[Music] it was a year before the Black Monday crash Wall Street darling Larry thinkink suffered a 100 million trading loss I was so angry at myself I was just mortified at myself humiliated think now is forced to leave the company but upon his failure he will build the mightiest company in the world Black Rock [Music] another too big to fail asset manager which handles over7 trillion in direct management and another 20 trillion through their proprietary software I mean Larry f with those numbers you can say whatever he wants Black Rock was fantastic [Music] California is
on the rise to become the most populated state in America like the rest of the country the' 60s was a turbulent time for California a decade of a drastic political change it was such an exciting headyy time to find out that under the official reality there was this seething turmoil of young people learning new music new thoughts new ideas new literature new poetry new ways of being Larry Frink is one of those young people he enrolls in UCLA to pursue a political science degree hoping one day to make impact as a politician after getting an
MBA degree from USA think takes a job at a leading Investment Bank versus Boston as a bond Trader it was a perfect time to get into the bond business in the early '70s bonds only began to be actively traded Larry fing excels at this job he rapidly Rises through the ranks becoming the youngest manager at his Department started first boss in 1976 I was the first Freddy Mac Bond Trader and so the mortgage Market was just if it's an infancy and then in 1982 we had the ability to put a PC on our trading desk
before that you had no ability to put a computer on a trading desk and it was very clear to me that if we could have computing power on the trading desk we were going to have the ability to dissect cash flows of mortgages and we were the most profitable component of first Boston in 83 and 84 and ' 85 by 1983 the American economy had rebound from a DEC long recession the highest order of business before the nation is to restore our economic Prosperity after taking over the president Reagan work to boost the economy he
starts cutting taxes and deregulating Wall Street creating a perfect environment for financial Innovations one of such is the mortgage back Securities simply put they bundled millions of mortgages and turned them into Securities that can be traded by any investor Larry was one of the Architects behind this financial Innovation which 20 years later morphed into economic bomb but in the meantime Larry sells these newly minted security to large investors like Pension funds and endowments generating tens of millions of fees for first Boston at the time first Boston was at the top of the investment banking industry
specializing in mergers and Acquisitions after creating $1 billion profit for the firm Larry fing becomes the most profitable man at first Boston when you're at that level and you've had all of that success and you have all of this money there's a mindset that you're almost Invincible but then he loses $100 million in just one quarter of 1986 so you could work a lifetime creating wealth under certain assumptions that something can't happen and then bang you're everything you've lost everything for your whole lifetime because you thought it couldn't happen that is a year before the
infamous Black Monday crash and the market was still in a euphoric state because everyone was making money unless you're hedged for events like Black Monday whatever Alpha you you you think you're going to get you're not going to get it when you started having those types of successes The Firm gave you more Capital we were taking bigger and bigger risks without the intended Risk Technology to navigate that risk uh and in the second quarter 1986 we lost $100 million on Wall Street one big loser can raas all your winners the same is true for reputation
although he wasn't fired but he was sidelined all of a sudden people don't want to be seen with him anymore he becomes the Untouchable the message is clear it is time to quit the trouble is with tarnished reputation no Investment Bank will want to hire him at age 36 Larry thinkink is unemployed I said to myself 30 days after we lost money in that quarter even though we had we made 130 the first quarter and lost a 100 of it in the second quarter I said I'm leaving but it took me a year and a
half because I never ever thought I was going to leave but it took me a year and a half to try to determine what I wanted to do next always a competitive man think refuses to surrender and is determined to regain his past Glory by any means necessary this time he will start his own business and to do that he will need investors but with his reputation it is nearly impossible to raise money until he meets the legendary Steve [Music] schwarzman Steve schwarzman the founder of Blackstone is one of the most powerful figures on Wall
Street in his 30 years Reign he turned Blackstone into the biggest private Equity company in the world but by 1988 Blackstone was still a lesser known consulting firm and like think Steve schwarzman was a Cast Away he was a rising star in Leman Brothers on his way to become the CEO but due to a nasty power struggle he was forced to leave the company I I saw a lot of Behavior Uh that I didn't like and so decided to go out and do something uh with my partner who' been thrown out the year before by
the management that went in and ultimately blew up the company in 1988 Blackstone just started as a private Equity business and barely completed its first deal but Steve schwarzman is already thinking big by expanding the company to more areas and he's considering a wealth management business one of the reason why schwarzman was so successful is that he has an eye for talent he knows how to hire the best people we wanted to attract somebody to run it who was a 10 on a scale of 10 because you'll find in your careers if you're a 10
God bless you you'll be wildly successful if you attract tens they always make it rain if you need rain um and they just have an ability to sense problems design Solutions do new things and that's what a 10 does and Larry thinkink is a 10 after meeting think schwarzman decided to start a joy Adventure called Blackstone financial management by investing $5 million with fank took me a year and a half to assemble my thoughts and and and I told it I told the story to Steve schwarzman and Pete Peterson and uh they loved it and
