Joseph Baratta took over Blackstone’s (BX) private-equity business in 2012 with roughly $50 billion under management. As of June it held $454 billion — about a third of the firm’s $1.35 trillion and its second-largest business — and now, the Journal’s Miriam Gottfried and AnnaMaria Andriotis report, he’s preparing to leave, likely around year-end, according to people familiar with the matter. The firm’s spokeswoman confirmed he’s leaving. He’s 55, and the road above him is narrow: president Jonathan Gray, 56, is expected to succeed CEO Stephen Schwarzman, 79, who co-founded the firm in 1985.
He isn’t the only one heading out. Earlier this month the paper reported that Nadeem Meghji, global head of real estate, was leaving, a surprise to upper management; Baratta’s exit has been in the works for about six months, driven by an interest in public service, though he has no job lined up and it’s unclear whether he keeps his board seat. He joined in 1998, moved to London in 2001 to build the European business, and had a hand in landmark deals for Medline, Jersey Mike’s and Copeland. The units he oversees — North American and Asian private equity, energy, Tactical Opportunities, growth, life sciences and a $26 billion fund for individual investors — keep their heads, and the firm doesn’t plan to fill his role.
The 33,000-company logjam
The bigger story sits in the last paragraphs. Across the industry, private-equity firms are holding more than 33,000 companies they haven’t sold, many of them bought when borrowing was far cheaper. The paper reports that the pile-up has hurt fundraising and dented carried interest — the performance pay that is the industry’s real paycheck — and that rising rates threaten to prolong it. Friday’s 10-year Treasury closed at 5.17%, its highest since 2007, which isn’t a number that helps anyone refinance a company bought in the era of cheap money. Blackstone stock closed at $118.42 Friday, down 23.17% for the year.
Our read
Why should an individual care about a partner’s exit in Manhattan? Because private equity is being sold to individuals now — that $26 billion fund is aimed at them — and the exit logjam is the thing the brochure doesn’t show. In a public fund, the price is the price. In a private fund, the value is an estimate until a company is actually sold, and 33,000 unsold companies means a lot of estimates aging in place. That’s the investment-risk (IN04) homework before anyone offers you one: how do you value what you hold, how and when do I get my money out, and what do I pay in fees and carry while I wait?
The house holds no private fund — every position in its books has a daily price — and its one new position this weekend, Valero, trades every day like the rest. Its safe money sits in Treasury bills and floating-rate paper, and a three-month bill yields about 4.24% for the privilege of being able to leave on a Tuesday. Giving up liquidity has a price, and this week’s rates say it’s high. If a private fund has been pitched to you, bring the offering document rather than the deck; the gates, the fee schedule and the valuation policy take about fifteen minutes to find, and they’re the whole story.