Introduction: Colossus Funds With Outsized Influence
Blackstone and BlackRock.
You‘ve likely heard these names tossed around in discussions of finance, investment, and even issues like housing affordability or climate change. They seem to have their hands in everything.
As two of the largest asset management firms in the world, with combined assets under management (AUM) exceeding $15 trillion, their actions impact markets and livelihoods at tremendous scale.
But are they ‘‘evil‘‘ corporations? Predatory speculators bleeding citizens and communities dry for profit? Or respectable investment stewards channeling capital responsibly to power the economy?
The truth lies somewhere in between – but informed observers are right to have concerns about the level of influence concentrated in just two Wall Street giants.
This in-depth guide examines both sides, digging into their operations, controversies and power across sectors like:
- Housing
- Corporate governance
- Government policy
Grasping Blackstone and BlackRock‘s DNA is crucial for anyone participating in modern markets, whether as an investor, homebuyer, corporation, regulator or ordinary citizen impacted by their decisions over trillions of dollars.
Blackstone: Alternative Assets Speculator
Founded in 1985 by Peter Peterson and Stephen Schwarzman with $400,000, Blackstone Group has become a leading private equity, real estate and hedge fund firm, with over $950 billion assets under management (AUM) as of 2022.
It focuses on alternative investments – from private equity deals to commercial real estate, leveraged buyouts of companies, credit, infrastructure projects and more.
The firm operates via:
- Private equity funds – Locking up outside capital for 5-7 years to acquire companies, restructure them aggressively with layoffs and cost cuts, then sell for a profit.
- Real estate funds – Acquiring undervalued properties globally to fix up and sell when prices rise.
- Hedge funds – Using leverage and derivatives to amplify returns.
- Credit funds – Extending financing for assets like airplanes, music catalogs or pipelines.
These funds cater mainly to institutional investors like pension funds, insurers and endowments seeking higher returns beyond public stocks and bonds.
But Blackstone also serves ultra high net worth individuals – they require $5 million in investable assets for individuals to access their funds.
Schwarzman‘s Ambition
Founder Stephen Schwarzman‘s relentless drive and ambition has fueled Blackstone‘s meteoric growth.
He aspired to financial heights from a young age – including a stint at Lehman Brothers and co-founding Blackstone at age 37 after being passed over for promotion at Lehman.
“I wanted to be really rich when I was young. I‘m not going to deny it." – Stephen Schwarzman
With a risk-taking vision, he rapidly built Blackstone into:
- The world‘s largest real estate investment manager
- The world‘s largest distressed debt investor
- One of the world‘s top private equity houses
Schwarzman retains $17 billion stake in Blackstone and has amassed a $40 billion personal fortune.
Rocky First Fund But Long Term Gains
Blackstone struggled initially, failing to convince investors to back its first fund and ringing up early losses.
Yet persistence paid off. Its next private equity fund brought great returns, raising what was then the biggest first-time fund ever at $1.1 billion.
This let Blackstone demonstrate its private equity mettle, paving the way for larger vehicles:
| Fund | Year Raised | Amount Raised |
|---|---|---|
| Blackstone Capital Partners IV | 2007 | $21.7 billion |
| Blackstone Capital Partners V | 2011 | $15.8 billion |
| Blackstone Capital Partners VI | 2014 | $15.8 billion |
| Blackstone Capital Partners VII | 2016 | $18.5 billion |
Today, Blackstone ranks among the top 5 global private equity firms with $380 billion in corporate private equity assets.
BlackRock: Index Fund Colossus
Formed in 1988, BlackRock manages $10 trillion in investment and risk management assets worldwide – making it the largest money manager globally.
Started by Larry Fink and others who left Blackstone, the firm initially provided risk analysis services.
It grew rapidly, especially post 2008 crisis, by acquiring competitors – including Merrill Lynch Investment Managers in 2006 and Barclays Global Investors in 2009 which made it the top ETF provider.
