FORTUNE -- One year ago I recommended that you buy stock in publicly-traded private equity firms, like Apollo Global Management (APO) and The Carlyle Group (CG). My theory was that such issuers were being undervalued by analysts who obsessed over assets under management (i.e., fund management fees), while paying too little attention to underlying portfolio performance (i.e., investment profits).
Hope you listened, since such shares have since risen by an average of 65 percent.
That's a big jump, and I'm not so bold as to issue another editorial buy. But I would suggest you keep ignoring most of the bank analysts.
Last Thursday, Kohlberg Kravis Roberts & Co. (KKR) released first quarter earnings and held the obligatory conference call. Several of the analyst questions dealt with a new dividend policy, while one asked about the outlook for underlying portfolio companies. The majority, however, still related to assets under management.
Among those was the following from Michael Kim, an analyst with Sandler O'Neill:
"As you continue to build out your investment capabilities across the new strategies and geographies, is there an opportunity to maybe offer LPs sort of a multi-asset class fund that maybe has a broader mandate? Do you feel like there's demand for that type of strategy that's more flexible and might offer more of a shorter timeline relative to sort of a traditional PE fund?"
And this from Matthew Kelly of Morgan Stanley (MS):
"I was hoping you could give us an update on LPs and your cross-sell, because there's been a lot of change in additions, moving parts to the business, as you indicated. So I'm just wondering if you can tell us kind of how many LPs you have now, how many of them own multiple products and if there's any sort of subset they can't own multiple products, just based on what they can kind of invest in?"
In other words, how can you get more dollars from existing investors?
The notion of multi-asset class products is not new. Warburg Pincus, arguably, has been doing it for years with "private equity" funds that include everything from expansion-stage venture capital to large leveraged buyouts. And The Blackstone Group (BX) has raised $1.7 billion for a new platform that takes "a multi-asset class approach to investing in illiquid assets focused on timely opportunities that fall outside other Blackstone alternative fund strategies."
But, generally speaking, these are exceptions rather than the rule. Not because private equity firms don't want to raise more money from existing LPs, but because most LPs prefer that each of their fund commitments fit into a dedicated "bucket."
There's a "bucket" for early-stage venture capital, one for growth equity, one for mid-market buyouts, one for large-cap buyouts and so forth. This is particularly prevalent in the fund-of-funds world, but also exists at many university endowments and public pension plans.
In fact, many LPs would much prefer to invest in three different funds managed simultaneously by the same firm (each focused on a different asset class), than in a single fund that makes the same deals under a consolidated umbrella. It just works better for their models, and also helps enable secondary sale flexibility. Do KKR's analysts know any of this?
To be clear, I'm a bit reluctant to knock people for asking questions. Partially because it's what I do for a living, and also because that's the purpose of the quarterly earnings call. But when those paid to analyze publicly-traded private equity firms ask questions that reflect a lack of sophistication about the underlying subject matter... Well, I guess that's why so few of them had proper price targets last May.
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A private equity firm by any other name..
FORTUNE -- Henry Kravis wants institutional investors to know he runs a private equity firm. That may sound obvious to those with even a fleeting knowledge of Kohlberg Kravis Roberts & Co. (KKR), which Kravis co-founded 37 years ago, but it really is a subtle dig at rival The Blackstone Group (BX).
Speaking this morning at the SuperReturn International conference in Berlin, Kravis said the MOREDan Primack - Feb 28, 2013 4:13 AM ET
KKR threads the needle on controversial environmental issue.
FORTUNE -- Henry Kravis, co-founding CEO of Kohlberg Kravis Roberts & Co. (KKR), says that his firm is focused on both shale gas investments and environmental issues -- and doesn't see any conflict between the two.
KKR has invested heavily in fracking, a natural gas and petroleum extraction technique that uses highly-pressurized liquid to create fractures in sedimentary rock layers (i.e., shale) that sometimes can MOREDan Primack - Feb 28, 2013 3:33 AM ET
Carlyle's earnings miss aside, it's been quite a run for listed private equity firms.
FORTUNE -- Private equity firm shares have been on a year-long tear, even though yesterday's headlines were about declines caused by The Carlyle Group's (CG) earnings miss. Makes me feel much better about my advice last May, which was the only time I've even flirted with the hazardous world of stock-picking:
I think there's potential upside to private MOREDan Primack - Feb 22, 2013 11:56 AM ET
Private equity's firearms interests go far beyond Cerberus and Freedom Group.
FORTUNE -- Last week another lunatic used a Bushmaster .223 rifle to murder multiple people. This time the victims were firefighters responding to a call in Webster, New York. Guns may not cause massacres, but people who massacre seem to favor the same type of "gun."
We previously reported about how Cerberus Capital Management plans to divest the parent company of Bushmaster MOREDan Primack - Dec 31, 2012 11:27 AM ET
Mitt Romney's candidacy put his former profession in the spotlight. KKR'S Ken Mehlman is trying to make sure the industry doesn't get burned.
FORTUNE -- Ken Mehlman isn't a private equity investor, but he has been one of the industry's most influential figures this year. As global head of public affairs for Kohlberg Kravis Roberts & Co. (KKR), Mehlman has spearheaded a campaign to defend his firm and its peers from MOREDan Primack - Nov 8, 2012 5:00 AM ET
Two early KKR employees look to launch a new model.
FORTUNE -- Former Kohlberg Kravis Roberts (KKR) executives Perry Golkin and Mike Tokarz are quietly raising a new private equity fund designed to adhere closely to the investor-friendly ILPA principles. It's being called Public Pension Capital, which kind of gives away its expected source of limited partner commitments.
I'm told the tentative target is approximately $500 million, although that may end up MOREDan Primack - Aug 15, 2012 11:04 AM ET
Private equity giant builds its Asia war chest.
FORTUNE -- Kohlberg Kravis Roberts & Co. (KKR) has secured just over $3 billion for its second Asia-focused private equity fund, according to a regulatory filing. This includes around $2.76 billion in commitments from outside investors, plus $250 million being committed by the firm's general partners.
The firm is seeking a $5.75 billion in outside commitments, bringing the total fund target to $6 billion.
KKR MOREDan Primack - Jun 22, 2012 3:13 PM ET
Going beyond the noise.
FORTUNE -- Sonos, a maker of wireless home audio systems, has raised $135 million in a growth equity round led by Kohlberg Kravis Roberts (KKR). Elevation Partners and Redpoint Ventures also participated, while existing company shareholders include Index Ventures and BV Capital.
1. According to All Things D, only about $45 million of the round is primary capital. The remainder is founder/early shareholder liquidity. Unclear if BV is MOREDan Primack - Jun 19, 2012 11:07 AM ET
Private equity giant leaves list it shouldn't have ever been on.
FORTUNE -- The new Fortune 500 came out this morning, with lots of familiar names up top (Exxon Mobil, Wal-Mart, etc.). One company you won't see, however, is private equity firm Kohlberg Kravis Roberts & Co. (KKR), which last year came in at #256.
At the time, I wrote that KKR shouldn't have made the list in the first place (a sentiment shared by MOREDan Primack - May 7, 2012 9:25 AM ET
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