Blackstone will ditch partnership structure to draw more investors

[NEW YORK] The Blackstone Group said on Thursday that it planned to convert itself into a standard corporation, becoming the latest investment firm to abandon its partnership structure in an effort to bolster its stock price.

The investment giant said it was converting into a C corporation to expand ownership of its stock, opening up the possibility that it could be included in big mutual funds and stock indexes.

"We believe the decision to convert will make it significantly easier for both domestic and international investors to own our stock and should drive greater value for all of our shareholders over time," Stephen Schwarzman, Blackstone's co-founder and chief executive, said in a statement.

With the conversion, which would become effective on July 1, Blackstone follows in the footsteps of rivals like KKR and Ares. Converting into a C corporation has gained favour among these firms since the tax code changed in 2017 and lowered the corporate tax rate to 21 per cent from 35 per cent.

Those firms went public as publicly traded partnerships, which are allowed to pass income directly to their owners, who are taxed at individual tax rates.

That clever exercise in tax limitation also bore a significant disadvantage: Partnerships do not qualify for inclusion in major stock indexes and mutual funds, meaning that trading in their stock was limited, and further hindered by the additional tax paperwork stockholders were required to file. That weighed down on these firms' stock prices, leading to complaints that the public markets undervalued their businesses.

Blackstone executives decided the hassle of converting into a C corporation and dealing with additional taxes was worth the benefits of shedding the partnership structure.

So far, however, such a conversion has not proved to be a surefire way of raising a firm's stock price. KKR's stock initially surged after that firm became a C corporation, but has since settled down to roughly where it traded before the conversion.

Blackstone also released its first-quarter results Thursday, reporting earnings of US$481.3 million, up 31 per cent from the same period last year. Its shares were up more than 8 per cent Thursday.

NYTIMES