By Andy Serwer and Rebecca Ungarino

Larry Fink is dumbstruck.

The BlackRock CEO is staring out his office's Midtown Manhattan window, shaking his head at a posse of Blackstone executives dressed head-to-toe as glam rock stars, straining to push a stalled, tricked-out Volkswagen microbus up the street.

"Can you believe people confuse us with them?" Fink asks Stacey Mullin, BlackRock's global chief of staff, who appears equally incredulous.

The whole sequence is a gag, of course -- a staged scene from Blackstone's holiday video in December, with the buyout firm poking fun at itself and invoking its oft-mistaken-for, sort-of rival. And yet, the scene can be seen as more than just a sendup. It speaks volumes, not only to the similar names of the two financial megafirms and their shared history, but even to the state of Wall Street.

For years, Blackstone and BlackRock had been operating on polar ends of financial services. Blackstone was founded in 1985 as a mergers-and-acquisitions advisory shop and grew into the world's largest private-asset firm. BlackRock was launched inside Blackstone three years later as a bond manager and now runs $11.6 trillion in assets, making it the world's biggest money manager.

The business models of the two companies vary, reflecting those different paths. But there has been at least one common denominator: The stocks of both have soared -- Blackstone's more so than BlackRock's recently -- richly rewarding executives and shareholders alike.

The success of the two companies, though, has come with a dilemma straight from a Harvard Business School case study. Growth has been so robust that the firms' core markets -- buyouts in the U.S. for Blackstone, and domestic money management for BlackRock -- are increasingly mature.

The question, then, for this pair of giants is how to diversify beyond their origins. Both have pursued international markets aggressively for years. But increasingly the two companies, cleaved apart decades ago and now with two of the biggest market capitalizations on Wall Street, are finding themselves on each other's turf.

Blackstone and BlackRock are converging not to pick a rock fight but out of inevitability. Blackstone is increasingly offering alternative-asset securities -- backed by investments in real estate, private credit, and buyouts -- to retail investors. BlackRock, on the other hand, is moving beyond selling public-market securities, such as those in its $4.2 trillion iShares exchange-traded-fund business, the largest of its kind. Fink's firm is pushing into the business of creating and selling private-market securities, particularly in infrastructure and credit, mostly to its institutional customers.

To wit: Just this past week, BlackRock inked its biggest and most high-profile infrastructure investment ever: a majority stake in two key Panama Canal ports, a deal trumpeted by President Donald Trump in his congressional address.

In other words, Blackstone's encroachment has been one of distribution, while BlackRock's has been focused on new products. "BlackRock and Blackstone are like two concentric circles," says Ralph Schlosstein, who worked at Blackstone, co-founded BlackRock, and was later CEO of the investment bank Evercore. "And the union of those two concentric circles is getting larger and larger."

Though Fink, 72, and Blackstone CEO and co-founder Steve Schwarzman, 78 -- both now Wall Street grandees -- have watched each other like hawks over the years, friction from the three-decades-ago split-up has mostly dissipated, and their relationship has evolved into a mutual fan club of sorts. The two firms have even done a sprinkling of business together over the years. Yet there's still some frenemy fire in the air.

In an interview, Schwarzman said: "I think the convergence is more one way, which involves BlackRock expanding into alternatives. They're going into completely different products." He acknowledges, though, that "we're broadening our distribution of our products, basically the same investment stuff that we do, selling it in a much broader way to the public." In a separate interview, Fink said: "Are we in direct competition with Blackstone? I would say, in their two core businesses, no. But in other areas of private [assets], where we have deemed we have an incredible opportunity, [yes]." He added: "I have no intention of going into private equity" with any large-scale acquisition. "I have no intention of being huge in real estate."

The story of Blackstone and BlackRock isn't unlike the odyssey of the House of Morgan, broken into J.P. Morgan and Morgan Stanley by the 1933 Glass-Steagall Act, which separated the company into a commercial bank and investment bank, respectively. That division eroded gradually, culminating in the passage of the Gramm-Leach-Bliley Act in 1999, which essentially repealed Glass-Steagall. Today, JPMorgan Chase offers a full range of investment banking services and Morgan Stanley serves millions of retail customers.

