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Funds News

KKR's Roberts sees portfolio loss, IPO in works

* Expects first loss for portfolio since 1990-1991

* Still working on IPO, but no timeframe given

* Sees drought in PE lending for at least 12 months

(Adds details, background)

By Jeffrey Hodgson

HONG KONG (Reuters) - Kohlberg Kravis Roberts & Co [KKR.UL] co-founder George Roberts said on Thursday the firm will suffer the first annual loss on its portfolio since 1990-91 and sees little lending available for buyout deals for the next year.

But the private equity pioneer said his firm was still working on its initial public offering, though he declined to discuss when it would be brought to market. The firm this month delayed plans to go public until at least next year.

Asked if he could comment on the timing, Roberts told Reuters, “not really, other than the public statements we’ve made, which is we’re moving ahead with it.”

Roberts spoke to Reuters after giving a speech at a private equity industry dinner in Hong Kong in which he said the economic environment reminded him of the deep downturns of 1973-1975 and 1980-82.

He said the combination of an economic slump and financial crisis would hurt the value of its holdings, which include hospital group HCA, payment processor First Data and Energy Future Holdings Corp, formerly known as TXU Corp.

“There are going to be losses in portfolios. Until this year, we’ve only had one year where our portfolio was down and that was 1990-1991. And we’ll obviously report a loss this year,” he said.

BARBARIANS AT THE GATE

Roberts, along with his cousin Henry Kravis and their Bear Stearns boss Jerome Kohlberg started KKR in 1976, pioneering the leveraged buyout industry, now known as private equity. Kohlberg left in 1987.

Early deals for the firm include grocery retailer Safeway, mattress maker Sealy and tobacco and food group RJR Nabisco, a deal chronicled in the best seller “Barbarians at the Gate.”

The New York firm has hit a rough patch, as the credit crunch and ensuing global financial crisis hammered the private equity industry.

Roberts said the outlook was unlikely to improve anytime soon and that private equity firms would need to focus creating value in their portfolio companies by improving their operations.

“No longer can you sit by, use the capital markets, put some leverage on a company and hope to make a good return. Those days are over with,” he said.

“Over the next 12 months there’s not going to be really any credit to do much in the way of private equity, but there will be good investments.”

He said these could include smaller companies in the energy sector which have seen credit facilities curtailed by banks. Private equity firms could step in to provide them with additional capital.

Within Asia, Roberts said “the mother lode” of opportunities is in Japan, where authorities have traditionally resisted efforts by foreign private equity investors to buy up local companies and restructure their operations.

“It’s sort of like a kid at a candy store with his nose pressed up against the window. He sees all this wonderful candy inside but nobody lets him in. But we’re pretty persistent. We’re going to keep knocking at the door,” he said.

“There’s some wonderful world class companies. They all trade at half of what their international peers trade at.”

Roberts predicted that even with the current economic and financial market woes, private equity would outperform conventional investments over the long term. And he told a ballroom of private equity executives that they were lucky to be witnessing the current crisis.

“There are a lot of young people in this room. This is the best experience you could ever get. You will never forget this. It will be ingrained in your psyche. It will be ingrained in your judgement going forward. And this is a good thing,” he said.

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