Side Letter: KKR’s ‘fortunate’ flagship timing; BVCA’s diversity data; Goldman’s family office figures

KKR is expecting capital formation to slow in the near term. Plus: BVCA data shines a light on UK private equity's diversity efforts; and two-fifths of family offices want more exposure to PE. Here’s today's brief, for our valued subscribers only.

Just happened

Timing the market
KKR is counting its blessings that the firm isn’t raising a private equity flagship this year. Speaking on its Q1 earnings call Monday, chief executive Scott Nuttall told analysts that market volatility is having a three-fold impact on the firm. “It’s causing some institutional asset allocators to be more cautious and delay decisions; it’s making us want to sell less of our portfolio; and it’s creating some very attractive investment opportunities for us,” he said.

Nuttall noted that some investors are pausing on the fundraising front this year – particularly those in Europe and the US. “Until this changes, it will likely slow down capital formation in the near term for some of our efforts,” he said, adding that the firm is unlikely to be strongly impacted because it isn’t in market with a flagship PE fund. “We expect those to come back to market in 2024 and 2025,” he noted. “Frankly, we’re fortunate with that timing.”

Here are some other takeaways from the call:

  • KKR raised $12 billion across all strategies in the quarter, including an $8 billion final close on European Fund VI, CFO Rob Lewin said.
  • The firm’s democratised PE vehicle outside of the US raised over $400 million on just one platform at first close, Lewin added. “We hope to build on this momentum with the wire houses as the domestic vehicle comes online in the second half of the year.”
  • Traditional PE performance was up 2 percent for the quarter and down 9 percent over the last 12 months, IR head Craig Larson added. “Importantly here, inception-to-date IRRs for our blended flagship funds – so Americas XII, Europe V and Asia IV – remained strong at 22 percent.”
  • KKR’s 19 core PE balance sheet investments are being held at $5.7 billion of fair value, representing a 2.1x multiple of cost, Lewin said.
  • “Now with interesting deployment, which largely comes from higher volatility, does come a more challenged monetisation environment,” he added. “The environment here continues to be quiet and our expectation is that it will remain soft for much of 2023.”

Driving diversity
A report published by the British Private Equity and Venture Capital Association and gender diversity body Level 20 has found that, while progress has been made in improving diversity across the UK’s PE industry, a lot of work still needs to be done.

The Diversity & Inclusion Report, published every two years, found that the percentage of women working in investment roles has increased since 2021 and 2018. On average, 12 percent of senior investment roles are held by women – at the mid-level, this figure stands at 23 percent, and at the junior level, 37 percent. Overall, women make up 40 percent of the UK PE and VC workforce – a slight increase from the 38 percent recorded two years ago.

However, failures remain widespread, particularly with regards to racial diversity. At the senior level, only 10 percent of leaders are of Asian, Black or other ethnic heritage, while more than 80 percent of individuals across all roles identify as White. “We can – and must – improve,” said Michael Moore, chief executive of the BVCA. “Like many industries, the diversity of the private equity and venture capital sectors do not adequately reflect the diversity of background and experience of the UK population. However, we are at the start of a journey and progress has been made.”

Improving diversity levels has been a focus for PE for some time, and not just for fairness and equality reasons. In November, McKinsey published its The state of diversity in global private markets: 2022 report, which found that investors will allocate on average twice as much capital to deal teams with more gender diversity and 2.6x to teams with more racial diversity. As Side Letter reported at the time, in today’s increasingly ESG-focused fundraising environment, improving diversity simply makes economic – as well as societal – sense.

Family matters
Private Equity International reporter Katrina Lau has spent some time lately speaking with family offices in Asia-Pacific about their appetites for the private markets in 2023. If you’ve missed any of her coverage, find it here:

How APAC family offices are thinking about PE in 2023
Four things APAC family offices want from their GPs
When it comes to family offices, a tailored approach may pay dividends
Meet the LP: DL Family Office

Rising appetites among this investor base aren’t only limited to APAC. A Goldman Sachs family office report, Eyes on the Horizon, found that 41 percent of global family offices are expecting to increase their PE allocation in the next 12 months. Respondents on average have 26 percent allocated to PE, 2 percent higher than the average in 2021. A total of 166 family offices around the world were surveyed, 72 percent of which had net worths of at least $1 billion.

“Despite the volatility and the challenges over the last year, this cohort of investors have really remained notably calm, and their strategic asset allocation has only changed moderately,” said Meena Flynn, co-head of Goldman Sachs Global Private Wealth Management, at a press briefing accompanying the report. “They don’t have to report to anybody else other than themselves and so this is one of the reasons why they can zig while others zag.”

Across regions, EMEA families are the most active in PE, with 29 percent average allocation in the asset class; the region is also the most bullish towards India, with 31 percent of families looking to increase allocations towards the country. Across the entire portfolio, family investors allocate an average of 63 percent to the US, 8 percent towards China and 2 percent towards India, on top of other developed and emerging markets.

Family offices looking to make sustainable investments are most likely to invest in clean energy, with 60 percent planning deploy capital in the next 12 months, while 40 percent are interested in sustainable food and agriculture investments.


Qatar’s new recruit
Former CPP Investments Asia equities manager Nicholas Low has joined Qatar Investment Authority‘s global venture and growth funds team, per his LinkedIn profile. He spent nearly 12 years at CPPIB in Hong Kong. His most recent stint was as a portfolio manager of active equities in Asia where he was responsible for listed and pre-IPO investments in the metaverse, blockchain and hydrogen spaces.

The $455 billion QIA, like many of its MENA peers, reveals only scant details about its investment programme. According to its website, the institution is active in PE, real estate and infrastructure, with a particular predilection for healthcare, TMT, financial institutions, retail and consumer, and industrials.

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