KKR at BAML Conference Notes

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KKR’s (KKR) Management Presents at BAML Conference
Scott Nuttall – Head, Global Capital & Asset Management

We like having extra capital at this late point in the cycle

“We actually get quite excited because we have lots of capital. So when things get cheaper we have the ability to stuck into the void. And so we really like the change in the capital management policy at this point of cycle where relatively late in the cycle and we think we now have an ability to move even quickly into those voids which as we think over the next several years will allow us to create even bigger outcomes for all of us as shareholders.”

Deals are starting to get pulled, not in larger transactions, but it could happen if volatility continues

“And so we are seeing some deals, some newer transaction deals get pulled. And that’s going to start to change behaviors over time. We haven’t seen impact here in terms of underwriting yet on newer, larger or private equity transactions. Although if the volatility we’ve been seeing last several days continues, I think that may happen, but we are not there yet.”

It is impacting behaviors at the small and middle end of the market

“Where we are seeing it impact behaviors is at the smaller and middle size end of the market so the mid market. Deals are getting to be more expensive. The flex terms in financings have gone up significantly. And our pipeline in private credit so mezzanine, direct lending, and special situations opportunity are up significant as a result of some of the dislocation we’re starting to see.”

Liquid credit markets are seeing interesting dynamics currently. There’s a significant reduction in liquidity

“What was become interesting more recently is what’s happening within the liquid part of the leverage credit markets. So the bank loan, leverage loan market the high yield market where we think there is several dynamics happening at once that really are quite a bit different then what we see in prior cycles. The first thing I’d point to is a significant reduction in liquidity. Okay, so what happened post crises is that dealer inventories in those markets are down somewhere between 80% and 90%, so it means the banks aren’t actually holding inventory in those names. So if you see a screen price, it doesn’t necessarily mean that that’s achievable on any volume whatsoever and that is creating quite a bit of interesting tension in the markets. So if anybody has to sell, there is a very interesting buying opportunity if you have cash because there is not a lot on the other side of that. And that’s a new dynamic. We didn’t – have not had that until this more recent period and that’s something that we’re keeping a very close eye on.”

It’s very week to week

“So there is some weeks where you can get a deal done and literally the next week you might not be able to at all and we’re having one of those weeks right now. And so it’s very week to week, so that’s also a new dynamic.”