by - BlackRock is nearing a deal to acquire private credit firm HPS Investment Partners.
- HPS would be another big deal in the private market for the $11.5 trillion money manager.
- BlackRock, known for its ETFs, hopes a shift to private markets will fuel growth.
Larry Fink wants to end 2024 the way he started it – by announcing a major acquisition that brings BlackRock closer to dominating the private market investing space.
BlackRock plans to acquire HPS Investment Partners, a private credit giant that manages $150 billion, in an all-stock deal worth about $12 billion, the Wall Street Journal reported Tuesday morning.
Fink, CEO and co-founder of BlackRock, which built the world’s largest asset manager with $11.5 trillion in assets by packaging public markets into low-cost funds for the masses, has been outspoken about the company’s squeeze on the profitable private markets.
This change in strategy could lead to a more valuable BlackRock, which might be just enough for Fink, who turned 72 last month, to finally hand the reins to his yet-to-be-named successor.
In January, the company announced it would buy private equity firm Global Infrastructure Partners, with about $170 billion in assets, for about $12.5 billion in cash and stock. The deal, the largest since acquiring Barclays’ asset management business in 2009, was completed in October. In June it agreed to acquire data giant Preqin, which it hopes will help bring some of these more complex private strategies to a wider audience.
In addition to the HPS talks, the FT has reported that BlackRock is eyeing a stake in Izzy Englander’s $70 billion hedge fund Millennium Management.
It is not new that BlackRock is transforming itself through acquisitions. The Barclays deal gave the company iShares and helped it become the passive investment giant it is today.
“I don’t want us to get comfortable with our business model,” Fink said at the company’s investor day last summer. “I want to make sure we question our business model and focus on how we can best serve our customers. When we truly believe that there is a great need that we need to fill, we begin to reimagine who we are. our business model.”
The HPS acquisition could be another “transformational” deal for the company, allowing it to reach the same scale as public equities and bonds in the private markets. HPS will boost its alternative assets to more than $600 billion, the WSJ reported.
Meet HPS Investment
HPS was founded in 2007 by CEO Scott Kapnick, former head of investment banking at Goldman Sachs, along with Scot French and Michael Patterson as a unit within JPMorgan called Highbridge Capital Management. The company’s principals bought it in 2016 after the bank’s interest in risky lending waned.
According to the WSJ report, the three will now join BlackRock’s global executive committee and lead a new unit that combines HPS and BlackRock’s existing private credit business.
Scott Kapnick, CEO of HPS Investment Partners. Cindy Ord/Getty Images for Reading Space
The secretive company has been at the forefront of the retail lending boom that followed the 2008 financial crisis and banks’ withdrawal from risky lending. Private players stepped in to make loans to companies, while Wall Street giants were reluctant to do so.
“Our competitors call us the nerds of private credit and we take no offense,” French told Bloomberg in an interview last November.
The company, which was previously working on an initial public offering, focuses primarily on institutional investors and has more than 760 employees in offices around the world, according to its website.
How it fits with BlackRock’s ambitions
BlackRock raised more assets than ever before in the third quarter, largely thanks to its index funds, but in October earnings reports the company’s leaders were already focused on its future growth engine: GIP.
GIP is expected to add $250 million in management fees in the fourth quarter alone.
“This is a revenue growth story,” BlackRock Chief Financial Officer Martin Small said on that call.” Private equity and credit investments are much more expensive than BlackRock’s usual funds and institutions such as pensions and endowment insurance are also in high demand. as ultra-rich investors.
Although BlackRock has long had an alternative investment unit, until recently its assets in the private markets were significantly smaller than those of the major players in this space, such as Blackstone, Apollo and KKR.
In the past, attempts have been made to grow through acquisition in this space. In 2018, BlackRock bought a small credit manager, Tennenbaum Capital Partners, which at the time had about $9 billion in committed client capital but was seeing a number of investment professionals leave.