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BlackRock has agreed to buy HPS Investment Partners in a $12bn deal, as the world’s largest money manager races to expand its share of the fast-growing and lucrative market for private investments.
New York-based HPS is one of a handful of groups that dominate private credit, a market that has taken over swaths of corporate lending from traditional banks and which is now at the centre of a land grab by the biggest money managers on Wall Street.
BlackRock has agreed to pay $9.3bn in stock when the deal closes and a further 2.9mn shares, now worth about $3bn, in five years, assuming HPS meets certain financial targets.
The deal is the latest move by BlackRock chief executive Larry Fink to accelerate the group’s expansion into alternative assets, moving the company further beyond publicly traded equities and bonds that have powered its growth since its founding in 1988.
“Throughout BlackRock’s history, we never shied away from making big moves,” Fink said on Tuesday. “Today’s announcement is the next step in the evolution of our private markets capabilities.”
In October, it completed the $12.5bn acquisition of infrastructure investment firm Global Infrastructure Partners. It has also agreed a deal to purchase Preqin, a UK private markets data group, for £2.55bn.
Private credit funds have attracted hundreds of billions of dollars in recent years, with insurers and pension funds clamouring for the higher yielding investments.
BlackRock’s drive into alternative assets has put it into direct competition with the biggest alternative asset managers, including KKR, Blackstone and Apollo. HPS’s $148bn in assets under management would boost BlackRock’s total in alternatives to nearly $600bn, making it among the largest players in the industry.
BlackRock, which has $11.5tn in overall assets under management, will also assume or pay off $400mn in HPS debt. Most of the money will go to HPS’s top partners who own a majority of the firm, but up to $675mn of the proceeds will be used for a broader retention pool.
Top HPS executives would also continue to receive “a significant portion of carried interest and incentive fees” on existing funds, BlackRock’s chief financial officer said.
HPS was founded in 2007 when its now chief executive Scott Kapnick decamped from Goldman Sachs to JPMorgan Chase and launched the business with colleagues Scot French and Michael Patterson. The trio and a handful of other HPS partners bought the firm out from JPMorgan in 2016 for less than $1bn, according to people with knowledge of the matter.
Since then, HPS has grown quickly, benefiting as post-financial crisis regulatory reforms prompted banks like JPMorgan to retrench from riskier kinds of lending. It routinely provides capital to businesses in desperate need of cash or that are on the cusp of a restructuring, charging high fees in the process.
It has worked to expand its business beyond junior and junk-rated loans, as it has courted insurance clients that invest in higher-quality debt. HPS and its rivals are now in the early innings of a race to provide capital to larger, blue-chip companies such as Intel and AB InBev, which they see as a far larger addressable market.
BlackRock plans to merge HPS with its existing private credit unit to form a broader private financing solutions business aimed at the insurance company clients that are part of the larger firm’s bread and butter.
“BlackRock’s large installed base of insurance client assets offers a prime opportunity to cross-sell HPS’s capabilities,” said Ana Arsov, global head of private credit at Moody’s.
Fink said he also expected to “scale” BlackRock’s retail offerings in private credit through the acquisition. Competitors including Apollo and KKR have filed plans with US regulators to bring private credit to the masses through traditional fund structures, as they hope to make early inroads into a market that could provide them with huge firepower to invest.
The three HPS founders will lead the combined business and join BlackRock’s executive committee. Kapnick will be an observer to BlackRock’s board of directors. BlackRock expects to complete the takeover in 2025.
“We’re going to be a huge force in both public and private markets shaping the next decade for . . . financing solutions,” Kapnick said.
BlackRock shares rose 1.9 per cent on Tuesday.
