BlackRock creates a British billionaire

In today’s newsletter:

• BlackRock’s next PE deal

• Blackstone’s circular debt play

• Redstone revives Paramount sale

BlackRock mints a data billionaire

In the early 2000s, British entrepreneur Mark O’Hare began filing public information requests with state pension funds asking for their financial returns data from private equity investments.

The world of private equity investing is notoriously opaque and such information is closely guarded. Not all those state funds welcomed O’Hare’s demands for disclosures.

But eventually O’Hare compiled enough information that his new business, Preqin, took off as a juggernaut in the world of private markets data and eventually became relied upon by investor relations officers and fund managers to track fundraising and performance of different buyout funds.

O’Hare’s timing was prescient, as the FT details in this deep dive. His early bet on private equity paid off as the industry has boomed into a trillion-dollar-plus asset class with the likes of Blackstone and KKR turning into staples of institutional investors’ portfolios. Meanwhile, financial data providers have become increasingly prized on their own as steady generators of revenue in a growing market.

That confluence of trends reached an apex on Monday in the decision by asset management titan BlackRock to acquire Preqin for £2.55bn in cash. Given O’Hare and his wife, Lindy, own 80 per cent of the business, that would easily catapult them into the ranks of the richest Brits with a fortune topping £2bn.

O’Hare, who will go to work at BlackRock as a vice-chair after the deal, will be wealthier than his new boss, Larry Fink, whose own fortune is estimated by Forbes at closer to $1.2bn.

It’s also not too shabby an outcome for several hundred of the company’s 1,500 employees, who stand to share the roughly £500mn remainder from the sale.

BlackRock paid a high 13-times-revenue multiple that struck one industry participant as “crazy”, but they noted that Preqin was the best company left on the market and likely benefited from scarcity value.

BlackRock beat out the likes of S&P Global and Bloomberg, and plans to use the acquisition to extend its growing reach in the private markets.

After the deal, O’Hare — an occasional pilot who previously survived a plane crash — will probably have more time to work on outside interests like the outdoor theatre in Suffolk that he and his wife built with timber from their own chestnut trees.

Like his private market clients, he maintains a low-key public persona. He declined to be interviewed.

Blackstone takes a risk on itself (and its LPs)

For years, the credit arms of private equity shops would feed on their sister unit’s deals: financing the buyouts the PE fund had worked to clinch. Now, these private investment firms have found another way to fill their mouths.

Blackstone has emerged as one of the big buyers of risk transfer trades, taking on first loss positions that banks are keen to dump. 

The twist, DD revealed this week, is that those trades inevitably expose Blackstone to other parts of its own business. The firm has become a big buyer of significant risk transfers (SRTs) underpinned by subscription lines, the lines of credit banks provide private equity funds so they don’t have to call capital from their investors every time a deal closes. 

The SRTs include hundreds of subscription lines from different funds, but notably they include lines tied to Blackstone funds. It means the Blackstone Multi-Asset investment unit, which manages hedge fund-type investment strategies, is taking on risk tied to LPs in Blackstone’s private equity funds. 

“The unusual thing about Blackstone is that it is a bit circular,” said one large SRT investor. “They are providing protection on themselves.”

All this would seem peculiar 10 or 20 years ago, but in recent years private investment shops have become the lender and buyer du jour. They now manage trillions of dollars and have an intense appetite for investments with seemingly any return profile.

And they are being fed by a financial system that continues to deleverage, with banks ridding themselves of risky loans. They have also curtailed their willingness to lend in the aftermath of Silicon Valley Bank’s failure (loan books continue to hit the market, as Discover’s sale of a $10bn student loan portfolio to Carlyle and KKR illustrated).

Even large banks like JPMorgan Chase are trying to cut their exposures as they stare down new regulations that could require them to hold more capital against their multitrillion-dollar loan books.

Blackstone and its rivals have stepped into the roles once reserved for traditional Main Street banks, lending to consumers and businesses, providing credit against rooftop solar panels, train cars and music catalogues, and bundling and selling loans on to insurance clients.

Blackstone told DD that its funds made up “a single-digit percentage of the portfolios on which we have provided SRTs” and that all their subscription line SRTs “have been in highly diversified portfolios”.

The firm also disputed the characterisation that the trades were “circular”, saying none of its investors had missed a capital call over the past 40 years.

The evolution underscores how intricate and interconnected the private capital industry has become and how new pockets of risk can build up within less regulated corners of the financial system.

Paramount’s Redstone to Skydance: show me the money! 

Rarely has the script of a deal been so messy as Paramount’s sale process. It has veered from offering a compelling starring duo, to a tragicomedy.

DD readers will recall that a few weeks ago Shari Redstone had a very last-minute change of heart and killed a deal with Skydance Media that would have handed control of her family’s entertainment empire Paramount to billionaire scion David Ellison.

Plot twist (again): the talks are back on after the son of Larry Ellison, founder of tech giant Oracle, agreed to give more cash to buy out National Amusements, the Redstone family’s company through which she controls the Hollywood group. 

What has changed Redstone’s mind seems to be the extra cash going to her. Previously, Redstone’s representatives were adamant that she had decided to walk away from the deal because Ellison’s camp opposed calls to allow non-voting shareholders to register their “consent” for the transaction.

DD’s sources said that under the new terms there will be no vote for non-Redstone shareholders. If National Amusements gets sued by other investors, Skydance will pick up the bill under certain specific conditions.

Apart from the extra cash, the deal terms remain broadly unchanged: after Skydance buys out National Amusements, it will merge into Paramount through an all-stock deal. About half of Paramount’s common shareholders will get $15 a share, while Skydance will also inject about $1.5bn to help cut the company’s debt.

Paramount has 45 days to find a better offer now. There are a few billionaires looking at it but nothing too serious. If all goes the way it should, the company’s special committee will approve Ellison’s latest salvo and we might finally get a happy denouement.

But with the Redstones you never know.  

Job moves

• Marko Kolanovic will leave his role as JPMorgan’s chief global markets strategist, ending a 19-year stint at the bank.

• BNY Mellon has hired Jose Minaya as global head of investments and wealth. He joins from Nuveen, where he was president and chief investment officer.

• Weil has hired Kristine Koren as a partner in its private funds practice. She joins from Mayer Brown, where she was a partner in the corporate and securities practice.

Smart reads

Newspaper cuts Wall Street Journal editor Emma Tucker defends her controversial start to life at the paper, telling Vanity Fair that her restructuring “may look callous . . . But it’s so that we get it right, so I don’t have to do it over again”.

Culture shocks Is McKinsey really a partnership? A lawsuit filed in a New York court and an internal governance review have placed the firm’s corporate structure under a microscope, the FT writes.

Political influence Investment bankers at China International Capital Corporation, the nation’s premier investment bank, are increasingly pledging their allegiance to the CCP as pay and productivity make way for tighter political control, Bloomberg reveals.

News round-up

Jeff Bezos to offload $5bn of Amazon stock (FT) 

Investment bankers are more overpaid than usual (Lex)

Wealthy sell UK assets amid fears Labour would raise capital gains tax (FT) 

Panera founder Shaich turns billionaire after Cava’s 330% gain (Bloomberg)

EQT strikes £2.2bn deal for Irish video gaming group Keywords Studios (FT) 

Germany vetoes sale of sensitive turbine unit to Chinese group (FT)