Who knew that Henry Kravis’s Kohlberg, Kravis, Roberts & Co., the private equity giant, had a hedge fund? After discreetly running one for several years, the firm has just as quietly been winding it down. KKR’s sole hedge fund credit strategy was run out of its San Francisco office.
Assets in KKR Strategic Capital Fund, which peaked at about $1.35 billion at the end of 2007, had fallen to just over $400 million a year later, according to a filing with the Securities and Exchange Commission. Like many hedge funds, KKR’s credit vehicle got crushed last year, leading the firm to suspend redemptions while it negotiates additional liquidation agreements and potential investment options with investors.
Despite its wind down, the fund has done well in 2009. Performance is up 60%, and assets have climbed to $720 million, so investors may see a good chunk of their capital returned.
Investors are expected to be offered four options as part of the deal. Those that need the cash immediately can ask for full liquidation, while others can opt for partial liquidation. Investors can also choose to wait for the investments to come to maturity before selling them off and others can continue to invest via separately managed accounts.
KKR Strategic Capital invested primarily in corporate credits, exploiting opportunities related to KKR deal flow as well as stressed and distressed opportunities. The vehicle ran with concentrated positions in some 15 target asset classes.
Whether KKR will launch another hedge fund is uncertain, especially in today’s difficult capital-raising environment. The fund being closed was somewhat of an anomaly at an organization more known for its private equity heft.
KKR Asset Management has also had some turbulent times of late. Shares in its publicly traded specialty finance entity KKR Financial Holdings, which invests in such assets as corporate loans, high yield corporate bonds and distressed debt securities, fell to less than a dollar over the past year, down from its initial $24 a share listing on the New York Stock Exchange in June 2005.
--Katrina Dean Allen
