BlackRock Purchases Kreos Capital to Expand Private Lending Business
Global fund manager BlackRock has acquired Kreos Capital, one of Europe’s largest providers of loans to start-ups and technology firms, and hired its 45 employees. The purchase is part of BlackRock’s $45 billion private lending business expansion, as it seeks to allow clients to access venture debt services. This industry provides loans to start-up companies in exchange for equity stakes. Despite decreasing private debt demand, BlackRock sees the potential in the growing venture debt industry. The purchase helps BlackRock further branch out into the asset class.
Background: What is Kreos Capital?
Kreos Capital was founded in 1998 and has since provided over €5.2 billion in loans to start-ups in the healthcare and technology areas, some examples are food delivery company Delivery Hero and taxi app Gett. The company targets short-teens rates of return on the net internal rate, and its funding base is considered diversified, with various investors putting money into their funds such as pensions, sovereign wealth funds, and insurers.
Exploring the trend in private credit
A report by tech investment and advisory firm GP Bullhound released in March suggested that European tech companies’ debt issuance had doubled to €30.5bn in 2021 compared to 2020. Ventures debt represented around 30% of all venture capital raised in tech in Europe in 2022, up from about 16% in the previous six years.
Rising interest rates make variable rate loans more attractive in the current climate, and as a response, traditional asset managers such as Deutsche Bank’s DWS and Fidelity International have signaled their intention to grow their lending businesses. Similarly, US investment managers- Nuveen and PGIM just closed big deals. As a consequence of the global financial crisis, tighter capital requirements imposed made it harder for banks to engage in speculative lending, and this fact played a role in the emergence and growth of the private credit market.
BlackRock’s move into “alternative affairs”
In the past decade, BlackRock has steadily created its own “alternative affairs” sector, with infrastructure, credit, and private equity categories. This development occurred as investors become more interested in yield-chasing asset classes. Despite this growth, BlackRock is still far behind market leaders like Blackstone. In 2018, BlackRock bought Tennenbaum Capital Partners to boost BlackRock’s US lending business. In 2021, the company studied a bid for US investment giant Carlyle Group.
Summary
BlackRock has bought Kreos Capital as it aims to expand the private lending business. This industry provides loans to start-ups in exchange for equity stakes, and BlackRock sees the potential in the growing venture debt industry. Despite decreasing private debt demand, Kreos’s strong venture debt offerings are appealing to BlackRock’s clients. Other traditional asset managers like Deutsche Bank’s DWS and Fidelity International are expanding their own lending businesses due to rising interest rates. Similarly, US investment managers such as PGIM and Nuveen closed big deals in this area.
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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 its founding in 1998, Kreos has lent more than €5.2 billion to fast-growing start-ups in the areas of technology and healthcare, including food delivery company Delivery Hero and Israeli taxi app Gett .
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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