British Gas Owner Centrica Profits From Cold Snap

LONDON -- Centrica  (LSE: CNA  ) released a positive interim management statement this morning, with the shares responding accordingly by gaining 4 pence in early trade to reach 381 pence.

While we've seen updates from the likes of high-street retailers suffering due to Britain's extended cold weather recently, it's no surprise that energy companies will have gained from their customers spending more time at home and cranking up the heating.

The owner of British Gas reported that the average residential gas consumption was 18% higher in the first four months of 2013 than its 2012 comparative period, while average residential electricity consumption was 3% higher. Its residential energy supply business also saw the number of accounts increase by 28,000 over the period.

But management is taking the unusual step, albeit a welcome one for its customers, to use the increased profits "to continue to invest in customer service and price competitiveness" -- in other words, to keep its prices down rather than use the profits as an excuse for a price hike, after recognising the "economic pressures" facing many of its customers.

In other news, full-year earnings growth is expected to be in line with market expectations, while Centrica also confirmed that its "refreshed strategic priorities" are making good progress, following a North American LNG export agreement with Cheniere in March and the acquisition of Canadian natural gas assets from Suncor in partnership with Qatar Petroleum International in April.

Of course, whether today's results and the future prospects for the industry all combine to make shares of Centrica a 'buy' remains your decision.

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The Television in 2015: 3 Bold Predictions

The media market is in the middle of a revolution -- no, make that several revolutions.

The living room gear that starts to make a market impact in 2015 will make today's high-def screens as quaintly obsolete as a black and white tube. All that delicious new hardware requires a new breed of content, and perhaps the biggest surprise of all is who you won't see tapping into these new opportunities.

In this video, Fool analyst Anders Bylund presents three unstoppable trends in living room entertainment that will hit home by 2015.

The tumultuous performance of Netflix shares since the summer of 2011 has caused headaches for many devoted shareholders. While the company's first-mover status is often viewed as a competitive advantage, the opportunities in streaming media have brought some new, deep-pocketed rivals looking for their piece of a growing pie. Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why The Motley Fool has released a premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. The report includes a full year of updates to cover critical new developments, so make sure to click here and claim a copy today.

Can Ford's New Fusion Knock off the Camry?

Photo credit: Ford Motor Company

Ford's (NYSE: F  ) new Fusion sedan has been turning heads since its launch late last year. It's easy to see why: With its sleek flanks, Aston Martin-inspired grille, and luxury-car-like interior, it really stands out in a sea of blander-looking competitors.

And lately, it's been drawing quite a few customers. For the year to date through March, sales were up 26% over the first three months of 2012, as the new Fusion continues to outshine its well-regarded predecessor.

But will the Fusion have what it takes to overcome America's best-selling car, Toyota's (NYSE: TM  ) ever-popular Camry?

Rapidly rising on the U.S. sales charts
Ford already has America's best-selling vehicle, of course. Its F-Series pickup trucks have been the best-seller for decades, followed by the perennial runner-up, General Motors' (NYSE: GM  ) Chevy Silverado pickup.

That's unlikely to change, because pickups are big business here in America. But it's after those two that the sales race gets interesting. So far in 2013, the next four biggest sellers are all midsized sedans: the Camry, Honda's (NYSE: HMC  ) Accord, Nissan's (NASDAQOTH: NSANY  ) Altima – and Ford's new Fusion.

The Fusion isn't far behind the Altima, with 80,558 sales through March to the Nissan's 86,952. But it has a ways to go to catch up to the Camry, which sold 100,830 through the first three months of the year.

Camry sales look strong, but they have been down 4% so far in 2013, thanks in part to the strength of the new Fusion. Does Ford's hot-looking sedan have a chance of catching up and dethroning the Camry?

Probably not, at least in the near term. Here's why.

Why Ford can't (yet) beat the Camry
Here's the problem: Ford's can't (yet) make enough Fusions to outsell the Camry. The company cut its North American production facilities way back during its painful restructuring last decade. That was a good move, one that has led to strong profits now that many of its factories are working overtime.

