Blackstone plans to convert to a corporation from a publicly traded partnership, a step that opens up the stock for inclusion in indexes, after watching two rivals benefit from the move. The shares jumped in early trading.
Changing the company’s structure will increase the firm’s “ability to reach a dramatically larger audience,” said CEO Stephen Schwarzman. “We’d handicapped ourselves by our corporate form,” he said, adding, “We’ll make this easier for retail investors.”
Private equity firms including Blackstone, the world’s largest alternative asset manager, have seen their stock prices lag since going public even as investors have poured money into their buyout, credit, real estate and other funds.
Blackstone has epitomized the industry’s fundraising muscle. The New York-based company also reported Thursday that its assets under management crossed half a trillion, to $512 billion, for the first time.
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The private equity firm’s credit arm grew significantly with the addition of a new insurance platform and an energy investment management unit.
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The firm is set to formally begin raising a new fund dedicated to this practice imminently, according to people familiar with the matter.
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Part of the risk in any pivot to private equity is whether it would be essentially pawning what has been until recently a diamond of a business model.
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KKR and Ares Management announced conversion plans last year following the passage of a U.S. tax law, which cut the corporate rate to 21% from 35%. The switch makes it possible for these firms to be included in indexes, which could potentially boost stock valuations and win more mutual fund and ETF investors. It also eliminates the need for investors to file cumbersome K-1 tax forms.
KKR’s stock initially outperformed its biggest rivals after its May 2018 announcement that it was converting to a C-corp. Shares of Blackstone popped toward the end of last year and have beat KKR since revealing its conversion plans through Wednesday.
Blackstone’s stock price has risen about 21% this year. The shares jumped about 7% in early trading Thursday.
Still, inclusion in indexes isn’t guaranteed because there is some subjectivity in the decision, said Gerald O’Hara, an analyst at Jefferies. “You can check all the boxes, but still not get included,” he said.
Blackstone said it expects the conversion to be effective as of July 1.
