Friday, September 12, 2008

KKR's Product

"Does Kohlberg Kravis Roberts & Co. represent Wall Street at its best? Or at it worst? ... Fourteen times throughout its SEC filing, KKR mentions plans to align its interests with potential shareholders. It gleefully contrasts itself to rival Blackstone Group, stressing how its partners won't be cashing out in the ostentatious style of Blackstone's founders. ... Then there's the KKR that the firm would prefer you forget: That it already has two publicly traded investment vehicles. They've both performed miserably and have needed restructuring. ... Outside investors have put $2.4 billion into KFN since 2004. Its market cap is now just over half that. ... Perhaps one reason for that discount [26.2%] is investors' continued worries about KFN's fee structure, which looks like a remnant of a bygone era. For example, KFN investors pay a 1.75% management fee based on the size of KFN's equity", Dennis Berman (DB) at the WSJ, 2 September 2008.

Let's see if DB's KFN discount conjecture makes sense. Discounting KFN's 1.75% at say 8.5% yields 20.6%. The 26.2% discount may be reasonable, if the market thinks KFN's assets are overvalued and its managment worthless. See my 12 December 2007 post about dual-fund pricing.

No comments: