WEBVTT 00:00:00.000 --> 00:00:03.779 Welcome back to the deep dive. Today we are we're 00:00:03.779 --> 00:00:07.080 conducting what I can only describe as an autopsy 00:00:07.080 --> 00:00:10.000 of the modern global economy. And I don't use 00:00:10.000 --> 00:00:12.539 that phrasing lightly. We're looking at an organism 00:00:12.539 --> 00:00:15.960 that has grown so large and so integrated into 00:00:15.960 --> 00:00:18.519 the fabric of our daily lives that it's effectively 00:00:18.519 --> 00:00:22.039 become invisible. Just by virtue of its ubiquity. 00:00:22.140 --> 00:00:23.940 It's the classic fish and water problem, right? 00:00:24.039 --> 00:00:25.440 You don't notice the water. Yeah, you don't. 00:00:25.600 --> 00:00:27.579 It's everywhere. It's the environment you exist 00:00:27.579 --> 00:00:30.039 in. Exactly. We are talking about Blackstone. 00:00:30.219 --> 00:00:32.240 And before we go any further, because I know 00:00:32.240 --> 00:00:34.460 a solid 40 % of our listeners just pictured the 00:00:34.460 --> 00:00:37.039 wrong company logo in their heads, we are not 00:00:37.039 --> 00:00:39.880 talking about BlackRock. No, we are not. Though, 00:00:40.020 --> 00:00:42.000 as we're going to unpack later, that confusion 00:00:42.000 --> 00:00:44.740 is actually a very interesting, and for one founder, 00:00:44.899 --> 00:00:47.479 a somewhat painful piece of financial history. 00:00:47.640 --> 00:00:49.759 I can imagine. But yes, today's episode. What 00:00:49.759 --> 00:00:52.420 about Blackstone, the private equity giant? Giant 00:00:52.420 --> 00:00:55.320 feels like an understatement. It feels like calling 00:00:55.320 --> 00:00:59.259 the Pacific Ocean a large body of water. I was 00:00:59.259 --> 00:01:02.619 looking at the numbers from September 2025, just 00:01:02.619 --> 00:01:05.700 a few months ago. Assets under management, over 00:01:05.700 --> 00:01:09.040 $1 .2 trillion. It's a number that doesn't really 00:01:09.040 --> 00:01:11.599 mean anything. It's so big. To put that in perspective 00:01:11.599 --> 00:01:13.840 for you, that is larger than the GDP of most 00:01:13.840 --> 00:01:16.120 countries on Earth. Most countries. It's larger 00:01:16.120 --> 00:01:18.739 than the GDP of Saudi Arabia. Yeah. It is larger 00:01:18.739 --> 00:01:21.019 than the entire economic output of Switzerland. 00:01:21.379 --> 00:01:23.280 I mean, if Blackstone were a country, you would 00:01:23.280 --> 00:01:26.040 have a seat at the G20. And the premise of today's 00:01:26.040 --> 00:01:29.000 deep dive is really to answer the question, how? 00:01:29.900 --> 00:01:32.560 How do two guys, Stephen Schwartzman and Peter 00:01:32.560 --> 00:01:36.599 Peterson, start with just $400 ,000 in seed money 00:01:36.599 --> 00:01:40.260 in 1985? Just $400 ,000. And end up owning, well, 00:01:40.319 --> 00:01:42.500 basically everything. And by everything, we are 00:01:42.500 --> 00:01:45.200 being hyperbolic. We mean the house you might 00:01:45.200 --> 00:01:47.659 be renting, the hotel you stay in for your vacation, 00:01:47.959 --> 00:01:50.640 the dating app you swipe on. The song that's 00:01:50.640 --> 00:01:52.120 stuck in your head right now. The song stuck 00:01:52.120 --> 00:01:53.819 in your head, the sandwich you eat for lunch. 00:01:54.349 --> 00:01:57.549 And very possibly the data center that is processing 00:01:57.549 --> 00:02:00.230 this audio file and streaming it to your device 00:02:00.230 --> 00:02:04.109 as we speak. It is a wild, wild trajectory. We 00:02:04.109 --> 00:02:06.849 have a lot of ground to cover from, you know, 00:02:06.849 --> 00:02:10.610 the leveraged buyout boom of the 1980s to the 00:02:10.610 --> 00:02:13.509 AI data center wars of 2026. Right. But I want 00:02:13.509 --> 00:02:16.110 to start with the why. Why does a company like 00:02:16.110 --> 00:02:19.219 this even exist? What is the fundamental mechanism 00:02:19.219 --> 00:02:22.360 here? Because to the average person, private 00:02:22.360 --> 00:02:25.560 equity is just a buzzword. It is. And it usually 00:02:25.560 --> 00:02:28.719 implies layoffs and corporate raiders. And that's 00:02:28.719 --> 00:02:31.919 the reputation, certainly. And look, it's not 00:02:31.919 --> 00:02:34.680 always an undeserved one. Yeah. But at its core, 00:02:34.800 --> 00:02:37.099 a firm like Blackstone is an arbitrage machine. 00:02:37.770 --> 00:02:40.129 They find gaps. Gaps in the market. Gaps in the 00:02:40.129 --> 00:02:42.229 market. They find assets that are undervalued 00:02:42.229 --> 00:02:44.990 or mismanaged or maybe just too complex for the 00:02:44.990 --> 00:02:47.189 public stock markets to really understand. And 00:02:47.189 --> 00:02:48.710 they take them private. Away from the public 00:02:48.710 --> 00:02:51.349 eye. Exactly. They fix them or financialize them, 00:02:51.370 --> 00:02:53.210 depending on how cynical you want to be. And 00:02:53.210 --> 00:02:55.050 then they sell them or take them public again 00:02:55.050 --> 00:02:57.520 for a massive profit. So let's go back to the 00:02:57.520 --> 00:03:00.740 beginning. 1985, the era of Gordon Gekko, big 00:03:00.740 --> 00:03:03.620 shoulder pads, the Reagan boom. Schwarzman and 00:03:03.620 --> 00:03:06.539 Peterson decide to strike out on their own. Now, 00:03:06.580 --> 00:03:09.300 these weren't two scrappy kids in a garage inventing 00:03:09.300 --> 00:03:13.219 a computer, right? I cuckles. Far from it. No, 00:03:13.319 --> 00:03:14.919 this is really important to understand about 00:03:14.919 --> 00:03:17.979 their origin. They were financial royalty from 00:03:17.979 --> 00:03:20.500 day one. They came from Lehman Brothers. Both 00:03:20.500 --> 00:03:23.379 of them. And not just as analysts. Peter Peterson 00:03:23.379 --> 00:03:26.590 had been the chairman and CEO of Lehman. He was 00:03:26.590 --> 00:03:28.629 formerly the Secretary of Commerce under President 00:03:28.629 --> 00:03:31.030 Nixon. I mean, this guy was the establishment. 00:03:31.349 --> 00:03:34.090 He knew everyone. He had the Rolodex to end all 00:03:34.090 --> 00:03:35.909 Rolodexes. He could get anyone on the phone. 00:03:36.090 --> 00:03:38.530 And Schwarzman, what was his role? Schwarzman 00:03:38.530 --> 00:03:42.530 was the younger, hungrier shark. He was Lehman's 00:03:42.530 --> 00:03:45.969 head of M &A mergers and acquisitions. So you 00:03:45.969 --> 00:03:47.969 effectively have the statesman and the shark 00:03:47.969 --> 00:03:50.580 teaming up. The ultimate inside -outside combination. 00:03:50.800 --> 00:03:52.979 I found this little nugget in the research fascinating. 00:03:53.280 --> 00:03:56.180 The name Blackstone, it sounds so solid, right? 00:03:56.280 --> 00:03:58.159 It's so institutional. Like it's been carved 00:03:58.159 --> 00:04:00.180 into a building for 100 years. Exactly. Like 00:04:00.180 --> 00:04:01.979 it's been around since the 1800s. But it's actually 00:04:01.979 --> 00:04:03.840 a cryptogram, isn't it? It's a bit of clever 00:04:03.840 --> 00:04:06.039 wordplay, yeah. It's a combination of their names. 00:04:06.419 --> 00:04:09.219 Schwarz is the German word for black. Okay. And 00:04:09.219 --> 00:04:12.539 Peter, or the Greek root, Petros, means stone. 00:04:13.039 --> 00:04:15.060 Blackstone. Blackstone. Blackstone. There you 00:04:15.060 --> 00:04:17.639 have it. That is just... It's so clever. It's 00:04:17.639 --> 00:04:22.819 almost like a superhero alter ego name or a secret 00:04:22.819 --> 00:04:24.860 society. Well, it certainly sounds better than 00:04:24.860 --> 00:04:27.100 Schwarzman and Peterson, which might have sounded 00:04:27.100 --> 00:04:29.740 a bit too much like a law firm or, you know, 00:04:29.740 --> 00:04:31.699 an accounting practice on a quiet street somewhere. 