• BlackRock is on a string of multibillion-dollar acquisitions to bolster its private-markets prowess.
• In late November, the asset management titan bought private-credit firm HPS for $12 billion.
• CFO Martin Small explained how the acquisition fits the firm's three requirements.

BlackRock is spending top dollar in its quest to dominate private-markets investing, recently agreeing to buy private-credit firm HPS Investment Partners for $12 billion. It's been a busy year with the asset management giant also buying data powerhouse Preqin and private-equity firm Global Infrastructure Partners (GIP) for $3.2 billion and $12.5 billion, respectively, earlier this year.

"Inorganic has always been a fundamental part of the BlackRock strategy," said Martin Small, the firm's chief financial officer, in an interview at the Goldman Sachs Financial Services Conference on Tuesday.

BlackRock isn't afraid to take big swings.

"We've never shied away from taking big bets," CEO Larry Fink said in an analyst call about the GIP acquisition last week.

BlackRock, which oversees $11.5 trillion, is not new to transforming itself through deals. In 2009, it pushed into passive investing when it bought Barclays' asset-management business. The acquistion gave it iShares and helped it become the public markets juggernaut it is today.

The firm has important criteria for its major acquisitions. At the New York City event, Small laid out the top three factors and how HPS met them.

Cultural fit

Small, an 18-year BlackRock veteran who is also the global head of corporate strategy, named cultural fit as his top priority.

"We have to acquire the kind of people that are aligned to a 'One BlackRock' culture and mission," he said, referring to the firm's ethos of working collaboratively.

Small was part of many meetings with HPS's executive team to test the waters. He said the cofounders shared important values with Fink and BlackRock President Rob Kapito.

"We all speak the same language," he said. "They're founders. Larry Fink and Rob Kapito are founders. We're client-centered firms. We believe in scale, we believe in global."

The three cofounders of HPS — Scott Kanick, Mike Patterson, and Scot French — will lead a new private financing solutions unit at BlackRock and join the firm's global executive committee.

Enrich and extend BlackRock's platform

BlackRock only makes acquisitions that are additive in more ways than one.

"We've been in all the businesses that we've acquired, whether it's private credit or infrastructure or SMA or options or whatever. We've done technology and data in the last year," Small said. "It's not just about new capabilities. It's about new capabilities that make the ones you have better."

Combining BlackRock's existing private credit business with that of HPS will produce a diversified business with a broader reach.

"HPS has been very active in kind of the upper-middle market in terms of direct lending, but also the junior capital solutions," Small said. "Our team has historically been active more in the middle market, kind of $75 million EBITDA borrower base. So there's an enrichment."

"I also think that'll strengthen origination, our ability to do more transactions, meet borrowers where they are," he added.

Topline results

"You've got to be a credible operator on a consolidated basis of these businesses," Small said of acquisition targets.

Given BlackRock's prowess, it takes a sizable acquisition to move the needle. HPS's $148 billion in client assets fits the bill.

"We'll now have a $220 billion preform a private credit business at BlackRock so we'll be very scaled in that regard," he said.

• BlackRock's acquisition of HPS brings the world's largest asset manager to the exploding sector.
• Despite worries about an oversaturated market, industry vets say there are plenty of opportunities.
• "The market is proving that private credit has a reason to exist," a Carlyle exec said.

Tens of billions poured into private credit funds in the third quarter — and then the world's largest asset manager joined the party.

BlackRock's $12 billion announced acquisition of the private-credit pioneer HPS Investment Partners adds an 800-pound gorilla to a sector already full of similarly aggressive primates. The $11.5 trillion asset manager has not been shy about its ambitions in the private markets, and there are worries about too many dollars chasing too few deals.

Other finance giants are trying to get in on the private-credit action, State Street is shopping around for a private-credit firm, and Citi has linked up with Apollo for a $25 billion credit fund. The Singapore sovereign wealth fund Temasek is forming a $7.5 billion private-credit platform. Many smaller asset managers and hedge funds have also launched funds in recent years.

Despite everyone looking to get a part of Wall Street's hottest market, longtime private-credit players are not feeling crowded. Managers are focusing on how private credit is servicing certain parts of the market that are set to grow, such as mergers and acquisitions, or differentiating themselves from peers.

"The market is proving that private credit has a reason to exist," Nicola Falcinelli, the deputy head of European private credit at Carlyle, said Thursday at Edelman Smithfield's annual investor summit in London.

With M&A activity expected to tick up thanks to the reelection of Donald Trump, private-credit providers will be in demand to finance deals, executives said.

