BlackRock Acquires Kreos Capital and Enters Growing Venture Debt Industry
BlackRock, the world’s largest fund manager, has bought Kreos Capital, one of Europe’s largest startups and technology companies’ lenders. The acquisition is part of BlackRock’s strategy to expand its $45 billion private lending business, allowing its clients to access the fast-growing venture debt industry. The move comes at a time when appetite for private debt is fading, but traditional asset managers like Fidelity International, Deutsche Bank’s DWS, and US investment managers Nuveen and PGIM are looking to grow their lending businesses. Many investors are venturing into private credit further after rising interest rates made variable rate loans more attractive.
Growing Venture Debt Industry in Europe
Kreos Capital, founded in 1998 and based in London, is a lender to fast-growing startups in the technology and healthcare sectors that have received over €5.2 billion in loans. Kreos’ supply is still in high demand following the collapse of Silicon Valley Bank, formerly a significant lender to startups.
The venture debt industry in Europe is still very underpenetrated and offers a great opportunity for expansion. A report by GP Bullhound, a tech investment and advisory firm, found that debt issuance to European tech companies doubled to €30.5 billion last year compared to 2021. In 2022, debt accounted for about 30% of all venture capital raised in European tech, up from about 16% in the previous six years. Falling prices for tech companies have spurred startups to turn to debt providers to extend their cash lifelines without diluting their shareholders or accepting a reduced valuation.
BlackRock’s Expanding Alternative Affairs
BlackRock has steadily expanded its alternative affairs, including infrastructure, credit, and private equity, over the last decade as investors rushed to yield-chasing asset classes. However, the business still represents a small fraction of its overall assets under management and is much smaller than market leaders such as Blackstone. BlackRock acquired US lender Tennenbaum Capital Partners in 2018 to enhance its US lending business and studied a bid for US investment giant Carlyle Group in 2021.
Kreos targeted a net internal rate of return in short teens, and investors in its funds include sovereign wealth funds, pensions, and insurers.
Additional Piece
The world of finance is always evolving as it seeks ways to make money work harder. BlackRock’s acquisition of Kreos Capital follows a trend of traditional asset managers venturing into the private credit and lending space. The rise of the venture debt industry in Europe presents investors with a new opportunity for expansion. The trend is mainly driven by a reduction in the availability of traditional bank lending, triggered mainly by tighter capital requirements. The shift towards private debt has created opportunities for investors to earn attractive returns while mitigating risk.
The growing demand for venture debt and lending is fascinating, given that the space was once filled by banks. Investors and asset managers got nervous after the financial crisis that happened in 2008, prompting many to consider other opportunities. The rise of private credit as a market since then is impressive and worth watching closely due to its inherent risks and high level of dependency. Another factor that makes the venture debt industry attractive is the current interest rate environment, presenting opportunities for investors to earn higher returns than traditional bank loans.
The venture debt industry in Europe may still be underpenetrated, but the ecosystem is healthy and growing. Startups have continuously relied on venture capital funding to raise capital for their businesses. However, the funding gap has become more pronounced, making venture debt a viable financing option. Investors, mainly institutional, are now more willing to lend to startups as venture debt funds’ performance continues to improve.
In conclusion, BlackRock’s acquisition of Kreos Capital marks the fund manager’s entrance into the fast-growing venture debt industry. The industry’s growth is fueled by a decline in traditional bank financing availability, tighter capital requirements, and the search for higher returns by investors. The venture debt market presents many opportunities but is not without its inherent risks. Investors and asset managers need to tread carefully to reap the market’s rewards fully. A well-structured strategy that mitigates risks can help realize the industry’s full potential as a viable financing option for startups.
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BlackRock is buying one of Europe’s largest providers of loans to start-ups and technology companies, as the firm continues to expand its $45 billion private lending business.
The world’s largest fund manager is buying London-based Kreos Capital and hiring its 45 employees, BlackRock senior executive Stephan Caron said in an interview with the Financial Times, without disclosing the value of the deal.
The move will allow BlackRock’s clients to tap into the growing venture debt industry, which involves providing loans to start-ups rather than taking equity stakes, at a time when appetite for private debt is fading. strong expansion.
Since it was founded in 1998, Kreos has lent more than €5.2 billion to fast-growing start-ups in the technology and healthcare sectors, including food delivery company Delivery Hero and Israeli app for the Gett taxi.
BlackRock’s move is part of a general shift towards private credit which quickly grew into a $1.4 trillion market, helped by tighter capital requirements imposed after the global financial crisis that made it harder for banks to engage in speculative lending.
Many large investors are branching out further into the asset class as rising interest rates make variable rate loans more attractive.
Traditional asset managers like Fidelity International and Deutsche Bank’s DWS have both signaled they are looking to grow their lending businesses, while firms including US investment managers Nuveen and PGIM have recently closed big deals.
“Many clients are looking to increase their allocations to private debt,” said Caron, BlackRock’s head of private debt for Europe, the Middle East and Africa.
“Venture debt is obviously a growing component of the private debt segment,” he added. “Europe is still very underpenetrated, we believe there is still a great opportunity to grow the business organically.”
A report released in March by GP Bullhound, a tech investment and advisory firm, found that debt issuance to European tech companies doubled to €30.5bn last year compared to 2021.
Debt accounted for about 30% of all venture capital raised in European tech in 2022, according to Dealroom data, up from about 16% in the previous six years.
Falling prices for tech companies have prompted startups to increasingly turn to debt providers to extend their cash lifelines without diluting their shareholders or accepting a reduced valuation.
The collapse of Silicon Valley Bank, formerly a major lender to startups, has only increased demand for Kreos’ supply, according to its co-founder and managing partner Mårten Vading.
BlackRock has steadily built its own the so-called alternative affairs – largely comprising infrastructure, credit and private equity – over the past decade as investors flocked to yield-chasing asset classes.
However, the business still represents only a small fraction of its overall assets under management and remains much smaller in the industry than market leaders including Blackstone.
BlackRock bought US lender Tennenbaum Capital Partners in 2018 to boost its US lending business. Last year, it also studied a bid for US investment giant Carlyle Group, the FT previously reported.
Kreos targeted a net internal rate of return in short teens. Investors in his funds include sovereign wealth funds, pensions and insurers.
https://www.ft.com/content/cb47f61b-6c6c-45bd-9cd0-df344e7aa73f
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