00:04:31.779 --> 00:04:34.040 Right. They wanted something that projected strength, 00:04:34.220 --> 00:04:38.120 stability, power. But despite the clever name 00:04:38.120 --> 00:04:41.220 and the lean in background, they really struggled 00:04:41.220 --> 00:04:43.949 initially. Which is surprising to me. You'd think 00:04:43.949 --> 00:04:46.149 guys with that kind of resume, a former chairman 00:04:46.149 --> 00:04:48.810 of Lehman, would have investors lining up around 00:04:48.810 --> 00:04:50.589 the block to give them money. You would think. 00:04:51.069 --> 00:04:53.089 Their plan was to get into the private equity 00:04:53.089 --> 00:04:56.709 business, basically doing leveraged buyouts or 00:04:56.709 --> 00:04:59.689 LBOs. But back in 85, they had a credibility 00:04:59.689 --> 00:05:02.629 problem. Neither of them had ever actually led 00:05:02.629 --> 00:05:05.029 a leveraged buyout before. Can we just pause 00:05:05.029 --> 00:05:08.430 and define that properly? leveraged buyout because 00:05:08.430 --> 00:05:10.170 that is the engine of this whole story. And I 00:05:10.170 --> 00:05:11.990 want to make sure everyone is on the same page. 00:05:12.110 --> 00:05:14.870 Sure. Let's use a real estate analogy because 00:05:14.870 --> 00:05:17.129 it's the most relatable for most people. Imagine 00:05:17.129 --> 00:05:19.649 you want to buy a house that costs a million 00:05:19.649 --> 00:05:23.350 dollars. You put down $200 ,000 of your own cash 00:05:23.350 --> 00:05:26.670 and you borrow the other $800 ,000 from the bank. 00:05:27.170 --> 00:05:31.379 That's leverage. You are using debt. to amplify 00:05:31.379 --> 00:05:33.399 your buying power. Okay, that's the standard 00:05:33.399 --> 00:05:35.199 mortgage. I get that. Now imagine doing that 00:05:35.199 --> 00:05:37.060 with a company. You want to buy a company for, 00:05:37.160 --> 00:05:39.660 say, a billion dollars. You put in $200 million 00:05:39.660 --> 00:05:41.560 of your investor's money and you borrow the other 00:05:41.560 --> 00:05:44.579 $800 million. But here is the trick, and this 00:05:44.579 --> 00:05:47.180 is the magic and the danger of the LBO. What's 00:05:47.180 --> 00:05:50.060 that? You don't take on that debt yourself. You 00:05:50.060 --> 00:05:52.459 put that $800 million in debt on the company 00:05:52.459 --> 00:05:54.959 you just bought. Oh, so the company now has to 00:05:54.959 --> 00:05:56.759 pay off the loan that was used to buy it in the 00:05:56.759 --> 00:05:59.060 first place? Precisely. The company pays for 00:05:59.060 --> 00:06:02.889 its own acquisition. If it works, you, the private 00:06:02.889 --> 00:06:06.350 equity firm, make a massive, massive return on 00:06:06.350 --> 00:06:08.670 your small slice of equity because the debt did 00:06:08.670 --> 00:06:11.850 all the heavy lifting. And if it fails? Well, 00:06:11.949 --> 00:06:14.129 the company goes bankrupt because it can't service 00:06:14.129 --> 00:06:16.610 the debt you loaded onto it. You might lose your 00:06:16.610 --> 00:06:19.949 $200 million, but the company is destroyed. And 00:06:19.949 --> 00:06:22.750 that's why people hate LBOs. It puts this immense 00:06:22.750 --> 00:06:25.689 pressure on the company to cut costs, fire people, 00:06:25.949 --> 00:06:28.449 start spending on research and development just 00:06:28.449 --> 00:06:32.129 to service that debt. Correct. And in 1985, potential 00:06:32.129 --> 00:06:34.930 investors looked at Schwarzman and Peterson and 00:06:34.930 --> 00:06:37.509 said, look, you guys are brilliant advisors. 00:06:37.689 --> 00:06:39.389 You're smart. You know how to tell other people 00:06:39.389 --> 00:06:41.870 what to do. But you've never actually run one 00:06:41.870 --> 00:06:43.750 of these. You've never had skin in the game. 00:06:43.889 --> 00:06:46.350 Why should we give you our money? So they got 00:06:46.350 --> 00:06:49.089 rejected. Repeatedly. The story goes they sent 00:06:49.089 --> 00:06:53.170 out 488 prospectuses. 488. Yeah. And they got 00:06:53.170 --> 00:06:55.310 rejected by almost every single one. It was a 00:06:55.310 --> 00:06:57.990 really humbling experience for two guys who were 00:06:57.990 --> 00:07:00.129 used to being masters of the universe. So they 00:07:00.129 --> 00:07:02.750 had to pivot. This is the fake it till you make 00:07:02.750 --> 00:07:05.649 it phase or maybe the do what you know to survive 00:07:05.649 --> 00:07:08.550 phase. It's the do what you know phase. They 00:07:08.550 --> 00:07:10.170 went back to their bread and butter. Advisory, 00:07:10.470 --> 00:07:14.269 mergers and acquisitions. Basically, hire us 00:07:14.269 --> 00:07:16.730 and we will tell you who to merge with and how 00:07:16.730 --> 00:07:18.889 to structure the deal. And this kept the lights 00:07:18.889 --> 00:07:21.060 on. It did more than that. It started building 00:07:21.060 --> 00:07:24.319 their reputation. And in 1987, they advised on 00:07:24.319 --> 00:07:26.639 the merger of E .F. Hutton and Shearson Lehman 00:07:26.639 --> 00:07:29.439 Brothers. That was not a small deal at the time. 00:07:29.560 --> 00:07:31.819 No, it was a huge Wall Street story. And the 00:07:31.819 --> 00:07:34.180 fee reflected that. That one deal netted them 00:07:34.180 --> 00:07:37.879 a $3 .5 million fee. Which, in 1987 money, is 00:07:37.879 --> 00:07:40.720 a serious war chest. That's enough to keep the 00:07:40.720 --> 00:07:42.680 office running for a very long time. It gave 00:07:42.680 --> 00:07:44.540 them credibility. And it gave them breathing 00:07:44.540 --> 00:07:47.180 room. But then, history threw them a curveball. 00:07:47.339 --> 00:07:49.850 The universe handed them a gift. Wrapped in a 00:07:49.850 --> 00:07:53.990 total disaster. October 1987. Black Monday. Black 00:07:53.990 --> 00:07:56.550 Monday. Wait, usually a market crash kills a 00:07:56.550 --> 00:07:59.029 fledgling finance company. I mean, the Dow drops 00:07:59.029 --> 00:08:03.329 22 % in a single day. Panic in the streets. How 00:08:03.329 --> 00:08:05.970 on earth did Black Monday help them? The timing 00:08:05.970 --> 00:08:09.129 was just uncanny. Just before the crash, they 00:08:09.129 --> 00:08:11.769 were finally, after all those rejections, trying 00:08:11.769 --> 00:08:14.730 to raise funds for their first real private equity 00:08:14.730 --> 00:08:19.540 fund. It was tough going. Still. Still. But they 00:08:19.540 --> 00:08:21.480 managed to get the commitments to close the fund 00:08:21.480 --> 00:08:24.800 right before the chaos. So when the market crashed 00:08:24.800 --> 00:08:28.160 that October, stock prices plummeted. Suddenly, 00:08:28.259 --> 00:08:30.500 everything was on sale. And Blackstone is sitting 00:08:30.500 --> 00:08:33.100 there with a fresh pile of cash. A huge pile 00:08:33.100 --> 00:08:36.159 of what they call dry powder. They were ready 00:08:36.159 --> 00:08:38.480 to go shopping while everyone else was panicking 00:08:38.480 --> 00:08:40.580 and trying to sell. It's the classic counter 00:08:40.580 --> 00:08:42.919 -cyclical strategy. Buy when there's blood in 00:08:42.919 --> 00:08:44.860 the street. Precisely. In the aftermath of the 00:08:44.860 --> 00:08:47.169 crash... All these big institutional investors 00:08:47.169 --> 00:08:49.330 looked around and said, OK, the stock market 00:08:49.330 --> 00:08:51.509 is terrifying. We need someone who can go in 00:08:51.509 --> 00:08:53.450 and buy whole companies at these bargain basement 00:08:53.450 --> 00:08:56.269 prices. And Blackstone finalized their fundraising. 