it's a black frog I actually believe inflation will be abandoned very rapidly we now have a 170 billion dollars of dry powder a bit BlackRock and Blackstone are finance companies that control trillions of dollars worth of assets between them BlackRock State Street and Vanguard control 22 trillion dollars in assets which is roughly the equivalent of the entire gross domestic product of the United States of America there's a good chance that some of your money is controlled by one of these companies without you even knowing about it and what if I also told you that it's
very likely you are responsible for the funding of this company and allowing it to do what it does BlackRock was one of the largest investors in the ill-fated FTX and Blackstone has been blamed for single-handedly causing the housing affordability crisis but how do these companies actually work and are they really the most evil businesses in the world all right well no sorry to ruin the fun but if you remove the ominous sounding background music and carefully selected headlines these are just regular investment firms like any other not bad not terrible and it's also nice to
just give money directly to people to change their lives but I think the best way for you to realize this is to get a clear breakdown of how these companies operate so it's time to learn how money Works to find out how these companies make their money and who they answer to so that you can make up your own mind I'm all about being able to think critically and one way you can do that is by learning through brilliant brilliant is a learning platform helping you develop your knowledge in math science statistics and some fun
areas like finance and logic before the days of Reckless speculation in Retail Finance Financial derivatives were used as tools by big companies such as Airlines to secure the future price of oil brilliant offers a course in highlighting what these Financial tools are and helps you learn about derivatives in fixed income so that you understand how these products work so that when you learn more about them you can understand why they're so risky to use in retail trading activities from a former Financial professional to you let me say this understanding options Greeks and Futures contracts and
the risks associated with them will help you understand finance a lot better brilliant offers an interactive way to learn it doesn't just give you a lesson and expect you to retain what it told you it regularly tests your knowledge to help you actually learn the subject no matter if you want to learn from your computer or your phone brilliant makes a learning experience fun and easy to get started for free go to brilliant.org forward slash how many works or click the link in the description and the first 200 of you will get 20 off Brilliance
annual premium subscription Blackstone and BlackRock are both asset management companies based in New York and they both have black in their name but that's really where the similarities end Blackstone is an alternative investment management company that was founded in 1985 by Stephen A Schwartzman and his former boss from Lehman Brothers Peter Peterson yes that's his real name this is how the company got its name Schwartz is German for black and Peter Petros or Petra in Greek means Stone hence Blackstone Blackstone raised money from very rich people that wanted to make investments that weren't available to
regular folk the company originally started by underwriting mergers and Acquisitions of other companies Schwartzman was the former head of M A at Lehman Brothers so companies trusted his skills to get their deals done blackstone's job was to mediate deals between a company that wanted to buy another company m a guys will never say this out loud but it's very similar to what a realtor does only instead of Selling Houses for their clients they are selling companies the reason that Blackstone needed to raise money was that underwriting M A deals can be very lucrative but if
something goes wrong the underwriting company can be responsible for covering damages and they legally need to prove they have the cash on hand to be able to do that the early years of Blackstone were very lucrative as companies were lining up to use their M A services but that only made the company a few million dollars in commission for each successful deal and Schwartzman in particular had much grander Ambitions where I'm really confident is when I've thought about something and I've figured out you know what a solution and and then I'm willing to bring that
to anyone uh at any level in society I've always been like that because I'm just trying to be helpful he wanted to raise a private Equity Fund which is a fund that invests in companies that are not listed on public markets Blackstone wanted to get into private Equity because the freedom to invest in assets that are not usually available to regular people meant that they could make big returns and charge big fees the problem was that Schwartzman and Peterson struggled to find investors because people were very happy to invest in their business doing M A
but neither Schwartzman or Peterson had any direct experience in company buyouts to initially get around this Blackstone adopted a merchant banking model which is just a Wall Street way of saying that they would enter deals with an investor partner they would provide the m a services and general business expertise and the investor partner would provide the capital this strategy didn't last much longer than a year but it did allow them to demonstrate to their wealthy investors that they were more than capable at making their own private Equity deals so raising their own money was no
