almost completely uninvested, emotionally and intellectually, in their companies’ stock prices. In fact, many of them take an almost perverse pleasure in top-ticking the market when they take a portfolio company public. [...]

But in the case of Blackstone itself, the inside shareholders are subject to a completely different—and, for most of them, a completely unfamiliar—dynamic. They are shareholders, and large, locked-up, unvested shareholders at that, completely at the mercy of the Great Unwashed Investing Public they have been used to making such liberal fun of in their investment committee meetings over the past several years. If they buy the Private Equity Council party line—which virtually all of them do—they believe wholeheartedly that private equity is an investment method which produces long-term value appreciation, almost regardless of fluctuations in the public equity and fixed income markets. But now they can see a real-time, tick-by-tick appraisal of the value of their own business by Mr. Market every trading day, which translates into a real-time update on each Blackstone professional’s personal net worth.

This is just another example of the ways in which personal biases — in this case, the biases of the private equity folks — enter so heavily into what are theoretically — but only theoretically — purely rational economic decisions.