00:08:56.509 --> 00:08:59.330 And who backed them? The big players. We're talking 00:08:59.330 --> 00:09:01.909 Prudential Insurance, Nikko Securities out of 00:09:01.909 --> 00:09:04.669 Japan, and the General Motors Pension Fund. And 00:09:04.669 --> 00:09:06.429 Nikko Securities actually bought a piece of Blackstone 00:09:06.429 --> 00:09:08.690 itself, didn't they? They did. That was a huge 00:09:08.690 --> 00:09:11.429 vote of confidence. In 1988, they bought a 20 00:09:11.429 --> 00:09:15.070 % interest in Blackstone for $100 million. $100 00:09:15.070 --> 00:09:18.149 million. So that values the entire firm at $500 00:09:18.149 --> 00:09:21.029 million, just three years after starting with 00:09:21.029 --> 00:09:25.220 $400K. Yeah. It's intense growth. It was a massive 00:09:25.220 --> 00:09:27.100 validation of their model. It allowed them to 00:09:27.100 --> 00:09:29.799 recruit heavy hitters like David Stockman from 00:09:29.799 --> 00:09:31.639 the Reagan administration. They were building 00:09:31.639 --> 00:09:33.700 a machine. But while they were growing, there 00:09:33.700 --> 00:09:35.860 was this other partnership forming in the background. 00:09:36.159 --> 00:09:39.179 And this leads to one of the biggest what ifs 00:09:39.179 --> 00:09:41.299 in modern financial history. Oh, I know what 00:09:41.299 --> 00:09:42.419 you're talking about. The one that got away. 00:09:42.580 --> 00:09:47.100 The BlackRock connection. Yes. In 1987, Blackstone 00:09:47.100 --> 00:09:49.679 partnered with a guy named Larry Fink to found 00:09:49.679 --> 00:09:52.379 BlackRock. Initially, it was just a financial 00:09:52.379 --> 00:09:54.460 management arm operating under the Blackstone 00:09:54.460 --> 00:09:56.320 umbrella. So just to be clear, at one point, 00:09:56.399 --> 00:09:58.840 Stephen Fortzman and Larry Fink, who are probably 00:09:58.840 --> 00:10:01.559 the two most powerful men in finance today, were 00:10:01.559 --> 00:10:03.980 in the same office working for the same team. 00:10:04.220 --> 00:10:07.100 They were. They were colleagues. Larry Fink had 00:10:07.100 --> 00:10:09.940 been a star at a bank called First Boston, but 00:10:09.940 --> 00:10:13.039 he had blown up. He lost $100 million on a bad 00:10:13.039 --> 00:10:14.899 interest rate bet. He was kind of radioactive 00:10:14.899 --> 00:10:16.879 on Wall Street. So he was looking for redemption. 00:10:17.500 --> 00:10:20.559 Desperately. Schwartzman saw his talent, gave 00:10:20.559 --> 00:10:23.480 him a desk and some capital to start a bond management 00:10:23.480 --> 00:10:25.799 business. But they were very different people, 00:10:25.879 --> 00:10:28.080 weren't they? With very different ideas about 00:10:28.080 --> 00:10:30.440 finance. Fundamentally different philosophies. 00:10:30.700 --> 00:10:33.279 Schwartzman is the quintessential private equity 00:10:33.279 --> 00:10:37.179 guy. High risk, high reward, active management, 00:10:37.399 --> 00:10:39.580 buying companies, stripping them down, selling 00:10:39.580 --> 00:10:41.639 them for parts or fixing them up. Taking big 00:10:41.639 --> 00:10:44.500 swings. Taking huge swings. Fink, on the other 00:10:44.500 --> 00:10:46.379 hand, wanted to build a risk management machine. 00:10:46.600 --> 00:10:48.500 He was obsessed with it after his own. blow up. 00:10:48.600 --> 00:10:51.980 He was focused on fixed income, on safety, and 00:10:51.980 --> 00:10:55.159 eventually on passive investing. Very, very different 00:10:55.159 --> 00:10:57.899 mindsets. And that friction eventually led to 00:10:57.899 --> 00:11:01.179 the split. It did. By 1994, there was a dispute 00:11:01.179 --> 00:11:03.620 over compensation and how much equity ownership 00:11:03.620 --> 00:11:06.200 the BlackRock team should have. It got pretty 00:11:06.200 --> 00:11:08.899 contentious. And Blackstone decided to sell its 00:11:08.899 --> 00:11:11.639 stake in BlackRock to a company called PNC Financial 00:11:11.639 --> 00:11:14.799 Services. And what was the sale price? $240 million. 00:11:15.039 --> 00:11:17.740 Okay, $240 million is a lot of money. Especially 00:11:17.740 --> 00:11:21.320 in 1994. But considering what BlackRock is today. 00:11:21.639 --> 00:11:23.820 Considering that BlackRock now manages something 00:11:23.820 --> 00:11:28.080 like $10 trillion. Yeah. Ouch. Stephen Schwartzman 00:11:28.080 --> 00:11:31.340 has gone on record calling it his heroic mistake. 00:11:31.480 --> 00:11:34.700 His worst business decision ever. That has to 00:11:34.700 --> 00:11:37.220 sting. Every single time he sees Larry Fink on 00:11:37.220 --> 00:11:39.399 the cover of a magazine or speaking at Davos, 00:11:39.419 --> 00:11:41.960 he must just twitch a little bit. You have to 00:11:41.960 --> 00:11:43.980 imagine so. But, you know, it's not like Blackstone 00:11:43.980 --> 00:11:46.419 did too badly for themselves, obviously. While 00:11:46.419 --> 00:11:48.559 BlackRock went on to dominate the world of passive 00:11:48.559 --> 00:11:51.580 asset management and ETFs, Blackstone doubled 00:11:51.580 --> 00:11:54.840 down on private equity. And crucially, they began 00:11:54.840 --> 00:11:57.659 expanding into other sectors. Like hotels. I 00:11:57.659 --> 00:11:59.799 noticed in the timeline that in the early 90s, 00:11:59.799 --> 00:12:01.980 they started buying up all these hotel franchises. 00:12:02.340 --> 00:12:05.399 Ramada, Howard Johnson, Days Inn. That was a 00:12:05.399 --> 00:12:08.200 key move led by a partner named Henry Silverman. 00:12:08.340 --> 00:12:11.500 This is so important because it really foreshadowed 00:12:11.500 --> 00:12:14.500 their massive pivot to real estate later on. 00:12:14.889 --> 00:12:17.929 They weren't just buying anonymous industrial 00:12:17.929 --> 00:12:19.789 companies to strip them for parts. They were 00:12:19.789 --> 00:12:22.490 buying operational businesses. Exactly. Specifically. 00:12:23.049 --> 00:12:25.590 in hospitality. They were learning how to run 00:12:25.590 --> 00:12:27.870 things, how to manage a brand, how to deal with 00:12:27.870 --> 00:12:30.269 customers, not just how to buy and sell a balance 00:12:30.269 --> 00:12:32.529 sheet. So they're building this portfolio, surviving 00:12:32.529 --> 00:12:35.389 the 90s, the dotcom bubble bursts and they get 00:12:35.389 --> 00:12:37.789 through that. And then we hit the 2000s, the 00:12:37.789 --> 00:12:40.529 era of the buyout boom. This is where things 00:12:40.529 --> 00:12:42.350 start getting really, really big, right? The 00:12:42.350 --> 00:12:44.669 scale just shifts dramatically. Yeah. We enter 00:12:44.669 --> 00:12:47.029 the era of what was called the club deal. Explain 00:12:47.029 --> 00:12:49.370 that to me. A club deal. It sounds like a VIP 00:12:49.370 --> 00:12:53.029 section at a discotheque or something. Less disco, 00:12:53.169 --> 00:12:56.309 more debt. A club deal is when multiple private 00:12:56.309 --> 00:12:59.629 equity firms team up, they form a consortium, 00:12:59.629 --> 00:13:02.909 to buy a company that is simply too massive for 00:13:02.909 --> 00:13:05.649 any single firm to swallow on its own. So it's 00:13:05.649 --> 00:13:08.129 like the Avengers of capitalism. Or the Legion 00:13:08.129 --> 00:13:11.070 of Doom, depending on your perspective. Take 00:13:11.070 --> 00:13:13.629 the 2005 buyout of a software company called 00:13:13.629 --> 00:13:17.669 SunGuard. That was an $11 .3 billion deal. Too 00:13:17.669 --> 00:13:20.850 big for one firm. At the time, yes. So you had 00:13:20.850 --> 00:13:23.450 Blackstone teaming up with Silver Lake, Bain 00:13:23.450 --> 00:13:28.149 Capital, KKR, Goldman Sachs. Basically a who's 00:13:28.149 --> 00:13:30.490 who of Wall Street. Why do it that way? Is it 00:13:30.490 --> 00:13:32.909 just to share the risk? It's to share the risk 00:13:32.909 --> 00:13:34.889 and, frankly, just to pool enough capital to 00:13:34.889 --> 00:13:37.529 make the purchase. But these deals became very 00:13:37.529 --> 00:13:40.490 controversial because investors in the PE funds 00:13:40.490 --> 00:13:42.789 didn't always love them. They'd say, wait, I 00:13:42.789 --> 00:13:45.129 gave money to Blackstone and KKR to compete with 00:13:45.129 --> 00:13:47.669 each other for the best deals, not to collude 00:13:47.669 --> 00:13:49.370 and buy a company together. It feels like it 00:13:49.370 --> 00:13:52.169 reduces competition. It does. If all the potential 00:13:52.169 --> 00:13:54.389 bidders just team up, it keeps the final price 00:13:54.389 --> 00:13:56.570 down for them, but maybe it shortchanges the 00:13:56.570 --> 00:13:58.289 shareholders of the company being bought. And 00:13:58.289 --> 00:14:00.169 they did more of these, right? Like the Freescale 00:14:00.169 --> 00:14:03.330 Semiconductor deal. $17 .6 billion. That was 00:14:03.330 --> 00:14:05.629 the largest tech buyout ever at the time. But 00:14:05.629 --> 00:14:08.549 the real crown jewel, the deal that absolutely 00:14:08.549 --> 00:14:11.830 defined this era for Blackstone, was Hilton. 