Private equity changing its business model

Some private equity funds are always ahead of the private equity pack. KKR is one to watch as they have been at it longer than most. With new money for private equity rapidly becoming rare, KKR is one of the first private equity funds to redo their business model. Here’s more

KKR continues in its efforts to diversify its business and find new ways to access capital. Over the last two years, KKR has started investing in global infrastructure, beefed up its distressed debt arm and is investing in companies in new ways, including partnering in joint ventures. Most recently, it made a $400 million debt investment in Eastman Kodak. It is also building a capital markets capability, enabling it to access investors directly, cutting out investment bank intermediaries. And it is exploring new deal structures, including allowing investors to put money into deals directly rather than via traditional funds.

KPE's share price has surged from its low of $1.93 earlier this year as markets have recovered, more than quadrupling to $9.43. That gives it a market cap of $1.9 billion, which suggests KKR as a whole is worth $6.3 billion. That, according to Rabo Securities, would be just 6.5 times 2009 estimated earnings. If you buy into KKR's diversification efforts, that could make the shares attractive: Rabo thinks a justifiable blended multiple that takes account of the mix of fees and earnings the new KKR can generate would be 9.6 times, valuing the group at $9.3 billion.