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HPS Investment Partners has raised one of the largest private credit funds ever, cementing its position as one of the industry leaders as the company debates a possible stock market listing or merger.
HPS raised $21.1 billion for its flagship Specialty Loan Fund VI, the largest fundraising since the company’s founding in 2007. The massive fund received $14.3 billion in investor commitments, one of the largest amounts ever raised by a traditional direct lending fund, according to data provider Preqin. The $21.1 billion figure also includes billions of dollars in bank loans, which increase investment capacity.
The fundraising, which follows a string of major fundraising efforts last year, comes as leaders at HPS consider options that could see the company go public or merge with a rival private investment group, according to people briefed on the matter . The company manages $114 billion, more than double its size since the start of 2020.
“Performance attracts capital,” Michael Patterson, an HPS government partner, said in an interview. “You then have to put that capital to work [while] maintaining that performance. This is a large, very public demonstration, that is what is happening at HPS.”
The company and several of its rivals have become one of the major players on Wall Street over the past four years. They have made loans to a growing list of blue chip companies, bought up credit books that banks are eager to get rid of and taken risks that traditional lenders have avoided.
Their rise has been driven by strong performance and fundraising prowess, which has seen the industry amass hundreds of billions of dollars in recent years, boosting managers like Ares, Apollo, KKR, Blackstone and Sixth Street. Many have become the primary portfolio managers for insurance companies – including those they own – replacing traditional investors in corporate bonds and loans.
Patterson said HPS sees “significant” areas to grow the company’s business, including in the fast-growing areas of private investment grade and asset-backed debt. These areas have been a focus for competitors who now finance aircraft leases, music royalty streams and even semiconductor factories.
HPS was founded in 2007 by Scott Kapnick, Scot French and Patterson, before the financial crisis and resulting regulations prompted many banks to scale back the types of loans they made. All three had spent their careers at Goldman Sachs before starting the new business, which they built within JPMorgan Chase’s asset management business.
But as regulation decreased after the crisis and JPMorgan’s commitment to unity wavered, they moved to leave the bank. Top executives eventually bought the company in 2016, separating HPS from JPMorgan and new investors Dyal Capital and Guardian Life buying shares in the company.
The company is now considering the next steps. It has filed documents with securities regulators in preparation for a possible initial public offering, according to people briefed on the matter. A stock market listing would allow HPS to reward or pay senior staff for acquiring a rival. The company could also merge with a rival private investment group looking to strengthen its bona fide private lending business. Insiders warn that no decision has been made and that HPS can remain independent. HPS declined to comment on its business plans.
The new Specialty Loan Fund VI provides loans to relatively risky companies in need of capital, and the fund often intervenes when there are restructurings or difficult refinancings. The typical loan offered by the fund has an interest rate that is 7 percentage points higher than Sofr, the variable interest rate benchmark. Today that could yield between 12 and 13 percent.
HPS last year provided a €1.5 billion loan to finance One Rock Capital’s acquisition of packaging manufacturer Constantia, as well as an $800 million loan to medical device maker Tecomet.