But it has a downside. With plants already running around the clock, Ford can't make many more Fusions than it is already making – at least, not easily. Ford U.S. sales chief Ken Czubay told reporters last week that strong sales and strong continuing demand for the Fusion in places like California and Florida could mean short supplies of the hot sedan in coming months.

Adding production means expensive investments in additional production lines, investments that Ford has been reluctant to make until it's sure it can sell the extra cars (and until it's sure that its suppliers will be able to keep up).

The good news is, with the Fusion, Ford is already preparing to step up production.

A $555 million investment to close the gap
Ford has already announced that it is adding a production line to build the Fusion at its Flat Rock, Mich., plant, where the Mustang is currently built. That isn't a cheap move: Ford is spending $555 million to install new tooling and facilities at the Flat Rock factory, and it's hiring 1,200 new hourly workers to staff the new production line. The production line should be up and running this fall.

These are big investments, but they're necessary ones if Ford is to realize the potential of its latest hit product.

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Forget the Bitcoin Price – These Are the Trends That Matter

On Sunday the Bitcoin price hit a 2014 low of just under $291 on the CoinDesk Bitcoin Price Index, but as of this afternoon (Wednesday) it had bounced back above $340.

It's just another week in the volatile life of Bitcoin, which around this time last year was just starting a run to its all-time high of over $1,100.

Of course the Bitcoin price is volatile. It's a five-year-old technology that most people had never even heard of until last year. As Bitcoin develops and matures, people will struggle to assess its value.

The good news about Bitcoin price volatility is that, in the long run, these drastic movements really don't matter...

Despite all the digital currency's wild ups and downs, the trends that matter have stayed on a remarkably consistent path, utterly unfazed by price gyrations.

That's because the true measure of the health of Bitcoin can't be found in any price chart.

Bitcoin is a revolution in the concept of money, with an entirely new ecosystem growing up around it. So for the answer to whether Bitcoin is gaining traction or losing steam, you need to look at what's happening in that ecosystem. Is it growing? Is it stalling? Or is it shrinking?

And we just got a new glimpse into the most telling Bitcoin trends...

CoinDesk just yesterday released its "State of Bitcoin" report for the third quarter, and it's packed with statistics that show that just about the only negative development for the digital currency over the past three months has been the 40% decline in the Bitcoin price.

That makes all the other progress that much more remarkable. Across the board, every other measure of Bitcoin success improved.

What's more, several big Bitcoin developments have occurred just in the past week even with Bitcoin prices sinking 69% from their January highs.

Just look at what's been going on...

The Bitcoin Trends That Matter

Let's start with some Bitcoin developments that have happened most recently.

Yesterday, Blockchain, the world's biggest Bitcoin wallet provider, secured $30.5 million in venture capital funding from Lightspeed Venture Partners and Wicklow Capital - one of the largest venture capital investments ever in a Bitcoin company.

Venture capital investments now total $229.74 million in 2014, 2.5 times the total for all of 2013.

On Monday, Overstock.com, Inc. (Nasdaq: OSTK) Chief Executive Officer Patrick Byrne made the stunning announcement that his proposal to build a stock exchange based on Bitcoin technology had graduated from a wiki page to an actual project called "Medici."

Toward that end, Byrne has already hired two software developers with expertise in building cryptocurrency-based financial services and enlisted a team of lawyers from Perkins Coie to navigate the legal and regulatory obstacles.

Now let's take a look at some of the trends revealed in the CoinDesk report.

The Bitcoin miners, despite the steep rise in difficulty over the past year, continue to invest tens of thousands of dollars in equipment to solve the math problems that create new bitcoins. That they continue to do so in the face of falling Bitcoin prices shows just how much faith they have in a rebound.

