Side Letter: Family offices’ PE talent crunch; KKR earnings; US carry in the clear

Family offices are finding it tricky to recruit top private equity talent. Plus: Highlights from KKR's Tuesday earnings and what you need to know about the latest US tax bill. Here's today's brief, for our valued subscribers only.

They said it

“It’s not a have-to-do but it is something we continue to spend time on.”

KKR co-chief executive Scott Nuttall plays down talk of a proposed secondaries entry on Tuesday’s Q3 earnings call. Details on affiliate title Secondaries Investor (registration required).

Just happened

Keeping it in the family
There’s been a lot of noise in recent years about family offices as an increasingly important source of capital for private equity funds. While the intent certainly appears to be there, one key obstacle remains: recruiting the necessary personnel. Speaking at the Cyberport Venture Capital Forum in Hong Kong on Tuesday, Professor Heinrich Liechtenstein of IESE Business School, told delegates attracting the right team was the biggest challenge facing family offices today, noting that PE staff “can become really expensive”.

Recruiting professional staff can be doubly important for family offices without an adequate succession plan, Simon Je, a fellow panellist and co-founder of the Hong Kong International Family Office Association, told Private Equity International on the event’s sidelines. “Sustainable investment is not only how we invest in a sector of business and how many X we can return; it’s how we can sustain that return,” he said. “And the sustainability of the return is based on your governance of the family.” You can read our full coverage of the panel here.

Family offices aren’t the only investors struggling to find the right personnel. Yesterday, Side Letter discussed the plight of New Mexico State Investment Council, which is also losing sleep over its ability to afford new staff.

BC Partners’ new pet (project)
BC Partners has launched a dedicated fund focusing on Greek private equity, per a statement this morning. BC Partners GR Investment seeks to invest in and support high-growth small and medium-sized companies in the country and has made its first investment in pet retailer Pet City. We’ve put a couple of questions to BC about the strategy so stay tuned.

KKR earnings
KKR became the latest blue-chip giant to disclose Q3 results yesterday. Like many of its peers, the New York firm was keen to emphasise the growing importance of private wealth to its fundraising plans. You can read more about that in our coverage of the earnings. Here are some other highlights:

  • KKR had raised $16.8 billion towards its North America Fund XIII as of end-September.
  • It had $111 billion of dry powder, up 65 percent from the same period last year.
  • It completed $10.9 billion of PE investments in Q3 alone.
  • AUM grew 96 percent year-on-year to $459 billion, primarily driven by its takeover of Global Atlantic.

Essentials

Carry in the clear; tax risk remains
ICYMI: The National Law Review on Monday published a summary of the changes to the US Build Back Better Act, which was revised last week. Here’s what you need to know:

  • The new BBBA would see no change to existing base tax rates for individuals and corporations, including any change to long-term capital gains rates.
  • A proposed five-year holding period for carried interest to be treated as long term capital gains, instead of three, has been eliminated.
  • The BBBA would impose new “surcharges” on individuals, estates and trusts with modified adjusted gross income in excess of certain thresholds, which would apply to many family or founder sellers in PE M&A transactions.
  • It would introduce a new 15 percent Corporate Profits Minimum Tax for corporations that report an average of more than $1 billion of adjusted financial statement income over a three-year period. The threshold is determined after aggregating certain corporations under common ownership or control, like portfolio companies of PE funds.

From PE to politics
As Side Letter was going to press, US media reported that former co-chief executive of Carlyle Group Glenn Youngkin had won Virginia’s governor race against Democrat Terry McAuliffe. Youngkin stepped down from Carlyle last summer after three years of shared leadership with Kewsong Lee. Youngkin, who had faulted Democrats for raising taxes during his campaign, had pitched to voters his 30-year career building businesses and creating jobs to “create a different future for Virginia, taking it from good to great”.


Today’s letter was prepared by Alex Lynn with Carmela MendozaAdam Le and Michael Baruch.