By Amy Or
NEW YORK--KKR & Co. L.P. (KKR) has expanded into the
fund-of-hedge-funds business by acquiring Prisma Capital Partners
LP, which managed $7.8 billion of assets as of April 1.
The deal, whose financial terms weren't disclosed, is expected
to close in the fourth quarter.
The Prisma acquisition is KKR's latest effort to expand beyond
its traditional private equity operations and build up its hedge
fund capabilities.
KKR brought on a team of former proprietary traders from Goldman
Sachs Group (GS) last year to run an equities hedge fund. The fund
started operating early this year.
KKR managed $62.3 billion in assets as of March 31, about
three-quarters of which were in private equity. The other quarter
was in public market investments, including liquid credit and
mezzanine funds.
"Many institutional investors are seeking more liquid
alternative investment products, and we believe customized hedge
fund solutions play a key role in meeting that need. This makes
Prisma a good fit for KKR and we're pleased to welcome the team,"
said Henry Kravis, KKR co-founder and co-chief executive, in a
statement.
But the private equity giant's focus on its hedge fund business
has lagged behind peer Blackstone Group (BX), which has already
gained much traction with its liquid alternative investment
franchise. Blackstone Alternative Asset Management, or BAAM,
managed $43 billion of assets as of March 31, a huge jump from
about a couple of billion in 2000 and almost double the
approximately $23 billion it had at the end of 2008.
Apart from a prominent asset allocator in hedge funds, BAAM is
also recognized in the industry as an active hedge fund seeder
which provides emerging-company managers with start-up funds.
Like its equity hedge fund team, KKR's latest acquisition target
was also founded by Goldman Sachs alumni. Founded in 2004 by former
Goldman Sachs partners Girish Reddy, Thomas Healey and Gavyn
Davies, Prisma is a fund of funds known for identifying specialist
hedge fund managers with exceptional track records and creating
custom portfolios for clients.
The firm was created when partners signed a joint venture with
AEGON USA Investment Management LLC, part of the global insurer
AEGON N.V. (AEG).
As of April 1, more than 90% of Prisma's $7.8 billion in assets
under management belong to institutional investors, including a
portion from AEGON. As part of the transaction, AEGON will sell its
minority stake in the firm but remains a significant investor in
Prisma's funds. All cash proceeds received by management at closing
will be reinvested in Prisma funds.
Prisma, which will continue to operate under its own brand, will
become part of KKR's Public Markets segment. Co-founder and Chief
Executive Mr. Reddy will run KKR's global hedge fund of funds
effort, working with KKR executives around the world to provide
broader investment solutions to clients, while co-founders Messrs.
Healey and Davies will become senior advisors to KKR.
-Write to Amy Or at amy.or@dowjones.com