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Capital Group and KKR are combining forces to offer hybrid public-private investment funds to wealthy individuals, in a move that seeks to open up the fast growing alternative sector to a much wider range of investors.
The partnership links Los Angeles-based Capital, the world’s largest active asset manager with $2.6tn in equity and bond funds and a strong distribution network, with KKR, one of the best known private credit providers. Their first products, blended public and private credit funds, will launch next year.
The two firms say this is the start of a broader platform that will make alternatives — private equity, credit, infrastructure and real estate funds that have previously been sold almost exclusively to institutions and the super wealthy — available to a broader range of investors.
The move comes as traditional asset managers have been snapping up alternatives providers in an effort to move into the higher fee-paying area and counter outflows from actively managed public funds. Meanwhile, the biggest alternatives providers, including KKR and Blackstone, have been rolling out products aimed at wealthy individuals.
But growth has been hampered by a lack of distribution channels and some investors have concerns about the liquidity of alternative funds, which hold harder-to-sell assets and offer only quarterly withdrawals.
By striking a partnership with Capital, KKR is aiming to reach more potential investors without just adding headcount internally. After launching its K-series retail funds, the firm hired about 200 sales and distribution staff over the past five years, according to public filings. Capital’s distribution network is far larger — more than 200,000 financial advisers hold at least one Capital fund for their clients.
For Capital, the deal taps the growing alternatives market without having to build up investment expertise outside its traditional areas.
“I expect to see continued acceleration of partnerships between private capital firms and traditional asset managers, as a more efficient and effective way to distribute retail alternatives for affluent investors,” said Jonathan Godsall, who heads the wealth and asset management practice at McKinsey.
The hybrid Capital/KKR products also seek to address concerns that retail investors who need easy access to their funds are not well suited to products that invest in illiquid assets.
This has been particularly true in real estate. Blackstone’s $60bn Breit real estate funds limited withdrawals from late 2022 until early 2024, while a similar $10bn fund managed by Starwood Capital is facing a liquidity crunch, the FT reported earlier this month. Those challenges have not diminished optimism among private capital groups about the growth potential of the retail market.
Capital and KKR argue that their funds will offer the higher yields of alternatives while minimising the problem of assets that are hard to sell in a crisis. The first products will be 60 per cent public bonds and 40 per cent private credit, which should make it easier to meet redemption requests.
Capital chief executive Mike Gitlin said the group opted for a partnership rather than an acquisition because it believed the combination would lead to better products.
“Often acquisition or build in the alternatives space can be about maximising commercial outcomes for the manager. Our focus was on maximising client outcomes by having two best-in-class managers focus on what they each do best,” he said. “It’s good for us and good for clients.”
