Capital Group, KKR Partner to Launch Hybrid Funds for Wealthy Investors

Key Takeaway

• Capital Group and KKR partner to offer hybrid public-private investment funds, targeting wealthy individuals and expanding access to alternative investments.
• The first products will launch next year, blending 60% public bonds and 40% private credit to address liquidity concerns.
• Capital's extensive distribution network will help KKR reach more investors, enhancing market expansion for alternative investments.

Capital Group and KKR Partnership

Capital Group and KKR have announced a strategic partnership to offer hybrid public-private investment funds aimed at wealthy individuals. This collaboration seeks to broaden access to the fast-growing alternative investment sector, which includes private equity, credit, infrastructure, and real estate funds. Capital Group, the world’s largest active asset manager with $2.6 trillion in equity and bond funds, will leverage its extensive distribution network to reach a wider range of investors. KKR, known for its private credit offerings, will provide the investment expertise. The first products, blended public and private credit funds, are set to launch next year.

The partnership is seen as a strategic move to tap into the higher fee-paying alternative investment market, which has traditionally been accessible only to institutions and the super wealthy. "I expect to see continued acceleration of partnerships between private capital firms and traditional asset managers, as a more efficient and effective way to distribute retail alternatives for affluent investors," said Jonathan Godsall, head of the wealth and asset management practice at McKinsey.

Addressing Liquidity Concerns

One of the key challenges in the alternative investment sector is the liquidity of funds, which often hold harder-to-sell assets and offer only quarterly withdrawals. This has been a significant concern for retail investors who need easy access to their funds. For instance, Blackstone’s $60 billion Breit real estate funds limited withdrawals from late 2022 until early 2024, and a similar $10 billion fund managed by Starwood Capital is facing a liquidity crunch.

Capital and KKR aim to address these concerns by offering funds that blend public and private assets. The first products will consist of 60% public bonds and 40% private credit, which should make it easier to meet redemption requests. "Our focus was on maximizing client outcomes by having two best-in-class managers focus on what they each do best," said Capital chief executive Mike Gitlin. "It’s good for us and good for clients."

Market Expansion and Distribution

The partnership also aims to overcome the distribution challenges that have hampered the growth of alternative investments. KKR has been expanding its retail reach, having hired about 200 sales and distribution staff over the past five years. However, Capital’s distribution network is far larger, with more than 200,000 financial advisers holding at least one Capital fund for their clients. This extensive network will enable KKR to reach more potential investors without significantly increasing its headcount.

"We are pleased with the momentum and growth that we've seen in our private wealth business and believe these new hybrid solutions will be a strong complement to our existing platform," said Eric Mogelof, partner and head of Global Client Solutions at KKR. The partnership is expected to bring the benefits of alternative investments to a broader audience, including mass affluent investors who have historically lacked access to this asset class.

Street Views

• Jonathan Godsall, McKinsey (Cautiously Optimistic on partnerships between private capital firms and traditional asset managers):

  "I expect to see continued acceleration of partnerships between private capital firms and traditional asset managers, as a more efficient and effective way to distribute retail alternatives for affluent investors."

Management Quotes

• Mike Gitlin, CEO of Capital Group:

  "Often acquisition or build in the alternatives space can be about maximising commercial outcomes for the manager. Our focus was on maximising client outcomes by having two best-in-class managers focus on what they each do best. It’s good for us and good for clients."