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HPS Investment Partners has raised one of the largest private credit funds ever, confirming its position as an industry leader as the firm debates a potential IPO or merger.
HPS has raised $21.1 billion for its flagship fund, Specialty Loan Fund VI, the largest capital raise since the firm was founded in 2007. The mammoth fund received $14.3 billion in commitments from investors, one of the largest sums ever raised by a traditional direct lending fund, according to data provider Preqin. The $21.1 billion figure also includes billions in bank loans that boost the fund’s investment capacity.
The fundraising follows a series of large inflows over the past year and comes as HPS officials explore options that could lead to an initial public offering or a merger with a rival private investment group, people familiar with the matter said. The firm manages $114 billion, more than doubling since the start of 2020.
“Performance attracts capital,” said Michael Patterson, a senior partner at HPS, in an interview. “You then have to use that capital, [while] to maintain this performance. This is a big, very public demonstration of what is happening at HPS.”
The company and some of its rivals have become major players on Wall Street over the past four years, lending to a growing number of blue-chip companies, buying up loan portfolios that banks would like to divest from and taking on risks that traditional lenders shy away from.
Their rise has been driven by strong performance and a strong fundraising ability that has helped the industry amass hundreds of billions of dollars in recent years and backed managers such as Ares, Apollo, KKR, Blackstone and Sixth Street. Many of them have become sought-after portfolio managers for insurance companies – including those they own themselves – replacing traditional investors in corporate bonds and loans.
Patterson said HPS sees “significant” areas where the company can grow its business, including the fast-growing area of private investment-grade and asset-backed loans. These areas are the focus of competitors who now finance aircraft leasing, music licensing and even semiconductor factories.
HPS was founded in 2007 by Scott Kapnick, Scot French and Patterson, before the financial crisis and resulting regulation caused many banks to restrict their lending. All three had worked at Goldman Sachs during their careers before founding the new company, which they built within JPMorgan Chase’s wealth management business.
But when post-crisis regulation hit and JPMorgan’s commitment to the unit faltered, they decided to leave the bank. Top executives eventually bought the company in 2016 and separated HPS from JPMorgan, with new investors Dyal Capital and Guardian Life taking stakes in the firm.
The company is currently considering its next steps. It has filed paperwork with securities regulators to prepare for a possible initial public offering, people familiar with the matter say. An IPO would allow HPS to reward senior executives or finance a takeover of a competitor. The company could also merge with a rival private investment group to bolster its credit rating. Insiders caution that no decision has been made and HPS could remain independent. HPS declined to comment on its business plans.
The new Speciality Loan Fund VI provides loans to relatively risky companies in need of capital, often stepping in to help with restructurings or difficult refinancing. The typical loan offered by the fund has an interest rate that is 7 percentage points above the variable reference rate Sofr. That can yield between 12 and 13 percent today.
Last year, HPS provided a €1.5 billion loan to finance One Rock Capital’s acquisition of packaging manufacturer Constantia and an $800 million loan to medical device manufacturer Tecomet.