The parallel was recognized by the modern-day principals. Fink said in a Fortune article from 2001, archived in the New York Public Library's flagship Stephen A. Schwarzman Building: "We wanted a name that linked us to Blackstone. It was like when the government split up the house of Morgan....We didn't really think 'Fink & Schlosstein' would cut it."

There are a number of key differences between the Morgans and the houses that Fink and Schwarzman built. For one thing, the two men are still running their businesses as co-founders. For another, Blackstone and BlackRock are in the vanguard of a newer generation of Wall Street firms -- not banks -- pushing into new products and lines of business with implications for the likes of investment returns, retirement savings, and regulatory oversight. The direction the two firms take and how their smoldering rivalry plays out will shape the future of Wall Street.

Blackstone and BlackRock are still markedly different. For all the trillions that BlackRock has gathered, and despite its mighty stock market performance since going public in 1999 -- a total return of 11,228% versus 629% for the S&P 500 index -- its shares have merely matched the benchmark over the past decade. Its $150 billion market cap values BlackRock in the same neighborhood as Citigroup and Charles Schwab, but a $40 billion to $50 billion step below the tonier environs occupied by Goldman Sachs Group, Morgan Stanley -- and Blackstone.

"Yes, they have $11 trillion under management, but it's a 25-basis-point business," says a person familiar with the thinking of Blackstone's senior management, referring to the low-margin business of ETFs. (A basis point is 1/100th of a percentage point.)

Blackstone benefits from the famous (or infamous) "two and 20" model -- the 2% annual management fee it levies on customer assets while taking 20% of upside from investment gains. (A Blackstone spokesperson says the management fee is typically between 1.5% and 1.75% these days.) Its higher-margin products have helped its stock outpace the market and BlackRock shares recently. Since Blackstone's initial public offering in 2007, eight years after BlackRock's, its stockholders have enjoyed a total return of 1,172% versus 442% for the S&P 500. Over the past decade, its total return is 548%, while the market delivered less than half of that. Blackstone's price/earnings ratio on distributable earnings (a preferred metric among investors) for 2025 is 27, while BlackRock's is 20.5.

"Why do you think the private-equity firms have grown to be so big?" asks David Rubenstein, co-founder and co-chairman of rival private-markets manager Carlyle Group. "It's not because of the charming good looks of the founders, as considerable as that is. It's because the rates of return have been really good over the years." When this comment is conveyed to Schwarzman, he smiles and says: "I think that's selling the charming part a little short."

Schwarzman may have a point. Back in Blackstone's early days, he had to tap every ounce of his savoir-faire to get the fledgling firm off the ground. A refugee from the fractious old Lehman Brothers -- before it was bought by Shearson in 1984, spun out, and ultimately went bankrupt in 2008 -- Schwarzman departed discontented but determined to succeed in business with the late Pete Peterson, formerly the chief of Lehman and a U.S. commerce secretary. They named the firm after themselves with a nod to their ancestries: schwarz means black in German, while the Greek origins of the name Peter -- petra or petros -- mean stone.

Schwarzman and Peterson scrambled to find their footing early on, mostly doing some M&A advisory work before moving into merchant banking, as buyouts were then called. Then there was the question of where to hang their shingle as their business grew.

"Steve and Pete couldn't find office space," says Bill Rudin, co-executive chairman of Rudin Management, the big New York City real estate firm. "They ran into my father and uncle on 52nd and Park Avenue -- all of them were going to the Four Seasons restaurant. They told my dad their story of woe. Dad tapped Steve on the shoulder and said, 'Look up to the 30th and 31st floors of 345 Park Avenue. Union Pacific has just moved out. We've got two floors fully built.' And they shook hands and made the deal."

