By Arasu Kannagi Basil and Davide Barbuscia
(Reuters) -BlackRock will buy private credit firm HPS Investment Partners for about $12 billion in an all-stock deal, the companies said on Tuesday, as the world's largest asset manager looks to expand in a red-hot market. alive.
Private credit, or loans to businesses made by institutions other than banks, has grown rapidly in recent years as stricter regulations made it more expensive for traditional lenders to finance riskier loans.
This asset class is expected to grow to $2.6 trillion by 2029 from $1.5 trillion at the end of 2023, according to data from Preqin.
“Together we will deliver income solutions for our clients that combine the best of the public markets and the best of the private markets in an organized and unified way,” BlackRock (NYSE:) CEO Larry Fink said Tuesday.
He previously described private credit as a “major growth driver” within the alternatives for BlackRock in the coming years.
HPS was founded in 2007 as a division of Highbridge Capital Management, the hedge fund unit of JPMorgan's asset management arm. In 2016, senior HPS executives acquired the company from JPMorgan.
The New York-based company has since become a major private credit player, with assets under management rising to about $148 billion in September from $34 billion in 2016.
HPS originally aimed to hold an initial public offering, but was approached by several parties, including BlackRock, a source familiar with the matter said.
HPS did not immediately respond to a request for comment.
BlackRock, which manages $11.5 trillion in assets, had a private credit platform of $85 billion as of Sept. 30.
A new private financing solutions business unit will be formed, which will be led by the HPS leadership team.
BlackRock will pay for approximately 9.2 million shares at the close of the deal, which are worth about $9.4 billion as of Monday's close. Nearly 2.9 million shares will be paid out over about five years, subject to certain conditions.
As part of the deal, which is expected to close in mid-2025, BlackRock will cash out or refinance about $400 million of existing HPS debt.
“The HPS deal positions BlackRock to offer comprehensive alternative asset portfolio management services to the world's largest institutions…significantly advancing their private market growth objectives,” said Ana Arsov, global head of private credit at Moody's (NYSE:) Ratings.
BlackRock shares rose 1.7% on Tuesday.
“This is a very good move for them to try to shore up their areas with higher fees,” said Eric Kuby, chief investment officer at North Star Investment Management Corp, which owns BlackRock shares.
PUSH FROM PRIVATE MARKETS
BlackRock has been on an acquisition spree this year, shelling out roughly $28 billion as it positions itself as a comprehensive platform for investors by integrating public and private markets.
In October, the New York-based company completed its $12.5 billion acquisition of infrastructure investment firm Global Infrastructure Partners and plans to complete its $3.2 billion purchase of private markets data provider Preqin by the end of the year. .
“GIP gave them infrastructure, but they still didn't have a significant presence in private credit…I think they've closed the gap,” said Edward Jones analyst Kyle Sanders.
The source familiar with the situation said a private equity firm could be BlackRock's next big acquisition.
BlackRock declined to comment.
Edward Jones' Sanders said private equity is an area where BlackRock remains smaller than some of the larger companies, although it is a more mature product with probably less growth potential than infrastructure and private credit.
This year's deals aim to strengthen BlackRock's position in infrastructure investments and private markets, both critical growth areas. Fink said Tuesday he expected a “dramatic expansion” of private capital to support infrastructure investments.
BlackRock manages approximately $450 billion in alternative assets following the acquisition of GIP.
HIGHEST RATES
The deal with HPS, which will create a private credit franchise with about $220 billion in client assets, will also increase BlackRock's fee-paying private markets assets under management and management fees by 40% and around 35%, respectively.
The recent acquisitions will bolster BlackRock's fees compared to the “very tight margins” that come from passive investing, said Cathy Seifert, an analyst at CFRA Research. Private assets carry much higher fees than exchange-traded funds, which is BlackRock's core business.
Still, BlackRock's rival alternative asset managers Apollo Global Management (NYSE:), Blackstone (NYSE:) and Ares Management (NYSE:) have made greater progress in private credit.
Apollo manages $598 billion in credit assets and Ares manages $335 billion as of September 30. Blackstone manages $432 billion in assets across its lending platform.
The deal with HPS comes amid speculation that former BlackRock boss Fink could eventually step down from leading the company.
At an event in New York in October, Fink said the growth of private markets could mitigate the economic impact of large US deficits and high levels of public debt. He also said at the time that he was not thinking about retiring.
In an op-ed he wrote for the Wall Street Journal in November, Fink said private investments in infrastructure projects like data centers could help boost U.S. economic growth.
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