Me and Kravis: Sitting on a Stage

One of my jobs at yesterday’s Quebec City Conference was to interview Henry Kravis, following his keynote speech. Plenty friendly (to me), despite his fearsome reputation. Some takeaways:

* Kravis might make for a successful politician, at least in terms of the Sunday morning talk show circuit. Whereas some PE bigs provide short, snippy answers, Kravis speaks in chapters. Not intentional filibustering — I don’t think — but he wants to be thorough. Also able to hear a multi-part question and remember to answer each part (a skill many do not possess).

* I asked Kravis to justify the transaction fees, portfolio company monitiroing fees, etc. taken by PE firms like KKR, in line with what we’ve discussed here over the past few months. His response was to tick off a list of services KKR provides portfolio companies, including the number of staffers that each service requires (50 employees at KKR’s portfolio management group Capstone, for example).

Quick rebuttal: KKR’s management fees should be able to cover all of those service expenses. It has over $30 billion worth of active funds (I know, a bunch of that is already drawn down), and approximately 400 employees as of its S-1 filing in June 2007. If we assume that KKR is drawing 2% management fees on just half of its fund capital, the math works out to around $750,000 per employee (I know there are lots of other expenses — office space, benefits, travel, etc. — but I was low-balling the fund capital). And that does not, of course, include carry, which is what PE pros are supposed to make their fortunes on.

* I also asked about the trend toward regulating private equity, and if groups like the Private Equity Council need to expand their membership to get added clout. He replied that while groups like PEC can raise awareness and lobby for certain issues, PE firms themselves need to forge relationships with folks on Capitol Hill. For example, he noted how he spoke in private with several legislators about the RJR Nabisco deal, in order to help them understand private equity. In short: Lobbying is not a business that can always be outsourced.

* Shortest-ever KKR holdtime on a portfolio company was 14 months for Texas Genco, while the longest is 11 years (and counting) for Primedia…