Photo credit: Getty Images
Blackstone, the investment fund run by billionaires Stephen Schwarzman and Jonathan Gray, is getting one step closer to conquering Wall Street. On Thursday morning, the company outperformed investment banks Goldman Sachs and Morgan Stanley in market value.
Blackstone’s market cap was $ 69.2 billion on Thursday night, while Goldman Sachs closed at $ 69 billion. Morgan Stanley, after buying online brokerage firm Etrade in February, ended at around $ 65 billion.
Since Thursday, Blackstone’s dominance has proven once again that a few relatively young private equity firms, born in the 1980s, can disrupt the financial system and rob the investment banks that once dominated Wall Street of their power. Indeed, just two years ago Goldman Sachs shares were worth more than twice as much as Blackstone’s, and even three times as much before the 2008 financial crisis.
Blackstone, now the world’s largest private equity firm with nearly $ 600 billion in assets under management, was co-founded by Stephen Schwarzman in 1985. It has been publicly traded for about ten years. With only 2,905 employees worldwide, it is comparable in size to that of a traditional investment bank. However, since the crisis of 2008, Blackstone has multiplied its capital by six, while that of Goldman Sachs and Morgan Stanley has only declined.
This means that despite Goldman Sachs’ history and size (the company was founded in 1869 and employs 38,300 people around the world), stock investors today believe Blackstone is more successful. Morgan Stanley, created by Henry Sturgis Morgan and Harold Stanley in 1935 during the Great Depression, has some 60,431 employees worldwide.
Blackstone walks past Goldman Sachs and Morgan Stanley
Since the crisis, which nearly got the better of Goldman Sachs and Morgan Stanley, long-term trends are in favor of Blackstone. The Dodd-Frank Act, signed in 2010 by Barack Obama in order to “promote the financial stability of the United States by improving theaccountability (accountability) and transparency in the financial system ”has heavily regulated investment banks. These have had to withdraw from many lucrative trading and investing activities, shifting risk taking from once powerful trading rooms to alternative companies like Blackstone. In recent times, the coronavirus epidemic has accelerated this shift in the balance of power.
As the outbreak escalated, investors largely retained their stakes in private equity firms like Blackstone, which has $ 151 billion in ammunition to keep trading in chaos. who currently reigns. For their part, investment banks like Goldman Sachs and Morgan Stanley have seen their stocks plunge drastically in recent weeks. The instability that sets in is causing a major slowdown in investment banking activity, confirmed by the 50 basis point cut in interest rates by the United States Federal Reserve on Monday. As a result of the move, Goldman Sachs and Morgan Stanley are on the verge of sharp drops in interest rate income.
If a recession or crash were to strike, investors might also think that Blackstone is in a better position to profit from the situation. The company’s balance sheet is rated A + and its financial leverage is very low. In addition, it has over $ 100 billion in unused capital from institutional investors, which can be invested if good business abounds in an economic downturn. In addition, falling interest rates, while posing a threat to traditional banks, are a blessing for Blackstone.
Blackstone and his peers are today creating new ways to make money through investments in infrastructure, life sciences and technology. The companies are also raising record pools of capital from pension funds, endowments and high net worth investors around the world. Goldman Sachs and Morgan Stanley, meanwhile, continue to move away from their old ways of managing portfolios and ditch the bureau de change in favor of safer, but less glamorous, activities like lending and wealth management.
Goldman Sachs has notably invested large sums in the construction of a consumer lending platform, called Marcus. For its part, Morgan Stanley recently paid $ 13 billion in shares for the online brokerage firm Etrade. James Gorman, CEO of Morgan Stanley, continues to bet on the future of his bank with safe and inexpensive wealth management operations.
2019 was by far the best year ever for publicly traded private equity firms like Blackstone, KKR, Apollo Global, Carlyle and Ares. These saw their shares skyrocket when they transformed from simple profitable partnerships into capital companies, at the same time increasing their tax bill, but also attracting new investors. This development has generated tens of billions of dollars for negotiators like Stephen Schwarzman (Blackstone), Henry Kravis and George Roberts (KKR) and Leon Black (Apollo Global).
Interviewed by Forbes Stephen Schwarzman said in December: “One of the great advantages of private equity firms and the real estate industry is that investors commit their capital throughout the life of the fund. No bank panic is possible, and we are never forced to sell assets at the wrong time ”.
He concludes: “In the rapidly changing financial landscape, I think we are perfectly positioned. Finance is an important business, very important! Just think of the amount of money printed each year around the world. The financial business is gaining more and more value ”.
<<< Also read: The Federal Reserve Cuts Its Rates To Counter The Coronavirus >>>