Private Equity: Are Two Finally Making A Downward Trend?
By Ann Sosnowski
In this article
Private equity had its heyday in 2000… and may be approaching similar levels again.
While Blackstone received much media attention for its early IPO, its stock is currently trading under its offer price.
Private equity companies going public does not represent in any way a risky investment that's getting safer… and in my opinion, isn't for conservative investors.
Private Equity: Are Two Finally Making a Downward Trend?
Private equity is exactly what it sounds like: investment monies made available to private companies or investors. Investing in private equity is not a poor man's game: you'll need to start with at least $250,000 to even get a seat at the table.
As I stated on Ken Brown's radio show in Delray, Florida yesterday on WSBR, the rash of recent private equity companies going public could indicate a top in the market as a whole.
Between 1996 and Y2K, more than 22,300 private equity deals were struck, totaling almost $204 billion, half of which occurred in the year 2000 alone.
After the market crash from 2000 to 2002, that dropped the Dow Jones Industrial Average down 35% and the S&P 500 down almost 50%, private equity deals balanced out to their late 1990's number.
Now they're increasing again. From 2003 to 2006, venture capitalist (aka private equity) deals have increased their numbers by 25% to 3,591 and their values have increased by 35% to $26.5 billion.
Private Equity: Blackstone Begins Its Descent
What's more important than the number of deals being struck is the increasing value they have. Compared to the first quarter of 2006, the first quarter of 2007 saw a decrease in deals, but a 16% increase in total investments.
While private equity investment may be far from reaching 2000 levels (although it's hard to gauge, since private equity investments practically doubled from 1999 to 2000 to $104.4 billion), the overwhelming interest in private equity IPOs could be a direct indication of another boom and bust private equity cycle.
As you know from my past articles, Fortress Investment Group (FIG:NYSE), the first private equity company to go public) is down 37% from its February IPO.
And while Blackstone Group (BX:NYSE) had an amazing first-day show on its IPO this past Friday, moving from $31 per share to $38 per share in one session, the stock is trading, only two days later, back below its offer price at $30.95 per share.
Private Equity: Not Good Investments for Conservative Or Moderate Investors
It's customary that IPO stocks start off strong and drop down to the value that the market believes they should be valued at, instead of relying on the value that the underwriters pin on it. But two private equity stocks a trend does make, and in my opinion, could be an early warning sign of a soon-to-be top and fall in venture capitalist investing.
After all, there are only so many companies that will agree to be taken private.
Even though it sounds like a private equity company going public erodes the high-risk factor of investment, remember that the companies these private equity firms hold in their funds are also private, and it's hard to gauge their success overall.
If you have money that you can afford to lose, investing in Blackstone and maybe even FIG on a short-term rise could be profitable. But if you're a conservative investor, and can't incur the risk, stay away from Blackstone and even a possible upcoming IPO from Kohlberg Kravis Roberts.
***
Ann Sosnowski is a small and mid-cap stock analyst for Taipan Financial News. She is the editor of Diligent Investor, a monthly newsletter that balances conservative and moderately risky investments that pertain to current market trends. She is also the editor of Diligent Investor Micro-Cap Hot Sheet, a monthly newsletter that finds the hottest penny and micro-cap stocks on the market.
Did you like this article? Get Market Report everyday! Sign up Free!
Related Articles
Private Equity: IPO Stocks
Private Equity: Blackstone's IPO
Private Equity: Entering the Casino Industry
Related Resources
Private Equity: Blackstone's Third Day of Trading
Private Equity: Blackstone Drops below IPO Price
Private Equity: Total Deals and Amounts by Year