KKR likes Europe despite uncertainty

Kohlberg Kravis Roberts is focusing on investment opportunities in Europe despite the “weak economy” and “weak consumer”, the firm said during an investor conference Thursday.

“A lot of people say they don’t want to invest in Europe right now, but everybody said that after the Asian crisis,” head of global macro and asset allocation Henry McVey said during the event, adding that “this is not the 1990s when you can buy the US [and] this is not the 2000s where you can buy BRIC.” 

Attractive opportunities in Europe include high growth companies with customers in foreign markets, including emerging markets; asset sales from deleveraging banks and distressed opportunities, according to the firm.

KKR has two pending investments in European businesses at the moment. The firm is in the process of acquiring international education provider Cognita, with an expected equity commitment of £162 million (€189 million; $244 million) and luxury apparel retailer Sandro, Maje, Claudie Pierlot, in which KKR is expected to commit €320 million.

McVey also highlighted the opportunity in Europe to provide capital to businesses unable to find financing from banks.

“French banks are pulling back [and] shrinking their balance sheets,” McVey said “Think about the arsenal of capital we have to step in.”

In addition to Europe, KKR is pursing investment opportunities in China, where the firm is targeting businesses that thrive off of domestic consumption rather than companies focused on exporting. 

“China is changing”, McVey said, citing the country’s weakening exports to Europe and increasing costs of manufacturing. “But make no mistake, the Asian consumer is one of the biggest investment themes.”

The firm also is looking for opportunities in emerging markets in Southeast Asia and Africa, targeting domestic consumption “not only in Asia but across the world”, Alex Navab, co-head of the firm’s Americas private equity business, said during the event. 

KKR has invested a total $400 million during 2013, with another $2 billion worth of transactions that have yet to close. The firm said larger transactions between $1 billion and $5 billion were the ideal investment size for the firm’s private equity strategy.

“In the environment we’re in for the next several years, we think that’s the sweet spot,” said Navab. “There will be

$10 billion deals, and we’ll have our fair shot at that, but we think the sweet spot is between $1 billion and $5 billion.”

On fundraising, KKR has raised more than $14 billion during the last two years for private equity strategies and has delivered more than $19 billion to its limited partners since 2010. The firm returned $7.3 billion back to LPs in 2012 and has returned $3.1 billion this year. 

KKR’s private equity funds have a total of $12 billion of dry powder, according to the firm.

Despite slow growth and continued macroeconomic uncertainty, Navab said the firm is focused on the theme of global economic recovery.

“We think the global economy is at or around the mid-cycle point in terms of duration,” he said. “We’re big believers in economic recovery. We’ve been investing behind that theme since 2010.”

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