BlackRock’s big bet on private assets

Two big weekend scoops: In case you missed it, over the weekend the FT published two explosive stories on the Gaza Humanitarian Foundation, the controversial aid project that’s been blighted by the deaths of hundreds of Palestinians.

The stories show how Boston Consulting Group’s involvement in the project went far beyond what the strategy firm had publicly described. It’s the latest in a litany of scandals that have beset some of the world’s most elite management consultancies.

Staff from Tony Blair’s non-profit also took part in a project with BCG to develop postwar plans for the enclave, sharing ideas that included a “Gaza Riviera” with artificial islands off the coast, akin to those in Dubai.

And another scoop to start: Shein has confidentially filed for an initial public offering in Hong Kong as the online fast-fashion retailer seeks to accelerate a drawn-out listing process and pressure the UK regulator into approving a London listing.

In today’s newsletter:

• BlackRock doubles down on private markets

• CoreWeave’s next financial engineering act

• A disappointing Q2 for deals

BlackRock’s $30bn bet on private markets

Seven years ago BlackRock pushed into private credit, when the industry was still in its infancy. It’s hoping its latest wager — the takeover of HPS Investment Partners — goes better.

BlackRock’s $12bn HPS deal this month closes a trio of acquisitions that give the dominant manager of listed stocks and bonds a major presence in higher-fee private assets.

Since the beginning of 2024, BlackRock has shelled out nearly $30bn to buy HPS, infrastructure investor Global Infrastructure Partners and data provider Preqin.

How it integrates HPS, a crucial part of BlackRock chief executive Larry Fink’s deal spree, will determine whether the world’s largest asset manager has finally figured out private markets.

BlackRock’s prior efforts in private credit didn’t pan out as some top executives had hoped, DD’s Eric Platt reports.

One recent employee described the 2018 acquisition of Tennenbaum Capital Partners as “a disaster”.

The 2018 deal was meant to give BlackRock a foothold in the burgeoning direct lending market, where asset managers bypass banks to underwrite loans directly to companies. But almost from the start things went sideways.

Tennenbaum focused heavily on so-called opportunistic credit, generally riskier deals, and its direct lending funds were smaller than rivals.

The unit suffered poor fund performance, high staff turnover and a handful of credit deals that ultimately soured. BlackRock’s publicly traded fund, BlackRock TCP Capital, has returned minus 15.6 per cent over the past year — ranking among the worst performing of its peers. 

It is or was involved in many of the thorniest restructurings that hit the private credit industry, including for educational video maker Pluralsight, Amazon aggregators Thrasio, Razor Group and SellerX, software companies Khoros and InMoment and a former McAfee cyber security division.

Part of the work of the 800 HPS employees who now work for BlackRock will be cleaning up the issues in that pre-existing private credit portfolio.

BlackRock and HPS declined to comment.

With HPS, BlackRock has taken control of a top-performing private credit manager, which has grown from $34bn in assets in 2016 to $157bn this year.

Fink says he is confident HPS will take to BlackRock: “Strategic acquisitions have strengthened our firm,” he said last month. “With GIP, HPS and Preqin, we were again looking for the right partners.”

The asset management giant isn’t entirely done building out its credit investment portfolio, even after digesting HPS. On Monday it struck a deal to buy real estate investment firm ElmTree Funds. ElmTree will be folded into the unit run by HPS’s executive team.

CoreWeave’s stock-funded deleveraging

A data centre operator backed by Nvidia is using an epic rally in its share price to buy out $10bn in future liabilities for $9bn in stock.

On Monday, CoreWeave, a renter of high-powered Nvidia chips to tech giants such as Microsoft, struck a deal to acquire Core Scientific, a data centre operator that is one of its key suppliers of computing and electrical capacity.

The deal by CoreWeave further highlights the financial engineering underpinning its nearly $80bn market capitalisation.

CoreWeave has emerged as one of the big infrastructure companies in the AI boom because of its ability to get its hands on Nvidia’s AI chips. It is also one of Core Scientific’s biggest customers.

CoreWeave’s IPO in March was a pivotal moment and gave the company the cash to repay some of its debts: it had borrowed billions of dollars to obtain Nvidia chips, using credit from a bevy of private capital juggernauts, including Blackstone.

