BlackRock Inc (NYSE: BLK) announced plans of spending $12 billion on buying HPS Investment Partners to expand its footprint in private credit on Tuesday.
The HPS acquisition will push alternative assets under its management to over $600 billion.
Additionally, the world’s largest asset manager is considering a stake in Millenium Management as well.
Shares of BlackRock have gained more than 35% since April.
Private credit is very much in demand
BlackRock is not new to using its cash hoard to expand in private credit.
In January, it spent $12.5 billion to acquire Global Infrastructure Partners – a New York based private equity firm that had some $170 billion worth of assets under management at the time.
BLK expects about $250 million in management fees from GIP in its current quarter.
Private equity and credit investments are “much more expensive than BlackRock’s usual roster of funds and are in high demand from institutions like pensions, endowments, and ultra-wealthy investors,” as per BlackRock’s chief of finance Martin Small.
That’s why the asset manager is committed to strengthening its footprint in private credit.
Private credit is a $2.6 trillion opportunity
The private credit market has seen rapid growth in recent years as stricter regulations continue to make to more expensive for conventional lenders to finance riskier loans.
It is expected to grow from $1.5 trillion last year to $2.6 trillion by the end of 2029.
Evidently, that’s a sizeable opportunity that BlackRock will be able to tap in the coming years with acquisitions that expand its hold on the private credit space.
The asset manager has made several other acquisitions like Tennenbaum Capital Partners and Preqin in recent years to diversify and offer a more comprehensive range of investment solutions to better serve its clients.
The strategy has helped its stock price nearly triple since the pandemic low in early 2020.
BlackRock to drive future growth from private credit
BlackRock has been expanding its private market assets as it expects them to be key components of its future growth engine.
The asset manager is leveraging its scale, capabilities, and expertise to position itself as a leader in private credit – a strategy that has potential to make BLK a lot more valuable in the years ahead.
“Our strategy is ambitious, and our strategy is working,” Larry Fink – the founder and chief executive of BlackRock told investors on the most recent earnings call.
BlackRock earned $11.46 a share (adjusted) as revenue jumped 15% on a year-over-year basis in its third financial quarter.
Analysts, in comparison, had called for $10.36 per share.
The financial services giant also improved its operating margin by 350 basis points to report a record operating income of $2.1 billion in Q3. BLK shares currently pay a dividend yield of 2.0%.
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