KKR ‘continues to pursue secondaries’ strategy amid firm build-out

The private equity giant is looking at opportunities to acquire secondaries firms or set the unit up organically, according to co-president and co-COO Scott Nuttall.

KKR is still in the “analysis” phase of entering the secondaries market, according to the firm’s co-president and co-chief operating officer.

“On the secondaries side, as we have mentioned in the past we continue to look at the space,” Scott Nuttall said during the firm’s first-quarter earnings call on Tuesday. He was responding to an analyst’s question about where the private equity giant is in building its secondaries platform.

“We are analysing whether we want to build or whether there is something that might make sense to buy,” he added. “It’s really hard to have the buy work from a cultural fit standpoint at times, but we are looking.”

There will be more details to share on the strategy in time and KKR continues to pursue it, Nuttall said. He had said in prior earnings calls and on the firm’s Investor Day in March that KKR is looking at the right way to enter and grow in secondaries.

Several firms including Manulife, BlackRock and TPG have added secondaries capabilities in recent years, either by acquiring teams or by taking stakes in secondaries managers. Last month, Apollo Global Management launched a credit secondaries business and said it will have $1 billion to deploy, backed by the firm’s insurance clients. It expects to raise a dedicated third-party fund. BlackRock, meanwhile, gathered more than $3 billion for its debut Secondaries & Liquidity Solutions Fund in March.

Nuttall noted during the call that the firm is also focused on long-dated strategic investor partnerships. He explained that capital from these partnerships is “oftentimes multi-decade”, has “some component of recycling” and is “largely invested across asset classes”.

“We continue to pursue those,” he said. “They take a long time to structure, but we continue to have an active pipeline.”

He added that a “couple of those [long-dated partnerships] are getting closed”, without providing additional details.

Long-dated strategic partnerships made up 10 percent or $35 billion of the firm’s AUM as of end-March, compared with $33 billion for full-year 2020, according to earnings materials.

The firm raised $15 billion of new capital commitments in the quarter and $51 billion over the trailing 12 months. Notably in the first quarter, KKR held the final close of its fourth Asia fund at $15 billion. Fundraising activity in the quarter also included new capital raised in its healthcare growth strategy, core infrastructure and opportunistic Americas real estate strategy.

Total capital invested came in at $7 billion for the quarter and $31 billion over the last 12 months, up over 30 percent over the prior period.

KKR’s private equity portfolio delivered gross returns of 19 percent for the quarter ending March, while its latest PE flagship funds – Americas Fund XII, European Fund IV and Asian Fund III – which have been investing in the last two years generated 28 percent gross returns.

The firm’s AUM as of end-March grew 77 percent year-over-year to $367 billion, reflecting the completion of its $4.7 billion acquisition of Global Atlantic in February.

The firm expects to raise more than $100 billion of new capital commitments over the next two years, according to its Investor Day presentation materials. Almost half that figure is expected to come from PE fundraising, up to $20 billion in infrastructure, up to $15 billion in real estate and up to $25 billion in credit.

KKR has around 23 fundraises and strategies that are in market or coming to market over the next two years, including Asia NextGen Tech Growth, global impact and core private equity.

To access more KKR insights, analysis and data, click here