KKR reassured by heavy Asia PE exposure as pandemic eases

“We are seeing slow improvement across a number of our portfolio companies. We started to see it in Asia. Most manufacturing facilities are kind of now operating at 70% to 100% of capacity. We're starting to see that also occur in parts of Europe. And we're actually in some markets, even in the US, starting to see a bit of bottoming,” Scott Nuttall, KKR’s co-president and co-COO, told analysts on firm’s first-quarter earnings call. However, he stressed that the turnaround is not uniform across the portfolio, more “like an elevator down, escalator up type set of charts.”

KKR’s three flagship private equity funds – including its third Asian vehicle – were down 6% for the quarter, due to the debilitating impact of COVID-19 on the global economy. The overall private equity portfolio falling 12%. The firm posted a loss of $3.68 billion on all investments, compared to a profit of $1.33 billion in the final quarter of 2019. Assets under management slipped from $218.4 billion to $207 billion, primarily due to valuation decreases across private and public markets.

Although KKR has existing portfolio companies that require support, the firm is actively looking for new deals. “Starting a couple of years ago, we repositioned our distressed and private equity teams to be closer together and created target lists or shopping lists for debt and equity that we would want to buy if and when dislocation occurred. This preparation has helped us,” Nuttall explained.

Since February 21, KKR has invested or committed approximately $8 billion, comprising $5 billion in credit – including investments in the traded loan and high yield markets – and $3 billion in equity. Potential bolt-on acquisitions by portfolio companies are also being explored. Moreover, the wider variety of strategies and capital pools KKR has at its disposal compared to the aftermath of the global financial crisis – when it had a private equity franchise and a nascent US-centric credit business – should give the firm more flexibility in pursuing investment opportunities.

“We expect to be able to use this crisis as we did the last one to evolve and grow our business aggressively coming out of this and to create the next inflection point for our firm,” Nuttall said. He added that the $10 billion in capital raised over the past two months reflects an appetite among LPs to go on the offensive.

At present, KKR is raising capital for its Asia private equity and infrastructure strategies. The firm’s fourth flagship pan-Asian fund is in the market with a target of $12.5 billion. An Asia growth-stage technology vehicle is also being prepared, extending a strategy already operational in North America, Europe and Israel.

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• Topics
• Buyouts
• Buyout
• Performance
• Asia
• KKR