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Deal marks BlackRock's ( BLK ) third major acquisition in 2024

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HPS was carved out of JPMorgan in 2016

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Private credit has grown rapidly in recent years

By Arasu Kannagi Basil and Davide Barbuscia

Dec 3 (Reuters) - BlackRock ( BLK ) 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 seeks to expand in a red-hot market.

Private credit, or lending to companies 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.

The asset class is expected to grow to $2.6 trillion by 2029

from $1.5 trillion at the end of 2023, as per Preqin data.

BlackRock ( BLK ) CEO Larry Fink has previously outlined private

credit to be a "primary growth driver" within alternatives for

BlackRock ( BLK ) in coming years.

"Together with the scale, capabilities, and expertise of the

HPS team, BlackRock ( BLK ) will deliver clients solutions that

seamlessly blend public and private," Fink said in a statement

on Tuesday.

HPS was founded in 2007 as a division of Highbridge Capital

Management, the hedge fund unit of JPMorgan's asset management

arm. In 2016, top HPS executives acquired the firm from

JPMorgan.

Since then, the New York-based company has become a massive

private credit player, with assets under management vaulting to

about $148 billion as of September from $34 billion in 2016.

BlackRock ( BLK ), which manages $11.5 trillion in assets, has an

existing $85 billion private credit platform as of Sept. 30.

A new private financing solutions business unit will be

formed, which will be led by the HPS leadership team.

BlackRock ( BLK ) will pay roughly 9.2 million shares upon deal

close that are worth about $9.4 billion as of Monday's close.

Nearly 2.9 million shares will be paid in about five years,

subject to certain conditions.

As part of the deal, which is expected to close in mid-2025,

BlackRock ( BLK ) will retire for cash, or refinance about $400 million

of existing HPS debt.

For BlackRock ( BLK ), "it's important to grow alternatives to gain

a presence in the rapidly growing space," said Cathy Seifert, an

analyst at CFRA Research, ahead of the deal announcement.

PRIVATE MARKETS PUSH

BlackRock ( BLK ) has been on an acquisition spree this year,

splurging 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 firm finalized its $12.5

billion acquisition of infrastructure investment firm Global

Infrastructure Partners and anticipates completing the $3.2

billion purchase of private markets data provider Preqin by

year-end.

These deals aim to strengthen BlackRock's ( BLK ) foothold in

infrastructure investments and private markets, both pivotal

growth areas. BlackRock ( BLK ) manages roughly $450 billion in

alternative assets post-GIP acquisition.

The HPS deal, which will create a private credit franchise

with about $220 billion in client assets, will also increase

BlackRock's ( BLK ) private markets fee-paying assets under management

and management fees by 40% and about 35%, respectively.

However, BlackRock's ( BLK ) rival alternative asset managers Apollo

Global Management, Blackstone and Ares Management

have made bigger strides in private credit.

Apollo manages $598 billion in credit assets and Ares $335

billion as of Sept. 30. Blackstone manages $432 billion in

assets across its entire credit platform.

Private assets carry much higher fees than exchange-traded

funds, which is BlackRock's ( BLK ) mainstay business.

Speaking at a New York event in October, BlackRock's ( BLK ) CEO

said the growth of private markets could mitigate the economic

impact of wide U.S. deficits and high government debt levels.

In an op-ed he wrote for the Wall Street Journal in

November, Fink said private investments in infrastructure

projects such as data centers could help boost U.S. economic

growth.