Will PE Take Itself Private?

Will private equity firms themselves opt to go private in coming months? Steven M. Davidoff, a University of Connecticut law professor and former corporate attorney who writes the New York Times "The Deal Professor" column, thinks so.

Fortress Investment Group's initial public offering early in 2007 set off a rush of IPO filings among alternative investment companies - both hedge funds and PE firms. From the start, the idea of a publicly traded private equity firm struck some observers as anomalous. But Blackstone Group's IPO later that year gave the movement a stamp of legitimacy -which, alas, proved short-lived.

In retrospect, the rush by hedge fund and PE fund moguls to take their companies public during 2007 looks like a classic sell signal for that segment of the investing business.

Now, are those same moguls likely to buy back their own firms' battered public shares soon? The question has implications for the way compensation is paid to portfolio managers and other PE professionals.

It's a plausible scenario, given that Blackstone Group's share price is 81 percent below its initial public offering price and Fortress trades 93 percent below its IPO price. Both firms went public in 2007. But Davidoff's rationale seems to focus less on value than on reputation and the idea that being public makes it harder for a PE firm to go about its business.

"The next few years will be years of rebuilding for private equity as it works through (numerous failed deals) and unwinds inappropriate public capital structures," he writes Wednesday in a column entitled, "A Requiem For Private Equity." "In this regard, I have no doubt that next year will bring the first private equity firm to go private, be it the Blackstone Group, the Fortress Investment Group or some other company. The glare is too much."