Get rid of the middleman Speaking earlier in the week, Blackstone President Hamilton James signaled that his private equity behemoth plans to push banks aside. Instead, it will deal directly with other parties known for their deep pockets: hedge funds, mutual funds, and pension funds with mountains of money and a hunger for predictable returns. This strategy lets Blackstone work with the same investors who were likely buying banks' offerings of private equity debt in previous years. Such funding could cut the borrowing costs for private equity players, who previously coughed up big fees to the banks that orchestrated their loans. In the past two years, Blackstone alone has shelled out more than $1.3 billion in fees to banks. While some of that went toward advisory fees, a good portion came from underwriting loans. If Blackstone can find its own sources of capital, a significant amount of the money it once happily paid to Wall Street banks will stay put in its own coffers. That news has made investors smile, sending shares up nearly 10% since last Friday. Leveraging a new road? Even if debt markets settle down, and banks open their lending arms again, Blackstone seems content with its new source of financing. It gains greater bargaining power, and it's now better able to compete with other private equity firms for lower borrowing costs. When dozens of private equity firms deal with similar banks, the odds of obtaining significantly cheaper financing than their rivals are far slimmer than when they meet face-to-face with interested investors. As Blackstone's James described, "We'll stay with [tapping investors directly] because it allows us to find pockets of capital that may not be generally available.'' He adding, "When there's a staple from a big bank and they're syndicating it, the problem with that is all buyers get the same financing.'' Such words provide yet another thorn for banks already dealing with big writedowns. Citigroup took in $856 million in fees from private equity firms in 2007. JPMorgan pulled down $412 million, and Bank of America brought in $607 million in fees last year, all from providing services to private equity firms. If other private equity players follow Blackstone and start arranging their own financing, banks may watch a former star division fade away. Both private equity and banks had an incredible run over the past decade. Now the market is purging that excess, and weaker players are struggling to survive. Those who once collaborated are fending for themselves, turning a once-bubbly ecosystem into a feast-or-famine environment. Many industry players await the day when banks clear up the ugly loans plaguing their balance sheets. But even when that happens, the future may look quite different than the past. The Blackstone Group The Blackstone Group is a leading global alternative asset manager and provider of financial advisory services. Its alternative asset management businesses include the management of corporate private equity funds, real estate opportunity funds, funds of hedge funds, mezzanine funds, senior debt funds, proprietary hedge funds and closed-end mutual funds. The Blackstone Group also provides various financial advisory services, including mergers and acquisitions advisory, restructuring and reorganization advisory and fund placement service. Further information is available at www.blackstone.com.

I love mine, Speculative

I'd like to sell, just now sure when to sell.

Growth and Solvency

Growth and Solvency

Outlook

Growth

Growth & acquisitions