I started a new position in private equity firm Blackstone Group (BX) in the closing minutes yesterday at a price of roughly $6.85 (1.7% stake)

The Blackstone Group L.P., together with its subsidiaries, provides alternative asset management and financial advisory services worldwide. The company operates in four segments: Corporate Private Equity, Real Estate, Marketable Alternative Asset Management, and Financial Advisory.

Blackstone, as the long term chart below shows was quite possibly one of the worst IPO's in history, and much "smart money" piled into the stock (including the sovereign fund of China) on the back of the "magic" of private equity. That was still in the days of Kool Aid - with leverage, lax regulation, and innovation "we can make anything happen". They were called the new Masters of the Universe. Then came reality.

For all its faults, there is some merit to this sector and the management team - if nothing else - knows how to make a buck. And the government is now pledging as a fix to our era of opaque transparency & high leverage - well, a return to opaque transparency and high leverage! Let's do this folks! The stock, after plummeting to below $4 has now rebounded substantially and the new Tim Geithner taxpayer giveaway has lit a rocket fuse the past week and a half as the stock sprung to >$9. Effectively money will be taken out of your pocket and given to these type of firms...

Since no one listens to the peasants complaints in government, all we can try to do is spit in the wind on blogs, write letters to Congress people who could care less, and make some bucks on our own dollars by investing with those who get our largess.... i.e. as our money is given away, try to make some money on the back end by those who will be making super profits using our generosity. It sounds facetious but this was the same reason to invest in oil stocks latter 2007 to summer 2008 - if you were going to get taken to the bank at the pump you might as well hedge that with some gains on stocks that benefited from the rampant speculation. Same thesis here.

I've dropped a lot of individual names on the long side of our portfolio - culling weak charts, and looking for stronger charts like this. We now have one of my favorite set ups - a stock that broke out and now has pulled back (on light volume) to a support area. Nothing is fool proof and certainly this is one volatile stock - but I am willing to make a foray as we have multiple supports at both (a) the 20 day moving average in $6.60 range and (b) the 50 day moving average around $6. Below $6 the chart turns bad again and we have to re-evaluate.

Here are some recent fundamental developments

Reuters: Blackstone Fund written down 35%

Private equity firm Blackstone Group (BX) wrote down the value of its Buyout Fund V by 35 percent for 2008, a source who has seen a letter it sent to investors said on Monday. Blackstone reported a fourth-quarter loss of $827.1 million on Friday and said it wrote down the value of its private equity portfolio by 20 percent for the quarter.
Blackstone V was written down 35 percent, said the source. Fund V has investments including Nielsen Co, Michaels Stores, Biomet, Freescale Semiconductor, Hilton Hotels and Center Parcs, according to a press release issued by Blackstone at the time the fund finished raising money.

Blackstone is raising its sixth buyout fund, which it said on Friday it expects to start investing in late 2009 or early 2010.
Reuters: Blackstone CEO Takes 99% Pay Cut

Blackstone Group LP (NYSE:BX - News) Co-founder and Chief Executive Stephen Schwarzman's pay fell 99 percent in 2008, a year that saw the private-equity firm post a $1.33 billion loss.

... did not receive any cash compensation for 2008 other than a base salary of $350,000.

Co-founder Peter Peterson, a former U.S. secretary of commerce who retired from Blackstone last year, also took a more than 99 percent pay cut and received a base salary of $350,000 for the year, according to a regulatory filing.

A revival in leverage is vital for the New York-based firm to be able to do deals of any significant scale and sell off current investments. (taxpayer funded, Geithner/Bernanke approved)

Fortune: Private Equity Soars on Geithner Plan

Reading between the lines of the government's plan to yank toxic mortgages off bank balance sheets, investors seem to have discerned two words that don't get much respect anymore: private equity.
Since the financial crisis ended their buying frenzy and turned their loans into toxic assets, there's been nary a peep from the buyout crowd. PE shops that went public at the height of the market--including masters of the universe Blackstone Group and Fortress Investment Group - have seen their share prices collapse. Without cheap money, you can't generate giant returns on mediocre companies.

Enter Treasury Secretary Timothy Geithner, who said Monday that the U.S. will match private investments one for one and then lend, or guarantee loans of, another six times that amount to purchase assets from banks that need to unload mortgages and other soured loans. The criteria seem tailored for the leveraged buyout industry.

A nice summary via Investopedia.com

Despite the financial hammering the company took in 2008, investors apparently are prepared to take management at its word regarding the prospects for this year. Chief Operating Officer Tony James declared that adjusted cashflow in 2009 would be more than sufficient to allow the company to reinstate the full annual distribution of $1.20 per share to shareholders. Given the March 3 closing price of $5.69, that amounts to a promised yield in excess of 21%.

As a result of the credit crunch, the private-equity deal pipeline has virtually shut down. One of the leveraged buyout (LBO) masters of the universe, the company only managed to place $9.2 billion into new deals in 2008, compared to the $169 billion it managed to place in 2006 and 2007. According to data compiled by Bloomberg, the total private equity market shrank by 60% last year to $211 billion.

One bright spot continues to be the company's fee-based business. For 2008, Blackstone still managed to earn more than $1.4 billion in management and advisory fees, down just over 5% from the previous year. This side of the business should benefit this year from Blackstone's current advisory role in helping American International Group (NYSE:AIG) dispose of certain assets and possibly effect a restructuring. Experience gained here could well be applied to future government-operated distressed situations.

While further asset writedowns could have a bearing on share value, they wouldn't impact cash flow. If the fee business holds up reasonably well this year, that would generate sufficent cash flow for the company to meet its stated dividend obligation. Moreover, with more than $767 million in cash on hand (net debt) at the end of January, ample funds are still available to meet the roughly $330 million payout requirement.
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Long Blackstone Group in fund and personal account