BlackRock expands private lending business with acquisition of Kreos

BlackRock is buying one of Europe’s biggest providers of loans to start-ups and technology companies, as the firm continues to expand its $45bn private lending business.

Without disclosing the value of the transaction, BlackRock senior executive Stephen Caron said in an interview with the Financial Times that the world’s largest money manager is buying London-based Kreos Capital and taking on 45 of its employees.

The move will allow BlackRock’s clients to tap into the growing venture lending sector — which involves providing loans to start-ups rather than taking an equity stake — at a time when appetite for private loans is booming.

Since being founded in 1998, Kreos has loaned more than €5.2bn to fast-growing start-ups in the tech and healthcare sectors, including food delivery company Delivery Hero and Israeli taxi-hailing app Gett.

BlackRock’s move is part of a general shift toward personal loans that has rapidly grown into a $1.4 trillion market, helped by tougher capital requirements imposed after the global financial crisis that made it harder for banks to engage in speculative lending. Is.

Many large investors are expanding further into the asset class as rising interest rates make floating rate loans more attractive.

Traditional asset managers such as Fidelity International and Deutsche Bank’s DWS have both indicated they are seeking to grow their lending businesses, while US investment managers Nuveen and PGIM have both made large deals recently.

“Many clients are looking to increase their allocation to private loans,” said Caron, BlackRock’s head of private lending for Europe, the Middle East and Africa.

“Enterprise lending is clearly a growing component of the personal lending segment,” he said. “While Europe is still very under-penetrated, we still feel there is a huge opportunity to grow the business organically.”

A report published 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.

According to data from Dealerroom, debt will account for about 30 percent of all venture capital raised in European tech in 2022, compared to about 16 percent in the previous six years.

Falling prices for technology companies have prompted start-ups to increasingly turn to debt providers to expand their cash lifelines without diluting their shareholders or accepting lower valuations.

The collapse of Silicon Valley Bank, previously a top lender to start-ups, has increased demand for Kreos’ offering, according to its co-founder and general partner Maarten Wadding.

BlackRock has been rapidly building up its so-called alternative business over the past decade — consisting primarily of infrastructure, debt and private equity — as investors flock to asset classes in search of yield.

However, the business still accounts for a small portion of its overall assets under management and is very small in the sector compared to market leaders including Blackstone.

BlackRock bought US credit firm Tenenbaum Capital Partners in 2018 to boost its lending business in the US. Last year, it also studied a bid for US investment giant Carlyle Group, the FT reported earlier.

Kreos targets a net internal rate of return in the low teens. Investors in its funds include sovereign wealth funds, pensions and insurers.