KKR's publicly traded private credit fund's near-term returns pressured, CFO says

KKR's publicly traded private credit vehicle, KKR FSK Capital Corp, has experienced pressure on near-term returns, Chief Financial Officer Robert Lewin said on Wednesday at the RBC Capital Markets Global Financial Institutions conference in New York, according to Reuters. Lewin said the pressure has come largely from some subordinated exposure within the fund. The company's shares are down 29% so far this year.

Business development companies (BDCs), a form of private debt fund, have seen share prices fall on public exchanges while redemption requests from their non-traded counterparts have risen. Investors are concerned about credit markets and exposure to the software sector, where artificial intelligence threatens to disrupt the pricing power of companies that have attracted a large share of private funding over the past two decades. Jitters across private credit intensified last year with the collapses of auto parts supplier First Brands and subprime lender Tricolor.

Lewin said that roughly $17 billion of KKR's direct lending capital sits in BDC format, with $14 billion in FSK. FSK has over 16% exposure to software and related companies, per company filings. KKR's insurance business, Global Atlantic, has software exposure of roughly 2.5%, Lewin said. He also argued that KKR has little capital in the private BDC space and sees a real opportunity there, while noting that AI will produce clear winners and businesses that may be disintermediated over time.

Rivals Blue Owl and BlackRock have seen shares sold as redemption requests for key funds crossed the 5% threshold that conventionally allows managers to limit withdrawals. Blackstone has responded by relaxing its limit to 7% or beyond. Lewin also said capital markets remain fairly robust globally despite geopolitical and tariff volatility, and KKR expects first-quarter capital markets revenue of $200 to $225 million, largely in line with the year-ago period.