Acquisitions by MGMT company vs acquisitions by funds
Hi Everybody,
KKR recently acquired a remaining stake in Global Atlantic. It seems to me that the acquisition was led by the management company and not one of their funds. I am curious to understand whether it is common for PE management companies to acquire other companies, especially in other business line? My sense is that this happens because of business expansion reasons (instead if starting a new line of business from scratch they just acquire a company in that sector). Should these kind of acquisitions concern LPs in any way? Given that the acquisitions are done by the management company using its own pocket money, I feel like LPs shouldn't be too concerned.
On a side note, for Pitchbook/Preqin users: is it possible to figure out whether there's information on management company-led acquisitions on these platforms?
Global Atlantic / KKR is analogous to Athene / Apollo - same thesis. Outside of strategic investments to build enterprise value, you’ll see firms making balance sheet investments when either 1) the underwritten return profile doesn’t clear the bar for their PE funds but is still viewed as a stable LT compounder (eg USI for KKR), or 2) the size/archetype/deal setup doesn’t cleanly fit the mandate for any of their funds. LPAC approval (whether formal or informal) is usually sought in both instances, though LPs often get frustrated in instances where balance sheet investments end up outperforming fund returns. Pitchbook has details on most of these deals.
Thank you for your reply, this is super helpful. I am curious about to whom do the returns of this type on investments accrue though. Given that KKR/Apollo used resources from the management company (not committed by LPs to a fund), then whatever cash flows these investments produce, goes straight into the pockets of GPs right? Also, these investments seem to be more of a permanent nature than the ones made through one of their funds (where at some point the protco will be sold because the GPs need to return the money to the LPs).
I took a look at KKR's profile on PB (ID is 10066-15, which should be the mgmt company) and when I look at the list of investments, I see a bunch of them, some of which I find hard to believe they regard the management company investing on its own. For example, they invested in United Malt Group, why would they invest in this kind of company, since it's far away from their business model? Is it just for the return from the eventual sale and not for business expansion purposes?
I'll add a touch of color here as Airpod didn't quite clarify - Insurance investments are helpful because you can move some of the investments that the insurance company is making into your own specially structured funds, e.g. instead of buying bonds/equities the money is used for a private credit fund that returns 20% better, so GP/Mgmt Co gets carry on that. In addition, an insurance company you own is a little bit less likely to become a particularly hostile LP so you have notably more stable capital there as well.
Regarding returns, they'll accrue to the mgmt co/'GP' in the case of a sale, but for these investments the focus is a bigger pool of easy capital that would then benefit the overall company shareholders (as KKR/BX/APO are all public).
Regarding your specific point on United Malt Group - looks like a pitchbook error, it's a KKR PortCo that bought it (see here for press release regarding 'KKR Managed Funds').
This is super insightful, thank you very much! Just one clarification, when you say "move some of the investments that the insurance company is making", do you mean making the newly acquired insurance company an LP for one of the GP's (the acquirer) funds? This is very interesting, but kind of confusing, as the GP effectively owns the LP so, in a way now investor (the LP) and the manager (the GP) coincide. Do you happen to know if this happens with other types of companies other then insurance (maybe family offices, asset managers or banks?)
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