Blackstone details float as China takes $3bn stake

Blackstone, the world's most powerful private equity firm, will raise $7.75bn (£3.93bn) from outside investors as part of its groundbreaking stock market flotation.

The company has been setting out the financial details of its highly anticipated initial public offering (IPO), including a $3bn investment from the Chinese government that Blackstone hopes will be the first chapter in a lucrative relationship.

In a filing with US regulators yesterday, Blackstone said that - on top of the Chinese investment - it would sell up to 153.3 million "partnership units" at a price between $29 and $31 apiece. It is not selling traditional shares because it is maintaining a traditional partnership structure, which reduces the level of corporate governance controls that have to be put in place.

At the top end of the range, the valuation of the business could be $33.6bn - slightly less than some of the most bullish estimates when the plans were first announced earlier this year, and at a valuation relative to earnings that is less than the hedge fund business Fortress fetched. The success of the Fortress IPO in February and its 50 per cent share price surge since then, encouraged other "alternative investment" firms to consider braving the stock market, of which Blackstone is the first to float. A date for the Blackstone IPO is still to be finalised, but could come within weeks.

Blackstone's partners are set to cash in a total of $4.5bn as part of the sale, although they will continue to dominate the company.

Stephen Schwarzman - who set up Blackstone in 1985 with his former boss at Lehman Brothers, Peter Peterson - said the deal with China was signed over the weekend, three weeks after Beijing suggested it. He said: "We did not propose that they buy a large share in our IPO; it was their idea. I doubt that there is any government in the world that could have done it more efficiently or more professionally."

China is setting up an agency to invest government reserves overseas, diversifying from the current reliance on US government bonds, which have lower yields than investments such as private equity. The Blackstone shares handed to the Chinese will be stripped of their voting power, to avoid political backlash in the US.

Yesterday's revised prospectus showed how Blackstone is an increasingly powerful manager of hedge funds. When the IPO was first announced in March, it managed private equity, hedge fund and property assets of $78.7bn, up from $69.5bn at the start of the year. That figure has now grown to $88.4bn, it was revealed. Growth in the hedge fund business accounted for most of the increase.