The private equity boom is not over for Blackstone

Yes, Blackstone's (BX) owners have sold approximately 20% of their stake (including 10% to China). However, even if it's your view that they want to cash out, they still need to cash out their much more substantial holdings in the future. Assuming it is not their intention to sell at much lower prices than current levels they will need growth in revenue and earnings, and preferably growth in expectations of future revenue and earnings. Another way of saying this is if you think Schwarzman et al understand the credit and business cycles, they would not have gone public at a point in these cycles that would not afford them time to unload.

Additionally since many expect that borrowing costs will continue trending upward (myself included), perhaps with a slight drop toward Autumn, Blackstone is doing well by attaining capital at an earnings yield of 4.39%. I arrived at this figure by taking the midpoint number between the 2006 trailing price-to-earnings ratio (at Wednesday's closing price of 30.75) of 28 and the estimated 2008 forward P/E ratio of 17.6, which is 22.8. A P/E of 22.8 is an earnings yield of 4.39%. Blackstone is selling itself at a high price/low earnings yield but will use the money to buy a firm with a higher (potential) earnings yield. This is essentially an arbitrage that will reward all shareholders.

Of course a big risk to Blackstone, Fortress (FIG) and other private-equity groups looking to go public is possible legislation that would tax them at 35% and not 15%. I don't know what the decision will be, but I think there is a strong possibility that congress will not want to cut the legs off one of America's vanguards in rationalizing markets, reforming corporations and soon to be gaining access to overseas markets. Still, this risk means one shouldn't bet anything other than speculative money on Blackstone at these prices.

Another concern is that there is too much buyout money chasing too few companies. This may eventually be the case, but future growth in mergers and acquisitions in Asia with China's government on board the Blackstone train gives Blackstone an edge over others.

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Regarding the proposed tax increases: It seems to me that a fair compromise would be taxing now public firms like Blackstone 35% on investments made with public offering money and 15% for the traditional private money. Of course fairness doesn't play into legislation and the matter will be determined mostly based on what effect the current or future tax policy will have on markets.