BlackRock Inc. (NYSE: BLK), announced on Tuesday that it would spend $12 billion to buy HPS Investment Partners in order to increase its presence in private credit.
HPS will now manage alternative assets worth over 600 billion dollars.
The world’s biggest asset manager also considers a stake at Millenium Management.
BlackRock shares have risen by more than 35 percent since April.
Demand for private credit is high
BlackRock has used its large cash reserves to increase private credit in the past.
It spent $12,5 billion in January to buy Global Infrastructure Partners. This New York-based firm had assets worth $170 billion at that time.
BLK anticipates that GIP will pay BLK about $250 Million in fees for its management services in the current quarter.
Martin Small, BlackRock’s head of finance, said that private equity and credit investments were “much higher priced than BlackRock’s normal roster of funds” and in demand by institutions such as pension funds, endowments and wealthy investors.
The asset manager has committed itself to a stronger presence in the private credit market.
The private credit market is worth $2.6 trillion
Private credit has grown rapidly in the last few years, as tighter regulations make it more costly for traditional lenders to fund riskier loans.
By 2029, it is predicted that the economy will grow from $1.55 trillion in 2015 to $2.6 trillion.
BlackRock is likely to be able tap into this opportunity in the next few years through acquisitions which will expand its position within the private credit sector.
In recent years, the asset manager acquired several companies like Tennenbaum Capital Partners or Preqin to offer its clients a wider range of investment options.
Since the early 2020 pandemic, its stock has nearly tripled.
BlackRock will drive growth in private credit
BlackRock is expanding the private market assets it holds, as they are expected to become key elements of BlackRock’s future growth engine.
BLK is positioning itself to be a leader of private credit by leveraging their scale, expertise, and capabilities. This strategy could make BLK more valuable over the next few years.
Larry Fink, the BlackRock founder and CEO told investors in the company’s most recent earnings conference that “our strategy is ambitious and it is working.”
BlackRock’s third quarter revenue increased 15% year over year, resulting in a profit per share of $11.46.
Comparatively, analysts had predicted $10.36 for each share.
Financial services giant BLK also increased its operating margin of 350 basis points, resulting in a record-breaking operating profit of $2.1 billion for Q3. BLK currently pays a 2.0% dividend.
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