The number of merchants accepting Bitcoin rose 21% in the quarter, from 63,000 to 76,000. The number of Bitcoin wallets also rose 21%, from 5.43 million to 6.56 million. So the falling Bitcoin price didn't deter the pace of Bitcoin adoption, either.

And the number of Bitcoin ATMs, which accept cash in exchange for bitcoins, increased 144% from 103 to 251 from the previous quarter.

All of these are signs of a thriving and growing ecosystem.

What a Thriving Ecosystem Will Mean for the Bitcoin Price

And while it's not worth worrying about the day-to-day swings in the Bitcoin price, buying a little here and there on the dips could pay off in a big way down the road when the Bitcoin ecosystem becomes fully established.

As the full potential of Bitcoin, particularly the ability of the blockchain to embed data (such as ownership) in transactions becomes realized, the Bitcoin value will rise.

Right now, the infrastructure for that ecosystem is under construction, so it's not so easy to see what's really happening.

"There are 500 or 600 Bitcoin companies creating an amazing infrastructure out there that will really transform our economy," Tim Draper, managing director of Draper Fisher Jurvetson, told CNBC Tuesday. Draper won all of the nearly 30,000 bitcoins that were auctioned by the U.S. Marshals Service back in June. "I think we're actually in the lull right now before the big huge storm."

When that infrastructure is built we will see higher Bitcoin prices. How high is a matter of much speculation, but a report this week from Pantera Capital, which operates a Bitcoin hedge fund, estimated one Bitcoin could someday be worth just under $4.3 million.

That's not a bad return on an investment of $340, even if you have to wait a while to get it.

Follow me on Twitter @DavidGZeiler.

UP NEXT: While focusing on the decline in the Bitcoin price, the mainstream media tends to ignore less dramatic but positive developments for the digital currency. Last month, for example, the first U.S. Bitcoin derivative started trading. Here's why this is a big deal for businesses that want to start using Bitcoin...

Related Articles:

CNBC: Bitcoin Calm Before the Storm: DFJ's Draper CoinDesk: State of Bitcoin Q3 2014: Ecosystem Maturing Amid Price Pressure

4 Tech Predictions for the Second Half of 2014

Justin Sullivan/Getty Images It's been a news-making first half of 2014 for technology, but now let's take a look at new iPhones, wearable computing, and even gaming consoles that could change the market later this year. 1. The iWatch is Coming We've been talking up Apple's (AAPL) inevitable push into wearable computing for years. It's been a couple of years since Pebble revolutionized the watch industry with its Bluetooth wristband that interacts with smartphones for basic apps and functions. Apple is a no-brainer here, but it has stayed on the sidelines as leading smartphone maker Samsung (SSNLF) rolls out not one -- but two -- generations of its Galaxy Gear smart watch. One would think that Apple would be all over this, at the very least as a way to help gain back some share in the smartphone market. If the iWatch only works with the iPhone, it's a safe bet that someone buying Apple's smart watch will stick with the iPhone in the future. Predicting Apple's next niche isn't for the timid. Many have sworn that Apple is about to put out a full-blown smart television for years, but the iTV appears far from a reality. However, wearable computing remains a serious gap in Apple's consumer electronics product line. It's time to correct the oversight. 2. Google Glass Will Get Cheaper It's been two years since Google (GOOG) surprised the market with its high-tech eyeglasses that project images and information on the specs. At first Google vetted early adopters to secure influential bloggers and get celebrities on board. Now it's letting pretty much anybody with $1,500 burning a hole in one's pocket become a beta tester. Google has done its part to justify the steep investment. It has upgraded the product while sticking to its $1,500 price tag (how much it costs Google to make is an interesting question). However, that's not the kind of sticker price that's going to fly these days. The search giant will need to charge less for Google Glass to become a mainstream hit. Cheaper and more widely available access to Google Glass specs will also make the devices seem less creepy. 3. The Xbox One Will Close the Gap with the PS4 It hasn't been even close in the console market. Sony (SNE) may have rolled out the PlayStation 4 just seven days before Microsoft's (MSFT) Xbox One, but it keeps padding its lead. Sony recently announced that it had sold more than 7 million PS4 systems to consumers. Microsoft followed by revealing that it has shipped out (but maybe not sold?) 5 million Xbox One consoles. In other words, there's at least a gap of 2 million between the two gaming titans. Microsoft is trying. It lowered its starting price to $399, matching the PS4 but eliminating the Kinect motion-based controller as an included accessory. Some of the hottest games right now happen to be Xbox One titles. Microsoft tried to originally position its box as a state-of-the-art way to view television, but it realized the error of its ways. It's now aggressively wooing gamers, and between the lower price and healthy pipeline of games, it should finally start to gain ground on Sony. 4. The Nasdaq will Continue to Beat the Dow It's been a good year to buy into the tech-heavy Nasdaq. We've seen the Nasdaq Composite (^IXIC) climb 5.5 percent during the first six months of the year, roughly in line with the historical return rate for secondary stocks. The Dow Jones Industrial Average (^DJI), on the other hand, has been a bit of a disappointment. The widely followed market gauge of 30 blue chip stocks has only risen 1.5 percent in 2014 through the end of June. Given the nature of sector rotation, a contrarian would bet on the Dow at this point. But let's not be so quick to cash out on tech. This continues to be a busy year for tech innovation -- something that will benefit the Nasdaq-listed companies -- and we're only halfway done. More from Rick Aristotle Munarriz
•4 of the Biggest Losers on Wall Street of 2014 - So Far •Wall Street This Week: The Magic's a Bit Iffy for Harry Potter •Week's Winners and Losers: Twitter Shops, KLM Flops

