BlackRock grows private credit business with Kreos acquisition

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 credit business.

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

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

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

The move by BlackRock is part of a general shift towards private credit which has grown rapidly into a $1.4tn market, helped by tougher capital requirements imposed after the global financial crisis that made it harder for banks to engage in speculative lending.

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

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

“A lot of clients are looking to increase their allocations to private debt,” said Caron, BlackRock’s head of private debt for Europe, the Mideast and Africa.

“Venture debt is obviously a growing component of the private debt segment,” he added. “Europe is still very much under-penetrated, we still feel there is a great 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 with 2021.

Debt was around 30 per cent of all venture capital raised in European tech in 2022, according to figures from Dealroom, compared with around 16 per cent in the previous six years.

Falling prices for technology companies have prompted start-ups to increasingly turn to debt providers to extend their cash lifelines without diluting their shareholders or accepting a reduced valuation.

The collapse of Silicon Valley Bank, formerly a top lender to start-ups, has only increased demand for Kreos’s offering, according to its co-founder and general partner Mårten Vading.

BlackRock has been steadily building its so-called alternatives business — which largely comprises infrastructure, credit and private equity — over the past decade as investors flocked to the asset classes in the hunt for yield.

However, the business still only constitutes a tiny proportion of its overall assets under management and remains far smaller in the sector than market leaders including Blackstone.

BlackRock bought US credit firm Tennenbaum 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 previously reported.

Kreos has targeted a net internal rate of return in the low teens. The investors in its funds include sovereign wealth funds, pensions and insurers.