Unlock Editor’s Digest for free
FT editor Roula Khalaf picks her favorite stories in this week’s newsletter.
HPS Investment Partners has acquired one of the largest private equity funds in history, confirming its place as one of the leaders in the industry as the firm discusses a possible public listing or merger.
HPS has raised $21.1 billion for its flagship Specialty Loan Fund VI, the largest fundraising since the firm was founded in 2007. The mammoth fund received commitments of $14.3 billion from investors, one of the largest amounts ever by a traditional fund received direct loans. data provider Preqin. The $21.1 billion figure also includes billions of dollars in bank loans that increase its ability to invest.
The fundraising, which follows a series of big moves last year, comes as HPS leaders weigh options that could lead to the firm going public or merging with a rival private equity group, according to the people. who have been informed of the matter. The firm manages $114 billion, more than doubling its size since the start of 2020.
“Performance attracts capital,” Michael Patterson, managing partner of HPS, said in an interview. “Then you have to put that capital to work. [while] maintaining this performance. This is a big, very public demonstration of what’s going on at HPS.”
The firm and several of its competitors have become some of the most important players on Wall Street over the past four years, lending to a growing list of blue-chip companies, buying loan books that banks want to shed and taking risks that traditional lenders have backed away from.
Their rise has been driven by strong performance and fundraising prowess that has helped the industry amass hundreds of billions of dollars in recent years, bolstering managers such as Ares, Apollo, KKR, Blackstone and Sixth Street. Many have become portfolio managers for insurance companies – including self-owned insurers – replacing traditional investors in corporate bonds and loans.
Patterson said HPS sees “significant” areas for growth in the company’s business, including the fast-growing area of private equity grade and asset-backed debt. These areas have been targeted by competitors who now finance aircraft leases, music royalties and even semiconductor factories.
HPS was founded in 2007 by Scott Kapnick, Scott French and Patterson, before the financial crisis and resulting regulations forced many banks to limit the types of loans they made. All three worked at Goldman Sachs during their careers before founding the new firm they built out of JPMorgan Chase’s asset management business.
But as post-crisis regulation took a bit of a hit and JPMorgan’s commitment to the unit wavered, they decided to leave the bank. Top executives eventually bought the business in 2016, spinning off HPS from JPMorgan with new investors Dyal Capital and Guardian Life buying stakes in the firm.
The company is now discussing the next step. It has filed documents with securities regulators in preparation for a potential initial public offering, according to people briefed on the matter. Going public would allow HPS to reward executives or pay to acquire a competitor. The firm could also merge with a rival private equity group looking to bolster its bona fide private lending. Insiders warn that no decision has been made and HPS could remain independent. HPS declined to comment on its business plans.
The new special loan fund VI lends to relatively risky companies in need of capital, and the fund often precedes restructuring or difficult refinancing. A typical loan offered by the fund has an interest rate 7 percentage points higher than Sofr, the floating interest rate benchmark. That can yield 12 to 13 percent today.
HPS last year provided a €1.5 billion loan to finance One Rock Capital’s buyout of packaging maker Constantia, as well as an $800 million loan to medical device maker Tecomet.