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KKR to Buy Fund-of-Funds Manager Prisma Capital Partners

KKR & Co. (KKR), the private-equity firm run by Henry Kravis and George Roberts, agreed to buy Prisma Capital Partners LP, a fund-of-hedge-funds manager. Financial terms weren’t disclosed.

Prisma, which is based in New York and had $7.8 billion in assets under management as of April 30, will continue to operate under its own brand, KKR said in a statement today. Prisma Chief Executive Officer Girish Reddy will head KKR’s global hedge fund-of-funds business.

KKR and larger competitors Blackstone Group LP (BX) and Carlyle Group LP (CG) have grown or purchased fund-of-funds units to broaden beyond corporate leveraged buyouts. Kravis and Roberts, cousins who started New York-based KKR in 1976 with Jerome Kohlberg, also have branched into stock and bond underwriting, infrastructure investing and real estate.

“Many institutional investors are seeking more liquid alternative investment products, and we believe customized hedge-fund solutions play a key role in meeting that need,” Kravis said in today’s statement.

Reddy created Prisma in 2004 with fellow former Goldman Sachs Group Inc. (GS) partners Thomas Healey and Gavyn Davies. When the deal is closed, probably by the fourth quarter, Healey and Davies will become senior advisers to KKR. Prisma’s management will reinvest the cash proceeds of the sale into Prisma funds, according to the statement.

Goldman Alumni

Prisma will operate as part of KKR’s public markets segment that includes KKR Asset Management, which buys and sells securities such as leveraged loans and high-yield bonds and houses the firm’s first equity hedge fund, started last year by Robert Howard, a former Goldman Sachs trader.

Other Goldman Sachs alumni have landed at KKR. Ralph Rosenberg joined last year to run KKR’s new dedicated real estate effort. Suzanne Donohoe heads the firm’s client and partner group responsible for fundraising.

Donohoe’s team may be able to use Prisma’s products as a way to entice large institutional investors to invest more money through KKR, increasing the firm’s management fees. Blackstone, the firm created in 1985 by Stephen Schwarzman and Peter G. Peterson, has expanded its similar unit, known as Blackstone Alternative Asset Management, to manage more than $43 billion as of March.

The fund-of-funds business is consolidating as assets across the industry drop. Assets in funds-of-funds fell to $643 billion in the first quarter from a peak in 2007 of $798 billion, according to Hedge Fund Research Inc.

Man Group Plc, the world’s largest publicly traded hedge- fund company, agreed in May to buy FRM Holdings Ltd., adding $8 billion in assets to the London-based firm’s $11 billion.

To contact the reporter on this story: Jason Kelly in New York at jkelly14@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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