"Private credit has done a really nice job of filling cracks in" the deal-financing market, Matthew Theodorakis, a cohead of European direct lending for Ares Management, said at the Edelman event.

Falcinelli pointed to the "long-term trend of banks retrenching from financing M&A" as validation for the expansion of his sector.

"There's healthy competition between capital markets and private credit" across different markets, he said.

Money is being thrown around

From some points of view, this competition has given a lifeline to companies that may not deserve it. April LaRusse of London's Insight Investment, which manages $665 billion across different vehicles, said the number of companies defaulting on their debt held steady in recent years despite interest rates rising.

Typically, an interest-rate increase would squeeze troubled companies to the point that they're unable to pay their creditors. Instead, LaRusse said, there's plenty of capital willing to extend a lifeline.

"High-yield companies have had money thrown at them by private-debt and -equity companies," she said.

With the expansion of players in the lending space, there's more of a focus on putting money to work in the right opportunities, not just owning a broad swath of the market, said Putri Pascualy, a client-portfolio manager for private credit within Man Group's Varagon, a $11.8 billion private-credit firm the asset manager purchased last year.

Managers will "differentiate through alpha, through credit selection," she said at an event at Man Group's London headquarters. For her, she said, "cash is king" when it comes to judging the quality of borrowers — she wants to see a decent amount of liquidity on companies' balance sheets.

Additionally, despite the industry still being a very human-run space of finance, Pascualy said Man was setting itself apart with its artificial-intelligence tools. Blackstone similarly has used its AI tools to pitch insurers looking for private-credit options.

Man uses these tools to scan credit documents and weed out human error, Pascualy said, adding that the firm was just at the beginning of seeing which parts of the process it could make more efficient.

No matter what, though, she said, the firm and others will expand in the space.

"The private-credit universe globally will continue to grow," she said.

• BlackRock has agreed to buy private credit firm HPS Investment Partners.
• HPS is another major private markets deal for the $11.5 trillion money manager.
• BlackRock, known for its ETFs, is hoping a shift to private markets will drive growth.

Larry Fink is looking to close 2024 as he started it — by announcing a big acquisition that brings BlackRock closer to dominating private market investing.

BlackRock is set to buy HPS Investment Partners, a private credit behemoth managing $148 billion, in an all-stock deal worth around $12 billion, the firms announced Tuesday.

Fink, BlackRock's chief executive and cofounder, who built the world's largest asset manager with $11.5 trillion in assets by packaging public markets into cheap funds for the masses, has been very vocal about the firm's push into the profitable private markets.

This shift in strategy could lead to a more valuable BlackRock, which might just be enough for Fink, who turned 72 last month, to finally pass on the reins to his yet-to-be-named successor.

In January, the firm announced that it would buy private equity firm Global Infrastructure Partners, with about $170 billion in assets, for about $12.5 billion in cash and stock. The deal, its biggest one since it bought Barclays's asset management business in 2009, closed in October. In June it agreed to buy data giant Preqin, which it hopes will help bring some of these more complex private strategies to a broader audience.

In addition to the HPS talks, the FT has reported that BlackRock is eyeing a stake in Izzy Englander's $70 billion hedge fund Millennium Management.

BlackRock is not new to reshaping itself through acquisition. The Barclays deal gave the firm iShares and helped it become the passive investing giant it now is.

"I do not want us to be comfortable in our business model," Fink said during the firm's investor day last summer. "I want to make sure we're questioning our business model and we are focusing on how to best serve our clients, and if we truly believe there is some great need that we need to do, we are going to reimagine who we are in our business model."

Acquiring HPS could be another "transformational" deal for the company, helping it reach the same scale it has public equities and bonds in private markets. HPS will push its alternative assets to more than $600 billion.

BlackRock's private credit business will now have a combined $220 billion in client assets. The deal is expected to increase private market fee-paying assets under management by 40% and management fees by 35%, BlackRock said.

Meet HPS Investment

HPS was founded by CEO Scott Kapnick, Goldman Sachs' former head of investment banking, along with Scot French and Michael Patterson in 2007 as a unit within JPMorgan called Highbridge Capital Management. Principals from the firm bought it out in 2016 after the bank's appetite for high-risk loans waned.

The three will now join BlackRock's global executive committee and lead a new unit combining HPS and BlackRock's existing private credit business.

The secretive firm has been at the forefront of the private credit boom, which resulted from the 2008 financial crisis and banks' withdrawal from risky lending. Private players moved in to make loans to companies when Wall Street giants were reluctant to.

