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BlackRock and Blackstone are finance companies that control trillions of dollars worth of assets; while some controversies exist, they primarily operate as regular investment firms like any other; BlackRock's size and influence in shareholder voting can be concerning, while Blackstone's real estate investments have potentially affected housing affordability.
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BlackRock and Blackstone are finance companies that control trillions of dollars worth of assets, including a significant portion of the US GDP.
00:00
BlackRock, State Street, and Vanguard control $22 trillion in assets.
These companies may be responsible for managing some of your money without your knowledge.
BlackRock was a major investor in the ill-fated FTX, while Blackstone has been blamed for causing the housing affordability crisis.
However, these companies are just regular investment firms and not inherently evil.
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Blackstone, a company originally started by underwriting mergers and acquisitions, raised money from wealthy individuals to mediate deals between companies.
02:58
Blackstone raised money from rich individuals for investments not available to regular people.
The company was started by underwriting mergers and acquisitions.
Blackstone's job was to mediate deals between companies.
Blackstone needed to raise money to cover potential damages from underwriting M&A deals.
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BlackRock was founded with the idea of making investing into public companies easy for regular people.
05:55
BlackRock's primary business is index funds.
They sell shares of blended assets and charge a small fee.
BlackRock controls over $10 trillion in assets under management.
Despite having fewer assets, BlackStone still makes about the same revenue and net profit as BlackRock.
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BlackRock manages a significant amount of assets, giving them influence in shareholder votes, but they are transparent and allow investors to vote on decisions.
08:55
BlackRock manages 10 trillion dollars in assets and has significant holdings in many large companies.
They purchase these holdings on behalf of their clients, but do not own them.
BlackRock has the power to vote on shareholder decisions and tries to be transparent with their votes.
They allow Index Fund investors to vote on which way BlackRock will vote.
00:00it's a black frog I actually believe  inflation will be abandoned very rapidly  
00:08we now have a 170 billion dollars of dry powder a
00:15bit BlackRock and Blackstone are finance companies  that control trillions of dollars worth of  
00:20assets between them BlackRock State Street and  Vanguard control 22 trillion dollars in assets  
00:29which is roughly the equivalent of the entire  gross domestic product of the United States of  
00:35America there's a good chance that some  of your money is controlled by one of  
00:38these companies without you even knowing  about it and what if I also told you that  
00:42it's very likely you are responsible for the  funding of this company and allowing it to do  
00:47what it does BlackRock was one of the largest  investors in the ill-fated FTX and Blackstone  
00:52has been blamed for single-handedly causing  the housing affordability crisis but how do  
00:56these companies actually work and are they really  the most evil businesses in the world all right
01:04well no sorry to ruin the fun but if you  remove the ominous sounding background music  
01:11and carefully selected headlines these are just  regular investment firms like any other not bad  
01:16not terrible and it's also nice to just give  money directly to people to change their lives  
01:23but I think the best way for you to realize  this is to get a clear breakdown of how these  
01:28companies operate so it's time to learn how  money Works to find out how these companies  
01:32make their money and who they answer to so that  you can make up your own mind I'm all about being  
01:37able to think critically and one way you can do  that is by learning through brilliant brilliant  
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02:38click the link in the description and the first  200 of you will get 20 off Brilliance annual  
02:42premium subscription Blackstone and BlackRock are  both asset management companies based in New York  
02:48and they both have black in their name but that's  really where the similarities end Blackstone is an  
02:54alternative investment management company that  was founded in 1985 by Stephen A Schwartzman  
02:58and his former boss from Lehman Brothers Peter  Peterson yes that's his real name this is how the  
03:04company got its name Schwartz is German for black  and Peter Petros or Petra in Greek means Stone  
03:09hence Blackstone Blackstone raised money from very  rich people that wanted to make investments that  
03:15weren't available to regular folk the company  originally started by underwriting mergers and  
03:19Acquisitions of other companies Schwartzman  was the former head of M A at Lehman Brothers  
03:23so companies trusted his skills to get their  deals done blackstone's job was to mediate deals  
