This article is authored by MOI Global instructor Rodrigo Lopez Buenrostro of Kue Capital. Rodrigo is an instructor at Best Ideas 2018, the online conference featuring more than one hundred expert instructors from the MOI Global community.
“Protect the downside, and the upside will take care of itself.” –Howard Marks
It’s hard to get things for free. No such thing as a free lunch is a cliché among economists and a widespread truth in the stock market, However, once in a while Mr. Market offers great businesses at prices that don’t make sense. These companies tend to be forgotten at the bottom of the Bloomberg screen because they are not in tech or do not belong to an index or simply because owning them is a fiscal hassle. Furthermore, financial analysts tend to focus too much on earnings, which generally contain a lot of noise, while the balance sheet is saved for later.
KKR & Co. is an example of one such company. KKR is one of the most successful private equity firms on the planet and is most famed for Barbarians at the Gate. It turns out managing money for external clients and investing it alongside yours in alternative, long term compounding vehicles is a great business. Today, KKR manages $153 billion, mostly from large pension funds and endowments. Its market cap stands at $17 billion of which 40% is owned by management. KKR makes money essentially from a recurring revenue stream of management fees, a volatile yet profitable incentive income, and income from the GP investments.
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