BlackRock Strikes $12 Billion Deal for HPS, Doubling Down on Wall Street’s Hottest Market
World’s largest asset manager continues its push into private markets with its third major acquisition this year
BlackRock BLK -0.26%decrease; red down pointing triangle has agreed to buy private credit manager HPS Investment Partners in a roughly $12 billion all-stock deal that would substantially add to its coveted private asset pile.
The deal would give Chief Executive Larry Fink a significant foothold in what is now one of the hottest markets on Wall Street. Fink has given priority to expanding BlackRock’s private-market business through acquisitions in an effort to keep more of its clients’ business in-house and generate higher fees.
New York-based HPS was founded in 2007 by three former Goldman Sachs employees including investment banking head Scott Kapnick. Its once obscure business of lending directly to companies has boomed in recent years while banks have pulled back from risky lending. Kapnick is among the HPS leaders who will join BlackRock’s global executive committee once the deal closes.
HPS manages nearly $150 billion, making it one of the few private credit managers with enough scale to move the needle for the world’s largest asset manager.
“Combining public and private credit is the future of fixed income,” BlackRock Chief Financial Officer Martin Small said in an interview. “We’re seeing clients use public fixed income and private fixed income in a barbell together. And we’re just going where they’re going.”
For most of its 36-year history, BlackRock focused on public stock and bond management. Its timely embrace of passive, index-tracking investment products made it into a behemoth. But as alternative investments such as private equity, private credit and infrastructure became institutional investor favorites in recent years, BlackRock lagged behind.
The HPS deal would boost BlackRock’s alternative asset tally by more than 25% to nearly $600 billion if completed, putting BlackRock’s alternative business on par with private market giants KKR and Apollo Global Management. Those companies command market values in the same ballpark as BlackRock’s despite managing just a fraction of the assets, thanks to the high fees private investments generate.
Adding HPS is expected to increase BlackRock’s private market management fees by about 35%.
The deal would mark BlackRock’s third major private-markets acquisition in recent months. It agreed earlier this year to pay $3.2 billion for Preqin, which provides data on private assets, and $12.5 billion for Global Infrastructure Partners, an alternative asset manager focused on infrastructure.
Unlike private equity, which has been around for decades and has grown more slowly in recent years, infrastructure and private credit are believed to still have significant growth potential.
The market for private credit is expected to double to $3 trillion in the next three years, according to estimates from Moody’s Ratings. Helping to drive the expansion is a push by firms, including HPS, beyond corporate loans and into the vast world of asset-backed financing, which involves everything from credit-card loans to equipment financing to mortgages.
In addition to such loans, HPS lends to midsize companies, real estate and energy and power companies and provides specialized financing to companies in need of more tailored solutions.
As the lines between public bonds and private credit increasingly blur—more companies with blue-chip credit ratings are beginning to turn to direct lending—BlackRock is hoping the HPS deal will give it a comprehensive offering for clients such as insurance companies that invest in both assets. BlackRock manages some $700 billion in assets for insurance companies.
“I think the biggest growth vector in private credit over the next decade is the expansion of our focus from the non-investment-grade world into the investment-grade world,” HPS co-founder Michael Patterson said in an interview. “The industry is changing really rapidly.”
Originally known as Highbridge Principal Strategies, HPS was part of Highbridge Capital Management, a unit of the asset-management business of JPMorgan Chase. The bank struck a deal in 2015 to sell most of HPS to its management team as part of a wave of deals by banks aimed at simplifying their operations and limiting riskier assets in the wake of the 2007-2008 financial crisis. The deal valued HPS at around $1 billion, according to a person familiar with the matter.
In addition to Kapnick and Patterson, HPS is led by principals Scot French, Purnima Puri, Faith Rosenfeld, Paul Knollmeyer and Kathy Choi.
Kapnick, French and Patterson are set to join BlackRock’s global executive committee. They will lead a new private financing services business that combines HPS with BlackRock’s existing private-credit businesses across corporate and asset-backed finance.
HPS’s principals are set to receive 9.1 million BlackRock shares, worth about $9.3 billion, when the deal closes, followed by the remaining consideration of three million shares in five years. The deal includes an additional $1.6 billion worth of stock in potential earn-out payments if certain financial targets are met.
BlackRock expects to retire or refinance about $400 million of existing HPS debt as part of the deal, which is expected to close in mid-2025.