Time is money: KKR’s long-dated assets nearly triple since 2020

KKR, which identifies long-term investing as a top value-creation driver, says the strategy is delivering solid returns and outsized growth.

Core private equity assets totaled $34 billion as of June 30, up from $12 billion three years ago, Craig Larson, head of investor relations, said in a second-quarter earnings call. This roughly 2.8x increase is “all organic,” he said.

KKR’s core strategy, launched in 2017, makes control investments in global businesses needing capital to pursue expansion over a 10-to-15-year horizon. Companies of interest are well-run, durable, cash-generative and operate in sectors less subject to risk and cyclical or competitive disruption.

Investing of this sort carries a more modest risk-return profile relative to other private equity investing and the traditional hold period of three to five years. Long-duration assets are expected to earn gross IRRs in the mid-to-high teens that can be compounded over time.

KKR is presently doing better than that. Core investments on the firm’s balance sheet – a substantial portion of the strategy’s total fund capital – were generating a 20 percent gross IRR as of June 30. All investments were earning a 1.7x gross multiple and an 18.9 percent gross IRR.

KKR is in the market with a second long-life offering. To date, KKR Core Platform II has raised $12 billion in third-party and balance-sheet capital against a $16 billion target.

If Fund II reaches the target, it would be almost twice the size of Fund I, closed in 2017 at $8.5 billion, and the biggest vehicle of its type.

LP demand

LPs keen on the strategy include large institutions with long-dated liabilities “interested in the matching aspect,” Larson said in the earnings call. They are also large family offices that “tend to think like we do in terms of the power of long-term compounding,” co-CEO Scott Nuttall said, and perhaps have “a greater appreciation for re-investment risk.”

One of the challenges in raising LP capital is long-duration investing remains “a younger part of the private equity asset class,” Nuttall said. “So, to some extent there is a bit of an education still happening.”

“But we’ve been out talking to investors around the world about why we like it so much and how aligned we are,” he said, “and we’re having some really good conversations.” In February, KKR reported managing $18 billion of third-party capital.

The core strategy has invested in 20 businesses. The latest investment, announced last year, is April, a French wholesale insurance broker. KKR acquired a majority stake from CVC, reportedly for €2.3 billion ($2.5 billion). Other portfolio companies – such as USI, PetVet Care Centers and Heartland Dental – are among the biggest owned by KKR.

KKR this year designated core private equity as one of six key areas expected to propel future growth. Another is the balance sheet, where long-life investments make up 34 percent of the total. Asia, insurance, private wealth and real assets are also key areas.

Other firms with long-term strategies include Altas Partners, BlackRock, Blackstone, Brookfield Asset Management, Carlyle and Cove Hill Partners. Altas, a pioneer in the space, recently closed its third offering at $4 billion.