Exchange-Traded Managed Funds: The Next Big Thing?

The splash ETFs made when they hit the market in the 1990s displaced a lot of mutual fund market share.

That is because investors have voted with their dollars for exchange-traded funds’ tax-efficient structure, lower cost, transparency and tradability.

Two decades into the ETF era, actively managed mutual funds, which made up 95% of the market in 1998, now total just 76% of the fund market, with ETFs now neck and neck with passively managed mutual funds, each holding a 12% market share, according to the Wall Street Journal.

Attempts to combine the advantages of active stock selection with ETFs’ favorable structure continue apace through actively managed ETFs.

But progress has been slow, with active ETFs amounting to little more than 5% of assets since the first active ETF launched five years ago.

A key reason for the languid pace? ETFs’ vaunted transparency.

Top active managers want to shield their portfolio decision-making from copycats, something hard to do with ETFs, which reveal trades daily, unlike mutual funds, which need not disclose their holdings more than once a quarter.

A potential breakthrough may be at hand, however, as a small startup with a big backer — Navigate Fund Solutions, a wholly owned subsidiary of Eaton Vance — is shepherding what it calls exchange-traded managed funds (ETMFs) through the SEC approval process.

“This is a way to deliver active strategies with better performance and improved tax efficiency,” says Stephen Clarke in an interview with ThinkAdvisor.

Clarke is trolling the halls of the Morningstar Investment Conference to make the case that a better mousetrap exists for investors who prefer actively managed funds.

If Clarke can convince the Securities and Exchange Commission, financial advisors and retail investors of ETMFs’ virtues, then the fund market may once again take on a different shape as it did with the advent of ETFs.

The reason for ETMFs’ “better performance,” according to Clarke, is that “the horse is carrying a lighter jockey.”

The portfolio depends entirely on the manager’s investment selection, but “if you put the same portfolio in a mutual fund and an ETMF, the ETMF ought to outperform the mutual fund based on its lower operating costs and improved trading efficiency,” Clarke says.

What would this mean to advisors who prefer actively managed mutual funds?

“I would estimate a difference of 50 basis points of annual performance improvement,” Clarke says. The Navigate president is not looking to compete with ETFs, which would remain cheaper than ETMFs. Rather, ETMFs are meant to lower the cost of mutual funds and facilitate active management, which remains the dominant approach in the investment marketplace.