03:28between a company that wanted to buy another  company m a guys will never say this out loud  
03:33but it's very similar to what a realtor does only  instead of Selling Houses for their clients they  
03:38are selling companies the reason that Blackstone  needed to raise money was that underwriting M A  
03:43deals can be very lucrative but if something goes  wrong the underwriting company can be responsible  
03:47for covering damages and they legally need to  prove they have the cash on hand to be able to  
03:52do that the early years of Blackstone were very  lucrative as companies were lining up to use their  
03:56M A services but that only made the company  a few million dollars in commission for each  
04:00successful deal and Schwartzman in particular  had much grander Ambitions where I'm really  
04:06confident is when I've thought about something  and I've figured out you know what a solution  
04:11and and then I'm willing to bring that to anyone  uh at any level in society I've always been like  
04:19that because I'm just trying to be helpful he  wanted to raise a private Equity Fund which is  
04:24a fund that invests in companies that are not  listed on public markets Blackstone wanted to  
04:28get into private Equity because the freedom to  invest in assets that are not usually available  
04:33to regular people meant that they could make  big returns and charge big fees the problem  
04:37was that Schwartzman and Peterson struggled to  find investors because people were very happy  
04:42to invest in their business doing M A but neither  Schwartzman or Peterson had any direct experience  
04:47in company buyouts to initially get around this  Blackstone adopted a merchant banking model  
04:52which is just a Wall Street way of saying that  they would enter deals with an investor partner  
04:56they would provide the m a services and general  business expertise and the investor partner would  
05:01provide the capital this strategy didn't last  much longer than a year but it did allow them  
05:05to demonstrate to their wealthy investors that  they were more than capable at making their own  
05:09private Equity deals so raising their own money  was no longer a problem we ended up raising the  
05:14biggest first time Fund in history with two people  who'd never made an investment just by force of  
05:19will so it does show you that force of will counts  by 1988 Blackstone was branching out into lots of  
05:27different investment vehicles including a new  business venture that would aim to do almost  
05:31the exact opposite of what their business was  doing at the time BlackRock was formed as a 50  
05:3650 partnership between Blackstone and a handful of  Wall Street veterans including Larry Fink who was  
05:41a senior executive at Blackstone but moved over to  be the CEO of BlackRock if you are still confused  
05:46by the names you should know that Schwartzman  and Fink did this intentionally they were warned  
05:51not to make the company name sound too similar  because it would cause confusion but they did it  
05:55anyway because they liked the idea of having a  family of investment companies while Blackstone  
06:00was focused on working with wealthy investors who  wanted access to Deals which were not available to  
06:04the general public BlackRock was founded with the  idea of making investing into public companies as  
06:10easy as possible for regular people blackrock's  primary business is index funds these are pools  
06:15of assets that BlackRock will blend together and  then sell shares of while charging a very small  
06:19fee for this service BlackRock offers these  shares directly to investors and also sells  
06:24them on dozens of different Securities exchanges  all over the world this can be very convenient  
06:28for investors who want to have investment exposure  to different markets but don't have the resources  
06:33to purchase foreign assets directly together with  State Street and Vanguard BlackRock is one of the  
06:38big three index fund managers and it's actually  the largest of the three thanks mostly to indexes  
06:43that many of you would be familiar with such  as ivv which is a weighted index of the S P 500  
06:48and currently has 295 billion dollars in assets  under management just by itself and the scary part  
06:54is that if this trend continues then those fund  managers in those three companies will have total  
07:01control over all the major U.S corporations  the benefit of this to normal investors is  
07:06that they can get a diversified portfolio of  Investments without having to buy a weighted  
07:10portfolio of shares all by themselves which would  cost over two million dollars at minimum just to  
07:15have a weighted exposure to a group of shares  like the S P 500 today BlackRock controls over  
07:2010 trillion dollars in assets under management and  Blackstone the original private Equity company has  
07:26800 billion dollars in assets under management  that might sound like BlackRock has gone on to  
07:30be much larger and more successful than the  company that founded it but BlackRock only  
07:34makes a tiny Commission on the assets it controls  so even though Black Stone controls less than 10  
07:39percent as many assets it still makes about the  same total revenue and net profit BlackRock was  
07:44just another investment to Blackstone and despite  the similar name schwartzman's company sold off  
07:49its shares in Blackrock in the mid-1990s to  date the companies have little to do with one  
07:54another apart from their name and shared history  in fact when I think about the really bad people
08:02ecorp the largest conglomerate in the world  
08:06they're so big they're literally everywhere so  are these companies evil well all companies have  
08:13a fiduciary duty to their shareholders which  means that they are legally obligated to make  
08:16as much money as they can without breaking the  law that means that these companies like most  
08:21companies can often do things that people don't  like in the process of maximizing shareholder  
08:25value these companies also have a fiduciary  duty to the investors that put money directly  
08:30into the products that they manage some people  might have shares in BlackRock or Blackstone  
08:34and have nothing invested into their financial  products similarly millions of people invest  
08:38in the financial products of these companies  without actually owning any of their shares if  
08:43you are still confused think of it like a bank  and a bank account it's possible to own shares  
08:47in a bank without having a bank account with them  and it's also possible to have a bank account at  
08:51a bank that you don't own shares with but either  way you would really want to make sure that the  
08:55bank is doing its best to make sure that your  money is well protected it's possible that a  
09:00financial product that either of these companies  offers has a good year while the company itself  
09:04has a bad year and vice versa but obviously the  management of both companies want to make sure  
09:08that all of their investors do well because  to keep their shareholders happy they need to  
09:12sell Financial products and to sell Financial  products they need those financial products to  
09:16do well the biggest controversy with BlackRock  is simply the sheer size of its pool of assets  
09:21managing 10 trillion dollars in assets means that  the company has significant Holdings in most of  
09:26the largest companies in the world this means that  when it comes to shareholder votes the management  
09:30of BlackRock can be instrumental at deciding  the direction of a company this is half true  
09:35BlackRock does have major stakes and a lot of very  important companies but they don't own them they  
09:40simply purchase them on behalf of their clients  which is anybody who has invested in one of their  
09:44index funds the company does still have the power  to vote on shareholder decisions but they try to  
09:49be as transparent as possible with their votes  and they also have functions that allow Index  
09:53Fund investors to vote on which way BlackRock will  vote if a company that BlackRock has 20 stake in  
09:58is voting on a new CEO and 55 of the investors  in the BlackRock Index Fund vote for candidate  
10:03a over candidate B then BlackRock will vote for  candidate a in truth most investors in BlackRock  
10:10funds never bothered to vote anyway I personally  find it funny that BlackRock always seems to get  
10:15so much negative press as an evil empire that is  secretly pulling the strings of corporate America  
10:19when Vanguard has nearly the same assets under  management and operates in almost an identical  
10:24way the only logical explanation I can think  of is the name BlackRock just sounds more evil  
10:29to unsophisticated financial content creators  second is Corporate governance if you have two  
10:35large managers owning very significant stakes in  many American companies what does that then mean  
10:39for corporate governance Blackstone however might  deserve some of the criticism it gets one of the  
10:45biggest companies private Equity Ventures has  been residential real estate Blackstone found  
10:49that their business could build and scale an  investment property portfolio very quickly by  
10:54taking advantage of shared management costs  top-tier Market data and access to interest  
10:58rates significantly lower than individual home  buyers or investors their wealthy clients love  
11:03this asset class because it let them put millions  or even billions of dollars into residential real  
11:07estate but did away with the need for them to  find finance and manage thousands of properties  
11:12themselves the bottom line is that Blackstone  can offer their wealthy investors access to the  
11:16market while charging a lower fee than a typical  investor would pay to a property manager it's a  
11:21very compelling investment vehicle and Blackstone  has deployed over 280 billion dollars into real  
11:25estate in total typically Blackstone targets  upper middle class single-family homes in  
11:30good areas and the company itself has noted  in investor reports that the average family  
11:34renting a Blackstone house earns almost double  the average national income the company does  
11:39also invest into commercial properties like malls  factories warehouses and medical centers which  
11:44were actually the first pieces of real estate  that the company targeted Schwartzman said that  