Unlike Blackstone‘s high-end private capital, BlackRock focuses on mass market funds – especially passive index-tracking ETFs and mutual funds exposed to global stock and bond markets.
These products have extremely low management fees given minimal active stockpicking is involved. Automated computer models handle most of the rebalancing.
So even tiny fees on vast AUM have made BlackRock tremendously profitable.
Its iShares ETF platform has over $3 trillion in assets and is the world‘s largest.
This strategy dominates due to scale advantages and investor preference shifting to lower-fee passive funds over expensive underperforming active managers.
Housing Market Dominators
A key area where both Blackstone and BlackRock attract controversy is in residential real estate.
Critics argue their enormous capital allows them to acquire discounted properties in bulk post-crisis, creating new corporate mega-landlords with outsized influence.
Institutions increased their share of residential purchases from nearly 0% pre-2000 to over 30% in many markets today.
Let‘s examine both firm‘s roles and incentives when it comes to housing.
Blackstone
Starting in 2012 in the wake of the subprime mortgage crisis, Blackstone began aggressively acquiring foreclosed and distressed single-family homes – spending over $80 billion to become America‘s biggest landlord.
They targeteddiscounted properties in regions like Phoenix, Atlanta, Florida – buying over $1 billion homes in a year at one point!
These were then extensively renovated and rented out to tenants via management companies like Invitation Homes – which Blackstone took public in an enormou $20 billion IPO.
Today, Blackstone controls $140 billion in housing assets – from institutional-grade apartment blocks to single-family suburban homes:
| Unit Type | # of Units Owned |
|---|---|
| Single-Family Rentals | 80,000+ |
| Multi-Family Units | 150,000+ |
Critics argue Blackstone and similar large-scale institutional landlords disadvantage regular homebuyers – using algorithmic pricing tools and huge warchests of capital to beat out everyday folks attempting to purchase affordable properties to live in.
They also worry about potential skewed incentives around maintenance, viewing homes as extractable "yield-producing assets" rather than places for community building.
BlackRock
BlackRock has also been boosting investments in single-family rentals – recently partnering with other institutional investors to acquire a $300 million portfolio to capitalize on red-hot demand.
But so far, it does not approach the scale of Blackstone‘s massive footprint in housing and conflicts of interest as the landlord middleman between property assets and actual residents.
In fact, 78% of BlackRock‘s real estate assets remain commercial focused – shopping malls, medical complexes and the like.
Still, affordable housing advocates are concerned this signals a broader trend of corporations consolidating access to homes and pricing out everyday families unable to match their purchasing power.
Corporate Governance Concerns
In addition to housing issues, both Blackstone and BlackRock have faced scrutiny around their equity investments in public companies:
BlackRock
As the world‘s largest asset manager, BlackRock holds over $10 trillion in equity assets – making it the single largest shareholder in 40% of all listed US corporations.
This represents tremendous voting clout on issues like executive compensation, board makeup, acquisitions, carbon emissions – amplified by the fact much of BlackRock‘s ownership comes via passively managed index funds.
| Topic | BlackRock‘s Typical Stances |
|---|---|
| CEO Pay | Lower bonuses, more long term equity incentives |
| Board Diversity | Expect 30%+ female directors as bare minimum |
| Climate Concerns | Seek transparency and progress on emissions cuts |
Critics argue this creates a paradox – owning major stakes without wanting to intervene much as passive investors, yet still having undue influence.
However, BlackRock maintains it takes its oversight duties seriously – utilizing its "voting clout to catalyze positive change" via firms signed on to initiatives like Climate Action 100+.
Blackstone
Blackstone also ends up influencing many corporations, but via a more directly active private equity approach.
By acquiring companies and restructuring them aggressively, usually saddling them with substantial debt in leveraged buyouts (LBOs), it engenders controversy around:
- Excessive cost cutting jeopardizing workers and long term health
- Short hold periods – seeking to flip assets in <5 years
- High fees debate – charges portfolio companies ~$220 million annually
For example, Blackstone-owned La Quinta cut staffing and salaries post LBO by up to 25% as part of positioning it for profitable exit.
