Henry Kravis on Asia

Henry Kravis was speaking alongside Joe Bae, KKR's Asia managing partner, and Ken Mehlman, the firm's global head of public affairs. They touched on a wide variety of topics, including: the deployment of KKR Asian Fund II, at $6 billion, the largest private equity pool ever raised in the region; the importance of credit solutions to counterbalance emerging Asia's underdeveloped capital markets; expectations for Japan in the wake of the Prime Minister Shinzo Abe's economic reforms; and the increasing attention paid to environmental and social governance. These are excerpts of Kravis' comments.

On KKR's private markets, public markets and capital markets strategy...

You take all of that and wrap it up and we like to think of ourselves as a solutions provider. How can we help a company accomplish what it needs to accomplish? Years ago anyone of us at KKR would meet a CEO and the first question we would typically ask was, ‘Is your company for sale?' And if the answer was no, we didn't have a lot to talk about. Today it is reversed. We go in, learn about the company, the needs of the management, and how we can be helpful to them. That may mean we re-do their capital structure; it may mean we provide some debt capital where they can't get it today because the banks are cutting back and funding is not as plentiful as it was before; it may be taking minority positions in equity; or they may want to make an acquisition but don't have the wherewithal of available capital to do what needs to be done.

On the investment climate in Asia...

If you believe everything you read, India is going down the tubes, China is going down the tubes, and so on and so forth. This is all part of countries becoming more mature - a normal part of a long cycle. Trees never grow to the sky, there are always going to be some setbacks. George Roberts and I have always believed that you can make your best investments when you go against the tide. If you have conviction and you believe in the fundamentals for the long term you can do very well. We are not interested in making those pre-IPO investments and hope the company goes up and we get out. We are making long-term investments. Our average holding period at KKR has been about 7.5 years for the last 30 years. When you take the long view - that we can bring operating expertise and experience to bear - and multiples are down, this is a terrifically interesting time for us.

On the size of KKR Asian Fund II...

To us it's not a question of large fund, small fund. When you have a larger fund you have a lot more flexibility to invest in smaller companies and in larger companies. The important thing is can you find companies that make sense and you have the wherewithal to get a transaction done. We were able to buy [Korea's] Oriental Brewery during the financial crisis. We were not the highest bidder but the seller, InBev, knew we could get a financing done. They knew we had the capital, we could speak for it, and that gave us a huge advantage. We didn't have to go out and find six partners in order to put it together.

On India as a template for credit solutions in Asia...

Most of the companies in India are family-controlled and there is a holding company and shares in their different companies. They will finance against those shares as they want to make other investments or if they need some liquidity themselves. But they don't want to sell. They say, ‘I will put up the stock as a collateral package and borrow against it.' That's perfect - we'll lend right into that and we are very happy to do it as long as we have experience with the promoter. I think over time you will see these capital markets in Asia build out, but they aren't there yet.

On the prospects for Abenomics-enlivened Japan...

I think they are going to get there. Whether they will get there in full or not remains to be seen, but they will clearly make progress. I think what finally has happened - and I have been saying it now for several years - is you see some shoots coming up. Certain companies in Japan are being much more flexible, are thinking about non-core assets, saying, ‘Between Korea and China we are losing our stature, we are not important as a company, we have to change.' They are still a long way away from proving this is working but we are seeing more signs that companies want to do the things that are necessary to reposition themselves to be much more competitive. We are seeing more potential activity today than we have ever seen. And it's a positive kind of traction.

On the growing importance of environmental and social governance (ESG)...

We made an investment in Modern Dairy that solved a problem in China after the melamine scare and we were able to build out farms, build out dairy stock and have an off-take venture with Mengniu Dairy. That was huge. It was huge for the government in China; it was huge for institutional investors that we deal with. We did the same thing in China with United Envirotech, which is a clean water and waste water recycling business. It ties into our ESG focus. These are the kinds of questions that our institutional investors are focused on. And that's new. It used never to be a question.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• South Asia
• North Asia
• Fundraising
• KKR
• India
• Japan
• Asia
• Fundraising
• NBFCs