Side Letter: KKR’s fortunate timing; DE&I’s mountain to climb; SWFs’ direct dealing

KKR has wrapped up the bulk of its private equity fundraising at a time when many of its peers are struggling with LP capacity constraints. Plus: A new study outlines the progress yet to be made on DE&I in Europe; and SWFs have been largely active despite recession fears. Here's today's brief, for our valued subscribers only.

Just happened

KKR’s Scott Nuttall: Glad to have avoided this year’s fundraising frenzy (Source: KKR)

KKR’s timing
KKR is counting itself lucky that the majority of its private equity fundraising efforts were concluded before LPs started to feel the impact of this year’s congested market. “We raised a vast majority of the capital for our flagship PE funds before this year started… including core strategy,” co-chief Scott Nuttall noted on the firm’s Tuesday earnings call. The firm closed its North America Fund XIII on $19 billion in March and has collected about $12 billion of the $16 billion it is seeking for Core Platform II, according to PEI data.

“While investors may be taking a little bit of time to get their bearings in PE in particular, it’s not really impacting much of what we are seeing in terms of PE fundraise,” Nuttall said. “The vast majority of capital we’re raising right now is around credit and real assets, where we continue to see a good amount of interest.”

Like many of its peers, the firm’s traditional PE portfolio, which excludes its core and growth business lines, reported a negative 7 percent gross return for the quarter and 4 percent return for the year ended 30 June. AUM across the entire PE segment fell 2 percent to $172 billion in the second quarter, despite $8 billion of new capital raised, and was up 7 percent year-on-year.

Inception-to-date IRRs for its flagships stood at 32 percent, 19 percent and 38 percent across its Americas, Europe and Asia portfolio companies respectively at quarter-end.

“As it relates to the growth strategies that we’ve seen in performance this quarter – again, recognising that the S&P and MSCI were down 16 percent in the quarter – our next-gen tech portfolio was down in the low double digits,” head of investor relations Craig Larson noted in the call. “Healthcare was actually up, honestly, in the quarter. So, I think in the quarter, a really volatile period, we feel good about that overall performance and, in particular, feel very good about the performance and the experience that our LPs have had on an inception-to-date basis.”

PE deployment is up this year. The firm deployed $5.7 billion in the second quarter, compared with $3.6 billion for the same period last year, and had invested $10.1 billion in the first half, up from $5.49 billion in H1 2021. The highlight of the call was news that the firm plans to roll out PE and infrastructure-focused products for individual investors in the coming months. More details of that in our coverage here.

DE&I task at hand
As a growing number of diversity initiatives are rolled out across the industry, a recent study shows the scale of the mountain to be climbed. The report by Level20 – a not-for-profit that operates with the goal of improving diversity in private markets – has found that nearly 40 percent of PE and VC firms in Europe still have all-male investment teams.

The study gathered data from more than 1,000 firms and found that those in some countries fared better than others: all-male teams in Denmark and the Netherlands, for example, are prevalent in 65 percent and 68 percent of companies, respectively; France, by comparison, was the only country to have a figure of less than 20 percent. The UK, which was the subject of a separate study, also had fewer than 20 percent all-male investment teams.

It has been difficult in the past to find actual examples of LPs walking away from a fund based on a DE&I deficiency. That’s why developments at the Pennsylvania State Employees’ Retirement System are worth noting. After the investment committee had approved a $125 million commitment to funds managed by Sentinel Capital Partners in June, the commitment was halted by the pension’s board amid a debate relating to DE&I. Last week the pension’s board voted unanimously to approve the commitment after meeting with Sentinel and developing a plan to address its diversity efforts. It seems that, in the main, investors would prefer to work with a manager on the issue rather than simply turn them away.


Direct dealings
Sovereign wealth funds experienced losses of $2.1 trillion in the first half, according to estimates from Global SWF, a research group focused on state-owned investors. Public pension funds, meanwhile, lost an estimated $3.9 trillion, largely driven by the decline of public stocks. The combined falls represented an 18 percent drop in assets under management. Here are some other highlights from its August newsletter.

  • State-owned investors completed $137.4 billion of direct deals in the first half, despite the market slowdown. This compares with $219 billion for full-year 2021, which was a record year.
  • Deal activity spiked in June after two down months, hitting $35.3 billion. ADIA was the biggest direct investor during June and July, doing five deals worth $7 billion. GIC and CDPQ were second and third, closing on $5.7 billion and $5.3 billion of deals respectively.
  • The Saudi Public Investment Fund is by some way the largest venture capital investor among state-owned investment institutions, with $51.4 billion of AUM; Mubadala is second with $20.6 billion, and Temasek is third with $17.2 billion.

Dig deeper

Institution: Teachers’ PensionHeadquarters: Naju-si, South KoreaAUM: 23.3 trillion Korean wonAllocation to alternatives: 21.79%

South Korea’s Teachers’ Pension has issued a request for proposal for domestic private equity fund managers.

The submission deadline is 23 August 2022, with a decision put to the investment committee planned for mid-September.

The pension plans to commit a total of 400 billion South Korean won ($306 million; €299 million) to at most four private equity fund managers. Eligible managers should manage a fund of at least 500 billion won. Successful firms should be based in South Korea and have at least one fund manager who possesses at least 10 years’ experience in the private equity industry.

The 23.3 trillion won pension has a 21.5 percent target allocation to alternative investment that currently stands at 21.79 percent.

For more information on South Korea’s Teachers’ Pension, as well as more than 5,900 other institutions, check out the PEI database.

Today’s letter was prepared by Alex Lynn with Toby MitchenallRod JamesCarmela Mendoza, and Helen de Beer