Buyout Firms Seek New Horizons

Stephen A. Schwarzman, David M. Rubenstein, Henry R. Kravis, and George R. Roberts became billionaires by engineering leveraged buyouts. Now they're transforming their companies into asset managers that run everything from hedge funds to strip malls as fresh capital and takeover targets become scarce.

Schwarzman's Blackstone Group (BX), the biggest private equity firm, is earning twice as much from owning property, including office buildings in India and seniors communities in Oregon, as from buyouts. Kravis and Roberts's KKR (KKR) owns a stake in a 5,500-mile U.S. fuel pipeline and lends to distressed companies. "The large-cap leveraged buyout business has become mature," says Colin C. Blaydon, director of the Center for Private Equity & Entrepreneurship at Dartmouth College's Tuck School of Business. In the future, private equity firms will look "more like the large money-management enterprises, with a big emphasis on assets under management."