Private equity major Kohlberg Kravis Roberts & Co Ltd has agreed to merge hedge fund unit KKR Prisma with Pacific Alternative Asset Management Company (PAAMCO) to create a firm that will offer clients alternative investment strategies through liquid instruments such as mutual funds.
KKR will hold a 39.9% stake in the new company, PAAMCO Prisma Holdings, while employees of PAAMCO and KKR Prisma will own 60.1%, the investment firms said in a statement.
The new firm will have over $30 billion in assets and operate independently of KKR. It will be jointly run by Jane Buchan, co-founder and CEO of PAAMCO, and Girish Reddy, co-founder of KKR Prisma and head of KKR Hedge Funds.
Founded in March 2000, PAAMCO is a private institutional investment firm with $24 billion of assets under management offering alternative investment solutions.
KKR Prisma operated as a different entity until 2014. It was founded in 2004 by former Goldman Sachs partners Girish Reddy, Thomas Healey and Gavyn Davies. The firm was acquired by KKR in 2012 and subsequently evolved into an asset manager.
At Goldman Sachs, Reddy was a partner and co-head of equity derivatives based in Europe. Prior to this, the IIT Madras alumnus was the chief investment officer of LOR Associates in Los Angeles.
PAAMCO Prisma Holdings would function with PAAMCO and KKR Prisma's core investment and client teams remaining unchanged.
Buchan said the new entity will provide added scale benefits, wider investment options and faster innovation to all investors. “As the alternatives industry continues to evolve, expanding our reach will further enhance our ability to innovate and to provide leading solutions to our clients,” he said.
Reddy said greater scale, flexibility and additional resources will enhance the new firm’s ability to generate strong investment performance and to build and service bespoke solutions for clients.
The statement said PAAMCO Prisma will be a strategic investment for KKR and will not be a portfolio company in a KKR fund. The transaction is likely to close in the second quarter of 2017.
KKR was advised by Simpson Thacher & Bartlett LLP and PAAMCO was advised by Moelis & Company LLC and K&L Gates LLP.
KKR Prisma, PAAMCO
KKR Prisma has about $10 billion of assets under management. It manages customised hedge fund portfolios and other products across the spectrum of liquid alternative investments.
PAAMCO has AUM of $24 billion. It is headquartered in Irvine, California and has presence across North and South America, Europe and Asia. It caters to public and private pension funds, sovereign wealth funds, foundations, endowments, insurance companies and financial institutions.
The firm focuses on early-stage opportunities and offers long-only active equity investing in emerging markets through its PAAMCO Miren division as well as active fixed-income solutions through PAAMCO Horizons.
As of 30 September 2016, KKR's hedge fund strategic partnerships had about $74 billion in assets under management. Of this, KKR's pro rata share would be about $24 billion.
Blackstone Alternative Asset Management is the largest discretionary investor in hedge funds with almost $71 billion in assets under management as of 31 December 2016.
KKR's India play
KKR has been an active investor in India through both its PE and credit portfolio businesses. Its first India credit fund in 2013 raised Rs 1,500 crore with co-investments from limited partners. The fund has been fully deployed. Last month, a media report said KKR marked the pre-close of its second India-focussed credit fund and that it aimed to make the final close in a few months’ time with a target of Rs 2,000 crore.
The PE firm has also dabbled in the non-banking finance sector in India to give a push to its credit business. In 2015, KKR bought a controlling stake in homegrown financial services firm Avendus Capital. The move enabled Avendus to scale up its wealth management and private equity services.
In 2016, Avendus hired the entire top management of Ambit's hedge fund to start a new business catering to hedge funds in the long-only and long-short category.
With the launch of the business, Avendus is targeting a portfolio size of $2 billion in the next five years and the new venture would function under the alternative asset management business.
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