NEW YORK (Reuters) - KKR & Co LP's
co-founders Henry Kravis and George Roberts have indicated they
intend to stay at the buyout firm for at least five more years, but
two men - Scott Nuttall and Joseph Bae - are emerging as
front-runners to eventually succeed them.
Interviews with more than half a dozen current and former KKR
executives reveal that the firm is likely to preserve the
co-chairman and co-chief executive jobs, currently held by Kravis
and Roberts. Nuttall, 41, head of the global capital and asset
management group, and Bae, 42, who leads the firm's operations in
Asia, are now seen within the buyout shop as the most likely people
to take those spots, the sources said.
Kravis and Roberts, both 70, have kept details of the succession
plan a secret even within the firm. The sources, who requested
anonymity, based their assessment on their observations of
interactions among senior KKR executives, including the founders,
and firsthand knowledge of the inner workings of the firm.
Their assessment provides the clearest indication yet of how
succession may play out at one of the world's oldest and largest
private equity firms. It is a question that has become increasingly
important within the private equity industry as many of these firms
have gone public and their larger-than-life founders have aged.
Nuttall and Bae are part of a wider list of potential candidates for
the job, the sources said.
The bench of possible successors includes Alexander Navab, 48, head
of KKR's Americas private equity business; Todd Fisher, 48, the
firm's chief administrative officer; Marc Lipschultz, 45, global
head of energy and infrastructure investments; and Johannes Huth,
54, who heads KKR's operations in Europe, the Middle East and
Africa, the sources said.
Kristi Huller, a spokeswoman for KKR, declined to comment on behalf
of individual KKR partners. "Henry and George are very proud that
the firm they have built has such a deep bench of leaders," she
said.
Kravis and Roberts made more than $160 million each in 2013 and
Forbes pegs the net worth of each at more than $5 billion. However,
most of their earnings are due to their collective ownership of
close to a quarter of the firm.
The succession race is far from over. Kravis and Roberts remain
actively involved in the management of the firm.
Last month, Roberts told an investment management committee meeting
of the Teacher Retirement System of Texas that having two co-leaders
had worked "pretty well" for KKR. He told the KKR investor that he
and Kravis were thinking of a transition where they would put new
leaders in place but stay on as chairmen for a while.
"What we have told the firm is we are going to be here, God willing,
for at least another five years, so don't push us out the door just
yet," Roberts said. He added that such a time period of five years
could be renewed.
SENSE OF CONTINUITY
Kravis and Roberts, who are cousins, pioneered leveraged buyouts
through the eponymous firm they created in 1976 alongside Jerome
Kohlberg Jr with $120,000. Kohlberg, 89, left KKR in 1987.
By attracting money from some of the world's largest institutional
investors such as pension plans and sovereign wealth funds, the firm
grew from a single $30 million fund in 1978 to more than $100
billion in assets under management currently. It raised more than
$20 billion from its fund investors just in the last 12 months to
the end of March. The firm employs more than 1,100 people in 15
countries.
"Henry and George provide a sense of continuity and stability to
KKR's fund investors and remain very active in the investment
process," said David Fann, chief executive officer of TorreyCove
Capital Partners LLC, a private equity advisory firm. "They still
source deals and can be very persuasive with CEOs and boards of
directors."
Unlike publicly listed peers such as Blackstone Group LP <BX.N>,
Carlyle Group LP <CG.O> and Apollo Global Management LLC <APO.N>,
KKR has never named a president or someone with an equivalent title,
a job that could serve as a stepping stone to leading the entire
firm.
This is partly because of Kravis' and Roberts' concerns about
alienating other members of their senior leadership team, the
sources said.
Kravis and Roberts also like the flexibility that comes with not
having to commit to successors, the sources said. This allows them
to easily modify their plans based on the potential candidates'
future successes and failures.
COLLEGIALITY AND LOYALTY
KKR is one of the more tightly knit firms in the private equity
industry. Both Kravis and Roberts speak often about the importance
of preserving KKR's culture and values, shaped by collegiality,
old-school Wall Street loyalty and valuing long-timers in the firm
more.
