this might come as a shock to you but big companies are getting bigger rich people are getting richer in vital resources like housing business Equity food and even water are now owned by a smaller share of people than ever before groundbreaking journalism I know but what most people don't realize is just how concentrated this has really become private Equity Now controls as much as 20% of the entire US economy top index funds now owns 20 to 30% of all major companies listed in America and even good old fashion fraud is getting bigger and more concentrated
and who can blame them economies of scale have encouraged businesses to scale Market responded to too big to fail by becoming too big to fail but what does this actually mean for regular people there is the moral argument that so many resources being controlled by such a small few is you know unfair but let's be honest you've already made up your mind on that and no YouTube video is going to change it one way or the other instead what actually matters here is how much this can go and what happens to markets when these people
have nobody left to sell to but themselves the last quarter you're able to buy looks like a little bit more than 1,500 homes for $656 million these investment companies they want to make money that's what they're there for outrageous is your tax dollars are helping Wall Street buy up single family home you're subsidizing Wall Street water asset management is a Wall Street investment firm with offices inside this building in New York City that as water becomes scarce Wall Street sees profits Elon Musk the world's richest person is now the first person to have a net
worth surpassing $400 billion private Equity has become the boogeyman of Finance just like hedge funds were in the 2010s and sometimes for a good reason average people have been told to hate them insufferable Wharton grads want to intern with them and the industry is making more billionaires than oil real estate and even technology the question is are they creating value or just extracting it these alternative Investments used to be exactly that Alternatives but the private Equity Market has changed in just the last 15 years from a small Niche that was popular with a select few
families to one of the biggest asset holders in the world because private Equity is private it can be hard to accurately estimate just how much capital is controlled by these firms but a report published by the management consulting fir Mackenzie and Company estimated that it was over 13 trillion dollar as of June of last year given General market conditions and fundraising it's likely to be even higher now now there is nothing actually that special about private Equity it really just means any investment made into a business or security that is not listed on public markets
so if you invest $1,000 in your brother's Farmers Market stall you are technically a private Equity investor so you know make sure to slap it on the LinkedIn profile so the reason that private Equity got so big so quickly has nothing to do with it being an amazing investment or anything silly like that it's purely the result of a financial system that has become too concentrated the American economy finance and business activity are all much bigger than they were in the 1990s but the number of publicly listed companies has actually gone way down since then
in fact it's almost haved in the same time the economy has tripled in size now one big reason for there being less publicly listed companies is simply because bigger companies have been acquiring smaller companies at record rates making for a more concentrated business environment with fewer companies overall which is you know the whole point of this video but we will actually get to the consolidation later there are also fewer companies iping in the first place because there really is no need to anymore companies list themselves on stock exchanges to raise money from the public hence
why it's called an initial public offering but the general public just doesn't have that much money anymore the wealthiest 10% of Americans now own 93% of all publicly listed stocks the vast majority of capital flowing into public stock markets comes from people or institutions that are rich enough to invest in private Equity so the Regulatory and Reporting burden of being a public company just simply isn't worth it to get access to 90% of people who all collectively own just 7% of the market that 93% of stock ownership is largely held through retirement accounts which are
handled by funds which can invest into private Equity as well so for most companies it just doesn't make sense to go public anymore now all right so what people have slightly fewer options to ape their life savings into on Robin Hood well apart from that this trend which has only really been going on for 15 years at this point is really causing a lot of problems and costing you a lot more than you realize the first issue that doesn't get nearly enough attention is how they have created micr monopolies when you think of monopolies you
are probably going to think of giant companies that own entire markets everywhere across the world like well you know YouTube but a much more common type of Monopoly has started to become a bigger problem these are small local monopolies one of the hottest new private Equity Investments has become youth sports leagues little league is a great investment because for can buy up all the sports in a local area and create a monopoly on competitive team activities and nobody wants to be the parent that denies their child the opportunity to go and touch grass with their
friends according to a report by the Aspen Institute these local leagues are collectively a $3 billion industry and they are becoming more expensive as they are Consolidated by private Equity firms now this is just one particularly scummy example but creating local monopolies is just a good business strategy it's not technically legal but the Federal Trade Commission just doesn't have the manpower to identify and enforce these thousands of local issues when they don't even really have the resources to go after the most obvious monopolies these subtle consolidations have changed how and where we spend our money
but it has had a much more serious impact on how we earn our money so it's time to learn how money Works to find out if it's possible to reverse the concentration of everything this week's video is sponsored by ODU ODU is your One-Stop software solution for small and medium businesses offering a full Suite of integrated apps to streamline operations everything from CRM and sales to inventory and accounting today we're Shining Light on odu's website builder it's a tool that we've been testing for an upcoming project it lets you create Sleek professional websites with zero