"Our competitors refer to us as the nerds of private credit and we take no offense," French told Bloomberg in an interview last November.

The firm, which was previously working toward an initial public offering, caters to mostly institutional investors and has more than 760 employees in offices around the world, according to its website.

How it fits with BlackRock's ambitions

BlackRock brought in more assets in the third quarter than ever before, mostly down to its index funds, but in its October earnings call the firm's leaders were already focused on its future growth engine — GIP.

GIP is expected to add $250 million in management fees in the fourth quarter alone.

"This is a revenue growth story," Martin Small, BlackRock's chief financial officer said during that call." 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 and endowments as well as ultra-wealthy investors.

While BlackRock has long had an alternatives investing unit, until recently, its private markets assets were meaningfully smaller than those of the main players in the space, such as Apollo and KKR.

It's tried growing through acquisition in this space in the past. In 2018, BlackRock bought a small credit manager, Tennenbaum Capital Partners, which at that time had about $9 billion in committed client capital, but saw a number of investment professionals exit.

BlackRock expects the private debt market to more than double to $4.5 trillion by 2030.

While private credit's high yields and returns have increasingly attracted wealth managers and institutions alike, the deal will likely strengthen relationships with insurance firms, which have a longer investing horizon.

Ana Arsov, Moody's Ratings global head of private credit said the acquisition is "catapulting" BlackRock into the ranks of the top 5 private credit managers and significantly advances its private-market growth goals.

"Blackrock's large installed base of insurance client assets offers a prime opportunity to cross-sell HPS's capabilities, Arsov said. "Additionally, BlackRock's extensive distribution network of institutional investors and wealth managers opens new markets for HPS."

• Donald Trump said he would impose 10% to 25% tariffs on goods imported from Canada and China.
• Blackstone's Steve Schwarzman was a trade negotiator for Trump during his first term.
• In his book, he sheds light on what it took to get Trump, Trudeau, and others to the negotiating table.

Donald Trump has retaken the White House, and hefty trade taxes are back on the table, including tariffs of up to 25% on goods imported from Canada and Mexico and up to 10% on products from China.

In an effort to gain insight into how Trump's tariff agenda might play out, Business Insider turned to Blackstone cofounder and CEO Steve Schwarzman, who served as a behind-the-scenes trade negotiator for the Trump White House during his first term. Schwarzman declined to comment for this article but described his experiences as a trade advisor during the first Trump White House in his 2019 book, "What It Takes: Lessons in the Pursuit of Excellence," published by Simon & Schuster.

In the book, he said he was tapped as a trade negotiator because he the trust of members of Trump's inner circle and connections to foreign leaders like China's Xi Jinping. Indeed, Schwarzman traveled to China eight times on behalf of the Trump administration, he said.

He described his meetings with Xi and Canadian Prime Minister Justin Trudeau to help them understand Trump's motivations, as well as his discussions with Trump on the dangers of taking on too many trade deals at once. He suggested a key to getting the various parties to the negotiating table, including Trump, involved stressing the political risks of not cutting a deal.

The billionaire businessman also described his experiences advising US Presidents George H.W. Bush and Barack Obama. Schwarzman, a Republican, said he is open to helping any US president, regardless of party, if he thinks it will help his country.

"When you take up any challenge laid down in Washington, you can never be certain of the outcome," he said. "But whether you succeed or fail, if the goal is to help your country, it is almost always worth doing."

Schwarzman, who declined an official role with the first Trump White House, declined to comment on whether he has been asked to advise Trump in his second term in office.

Schwarzman's relationship with Trump has had its ups and downs. After his book was published, the billionaire businessman distanced himself from Trump following the capitol riots in 2020, issuing a statement condemning the rioters and supporting the results of the election that removed Trump from office. During the Republican primaries for the 2024 election, the Blackstone CEO issued a statement suggesting he would not support Trump before ultimately backing him during the general election.

Here are the top stories from Schwarzman's book about his years working as a business advisor to Donald Trump, as well as Presidents Barack Obama and George H. W. Bush. The excerpts below are pulled directly from his 2019 autobiography.

Schwarzman's connections in the White House and abroad helped him snag the role.

