"City of London from Tate Modern 2018-01-31" by Colin via Wikimedia Commons. Licensed under CC BY-SA 4.0.

Introducing The Word on Wall Street

Welcome to the first article in a new column from the Global Affairs’ section, The Word on Wall Street. In this space, Alice Grant will be addressing the latest news in the world of global finance as well as reporting on events with high profile individuals in investment banking. Stay tuned for reflections and analysis of industry trends and international developments.

KKR in Europe: Strategy lessons from Johannes Huth 

Two weeks ago, in the glossy Fitzhugh auditorium of Exeter College, the Chairman of KKR’s European branch, Johannes Huth, shared with his keen audience the incredible story of growth and strategy undertaken by the KKR in the Europe, Middle East and Africa (EMEA) region. It emerged clearly that KKR’s modern status as a private equity giant is the product of a history of innovation and boldness. Huth additionally revealed his personal insights into the dramatic changes we’ve witnessed in the markets over the decades. 

Founded in 1976, Kohlberg Kravis Roberts & Co. is one of the largest global private equity firms, combining business with financial advisory and specialising on alternative asset classes. When American funds in the late 1990s were seeking to establish transactional counterparts in Europe, the bigger names – like KKR – were amongst the first to expand the industry to the continent. Huth revealed that his team, which was at first remarkably small, relied almost entirely on the brand name in order to initially develop.

KKR’s industry reputation certainly gave them a competitive advantage, however, Huth emphasised the importance of creating intelligent financial structures; a key component of their strategic growth. How does a firm stay competitive, when many advantages are arbitraged away as the markets change and an increasing number of firms adopt similar strategies? Under Huth’s direction, for example, KKR developed an internal consulting team to help advise on ideas for outperformance and to keep ahead of industry trends. What was once a unique innovation at the time has now become common industry practice.

KKR pioneered the transformation of private equity from a US-dominated sector to a global industry. However, a long-term advantage was needed: the key strategy here was diversification of assets. Huth mentioned that KKR had established interests in credit, real estate and infrastructure, and that the low interest rates of the past decade had resulted in high returns.

Amidst the turbulence of Covid, KKR made the bold decision to continue to invest in businesses despite the uncertain investment climate. This strategy relied on the global situation eventually improving; but also allowed many of the transactions to be executed at attractive discount prices. Covid due-diligence took on a very different look, with the firm sending in drones at one point to assess the physical infrastructure of potential investments.

Of clear strategic importance were the different exit strategies undertaken by the firm, and the importance of increasing operational efficiencies before a sale. Opportunistic timing is also significant; even amidst times of global crisis, financial buyers and industry operational buyers need availability of capital.

At the heart of KKR’s approach to investment, notably in the European region, is an entrepreneurial mindset which accommodates risk and responsibility. Above all, the firms’ client relationships are based on a mutual trust that can take years to formulate – that solid foundation is what ultimately makes the firm succeed where others have failed.