longer a problem we ended up raising the biggest first time Fund in history with two people who'd never made an investment just by force of will so it does show you that force of will counts by 1988 Blackstone was branching out into lots of different investment vehicles including a new business venture that would aim to do almost the exact opposite of what their business was doing at the time BlackRock was formed as a 50 50 partnership between Blackstone and a handful of Wall Street veterans including Larry Fink who was a senior executive at Blackstone but
moved over to be the CEO of BlackRock if you are still confused by the names you should know that Schwartzman and Fink did this intentionally they were warned not to make the company name sound too similar because it would cause confusion but they did it anyway because they liked the idea of having a family of investment companies while Blackstone was focused on working with wealthy investors who wanted access to Deals which were not available to the general public BlackRock was founded with the idea of making investing into public companies as easy as possible for regular
people blackrock's primary business is index funds these are pools of assets that BlackRock will blend together and then sell shares of while charging a very small fee for this service BlackRock offers these shares directly to investors and also sells them on dozens of different Securities exchanges all over the world this can be very convenient for investors who want to have investment exposure to different markets but don't have the resources to purchase foreign assets directly together with State Street and Vanguard BlackRock is one of the big three index fund managers and it's actually the largest of
the three thanks mostly to indexes that many of you would be familiar with such as ivv which is a weighted index of the S P 500 and currently has 295 billion dollars in assets under management just by itself and the scary part is that if this trend continues then those fund managers in those three companies will have total control over all the major U.S corporations the benefit of this to normal investors is that they can get a diversified portfolio of Investments without having to buy a weighted portfolio of shares all by themselves which would cost
over two million dollars at minimum just to have a weighted exposure to a group of shares like the S P 500 today BlackRock controls over 10 trillion dollars in assets under management and Blackstone the original private Equity company has 800 billion dollars in assets under management that might sound like BlackRock has gone on to be much larger and more successful than the company that founded it but BlackRock only makes a tiny Commission on the assets it controls so even though Black Stone controls less than 10 percent as many assets it still makes about the same
total revenue and net profit BlackRock was just another investment to Blackstone and despite the similar name schwartzman's company sold off its shares in Blackrock in the mid-1990s to date the companies have little to do with one another apart from their name and shared history in fact when I think about the really bad people ecorp the largest conglomerate in the world they're so big they're literally everywhere so are these companies evil well all companies have a fiduciary duty to their shareholders which means that they are legally obligated to make as much money as they can without
breaking the law that means that these companies like most companies can often do things that people don't like in the process of maximizing shareholder value these companies also have a fiduciary duty to the investors that put money directly into the products that they manage some people might have shares in BlackRock or Blackstone and have nothing invested into their financial products similarly millions of people invest in the financial products of these companies without actually owning any of their shares if you are still confused think of it like a bank and a bank account it's possible to
own shares in a bank without having a bank account with them and it's also possible to have a bank account at a bank that you don't own shares with but either way you would really want to make sure that the bank is doing its best to make sure that your money is well protected it's possible that a financial product that either of these companies offers has a good year while the company itself has a bad year and vice versa but obviously the management of both companies want to make sure that all of their investors do
well because to keep their shareholders happy they need to sell Financial products and to sell Financial products they need those financial products to do well the biggest controversy with BlackRock is simply the sheer size of its pool of assets managing 10 trillion dollars in assets means that the company has significant Holdings in most of the largest companies in the world this means that when it comes to shareholder votes the management of BlackRock can be instrumental at deciding the direction of a company this is half true BlackRock does have major stakes and a lot of very
important companies but they don't own them they simply purchase them on behalf of their clients which is anybody who has invested in one of their index funds the company does still have the power to vote on shareholder decisions but they try to be as transparent as possible with their votes and they also have functions that allow Index Fund investors to vote on which way BlackRock will vote if a company that BlackRock has 20 stake in is voting on a new CEO and 55 of the investors in the BlackRock Index Fund vote for candidate a over
