June 22, 2007 (LPAC)--The Blackstone Partners public stock offering on Wall Street, occurring today in the midst of a collapse of large Bear Stearns hedge funds and mortgage-backed securities, has drawn a sharp Congressional reaction. House Government Oversight Committee chairman Henry Waxman (D-Calif.) and subcommittee chairman Dennis Kucinich (D-Oh.) issued a June 21 notice that Kucinich's Domestic Policy subcommittee would hold hearings on the risk of small investors losing big, if Blackstone and other private equity and hedge funds sell common stock on Wall Street.
"The value of public investors' interests in Blackstone LP would be tied to the performance of the underlying hedge and private equity funds, which have not been considered suitable investments for the general public because of their high risks and speculative nature," the Congressmen wrote to SEC Chairman Christopher Cox. Only on June 20, Cox and the SEC went on alert against a "systemic event" spreading from the collapse of the multi-billion-dollar Bear Stearns hedge funds.
The hearings Kucinich will hold could reveal crucial aspects of the financial disintegration now spreading outwards from the U.S. mortgage-market meltdown, threatening a financial crash. As this occurs, Blackstone's partners are cashing out by letting small investors cash in--led by founding partner Peter Peterson, who's realizing more than $1.5 billion from the IPO, and co-founder Steven Schwarzman, who's cashing out nearly $700 million. Blackstone is raising about $4.5 billion from sale of common stock, plus a $3 billion investment from the central bank of China.
There is also a grave pension-crisis threat for Congress to bring to light. Public and private employees' pension funds are now being poured into hedge funds and private equity funds, as wealthy individuals cash out. According to a Greenwich Associates study, money from pension funds and endowments have zoomed up to 25% of all assets of the world's largest hedge funds. And they are 35-40% of the new investments coming in. But as pension funds have thrown far more in, the total flow of investments into hedge funds, according to Hedge Fund Research, Inc., have fallen sharply: from $40 billion per quarter from January-September 2006, down to $12 billion in the fourth quarter, and $20.7 billion in the first quarter of 2007. This shows the process of the wealthiest investors, and partners, of the hedge funds cashing out; what the Blackstone partners are achieving by the related tactic of an IPO to common stock investors.