Do publicly traded private equity firms = conglomerates?

I'm still trying to get my head around the news that, after years of badmouthing public equity markets, Steve Schwarzman is thinking of taking Blackstone Group public. It does nicely underscore the basic truth of the private equity business, which is that without public markets on which to buy and sell companies, it couldn't exist.

When I think about what a publicly traded Blackstone would look like, though, my mind keeps drifting back to the 1960s, when conglomerates like ITT and LTV were the hottest thing in business. The conglomerateurs bought companies in lots of unrelated businesses on the assumption that they could somehow run them better than they had been run before.

It turned out, though, that the conglomerates' chief assets had been their high stock prices, which allowed them to swallow up companies on the cheap. Once the stock market stopped cooperating, their reason for existence disappeared. In their place arose a new market phenomenon, the leveraged buyout (LBO) fund, which used borrowed money to take underperforming companies off the market and then performed radical surgery--often involving shedding unrelated businesses--before taking them public again.

You probably see where I'm headed here: The most successful LBO artists grew into today's private equity firms, the biggest of which--like Blackstone--manage investments in dozens of companies at once. Sort of like, you know, a conglomerate. And with Blackstone mulling an IPO, the speculation is that several of its competitors may follow suit.

Now there are surely some important differences that I'm ignoring here. And there are conglomerates that work pretty well: Berkshire Hathaway thanks to the consistency and financial acumen of its CEO, Warren Buffett; and General Electric thanks to its relentless focus on developing top managers. Blackstone may turn out to have a differentiating skill set like that, too. But it's just not possible that all the big private equity firms do. And if they go public, that will eventually become apparent to one and all, just as it did with the conglomerateurs of the 1960s.