KKR's Alisa Wood Talks Private Equity

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All right, now let's get to another check on the world of high finance. For that, we do head to Beverly Hills, the annual CASE Summit. It's an industry gathering hosted by CASE, which is an alternative investment platform for independent financial advisors. That's where we find Bloomberg co-host of Open Interest, Dani Burger. Dani, take it away.

Dani Burger (0:26)

Tim, Carol, thank you so much. I'm so pleased to say that joining me here at the CASE Conference is Alisa Wood, a partner at KKR. Alisa, great to see you.

Alisa Wood (0:34)

Thanks for having me. It's good to see you.

Dani Burger (0:36)

What a ride it's been for KKR this year. I was just looking back at your last earnings in Q2, $1.29 billion in asset sales, the most in the firm's 50-year history. You've said that it will be a record year. Has that held up? Are you still on track for a record this year?

Alisa Wood (0:52)

We've already broken through that record.

Dani Burger (0:53)

It is a record. So it is a record.

Alisa Wood (0:54)

We've achieved that. But you know what's really important in terms of achieving that exit is being very linear on the way out. Just like we're linear in how we invest, we're also very linear in how we exit our businesses. How we buy good companies, we make them great, we get in, we do our work. When we hit 80% of the value we create, we go sell them. We're not going to hold on to them forever. But you've got to buy companies that have multiple ways to win. Buying a company that only has one way out, you've got to take it public, or there's only one buyer, that doesn't work. But if you can buy businesses that can have lots of opportunities for exits, that's been really important to us. Over 70% of our exits have been through some type of sale. So we're not reliant and beholden just to the IPO markets, which has been key.

Dani Burger (1:38)

I had a conversation with someone who basically said, something along the lines of PE is broken because they're sitting on aging assets that have gotten too big, so their only option is to IPO. Do you think that that is a mistake that this industry has made, is letting things get too large and giving themselves only that one option?

Alisa Wood (1:55)

I do, but I also think it has to do with the type of business that you're dealing with. So when you think about the industries, the geographies, the types of companies that you're buying, you've got to make sure that they're nimble. You got to make sure that they're staying relevant to the times and you're not beholden just to that one theme doing one thing. So get in, do your work, get out. But I think we've had a bigger problem. We have a little bit of a pig in the python. And when we think about exits, you often don't think about how you got into those businesses.

I think there are 32,000 companies that are owned by private equity today, about $4 trillion.

But when you think about where a lot of that value was originally put in the ground, it was in 21 and in 22 We're probably over 50 percent of that deal flow was in software. Now, at that point in time, rates looked really different. You probably bought at peak valuations in a lot of cases, and you're trying to grow into those valuations. So it's not that you're just trying to hold on to them because the value is so great that you're maximizing it, but you're actually trying to grow into the value so you don't have to sell it at a loss. And I think that's part of the issue with what we see.

Dani Burger (3:01)

Is time enough to fix that problem, or does it come to a head at some point?

Alisa Wood (3:05)

I think it's going to come to a head, right? Because I think part of it is time, but part of it is those capital structures are going to have to mature, you're going to have to refinance, and you also need to go out and raise money again if you're a manager because you want to put money to work.

And you need to get your DPI, your distributions to pay the capital up. So I think you're going to get pressure from a lot of ends, and sitting on your hands and waiting is not going to be the strategy I think for the industry.

Dani Burger (3:30)