KKR pulls plug on retail funds

The firm is liquidating two funds targeting retail investors.

Kohlberg Kravis Roberts will liquidate two funds targeting individual investors – its Alternative Corporate Opportunities Fund (ACOF) and its Alternative High Yield Fund.

The firm had developed the funds as a means of broadening its fundraising efforts beyond its traditional institutional investor market to individual investors. But in separate regulatory filings with the US Securities and Exchange Commission, KKR said it would liquidate the funds.

“We are adjusting our product mix and packaging on the Schwab platform and we have a number of other offerings for individual investors, including private equity, under development for launch this year,” the firm said in a statement.

KKR did not explain the reasoning behind its decision, but a source familiar with the matter said the ACOF vehicle had a “design flaw” that made the fund more “labour intensive” to buy than traditional open-ended mutual funds and lacked the “daily liquidity” that most investors in mutual funds are accustomed to. The source also said KKR’s high yield mutual fund, which invests in a mix of high-yield bonds, notes, debentures, convertible securities and preferred stock, could not offer daily liquidity.

Accessing the retail investor market has remained historically challenging for traditional private equity firms. Many in the industry continue to believe that the listed model, which allows investors to trade out their stock at any time, is fundamentally unsuited to an illiquid asset class with a long lifespan.

Some of the larger listed firms – like KKR, The Blackstone Group and The Carlyle Group – have been busy rolling out more liquid offerings to meet investor needs, including credit and hedge fund strategies.

KKR will continue to target the retail market with its Income Opportunities Fund, its first listed closed-end fund, which launched last July and also invests in debt. It also suggested that it would launch other listed products in the future.

KKR recently announced that it raised $21 billion of new capital in 2013. $4.7 billion of this came from individual non-institutional investors, up from $1.8 billion in 2012.