BlackRock is acquiring one of Europe’s largest providers of loans to startups and technology companies as it continues to expand its $45 billion private credit business.
The world’s largest fund manager is buying London-based Kreos Capital and hiring its 45 staff, BlackRock senior executive Stephen Cullen told the Financial Times in an interview, without disclosing the value of the deal.
The move would give BlackRock clients access to a growing field of venture debt — which involves lending to start-ups rather than taking equity — at a time of high demand for private debt.
Since its founding in 1998, Kreos has lent more than €5.2 billion to fast-growing start-ups in tech and healthcare, including food delivery company Delivery Hero and Israel’s taxi app Gett.
BlackRock’s move is part of a broader shift toward private credit, which has burgeoned into a $1.4 trillion market thanks to stricter capital requirements imposed after the global financial crisis that have made it harder for banks to do business. speculative lending.
Many big investors are expanding further into the asset class as rising interest rates make variable-rate loans more attractive.
Traditional asset managers such as Fidelity International and Deutsche Bank’s DWS have said they are looking to grow their lending business, while the likes of U.S. investment managers Nuveen and PGIM have recently clinched large deals.
“A lot of clients are looking to increase their allocation to private debt,” said Karen, head of private debt for Europe, the Middle East and Africa at BlackRock.
“Risk debt is clearly a growing component of the private debt landscape,” he added. “Penetration in Europe remains low and we still see significant opportunities to grow the business organically.”
A March report by technology investment and advisory firm GP Bullhound found that bond issuance to European technology companies doubled to 30.5 billion euros last year compared with 2021.
Debt will account for about 30% of all venture capital raised in European tech by 2022, up from about 16% over the past six years, according to Dealroom.
Falling tech shares have prompted startups to increasingly turn to debt providers to extend their cash lifeline without diluting shareholders or accepting lower valuations.
According to Kreos co-founder and general partner Mårten Vading, the collapse of Silicon Valley Bank will only increase demand for Kreos products.
BlackRock has been steadily growing its so-called alternative businesses — primarily infrastructure, credit and private equity — over the past decade as investors flock to those asset classes in search of yield.
However, the business still accounts for only a small portion of its overall assets under management and remains far smaller in the industry than market leaders including Blackstone.
BlackRock bought U.S. credit firm Tennenbaum Capital Partners in 2018 to boost its U.S. lending business. Last year, it also studied a bid for US investment giant Carlyle Group, the Financial Times previously reported.
Kreos pegs the net internal rate of return in the low teens. Investors in its funds include sovereign wealth funds, pension funds and insurance companies.