By Rebecca Ungarino and Callum Keown
BlackRock, the world's largest asset manager, put weeks of reports and speculation to rest Tuesday when it announced that it would buy private credit manager HPS Investment Partners in an all-stock deal valued at $12 billion.
New York-based HPS, which manages some $148 billion in client assets, is hardly a household name, but is well-known in Wall Street circles for its track record of dealmaking in the private credit space. The tie-up bolsters BlackRock's position in the white-hot private debt investment market, where the firm made a separate acquisition last year when it absorbed London-based Kreos Capital, a small manager.
BlackRock, which managed $11.5 trillion as of September, has put much faith and investment behind growth in the private markets. The firm led by Larry Fink, its chief executive and co-founder, has been best known for its vast menu of funds that trade on public exchanges and track indexes, sectors like energy companies, and themes such as artificial intelligence.
But exchange-traded funds, or ETFs, are cheap to buy into. Fees that clients pay asset managers to handle them have fallen over years of competitive pressure. BlackRock is the largest ETF issuer, but scaling low-cost products in a crowded, competitive space can only generate so much growth over time.
So BlackRock is pushing aggressively into private assets, where it is standard practice for managers to charge clients -- primarily on the institutional side, like endowments, though increasingly for rich individuals, too -- much more than they do to run public market vehicles.
"Private markets is a structural grower, especially private debt," said Martin Small, BlackRock's chief financial officer and global head of corporate strategy, on a call with analysts Tuesday.
BlackRock management touted HPS's benefits to fee growth. Analysts and investors have been laser-focused on how the company can generate more revenue from so-called base fees, or those driven from investment advisory and administration.
BlackRock said in an investor presentation that it expected HPS to add some $850 million of base fees in 2025 and, after taxes, $360 million of fee-related earnings at nearly 50% margins. Between BlackRock's existing private assets, those from its acquisition of Global Infrastructure Partners that closed just two months ago, and those from HPS, BlackRock would manage some $410 of overall client assets in the private markets.
The firm has expanded into the competitive business of selling data on the private markets, too. BlackRock said in June that it would buy Preqin, a prominent data provider, for $3.2 billion. Should the Preqin and HPS deals close, the firm will navigate three large integrations at once. BlackRock had 20,400 employees as of September, and HPS has 800 employees across investments, client services, and operations.
BlackRock's stock is up 28% in 2024 and trading in-line with the S&P 500's rise in the same time. The stock rose less than 1% on Tuesday, while the wider market was roughly flat.
Write to Rebecca Ungarino at rebecca.ungarino@barrons.com and Callum Keown at callum.keown@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 03, 2024 12:45 ET (17:45 GMT)
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