So a standard advisor-sold mutual fund whose expenses average 120 basis points, but which could go as high as 220 basis points depending on share class, could see its cost shrink to 70 basis points.

That’s still higher than the estimated 20 basis points of a similar ETF, but, again, ETMFs are meant to compete with existing mutual funds.

The cost advantage stems from applying aspects of the ETF structure while — in contrast to active ETFs — retaining the mutual fund’s portfolio confidentiality.

By using the same trade settlement structure as ETFs, ETMFs reduce transfer agency costs from an average of 19 basis points in a mutual fund to less than a basis point in the exchange-traded format.

Administrative and regulatory fees would remain the same, as would management fees, but recordkeeping costs would be materially reduced and 12b-1 fees would be completely eliminated. (ETMFs would thus be most suitable for advisors paid through AUM-based fees rather than B-share commissions.)

The most significant cost reduction, however, stems from eliminating the burden of accommodating shareholder inflows and outflows. Currently, mutual fund managers have to raise cash to fund redemption requests, often having to sell shares and realize capital gains in the process.

By using ETFs’ system of issuing and redeeming shares in kind, ETMFs eliminate a chunk of mutual funds’ cost structure, as well as addressing the “cash drag” of having to maintain a level of uninvested shareholder cash to meet potential redemption requests.

This ETF-style shareholder flow process accounts for most of the 50-point advantage ETMFs have over mutual funds.

“We approximate that improvement at 30 basis points — that’s a conservative expression of the likely performance advantage of eliminating cash drag,” Clarke says.

Advisors who find Clarke’s case convincing need not confine their choice of managers to Eaton Vance nor need fund managers who like ETMFs be employed by the Boston-based fund firm.

Perhaps shrewdly, Eaton Vance created Navigate Fund Solutions as a separate entity specifically in order to market the new mousetrap across the mutual fund industry, to gain broad acceptance for the concept as well as generate additional revenue.

The fund firm did not invent the ETMF.

The idea was rather the brainchild of ETF consultant Gary Gastineau, who patented what he called “NAV-based trading,” and then sought regulatory approval from the SEC.

The SEC advised Gastineau that he needed a mutual fund partner. Seeing merit in the idea, Eaton Vance acquired the intellectual property from Gastineau, who remains a consultant to Navigate.

Clarke’s task now is threefold.

He must see the ETMF through the regulatory approval process. An exemptive order application was filed in March 2013 and awaits a vote of the SEC commissioners granting the order. Simultaneously, the SEC division of markets must approve listing and trading standards filed by an exchange; Eaton Vance’s partner exchange, Nasdaq, filed that so-called 19b-4 document in February.

Clarke, while “careful and respectful” of the process, says he is “optimistic enough” about approval prospects.

Once approved, Navigate’s second step will be to, “in partnership with Eaton Vance, introduce a family of ETMFs that mirror the capabilities that Eaton Vance offers in mutual funds.”

Step three will be the full commercialization of the concept through licensing the intellectual property to other fund companies.

Clarke calls advisor education a critical component of the success of ETMFs, and says Eaton Vance wants to “link arms” with its competitors to that end.

“It’s much more powerful to [educate advisors] with a consortium of firms than to try to do it alone,” Clarke says.

Eaton Vance is holding discussions with its broker-dealer distribution partners and spreading the word through the Nasdaq and its market maker partners. And Clarke, of course, is making the rounds at the Morningstar Investment Conference.

How to Improve TDFs and Regain Market Share: Hearts & Wallets

Investment product manufacturers could regain some of the market share they lost to other distribution channels by offering product innovations that appeal to more sophisticated investors, according to a report by Hearts & Wallets.

For example, the report noted that in the last 15 years, consumers have accessed target-date funds through their retirement plans or broker-dealers instead of going straight to the provider. Manufacturers could offer improved products by de-emphasizing the date in target-date funds, Hearts & Wallets said.

