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BlackRock, the world’s largest asset manager, is in advanced talks to acquire HPS Investment Partners, a firm specializing in lending to higher risk companies, for more than $12 billion. The deal could be announced this week, although there is still a chance it may not come to fruition.
Expansion in the private credit market
Private credit, which includes all debt not issued or publicly traded, has seen significant growth over the past decade. This market, now valued at approximately $1.6 trillion, has benefited from higher interest rates and regulations that have led banks to withdraw from leveraged lending.
For BlackRock, which manages $11.5 trillion in assets, this potential acquisition would be its third major purchase of 2024, after acquiring Preqin, a London data provider, for $3.2 billion, and Global Infrastructure Partners, a private equity firm, for $12.5 billion.
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HPS Investment Partners: a key player
HPS, founded in 2007 as a division within JPMorgan Chase, became an independent entity in 2016 following a purchase process.
It currently manages $148 billion in assets and specializes in private credit, an area that has grown significantly due to the stricter regulation imposed on banks after the 2008 financial crisis.
The attractiveness of private credit
Private credit continues to attract financial giants. For example, Citigroup and Apollo Global Management launched a $25 billion private credit fund this year, marking the largest such collaboration between a private financial institution and a major bank.
However, JPMorgan CEO Jamie Dimon has expressed concerns about the potential risks of this market. Dimon warns that a lack of regulation could expose retail investors to significant losses.
Implications for BlackRock
The acquisition of HPS would position BlackRock as a stronger player in the competitive private credit market. With an expanded platform, the firm could capture a greater share of this growing sector, consolidating its diversification strategy towards alternative assets.
A booming market but with challenges
As private credit continues to grow, BlackRock’s move underscores the growing demand for alternative investments and the importance of specialized platforms like HPS in meeting these needs. However, the accelerated growth of this market also poses regulatory and risk management challenges that financial giants will need to address in the future.
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