technical knowhow required best of all it's completely free that includes unlimited hosting support and even a custom domain for one year no strings attached our experience with ODU has been fantastic the intuitive drag and drop design makes building a website straightforward and enjoyable plus the built-in chat GPT integration has made it a breeze to craft and refine our content whether you're starting fresh or giving your current website of facelift odu's website builder makes the process stressfree and fun ready to start head over to odu.com rt48 to build your brand online with ease another major problem
with a lot of businesses being owned by a very small group of investment firms is that it makes it really hard to see what is actually happening in our own economy public companies have to release regular financial statements and their market value is updated every microsc as their stock is traded as more of the market is held by a smaller group of investment firms it gets harder to tell how these businesses are performing and how they are being run John coat a professor of Law and economics at Harvard recently released a book called the problem
of 12 when a few financial institutions control everything which addressed exactly this problem specifically he mentions that Pension funds have found private Equity very attractive and since most Pension funds are investing on behalf of regular people it can be very difficult for those people to see how their money is being used since there are two financial institutions between them and the business they are actually investing in cach also speaks about the concentration of capital in index funds like Vanguard Black Rock and State Street he doesn't highlight the usual criticism like Larry think being a lizard
man that secretly controls the global economy but he does raise the issue that the way these Financial products invest money makes normal price Discovery much harder and also incentivizes getting more concentrated something like vanguard's V o ETF just mindlessly takes investor money and puts it directly into the weighted average of the 505 stocks that make up the S&P 500 and yes there are actually 505 stocks in the S&P 500 because some companies list Class A and B shares Finance Bros aren't very good at naming things this means that a large share of investors are just
investing in whatever has the most investors which has just helped contribute to immense valuations of companies at the top of the market the amount of investment Capital concentrated through these investment managers means that they now have significant influence over company shareholder votes and new products like ESG or green ETFs can have more influence over board decisions than they really should have there will be a link in the description below to that book if you are interested in reading the whole thing though you should know it was written for MBA students at Harvard so it is
a little bit dense he also gave a half hour interview just last month available here on YouTube which is also worth checking out another big problem is Corporate debt most of the biggest private Equity firms in the world use what's called a leveraged buyout this this is where they will buy a whole lot of companies get those companies to take out big loans and then use the borrowed money to pay themselves back so that they can go and buy even more companies this normally involves a lot of cost cutting in the business so they can
make their repayments but on a wider scale it's contributed to the record levels of corporate debt that we have in America today which as a percent of GDP was only higher during the first wave of PPP loans and just after the global financial crisis businesses always want to get more concentrated it's the natural order that big businesses will acquire little businesses or put them out of work the rise of private Equity the proliferation of passive index funds low interest rates and the FLAC approach of regulators has only made this natural process much faster but this
still isn't the worst part corporate concentration has made finding competitive job opportunities extremely difficult especially for people in smaller communities that have had local businesses quietly rolled up by large investment funds the best way to get a higher salary as a worker is to switch jobs for better opportunities but if you are a plumber and all of the plumbing businesses in the local area are owned by the same holding company you aren't going to be able to negotiate like you would with competing businesses now if you think you could get around this problem by starting
a business of your own well actually it gets even worse in an article published by The Washington Post lilan Salo a healthcare entrepreneur spoke about her difficulty in bringing a new safer medical syringe to the market because businesses up and down the supply chain had become highly Consolidated so they didn't want to work with a potential competitor even if her product would have been B better for patients this is technically anti-competitive practice but again Regulators are understaffed and underfunded it's even worse in highly scalable Industries like technology the most important thing that early stage investors
Now look for in startup companies is an exit strategy which is just business speak for who is going to buy this company if it's successful those buyers are either a few of the industry top players or a private Equity Firm the result of this is that only companies with the highest potential to scale and the best opportunity for acquisition actually get funded which is why places like Silicon Valley have gone from making technology to solve The World's problems to writing algorithms to keep you watching your phone for an extra 20 seconds a day a blog
post written by Ross Bears who is ironically the president of a venture capital firm called this the stagnant pool of American entrepreneurship if you wanted to start a company tomorrow you probably wouldn't know where to start especially if you had to go and raise capital from professional investors there are programs like y combinator that incubate early St companies but access to these programs is highly competitive the people that have the connections and experience to get these business started also know that the best way to run these businesses is to just build it so a bigger
business comes along and buys it the people that have felt this the worst are the tech Bros an entire generation of people were told that if they just learned a code they would have a stable career for Life go and watch my video on the rise and fall to find out how instead it just turned into a giant Casino where workers either get life-changing payouts or they're just part of record layoffs and make sure to subscribe to keep on learning how money works