The firm found a “sizable share of the population” doesn’t have a retirement date in mind either because they don’t feel comfortable with the variables that could affect their retirement savings like the increasing health care costs, inflation and longevity, or simply because they like working.

“Many investors, aside from pensioners, have no idea at what age they’ll stop working altogether, if ever,” Chris Brown, Hearts & Wallets principal, said in a statement. “They are very clear about wanting control of their work/life balance as they grow older.”

The problem for product providers is that target-date funds are “not nearly as attractive outside of a qualified plan as they are inside one,” Brown said. “In the future, compelling product innovation will feature different approaches to asset allocation, as well as addressing the ways in which people actually take income once they have stopped full-time work. Determining how to do this is the area of product development that is most exciting and potentially highly differentiating.”

One way providers could enhance TDFs to make them more appealing to more sophisticated consumers, according to Hearts & Wallets, is to base on the investor’s needs instead of age. “Many investors prefer to customize risk exposure instead of having a product that automatically reduces market exposure,” according to the report.

Simplifying the transition from accumulation to distribution is another differentiator, Hearts & Wallets found.

“Consumers will pay more for added value, such as making the transition from accumulation to income easier,” Laura Varas, Hearts & Wallets LLC principal, said in a statement. “Our research shows that by adding value to investment products manufacturers can improve sales and charge a premium for products that meet a need. That is critical given today’s intense focus on fund expenses.”

The report concluded that providers must also be able to offer multiple products, as respondents aren’t considering single income solution products. “Even if the right product is created,” according to the report, “it’s likely to only attract a portion of one's portfolio. Few […] are interested in putting all of their eggs in one basket.”

Hearts & Wallets surveyed people ages 40 to 64 in March, excluding respondents who were within five years of retirement. Respondents had at least $250,000 in investable assets and were employed full-time.

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Check out $640 Billion in 401(k) Assets Ripe for a Rollover: Judy Diamond on ThinkAdvisor.

Stock futures rise ahead of Yellen, Chicago PMI

MADRID (MarketWatch) — Hopes for stimulus measures from Chinese and European officials continued to underpin U.S. stock futures on Monday, the last trading day of the month and quarter. Investors were also looking ahead to a speech from Federal Reserve Chairwoman Janet Yellen and a Chicago regional manufacturing survey.

Futures for the Dow Jones Industrial Average (DJM4)  rose 52 points, or 0.3%, to 16,292, while those for the S&P 500 index (SPM4)  rose 6.2 points, or 0.3%, to 1,856.60. Futures for the Nasdaq-100 (NDM4)  gained 14 points, or 0.4%, to 3,577.

Click to Play Russia foreign minister: Won't cross into Ukraine

Russian Foreign Minister Sergei Lavrov said in an interview with a Russian journalist on Friday that the country has "absolutely no intention" of crossing the Ukrainian border.

The biggest data of the week will come on Friday, when the U.S. employment report for March is due. Economists are expecting a pop higher in those numbers, which could go some way toward soothing investor worries about the economy.

Monday's only piece of economic data is the Chicago purchasing managers index. Beating consensus, the Chicago PMI accelerated to 59.8 in February, and for March is expected to rise to 60. Any reading above 50 indicates expansion. That data is due at 9:45 a.m. Eastern Time.

Shortly afterward, Fed Chairwoman Yellen will speak on "strengthening communities" to the 2014 National Interagency Community Reinvestment Conference in Chicago at 9:55 a.m. Eastern. She will be introduced by Chicago Fed President Charles Evans.

Naeem Aslam, chief market analyst at Ava Trade, said Yellen's speech is unlikely to bring any new surprise to the market, with the same message of ending quantitative easing this year likely to be pressed home.

"The speculation of quantitative measures by the ECB (European Central Bank) and from the PBOC (People's Bank of China) is what's really pushing the markets today," Aslam said in emailed comments.

