KKR & Co. hired David Petraeus, the former director of the Central Intelligence Agency, to run a new unit for public policy, economic research and emerging-market due diligence at the private-equity firm.
KKR, led by billionaires Henry Kravis and George Roberts, will create an internal institute to study macroeconomic trends and government policies to assess their implications on the firm’s investments, the New York-based firm said today in a statement. Petraeus will be chairman of the division, called KKR Global Institute, and help the company evaluate investment opportunities in new markets.
“This is not just about the deals in terms of dollars and cents,” Petraeus said in a telephone interview. “It’s about investors who require more information and want a deeper understanding of the operations of the businesses, for example, and of how exactly their money is being put to work.”
Petraeus, 60, resigned from the CIA on Nov. 9 after a probe by the Federal Bureau of Investigation that uncovered evidence of an extramarital affair with Paula Broadwell, the author of a biography about the retired four-star general. Petraeus, who previously was the commander of U.S. military forces in Afghanistan and Iraq, will also start as a visiting professor at City University of New York on Aug. 1, the school said last month.
KKR said it’s responding in part to the increased role of central banks and heightened regulation following the financial crisis. Investment firms including BlackRock Inc., Cerberus Capital Management LP and Carlyle Group LP have recruited former high-ranking government officials for similar roles.
BlackRock, the world’s biggest money manager, earlier this year named Peter Fisher, former Treasury undersecretary for domestic finance, as the senior director of BlackRock Investment Institute. Fisher was previously head of fixed income at BlackRock.
Cerberus, the private-equity firm run by Stephen Feinberg, has employed former U.S. Vice President Dan Quayle since 1999 and former Treasury Secretary John Snow since 2006, according to its website. Carlyle, known for its ties with former government officials since its inception in 1987, has counted President George H.W. Bush and former U.K. Prime Minister John Major as previous advisers.
At KKR, Petraeus will work with a team and also collaborate with Henry McVey, global head of macro and asset allocation, and Ken Mehlman, global head of public affairs and the former chairman of the Republican National Committee, KKR said. McVey regularly publishes what the firm calls thought pieces, and the firm said it plans to make the institute an outlet for articles by portfolio managers and others affiliated with the company.
Mehlman, who said Petraeus will have work space in KKR’s Manhattan headquarters, declined to say how Petraeus will be compensated. The retired general may, for example, be asked to evaluate how a portfolio company’s footprint in a foreign country is perceived by its population, Mehlman said.
“To be the CIA director, you’re a student of the world,” Mehlman said in an interview. “Dave will help us ask questions that we didn’t think about before. You end up being better investors when you understand the world better.”
The retired general also brings his experience dealing with big corporations. Petraeus said when he was overseeing the U.S. strategy in Iraq, Prime Minister Nouri Al-Maliki asked him to call chief executive officers of “huge” U.S. companies to ask them to return to the country after the violence led them to leave. Petraeus called General Electric Co. CEO Jeffrey Immelt to personally urge him to revive the company’s power-generation plants in Iraq, he said. Both GE and Boeing Co. brought back some operations in the country.
Petraeus said he has closely followed trends in North America including what he called revolutions in the energy, manufacturing, life-sciences and information-technology industries. As CIA director, he urged the agency to study their implications for the continent and the global economy.
“My assessment has been that it will be the United States and the greater North American region that pulls the world economy out of the global slowdown,” Petraeus said.
KKR, founded in 1976 by Kravis, Roberts and their partner Jerome Kohlberg Jr., regularly employs former government officials to help the firm find, evaluate and streamline deals, typically as senior advisers. The firm has at least 25 such advisers, consisting of former chief executives or government insiders who in some cases also serve on the boards of KKR’s portfolio companies. Kohlberg left the firm in 1987.
The firm last year named former Morgan Stanley CEO John Mack as a senior adviser to help make KKR “smarter investors,” Kravis said at the time. Other KKR advisers include Honeywell International Inc. CEO David Cote, former Caterpillar Inc. CEO James Owens and Qantas Airways Ltd. Chairman Leigh Clifford.
Private-equity firms pool money from investors including pension plans and endowments with a mandate to buy companies within about five to six years, then sell them and return the funds with a profit after about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1.5 percent to 2 percent of committed funds and keep 20 percent of profit from investments.
The industry manages about $3 trillion of assets, according to research firm Preqin Ltd. KKR oversees $78 billion, investing in buyouts, energy, real estate and hedge funds.