Monday’s all-stock transaction in effect accelerates the company’s debt paydown, capitalising on a fourfold increase in its share price since the IPO. 

By buying Core Scientific for $9bn in stock, CoreWeave would cancel roughly $10bn in lease costs, the company said on Monday. Those leases were also a risk to CoreWeave because it was on the hook for the payments whether or not it could find AI-hungry customers. 

CoreWeave, which started out as a crypto miner before pivoting to AI during a crypto downturn a few years ago, said the deal would “enhance operational efficiencies and de-risk our future expansion”.

Core Scientific last year fended off a $1bn takeover from CoreWeave, meaning its holdout has created shareholder value. 

Core Scientific made its own pivot from crypto into AI after its crucial customer Celsius collapsed in 2022 prompting its own bankruptcy filing. When Core Scientific emerged last year it remarketed its fully powered data centres to AI clients.

But the deal begs the question: is CoreWeave using overvalued stock as a currency to eliminate performance liabilities? If so, that would imply a souring view on the AI outlook.

‘Liberation day’ frees bankers from deal activity 

Heading into 2025, dealmakers had high hopes for a resurgence of M&A. 

Yet now with the dust settling on the second quarter, it’s clearer than ever that the hoped-for takeover boom has failed to materialise.

M&A slumped in the second quarter to the lowest level in a decade, excluding the early months of the coronavirus pandemic, as US President Donald Trump’s “liberation day” tariffs extended a run of uncertainty that’s forced dealmakers to pull back from all but the largest takeovers.

The total number of deals announced in the three months to June 30 fell to about 10,900, according to data from the London Stock Exchange Group. 

Excluding the second quarter of 2022, when Covid-19 lockdowns upended global markets and just 10,600 deals were unveiled, the figure was the lowest since the start of 2015, DD’s Ivan Levingston and Oliver Barnes reported. 

While caution is ruling the boardroom, the LSEG data shows that the value of transactions held steady from the first quarter of the year at $969bn, propped up by a handful of strategic megadeals.

Meanwhile, global private equity-backed acquisitions slowed sharply between the first and second quarters, from about 2,500 in the first three months to closer to 1,850 in the second three months. 

Private equity dealmaking has focused on transactions such as takeovers of listed companies and carve-outs of non-core corporate divisions.

“It’s not completely risk off, deals are still getting done,” said Philipp Beck, UBS head of Emea M&A. “It’s not like in other crises when there’s no activity.”

Job moves

• BP has appointed former Shell finance chief Simon Henry to its board. He will join in September.

• Orix Corporation USA has taken a majority stake in Hilco Global, the corporate restructuring advisory and investment firm. Hilco’s founder Jeffrey Hecktman, profiled last year by the FT, will continue as its CEO.

• PwC has lined up UK managing partner Laura Hinton as the frontrunner to replace its Middle East head, the FT reports.

• Paul Hastings has appointed Joshua Soven as a partner in its antitrust team in Washington. He joins from Paul Weiss.

• Morgan Stanley has promoted managing director Javier Esteve to head of equity syndicate for Emea. 

Smart reads

Big bucks PC gaming company Valve is one of the tech world’s strangest businesses. Its revenue-per-head figures would put some Wall Street groups to shame, Alphaville writes.

Axe wielders Boards are increasingly ready to dismiss chief executives, with several high-profile exits this year. The FT’s Anjli Raval explores what’s behind the change. 

Traffic problems Tech groups including Google are pivoting to AI and keeping internet users within their walled gardens, New York Magazine writes. It spells trouble for news publishers.

News round-up

Jane Street to contest Indian regulator’s manipulation charges (FT)

Hong Kong listings pipeline hits record high as equity market booms (FT)

US public colleges expand PE investments despite downturn (FT)

Royal Gold agrees acquisitions worth $3.7bn as record prices drive deals (FT)

Investors pile into tokenised Treasury funds (FT)

Independent labels appeal to EU over Universal’s $775mn Downtown deal (FT)

‘No honour among thieves’: M&S hacking group starts turf war (FT)

Forcing pension funds to buy UK assets is ‘form of capital control’, says Lloyds boss (FT)

Maternity wear group Seraphine collapses into administration (FT)