KKR: Misunderstood, Venerable Asset Manager at Deep Discount

Naveen Jeereddi of Jeereddi Partners presented his in-depth investment thesis on KKR & CO. L.P. (NYSE: KKR) at Best Ideas 2018.

KKR is one of the largest and oldest alternative asset management firms with a strong forty-year history of value creation. KKR manages approximately $153 billion in assets with $88 billion in private markets and $66 billion in public securities. KKR is a substantial player in a growing oligopoly with comfortable incumbent profit margins and returns-on-capital dynamics. Industry assets have doubled over the last nine years while KKR has doubled its asset base in just five years. Average gross returns on capital over the forty years have averaged ~25% per annum. The company has roughly a $17 billion market cap and $12 billion of cash (and other net tangible assets on the balance sheet) with $45 billion of uncalled dry powder in fund structures. KKR has substantial permanent capital, and 80% of KKR’s assets are locked up for eight years or more with extremely high renewal rates. Due to subordinating governance structures, high insider ownership, complex accounting, business model confusion, and feared cyclicality, KKR trades at a low single-digit multiple of normalized earnings (assuming modest operating scenarios). KKR’s bargain share price values the growing investment business at an inexpensive multiple and provides the carried interest for free.

About the instructor:

Naveen Jeereddi is CEO and portfolio manager of Jeereddi Investments LP. He has approximately two decades of value-oriented experience financing, analyzing, and investing in public and private companies. Also, he has extensive portfolio and risk management experience. Naveen has served in value investment roles at Donaldson, Lufkin & Jenrette, Onex Corporation, The Baupost Group L.L.C., and Tala Investments LP. He currently serves on the boards of directors of Chandler Global PTE Ltd, XPRS Capital LLC, and iDream Media Inc. He earned an MBA with distinction from the Harvard Business School and a BBA with high distinction from the University of Michigan. Naveen lives in Los Angeles with his wife, Amy, and their four children.

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