June 21 (Bloomberg) -- Blackstone Group LP, undeterred by congressional attempts to raise taxes on private-equity firms, raised $4.13 billion in the largest U.S. initial public offering in five years.

Blackstone, founded by former Lehman Brothers Holdings Inc. executives Stephen Schwarzman and Peter G. Peterson in 1985 with $400,000, said today in a statement it sold 133.3 million shares for $31 each, the top of its expected range. Sale of the 12.3 percent stake values the New York-based firm at $33.5 billion.

``It's a great confirmation of the private-equity business and the Blackstone management,'' Donald Marron, chief executive officer of New York-based buyout firm Lightyear Capital LLC, said today in an interview. ``It's the first offering in an industry that's a growth industry.''

Blackstone's profit more than doubled in the first quarter to $1.13 billion, 15 percent less than the firm made in all of 2005, according to SEC filings. Buyout firms have spent $535 billion on acquisitions this year, more than double the amount in the same period last year. Blackstone's biggest competitors, New York-based Kohlberg Kravis Roberts & Co. and Carlyle Group in Washington, are also considering IPOs.

The growth is drawing scrutiny from U.S. Congress and Britain's Parliament because most firms are partnerships and don't pay corporate taxes. U.S. senators introduced legislation that would make private-equity firms that go public pay the same 35 percent rate as corporations. The law would more than double Blackstone's taxes after five years.

Biggest Since CIT

The firm will use the money to expand its buyout and asset- management units, and pay founders Schwarzman and Peterson a combined $2.33 billion. Blackstone's owners will keep 78.3 percent of the company.

The sale is the biggest on a U.S. exchange since CIT Group Inc., the country's biggest independent commercial finance company, raised $4.87 billion in 2002. KKR raised $5 billion for its KKR Private Equity Investors LP fund last year in an Amsterdam listing.

``It does take bravery to be the first private-equity firm to go public in scale,'' said James Lee, vice chairman of JPMorgan Chase & Co., in remarks at the New York Public Library's corporate dinner June 18, which honored Schwarzman for helping raise more than $2.2 million for the organization.

The firm's market capitalization will be about a third of Goldman Sachs Group Inc., Wall Street's biggest firm, whose shares are valued at $98.8 billion. Each of Blackstone's 770 workers produced an average of $2.95 million in net income last year, according to SEC filings. At Goldman, the mean was about $360,000.

Fortress

Blackstone manages $88.4 billion, including $19.6 billion in its most recent buyout fund, the second largest after the $20 billion pool run by New York-based Goldman. In all, Blackstone owns companies with about 375,000 employees and $83 billion in annual sales.

Fortress Investment Group LLC, based in New York, was the first U.S. manager of hedge funds and private equity to sell a stake to investors, raising more than $634 million in February. Its shares have risen 40 percent since to trade at 21 times 2006 earnings. Blackstone's stock was priced at about 12.6 times profit.

Buyout firms use a mix of cash from investors, their own funds and debt secured on the target they buy to finance their deals. They typically seek to expand companies or improve performance before selling them within five years to other funds or investors in initial public offerings.

The underwriters have the option of selling an additional 20 million shares based on demand, known as a green shoe.

China's Stake

China's soon-to-be-formed State Investment Co. will buy a 9.4 percent nonvoting stake for $29.92 a share, a 4.5 percent discount to the IPO price. China will keep its Blackstone shares for at least four years and isn't allowed to invest in a competing private-equity firm for a year.

Schwarzman, the company's 60-year-old chief executive officer, planned to sell about 5.7 percent of his stake for $449.2 million, according to a June 21 filing with the SEC. His remaining shares would be valued at as much as $7.74 billion if the green shoe shares are sold.

Peterson, 81, the firm's chairman, intended to sell about 59 percent of his shares for $1.88 billion and would own 4 percent of the firm after the IPO, the June 21 filing shows. He plans to retire next year.

No Voice

Schwarzman and Peterson left Lehman after losing a power struggle and started their firm with a staff of two. Schwarzman, a mergers and acquisitions banker and Peterson's deputy at New York-based Lehman, still approves all of Blackstone's capital commitments. Peterson, a former Federal Reserve Bank of New York chairman and U.S. Secretary of Commerce, also founded the Concord Coalition, a group advocating lower budget deficits.

The company may post net losses ``for a number of years,'' to account for the cost of buying stakes from executives, according to the SEC filings. Blackstone estimated that it may amortize $4 billion of these costs, as well as about $3.6 billion of goodwill, over three to 10 years.

Investors in Blackstone will get a cut of the company's profits but no say in management or investment decisions. They won't elect the general partner or directors.

Because the company is organized as a public limited partnership, it is selling units, not shares. They are scheduled to begin trading tomorrow on the New York Stock Exchange under the ticker symbol BX.

Morgan Stanley and Citigroup Inc. led the sale, assisted by Merrill Lynch & Co., Credit Suisse Group, Lehman and Deutsche Bank AG. There were 11 other banks serving as co-managers on the deal.

To contact the reporters on this story: Elizabeth Hester in New York at ehester@bloomberg.net; Jason Kelly in Atlanta at jkelly14@bloomberg.net.

Last Updated: June 21, 2007 19:06 EDT