(Bloomberg) -- Larry Fink is shelling out about $25 billion in the space of a year to turn BlackRock Inc. into a top-five player in infrastructure and private credit. Now he’s focused on enticing the firm’s newest rainmakers to stay on board.
Across the purchases of private credit firm HPS Investment Partners and Global Infrastructure Partners this year, BlackRock set aside $1.33 billion for retention packages, about $1 million per new employee. Those teams are also keeping a large chunk of the carried interest from their existing strategies.
It’s all aimed at guaranteeing that Fink’s record-setting buying spree pays off. The longtime chief executive officer’s major task now is ensuring that dealmakers who built careers at small, private firms see a reason to stick around at the world’s largest asset manager.
“While this path is quicker to market than a 10-year organic build, it does come with execution risk as money, power and integration issues” arise over time, Evercore ISI’s Glenn Schorr wrote in a note Tuesday, adding that this is a people-led business whose “assets go up and down the elevator every day.”
BlackRock has become the highest-profile money manager embracing alternative strategies dominated by the likes of Apollo Global Management Inc., Blackstone Inc. and KKR & Co. But BlackRock’s push is many leagues larger than that of T. Rowe Price Group Inc., Janus Henderson Group Plc and others branching out beyond traditional asset management.
Fink, 72, aspires to dominate the range of public and private credit markets, providing the types of alternative assets coveted by insurers, pensions, rich clients and sovereign wealth funds. He aims to integrate new colleagues with expertise in these alternatives from the outset with BlackRock stock, hefty retention packages and a say on company strategy.
“Integration begins with our first conversation even before we come up with a valuation,” Fink told analysts Tuesday after the HPS deal was announced. “When you think about the consideration of value, both at GIP and HPS, they took their consideration of value in equity in BlackRock. We have a common currency that we’re all working together.”
‘Really Focused’
BlackRock will oversee almost $600 billion of alternative assets once its $12 billion acquisition for HPS is completed and after this year’s GIP purchase for $12.5 billion. The two deals are the largest on record for boutique private asset investors. BlackRock is also paying £2.55 billion ($3.23 billion) for Preqin to bulk up on market data.
“We’re really focused on preserving all of the best of the platforms,” BlackRock Chief Financial Officer Martin Small told analysts after the HPS deal was announced.
HPS leadership will run a combined private financing unit at BlackRock, which will have about $220 billion of private credit assets.
There’s a $675 million retention package for roughly 800 HPS employees, and founders Scott Kapnick, Scot French and Michael Patterson will join BlackRock’s global executive committee. HPS leadership told clients in a letter Tuesday that it’s offering employees a “material incentive grant” that vests over five years to encourage them to stay.
Kapnick, the CEO of HPS, will serve as an observer of BlackRock’s board.
On top of the $12 billion that BlackRock will pay HPS’ owners, including the top three executives, they stand to make additional payouts of up to 1.6 million more BlackRock shares in five years depending on financial performance. HPS leaders, partners and employees will continue to have more than $1.2 billion of committed and invested capital in HPS investment strategies, the credit firm said in its investor letter.
“It’s all stock,” Kapnick told analysts. “You don’t need to know anything more than that from me about what I think about this transaction.”
BlackRock is integrating GIP in a similar manner, with that firm’s CEO, Adebayo Ogunlesi, joining BlackRock’s board. He and GIP President Raj Rao sit on the global executive committee, and the deal included $650 million in a retention pool for about 400 employees. GIP now runs BlackRock’s combined infrastructure platform as “GIP, a part of BlackRock” and will move into BlackRock’s headquarters in New York’s Hudson Yards in January.
The deal for HPS follows several rounds of shakeups at BlackRock, which struggled for years to keep up with the leaders of alternative investing. Its previous acquisition of Tennenbaum Capital Partners, which had about $9 billion of committed client capital when BlackRock bought it in 2018, wasn’t smooth.
Three of five senior Tennenbaum partners have left, and a fourth is in the process of departing.
“Integration in asset management acquisitions has historically been a challenge,” said Kyle Sanders, an analyst at Edward Jones, who has a buy rating on BlackRock. “The primary concern is retaining talent.”
--With assistance from Lucca de Paoli and Silas Brown.
(Updates with HPS letter to clients in 11th paragraph.)
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