"Your word is your bond. If you say something to someone, you're
speaking on behalf of KKR. Whether you've been here six weeks or
you've been here 30 years, it's your obligation to stand behind what
you say," Kravis said in a promotional video in 2012.
He rejected the 'eat-what-you-kill' culture seen in many investment
firms in the video. "We didn't want people running around here and
saying, 'That's my idea', and raising their hand, patting themselves
on the back and so forth," Kravis said.
The perception within KKR that Nuttall and Bae are currently
frontrunners is closely linked to that culture as well as Kravis'
and Roberts' business priorities.
Bae has proven he can renew and grow KKR's franchise of buying and
selling companies, while Nuttall has emerged as a strategist who can
launch and expand related businesses such as credit and special
situations, as well as represent the firm to investors.
KKR insiders who know Nuttall and Bae said their relationship is
close and friendly, a key consideration in any decision to appoint
them as co-CEOs. Bae also has a loyal following among people who
have worked with him, praised both for his management style and his
ability to socialize with and motivate staff, the sources said.
GROWING UP AT KKR
Nuttall and Bae joined KKR in 1996. Nuttall had previously spent
less than two years at Blackstone, while Bae had a similarly short
stint at Goldman Sachs Group Inc's principal investments group.
Nuttall rose to head of KKR's financial services investment team and
also became involved early on with the firm's diversification into
debt investments, which started in 2004. He now oversees KKR's
credit investment, capital markets and fundraising activities.
Nuttall also played a key role in taking KKR public, a process that
involved merging the firm with an Amsterdam-listed fund in 2009 and
then moving the listing to New York in 2010. He now leads KKR's
earnings calls with investors.
Bae was sent to Hong Kong in 2005 at the age of 33 to kick-start the
firm's business in Asia, a diverse and fast-growing region whose
capital markets are, for the most part, less developed, and in which
several private equity firms accustomed to Western-style leveraged
buyouts have struggled.
The Korean-American dealmaker's team launched its first Asian
private equity fund in 2007, raising $4 billion from investors. Its
success led to KKR raising a successor fund last year that amassed
$6 billion, making it the largest private equity fund dedicated to
Asia.
THE BENCH
Bae's front-runner status leaves KKR's two other regional private
equity heads, Navab and Huth, trailing in succession odds in the
eyes of many of their peers.
Navab, who heads KKR's biggest and longest-running business, had
been previously perceived among the front-runners.
Navab has been seeking to diversify KKR's more mature private equity
business in North America by expanding in Latin America. He led the
creation of KKR's Sao Paulo office and the firm announced its first
private equity investment in Brazil earlier this year.
Nevertheless, Latin America offers fewer investment opportunities at
this stage of the economic cycle than some Asian counties for which
Bae is responsible, the sources said.
Navab was co-head of the Americas private equity business between
2008 and last May, at which point the other co-head, Michael
Michelson, gave up that title to return to investing. This allows
Navab to assume more ownership of his group.
Some KKR investors raised concerns last year over Navab's heart
arrhythmia, but insiders said that he has treated this condition
effectively and is healthy.
Fisher is seen inside KKR as an effective operator who knows the ins
and outs of the firm and is credited with setting up its real estate
business.
Lipschultz, KKR's global head of energy and infrastructure
investments, has managed to defy the negative headlines on the
bankruptcy of Energy Future Holdings, a Texas power utility that KKR
and other private equity investors acquired in 2007 for $48 billion.
He has emerged as a potential candidate thanks to the assets in
energy and infrastructure he has amassed for the firm since.
(Reporting by Greg Roumeliotis in New York; Editing by Paritosh
Bansal, John Pickering and Lisa Shumaker)
Interviews with more than half a dozen current and former KKR
executives reveal that the firm is likely to preserve the
co-chairman and co-chief executive jobs, currently held by Kravis
and Roberts. Nuttall, 41, head of the global capital and asset
management group, and Bae, 42, who leads the firm's operations in
Asia, are now seen within the buyout shop as the most likely people
to take those spots, the sources said.
