Two KKR partners to leave firm

Edward Gilhuly and Scott Stuart, two senior partners at private equity giant Kohlberg Kravis Roberts, will leave the firm at the end of the year to start a hedge fund. The two had been believed by some to be heirs apparent at the firm.

Kohlberg Kravis Roberts today informed limited partners that partners Edward “Ned” Gilhuly and Scott Stuart will leave the firm at the end of the year to start their own fund management business.

Henry Kravis, co-founder, Kohlberg Kravis Roberts

Both Gilhuly and Stuart sat on KKR’s investment committee and were believed by many industry observers to be likely candidates to lead the firm after the eventual retirement of co-founders Henry Kravis and George Roberts.

According to a statement from KKR, Gilhuly and Stuart will “start a fund focused on long-term, value-oriented investing. They anticipate raising a limited amount of outside capital and applying a private equity approach to public market investing.”

The news comes amid a separate announcement from KKR that it will begin investing in Asia from new offices in Hong Kong and Tokyo.

Both Gilhuly and Stuart joined KKR in 1986. The two were roommates at Stanford Business School.

KKR partners Alex Navab and Todd Fischer will replace Gilhuly and Stuart on the KKR investment committee. Remaining on the investment committee is partner Michael Michelson, another next generation KKR pro often described as an heir apparent. Michelson specialises in healthcare investing.

KKR is in the final stages of raising its European private equity fund. Gilhuly was instrumental in building the firm’s London office and shaping its European investment strategy. He returned to the firm’s California office at the end of last year. Prior to opening KKR’s London office Gilhuly worked for the firm in Silicon Valley. The firm’s European operations are now led by Johannes Huth.

Stuart worked on a number of deals for the firm, including Borden Chemical, Duracell International and Dayton Power and Light.

As entrepreneurs ourselves, we understand and respect the desire to start a new enterprise.

Henry Kravis, KKR

A source identified as an investor in KKR’s funds told Reuters today: “My first thought is that this is unfortunate. Ned just got back from establishing the European office and Scott was always thought to be next in line.”

In a statement, Kravis said: “As entrepreneurs ourselves, we understand and respect the desire to start a new enterprise and we wish them well in the future.”

The statement said that KKR “intends to be an investor in and partial owner of the new fund, recognizing that its private equity work can benefit from cross-fertilization of ideas that emerge from different investment strategies.”

A spokesperson for the firm did not know whether KKR’s investment in the independent venture would come from the firm itself or from individual partners.

In the statement, Gilhuly and Stuart said: “We have chosen to move into a new area of investing at a time when KKR is clearly flourishing. . .”

In an industry speech given last year, Kravis expressed scepticism at the ability of hedge funds to unlock long-term value. According to a text of the speech found on KKR’s website, he said: “Hedge funds know how to pick stocks and make lots of money, particularly with stocks which they can trade at will, unburdened by inside information or other constraints. But, that is not the same thing as creating value through ownership of an asset over the long-term in a hands-on way.”

KKR currently has 56 investment professionals.