From Stansberry Research:
For 200 years, savers and investors had all the power...
Around the time of the Industrial Revolution, everyday folks began investing in businesses for the first time.
When an entrepreneur needed capital to build a factory, a railroad, or a building, he'd appeal to the nation's investors... folks like you or me who had savings but not enough time or plans to put that capital to work themselves.
The modern financial system was built around connecting savers' capital to those who needed it and those who could use it best.
And because there was only so much capital available, demand for it was high. Investors could expect solid returns via interest payments on loans or the upside of public-stock ownership.
Today, the situation has flipped.
It has never been cheaper to start a business – you don't need to borrow millions to get your idea off the ground. If you wanted to, you could start a social network with a credit card and outsource manufacturing to Asia for a few thousand bucks.
On the other hand, if you're an investor, you may never get the opportunity to invest in these early stage ideas.
Now the wealthiest investors and elite institutions are increasingly locking regular investors out through two "private markets"...
First, innovative startups are simply no longer going public. The next potential Amazon will only take money from well-off investors in closed-off markets that don't allow regular investors.
Next, and likely even worse, the best companies on the public markets are getting acquired by bigger companies or taken private in buyouts. In 1995, the U.S. stock market boasted 7,300 publicly listed companies. By the end of 2018, it was down to 4,400...
This means your choices of where to put your money in public companies have been nearly cut in half.
Institutions and skilled investors buy the most profitable businesses and best investments, take them private, and keep them out of the hands of everyday public investors.
But luckily for ordinary investors, today's company offers you a way to invest in these private-equity deals.
You may not find a better business than Blackstone (NYSE: BX). It's the largest private-equity manager in the world. In fact, Forbes has called Stephen Schwarzman, Blackstone's CEO, "Wall Street's greatest dealmaker."
The firm started with around $850 million in its first fund in 1987... doubled that to $1.7 billion for investors... and then it was off to the races. Since then, Blackstone has grown assets under management ("AUM") to more than half a trillion dollars.
Here are the basics of private equity...
First, Schwarzman and his team spend a couple of years raising money from institutions and rich individuals (think pension funds and other institutions) and lock them up for around seven to 10 years.
Blackstone then uses the funds to buy up entire businesses, improve them, sell them, and return the (generally) outsized gains to the investors. Along the way, Blackstone earns hefty fees based on the amount of assets it manages.
The fees are generous to Blackstone, but investors keep giving Blackstone money because private-equity returns from the company have historically been higher than the market.
AUM is a key metric for Blackstone. The firm's revenue is essentially determined as a percentage of the total amount of wealth it controls for investors. Blackstone's AUM currently totals $511.8 billion... Again, that's more than half a trillion dollars. It also represents a whopping year-over-year increase of 14%.
Blackstone's fee rates vary by product.
The company has about $159 billion in funds that buy businesses in the classic private-equity model, about $140 billion in funds that focus on real estate, $80 billion in its business line that allocates capital to hedge funds, and $132.3 billion that it invests in credit instruments.
Of these businesses, the private-equity and real estate branches are the most profitable. The hedge-fund and credit divisions are simpler and, though they bring in plenty of fees, are smaller businesses.
Remember, AUM is the lifeblood of an investment-management business. As it grows, so does Blackstone's fee revenue.
Since going public in 2007, Blackstone's fee revenue has grown to more than $6 billion.
To make its stock more attractive, Blackstone recently converted its organization from a master limited partnership ("MLP") to a regular C corporation ("C-corp"). MLPs have complicated tax filings and many big funds and institutions won't buy them.
Now that the switch occurred in July 2019, many more investors will be attracted to Blackstone's shares.
Even better, since Blackstone is the biggest and best private-equity firm, it will likely be included in some of the major indexes. That will attract even more capital.
As you can see below, since Blackstone announced its intentions to convert to a C-corp in April, the stock has soared 27%...
On a longer-term basis, Blackstone's gains are just as impressive. The stock has nearly doubled over the past three years, and recently hit a fresh all-time high.
But there could still be more gains ahead...
As new money continues to flow into Blackstone shares, the stock could rise 50% or more from here.
Sometimes investing is simple.