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Secret source: KKR chases individuals for PE

February 11, 2024

Originally published in The Australian by Glenda Korporaal

Picture credit: Picture: Max Mason-Hubers

US private equity giant KKR is pitching its private equity products to wealthy investors in Australia as it looks to expand the sources of capital for its global deal making.

Alisa Wood, a New York-based partner in the firm’s private equity business, said KKR was looking to increase capital from private investors around the world to help drive private equity funding – an area traditionally reserved for institutional investors.

Speaking on a visit to Australia, where she has been meeting with family offices, financial advisers and wealth market consultants, she said KKR saw the potential for increasing interest from Australian high net worths to invest in private equity as the private capital markets sector continued to grow.

She said she was excited about the potential of the Australian market given the growing ranks of wealthy people in the country and the need for new avenues of investment as the number of companies listed on global stock markets continued to shrink.

One of the world’s largest private equity companies, KKR has some $6bn invested in Australia in companies including biscuit maker Arnott’s, accounting software company MYOB, and a share in wealth management firm Colonial First State, with a local office of 40 to 50 people.

“The reason I’m excited about Australia is the opportunity for individual investors,” she said.

“There is about $US190 trillion ($291 trillion) of individual wealth in the world today, but only 1.4 per cent of it is allocated to private equity. We think that this will increase to around 5 per cent in the next handful of years.”

She said investors in public markets such as shares and bonds were finding their returns - shrinking.

“The markets have become more efficient and you are not able to achieve the same returns anymore. The whole 60/40 per cent asset allocation split (between shares and bonds) hasn’t worked for the last few years and it’s not going to work going forward.

“We need to come up with wealth solutions to allow individuals to invest in what has historically been an institutional asset class (private equity).” Ms Wood said Australia was one of the top countries in terms of the proportion of affluent people.

She the number of billionaires in Asia was growing at the fastest rate in the world.

“You’ve got the growth in individual wealth, and, at the same time, you have the need for individual investors who are very wealthy to be able to access private equity,” she said The opportunity to invest in listed companies was becoming limited as many companies had delisted after being taken private and new companies were waiting much longer before they listed because they had easier access to private capital during their critical growth period, she said.

“There are 40 per cent fewer public companies today than (20 years ago) when I started at KKR,” she said.

“Twenty to 30 years ago, it took companies somewhere in the neighbourhood of six years to go public. Today, on average, companies take about 12 years to access the public markets.”

Many companies now preferred to remain private if they had to do a major restructuring, with management not having to make quarterly earnings reports to external investors.

KKR, one of the largest deal makers in the world, is looking to expand its own sources of capital as it can see increasing opportunities for private equity investments. It is projecting that the proportion of its funding for its global private equity pool from individual investors will increase from of about 10 to 20 per cent to around 30 to 50 per cent.

Fundraising in global markets was more difficult last year as interest rates rose and the valuations on potential private equity deals became less attractive.

“What we are trying to do is to find more sources of capital that have certainty alongside it, which allows us to keep doing what we’ve done for 47 years, which is buying good companies we can make great,” she said.

Private equity investing these days was “not about asset stripping”. “(It) is about how do we make a business better tomorrow than it is today,” she said. “It isn’t about buying low and selling high; it is about paying a market clearing price (for a company) and figuring out what you’re going to do to grow the business. That’s what private equity is for us.”

Ms Wood said there was a broad understanding of the advantages of private equity in - Australia.

Her recent discussions with financial and wealth advisers concerned how private equity could be accessed and whether it was a good time to be investing in it.

“In other parts of the world you are making the case for private equity (to potential clients). I don’t need to make that here,” she said.

Ms Wood, who joined KKR in 2003, has been coming to Australia twice a year ever since.

In her early days visiting the country she was told by an executive: “If you’re here for the quick date, you should go home.”

While that person is no longer in their role, she is still visiting Australia.

“I guess I’ve proven I’m here for the marriage,” she said.

Wood was global head of KKR’s private markets and real assets strategies group before moving into her new role in 2022, pitching private equity investing to individuals.

KKR is arguing that its long experience in private equity investing makes its products more attractive.

“In the public markets, the spread between your top performing managers and your bottom performing managers can be around 200 to 300 basis points,” she said.

“In private equity, the spread between top performing managers and bottom performing managers is 2000 basis points.”

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