they they had more confidence in me than I had myself they wanted to go right ahead and we did that and it all you know we started making we actually started making money with within two weeks we talk about Investment Company and a fund it's easy to get confused in this case Steve schwarzman gave $5 million to start a management company but then they have to raise money for their fund within 5 years think built his fund to have 8 billion under management think has learned a lesson that one should always be risk conscious one
of his investment principles is that he would not put down a dime until the risk can be understood and calculated there were so many other companies that really didn't understand the risk and most importantly the buy side the investors had no idea the risk they were taking and there was a great need for a company that starts off uh with a high concentration in Risk analytics and in principally in the fixed income area there was a lot of analytics and equities back then but nothing in in in bonds he was one of the first in
the industry to rely heavily on statistics and algorithms to make investment decisions f is now back on the top he recognizes that in order to grow bigger his company needs to offer more stock options to attract talented people he demands schwarzman to give up some of blackstone's ownership to his a great disappointment St schwarzman rejected his plan both Steve schwarzman and Larry Frink are highly competitive type A people but Steve schwarzman is a investment banker while think is more of a traitor Steve schwarzman he's unusually conservative of actually unusually risk averse for a successful entrepreneur
and investor this was a visceral thing like a primal impulse not to lose money two Alphas are always doomed to clash from the get-go after being rejected by St schwarzman for his proposal think is determined to completely seever ties with a firm by finding a buyer to purchase blackstone's ownership as schwarzman is going through a divorce in his personal life the news that F wants to lead Blackstone sent him into a frenzy ego is a great thing in business an ego you show me a Titan of industry and I'll show you somebody with a big
ego but on Wall Street everything has a price including ego convenient way to borrow is now even better because the rate on a PNC Bank home equity line of credit just took a tumble PNC Bank stands for Pittsburgh National Corporation a finance group with a long history and lineage in 1991 PNC was on a buying spree acquiring dozens of smaller firms it is a perfect buyer for f to get rid of blackstone's control they offer hundreds of millions of dollars to buy out Blackstone steak think about this Steve schwarzman and F started this business with
just about $5 million that is a huge return in just 5 years although Steve schwarzman is still hesitant the money it just too good to ignore he agrees to sell the asset management business to PNC this is the biggest mistake in Schwan's career at the time even he couldn't foresee that the side business of Blackstone will someday become a financial giant that dwarves even Blackstone itself 1994 was a fateful year for Black Rock after separating from Blackstone theany company was still small by Wall Street standard $8 billion a fixed income portfolio is not considered to
be big because bonds tend to make less returns and a little bit less risky now free to build Black Rock any way he likes think is holding nothing back but to win he must find an edge that others don't have and it will come from an unexpected Place remember our old kitchen yeah SM under the leadership by of Jack welge GE started an explosive growth fielded by easy money in the mid 80s General Electric Venture into new Industries including news and finance the company bought ker Peabody a one's respected Investment Bank but was later found
guilty of insider trading and accounting fraud once Welsh realizes how deeply in trouble his new firm is he decides to sell it to virtually anyone willing to buy pine Weber another investment bank is willing to acquire PE body from J but not its toxic bomb portfolio which consists of $10 billion worth of CMOS a type of mortgage Securities these derivatives are notorious for their complexity Welch was a brilliant manager but he was no Finance expert he frantically tried to get rid of the toxic assets left by Peabody but due to the complexity of the portfolio
no Wall Street firm wants to touch it except Black Rock as the pioneer of CMOS F realizes if Black Rock can help GE properly evaluate the assets he is set to make a huge profit and it will also be a breakout moment Fin's team of quantitative analysts Works tirelessly for weeks to re-evaluate the portfolio and to repackage them into a new set of derivative assets Black Rock helped GE gradually unload the assets and recover their value with minimal loss if you're confused about what he did and how he did it you're not alone it's called
Financial engineering it's about packaging restructuring existing Securities into new ones while some of these Securities are indeed valuable they're only available to Big players in finance but in the early 1990s the financial engineering becomes Larry Fin's number one Competitive Edge from then on black rocks developed a reputation as a Ghostbuster for companies with a problematic assets Larry fing becomes the guy to call the success with G solidifies black Rock's reputation on Wall Street just 3 years after separating from Blackstone black Rock's asset under management grew to $46 billion its parent company PNC decided to merge
its wealth management division with black rock with a combined $154 billion total asset assets after becoming a billionaire Larry think does what all billionaires do collecting Arts he believes that arts and real estates are the two greatest stores of wealth in the world and investors with a greater than 100K portfolio should use Arts as a better inflation hedge than gold art has benefited immensely from soaring costs according to data from City in fact they reported that Contemporary Art prices appreciated by 23.2% versus 3.8% for the S&P 500 during periods of 3% inflation or higher like
right now but unless you have $100 million in the bank you could never take a proper stake in this asset class until now masterworks.io acquires multi-million dollar paintings by famous artists like basat and Banky and allows anyone to invest in them just like picking stocks online and they built an Innovative platform that they recently raised $110 million in series a funding at a valuation over $1 billion the securitize each painting file with the secc and issue sheares representing an investment in R piece on their platform that investors can either hold or until Mass Works sell
