T Rowe Price agrees to buy private credit firm Oak Hill in $4.2bn deal

T Rowe Price Group has agreed to buy private debt firm Oak Hill Advisors for as much as $4.2 billion, according to a recent release.

The purchase of Oak Hill marks the money manager’s entrance into the private debt investing business.

“This transaction will accelerate our expansion into alternative investment markets,” said Bill Stromberg, chief executive officer at T Rowe Price, in an investor relations call Thursday, “a scenario we have prioritised for strategic investment in the coming years as we respond to our client’s needs.”

“While we have developed several liquid alternative strategies internally and will continue to do that, we’ve also been searching deliberately for an acquisition opportunity in private credit to complement our strong global investment platform and distribution capabilities,” Stromberg said further in the call.

The deal will include $3.3 billion payable at closing, with 74 percent in cash and 26 percent in T Rowe common stock. It is expected to close later this year pending regulatory approvals.

The money manager will pay an additional $900 million in cash upon the achievement of certain business milestones beginning in 2025. In addition, T Rowe Price has agreed to commit $500 million in co-investment and seed capital with Oak Hill management and investors.

Oak Hill Advisors will become T Rowe Price’s private markets platform, making inroads for the money manger into alternative investment markets and in particular alternative credit.

“This transaction advances an essential part of our long-term growth strategy by accelerating our expansion into alternative investment markets,” said Rob Sharps, president, head of Investments and group CIO of T Rowe Price Group, during the call. Sharps will take the helm as T Rowe’s chief executive officer in early 2022.

“Alternative credit and specifically private credit continues to be in growing demand from institutional and retail investors across the globe seeking attractive yields and risk-adjusted returns,” Sharps further explained of investors’ attraction to alternative credit.

“Investors are projected to almost double their private credit exposure over the next four years, and we want to make sure we’re at the forefront of meeting that demand,” Sharps concluded.

Baltimore-based T Rowe Price had $1.61 trillion in assets under management as of 30 September. New York-based Oak Hill had $53 billion of capital under management as of 31 July.