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'Barbarian' buyout baron Henry Kravis is already having a very bad week

Jonathan Marino   

'Barbarian' buyout baron Henry Kravis is already having a very bad week
Stock Market3 min read

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REUTERS/Rick Wilking

Buyout baron Henry Kravis' private equity firm hasn't outpaced competitors post-crisis as it once did.

As early as Monday morning, and it was already been a long week for private equity firm KKR.

The day started with the bad news that US Foods' $3.5 billion deal to sell to food distributor Sysco was squashed.

KKR and another private equity firm had owned the company since 2007 and were expecting to complete their deal since 2013.

Later Monday morning the Securities and Exchange Commission announced that KKR would spend nearly $30 million to settle charges that the private equity firm inappropriately pushed expenses to limited partners that the firm itself should have paid.

But that's not the only headache for Henry Kravis. The private equity firm that bears his name was once the most feared LBO firm on Wall Street, especially in the "Barbarians at the Gate" days that had buyout barons like Kravis doing hostile deals left-and-right.

Here are a few of the struggles his firm has faced in recent years.

  • KKR's biggest LBO went bust and it was a huge loss for the firm. The 2006 fund that KKR used to dive into mega-deals like the since-bankrupt TXU has underperformed other investments the private equity firm has made.
  • KKR's biggest competitors are surpassing it in the most important metric on Wall Street. For years, Blackstone has been the biggest PE firm on Wall Street by assets under management (AUM). But Steve Schwarzman's investment firm has done something more important for his investors than just growing through its expanding real estate portfolio. Unlike KKR, Blackstone is successfully exiting the biggest investment it has ever made. Over the last five years, Blackstone's stock has appreciated at a rate more than double that of KKR.
  • KKR still hasn't gotten out of some very big buyouts. This includes First Data, a tech company KKR invested in at the height of the last buyout boom. The private equity firm re-invested in the company a year ago. This signals KKR isn't going to get out of that investment any time soon.
  • KKR's prior funds did much better than recent ones. The KKR fund that invested in TXU has a value multiple lower than most of the private equity firm's other flagship funds, according to pension data.
  • The private equity firm has offered some of its biggest investors very deep discounts to keep their business. However, this has been the case across much of the private equity industry. Investors are rebelling against long-held standards of "2 & 20." That represents the 2% management fees private equity firms charge and the 20% of profits to which they're typically entitled. But that's no longer an industry standard, especially for PE firms that have disappointed.

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