00:14:11.970 --> 00:14:16.190 The Hilton Hotels deal in 2007. Yes. Blackstone 00:14:16.190 --> 00:14:19.870 acquired Hilton Hotels for $26 billion. All cash. 00:14:20.379 --> 00:14:24.320 $26 billion. And the timing of this, this was 00:14:24.320 --> 00:14:27.600 mid -2007, right before the 2008 financial crisis. 00:14:27.919 --> 00:14:29.580 I mean, literally at the peak of the market. 00:14:29.720 --> 00:14:32.779 In the industry, this is often cited as the high 00:14:32.779 --> 00:14:35.980 watermark of that pre -crash LBO boom. They bought 00:14:35.980 --> 00:14:38.799 it at a huge premium when asset prices were at 00:14:38.799 --> 00:14:41.960 an all -time high. When the crash hit in 2008, 00:14:42.259 --> 00:14:45.159 it looked like an absolute company -killing disaster. 00:14:45.740 --> 00:14:46.840 Everyone must have thought they were going to 00:14:46.840 --> 00:14:48.740 lose their shirts. I mean, if you or I bought 00:14:48.740 --> 00:14:51.200 a hotel chain in 2007, we would have been bankrupt 00:14:51.200 --> 00:14:55.059 by 2009. Many, many were. But this is where Blackstone's 00:14:55.059 --> 00:14:57.240 strategy and, frankly, just having incredibly 00:14:57.240 --> 00:14:59.639 deep pockets came into play. They didn't panic 00:14:59.639 --> 00:15:01.600 and sell at the bottom. They held on. They held 00:15:01.600 --> 00:15:04.039 on. In 2010, they went back to the lenders and 00:15:04.039 --> 00:15:05.899 restructured the massive amount of debt on the 00:15:05.899 --> 00:15:07.919 company. They convinced them to give them more 00:15:07.919 --> 00:15:10.120 time and better terms. Because the lenders would 00:15:10.120 --> 00:15:12.360 rather get paid later than have Hilton go bankrupt 00:15:12.360 --> 00:15:15.779 and get nothing. Precisely. Blackstone then poured 00:15:15.779 --> 00:15:18.600 money into the properties. They improved operations. 00:15:18.860 --> 00:15:21.379 They expanded internationally. They held on for 00:15:21.379 --> 00:15:24.279 years. They waited out. They waited it out and 00:15:24.279 --> 00:15:27.279 improved the asset while they waited. Eventually, 00:15:27.340 --> 00:15:29.559 when the economy recovered, they took Hilton 00:15:29.559 --> 00:15:32.159 public again. And it became one of the most profitable 00:15:32.159 --> 00:15:36.139 private equity deals in history. They netted 00:15:36.139 --> 00:15:39.399 a profit of something like $14 billion. That's 00:15:39.399 --> 00:15:41.539 the difference, I guess. If I buy a house at 00:15:41.539 --> 00:15:43.440 the top of the market and the market crashes, 00:15:43.639 --> 00:15:45.679 I'm in trouble because I can't make the mortgage. 00:15:45.779 --> 00:15:48.080 If Blackstone does it, they just they rewrite 00:15:48.080 --> 00:15:50.200 the mortgage. It's an oversimplification, but 00:15:50.200 --> 00:15:53.279 yes, they have the leverage and the scale to 00:15:53.279 --> 00:15:55.519 negotiate with lenders in a way that you or I 00:15:55.519 --> 00:15:57.820 simply do not. And speaking of negotiating, we 00:15:57.820 --> 00:15:59.799 have to mention the equity office acquisition. 00:15:59.919 --> 00:16:03.259 That was in 2006. This one is even crazier in 00:16:03.259 --> 00:16:05.179 terms of tactics and timing. Oh, this is the 00:16:05.179 --> 00:16:07.299 bidding war, right? A massive one. Blackstone 00:16:07.299 --> 00:16:10.320 wanted to buy. equity office properties, which 00:16:10.320 --> 00:16:12.279 was one of the largest owners of office buildings 00:16:12.279 --> 00:16:15.519 in the entire U .S. Another big real estate player, 00:16:15.679 --> 00:16:19.080 Fornato Realty Trust, jumped in and started a 00:16:19.080 --> 00:16:21.899 bidding war, which drove the price up and up 00:16:21.899 --> 00:16:24.360 and up. Blackstone eventually won. They won, 00:16:24.559 --> 00:16:28.590 but they paid $39 billion for it. At the time, 00:16:28.629 --> 00:16:32.230 the largest LBO in history. $39 billion for office 00:16:32.230 --> 00:16:34.309 buildings right before the office market crashed 00:16:34.309 --> 00:16:37.389 and the concept of remote work started to percolate. 00:16:37.409 --> 00:16:39.409 That sounds like a disaster waiting to happen. 00:16:39.649 --> 00:16:41.370 It would have been a complete catastrophe if 00:16:41.370 --> 00:16:43.750 they had held on to all of it. But here is the 00:16:43.750 --> 00:16:46.450 genius or the luck of it. They closed that deal. 00:16:46.809 --> 00:16:48.850 And immediately started selling off pieces of 00:16:48.850 --> 00:16:51.169 the portfolio. Immediately? Like the same day? 00:16:51.330 --> 00:16:53.690 Practically. They had deals lined up before they 00:16:53.690 --> 00:16:55.629 even owned it. They flipped about half the portfolio 00:16:55.629 --> 00:16:58.429 within weeks and months. They sold the big trophy 00:16:58.429 --> 00:17:00.889 buildings in New York, in Boston, in Seattle 00:17:00.889 --> 00:17:04.910 to other investors at peak 2007 prices. So they 00:17:04.910 --> 00:17:07.369 effectively offloaded the biggest risk to other 00:17:07.369 --> 00:17:10.269 people right before the music stopped. Exactly. 00:17:10.369 --> 00:17:13.130 Before the crash. Yeah. If they had held all 00:17:13.130 --> 00:17:16.549 of that prime expensive real estate through 2008 00:17:16.549 --> 00:17:19.950 and 2009, it might have dragged the entire firm 00:17:19.950 --> 00:17:22.869 down. Instead, they sold the expensive trophy 00:17:22.869 --> 00:17:25.789 assets and kept the more boring suburban office 00:17:25.789 --> 00:17:28.549 parks that had higher yields and less risk. The 00:17:28.549 --> 00:17:31.269 timing is just, it's incredible. It feels like 00:17:31.269 --> 00:17:33.890 they had a crystal ball. Or they just had a very 00:17:33.890 --> 00:17:36.549 good sense that the market was overheating and 00:17:36.549 --> 00:17:38.650 it was the perfect time to sell some risk to 00:17:38.650 --> 00:17:42.160 the public. Which brings us perfectly... To their 00:17:42.160 --> 00:17:45.940 own IPO. June 2007. Again, literally months before 00:17:45.940 --> 00:17:48.200 the world economy completely falls off a cliff. 00:17:48.440 --> 00:17:51.940 They went public, raising over $4 billion. Stephen 00:17:51.940 --> 00:17:54.599 Schwartzman and Peter Peterson cashed out a significant 00:17:54.599 --> 00:17:57.480 portion of their personal stakes right at the 00:17:57.480 --> 00:17:59.700 absolute top of the market. It was the ultimate 00:17:59.700 --> 00:18:01.680 ringing the bell moment. It fundamentally changed 00:18:01.680 --> 00:18:03.960 the firm. They were no longer just a private 00:18:03.960 --> 00:18:05.920 partnership accountable to a few big investors. 