Economic data out of the euro zone showed inflation falling to the lowest level since 2009, which will add pressure on the ECB to introduce stimulus at its monetary-policy meeting on Thursday. The Stoxx Europe 600 (XX:SXXP)  remained firmer, while the euro (EURUSD)  fell sharply against the dollar on the inflation news, before moving higher.

Chinese stocks had a bumpy session, with the Shanghai Composite Index (CN:SHCOMP) finishing down 0.4%. It lost nearly 5% in the first quarter, for the sharpest quarterly loss since June, according to FactSet. But investors are clinging to hopes Chinese officials won't let the economy stumble amid a steady stream of downbeat news. The Financial Times published a report on Sunday that said bad loans written off by Chinese state banks had more than doubled last year.

Getty Images Fed Chairwoman Janet Yellen in February.

The Nikkei 225 index (JP:NIK)  finished up 0.9%, but closed out the quarter with a nearly 9% drop. That was its biggest quarterly fall since June 2012, according to FactSet.

Biotech and Internet stocks like Facebook Inc. will stay in the spotlight after sharp losses last week. Facebook (FB)  logged a more than 10% weekly drop. The tech-heavy Nasdaq Composite (COMP)  suffered a 2.8% fall last week, its worst week in 17 months. The S&P 500 index (SPX)  ended Friday slightly higher, but fell 0.5% on the week. The index is set to finish March and the quarter on a largely flat note.

Earnings are expected from Cal-Maine Foods Inc. (CALM)  and UTI Worldwide Inc. (UTIW)  ahead of the opening bell. See Facebook, Biogen, Cal-Maine are stocks to watch

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Here's What Saved Blackstone's Once-Faltering Hilton Deal

Six years after taking Hilton private in a $26 billion deal, Blackstone is ready for its IPO payoff.

The New York firm is said to have sold some 117 million shares at $20 a pop raising about $2.34 billion. Tomorrow's IPO is expected to be the biggest for a hotel.

The public will get a chance to purchase shares tomorrow when they're listed on the New York Stock Exchange under the ticker HLT.

It seems Blackstone, which bought Hilton in 2007 for $26 billion including some $7 billion in debt, had little trouble gaining interest from investors. The offering was reportedly 10x oversubscribed.

Still, Blackstone is playing the pricing game somewhat conservatively with its $20 shares. The expected price range was $18 to $21 per share.

Why didn't Blackstone up the price and raise more money out of the box?

Well, for one thing, Blackstone is going to hold shares of Hilton for years.

That makes sense as the hotel industry is poised for more growth.

The industry's most important metric, RevPAR (revenue per available room), has been on the rise for the last three to four years, and there's more growth to come.

Right now, hotel supply levels are at historic lows. The long term average for annual hotel room supply is around 2%, but in 2011 the supply increased just .5%, and in 2012 supply fell again to .2%.

If the economy picks up steam, construction of new hotels will pick up with it.

Hilton will be among those contributing to the industry's growth.  Since Blackstone purchased it Hilton has increased the number of open rooms by 34%, or 170,000 rooms, the highest rate of any major hotel company. There are more rooms on the way as the development pipeline has jumped by 52% to an industry-leading 176,000 rooms, Blackstone says in its filing.

Hilton's revenue for the first six months of the year rose 2.7% to $4.64 billion from a year earlier, while profit jumped 66% to $189 million.

But Hilton's success under Blackstone was a long shot early on. The deal nearly cost head of its real estate unit, Jonathan Gray, his job.

Gray, who has led nearly all of the firm's hotel deals over the last 15 years, was behind the $26 billion Hilton purchase. The deal was made just before downturn hit hard, and real estate prices dropped as well as consumer travel.

The saving grace for Gray's giant investment? The debt had no covenants. Had it not been for the favorable finance structuring Hilton would likely have been seize by lenders, and Gray would have been out of a job.

Instead, he's one of the firm biggest stars, and tomorrow's Hilton IPO will only confirm his reign as king of real estate at Blackstone.