The intrepid investors of Kohlberg Kravis Roberts have no problem saying “no”, as countless inquisitive journalists have learned.
The firm's general partners also are prone to replying in the negative to most secondary market participants. The transfer of an interest in a private equity partnership from one party to another must have the consent of the GP, and KKR are famous in the industry for being among the very few fund managers to consistently say “no”.
As a consequence, secondary transactions involving the transfer of entire portfolios of partnership interests have historically had to go through unique contortions where KKR interests are present. For example, in the groundbreaking 1999 sale of EDS' private equity portfolio to The Crossroads Group – a roughly $500 million deal – KKR was the one GP that refused to agree to the transfer, according to a source familiar with that transaction.
KKR's partners typically only agree to have interests in their funds sold to other LPs in the same fund. This may be the deciding factor behind a recent, major transfer of interests in KKR funds to CSFB's secondary group.
CSFB, which raised a $1.6 billion secondary fund last year, is led by Stephen Can. According to a source, Can's group will buy KKR fund interests from Bank One, which is in the process of selling off a $1 billion private equity portfolio. The rest of the fund interests are being acquired by Simsbury, Connecticut-based secondary specialist Landmark Partners, which is in the process of raising a dedicated vehicle specifically for the transaction, according to a source.
CSFB is the “blessed party” in the eyes of KKR, as one secondary specialist puts it. Why them and not Landmark? While the capital comes from a different area within the investment bank, CSFB is an existing KKR investor, and Landmark is not. KKR, known for its long, long-term investing, apparently demands the same of its LPs.
KOHLBERG INVESTORS V CLOSES ON $800M
Middle-market private equity firm, Kohlberg & Company, has closed its fifth fund $150 million (€118 million) above target. The new fund received commitments from approximately 40 limited partners. Kohlberg will use the capital to fund control investments in US mid-cap companies. The firm was founded in 1987 by Jerome Kohlberg and his son James A. Kohlberg, who serves as managing principal. Prior to establishing the company, Jerome Kohlberg was one of the founders of New York buyout giant Kohlberg Kravis Roberts in 1976. The new fund takes to $2.2 billion the amount of equity capital that the firm has raised since inception. In addition to its Mt. Kisco, New York-based headquarters, Kohlberg has an office in Palo Alto, California.
GENSTAR CAPITAL CLOSES FOURTH FUND ON $475M
The San Francisco-based midmarket buyout shop has closed its largest fund yet, which will focus on life sciences, business services and industrial technologies. Genstar Capital Partners' newest fund is more than double the previous vehicle, which closed in July 2001 to the tune of $221 million (€174 million). Genstar now manages more than $900 million in capital. Principals JP Conte, Robert Weltman, Richard Hoskins, and M. Scott Milius are retaining primary responsibility for investing and managing Genstar IV. Genstar IV's limited partners include TD Capital, Caisse de dép^t et placement du Québec, The Regents of the University of California, Goldman Sachs Private Equity Partners Funds and The California Endowment.
KKR, CARLYLE PAY OUT BILLIONS TO LPS
Global buyout behemoth Kohlberg Kravis Roberts returned $9 billion (€7.2 billion) in cash to investors over the last 18 months, ahead of its second European fundraising campaign, according to reports, which suggest the firm will be seeking to raise a total between €3 billion and €3.5 billion starting next month. Meanwhile, The Carlyle Group returned $6.6 billion (€5.3 billion) of cash to investors over the same period, reportedly the biggest distribution period the firm has ever achieved. The payouts are likely to boost both houses' appeal to investors in their efforts to raise capital for new investments. Carlyle is currently raising a second buyout fund dedicated to the European market.
BATTERY VENTURES RAISES SEVENTH FUND
The Wellesley, Massachusetts-based venture capital firm closed its latest fund on $450 million (€366 million). Like its predecessor, Fund VII will invest in IT companies across all stages of growth, from seed through later-stage and buyouts. Battery is currently wrapping up investments from its $850 million Fund VI, raised in 2000, and expects to begin investing from the new fund in early 2005. Fundraising for the new vehicle began in June. All investors save one have invested with Battery previously, and approximately 90 percent of LPs are US-based. New investor GIC Special Investments, the private equity unit of the Government of Singapore Investment Corporation, was brought aboard in order to give Battery presence in Asia as its looks to expand investments in both China and India. The fund will be managed by a team of nine general partners and will be administered through Battery's offices in both Wellesley and San Mateo, California. Founded in 1983, Battery now manages more than $2 billion in assets, including the latest fund.
WESTERN TECH CLOSES $500M FUND
San Jose, California venture debt lender Western Technology Investment has launched its 11th fund, with the vehicle's lower size in line with the capital levels of the venture equity markets. Fundraising began the first of this year and closed in the second quarter, though WTI decided not to make an announcement during the summer. The new fund is slightly less than WTI's previous fund, which was capped at $720 million (€568 million). Founded in 1980, WTI has made more than $1.6 billion in commitments to more than 600 companies. The firm's 10th fund had investments in companies that included Google, Juniper Network and IDEC Pharmaceuticals
PALLADIUM EQUITY RAISES HISPANIC FUND
New York-based private equity firm Palladium Equity Partners has raised a third fund, totalling $500 million (€391 million), which will invest in US-based companies that have links to the Hispanic community. Typical Palladium investments will be between $15 million and $50 million in companies with sales between $25 million and $500 million. Banco Bilbao Vizcaya Argentaria SA, Spain's second-largest bank and the largest backer in the new fund, committed $150 million. Other investors in Fund III include the California Public Employees' Retirement System, the New York State and Local Retirement System and the Los Angeles Fire and Police Pension Fund. Palladium had originally announced its intention to raise a $300 million fund back in February 2003.