Oregon Public Employees Retirement Fund, one of KKR's original investors, committed $500 million to the firm's latest pool, one-third the $1.5 billion it invested in a predecessor in 2006. The pension fund is "scaling back" its commitments to other private-equity companies as well in an effort reach target levels, Chief Investment Officer Ron Schmitz said in an e-mail.
For years, buyout firms didn't need much of a sales force because the founders acted as rainmakers. Now, New York-based Apollo is stepping up spending on a marketing team to round up new cash, Chief Financial Officer Eugene Donnelly said on a May 12 conference call.
When the firms do get new money, they're finding fewer opportunities to deploy it. Blackstone, which is raising a $15 billion fund, committed only $550 million in private equity during the first quarter, Schwarzman told investors in April.
'Diminished' Expectations
"The top managers aren't moving away from LBOs," said Ros Stephenson, co-head of corporate finance at Barclays Capital in New York. "The importance of their other businesses has been emphasized given what's happened. Expectations on fund sizes have diminished, and average LBO deals are smaller than pre- crisis. There isn't the capacity to support deals of $20 billion plus at the moment."
Private-equity managers are trying to boost returns by going where rivals can't because they lack the firepower, or by taking advantage of distressed sellers.
"In virtually all recent transactions, Blackstone has faced limited competition due to the magnitude of capital required and the complexity of the transactions," Schwarzman said during the April conference call.
Apollo, which raised $565 million in a March public offering, has been scouring European banks for "stranded assets," including $2 billion of non-performing commercial loans, Spilker told investors on May 12. Another $240 million is earmarked for "longevity-based assets," a bet on the value of life insurance policies Apollo is buying from banks.
Exit Plan
The firm began diversifying in 2003 with the creation of a capital-markets business that invests in high-yield bonds and loans. The division, which had $23.8 billion under management as of the end of the first quarter, now accounts for 34 percent of Apollo's total.
Selling stock to the public provides managers with a way of cashing out and passing the company on to the next generation. Some firms, such as New York-based Warburg Pincus LLC, shifted ownership and control without a public listing. The drawback is that executives who use this method wouldn't get compensated for the intangible value of the brand they created.
"Our founders had a very old-school way of thinking," said Joseph Landy, 49, co-president of Warburg Pincus, which has raised $30 billion in private-equity funds since 1971.
Public Investors