11:48dental offices made great investment because  not many people thought to invest in them and  
11:52that dentists were great tenants because they  had high incomes and didn't want to be kicked  
11:56out of their office because the cost to refit a  new Clinic was very high Blackstone has done well  
12:01for its investors by buying real estate but  that success has potentially come at a great  
12:05cost to regular people that just want to buy a  house to live in for individual home purchases  
12:10Blackstone has practically infinite capital  and it's often not worth the time of a regional  
12:14managing director to haggle over the price of a  home this has meant Blackstone often comes into  
12:19home sales and offers well above asking price  to create a quick sale so they can quickly move  
12:23on to their next purchase overpaying for Real  Estate might not sound like a great long-term  
12:28business strategy but if Blackstone owns enough  homes in an area already then overpaying for one  
12:32property can push the value of all their other  homes up because Realtors and appraisers use  
12:37those recent sale prices to make price guides  for future sales if BlackRock owns 200 homes in  
12:42a neighborhood that are all worth five hundred  thousand dollars and then it pays six hundred  
12:46thousand dollars for another similar home than  all of those price guides for their existing  
12:49200 homes will jump up to that price since it's  what the market is paying that means that they  
12:54may have overpaid by a hundred thousand dollars  but they just generated 20 million dollars in  
12:58Capital Growth for their investors artificially  increasing the value of their own Market means  
13:03that BlackRock can report fantastic earnings for  their investors even if they would struggle to  
13:07realize those earning earnings if they ever had to  sell off their property assets when private Equity  
13:12does this it's called The Mark to Market fallacy  and it's normally a big red flag when investing  
13:16in a private company but for single-family homes  it's easier to say that the house was different to  
13:21the ones they invested in earlier to justify the  price premium stretching the truth to investors  
13:26is one thing but this whole process has had its  part to play in the house price increases that  
13:31are making it harder for people to Simply find  a place to live for perspective Blackstone only  
13:35owns 0.2 percent of all single-family homes  in America and more broadly all institutional  
13:40investors collectively own about point six percent  of single-family homes that's still a lot of homes  
13:46but hopefully it shows that what you might  have heard about Blackstone buying up all of  
13:50the property in America and pricing regular people  out of the market simply isn't true Blackstone and  
13:55BlackRock are just vehicles for all different  kinds of investors to put their money to work  
13:59and it's these two companies responsibility  to make those Investments as profitable as  
14:03possible the menacing names of these very large  and largely misunderstood institutions are are  
14:08probably where most of the controversy comes  from they are by no means forces for good in  
14:13the world that their company websites would have  you believe but they are not evil Empires after  
14:17world domination either if you want something  to actually get angry about it is the companies  
14:21that are engaged in outright fraud because even  if you have never fallen for a scam or invested  
14:26in a company like FTX this next video will show  you how fraud has cost you your financial future  
14:31a special thanks again to brilliant for making  it possible for everybody to keep on learning  
14:35how money Works does it ever bother you that  the corporation we work for is like evil every  
14:41corporation is evil at least we get health  benefits yeah wait you get health benefits
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FAQs about This YouTube Video

1. How do BlackRock and Blackstone differ from regular investment firms?

BlackRock and Blackstone are finance companies that control trillions of dollars worth of assets. While some controversies exist, they primarily operate as regular investment firms like any other.

2. What makes BlackRock's size and influence concerning in shareholder voting?

BlackRock's size and influence in shareholder voting can be concerning due to the significant impact it can have on corporate decision-making and governance.

3. How have Blackstone's real estate investments potentially affected housing affordability?

Blackstone's real estate investments have potentially affected housing affordability by influencing the availability and pricing of residential properties in certain markets.

4. What are the primary functions of BlackRock and Blackstone?

The primary functions of BlackRock and Blackstone include managing assets, making investments, and providing financial services to clients.

5. What is the scope of assets controlled by BlackRock and Blackstone?

BlackRock and Blackstone control trillions of dollars worth of assets, encompassing a wide range of investments across various sectors and markets.

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