00:18:06.140 --> 00:18:07.940 They were a public company with shareholders 00:18:07.940 --> 00:18:11.119 to please every single quarter. So. The crash 00:18:11.119 --> 00:18:14.500 happens. 2008 is a complete mess. But Blackstone 00:18:14.500 --> 00:18:17.680 survives. And then starting around 2009, they 00:18:17.680 --> 00:18:20.519 pivot. And this pivot is what really leads us 00:18:20.519 --> 00:18:22.839 to the Blackstone we know today. The post -crisis 00:18:22.839 --> 00:18:25.680 era is fascinating. While everyone else was licking 00:18:25.680 --> 00:18:28.079 their wounds and deleveraging, Blackstone went 00:18:28.079 --> 00:18:30.500 shopping. They focused heavily on distressed 00:18:30.500 --> 00:18:33.079 assets. And the biggest distressed asset class 00:18:33.079 --> 00:18:36.440 in America by far was housing. This is the part 00:18:36.440 --> 00:18:38.019 of the story that I think people feel the most 00:18:38.019 --> 00:18:41.180 visceral connection to. They started buying single 00:18:41.180 --> 00:18:44.240 family homes. On an industrial scale. This is 00:18:44.240 --> 00:18:46.380 where the narrative shifts from Wall Street sharks 00:18:46.380 --> 00:18:48.880 eating each other to Wall Street sharks eating 00:18:48.880 --> 00:18:51.200 Main Street. Right. The foreclosure crisis is 00:18:51.200 --> 00:18:53.740 in full swing. Millions of Americans are loosing 00:18:53.740 --> 00:18:56.599 their homes. Housing prices are at rock bottom. 00:18:56.779 --> 00:18:59.160 And Blackstone looks at this and sees the single 00:18:59.160 --> 00:19:02.240 biggest distressed asset opportunity in history. 00:19:02.890 --> 00:19:05.849 They founded a subsidiary company called Invitation 00:19:05.849 --> 00:19:08.089 Homes. They went into markets that were hit the 00:19:08.089 --> 00:19:11.190 hardest, like Phoenix, Atlanta, all over Florida 00:19:11.190 --> 00:19:12.849 and California. And they weren't just buying 00:19:12.849 --> 00:19:15.930 a few houses here and there. No. They had teams 00:19:15.930 --> 00:19:18.630 buying them on the courthouse steps. They were 00:19:18.630 --> 00:19:21.509 buying them in bulk from banks. They spent roughly 00:19:21.509 --> 00:19:25.829 $5 .5 billion buying around 50 ,000 single -family 00:19:25.829 --> 00:19:28.670 homes. 50 ,000. And instead of flipping them, 00:19:28.789 --> 00:19:31.460 their strategy was to rent them out. Yes. They 00:19:31.460 --> 00:19:33.700 totally institutionalized the landlord business. 00:19:34.019 --> 00:19:36.799 Before this, being a landlord was a mom -and 00:19:36.799 --> 00:19:39.259 -pop thing. You know, you owned two rental units, 00:19:39.380 --> 00:19:42.859 maybe five. Blackstone built a massive technological 00:19:42.859 --> 00:19:45.500 platform to manage 50 ,000 homes efficiently, 00:19:45.779 --> 00:19:48.599 using algorithms for maintenance requests, rent 00:19:48.599 --> 00:19:51.690 collection, and, crucially, for pricing. Pricing. 00:19:51.690 --> 00:19:53.869 That's the key word there. Because when you own 00:19:53.869 --> 00:19:55.589 that much of the rental stock in a particular 00:19:55.589 --> 00:19:58.650 neighborhood or city, you have a lot of power 00:19:58.650 --> 00:20:00.910 over rent prices. A tremendous amount of power. 00:20:01.029 --> 00:20:03.819 And this is where the controversy explodes. Critics, 00:20:03.839 --> 00:20:05.859 including the United Nations later on, argued 00:20:05.859 --> 00:20:07.940 that by buying up so much of the available supply, 00:20:08.200 --> 00:20:10.279 they drove up prices for regular people trying 00:20:10.279 --> 00:20:13.460 to buy a first home. And then by maximizing rents 00:20:13.460 --> 00:20:15.539 with their algorithms, they squeezed tenants. 00:20:15.839 --> 00:20:17.960 They turned the American dream of homeownership 00:20:17.960 --> 00:20:20.500 into a monthly subscription service paid to a 00:20:20.500 --> 00:20:23.119 private equity firm. That is the cynical but 00:20:23.119 --> 00:20:26.819 not entirely inaccurate take. Blackstone would 00:20:26.819 --> 00:20:29.619 argue they renovated tens of thousands of dilapidated 00:20:29.619 --> 00:20:31.819 homes, they professionalized the rental market, 00:20:31.960 --> 00:20:34.279 and they provided high -quality rental stock 00:20:34.279 --> 00:20:36.799 at a time when banks weren't lending to anyone 00:20:36.799 --> 00:20:39.640 to buy a house. They'd say they provided a vital 00:20:39.640 --> 00:20:42.160 service. It's all a matter of perspective, I 00:20:42.160 --> 00:20:45.480 suppose, but it definitely marks a shift. Blackstone 00:20:45.480 --> 00:20:48.420 is now squarely in the consumer business. They 00:20:48.420 --> 00:20:50.359 aren't just buying companies anymore. They were 00:20:50.359 --> 00:20:53.420 buying the literal infrastructure of daily life. 00:20:53.619 --> 00:20:57.319 And not just houses. Theme parks. Right. In 2009, 00:20:57.480 --> 00:21:00.079 they bought Bush Entertainment, that's SeaWorld 00:21:00.079 --> 00:21:03.940 and Bush Gardens, for $2 .9 billion. And they 00:21:03.940 --> 00:21:05.720 bought Merlin Entertainment, the company that 00:21:05.720 --> 00:21:08.519 owns Legoland and Madame Tussauds wax museums. 00:21:08.799 --> 00:21:10.420 They bought them twice, actually. They owned 00:21:10.420 --> 00:21:12.900 them back in 2005, sold them, and then bought 00:21:12.900 --> 00:21:15.539 them back again in 2019. They really like Legos. 00:21:15.579 --> 00:21:18.000 Or more accurately, they really like the steady 00:21:18.000 --> 00:21:20.619 recurring revenue of families looking for experiences. 00:21:21.039 --> 00:21:23.519 But if you look at the portfolio expansion from, 00:21:23.599 --> 00:21:27.880 say, 2010 to 2020 you see this very clear move 00:21:27.880 --> 00:21:31.279 toward consumer brands and technology they bought 00:21:31.279 --> 00:21:35.880 ancestry .com in 2020 for 4 .7 billion which 00:21:35.880 --> 00:21:38.619 raises some eyebrows doesn't it a private equity 00:21:38.619 --> 00:21:42.920 firm owning the genetic data the dna of millions 00:21:42.920 --> 00:21:45.299 of people. It definitely raised a lot of privacy 00:21:45.299 --> 00:21:47.880 questions at the time. But from a pure investment 00:21:47.880 --> 00:21:50.019 standpoint, it's a brilliant business model. 00:21:50.119 --> 00:21:53.019 It's a subscription service with a massive proprietary 00:21:53.019 --> 00:21:56.160 data moat. They also invested in Oatly, the oat 00:21:56.160 --> 00:21:58.240 milk company. Which is huge for a while. They 00:21:58.240 --> 00:22:00.359 bought a majority stake in Bumble, the dating 00:22:00.359 --> 00:22:02.700 app. And they bought Spanx. Spanx. And I read 00:22:02.700 --> 00:22:04.980 that the Spanx deal was handled by an all -female 00:22:04.980 --> 00:22:07.140 investment team at Blackstone, which was a big 00:22:07.140 --> 00:22:09.619 deal. It was. And they set up an all -female 00:22:09.619 --> 00:22:11.839 board of directors for Spanx as well. It's a 00:22:11.839 --> 00:22:14.000 very clear signal that they were trying to modernize 00:22:14.000 --> 00:22:16.460 their image and tap into markets that traditional 00:22:16.460 --> 00:22:19.480 male -dominated finance had perhaps overlooked 00:22:19.480 --> 00:22:21.960 or undervalued in the past. So we've moved from 00:22:21.960 --> 00:22:25.680 these boring industrial buyouts of the 90s to 00:22:25.680 --> 00:22:29.180 oat milk, dating apps, and shapewear in the 2010s. 00:22:29.359 --> 00:22:31.680 Exactly. moved into owning culturally relevant 00:22:31.680 --> 00:22:35.299 brands. But as we move into the 2020s, specifically 00:22:35.299 --> 00:22:38.059 the last few years leading up to today in 2026, 00:22:38.339 --> 00:22:41.440 the strategy shifts again. It becomes what I 00:22:41.440 --> 00:22:43.700 call the everywhere strategy. This is where the 00:22:43.700 --> 00:22:46.240 numbers get truly astronomical. We're talking 00:22:46.240 --> 00:22:49.539 about the modern era, 2021 to now. The post -candemic 00:22:49.539 --> 00:22:52.539 world. Blackstone went on a shopping spree that 00:22:52.539 --> 00:22:55.819 makes the 2007 boom look modest by comparison. 