KKR & Co. LP is no longer just about alternative investments.
The iconic leveraged buyout firm now is adding several items to its menu of offerings that executives say will eventually fit into investors' global equity and fixed-income allocations.
For those with a yen for public equities, KKR Asset Management, the money management arm of KKR, launched a long-short hedge fund focused on the Americas in the second half of this year, which it started investing in the third quarter. At quarter's end, the hedge fund managed more than $270 million,
KKR executives are considering more hedge fund strategies, including macro and event-driven, according to interviews with executives and information from the firm's third-quarter conference call.
On the bond side, KKR has added more than $3 billion of capital focused on alternative credit in only 18 months. This includes $2 billion in special situations, which buys discounted debt and restructures debt of distressed companies worldwide, and $1 billion in mezzanine, including lending to other private equity firms. KKR officials also are considering raising a new special situations fund.
KKR is also building an energy business that it considers both equity and credit, including investments in oil and gas as well as shale.
The firm has been expanding beyond private equity for some time. It recently added infrastructure, real estate and natural resources to the private side of the business. But now it's reaching beyond smaller alternative investment buckets into investors' much larger stock and bond portfolios.
“The firm has expanded its capabilities to think broadly about capital structures of companies - we've gone from being solely focused on private equity to becoming a multistrategy alternative investment firm that harnesses all the intellectual capital at KKR,” said William C. Sonneborn, CEO of KKR Asset Management, based in San Francisco.
It is also starting to compete with investment banks making loans.
“We have our originators talking to (private equity firms) and asking, `what can we do to help you?' And the answer may be mezz financing or senior loan financing or it might be help with a broadly syndicated loan or bond — all of which we have appropriate capital for,” said Chris Sheldon, who this year was named co-head of KKR Asset Management's leveraged credit unit.
KKR's capital markets group works with its private equity portfolio refinancing on initial public offerings, both with its private equity groups and some third parties, executives said. Its capital markets group also handles co-investments and syndication when KKR syndicates equity in a buyout.
The firm isn't the only private equity manager to move into multiple asset classes and financial services. Blackstone Group was first, adding an advisory business in 2006.
Josh Lerner, the Jacob H. Schiff Professor of Investment Banking at Harvard Business School, Cambridge, Mass., said: “Blackstone and KKR are taking on investment banks — in terms of advisory in the case of Blackstone, and capital markets work in the case of KKR. The issue is, is this complementary or is it a distraction?”