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LAST WEEK, private equity firm Blackstone Group scored the most lucrative deal in its 22-year history, raising over $4 billion in a wildly successful initial public offering of its own shares.
The deal, the largest IPO by a Wall Street firm since Goldman Sachs went public eight years ago, gave Chief Executive Stephen Schwarzman a $900 million cash payday last Friday. It also put, thevalue of his remaining stake in the company at nearly $8 billion--slightly less than the gross domestic product of Honduras and more than that of 67 other countries.
Mr. Schwarzman's windfall will certainly be long remembered, but following his example--as many others now hope to do--is suddenly looking a lot harder than it did only weeks ago. While the celebrations wind down at Blackstone, clouds are thickening over the private equity industry.
In Washington, amid howls of outrage over the amounts of money being made on private equity deals, plans are afoot to slap the industry with a huge tax hike. And in the markets themselves, the melt-down in the subprime mortgage market is driving up the cost of borrowings that are the lifeblood of firms like Blackstone.
"If you'd asked me a month ago, I would have said absolutely more private equity firms would go public," says Matthew Rhodes-Kropf, a professor at Columbia Business School. "Now, I really don't think so. The...