.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 10px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 10px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 10px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} Dear Mr. Berko:

Dear W.N.:

I think your broker may have a few loose micro-singularities blocking various nerve synapses in his parietal lobe.

Private equity firms theoretically purchase undervalued companies, reduce expenses, change management, scoop out a huge dollop of cash for themselves by highly leveraging the balance sheet, sell the stock of the newly positioned company at a higher price, and then take a second big stash of cash.

I’m somewhat perplexed by this. Private equity firms extol the virtues of taking a public firm private. Now in a surprising twist that seems rather contradictory, these private equity firms are in a rush to go public, probably because many of them sense their market has topped out. Interesting, that!

Frankly, I wouldn’t touch the shares of Fortress Investment Group LLC (FIG-$19.12) or the shares of the Blackstone Group (BX-$24.48) because I believe management is fueled by rapturous and insatiable greed. I wouldn’t own their shares because I don’t trust the people who manage FIG and BX to give shareholders a fair shake.

These guys are accustomed to running the show like an emperor with absolute power and immediate obedience. Today’s private equity managers wallow in ego, require extravagantly obscene perks fit for a pasha and won’t give them up because outside board members (a lower life form) demand accountability.

Do you really think that Steve Schwarzman (chief executive officer of Blackstone), who personally pocketed more than $7 billion, gives a fig or ficus about the welfare of his firm’s stockholders? Do you believe for even a moment that megabillionaire Schwarzman and Blackstone can integrate their takeover tactics with the niceties of a public company in the Sarbanes-Oxley era?

I’m concerned that when there’s a decision to be made in which management’s interests don’t conform to those of shareholders, management will prevail. What will be the size of personal bonuses? How much net income should be paid in dividends rather than to the partners? How much can management spend on salaries, rent, limousines, private jets, airfare, lunches, gifts, travel, entertainment, art, executive furniture and office decoration, etc., ad nauseam?

The buyout boom has become a frenzy, and private equity funds are coming under pressure. Congress is bashing the huge paychecks of executives from Kohlberg Kravis Roberts & Co., Blackstone, Apollo Management LP, Texas Pacific Group and the Carlyle Group. Congress also is bashing the special corporate tax treatment that the private equity funds have engineered for themselves.

Meanwhile, unions are complaining about huge layoffs that often follow these deals, and now the courts are taking a hard look at CEOs who appear to be joining forces with private equity deals at the expense of shareholders. With so many interested parties pushing private equity business, some insiders believe that future deals will deliver much smaller returns if not losses.

I think BX and FIG are overpriced, and I believe their share prices might have a lot further to fall. If you must purchase BX and FIG, I’d certainly not own them at the current prices.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.© Copley News Service