KKR pulls two funds in retail investor pitch setback

NEW YORK Mon Feb 10, 2014 8:22pm EST

NEW YORK Feb 10 (Reuters) - KKR & Co LP disclosed on Monday it would liquidate two funds targeting individual investors, in a blow to the private equity firm's efforts to widen its appeal beyond institutional investors such as pension funds and insurance firms.

Developing offerings for retail investors has historically been challenging for KKR and other private equity firms, such as Blackstone Group LP and Carlyle Group LP, because the average buyout fund is illiquid, with a typical life span of 10 years.

But as these firms diversified into relatively more liquid alternative assets such as credit and hedge funds, they have embarked on a race to develop and market products for mutual fund investors hungry for yield.

"We are adjusting our product mix and packaging on the Schwab platform and we have a number of other offerings for individual investors, including private equity, under development for launch this year," KKR said in a statement on Monday.

In two separate regulatory filings with the U.S. Securities and Exchange Commission, KKR said it would liquidate its KKR Alternative Corporate Opportunities Fund (ACOF) and its KKR Alternative High Yield Fund, without citing any reason.

ACOF is a closed-end fund focused on "special events" around the globe, such as Europe's debt crisis and distressed companies. A person briefed on the matter, who was not authorized to speak about the matter publicly, said the fund would close because it had a "design" flaw.

ACOF lacked the daily liquidity most mutual fund investors expect and its onerous application process hampered its distribution, the source explained.

The KKR high-yield mutual fund, which invests in a mix of high-yield bonds, notes, debentures, convertible securities and preferred stock, was not differentiated enough to succeed among other competing products that offer daily liquidity to investors, the source added.

KKR Income Opportunities Fund, KKR's first listed closed-end fund, which also invests in debt and launched last July, remains open. The firm also has a business development company called Corporate Capital Trust together with CNL Financial Group. The assets of these two products total $2.6 billion.

KKR noted in its statement that it had raised $4.7 billion from individual investors in 2013, up from just $1.8 billion in comparable capital in 2012.