BlackRock BLK is on the cusp of acquiring HPS Investment Partners for a reported $12 billion. This was stated by the Financial Times citing persons familiar with the matter.

The move underscores BlackRock's commitment to strengthening its foothold in the fast-growing alternatives market, particularly private credit—a sector witnessing robust demand amid shifting banking dynamics and investor preferences.

HPS Investment, a private credit powerhouse managing $150 billion as of Sept. 30, 2024, stands out for its early entry and dominance in the space. Founded in 2007 as a unit of JPMorgan Chase JPM, the firm has capitalized on regulatory shifts post-2008 stringent regulations, which led banks to retreat from traditional lending. In 2016, HPS Investment’s founders – Scott Kapnick, Scot French and Michael Patterson – acquired it from JPM.

For BlackRock, acquiring HPS Investment means not only gaining access to a well-established player but also rapidly boosting its presence in private credit, complementing its existing $450 billion alternatives portfolio.

HPS Investment: A Natural Fit for BlackRock

The acquisition of HPS Investment aligns seamlessly with BlackRock's broader strategy of diversifying into higher-fee businesses, away from its historically dominant exchange-traded funds (ETFs). HPS Investment has a proven track record in credit markets, spanning debt investments, leveraged loans and real estate, among other verticals. Its vast network and expertise provide BLK with the tools to cater to institutional clients seeking stable returns in uncertain markets.

HPS Investment's trajectory as a potential IPO candidate valued at $10 billion earlier this year further highlights its attractiveness. BlackRock's ability to secure the deal at a premium valuation of $12 billion showcases its focus on acquiring top-tier assets in an increasingly competitive alternatives market.

The private credit market has experienced meteoric growth, fueled by demand for non-traditional financing options and a retreat by banks constrained by post-crisis regulations. With institutional investors seeking reliable income streams, private credit has emerged as a lucrative asset class, offering stability and yield.

By acquiring HPS Investment, BlackRock positions itself at the forefront of this boom, catering to client needs while enhancing its revenue mix.

Complementing BlackRock’s Expansionary Moves

The HPS Investment acquisition comes on the heels of other transformative deals by BlackRock, including the $12.5 billion acquisition of Global Infrastructure Partners and a $3.3 billion planned purchase of Preqin, a U.K.-based private markets data group. Together, these moves indicate a calculated shift toward building a comprehensive alternatives platform encompassing private credit, infrastructure and data-driven investment insights.

This strategy positions BlackRock as a formidable competitor against alternatives giants like Ares Management, Apollo Global and Blackstone. The buyout of HPS Investment will enable synergies across BLK’s expanding suite of alternative offerings, paving the way for cross-selling opportunities and tailored solutions for institutional investors.

The Road Ahead: BlackRock’s Vision

If finalized, the acquisition will push BlackRock’s alternatives assets past $500 billion, reinforcing its leadership in a rapidly evolving investment landscape. This step demonstrates the company’s commitment to staying ahead of market trends, meeting client demand and leveraging scale for competitive advantage.

The deal also signals a broader trend of consolidation in the alternatives space, as asset managers race to scale and differentiate themselves in a crowded market.

Shares of BlackRock have jumped 34.6% in the past six months, outperforming the industry’s rally of 34.3%.
 

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At present, BLK sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Another asset manager vying to expand into the lucrative alternatives and private credit markets is Affiliated Managers Group AMG. In May 2024, the company acquired a minority stake in Suma Capital, marking the ninth private markets partnership. Last year, the company diversified its business “in distinct fast-growing areas of private markets” by taking minority interests in Ara Partners and Forbion Group Holding B.V. Through such investments, the company is reshaping its business profile and focusing on alternatives. As of Sept. 30, 2024, Alternatives assets under management (AUM) was $266.5 billion (36.6% of total AUM). 

On the third-quarter conference call, management noted that almost 50% of AMG’s earnings are generated from alternative strategies (private markets and liquid alternatives), with the remaining “coming from differentiated long-only strategies.” Over time, earnings contribution from alternative strategies will likely keep growing. The company is targeting investments in alternatives to evolve the business mix toward secular growth areas and strong investor preference.

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