Blackstone president says equity funds under fire

NEW YORK (Reuters) - Surging private equity activity has cast a harsh spotlight on the deep-pocketed investment firms which are fueling Wall Street's latest takeover boom, the president of the Blackstone Group BG.UL, one such firm, said on Tuesday.

"I'm worried about the fact that private equity has grown so quickly and so fast that it's made itself a natural target for speculation and resentment," said Tony James at the Reuters Investment Banking Summit in New York. "It has made a lot of money."

To address these concerns, buyout firms have been organizing an industry association, said James. The association, which would not be a "lobbying organization per se," would develop academic studies showing the economic benefits of private equity activity.

Dwarfing years past, 901 private equity deals have been announced in the U.S. this year worth $289 billion -- nearly twice the value twelve months ago, according to Dealogic, a financial data provider.

Private equity firms pool private and institutional capital -- often accompanied by vast amounts of debt -- to buy public companies. The idea is to improve operations before returning the business to market at a profit, typically by selling the company or floating shares.

The firms are targeting larger and more recognizable companies, from car rental firm Hertz, which is selling shares in an initial public offering, to high-end retailer Neiman Marcus.

Two consortiums, one of which includes Blackstone, are now bidding for Clear Channel Communications CCU.N, the No. 1 U.S. radio company.

One industry concern is a probe by the U.S. Department of Justice into possible collusion among some of the largest buyout firms, said James. As part of an informal inquiry, the DOJ contacted the Carlyle Group CYL.UL, Clayton, Dubilier & Rice, Kohlberg Kravis Roberts & Co. KKR.UL, Silver Lake and the private equity arm of Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz), the Wall Street Journal reported.

James, who said he had never seen collusion between buyout firms, added he is concerned this publicity "puts sort of a cloud over the industry."  Continued...