BlackRock, the world's largest asset manager with $11.5 trillion in assets has acquired HPS Investment Partners, a leading private credit firm managing $148 billion in assets, in an all-equity deal valued at $12 billion, both the companies announced in a statement.

The acquisition is the third major deal by BlackRock this year and will enable the company to control a major chunk of the rapidly growing private credit market. The deal will help BlackRock to deepen its alternative investments portfolio and diversify income streams.

Private credit involves non-bank loans provided directly to borrowers, including corporations, real estate developers, and infrastructure projects. Unlike traditional bank loans, private credit often caters to niche financing needs with less regulatory scrutiny and higher returns. As banks retreat from traditional lending due to heightened regulations, the private credit market has grown multi-fold in recent years, offering an appealing alternative for borrowers.

Private credit assets under management or AUM, as it is widely referred have more than doubled since 2020 and are projected to exceed $4.5 trillion by 2030, according to BlackRock's recently upward revised estimation. Institutional The growth is further expected to be driven by strong demand from Institutional investors and pension funds which are still under allocated in private credit segment. The speedy disbursal and less regulations also make private credit attractive.  

Retail investors are increasingly allocating resources to private credit for its stable income and portfolio diversification benefits. BlackRock has identified the high growth potential in the private credit market and had been planning to enter the domain.

The integration of HPS will create a combined platform managing approximately $220 billion in private credit assets, making BlackRock one of the top five global players in this sector. This move enhances BlackRock's ability to serve institutional and insurance clients while expanding offerings in direct lending, asset-based finance, and opportunistic credit solutions.

HPS Investment Partners was established in 2007 as Highbridge Principal Strategies, functioning initially as a division within Highbridge Capital Management, which itself was affiliated with J.P. Morgan Asset Management. In 2016, HPS transitioned to independent company when its leadership and employees successfully acquired the firm, separating it from both Highbridge and J.P. Morgan Asset Management.

HPS, with its extensive experience and flagship funds such as Strategic Investment Partners and Core Senior Lending, will complement BlackRock's existing capabilities.

The acquisition is expected to boost BlackRock's management fees from private markets by 35% and generate $850 million in base fees by 2025. HPS's profitability, with margins nearing 50%, matches with BlackRock's focus on high-margin businesses, said the companies in its acquisition presentation. The transaction also includes measures to retain key HPS talent, ensuring continuity and expertise for the combined entity.

This acquisition reflects a strategic pivot toward private credit, a sector poised for explosive growth. For BlackRock, adding HPS strengthens its position in alternative investments, offering robust solutions across private and public credit markets. This deal not only enhances BlackRock's service capabilities but also underscores the increasing importance of private credit in the global financial ecosystem.