the painting or sell to other Mass Works members on their platform investor already saw a 32% annualized price appreciation from the sale of their banking painting meta fees now thanks to Masterworks I'm an investor in basad and I invite you to do the same through the link in the description you will skip the weight list and get Priority Access to invest like me and Larry by the time it went public in 1999 Black Rob became the fifth largest publicly traded asset manager in America be wants to be number one over the next 5 years Black
Rock continues to grow accumulating $400 billion Assets in a little over 10 years thinks Black Rock has grown to be a monster and this monster only wants one thing to get bigger in the mid90s the United States saw a strong economic recovery like never before during Clinton's second term unemployment fail the stock market surged and America once again became the epicenter of the technological Revolution rised during the turbulent 60s and economic recession think joined Wall Street after creating his job at first Boston think Started Black Rock a decade later Black Rock became the most formidable
Forest on Wall Street with hundreds of billions of dollars under management but underneath of prosperity a crisis is brewing the financial derivatives that F helped develop in the 80s have now transformed into a ticking time bomb in December 2000 Congress passed the commodity Futures modernization Act act it banned any regulation of derivatives investment Banks make billions through the business of securitization this business links investment Banks insurance companies and rating agencies together connecting trillions of dollars in mortgages and other loans with investors all over the world the essence of it all is about shifting risks or
rather socializing risks and privatizing profits but the risk is still there since anyone could get a mortgage real estate prices skyrocketed real estate is real they can see their asset they can live in their asset they can rent out their [Music] asset there's gripped markets overnight with Asian stocks St fell off a cliff the largest single point drop in history share prices continued to Tumble in a matter of days one of the pillars of w one of the first Banks to fail is be Stern the US government asks the biggest Commercial Bank JP Morgan Chase
to bail out bear Stern we we bought ba Bear Sterns and it wasn't bailed out by the government the government did a little bit of financing we only did it because we asked to by Hank Paulson and we thought if it went down that could be a huge crisis for the globe Jamie Diamond is the shest banker on Wall Street he's not going to acquire beern at a loss so he dials up like Larry Frink for advice incidentally Tim gner who was orchestrating the deal was already contacting Larry Frink about bear Stern in normal times
this is a conflict of interest but F was just too good at his job so everyone just ignored it then black rock is hired again to help rescue AIG practically behind every major deal due in 2008 Black Rock was part of it and as an expert on Mor mortgage back Securities he was called in to help and to clean up with people like Hank Paulson and Jamie Diamond and Tim gner on speed dial Larry think helped engineer a remarkable rescue for the financial industry the financial crisis provided the perfect opportunity for think to strengthen his
position as the new king of Wall [Music] Street after the housing crisis of 2008 issuing and treading fixed income derivatives are no longer the most desirable business to get into since the early 2000 the internet has become widely available enabling the growth of social networks like Facebook and YouTube now we're at 100,000 people so who knows where we're going next um we're hoping to have many more universities by the Fall social media enables virtually frictionless mass communication and a fast flow of information think realizes this change will fund Mally alter the finance sector from the
wreckage of the 08 Disaster One business would explode the ETFs the best single thing you could have done was just buy an index fund statistically this is the simplest way to build wealth for probably 99% of investors the markets will grow over the long term and so because of that we can invest into some of these different funds that are available to US every year it turns out that probably 2third of the active managers are outperformed by the index and the third that outperform in one year are not the same as the ones who do
it the next year in his classic book Ren and walk down Wall Street Burton Mill proposes that a market is essentially random and therefore unbeatable the only rational thing to do is putting money in everything influenced by moil mutual fund Legend John ble launched the first public index mutual fund in 1975 starting with just $1 million this fund tracked the movement of S&P 500 after that many follow suit but these mutual funds did not become publicly traded until 1993 when the first ETF spdr came to life in the aftermath of the housing crisis in 2009
Black Rock has already begun acquiring ETFs starting with the iar from Burton sparlay Bank through just three funds you can get exposure to 1,500 stocks with minimal fees just like the fishing industry very few people get Wealthy by hunting whales most of the revenue comes from smaller fish with large volumes I guess to F he realized that the future of investing is about tapping into the pockets of smaller investors volume over profits black rum controls nearly half of the ETFs in America in 20 4 alone Black Rock raised $103 billion shortly The Firm becomes the
major shareholder in almost every public company out there they have 50 billion in locked Martin and northr Grumman each has and it's been the most successful it's not a bank it's just an investment company and it's been the most successful in the world so it's it's huge it's massive Larry f now has more potential power to influence the US economy than anyone else he is the GP Morgan of the 21st century and we're the largest pension manager in Japan in Mexico where we are now becoming we just did an acquisition we're going to be the
largest asset manager in Mexico we have one technology pipe worldwide that connects everything we do at the firm used to remain passive F now has become more involved in every company's board so over the last 5 years we built up our our corporate stewardship team and I actually believe there's less accountability at boards than there should have been in in global companies and so what we've now been asking companies please describe your long-term plan you tell us what longterm is but most importantly please just tell us that you reviewed your long-term strategy with your board
it means it start exercising his immense power provided by the old the ETFs he controls e [Music] [Music]
