Blackstone stock will join the S&P 500 on September 18th. It will join an index that receives huge amounts of automatic investment money. Famed investor Bill Fleckenstein refers to automated index investing as "The Robot."
Blackstone is the first private equity underwriter to join the index, although KKR and Apollo could soon follow.
Meanwhile, Blackstone's REIT gated withdrawals for nine straight months. In June investors asked to redeem $3.8 billion while BREIT returned only $628 million. Reuters reported:
Blackstone has been exercising its right to block investor withdrawals from BREIT since November after requests exceeded a preset 5% of the NAV of the fund.
July saw Blackstone return $1.3 billion of $3.7 billion requested. Excess demand remains from investors to get their money out of BREIT.
In two weeks Blackstone will see demand increase for its stock simply from S&P index inclusion. These guys have all the luck!
A Harvard law and economics professor is concerned about private equity and its concentration of political and economic power.
"Private equity funds, such as Apollo, Blackstone, Carlyle, KKR, are doing as much, if not more, than index funds to erode the legitimacy and accountability of American capitalism, not by controlling public companies, but by taking them over entirely and removing them from the SEC disclosure regime..."
"....private equity as a mechanism for ownership has been increasing its share of the economy at a 15% plus compound annual growth rate for 30 years. That's through ups and downs. Right now, they're probably facing some headwinds in their core buyout business from rising interest rates. I don't think buyouts are necessarily going to keep going up every single year, but they're moving into credit markets. They're adapting in ways that allow them to continue to grow through ups and down cycles in the macroeconomy. Okay, that's the first point. As I said earlier, currently 15%, 20% of the overall corporate sector, one in seven or eight of all workers in the US, whether they know it or not, work for a private equity firm. That's also continuing to go up. By design, they do not have to report anything to the public or even really to their own investors as a result of regulation. They're designed to not trigger SEC disclosure. They also lobbied very effectively in the '90s to get the laws changed in ways that make it easier for them to not trigger disclosure."
In addition to luck, the PEU boys have the skills of political insider-ship. That's how they became giants, owning professional sports teams while continuing to pay preferred "carried interest" taxation.
If you believe someone is protecting the small investor, much less the unwary PEU employee, think again. Doomberg notes major games are being played with valuations and conflicted insider deals. The greed and leverage boys play the same dirty games. Regulators are AWOL as are the major business media.
Blackstone and its PEU peers want other things to happen automatically, via artificial intelligence. S&P Global Market Intelligence reported:
The Carlyle Group Inc. and Blackstone Inc., which have discussed the deployment of AI internally and at portfolio companies on recent earnings calls. Blackstone employs a 50-plus member data science team and is "rapidly and significantly expanding" its AI capabilities, CEO Stephen Schwarzman said on the firm's second-quarter earnings call.
"We believe that the new generation of AI has the potential to transform companies and industries. And the timeliness and effectiveness of its implementation will be determinative of who the winners and losers will be," Schwarzman said.
In the article an AI consultant asked several PEU questions.
Do I own any companies that are going to have their value significantly impacted by generative AI?
Question number two shortly behind that is: Do I have any companies that need to move quickly to take advantage of an opportunity to become much more valuable because of generative AI?
A third priority, especially for software-focused funds, is identifying those sectors or subsectors at the greatest risk of disruption by AI and incorporating that knowledge into the due diligence process for new investments
AI is not without concern in PEUville.
....touches on a serious concern for private equity and possibly the greatest impediment to more widespread adoption of the technology: that allowing the software to access private equity firms' proprietary data could erode the firewall they use to keep that data away from competitors.
One fear of allowing AI into PEU information systems is their bogus valuation methods will be discovered and exposed.
What can go wrong with all this? Workers and PEU investors, gird yourself.
Addendum: I have to thank my wise friend who sends me stories with his "spot on" thoughts. This post would not exist without that.
Update 10-9-23: The PEU boys are adept at keeping regulation at bay. This could bode poorly for citizens seeking basic safeguards, i.e. regulatory constraints on AI.
Update 1-24-24: Carlyle's new HR Chief wants to do at least two things, put AI to work in HR and give performance feedback to staff more frequently.
