KKR 1980s Funds Dominate The Charts

Buyout professionals of a certain age love to reminisce about the 1980s, when by many accounts it wasn’t unheard of for target companies to borrow $9 for every $1 in equity invested by their sponsors.

This golden age was no mirage, according to a recent survey of fund performance conducted by Buyouts. Based on an analysis of investment multiples, 11 of the top 48-performing partnerships in our database of 341 pre-vintage-2003 buyout funds date from the 1980s. It’s a remarkable fact given how few funds got raised in the 1980s compared with subsequent decades. In fact, our database contains just 16 vintage-1980s funds. Two-thirds of them cracked the top 48.

Another remarkable fact is how many of those 1980s funds were managed by Kohlberg, Kravis Roberts & Co., New York—eight of the 11. KKR failed to make the top 48 performance list with four subsequent funds that we have in our database—its 1993 fund, 1996 fund, 2001 European fund and millennium fund. That said, all four have so far returned at least a respectable 1.6x contributed capital to investors.

KKR’s 1985 fund produced an astounding 5.5x investment multiple for investors, and backer Washington State Investment Board saw its $174.0 million investment bloom into $952.9 million. But unassailable as its reputation is, KKR still did not manage the best-performing fund in our database. That distinction goes to Wingate Partners, a Dallas-based firm whose 1987 fund returned 6.1x invested capital to investors. The University of Texas Investment Management Co. never forgot that amazing performance. It went on to back all three subsequent Wingate funds, raised in 1995, 2000 and 2006. Wingate, with some $500 million under management, proved its debut fund was no fluke, achieving investment multiples to date for UTIMCO of 1.8 and 1.6 with its next two funds.

To generate its top-48 list, Buyouts combined publicly-available return data from nine U.S. and Canadian public pensions and university endowments, with the largest cache coming from the California Public Employees’ Retirement System (see “Source and Explanation” at bottom of page the next page for a complete list, along with an explanation of how we compiled the data). One aim was to produce a list of top-performing funds and another of bottom-performing funds, with the former running in this edition, and the latter in our next edition. Another was to generate some statistics that have something to say about overall industry performance—but hardly anything conclusive. Our sample of funds is not a random sample, and therefore the statistics generated apply only to our sample, not to the industry as a whole within some margin of error. Best to consider it one more data point in a world that has yet to produce a definitive measure of private equity market performance.

Altogether investors in our database have seen an estimated $55 billion of their commitments drawn down into some 548 pre-vintage-2003 buyout and distressed/turnaround funds, including ones deployed in Asia, Canada, Europe, Latin America, South Africa and the United States. Melting out duplicates produces a list of 341 global funds. From there, eliminating the international funds produces a list of 263 U.S. funds. The median investment multiple—defined as distributions plus estimated value of remaining holdings divided by contributed capital—for global funds that provide that data point is 1.6x—see table, this page. For the U.S. funds it is also 1.6x. The median IRR for the global fund collection is 14.4 percent while for the U.S fund collection it is 13.6 percent.

What percentage of funds lost money for investors? Thirty-nine, or 11 percent of the global funds in our sample, and 32, or 12 percent, of the U.S. funds, have generated investment multiples to date of less than one.