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Capital Group and KKR are set to launch new funds spanning private loans, corporate buyouts, and infrastructure and property deals in the latest tie-up between big traditional asset managers and private capital firms.
Los Angeles-based Capital Group — the world’s biggest active asset manager — and private equity giant KKR have agreed to jointly offer a wide range of funds for individual investors that will mix traditional stocks and bonds with unlisted assets such as corporate takeovers.
The groups will launch their first two debt funds on Tuesday, and offer strategies combining listed stocks with buyouts as soon as 2026, in addition to other funds dedicated to real estate and infrastructure, top executives from each company told the Financial Times.
Alternative firms are racing to manage money for private individuals who have minimal exposure to unlisted assets, compared with pension funds, which have significant private market exposure. Meanwhile, traditional investment houses are keen to push into private markets, which hold the potential for higher returns but often carry greater risks and fees.
Earlier this month, Blackstone joined forces with Vanguard and Wellington Management in a “strategic alliance” to offer public-private funds to wealthy individuals and retirees.
“For a lot of folks who have never used alternatives before, this public-private hybrid market space is a really elegant entry into private assets,” said Mike Gitlin, chief executive of Capital Group.
Scott Nuttall, co-chief executive officer at KKR, added the new strategies were designed to make private assets “easier to buy and easier to own” for individual investors.
The partnership comes after a year of talks between the two companies, with both independently considering whether to make acquisitions. KKR studied the purchase of an asset manager to gain greater access to individual investors, while Capital Group weighed buying an alternatives manager.
The investment groups briefly discussed the possibility of a merger, but talks did not advance far before they decided a partnership was more beneficial to each firm.
“Capital Group will remain a private company,” said Gitlin, “but synthetically we’re creating a merger of public and private capabilities.”
In time, Capital and KKR also plan to expand their private-public partnership beyond the US. Gitlin predicted “we’ll build this category from scratch to something in excess of $100bn together”.
The groups’ first two fixed income funds launching this week, have a minimum investment of $1,000, opening them to a greater number of investors, fees of 0.84 percentage points for a “Core Plus+” fund and 0.89 percentage points for a “Multi-Sector+” fund.
The funds’ fees are “significantly lower” than other competing private funds, said Morningstar analyst Karen Zaya. The average adjusted expense ratio for all share classes of similar “interval” funds stood at 2.49 per cent. But they are higher than the 0.58 per cent cost of exchange traded funds, which are broadly focused on public markets.
Capital and KKR’s funds will offer investors only a limited ability to sell their shares in full, a trade-off viewed by the industry as a necessary protection given their investments in harder to sell private assets. The funds plan to allocate 40 per cent of the portfolio to private assets, with the remainder invested in more easily sellable publicly traded debt. They offer investors the right to redeem up to 10 per cent quarterly, double most interval funds.
The push of individuals into private funds requires investors to understand a myriad of new risks, said Morningstar’s Zaya. Such funds “can be more complex, these are more expensive; there can be less transparency”, she said.
https://www.ft.com/content/f9698096-5edc-4445-be77-d9dcfff31926
