KKR Dislocation Fund Puts 78% of Capital in Private Assets
(Bloomberg) -- A KKR & Co. fund created to take advantage of credit-market dislocations during the pandemic is devoting most of its capital to private assets in order to find high returns amid record-low yields.
The $2.8 billion Dislocation Opportunities Fund, initially a vehicle for buying up the wave of beaten-down corporate bonds and leveraged loans, is currently 78% private market investments like loans and other types of debt, preferred equity and structured equity -- according to a person familiar with the matter.
Funds that target distressed investments have run low on options as monetary and fiscal easing keeps borrowing costs low for even the most troubled companies. They have instead turned to the more complex, creative or one-off deals that comprise the world of private credit --- where investments can include direct loans to smaller companies, or securitized products that aren’t syndicated.
For KKR, that included assets like rights to intellectual property-related revenue streams. Back in January, the firm bought into a deal for certain copyrights and royalties for songs of Ryan Tedder and his band OneRepublic. That was one of several such deals for the fund, said the person -- and part of a wider trend of asset managers finding attractive returns in music royalties.
The fund still tracks and invests in public markets, and is focused on staying agile to find the best returns in any scenario, said the person, who asked not to be named discussing fund strategy.
In a Thursday letter to investors seen by Bloomberg, KKR’s head of leveraged credit, Chris Sheldon, described how the landscape for distressed debt has changed in the past decade.
“The opportunity to find distressed-for-control or to buy good companies with bad balance sheets for pennies on the dollar is now more rare,” Sheldon said in the letter, which reflected on the second quarter of this year. “This is a new era of investing whereby we believe investors need to be even more hands-on, structurally creative, and proactive in managing their portfolios,” he said, adding that the “more flexible” investors can be, the better.
The fund returned 52% in 2020, according to a person familiar with its investments.
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