Bridger Pennington compares Blackstone and BlackRock, explaining why Blackstone makes more revenue despite managing less capital. Blackstone charges private fund fees of 2 and 20, while BlackRock relies on low-fee ETFs. The difference comes down to business model: Blackstone's private equity structure generates far higher margins than BlackRock's index fund approach.
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What's up guys. In this video, we're going to talk about how Blackstone makes more with less, right? And what I mean by that is how they make more money with less AUM, under management. Okay. You've heard of the companies, both Blackstone and BlackRock, right? Very common names in high finance. If you mix them up, it's a cardinal sin in high finance. So Don't do it. You should definitely know who they are. We're going to give a quick overview with them and then just kind of talk about their, you know, business strategies, right? Um, and, uh, how they make money. All right. So let's just jump into it. Okay. So Blackstone, Steve Schwarzman, BlackRock, Larry Fink, CEO, right? Different— funny story actually. Larry Fink used to work for Steve Schwarzman and then they kind of had a disagreement and they left and started 2 of the largest asset managers ever. But that's the thing. So they're both asset managers, right? In terms of AUM, in terms of assets under management, Let's just talk about some of the similarities and differences here. So you look on the board here, you got $649 billion under management at Blackstone. Pretty good, that's pretty freaking awesome actually. And then at BlackRock, however, you've got $8.67 trillion, okay? Which is about roughly 14 times greater, okay? They're both asset managers. BlackRock's got about 14 times more money under management. Now let's look at market cap. So the market cap obviously is what the market perceives that that company is worth, right? Um, like the total number of shares times the total price per share. And, uh, at the time, at least when I looked up the information, the market cap of Blackstone was $96 billion. Okay. That's what the market perceived that it was worth. So if we follow the same ratio here of 14 times, you would think that BlackRock would be worth 14 times greater than Blackstone, but no. The market cap of BlackRock is only $125 billion. Only, right? I mean, it's comical. Only $125 billion. But still, proportionally, you'd think it'd be way more. And then in terms of revenue, right? I think these are 2019 numbers. So the revenue at Blackstone in 2019 was $6.1 billion. Again, you'd think 14 times greater because they manage 14 times more money, be like $84 or something, right? Wrong. No, BlackRock BlackRock had 2019 revenues of like $16 billion. Again, only $16 billion. Um, still a lot of money, but why is that? Okay, why does— why is Blackstone making so much more with so much less? Okay, well, let's talk about it for a minute. So the nature of these businesses are a little bit different. Start with BlackRock. So they are truly kind of— think of them more like something That a financial advisor would use, right? So BlackRock has this business of iShares, right? And what if you go on their website, you're going to see that they have all these different funds that you can invest in, except there are different types of funds. They are exchange-traded funds, ETFs, right? And if you go click on, you know, more information on those, uh, the expense ratio on those is going to be like 0.03%. 0.03%. 3%. Okay, those are the fees that they're charging on that money. So while they have way more under management, they're charging— that's it. You know, and obviously it's different for each ETF because some of them can be as high as like 30 basis points. But still, not that much. It's just so minimal. And that's their core business model. Alternatively, Blackstone— so these guys work on like public markets a lot, right? They're traded on the public markets. They're regulated as investment companies. Blackstone, um, actually funny story. So they started out private as a, you know, common, you know, you watch our other videos, they started off as an LPGP structure and then they actually took that limited partnership public. So they started off in private equity, like a private equity fund. And now they, then they went into hedge funds and they have all of these different funds. If you don't know very much about Blackstone story, it's awesome. Go read, uh, King of Capital. Um, a story about Steve Schwarzman, and then Whatever It Takes, a bio by Steve Schwarzman. Both great books about Blackstone. Anyhow, they took the, the company public and they— their business is private funds. Okay. And the fees on private funds, which we talk about in a lot of our other videos, the casual fee structure is 2 and 20. And just to review, that 2 is a 2% management fee on, on any funds under management as well As a 20% of any of the profits that they make. Shoot, Blackstone's charging so much more fees. Why would they, how are they able to constitute that? Right? Well, they're such different business models. This 2 and 20 is they're actively managed partners, right? Um, so they actively manage investments. They go in. So for example, in their private equity arm, they'll go and they'll buy all these businesses. They'll leverage debt. They'll, um, you know, turnover management, things of that nature. And then they'll sell it, right? And then they'll kick back a portion of their profits. BlackRock, like they only take the fee. They don't get any sort of performance fee, right? They're regulated completely different. Okay. Now, funny story actually. So Blackstone, their minimum commitment size is like, I don't know, it's at least $1 million. I have no idea what it is. I should know that, but it's gotta be at least $1 to $10 million. Funny story. So Bridger's dad actually went to a conference in New York. It was when Blackstone was raising money for one of their new funds. This was just a couple of years ago, right? They had this conference where they announced the opening of this new fund, uh, this big deal. Obviously only ultra high net worth individuals were there and institute, you know, representatives from institutions and whatnot. The fund was an $80 billion fund and they closed it in 2 hours. Okay. 2 hours after. So they were able to raise all the money they needed within those 2 hours. In contrast, Blackstone's first fund actually, Was you know they had targeted a one billion dollar raise, which is a pretty aggressive you know fundraise for a private fund. Most funds only have you know starting is I would say two hundred million, fifty to two hundred million probably. And they they they were super bullish and started with a billion dollars. Awesome. But you'll see here right the the the businesses are so fundamentally different right? There's one is probably a lot more risky. You know where these all alternatives they have you know restrictions on who can invest. Now you can. You know, I told that story about how you can, you know, invest in their private funds. It's really hard to anymore. It's almost like, you know, Bill Simons Renaissance Funds, right? Like they almost don't even take new investors anymore. They already have enough investors. You can go trade their stock, but not in their funds. Now BlackRock, obviously you can buy their stock, but they just started recently within the past decade of starting private placement funds, right? Of also launching these alternative asset funds. They have way less. I think they have Of their $2.86 trillion, I think like $23 billion of it is in their private funds. So, you know, again, very different business models, but I think it's important to understand. If you want more videos like this comparing different groups and different business models, just let us know. Hope you enjoyed the video.