With the President's support, I became involved in trade talks between the United States and China, and the United States, Canada, and Mexico for a simple reason: I knew the people on all sides and they trusted me. Aside from the president, I have known Steve Mnuchin, the treasury secretary, for years. We have apartments in the same building in New York and are close, personal friends. I have known Wilbur Ross, the commerce secretary, for just as long. …

I had met then party secretary Xi Jinping, the current president of China, in 2007, and knew many of the members of the Standing Committee and the State Council. I met the Mexican president, Enrique Peña Nieto, in 2015, and he had endowed two Schwarzman Scholarships for students from Mexico. His finance minister, Luis Videgaray Caso, often called me or came by to talk whenever he was in New York. And on the Canadian side, I had known the foreign minister, Chrystia Freeland, since she was a journalist for the Financial Times. She had covered Blackstone, and I had always found her to be smart and well intentioned.

Schwarzman warned Trump that his trade wars could backfire.

The president had fired trade salvos at China and Europe, and even within the White House, there was concern that the administration was taking on too much. At the president's request, I met with him to offer my advice on the situation. We met in the private quarters of the White House. When the president arrived, I told him that the way I saw it, the United States was now fighting a multifront trade war with Asia, Europe, and the Americas. America's flanks were exposed, and as important as America is, we are only 23 percent of the global economy; give the remaining 77 percent time, and they would figure out a way to band together and make us miserable.

When Trump refused to meet with Canada's Justin Trudeau, Schwarzman stepped in to help.

Trade talks had once again stalled. The prime minister said Canada could not offer any more concessions and wanted to close out the talks. But the president refused a private meeting with the prime minister at the General Assembly. The White House had gone quiet. Prime Minister Trudeau thought a meeting with US CEOs might foster a better understanding of US business priorities and provide him with new ideas on how to progress negotiations. We held the meeting in my conference room at Blackstone.

Schwarzman urged Trudeau to do a trade deal with Trump.

I gave him my view on what it would take to successfully negotiate a deal and told him that the Americans wanted the Canadians to put their terms on paper. The prime minister said he was worried the Americans would leak them and use them against him. I told him that I did deals for a living and the moment had come for him to stop agonizing. If he refused to meet the US demands of a deal, Canada would almost certainly go into a recession, and no politician wins reelection in a recession. If he did a deal, at least he'd have a chance at political survival.

He urged Trump to make a deal with Trudeau.

Agreeing to a deal would show the rest of the world that the United States was serious about renegotiating trade deals, not just blowing them up. With the midterm elections approaching, it would also be useful to have a deal as proof of the president's campaign promises to voters, particularly in possible swing states in the Midwest.

He described a stressful 48 hours until there was a deal.

I told him [Trudeau] I was seeing the president that evening at 5:30 and that any deal needed to be signed by midnight on Sunday, which all parties understood.

The prime minister looked at me from the couch. He said it would be tough, but he would do it. When I met with the president that evening, he reaffirmed that in my discussions with the Canadians, I had accurately reflected terms that the United States would accept. I called the Canadians to let them know. It took another forty-eight hours of waiting and pleading from all sides before finally, at 10:00 a.m. on Friday, the Americans received the Canadians' written offer. Over the weekend, the details were worked out between the two countries, and on Monday, October 1, 2018, the president announced a revised NAFTA, the United States— Mexico— Canada Agreement, or USMCA.

Schwarzman also acted as a go-between for Trump and China's Xi Jinping.

At lunch, President Xi asked me to talk about newly elected President Trump and his views on China and how he had defeated Hillary Clinton. I explained to him the facts President Trump was dealing with, the economic dislocations suffered by many working and middle-class Americans because of globalization. A study by the Federal Reserve had found that nearly half the country was living paycheck to paycheck, unable to write an emergency check for $ 400. For the first time in American history, millions of people feared they would end up poorer than their parents. Among them were many of the president's voters in the Midwest. The trade deficit made China an easy target, and the strong criticism of China was only likely to get worse.

President Xi told me that if that were the case, he would be prepared to do a major economic reset with the United States. Given he knew that I spoke with the president on a wide variety of issues, including trade, he asked me to tell President Trump that we had spoken and to pass along what he had said. In front of the entire group, he also welcomed my participation on behalf of the administration in these talks, a sign of the trust I enjoyed with the Chinese.

As tensions grew, Schwarzman traveled to China 8 times for Trump.

In the meantime, the White House was ratcheting up its rhetoric, threatening higher tariffs and investigations into Chinese trade practices. China's concerns about a trade war began to grow. Given that the president trusted me, he asked that I continue to be involved by being candid with the Chinese as to the US position. I made eight trips to China in 2018 alone on behalf of the administration, trying to assure China's most senior officials that the president was not looking for a trade war.

Schwarzman guided Xi on how to cut a deal with Trump.