Blackstone is a far cry from those seat-of-the-pants days -- and from being a one-note private-equity shop. Today, the firm is mostly a three-legged stool consisting of real estate ($315 billion of assets), private credit and insurance ($375 billion), and private equity ($352 billion). It also has an $84 billion multi-asset investing division, primarily a hedge- fund-of-fund business. Private equity last year drove $2.6 billion of distributable earnings, up 39% from 2023, with notable strength in corporate private equity and life sciences, Blackstone says. Real estate was another big earner, chalking up $2.1 billion, but that was down 6% from 2023, as the sector still shakes out from pandemic-era upheaval.

What about its push into serving well-heeled individual investors? Blackstone says some $260 billion of the firm's $1.1 trillion in assets is held by retail investors, a good deal of which is in so-called perpetual strategies. Those are funds invested in Blackstone's bread-and-butter portfolios of real estate private equity and credit, which are ongoing but with limited liquidity, and unlike traditional private-equity funds with end dates and distributions.

The two big funds are known as BREIT, which offers "institutional-quality real estate for individual investors," and BCRED, which holds mostly privately issued higher-yielding corporate debt. Their records are mixed. BREIT has an annualized return of 9.5% from its January 2017 inception through January 2025, topping the MSCI U.S. REIT Index benchmark return of 5.7% over the same period. But over the past year, it returned 2.2% while the index's return was 14.6%. (The firm notes that public real estate investment trusts have more year-to-year and quarter-to-quarter volatility.)

As for BCRED, it's up 10.3% from January 2021 to January 2025, more than the Morningstar LSTA U.S. Leveraged Loan and Bloomberg U.S. Corporate High Yield indexes -- up 6.4% and 3.7%, respectively -- and more than investment-grade bonds and Treasuries. (Blackstone's returns are net of fees, which are generally some 1.25% of assets and 12.5% of performance, lower than most of its traditional funds.)

Blackstone faces headwinds beyond uncertainties in pockets of the real estate market. Higher interest rates may be here to stay, a negative for a business where money is the raw material. Meanwhile, IPOs and M&A, expected to pick up under Trump's second administration, are still pacing below trend.

Some investors view Blackstone's shares as pricey, and Wall Street analysts aren't exactly pounding the table to buy the stock. It has eight Buy or Overweight ratings, 15 Holds, and two Sells or Underweights, according to FactSet data. Chris Kotowski of Oppenheimer says the stock is a "strong long-term core holding," but because of its "relatively high valuation," he doesn't see a compelling buying opportunity for now.

Michael Cyprys of Morgan Stanley covers and likes both Blackstone and BlackRock. "With Blackstone, you get a premier franchise with arguably the most diverse and broadest product set in the private-market space, and leadership position across most, if not all, of these categories," he says. While BlackRock "is a way to play growth in the capital markets, " its stock "trades at a discount to the broader market" and has "a very compelling valuation for a company that we think can grow compound double-digit earnings."

Cyprys' take is more in the majority with BlackRock, where 15 analysts have Buys or Overweights, four have Holds, and none have Sells or Underweights. The sell side has generally been pleased with the firm's push into private markets, even in these early days of absorbing several huge deals.

BlackRock's origin story began when Fink joined Blackstone in 1988, after washing out of First Boston (an investment bank later bought by Credit Suisse). There he had built a fabulously successful mortgage securities business, which then incurred a $100 million loss after a trading fiasco. Fink went to see Schwarzman and Peterson. "What happened? You're a genius," Schwarzman recounted saying to Fink in his 2019 book What It Takes. Fink explained himself, and then he and Schlosstein, who had run the mortgage group at Lehman Brothers, pitched their business plan, which initially was to invest in mortgage securities. Schwarzman and Peterson quickly came to terms.

Fink and Schlosstein's business was thriving. It came with six other founding partners, including now-President Rob Kapito, the only co-founder aside from Fink still in management today. But by 1994, Fink and Schlosstein were arguing with Schwarzman over equal dilution of their stakes as the firm grew. Schwarzman refused to do so, so BlackRock split off. "It was pure greed on Steve's part," a person close to the situation back then said.

Schwarzman, for his part, has acknowledged his shortsightedness, writing a three-paragraph mea culpa in his book in which he characterizes selling BlackRock as a "heroic mistake." He would continue to express his regret over selling BlackRock from time to time over the years, according to a person familiar with Schwarzman's thinking.