00:22:56.279 --> 00:22:57.799 Let's talk about real estate first because they 00:22:57.799 --> 00:23:00.819 didn't stop with houses. They went for, well, 00:23:00.940 --> 00:23:03.299 everything else. Hotels and hospitality again 00:23:03.299 --> 00:23:05.940 in a big way. They acquired Crown Resorts in 00:23:05.940 --> 00:23:08.940 Australia for $6 .6 billion. They bought the 00:23:08.940 --> 00:23:11.180 Cosmopolitan Hotel in Vegas, then sold it for 00:23:11.180 --> 00:23:13.680 a huge profit. They did a sale -leaseback deal 00:23:13.680 --> 00:23:16.220 for the famous Bellagio. And student housing. 00:23:16.319 --> 00:23:18.660 I remember this one making headlines. April 2022. 00:23:19.099 --> 00:23:21.200 They bought a company called American Campus 00:23:21.200 --> 00:23:24.799 Communities for nearly $13 billion. $13 billion. 00:23:25.140 --> 00:23:27.240 With that one deal, they effectively became the 00:23:27.240 --> 00:23:29.599 landlord for tens of thousands of college students 00:23:29.599 --> 00:23:32.319 all across America. But the biggest real estate 00:23:32.319 --> 00:23:34.420 play, and this is the one that really positions 00:23:34.420 --> 00:23:37.140 them for the future, is data centers. This is 00:23:37.140 --> 00:23:40.099 the AI boom play. This is everything. Let's unpack 00:23:40.099 --> 00:23:42.799 this, because when I think Blackstone, I think... 00:23:43.150 --> 00:23:46.130 physical buildings. I think hotels and offices. 00:23:46.269 --> 00:23:48.490 I don't think artificial intelligence. But you 00:23:48.490 --> 00:23:51.309 cannot have AI without immense physical infrastructure. 00:23:51.650 --> 00:23:55.009 You know, Chad GPT, Claude, Gemini, they don't 00:23:55.009 --> 00:23:57.029 live in the cloud. That's just a marketing term. 00:23:57.109 --> 00:23:59.950 Right. They live in massive servers. Those servers 00:23:59.950 --> 00:24:02.269 need to live in massive windowless buildings. 00:24:02.529 --> 00:24:04.910 They generate an incredible amount of heat, so 00:24:04.910 --> 00:24:07.349 they need industrial scale cooling. They consume 00:24:07.349 --> 00:24:10.069 gigawatts of electricity. So the cloud is actually 00:24:10.069 --> 00:24:12.470 a very large, very hot, very expensive warehouse. 00:24:12.559 --> 00:24:14.960 house. A series of them, yes. And Blackstone 00:24:14.960 --> 00:24:18.619 saw this coming years ago. In 2021, they acquired 00:24:18.619 --> 00:24:21.359 a data center company called QTS Realty Trust 00:24:21.359 --> 00:24:25.319 for $10 billion. But the real monster deal was 00:24:25.319 --> 00:24:28.259 just recently, in September of 2024, the acquisition 00:24:28.259 --> 00:24:30.599 of AirTrunk. AirTrunk. It sounds like a luggage 00:24:30.599 --> 00:24:33.640 company, but it's not. Far from it. It's a massive 00:24:33.640 --> 00:24:36.059 data center platform in the Asia -Pacific region, 00:24:36.220 --> 00:24:40.039 Japan, Australia, all the key markets. The enterprise 00:24:40.039 --> 00:24:43.500 value of that deal was over 24 billion Australian 00:24:43.500 --> 00:24:46.160 dollars. That is a staggering amount of money 00:24:46.160 --> 00:24:48.200 for server farms. But think about the demand. 00:24:48.500 --> 00:24:50.980 Every time you use an AI assistant or stream 00:24:50.980 --> 00:24:54.240 a 4K movie or use any cloud computing service, 00:24:54.440 --> 00:24:58.819 that data has to live somewhere physically. By 00:24:58.819 --> 00:25:01.359 owning the data centers, Blackstone is owning 00:25:01.359 --> 00:25:04.720 the physical backbone of the entire digital economy. 00:25:04.900 --> 00:25:07.359 It's the 21st century equivalent of owning all 00:25:07.359 --> 00:25:09.380 the railroad. It is precisely that. If you are 00:25:09.380 --> 00:25:11.559 Amazon or Google or Microsoft, you are in an 00:25:11.559 --> 00:25:13.960 arms race for AI dominance and you need capacity 00:25:13.960 --> 00:25:15.640 now. You don't have time to build it all yourself. 00:25:15.960 --> 00:25:18.960 So you go and lease it from Blackstone. And while 00:25:18.960 --> 00:25:20.779 they are building the digital railroad of the 00:25:20.779 --> 00:25:23.569 future, they are also buying your lunch. Chuckles. 00:25:23.890 --> 00:25:26.450 The sandwich strategy. OK, let's talk about the 00:25:26.450 --> 00:25:28.390 sandwiches, because this is the part that feels 00:25:28.390 --> 00:25:31.130 so random at first glance, but obviously isn't. 00:25:31.130 --> 00:25:32.829 It's part of a very specific, very deliberate 00:25:32.829 --> 00:25:37.589 strategy. In 2024, they bought Tropical Smoothie 00:25:37.589 --> 00:25:40.809 Cafe. They invested in a company called Seven 00:25:40.809 --> 00:25:43.490 Brew, which is a fast growing drive through coffee 00:25:43.490 --> 00:25:46.509 chain. And then the big one that completed just 00:25:46.509 --> 00:25:50.089 last year, January 2025, they bought Jersey Mike's 00:25:50.089 --> 00:25:55.150 Subs. So why sandwiches? Why coffee? Why is the 00:25:55.150 --> 00:25:58.029 master of the universe buying a sub shop? Because 00:25:58.029 --> 00:25:59.609 of cash flow and resilience. Think about the 00:25:59.609 --> 00:26:01.410 economic environment of the last two years. High 00:26:01.410 --> 00:26:04.190 inflation, rising interest rates, a lot of volatility. 00:26:04.390 --> 00:26:06.849 What is the one thing people don't stop doing? 00:26:07.049 --> 00:26:09.710 Eating. They eat. And specifically, in tough 00:26:09.710 --> 00:26:12.450 times, they trade down. Maybe you don't go to 00:26:12.450 --> 00:26:14.069 the expensive steakhouse, but you will still 00:26:14.069 --> 00:26:17.049 buy a $12 sub. It's a recession -resistant business. 00:26:17.309 --> 00:26:19.549 And it fits into this broader theme of investing 00:26:19.549 --> 00:26:21.970 in things people need or habitually use. And 00:26:21.970 --> 00:26:23.690 it's a franchise model. Right. Which means they 00:26:23.690 --> 00:26:25.569 aren't actually running the stores. Exactly. 00:26:25.809 --> 00:26:27.789 Blackstone isn't in the back making the sandwiches. 00:26:28.049 --> 00:26:30.230 They're collecting the royalties and franchise 00:26:30.230 --> 00:26:32.690 fees from the thousands of franchisees who do 00:26:32.690 --> 00:26:35.670 the hard work. It's a steady, predictable royalty 00:26:35.670 --> 00:26:38.029 stream. Just like the music catalog they bought. 00:26:38.390 --> 00:26:42.150 Hypnosis. Right. July 2024. They won a bidding 00:26:42.150 --> 00:26:45.440 war to buy Hypnosis Songs Fund. Now, through 00:26:45.440 --> 00:26:47.799 a company, they rebranded as Recognition Music 00:26:47.799 --> 00:26:50.039 Group. They own the rights to the catalogs of 00:26:50.039 --> 00:26:53.000 Justin Bieber, Shakira, Neil Young. So let's 00:26:53.000 --> 00:26:55.000 trace the dollar here for a second. Let's say 00:26:55.000 --> 00:26:56.980 I wake up in a house that's owned by Invitation 00:26:56.980 --> 00:26:59.460 Homes. That's Blackstone. I check a dating app. 00:26:59.579 --> 00:27:02.220 Bumble Blackstone owns a major stake. I drive 00:27:02.220 --> 00:27:04.140 to work and listen to a Justin Bieber song on 00:27:04.140 --> 00:27:06.940 the radio. Blackstone gets a tiny cut. I grab 00:27:06.940 --> 00:27:09.849 a Jersey Mike sub for lunch. Blackstone. I go 00:27:09.849 --> 00:27:11.809 home and watch Netflix, which is streaming its 00:27:11.809 --> 00:27:13.930 data from an air trunk data center Blackstone 00:27:13.930 --> 00:27:16.910 again. You are living from morning to night inside 00:27:16.910 --> 00:27:19.650 the Blackstone ecosystem. It's almost a modern 00:27:19.650 --> 00:27:22.450 company town model, but on a global invisible 00:27:22.450 --> 00:27:24.890 scale. And looking at their financials, it's 00:27:24.890 --> 00:27:27.160 clearly working. The numbers are undeniable. 