KKR & Co. is poised to start a unit to invest in stocks with a cadre of proprietary traders from Goldman Sachs Group Inc., after new financial regulations spurred the investment bank to shed a team that made bets with the company’s capital.
KKR, founded by Henry Kravis and George Roberts, is close to hiring nine members of Goldman Sachs’s U.S. principal- strategies team, Kristi Huller, a spokeswoman for the New York- based buyout firm, said in an interview. Bob Howard, who heads that group, will join KKR as managing director.
“This is part of a strategic build-out of our asset- management platform,” Kravis and Roberts said today in an e- mailed statement.
The hirings mark KKR’s first venture into overseeing liquid equities, an area that may include hedge funds. The firm, along with larger competitor Blackstone Group LP, is pushing into businesses outside traditional private equity to boost fees and appease public shareholders eager for stable profit growth. KKR competed with investment bank Perella Weinberg Partner LP and hedge fund Avenue Capital Group, run by Marc Lasry, to hire the Goldman Sachs traders.
Goldman Sachs is disbanding the team to comply with new U.S. rules aimed at curbing risk. A provision of the Dodd-Frank financial-overhaul act prohibits banks from risking capital by betting for their own accounts.
Howard will report to William Sonneborn, head of KKR’s asset-management division, who is expanding the unit beyond its focus on credit investments. The group currently oversees about $13 billion, mostly in bank loans and mezzanine loans.
Howard’s group, which is scheduled to join KKR’s New York office in January, will not function as a proprietary-trading unit. KKR is scheduled to start raising money for the new strategy after it builds the necessary systems, according to a person with knowledge of the firm’s plans.
Huller declined to comment on fundraising plans.
“Our goal has been to add new capabilities and exceptional talent that allow us to strengthen our product offering and better service our clients,” Kravis and Roberts said about the new unit. “Bob and his team will be an ideal fit for that objective as we’ve been impressed with their investment experience and performance as well as their ability to manage risk.”
KKR rose 42 cents, or 3.7 percent, to $11.80 at 4 p.m. in New York Stock Exchange composite trading. Blackstone Group LP, the largest private equity firm, rose 2.8 percent to $13.75.
Citigroup analyst William Katz today raised his price estimate for KKR to $15 a share from $14, noting that investors may value the stock at a higher price-to-earnings multiple. Katz rates the shares ’’buy,’’ according to a note to clients.
David Viniar, Goldman Sachs’s chief financial officer, confirmed on a conference call earlier this week that the firm has closed the proprietary trading group.
“Over several decades, Principal Strategies has been a successful global investing business with a strong performance record and a culture of disciplined risk management,” Ed Canaday, a spokesman for New York-based Goldman Sachs, said in an e-mailed statement today. “We wish Bob and his team every success in their home.”
Morgan Stanley, the sixth-largest U.S. bank by assets, said yesterday it agreed to give up control of its FrontPoint Partners LLC hedge-fund unit to the fund’s managers. New York- based Morgan Stanley will maintain a minority stake in FrontPoint.
Blackstone’s credit and marketable alternatives business -- including the GSO Capital and fund of hedge-funds unit -- is its biggest by assets under management. The New York-based firm went public in June 2007 and has failed to reach its $31-a-share initial public offering price since then as profits from buyouts remain elusive.
KKR moved its listing to the U.S. this year after merging with its publicly traded European fund in 2009. That combination followed a failed attempt to sell shares in the U.S. in 2007.
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