Private Equity Embraces C-Corp Structure

The Blackstone Group andApollo Global Management followKKR and Ares Management to become corporations.

The Blackstone Group became a corporation in early July, extending what has become something of a trend among large private equity groups. The investment giant’s conversion from a publicly traded partnership to a C corporation—which means it will be taxed separately from its owners—will also make it easier for investors to buy Blackstone stock, says CEO Stephen Schwarzman.

In early May, Apollo Global Management announced its conversion from a partnership to C-corp, with the shift to take effect in the third quarter. Apollo anticipates benefits such as enhanced liquidity, the potential for index inclusion, and reduced stock price volatility thanks to an expanded shareholder base. KKR and Ares Management announced similar moves last year.

Conversions of this sort typically represent a trade-off. A corporation brings in more potential investors, including large mutual funds, fortifying its stock price, but corporate taxes can be more onerous. The spur for the string of conversions appears to be the Tax Cuts and Jobs Act, which slashed the corporate tax rate from 35% to 21% as of last year. Blackstone expects an additional tax cost with the C-corp structure, but says the increase should be modest.

Blackstone, like some of its peers, had experienced a lagging share price since going public in 2007. On July 1, its first day as a publicly traded corporation, Blackstone’s shares rose 4.2%, a favorable market response that might encourage other private equity firms to follow, analysts say.