KKR sees ‘trillions’ of retail investor dollars moving to alts

'Mass affluent individual investors historically have not had an easy way to access these types of products and strategies,' senior KKR executive says.

KKR & Co. Inc., a leading private equity investor and manager of institutional assets that’s also focusing intently on wealthy individuals and retail investors, said Tuesday that it has recently raised close to $500 million per month from such investors, in large part due to a new series of fund offerings.

“Those are good numbers,” said a senior industry executive who spoke privately to InvestmentNews. “The analysts covering KKR are focused on retail sales because that’s often permanent capital.”

Large institutional asset managers like KKR and Blackstone Inc. are fervently pursuing the business of retail financial advisors in the hope of making alternative investments, once a destination only for wealthy families and institutions like university endowments, palatable to mom-and-pop investors.

But alternative investments come with high risks and high fees. For example, last year KKR launched a new fund group targeted to individuals and marketed as its K-Series. One such fund, the KKR Private Markets Equity Fund, or K-Prime, charges 1% of net asset value for five years, bumping up to 1.25% after that, according to its website.

The fund also has an incentive fee of 15% after the manager hits a 5% hurdle. That compares with mainstream exchange-traded funds tracking various stock indexes that are often sold as “zero fee” ETFs.

Alternative asset managers often claim their expertise and performance is worth the price. And according to KKR, it would only take a slight shift in mainstream financial advisors’ allocation of assets in alternative investments like real estate or private equity, from the low single digits of a client’s portfolio to the mid-single digits, to tap into vast amounts of investor capital.

“We’re in the early days, but we feel really good about the progress” regarding sales to mass affluent investors, or those with at least $500,000 to $1 million in assets, Craig Larson, partner and head of investor relations at KKR, said during a conference call with analysts on Tuesday to discuss fourth-quarter earnings. “As we look at some of the underlying statistics, that’s particularly true as it relates to infrastructure and private equity, which are newer asset classes for more mass affluent investors. As we’ve mentioned historically, we’re raising about $500 million a month as we look at the K-Series suite.”

“Mass affluent individual investors historically have not had an easy way to access these types of products and strategies,” Larson said. “And so over the coming years, if we’re correct and you start to see allocations go from the low single digits to the mid-single digits, that literally is trillions of dollars that have the potential to move to alternative products.

“And when we think of how we’re positioned, given our brand, our track record, the investments that we’ve made in distribution and marketing, our ability to product-innovate, we feel really well positioned to be a winner in the space over the long term,” he added.