Blackstone Group LP units tumbled more than 6 percent in Tuesday morning trade, falling below the $31 price the private equity giant fetched in its initial public offering last week.
Analysts said the decline was partly due to investor worry that the private equity market may have run out of steam.
The units traded as low as $30.36, down 6.4 percent, after losing nearly 8 percent on Monday. They jumped 13 percent in their market debut on Friday.
Some observers cited concerns about Blackstone's lofty valuation and a bill in Congress that would raise the tax rate on the profits of publicly traded private equity firms to 35 percent from the current 15 percent.
That's a little contagion there. There's some people who think the top of the private equity binge was marked when Blackstone became public, said Elliot Spar, market strategist with Ryan Beck & Co. in New York.
It's possible that (investors) are also worried about the possibility that the deal activity may dry up with the increase in interest rates, said Robert Willens, an accounting and tax analyst at Lehman Brothers in New York.
Another fear may be that Washington will look for new ways to tap private equity and hedge fund riches, beyond the threat of hiking the tax rate.
Shares of New York-based hedge fund Fortress Investment Group LLC also declined on Tuesday, hitting an all-time low of $21.90. The shares have been moving lower since June 15, when the threat of higher taxes first surfaced in Washington.
Fortress went public in February at $18.50 a share and closed at $31 on its first day of trading.
There's sort of an unspecified fear that Congress is going to do more to impede (hedge fund and private equity firms) ... that somehow they've got the deal activity in their sights or that they could do something that is far more comprehensive. I'm getting a lot of panicky calls about that, said Willens.
Francis Gaskins, president of IPO research firm IPOdesktop.com, said a shortage of big deals in the United States, compounded by more and more private equity money chasing fewer and fewer deals, has led to a move by management to cash out. They want to get liquid, he said.
Blackstone Chief Executive Stephen Schwarzman's personal stake in the firm he co-founded rose by $1 billion to $8.75 billion on Friday, based on the units' closing price of $35.06.
At $30.36 per unit, Schwarzman's stake would be worth $7.58 billion, down more than $1 billion from Friday.
Blackstone trades units, instead of shares, because the firm took part of its private partnership public, a difference from a standard IPO.
(Additional reporting by Ellis Mnyandu and Emily Chasan)