(Bloomberg) -- A potential bidding war for HPS Investment Partners is set to swell the fortunes of its three founders as rival groups vie for a piece of the red-hot private credit market.
HPS has been weighing the possibility of an initial public offering that may value it at $10 billion or more, and several suitors have considered an investment or acquisition that could yield an even higher payout for the firm’s founders. Those suitors include BlackRock Inc., Abu Dhabi-based asset manager Lunate and private equity firm CVC Capital Partners.
With the credit firm’s current valuation, founders Scott Kapnick, Scot French and Mike Patterson have a combined net worth of $7.3 billion, according to the Bloomberg Billionaires Index. The three Goldman Sachs Group Inc. alumni control almost two-thirds of the firm.
HPS didn’t respond to a request for comment.
HPS now represents an acquisition target that could launch other asset managers into the top rungs of private credit, or another way for investors to bet on an industry that its backers say is still in the early innings of potentially explosive growth. The share prices of Apollo Global Management Inc. and Ares Management Corp., both big players in private credit, have each more than doubled since the start of last year.
The interest from several potential bidders — including the world’s largest asset manager, BlackRock — validates the HPS founders’ bet on private credit. In 2016, HPS bought itself out of JPMorgan Chase & Co. in a deal that valued it at almost $1 billion. Assets under management have more than tripled since — to $117 billion as of June.
Kapnick, 65, became a Goldman Sachs partner in 1994 and worked for long stints in London and Germany, where he helped build out the firm’s presence after the fall of the Berlin Wall. In the mid-2000s, he realized that JPMorgan lacked its own mezzanine finance franchise. That involved investing in a type of loan between equity and debt using money raised from outside investors, a precursor to today’s private credit model.
In 2007, he joined JPMorgan’s Highbridge Capital Management to build its mezzanine finance business. French and Patterson joined him.
The venture was successful enough that by 2013 Kapnick became head of Highbridge. But the financial crisis and subsequent scrutiny of banks made growth difficult, Kapnick told Bloomberg in an interview last year. The team agreed to part ways with the bank in 2016, using about $300 million of debt financing from Bank of America Corp. and JPMorgan and about $100 million of the partners’ cash.
JPMorgan initially kept a stake in the firm, but exited after equity investments from Dyal Capital Partners in 2018 and Guardian Life Insurance Co. of America in 2022. Guardian increased its stake in the firm in August.
Flurry of Interest
On Wednesday, Bloomberg reported that BlackRock was among firms exploring a possible HPS acquisition, in a deal that would mark the asset manager’s latest move into private assets. CVC has also held on-and-off talks with HPS on a potential combination, but no formal negotiations are underway, people familiar with the matter said.
CVC declined to comment, and a BlackRock spokesperson said the firm doesn’t comment on “market rumors or speculation.”
Lunate, which manages about $105 billion, became the latest firm to be linked to HPS when Bloomberg reported Thursday it was considering buying a minority stake. Lunate is a unit of the UAE’s largest listed conglomerate, International Holding Co., chaired by Abu Dhabi royal Sheikh Tahnoon bin Zayed Al Nahyan. Lunate declined to comment.
The flurry of interest in getting a piece of HPS before it goes public reflects firms’ eagerness to break into the world of private credit. Lazard Inc. has also considered several opportunities to acquire a private-credit firm, as has JPMorgan, the biggest US bank. Last year, TPG Inc. agreed to buy credit firm Angelo Gordon for $2.7 billion.
Although a deal for HPS would boost their fortunes, all three of the founders have already prospered by many measures, including by collecting works by artists such as Julie Mehretu, Damien Hirst and Jean-Michel Basquiat.
French, 53, is responsible for riskier and higher-yielding parts of the HPS portfolio, including an investment in Authentic Brands.
Patterson, 49, started his career in the Navy, where, according to a Fortune 40-under-40 profile, he helped design the military’s first drone-enabled strikes. The graduate of Harvard and Stanford universities owns an organic farm in Connecticut.
Kapnick owns a 12,000-square-foot Florida mansion and in 2022 sold a limestone house in New York’s Upper East Side for $27.5 million.
--With assistance from Silas Brown and Davide Scigliuzzo.
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