00:27:27.339 --> 00:27:30.019 As of their 2024 reports, their revenue jumped 00:27:30.019 --> 00:27:33.279 to over $13 billion. Net income nearly doubled 00:27:33.279 --> 00:27:35.940 to $2 .77 billion. And as we mentioned at the 00:27:35.940 --> 00:27:38.759 start, assets under management hit $1 .33 trillion 00:27:38.759 --> 00:27:42.660 in 2024 and crossed $1 .2 trillion by September 00:27:42.660 --> 00:27:45.619 2025. They are the largest alternative investment 00:27:45.619 --> 00:27:48.299 firm on the planet. By a very significant margin. 00:27:48.539 --> 00:27:51.420 They operate on four main pillars. Real estate, 00:27:51.579 --> 00:27:53.839 which is the biggest chunk of private equity, 00:27:53.940 --> 00:27:56.819 hedge funds, and credit. It's a massive diversified 00:27:56.819 --> 00:27:59.240 machine designed to generate returns in almost 00:27:59.240 --> 00:28:02.319 any market condition. But, and there is always 00:28:02.319 --> 00:28:05.059 a but, when you get this big and this powerful, 00:28:05.299 --> 00:28:08.559 you can't own everything without stepping on 00:28:08.559 --> 00:28:11.700 some toes. Or, in some of these cases, causing 00:28:11.700 --> 00:28:15.220 very real, very tangible harm. No, you absolutely 00:28:15.220 --> 00:28:17.720 cannot. And Blackstone has faced a series of 00:28:17.720 --> 00:28:19.920 significant and disturbing controversies, particularly 00:28:19.920 --> 00:28:22.619 in recent years. We have to talk about the dark 00:28:22.619 --> 00:28:24.700 side of this relentless efficiency. The one that 00:28:24.700 --> 00:28:26.539 really, really sticks with me because it's so 00:28:26.539 --> 00:28:29.720 horrifying is the child labor scandal at PSSI. 00:28:29.960 --> 00:28:32.660 Packers Sanitation Services, Inc. This is a company 00:28:32.660 --> 00:28:34.740 owned by Blackstone. They provide third -party 00:28:34.740 --> 00:28:36.819 cleaning and sanitation services for slaughterhouses 00:28:36.819 --> 00:28:39.099 and meatpacking plants. A gruesome, dangerous 00:28:39.099 --> 00:28:41.140 job to begin with. One of the most dangerous 00:28:41.140 --> 00:28:44.220 jobs in America. In 2023, the Department of Labor 00:28:44.220 --> 00:28:46.859 found that over 100 children, some as young as 00:28:46.859 --> 00:28:50.589 13, were working illegally for PSSI. We're talking 00:28:50.589 --> 00:28:53.029 about kids working overnight shifts, cleaning 00:28:53.029 --> 00:28:55.789 back saws and skull splitters with caustic industrial 00:28:55.789 --> 00:28:59.250 strength chemicals. Yes. There was a report of 00:28:59.250 --> 00:29:02.630 a student at a middle school who fell asleep 00:29:02.630 --> 00:29:05.650 in class and had visible acid burns on his hands 00:29:05.650 --> 00:29:07.849 and knees from his shift the night before. That 00:29:07.849 --> 00:29:10.990 is just dystopian. How does a sophisticated multi 00:29:10.990 --> 00:29:13.609 -trillion dollar firm like Blackstone let this 00:29:13.609 --> 00:29:16.109 happen in one of its companies? Blackstone's 00:29:16.109 --> 00:29:18.130 official defense was that they were horrified 00:29:18.130 --> 00:29:20.750 and they didn't know. They're in a tower in Manhattan. 00:29:21.069 --> 00:29:23.150 They aren't on the ground in Nebraska hiring 00:29:23.150 --> 00:29:26.109 people. They said PSSI had its own local management. 00:29:26.650 --> 00:29:29.130 Blackstone immediately settled the case. PSSI 00:29:29.130 --> 00:29:31.970 was fined $1 .5 million, and they implemented 00:29:31.970 --> 00:29:34.809 new, stricter hiring protocols. But critics of 00:29:34.809 --> 00:29:36.690 the industry point out that this is a structural 00:29:36.690 --> 00:29:39.230 problem, right? It's a feature, not a bug, of 00:29:39.230 --> 00:29:41.690 the model. Critics argue that the private equity 00:29:41.690 --> 00:29:44.789 model, which demands relentless efficiency and 00:29:44.789 --> 00:29:47.549 ever -increasing profit growth, creates a pressure 00:29:47.549 --> 00:29:50.779 cooker environment. Local managers are told to 00:29:50.779 --> 00:29:52.740 cut costs and keep the line moving no matter 00:29:52.740 --> 00:29:55.880 what. Hiring undocumented minors who are desperate 00:29:55.880 --> 00:29:59.119 for work is a cheap, tragic way to do that. It's 00:29:59.119 --> 00:30:01.180 that complete disconnect between the boardroom 00:30:01.180 --> 00:30:03.480 in New York and the slaughterhouse floor in Nebraska. 00:30:04.279 --> 00:30:06.299 We just demand the returns. We don't tell you 00:30:06.299 --> 00:30:08.720 how you get them. Exactly. And we saw a different 00:30:08.720 --> 00:30:11.140 version of this same kind of operational disconnect 00:30:11.140 --> 00:30:14.019 with the Motel 6 scandal. Right. This was a few 00:30:14.019 --> 00:30:17.740 years back, 2018, 2019. Motel 6, which was Blackstone 00:30:17.740 --> 00:30:20.000 owned at the time, admitted that some of its 00:30:20.000 --> 00:30:21.799 locations were giving their daily guest lists 00:30:21.799 --> 00:30:24.839 to agents from IC Immigration and Customs Enforcement 00:30:24.839 --> 00:30:27.059 without warrants. So people were checking into 00:30:27.059 --> 00:30:29.039 a motel thinking they had a reasonable expectation 00:30:29.039 --> 00:30:31.920 of privacy. And the motel staff was essentially 00:30:31.920 --> 00:30:34.490 tipping off immigration authority. if they had 00:30:34.490 --> 00:30:37.170 Latino sounding names. That's effectively what 00:30:37.170 --> 00:30:39.210 was happening. They ended up settling lawsuits 00:30:39.210 --> 00:30:43.369 for nearly $20 million combined. But the reputational 00:30:43.369 --> 00:30:45.990 damage was significant. It raised these really 00:30:45.990 --> 00:30:48.589 serious questions about privacy and civil rights 00:30:48.589 --> 00:30:50.910 within these massive corporate structures. And 00:30:50.910 --> 00:30:52.789 then there's the housing controversy. We talked 00:30:52.789 --> 00:30:55.069 about them buying up houses, but it's not just 00:30:55.069 --> 00:30:57.890 about ownership. It's about how they act as landlords 00:30:57.890 --> 00:31:00.930 on a massive scale. The United Nations actually 00:31:00.930 --> 00:31:03.190 condemned their practices in a formal report. 