KKR highlights diversification in letter to shareholders

Of the more than $5bn raised over the course of 2010, $4bn was dedicated to non-traditional private equity strategies, including infrastructure.

Kohlberg Kravis Roberts founders Henry Kravis and George Roberts emphasised the firm’s evolving investment strategy in a letter to shareholders included in the firm’s 2010 Annual Report. The publicly traded private equity firm has been diversifying its business since its $1.25 billion initial public offering in 2007.
 
Over the course of 2010, KKR raised over $5 billion of new capital, $4 billion of which was dedicated to non-traditional private equity strategies – including infrastructure, natural resources, special situations, China growth equity and mezzanine.

KKR is currently in the market with its debut infrastructure fund, which had raised $515 million at second closing. The fund names the Fire and Police Pension Fund of San Antonio as one of its limited partners, according to InfrastructureConnect.
 
“People often see KKR’s name and assume private equity is our sole business – after all, for 35 years, we’ve made a name for ourselves in that business… Today, however, we provide much more than private equity to our partners, whether management teams, limited partners, or unit holders, and we believe that our broader capabilities enrich each of these partnerships,” the founders wrote in the letter.
 
Roberts and Kravis said the shift in strategy represented an opportunity to better utilise the firm’s “sourcing engine”, allowing KKR to act on a greater proportion of the opportunities it explores across its sector base.
 
“As we move forward, our vision for KKR is to convert all of our ideas and relationships into opportunities for our partners,” they said.

KKR also revealed a 33 percent increase in the value of its private equity funds. Economic net income for the firm’s private markets segment increased from $661 million in 2009 to $785 million in 2010 – the key driver of which was carried interest generated by private equity fund appreciation. 
 
The firm was hit with a negative second quarter earnings report last month, with economic net income falling to $315 million for the quarter, a 27 percent decline from the $433 million reported at the end of the second quarter last year.