KKR Letter Extracts

With fundraising hard and sliding stockmarkets hurting the value of private equity firms’ portfolio values, firms are increasing their efforts to talk to investors. A recent KKR letter addressed to its LPs (dated Feb 6) details that it will be communicating more in the coming year.  Some extracts below:

“2009 will be a time of testing. Every industry, in every geography, is being tested by this extraordinary global economy. How we respond to these challenges will, in large measure, determine our future success. This letter outlines the efforts we have undertaken to make sure we are well positioned to continue our history of successful investing, regardless of what comes our way. We believe our success in 2009 will be defined by:

  • Communicating more with each of you so you understand what we are seeing, how we are looking at the world and what is happening in our portfolios;
  • Expanding our relationships with each of you so we can help you think through the current environment and provide whatever assistance we can;
  • Having an unrelenting focus on all of our private equity portfolio companies to ensure they are equipped to deal with the economic environment;
  • Identifying attractive investment opportunities in a world that is capital constrained and uncertain;
  • Developing direct relationships with capital providers to assist our portfolio
    companies and to facilitate new transactions as most traditional providers are no longer lending or investing;
  • Building new businesses selectively where KKR can bring a unique perspective and capability, leveraging our core strengths: deep industry expertise, active approach to value creation and our global one-Firm culture; and
  • Ensuring that we have best-in-class processes applied consistently and globally.”

The letter continues to say that KKR has re-aligned its private equity operations globally, and that it recognizes that “private equity opportunities are increasingly coming from Asia.”

It says that KKR is looking at finding direct sources of capital:

“We believe the current environment provides us with new opportunities – new opportunities to build relationships with all of you, new opportunities to find direct sources of capital and new opportunities to build businesses that are synergistic with our private equity and infrastructure efforts.”

It continues:

“Our Capital Markets efforts have been focused since inception on two things: providing direct product to KKR investors and relationships and helping KKR portfolio companies access capital. The changes in the global capital markets and the refusal of most financial institutions to lend and invest have made this function much more important.

Mezzanine is a logical extension of our fixed income and private equity businesses. Interest in mezzanine products has grown considerably given the favorable position of mezzanine in the capital structure and the historically attractive risk reward characteristics of the asset class. Given the constrained credit environment and deleveraging in the senior part of the capital structure, we think that mezzanine will be an increasingly important source of financing for companies in coming years. The mezzanine part of the capital structure is highly complementary to our current capabilities in equity, senior loans and high yield.”

The letter concludes:

“Organizations, like people, show their true colors when times are tough, and we believe that our strongest partnerships will be cemented during this market environment. Our desire is to be as transparent, helpful and responsive as we can be to all of our partners and so, in that spirit, we will continue to keep you apprised of the developments at KKR. We hope you too will share with us key developments in your organization and how we may be of service to you.

Thank you for your continued support and partnership.

Henry, George on behalf of all of KKR”

 This post first appeared at Reuters DealZone