Blackstone Group LP priced its initial public offering at the top end of the range on Thursday, even as lawmakers pushed for its delay, raising $4.13 billion in the largest U.S. IPO since 2002.

The pricing, closely watched by regulators and financial markets worldwide, proved demand for the offering was heavy despite pressure from Congress.

Blackstone's planned opening on the New York Stock Exchange on Friday is a watershed event for the booming private equity industry as it is the first major U.S. buyout firm to take part of itself public. Blackstone will trade under the symbol BX.

The $31-per-unit IPO values Blackstone at $33.48 billion, or roughly a third of Goldman Sachs Group Inc.'s market value, and three-quarters the size of Lehman Brothers.

A separate deal to sell an almost-10 percent stake to China will add some $3 billion to the $4.13 billion in IPO proceeds.

IPO underwriters, led by Morgan Stanley and Citigroup, have the option to buy 20 million more units, on top of the 133.3 million being sold, to cover overallotments. If exercised, that would add another $620 million to Blackstone's coffers.

Blackstone co-founders Stephen Schwarzman, 60, and Peter Peterson, 81, will earn a huge windfall from the IPO, pocketing more than $2.4 billion between them. Schwarzman's 23 percent stake in the company is worth $7.74 billion alone.

The public float will also shower hundreds of millions of dollars onto the firm's senior members.

The firm will use most of the proceeds to pay out to employees, with roughly $1 billion going to pay for borrowing costs and strategic acquisitions, according to its prospectus.

Schwarzman and Peterson founded Blackstone with $400,000 in 1985 after leaving top posts at Lehman. It started as mainly an M&A advisory boutique, and grew into a private equity giant.

In addition to its advisory, private equity, and real estate group, the firm has six other investment funds with more than $88 billion under management.

As one can see by the trajectory increase of assets under management, their compound annual growth is simply phenomenal, said Scott Sweet, managing director for research firm


A last-minute plea from California Democrat Henry Waxman to delay the IPO was rejected by U.S. regulators on Thursday.

The chairman of the House Committee on Oversight and Government Reform was among the politicians taking aim at the offering. While lawmakers have been mulling whether to alter the favorable tax treatment private equity firms receive, they seized on the Blackstone IPO shortly after Schwarzman's riches and lavish lifestyle attracted media scrutiny.

Waxman's attempt came a day after Max Baucus, co-author of a U.S. Senate bill that would raise taxes on private equity firms going public, said he was open to shortening a transition period that cushions any potential tax hit on Blackstone.

The bill would require publicly traded partnerships deriving income from investment adviser and asset management services to pay the federal corporation tax rate of up to 35 percent instead of the 15 percent rate their partners now pay.

Blackstone would only be hit by the proposed tax code change, if it became law, after five years, under a transition period written into the bill.


Blackstone makes the bulk of its money through private equity investing, or buying companies with mostly borrowed money and then selling them after a few years of retooling.

Frothy debt markets, a steady economy and investor appetite have created a highly favorable climate for private equity. In the first six months of 2007, buyout firms did more than $400 billion worth of deals, triple that of the year-ago period.

In its March prospectus, Blackstone reported 2006 net income of $2.27 billion.

Blackstone has taken part in some of the largest leveraged buyouts ever, including the purchase of Chicago-based Equity Office Properties Trust for $23 billion and the $17.6 billion buyout of Freescale Semiconductor. Blackstone also owns Michaels Stores and Pinnacle Foods, maker of Duncan Hines and Vlasic pickles brands.

Francis Gaskins, president of IPO research firm, said the offering bolsters Blackstone's position for leveraged buyouts. They definitely have the currency now. And its agreement with the Chinese government could develop into a further revenue pipeline, he added.

China's holding of U.S. government debt was $414.0 billion in April, according to U.S. Treasury Department data. Some investors may hope a slice of those Treasury investments will be diverted to Blackstone investment managers, Gaskins added.

Investor interest in the offering appeared to come mainly from hedge funds and from abroad, with several mutual fund investors saying they are going to wait out the rush.

Hedge funds typically buy and sell securities in quick fashion, making both long and short bets, while mutual funds take longer-term positions.

The last several years, they have experienced unprecedented liquidity in their markets and we are not convinced that is sustainable, said Benjamin Ram, a portfolio manager at mutual fund RS Investments.

Ram said another reason for not participating was that he did not expect to get the number of shares he wanted due to the demand.

Investors may be hoping for a repeat of an earlier 2007 IPO. Shares of Fortress Investment Group LLC, the first U.S.-listed private equity and hedge fund, rose 68 percent in its February debut. Shares of Fortress are trading roughly 40 percent higher than its $18.50 offering price.

The real question is how far is everyone, internationally, willing to go to stretch that elastic band and buy this stock in the after market, said David Menlow, an IPO analyst at I think it's going to be a hard lesson for a lot of people who insist on doing that.

(Additional reporting by Muralikumar Anantharaman and Svea Herbst-Bayliss in Boston, Kevin Drawbaugh and Rachel Younglai in Washington, and Dan Wilchins in New York)