BlackRock (BLK) is close to making a $12 billion bet that would plunge it into the hottest trade on Wall Street: private credit.
The world’s largest money manager is discussing a deal to buy HPS Investment Partners, a firm led by three former employees of Goldman Sachs (GS) and JPMorgan Chase (JPM) that specializes in lending money to risky companies.
A sale of $12 billion or more could be announced as soon as this week, according to reports in the Financial Times and Bloomberg. The contract can also be dissolved.
BlackRock’s stock was slightly lower in Monday morning trading.
Private equity – which includes all loans that are not issued or sold publicly – is a private sector market that has grown over the past decade due to high interest rates and regulation that has forced banks to divest from their lending portfolios.
The market is now worth $1.6 trillion compared to $41 billion in 2000, according to Preqin. This amount is still small compared to all the loans held by US banks – over $12 billion.
BlackRock, which manages $11.5 trillion in assets, and other money management giants have been aggressively expanding into these private markets and in some cases joining forces to compete for that business.
One such partnership is between Citigroup ( C ) and Apollo Global Management ( APO ), which announced a $25 billion private equity fund focused on direct lending. It is the largest lending partnership between a private financial institution and a large bank. (Note: Apollo is the parent company of Yahoo Finance).
JPMorgan CEO Jamie Dimon is among those who have expressed concern about the growth of private debt, arguing that it creates more opportunities to ventilate risks outside the regulated banking system.
“I expect there will be problems,” Dimon said at a Bernstein industry conference at the end of May, adding that “there could be hell to pay” if retail investors in such funds experience significant losses.
If BlackRock completes the deal to buy HPS, it would be its third major acquisition in 2024. All of which involve a deeper push into other assets.
Earlier this year, it agreed to buy London data provider Preqin for $3.2 billion and private equity firm Global Infrastructure Partners for $12 billion.
The purchase of Global Infrastructure Partners, which closed in October, was a bet on the growing demand for new energy, transportation, and digital projects in the coming years.
The purchase of HPS would give BlackRock a larger platform to pursue the private equity market segment.