Cheap Opportunities in Private-Equity Firm Stocks

Take advantage of the market's pessimism about the industry, and buy into buyouts.

My portfolio has taken a surprising turn of late. I am now actively rooting for Stephen Schwarzman, chief executive of the Blackstone Group (symbol BX), whose living room features an enormous portrait of, well, Stephen Schwarzman. He should grow even wealthier and bask in even more self-love now that I have invested in his company. And I am hoping that Henry Kravis and George Roberts, the original 20th-century barbarians at the gate, will now live long and prosper because my fund also owns shares of their firm, KKR & Co (KKR).

Blackstone and KKR are the two leading publicly traded private-equity firms. They engage in what used to be called leveraged buyouts. In an LBO, a buyer uses some equity and more debt to acquire a company, with the idea of selling it for a big profit later. After some LBO shops became known for their slash-and-burn approach to cost-cutting, the industry adopted the more dignified private-equity moniker. Classic LBOs account for 26% of Blackstone's business. The company also invests heavily in real estate and various kinds of debt, and it has a thriving fund-of-funds hedge-fund business. KKR focuses on LBOs, although it puts 25% of its assets in real estate.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

To continue reading this article
please register for free

This is different from signing in to your print subscription

Why am I seeing this? Find out more here

Andrew Feinberg
Contributing Columnist, Kiplinger's Personal Finance
Feinberg manages a New York City-based hedge fund called CJA Partners.