The race to follow Blackstone on to the public market began yesterday as it emerged that Kohlberg Kravis Roberts (KKR) had appointed Morgan Stanley and Citigroup to prepare a flotation.

Although KKR has not made a firm decision, the buyout group came closer to pushing the button on its own initial public offering (IPO) yesterday as Blackstone’s shares soared by as much as 24 per cent in their first morning of trading.

The shares, which were priced on Thursday night at the top of expectations, jumped despite a proposed Bill that would increase considerably the tax that Blackstone must pay on its profits.

Investors also appeared to be undeterred by rising borrowing costs, which will reduce the profits that Blackstone makes on future investments.

Carlyle Group and Apollo Management are among the other American buyout firms that have been preparing IPOs but were waiting to see how Blackstone fared before making a final decision to float.

They are expected to move quickly, since the appetite for shares in buyout firms is likely to diminish with each flotation. Analysts believe that the market may struggle to accommodate more than two additional large buyout firms.

Yesterday’s float was the biggest American IPO in five years, raising $4.13 billion (£2.06 billion) and valuing Blackstone at about $33 billion. KKR is not expected to be rated as highly because it manages fewer assets and is more susceptible to swings in the market.

In addition to its buyout business, Blackstone operates hedge funds, property funds and a sizeable deal advisory business. By contrast, KKR is essentially a group dedicated to large buyouts, which means that it is higher-risk.

Blackstone’s shares, priced at $31, rose as high as $37.49 in morning trade, before dropping to $35.06.

KKR, Apollo, Carlyle, Citigroup and Morgan Stanley all declined to comment.

Senior members of Congress proposed new legislation yesterday that would dramatically increase the taxes paid by buyout and hedge fund executives, as the Blackstone IPO put the spotlight on the private equity industry. This would increase the tax fund managers pay on their share of investment profits from 15 per cent to 35 per cent and is separate from proposals to increase the tax that publicly traded buyout firms pay on their profits.

Battle of giants

— Henry Kravis, who co-founded Kohlberg Kravis Roberts in 1976 with his cousin George Roberts and Jerome Kohlberg, shares the crown for the private equity industry with Stephen Schwarzman, co-founder of his arch-rival Blackstone

— Blackstone and KKR have recently raised buyout funds of about $20 billion, the two biggest such funds to date. KKR, which had held the honour of biggest leveraged buyout for nearly 20 consecutive years through its takeovers of RJR Nabisco and HCA, lost its mantle to Blackstone last summer when its rival bought Equity Office for $39 billion. A few weeks later, Mr Kravis regained his title, as part of a consortium that agreed to buy power firm TXU for $45 billion

— Mr Schwarzman held the most lavish 60th birthday party this year . . . but Mr Kravis was not invited. And so the battle continues

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