Blackstone Group is now more valuable than Goldman Sachs and Morgan Stanley amid the coronavirus chaos
Since the crisis, which nearly felled Goldman and Morgan, long-term trends have favored Blackstone. The ensuing Dodd Frank Act heavily regulated investment banks, forcing them out of many lucrative trading and investment businesses. It’s meant that risk taking has moved from once mighty trading desks at banks to alternative firms like Blackstone, which are structurally better designed to handle risk due to their lack of leverage and ability to hold assets in funds locked up for the long-term.
Goldman has invested heavily in building a consumer lending platform, called Marcus, while Morgan Stanley recently paid $13 billion in stock for online brokerage Etrade as CEO James Gorman continues to bet the firm’s future on safe and low-cost wealth management operations. Blackstone shares have returned 91% in 2019, reaching a record high market capitalization of $66 billion after Schwarzman restructured the firm from a tax-efficient partnership into a corporation, opening the firm’s shares to many index funds and mutual funds, who had been precluded from buying the stock previously.
As this era got going, just days before the failure of investment bank Bear Stearns in March 2008, Schwarzman decided to dial into his first earnings call as the head of a publicly traded company. Blackstone had listed its shares months before, and its stock quickly fell by half as competitors on Wall Street began revealing nine- and ten-figure trading losses, causing global markets to erupt in turmoil. Even then, Schwarzman could see how the contours of finance would be redrawn.
Henry Kravis and George Roberts knew what to do next. Both were pioneers in the leveraged buyout business, cofounding their investment firm KKR in 1976, which a dozen years later forged the dealmakers as figures in American culture with the $25 billion buyout of RJR Nabisco in 1988. The deal became the most famous private equity takeover in history thanks to the bestselling Barbarians at the Gate, which was adapted into a movie starring James Garner.
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