Blackstone Read The Fine Print

The Blackstone Group (BX) group reported their Q3 financial results. The entity is clearly a financial engineer’s delight. If you are looking to invest in something that is straight forward keep looking this is not it. They are riding a bucking bronco and keep insisting that they are well positioned to not only survive but to thrive in these current uncertain times. OK that’s what you would expect them to say. But who gets the profits. Just read some of the boilerplate. I doubt if you will understand it. But it goes as disclosure. If you do not understand it do not trust it. If you do not trust it then why should you invest.

Have a read.

“A significant amount of equity interests held by senior managing directors and other employees prior to the initial public offering (“IPO”) are subject to future vesting, minimum retained ownership interests and transfer restrictions. As a result of the future vesting, Blackstone has and will continue to show significant charges associated with these equity interests over their respective service periods. These, as well as certain other transactional charges, associated with the 2007 reorganization, the IPO and subsequent corporate actions including acquisitions, are likely to result in GAAP net losses for the next five years depending upon applicable service periods or useful lives.”

That was the clearest one. The next one is clear as mud.

“As Blackstone has previously reported, until December 31, 2009 Blackstone personnel and others who hold Blackstone Holdings partnership units (and who own approximately 75% of all outstanding units, with common unitholders holding the remaining 25%) will not receive distributions (other than tax distributions in circumstances specified in Blackstone’s 2007 Annual Report on Form 10-K) for a given calendar year until common unitholders receive aggregate distributions of $1.20 per common unit for such year. The specific amount of this priority allocation of distributions to common unitholders prior to December 31, 2009 is governed by the amount of Blackstone’s Adjusted Cash Flow from Operations available for distributions, as determined in the manner specified in the 2007 10-K Annual Report.”

So basically what you do is make the numbers as bad as possible now, because the boys will not get anything significant right now anyway. You write off assets and blacken results to the n th degree. You then also say that the Q4 distribution may be in jeopardy. When you have this much financial engineering you have to start wondering on what side of the bread will the butter go on.