Key Takeaways
- • KKR co-founder Henry Kravis, in a Bloomberg Q&A marking the firm's 40th anniversary, said the private equity industry has grown to where nearly every major institution, from sovereign funds to pensions, now allocates to the sector, and that competition is intensifying as a result.
- • Kravis said KKR began in 1976 with $120,000 of seed capital, a first $25 million fund raised from eight individuals at $50,000 each, and a 20 percent profit carry, and that the firm now manages more than $120 billion.
- • KKR holds ownership stakes in more than 100 companies with combined annual revenue of $200 billion, according to the interview, and indirectly employs almost one million people.
- • Private equity makes up roughly 40 percent of KKR's business; the remainder comes from credit, real estate, hedge funds and public markets, following a shift toward a solutions-provider model after the 2002 Williams Companies deal.
- • Kravis said KKR's average holding period is seven years and that the firm's influence on corporate governance has been its most significant contribution.
Summary
KKR, the private equity firm founded in 1976 by Henry Kravis, George Roberts and Jerome Kohlberg Jr. after they left Bear Stearns, is marking its 40th anniversary. In a Bloomberg Q&A, Kravis, 72, who serves as co-chief executive with his cousin Roberts, described the firm's origins and evolution. According to the interview, KKR started with $120,000 of capital, with Kravis and Roberts each contributing $10,000 and Kohlberg contributing $100,000. The firm's first fund targeted $25 million and was ultimately built through commitments from eight individuals at $50,000 each, with a 20 percent share of profits as carried interest, a figure Kravis said was loosely derived from a "third for a quarter" arrangement common in oil and gas partnerships.
Kravis said KKR now manages more than $120 billion and holds stakes in more than 100 companies with combined annual revenue of $200 billion, indirectly employing almost a million people. He said the industry has changed markedly: "There's money everywhere today," and nearly every type of institution, including sovereign funds, foundations, insurers and pension funds, now invests in private equity. He expects competition to increase as transparency improves. He also cited China, where the CSRC regulator reportedly counted well over 500 private equity firms, many of which he said focused on buying pre-IPO stock and selling quickly, a practice KKR sought to discourage.
Kravis described KKR's shift beyond buyouts into credit, real estate and hedge funds as an evolution rather than a plan. He cited a 2002 episode involving the Williams Companies, where a restructuring structure KKR proposed was ultimately financed by Warren Buffett, which he said led KKR to enter the credit business. Private equity now accounts for about 40 percent of the firm's activity, with the rest in newer businesses. Kravis said KKR's average holding period is seven years and that the firm's chief contribution has been on governance, as well as in operational improvements such as pricing, supply chains and management changes.
Kravis said KKR now manages more than $120 billion and holds stakes in more than 100 companies with combined annual revenue of $200 billion, indirectly employing almost a million people. He said the industry has changed markedly: "There's money everywhere today," and nearly every type of institution, including sovereign funds, foundations, insurers and pension funds, now invests in private equity. He expects competition to increase as transparency improves. He also cited China, where the CSRC regulator reportedly counted well over 500 private equity firms, many of which he said focused on buying pre-IPO stock and selling quickly, a practice KKR sought to discourage.
Kravis described KKR's shift beyond buyouts into credit, real estate and hedge funds as an evolution rather than a plan. He cited a 2002 episode involving the Williams Companies, where a restructuring structure KKR proposed was ultimately financed by Warren Buffett, which he said led KKR to enter the credit business. Private equity now accounts for about 40 percent of the firm's activity, with the rest in newer businesses. Kravis said KKR's average holding period is seven years and that the firm's chief contribution has been on governance, as well as in operational improvements such as pricing, supply chains and management changes.
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