Blackstone pioneers an alternative to going public and yet avoiding an SEC crackdown

Blackstone Group insisted in a recent Wall Street Journal article that private equity will indeed remain private for the foreseeable future. What gives them so much confidence? In my previous blog, I described how going public might preempt SEC regulation of this industry. Blackstone, however, is already paving its own way toward preemption – creating new accounting standards for the illiquid assets they carry on their books.

Private equity firms, as I’ve written about, are struggling with the issue of how best to value the assets in their portfolios – the physical assets of companies like plants, as well as intangibles like patents and goodwill.

Some fund managers have gotten together with representatives of the accounting industry to set new standards for updating the value of these assets on a periodic basis. This would give investors a clearer idea of how wisely their money was invested, while making it easier for accountants to verify a fund’s books.

Blackstone has played a key role in developing these new valuation standards, a move which shows how wise the firm’s managers really are. Developing and implementing these new standards may ward off SEC regulation, and allow private equity to navigate a path between the lesser of two evils – succumbing to new SEC constraints, or going public and facing the exchanges’ listing constraints.