By David French, Andres Gonzalez and Davide Barbuscia
NEW YORK (Reuters) – BlackRock’s (BLK) dealmaking spree in 2024 could continue as the world’s largest asset manager is expected to opportunistically seek to expand further into private credit, real estate, infrastructure or possibly private equity.
New York-based BlackRock last week announced plans to acquire private lending firm HPS Investment Partners for about $12 billion, in a deal that BlackRock CEO Larry Fink said will allow the companies to integrate private and public market investment products. offer. It was BlackRock’s third major acquisition this year.
Looking ahead, BlackRock could strengthen its presence in the private markets through further acquisitions, financial sources and analysts said. Objectives could include an expansion of private credit or an increase in private equity, which would allow BlackRock to better compete with larger players in the alternative investment space.
“They’re looking at everything,” said Daniel Fannon, an analyst at Jefferies who covers BlackRock. “They scour the market for suitable partners and asset classes in which they are relevant.”
BlackRock has spent about $28 billion by 2024 to strengthen its private market offering, a strategic move that Fink sees as key to positioning the company as a conduit for private capital to global infrastructure projects at a time of tightening government budgets and rising sovereign debt .
Private credit, in which non-bank institutions make loans to businesses, has seen significant growth in recent years due to stricter regulations that have increased the costs for traditional banks to finance higher-risk loans.
In October, BlackRock completed its $12.5 billion acquisition of investment firm Global Infrastructure Partners and expects to complete a $3.2 billion acquisition of private market data provider Preqin by the end of the year.
The HPS deal will create a private lending franchise with approximately $220 billion in customer assets. Rival alternative asset manager Ares Management had about $313.6 billion in private credit assets under management as of September 30. Blackstone’s total lending business is about $432 billion, most of which is in private lending, the company says.
BlackRock could continue to expand in infrastructure and private credit, according to a source involved in the HPS deal, and may focus on smaller, complementary acquisitions to improve its offering.
“BlackRock has made a very loud statement that they want to be much bigger in private credit and in infrastructure within private markets,” said Alexander Blostein, a senior analyst at Goldman Sachs who covers BlackRock.
A further push into private assets could also include buying assets to give BlackRock exposure to real estate – albeit once the commercial market has stabilized, a senior investment banker said.
BlackRock’s alternative assets under management — including private debt and equities — totaled about $320 billion at the end of September, less than 3% of its $11.5 trillion in assets. BlackRock’s alternative assets pale in comparison to its investments in low-cost products such as index funds and ETFs.
Given BlackRock’s size, recent acquisitions appear to be of greater strategic importance than asset management, suggesting that complementary ventures into private markets are possible, said Cathy Seifert, an analyst at CFRA Research.
“We have always thought about making organic and inorganic investments in our business,” BlackRock Chief Financial Officer Martin Small said during the company’s third-quarter earnings call in October. “Inorganic is a tool we have to optimize organic growth, but we don’t need M&A to achieve our organic growth targets,” he said at the time.
BlackRock declined to comment for this story.
Private assets
Private equity could be another avenue for expansion, a source familiar with the matter and the senior investment banker said. BlackRock has held informal discussions with private equity firms in the past, but none have progressed beyond the preliminary stages, the banker said.
BlackRock’s acquisitions have been relatively “opportunistic” this year, the same banker said, suggesting BlackRock could soon pursue new targets if conditions are right.
However, private equity may be less of an immediate focus as the sector has struggled in recent years.
“It’s just a much tougher part of the business,” said Greggory Warren, a strategist at Morningstar.
Asked about a possible private equity expansion, BlackRock Chief Operating Officer Rob Goldstein said Tuesday that the company already has private equity capabilities.
“As we look at where the puck is going and where customers are increasingly focusing and finding allocations, for now we are prioritizing both infrastructure, meaning debt and equity, as well as private credit,” he said in a panel. at the Reuters NEXT conference in New York.
BlackRock’s private equity teams manage $42 billion in capital commitments, trailing industry heavyweights such as Blackstone, which oversees $345 billion in private equity assets, and KKR, with $190 billion as of the end of September.
“BlackRock doesn’t have as much private equity as Blackstone and KKR, but I think they are more interested in complementing other parts of the business,” Warren said.
Expanding secondary businesses through an acquisition would be a way to increase exposure to private equity, focusing on one of the hottest sectors, the senior investment banker said.
Total transaction volume in the market, where owners of shares in private equity funds can sell them to other investors before the fund matures, is expected to reach a record $140 billion this year, according to BlackRock’s own website.
To be fair, the company may need to take a breather after this year’s wave of acquisitions.
“I imagine they will process some of the recent acquisitions and then focus on upcoming fundraising, product creation, sales and distribution,” said Benjamin Budish, an analyst at Barclays.
For Mac Sykes, portfolio manager of BlackRock investor Gabelli Funds, HPS wasn’t BlackRock’s last foray into acquisitions, but the company is under no pressure to make more deals.
“I see them as opportunistic with a high bar. They are smart capital allocators,” Sykes said.
(Reporting by David French, Andres Gonzalez, Davide Barbuscia, Saeed Azhar, Echo Wang, Ross Kerber, Lewis Krauskopf; Editing by Megan Davies and Leslie Adler)