In its early days, BlackRock was known as a fixed-income manager and, after 1999, when it started selling its Aladdin software -- now ubiquitous among investors and large corporations, allowing them to holistically manage all their investments -- a purveyor of tech. The firm's acquisition of Merrill Lynch's asset-management arm seven years later pushed it into equities and exposed it to a wider retail and international customer base. In 2009, BlackRock made a landmark deal when it scooped up Barclays Global Investors' iShares business for $13.5 billion, catapulting Fink's firm into the world's largest asset manager.

Mergers are still in Fink's DNA. In the past year alone, BlackRock bought companies in private infrastructure ( Global Infrastructure Partners), private credit (HPS Investment Partners), and private-markets data ( Preqin). All told, the shopping spree cost some $28 billion.

The deal that Fink touts as "transformational" was buying 19-year-old Global Infrastructure Partners, or GIP. Fink and Adebayo Ogunlesi, 71, the investment firm's billionaire CEO and co-founder, are now reunited after meeting back at First Boston in the 1980s. There, Ogunlesi rose to a top executive in the investment banking division before leaving to start GIP.

The move to buy GIP was applauded by shareholders and sell-side analysts, who viewed it as a way for Fink's firm to ramp up its presence in the fast-growing business of funding construction of the world's airports, container ports, wind farms, and liquefied-natural-gas pipelines. The GIP business also sets up BlackRock to compete with scale players in infrastructure such as Brookfield Asset Management -- and Blackstone.

Consider the megadeal that BlackRock just struck. In his address to the country on Tuesday evening, President Donald Trump said that a "large American company announced they are buying both ports around the Panama Canal." He was referring to BlackRock, which bought a majority stake in two key Panama Canal ports from Chinese conglomerate CK Hutchison, an early win with the GIP business. Blackstone had considered a bid, people familiar with the matter say.

The GIP deal also has minted new fortunes. As part of that acquisition, the firm put in place a $650 million employee retention program. Fink has joked with associates that it was GIP that acquired BlackRock, not the other way around.

Ogunlesi, known on Wall Street as Bayo, is now the single largest individual holder of BlackRock shares, with a stake larger than Fink's or that of any of BlackRock's other seven founding partners. He also sits on BlackRock's board, while his company has become the center of gravity for BlackRock's private-markets strategy. Ogunlesi is also now on the board of ChatGPT maker OpenAI, making him a key decision maker at two of the world's most powerful companies.

That isn't to say that Fink's recent successes are the final word in his rivalry with Schwarzman. By money, Wall Street's favorite measure, Schwarzman comes out on top with a net worth of $51 billion. He is the largest individual Blackstone shareholder, with a stake of 231.9 million shares, or about 20% of the company, making him the 26th-richest person in the world, according to the Bloomberg Billionaires Index. Fink is hardly a piker, with a net worth of $1.2 billion by Forbes' ranking.

At some point, Schwarzman and Fink will exit the stage -- in all likelihood Schwarzman before Fink. Schwarzman has already turned over much of the CEO responsibilities to company President and Chief Operating Officer Jonathan Gray and is acting more like a chairman. Fink's succession plans, meanwhile, have been the subject of fierce speculation for years. Among those viewed as likely to one day take over from Fink, people familiar with BlackRock's management team say, are Martin Small, chief financial officer and global head of corporate strategy; Rob Goldstein, chief operating officer; and Raj Rao, the president and a co-founder of GIP. Rachel Lord, head of the firm's international business, is also said to be in the mix.

The story of Blackstone and BlackRock is a tale that began with two men who were down on their luck in New York City, both burning with something to prove. They started at the same firm, then split off to orchestrate the growth of two of Wall Street's biggest yet disparate success stories. They have watched them grow so large that there was no choice but to see them re-converge and compete. Now in the later stages of their careers, Schwarzman's and Fink's canvases are larger than ever, but also ever closer, again.

Write to Andy Serwer at andy.serwer@barrons.com and Rebecca Ungarino at rebecca.ungarino@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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March 07, 2025 01:00 ET (06:00 GMT)

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