candidate B then BlackRock will vote for candidate a in truth most investors in BlackRock funds never bothered to vote anyway I personally find it funny that BlackRock always seems to get so much negative press as an evil empire that is secretly pulling the strings of corporate America when Vanguard has nearly the same assets under management and operates in almost an identical way the only logical explanation I can think of is the name BlackRock just sounds more evil to unsophisticated financial content creators second is Corporate governance if you have two large managers owning very significant stakes
in many American companies what does that then mean for corporate governance Blackstone however might deserve some of the criticism it gets one of the biggest companies private Equity Ventures has been residential real estate Blackstone found that their business could build and scale an investment property portfolio very quickly by taking advantage of shared management costs top-tier Market data and access to interest rates significantly lower than individual home buyers or investors their wealthy clients love this asset class because it let them put millions or even billions of dollars into residential real estate but did away with the
need for them to find finance and manage thousands of properties themselves the bottom line is that Blackstone can offer their wealthy investors access to the market while charging a lower fee than a typical investor would pay to a property manager it's a very compelling investment vehicle and Blackstone has deployed over 280 billion dollars into real estate in total typically Blackstone targets upper middle class single-family homes in good areas and the company itself has noted in investor reports that the average family renting a Blackstone house earns almost double the average national income the company does also
invest into commercial properties like malls factories warehouses and medical centers which were actually the first pieces of real estate that the company targeted Schwartzman said that dental offices made great investment because not many people thought to invest in them and that dentists were great tenants because they had high incomes and didn't want to be kicked out of their office because the cost to refit a new Clinic was very high Blackstone has done well for its investors by buying real estate but that success has potentially come at a great cost to regular people that just want
to buy a house to live in for individual home purchases Blackstone has practically infinite capital and it's often not worth the time of a regional managing director to haggle over the price of a home this has meant Blackstone often comes into home sales and offers well above asking price to create a quick sale so they can quickly move on to their next purchase overpaying for Real Estate might not sound like a great long-term business strategy but if Blackstone owns enough homes in an area already then overpaying for one property can push the value of all
their other homes up because Realtors and appraisers use those recent sale prices to make price guides for future sales if BlackRock owns 200 homes in a neighborhood that are all worth five hundred thousand dollars and then it pays six hundred thousand dollars for another similar home than all of those price guides for their existing 200 homes will jump up to that price since it's what the market is paying that means that they may have overpaid by a hundred thousand dollars but they just generated 20 million dollars in Capital Growth for their investors artificially increasing the
value of their own Market means that BlackRock can report fantastic earnings for their investors even if they would struggle to realize those earning earnings if they ever had to sell off their property assets when private Equity does this it's called The Mark to Market fallacy and it's normally a big red flag when investing in a private company but for single-family homes it's easier to say that the house was different to the ones they invested in earlier to justify the price premium stretching the truth to investors is one thing but this whole process has had its
part to play in the house price increases that are making it harder for people to Simply find a place to live for perspective Blackstone only owns 0.2 percent of all single-family homes in America and more broadly all institutional investors collectively own about point six percent of single-family homes that's still a lot of homes but hopefully it shows that what you might have heard about Blackstone buying up all of the property in America and pricing regular people out of the market simply isn't true Blackstone and BlackRock are just vehicles for all different kinds of investors to
put their money to work and it's these two companies responsibility to make those Investments as profitable as possible the menacing names of these very large and largely misunderstood institutions are are probably where most of the controversy comes from they are by no means forces for good in the world that their company websites would have you believe but they are not evil Empires after world domination either if you want something to actually get angry about it is the companies that are engaged in outright fraud because even if you have never fallen for a scam or invested
in a company like FTX this next video will show you how fraud has cost you your financial future a special thanks again to brilliant for making it possible for everybody to keep on learning how money Works does it ever bother you that the corporation we work for is like evil every corporation is evil at least we get health benefits yeah wait you get health benefits
