This Best Ideas 2019 preview is authored by MOI Global instructor Artem Fokin, Portfolio Manager at Caro-Kann Capital, based in the San Francisco Bay Area.
Artem will speak at Best Ideas 2019, LIVE on January 11 at 12:00 PM ET.
Imagine that you have a time machine that enabled you to return to 1995 where you met a 48-year old Stephen Schwarzman who co-founded Blackstone ten years earlier. Mr. Schwarzman offered you the opportunity to buy shares in Blackstone at 15x LTM earnings. Imagine further that you had your checkbook with you on this imaginary journey, you liked Mr. Schwarzman, and invested money into privately-held Blackstone (i.e., the management company, not the private equity fund).
How well would have you done on this investment? While we do not know for sure because Blackstone was a privately-held enterprise back then, we do have a few useful tidbits of information.
First, in 1998, AIG bought a 7% stake in Blackstone for $150 million. Thus, the implied valuation was $2.14 billion. We do not know what this valuation meant in terms of multiple of earnings or free cash flow but I suspect that it was more than 15x which is the multiple Mr. Schwarzman offered you.
Given that you traveled back to 1995, you would have probably got a lower valuation than AIG got. Let’s call it $1.75 billion.
Second, Blackstone had a market cap of ~$35.9 billion as of December 14, 2018.
That would mean that your investment has returned more than twenty times your money and compounded at ~14% during a 23-year period.
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If you are feeling sad because you do not have a time machine and just missed out on a potentially life-changing meeting with Mr. Schwarzman and a great investment, please do not.
At Best Ideas 2019, I will present a company led by two extraordinary founders, which appears destined to dominate the industry that reminds me of private equity 25 or 30 years ago. The company can compound intrinsic value at a 25%+ rate for many years to come.
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 A.I.G. Will Put $1.35 Billion Into Blackstone. New York Times, July 31, 1998.
 Please note that this exercise is inherently imprecise, and I am ignoring any dilution that has most likely occurred during this 23-year period. While imprecise, the exercise still illustrates the key point well.