BlackRock (BLK) just made a $12 billion bet that will take it deeper into the hottest trade on Wall Street: private credit.
The world’s largest money manager announced Tuesday it would pay that much in stock to acquire HPS Investment Partners, a firm run by three ex-employees of Goldman Sachs (GS) and JPMorgan Chase (JPM) that specializes in lending money to riskier companies.
“Private markets are no longer a separate or standalone exposure for investors,” BlackRock CEO Larry Fink told analysts during an investor call on Tuesday morning. “The blending of public and private in today’s reality is a part of the entire market of today.”
BlackRock’s stock was up roughly 1% Tuesday morning.
Private credit — which accounts for all debt that is not issued or traded publicly — is a loosely defined market that mushroomed over the past decade due in large part to higher interest rates and regulations that forced banks to retrench from their own leveraged lending.
The market is now worth roughly $1.6 trillion compared with $41 billion in 2000, according to Preqin. The sum is still small compared to the total loans held by US banks — over $12.5 trillion.
BlackRock, which oversees $11.5 trillion in assets, and other money management giants have been making aggressive expansions into these private markets and, in some cases, teaming up to compete for that business.
One such alliance is between Citigroup (C) and Apollo Global Management (APO), which have announced a $25 billion private credit fund focused on direct lending. It is the biggest lending partnership yet between a private financial institution and a big bank. (Disclosure: Yahoo Finance is owned by Apollo Global Management.)
JPMorgan CEO Jamie Dimon is among those who have raised some concerns about private credit’s growth, arguing that it creates more opportunities to let risks outside the regulated banking system go unmonitored.
“I do expect there to be problems,” Dimon said at a Bernstein industry conference at the end of May, adding that “there could be hell to pay” if retail investors in such funds experience deep losses.
The HPS deal is BlackRock’s third sizable acquisition in 2024, and all involved a deeper push into alternative assets.
Earlier this year, it agreed to buy London data provider Preqin for $3.2 billion and private equity firm Global Infrastructure Partners for about $12.5 billion.
The purchase of Global Infrastructure Partners, which closed in October, was a bet on growing demand for new energy, transportation, and digital infrastructure projects in the coming years.
HPS gives BlackRock a bigger platform to go after a slice of the private credit market, making BlackRock one of the world’s top private credit managers. It also gives BlackRock roughly $600 billion in total alternative assets, putting it in the same league as Apollo and KKR.
HPS was founded by three former Goldman employees, Scott Kapnick, Scot French, and Mike Patterson, who started the firm in 2007 as a private equity and credit division within JPMorgan Chase’s asset management unit.
HPS separated from the bank through a buyout in March 2016 as JPMorgan backed away from riskier loans due to tighter regulations imposed in the aftermath of the 2008 financial crisis.
As of September, HPS managed $148 billion in client assets.
BlackRock and HPS will form a new private financing solutions business unit led by Kapnick, French, and Patterson. Those three men will all join BlackRock’s executive committee. Combined, the two firms would have a private credit franchise overseeing $220 billion in assets.
“Today marks an important milestone in our drive to become the world’s leading provider of private financing solutions,” said Kapnick, HPS’s CEO. “Our partnership with BlackRock will further strengthen our position in this fast growing but increasingly competitive market.”
One big opportunity from the combination is the chance to “cross-sell” private credit products from HPS to “BlackRock’s large installed base of insurance client,” Ana Arsov, Moody’s Ratings global head of private credit, said in emailed comments.
The companies expect the deal to close in mid-2025 “subject to regulatory approvals and customary closing conditions.”
David Hollerith is a senior reporter at Yahoo Finance covering the cryptocurrency and stock markets. Follow him on X at @DsHollers.
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Source: finance.yahoo.com