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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 alternative assets.
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.
BlackRock has agreed to pay $9.3bn in stock when the deal closes and a further 2.9mn shares, now worth $3bn, in five years’ time, 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 equities and bonds.
“I am excited by what HPS and BlackRock can do together for our clients,” Fink said.
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 pensions 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.
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, but up to $675mn of the proceeds will be used for a broader retention pool.
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.
BlackRock plans to merge HPS with its existing private credit business 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. Additionally, BlackRock’s extensive distribution network of institutional investors and wealth managers opens new markets for HPS,” said Ana Arsov, global head of private credit at Moody’s.
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.
“The combination of HPS’s proven culture of investment discipline with BlackRock’s global reach will allow us to seize new opportunities for our investors and employees,” Kapnick said in a statement.
BlackRock shares were down 0.92 per cent in premarket trading.