Similar patterns play out across infrastructure assets like casinos, where critics argue financial strip-mining enriches investors over patrons.
By The Numbers: Two Firms, $15 Trillion & Counting
Let‘s step back and visualize just how much money Blackstone and BlackRock actively manage – over $15 trillion combined!
That‘s larger than the $10.5 trillion annual GDP of China:
Data sources: Companies‘ financial reports, World Bank
Or nearly double the $8.6 trillion market cap of all US publicly traded stocks:
These figures contextualize the enormity of their influence.
Let‘s examine each company‘s assets under management growth over the past 15 years:
Blackstone AUM
- AUM up 7x from $125 billion to over $950 billion
- Adds roughly $100 billion each year
BlackRock AUM
- AUM up 5x from $2 trillion to over $10 trillion
- Adds over $400 billion in assets annually
Such ascendency gives both tremendous influence on capital flows and corporate policies.
Housing Policies Enable Takeover
In assessing firms like Blackstone and BlackRock‘s impact on issues like affordable housing access, it‘s worth examining the policy environment and conditions enabling their rise.
Housing prices racing ahead of incomes, restrictive zoning rules, easing financial regulations,implicit government backing of mortgages and tax loopholes all incentivize corporate consolidation.
Politicians must shoulder blame for a system skewed towards institutional investors over citizens actually seeking shelter rather than asset appreciation.
Without addressing these root causes, calls to break up BlackRock and Blackstone specifically may do little while more firms simply take their place.
Of course, both actively lobby lawmakers to maintain a favorable framework. Blackstone spent over $10 million on lobbying in 2021 alone, seeking to influence bills on taxes, banking and housing.
So action by concerned citizens, policy groups and regulators will be essential to right-size influence by such colossal capital allocators.
Good, Bad or Simply Inevitable?
There are reasonable debates around whether Blackstone and BlackRock‘s business models and incentives are compatible with equitable, sustainable growth.
It‘s not an either-or choice between them being completely predatory or responsible stewards simply facilitating market activity.
Aspects certainly demand scrutiny and reform – from pricing regular homebuyers out of housing, to questionable governance in companies they own for the short haul.
But as mainly investment intermediaries – Blackstone serving wealthy clients and BlackRock funnelling mass savings into indexes – it‘s debatable how much direct "control" they exert.
Most productive discourse lies beyond reactionary "break them up!" calls without addressing underlying drivers.
Their rise largely reflects tectonic shifts in finance away from active stockpicking towards low-cost passive funds and alternatives like private equity open only to qualified individuals.
So while Blackstone and BlackRock have clearly engaged in questionable pursuits of profits over people, it seems reductive and unhelpful to label them literal evil incarnate.
Greater transparency, accountability guardrails and democratization of their influence over housing, governance and policymaking is the most prudent path so markets work for all.
Conclusion: Love ‘Em or Hate ‘Em, Can‘t Ignore ‘Em
Debates will surely continue raging whether Blackstone and BlackRock‘s exponentially growing empires merit the ominous "evil corporation" mantle.
Yet most informed observers agree their investment footprint across economies and financial markets means they cannot and should not be ignored.
It seems beyond dispute stronger oversight is warranted as financial services consolidate into a handful of unaccountable institutions.
But those participating in markets and policy channels must also better comprehend their underlying incentives – they are creatures of modern capitalism, with assets swelling as régimes of low rates and passive investing dominate.
While some of their practices raise fair criticism, much inequality and precariousness also stems from policy choices beyond just these two giants‘ misdeeds.
In the end,extreme concentration of assets under management at two firms likely inevitable given natural economies of scale. This necessitates vigilance of their influence.
Yet rather than superficial attacks or praise, working towards well-regulated markets for all seems the wisest course forward.