00:31:03.410 --> 00:31:07.390 A UN special rapporteur accused them of contributing 00:31:07.390 --> 00:31:10.109 to the global housing crisis by buying up so 00:31:10.109 --> 00:31:12.970 many properties, which inflates rents, and then 00:31:12.970 --> 00:31:15.349 engaging in aggressive eviction tactics. And 00:31:15.349 --> 00:31:17.640 this wasn't just in the U .S. No, the report 00:31:17.640 --> 00:31:20.079 cited specific issues with a company they owned 00:31:20.079 --> 00:31:22.819 called Southern Cross in the UK and apartment 00:31:22.819 --> 00:31:25.359 blocks in Denmark. It was a global issue. And 00:31:25.359 --> 00:31:27.440 even their own investors got spooked by the real 00:31:27.440 --> 00:31:29.900 estate holdings recently. The Bright saga. Yeah. 00:31:30.259 --> 00:31:33.119 Bright is their massive non -traded real estate 00:31:33.119 --> 00:31:36.000 investment trust for wealthy individuals. In 00:31:36.000 --> 00:31:38.920 late 2022, investors started getting very nervous 00:31:38.920 --> 00:31:40.500 about the commercial property market and they 00:31:40.500 --> 00:31:42.500 tried to pull their money out. And there was 00:31:42.500 --> 00:31:44.859 a run on the fund. A huge run. There were so 00:31:44.859 --> 00:31:47.900 many withdrawal requests that Blackstone had 00:31:47.900 --> 00:31:51.140 to invoke its right to limit them. They call 00:31:51.140 --> 00:31:53.980 it gating the fund to prevent a collapse. Which 00:31:53.980 --> 00:31:55.819 is terrifying if you're an investor. You're told 00:31:55.819 --> 00:31:57.460 your money is safe and then you say, I want my 00:31:57.460 --> 00:31:58.980 money back. And they say, sorry, you can't have 00:31:58.980 --> 00:32:01.680 it right now. It eventually stabilized, but it 00:32:01.680 --> 00:32:04.380 showed that even a giant like Blackstone isn't 00:32:04.380 --> 00:32:07.380 immune to market panic. Real estate is fundamentally 00:32:07.380 --> 00:32:10.880 illiquid. You can't sell a skyscraper in an afternoon 00:32:10.880 --> 00:32:14.569 because Mrs. Smith from Ohio. once or $50 ,000 00:32:14.569 --> 00:32:16.630 back. And as we talk about the company's recent 00:32:16.630 --> 00:32:19.170 history, we can't ignore the tragedy that happened 00:32:19.170 --> 00:32:22.230 just last year in the summer of 2025. Yes, it's 00:32:22.230 --> 00:32:24.130 a very somber and terrible note in their corporate 00:32:24.130 --> 00:32:27.170 history. In July of 2025, a gunman named Shane 00:32:27.170 --> 00:32:30.150 Devon Tamura entered Blackstone's global headquarters 00:32:30.150 --> 00:32:33.910 at 345 Park Avenue in Manhattan. This sent absolute 00:32:33.910 --> 00:32:35.829 shockwaves through the entire financial community 00:32:35.829 --> 00:32:38.150 and the city. It did. Four people were killed. 00:32:38.519 --> 00:32:41.000 And among the victims was Wesley LaPatner, who 00:32:41.000 --> 00:32:43.720 was a senior managing director and the CEO of 00:32:43.720 --> 00:32:45.420 that massive real estate fund we were just talking 00:32:45.420 --> 00:32:48.279 about, Bright. It's just a stark, awful reminder 00:32:48.279 --> 00:32:51.559 that behind these trillions of dollars and massive 00:32:51.559 --> 00:32:54.660 global portfolios, there are actual human beings. 00:32:54.720 --> 00:32:57.160 Absolutely. It was a tragic, senseless event 00:32:57.160 --> 00:33:00.099 that really shook the firm and the whole industry 00:33:00.099 --> 00:33:02.599 to its core. So we've looked at the history, 00:33:02.819 --> 00:33:05.420 the massive deals, the sandwiches, the data centers 00:33:05.420 --> 00:33:08.039 and the very serious controversies. When you 00:33:08.039 --> 00:33:10.480 step back and you look at Blackstone today in 00:33:10.480 --> 00:33:14.269 February of 2026, what do we actually see? I 00:33:14.269 --> 00:33:16.029 think we see something that's evolved beyond 00:33:16.029 --> 00:33:18.910 being just an investment firm. It's a state within 00:33:18.910 --> 00:33:21.470 a state. Blackstone doesn't just move money around 00:33:21.470 --> 00:33:23.869 anymore. They own the core infrastructure of 00:33:23.869 --> 00:33:27.509 our daily lives. Food, shelter, data, music. 00:33:27.730 --> 00:33:30.029 And it highlights this massive shift from public 00:33:30.029 --> 00:33:32.289 markets to private equity. That's such a key 00:33:32.289 --> 00:33:34.710 point. When a company is public, listed on the 00:33:34.710 --> 00:33:36.589 stock market, there are all sorts of disclosure 00:33:36.589 --> 00:33:38.650 requirements. You can see the books. They have 00:33:38.650 --> 00:33:41.009 to file quarterly reports to the SEC. You have 00:33:41.009 --> 00:33:43.109 some transparency. But when Blackstone takes 00:33:43.109 --> 00:33:45.869 a company private, like they did with so many 00:33:45.869 --> 00:33:48.509 of these huge acquisitions, that transparency 00:33:48.509 --> 00:33:52.240 just vanishes. It goes away. So huge sectors 00:33:52.240 --> 00:33:54.660 of our economy, housing, student accommodation, 00:33:55.099 --> 00:33:57.460 data centers, logistics are moving into this 00:33:57.460 --> 00:34:00.519 black box where we, the public, can't really 00:34:00.519 --> 00:34:02.400 see how they're being run. So that brings us 00:34:02.400 --> 00:34:05.720 to the so what for the listener. Why does this 00:34:05.720 --> 00:34:08.159 matter? Right. Why should the person listening 00:34:08.159 --> 00:34:10.800 to this care other than it being a kind of mind 00:34:10.800 --> 00:34:12.719 boggling business story? Because it affects them 00:34:12.719 --> 00:34:15.500 directly. Every day. Because you interact with 00:34:15.500 --> 00:34:17.920 Blackstone almost every single day, and you probably 00:34:17.920 --> 00:34:19.940 don't even know it. Your rent might be determined 00:34:19.940 --> 00:34:23.699 by their algorithms. The long -term privacy of 00:34:23.699 --> 00:34:26.320 your genetic history on Ancestry is in their 00:34:26.320 --> 00:34:29.099 hands. The data centers powering your AI tools 00:34:29.099 --> 00:34:32.480 are theirs. It's really about control. It is. 00:34:32.500 --> 00:34:34.320 I mean, at what point does investment become 00:34:34.320 --> 00:34:37.710 control? If a single firm owns the rights to 00:34:37.710 --> 00:34:39.929 your genetic history, the songs stuck in your 00:34:39.929 --> 00:34:41.670 head, the house you want to rent, and the sandwich 00:34:41.670 --> 00:34:44.090 you eat for lunch, who is watching the watchers? 00:34:44.210 --> 00:34:46.070 Especially now that they are literally building 00:34:46.070 --> 00:34:48.429 the physical backbone of the future economy with 00:34:48.429 --> 00:34:51.690 these data center deals? Exactly. They are making 00:34:51.690 --> 00:34:55.190 enormous, multibillion -dollar bets on the future 00:34:55.190 --> 00:34:57.849 of humanity, what we will eat, where we will 00:34:57.849 --> 00:35:00.250 live, and how we will compute. And right now, 00:35:00.250 --> 00:35:02.619 by almost any measure. they are winning that 00:35:02.619 --> 00:35:06.260 bet. From $400 ,000 and a clever cryptogram name 00:35:06.260 --> 00:35:09.500 to $1 .2 trillion and the keys to the kingdom, 00:35:09.679 --> 00:35:12.900 it is a wild ride. It certainly is. So final 00:35:12.900 --> 00:35:16.559 question, is Blackstone good or bad? Or is that 00:35:16.559 --> 00:35:18.460 just the wrong question to ask? I think it's 00:35:18.460 --> 00:35:21.039 the wrong question. Blackstone is efficient. 00:35:21.300 --> 00:35:24.300 It is perhaps the ultimate expression of modern 00:35:24.300 --> 00:35:28.239 capitalism. It exists to seek yield. If the highest 00:35:28.239 --> 00:35:31.139 yield is in curing cancer, they will invest in 00:35:31.139 --> 00:35:33.440 life sciences, and they are doing that. If the 00:35:33.440 --> 00:35:35.800 highest yield is in squeezing an extra $50 a 00:35:35.800 --> 00:35:38.019 month in rent from a family, their model will 00:35:38.019 --> 00:35:40.199 compel them to do that, too. It is an amoral 00:35:40.199 --> 00:35:42.360 machine. And it is up to the rest of us and our 00:35:42.360 --> 00:35:44.599 regulators to decide where the guardrail should 00:35:44.599 --> 00:35:46.440 be. Exactly. The machine will not stop itself. 00:35:46.679 --> 00:35:50.099 Well, on that cheerful note, I'm going to go 00:35:50.099 --> 00:35:53.090 check my dating app. order a sandwich and listen 00:35:53.090 --> 00:35:55.590 to some music. And I'm going to try very hard 00:35:55.590 --> 00:35:58.250 not to think about who gets the transaction fee 00:35:58.250 --> 00:36:00.070 for each of those things. Good luck with that. 00:36:00.150 --> 00:36:02.269 It's almost unavoidable at this point. That's 00:36:02.269 --> 00:36:03.969 all for this week's Deep Dive. We'll see you 00:36:03.969 --> 00:36:04.389 next time.