He should not assume the Americans would come to a meeting with President Xi prepared with a list of demands. I thought that President Xi should come with his own list, offer five or six substantive proposals, and control the meeting. If our president felt the proposals were compelling and significant enough, he would engage. It was as simple as that. This wasn't the Chinese way, Vice President Wang said, but he liked the idea. Both sides would have a chance to achieve their objectives. This was the way to a deal.

Schwarzman said no to the possibility of a formal role with the Trump White House.

There was little time to talk, but he called again a week later, this time asking if I might consider joining his team. I thanked him and told him I was very happy with my life as it was; I didn't want to disrupt it. He told me he thought I'd say that, but also that he needed to hear directly from America's business leaders as he tried to accelerate the economy.

Schwarzman also advised George H.W. Bush, the 41st president and the father of his former classmate at Yale

In the early 1990s, I was invited to a dinner at the White House. I was between marriages so I took a date, a magazine writer from New York. During the party, I approached President George H. W. Bush, whom I had met years before when he visited his son George W. at Yale. We stepped aside and talked intently for ten minutes. When I walked back to my date, she asked what on earth we had been talking about. Simple, I told her: I had some ideas for him about the ailing US economy, his biggest problem at the time. World leaders are no different from anyone else. If you talk about what's on their mind and have something to offer, they will listen, Democrats, Republicans, princes, or prime ministers.

Although he was critical of President Obama, he stepped in to help with contentious budget negotiations.

"I could really use your help," said the president.

If Democrats and Republicans failed to reach an agreement by January 1, they would trigger a set of automatic decreases in spending and increases in taxes embedded in previous budget agreements that would take the country over the so-called fiscal cliff.

"Are you saying you want to hire me to be your investment banker with no compensation?" I said. He laughed, gave me his private number, and said I could call any time of day or night— though preferably not after 11: 00 p.m. I admired him for reaching out to people outside Washington who might help break the logjam.

Schwarzman came back with a deal, but President Obama rejected it.

We got to what I thought was a fair offer from the Republican side— $1 trillion over ten years, $ 100 billion, or $ 10 billion a year, shy of the tax increases the Democrats wanted. The president wouldn't accept it. I pleaded with him. Ten billion a year was a rounding error in the federal government's $4 trillion annual budget. The Republicans had started these negotiations refusing to raise taxes at all, and now they were proposing $ 1 trillion of additional revenue by raising taxes, closing loopholes, and ending deductions. There was room here for a deal, but not much, and the window would likely slam shut if the Democrats continued to balk."

You might know about deal making, the president told me, but he knew politics— a fair point from a man fresh from winning his second presidential term. He did not want to start this second term spending precious political capital by pushing a deal he knew he couldn't get his own party to support.

• Citadel founder Ken Griffin said on Thursday that he's "open" to selling a stake in his hedge fund.
• Griffin had previously sold a minority stake in his market maker to VC funds Sequoia and Paradigm.
• He said he'd look for "a partner that feels like Sequoia."

BlackRock's potential investment into Izzy Englander's Millennium might have Citadel founder Ken Griffin thinking.

At the Economic Club of New York Thursday, Griffin complimented BlackRock founder Larry Fink for being a "legend in asset management" and said that if the tie-up eventually does go through, "it's a very interesting" one. The early-stage talks between BlackRock and multistrategy rival Millennium were reported by the Financial Times earlier this month.

Asked if he would consider such a move, the billionaire said he'd "be open to selling a minority stake," which Citadel, the $65 billion hedge fund that's become the most profitable firm in the industry's history, has never done.

"We take great pride in being a private partnership," he said, and believes the structure has helped the firm run smoothly for the more than 30 years it's been in existence.

Nearly every hedge fund is still owned by its founders and a select group of partners, even the older industry giants like Citadel, though Griffin may be looking to sell a stake at the peak. He said in a Bloomberg interview on Tuesday that the extreme growth that has added billions of assets to his fund and his peers' is not likely to continue.

In New York Thursday, he pointed out the benefits of selling a stake in his market maker Citadel Securities in 2022 to venture capital firms Sequoia and Paradigm for more than $1 billion. The investment valued the firm at $22 billion.

He said Sequoia in particular brought "real insights" into how to manage a rapidly growing company, noting the firm's past investments into Apple and Nvidia before the two companies were public.

Griffin said Sequoia has pushed Citadel Securities' leadership in the boardroom, making them a better company.

As for who he'd want as a minority stakeholder of Citadel, Griffin clearly has a type.

"We'd look for a partner that feels like Sequoia," he said.