June 11 (Bloomberg) -- Stephen Schwarzman and Peter G. Peterson, who started Blackstone Group LP two decades ago with $400,000, stand to collect a combined $2.33 billion from the largest initial public offering by a leveraged buyout firm.

The 60-year-old Schwarzman will receive $449.2 million for selling some of his holdings, leaving him with a 24 percent stake, New York-based Blackstone said today in a filing with the U.S. Securities and Exchange Commission. Peterson, 80, who's retiring next year, will get $1.88 billion and retain 4 percent of the company.

Blackstone, manager of the world's second-largest buyout fund, is going public after spending $199 billion on acquisitions since its founding in 1985. The offering will provide Schwarzman and Peterson with a bonanza dwarfing what Goldman Sachs Group Inc.'s partners made in that firm's initial sale. Not even Google Inc.'s founders reaped as much in their IPO as Schwarzman will in Blackstone's.

``The world has shifted to private equity and hedge-fund companies,'' John Challenger, chief executive officer of executive-search firm Challenger Gray & Christmas Inc. in Chicago, said today in an interview. ``That's where the real money is and that's going to draw talent.''

Blackstone's offering is scheduled to be priced the week of June 25, according to a calendar posted on the Web site of Morgan Stanley, one of the IPO's managers. The company plans to sell shares for $29 to $31.

Pay Tops Blankfein

At $30, Blackstone would have a market value of $32.4 billion, with 12.3 percent of the stock held by the public and China's state investment company buying a 9.7 percent stake in a private transaction. Schwarzman's holdings would be valued at $7.73 billion, according to the filing. Peterson would still hold $1.31 billion of stock.

``The equity values are large enough that you can't ask the junior partners to buy you out at full value,'' said Frederick Joseph, managing director of Morgan Joseph & Co. in New York, and former chief executive officer of Drexel Burnham Lambert Inc.

Schwarzman made $398.3 million last year, according to the filing. Peterson earned $212.9 million. That tops the $54 million Goldman Sachs paid to CEO Lloyd Blankfein for running the world's most profitable securities firm.

Blackstone said in the filing the executives' compensation is based on their ownership stakes and the firm's fees and profits from its buyout, real estate and investment funds.

Brin, Page

The value of Schwarzman's stake would place him at number 32 on the Forbes magazine list of richest Americans, tied with News Corp. CEO Rupert Murdoch and EBay Inc. Chairman Pierre Omidyar.

In Goldman's 1999 IPO, partners of the New York-based investment bank took home stock then valued at $63.6 million, with senior executives receiving as much as three times that amount. Google founders Sergey Brin and Larry Page each sold about $41 million of shares when the Mountain View, California- based Internet-search company went public in 2004. They kept stock worth $3.2 billion.

Schwarzman's compensation fell short of his colleagues in the hedge-fund industry, where the average pay of the top 25 hedge-fund managers was $570 million last year, according to Institutional Investor's Alpha magazine. James Simons, chairman of Renaissance Technologies Corp., earned an estimated $1.7 billion, according to the magazine.

The company plans to sell 133.3 million shares in the IPO. At the midpoint of $30, it would raise about $3.83 billion after underwriting costs, according to the SEC filing. Underwriters may sell an additional 20 million shares depending on demand. China's soon-to-be-formed State Investment Co. is paying $3 billion for its nonvoting stake, a 4.5 percent discount to the IPO price.

Others to Follow

Schwarzman is selling about 5.7 percent of his stake in Blackstone while Peterson is selling about 59 percent, according to figures in the filing.

Private-equity firms including Apollo Management LP, run by former Drexel Burnham Lambert banker Leon Black, and David Rubenstein's Carlyle Group also are considering IPOs or private placements of shares.

``Everybody is looking at it,'' said Henry Higdon, managing partner of New York-based recruiting firm Higdon Partners LLC. ``People are looking at how to monetize their business if it's private.''

New York-based Fortress Investment Group LLC 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 38 percent since.

Blackstone's net income rose 71 percent to $2.27 billion last year. The company said it may post net losses ``for a number of years'' as it accounts for the cost of buying stakes from its executives. 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.

Lehman Connection

The firm manages $88.4 billion, including $19.6 billion in its most recent buyout fund, the second-largest after the $20 billion pool run by Goldman. The ascent began when Schwarzman and Peterson left Lehman Brothers Holdings Inc., where mergers and acquisitions specialist Schwarzman served as Peterson's deputy.

Peterson had served as chairman of the Federal Reserve Bank of New York and as U.S. Secretary of Commerce. Peterson plans to give away ``a substantial amount'' of his proceeds from the offering to charities, according to the filing.

Schwarzman and Peterson together assembled a roster of deal- makers including Hamilton `Tony' James, 56, who joined the firm in 2002 from Credit Suisse Group, where he was chairman of global investment banking and private equity.

Airplane, Helicopter

James, now Blackstone's president and chief operating officer, will get $147.9 million for some of his stock and keep a 4.9 percent stake valued at $1.6 billion. He earned $97.3 million last year.

J. Tomilson Hill, 58, the vice chairman who heads the company's hedge-fund unit, will own 1.6 percent of the shares valued at $535.4 million, after receiving $22.1 million. He was paid $45.6 million in 2006.

Chief Financial Officer Michael Puglisi, 56, will retain a 0.7 percent stake worth $231.2 million after getting $13.4 million. He earned $17.4 million last year.

Schwarzman's total pay last year included $1.54 million in hourly fees for business use of the airplane he owns. Peterson and Schwarzman jointly own a helicopter and Blackstone paid them $158,500 in hourly rates for business use.

The company will pay existing owners about $610.4 million in ``undistributed earnings'' before the offering, Blackstone has said in previous filings, noting that the amount may change.

IPO Fees

The owners may also benefit from a change in the company's tax basis, according to the filing. A reduction in taxes after the offering will allow the company to pay about $993.2 million to the owners over the next 15 years.

The founders will receive 27.8 percent of the partnership units, which are both vested and unvested. Other senior managing directors will receive 45.8 percent, while American International Group Inc. will receive 4.5 percent, all of which is vested.

New York-based AIG bought a 7 percent stake in Blackstone in 1998 for $150 million.

LBO firms use a mix of cash from investors plus 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.

Buyout Boom

Buyout firms raised $210 billion in 2006, 57 percent more than the year earlier, according to London-based research firm Private Equity Intelligence Ltd. They announced a record $701.5 billion in takeovers, according to data compiled by Bloomberg, driven by the lowest borrowing costs in a decade.

Blackstone's bankers, which include lead underwriters Morgan Stanley and Citigroup Inc., will split an estimated $170 million in fees, according to the offering. That is about 3.6 percent in fees, less than the 6.1 percent for U.S. IPOs this year. The firm also added 11 banks, including JPMorgan Chase & Co. and Goldman, to be co-managers on the deal.

The shares will be listed on the New York Stock Exchange under the ticker BX.

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

Last Updated: June 11, 2007 17:44 EDT