KKR Agrees to Buy 25% Stake in Hedge Fund Nephila Capital

KKR & Co. agreed to buy a 24.9 percent stake in hedge fund Nephila Capital Ltd. as it expands beyond its main private-equity business. Financial terms weren’t disclosed.

Nephila, a Bermuda-based firm with $8 billion in assets that makes reinsurance-related investments, will continue to operate under its own name, New York-based KKR said yesterday in a statement. KKR will acquire its shares from Nephila’s management as well as a portion of the stake owned by Man Group Plc, the biggest publicly traded hedge-fund manager, according to the statement.

KKR, which is making the purchase through the firm and not its investment funds, has been expanding into hedge funds as a way to broaden its business beyond corporate buyouts. Last year, it bought Prisma Capital Partners LP, a hedge fund of funds, and in 2011 it hired Bob Howard from Goldman Sachs Group Inc. to run an in-house long-short stock fund. Together those two funds manage about $8.5 billion. Henry Kravis and George Roberts, two cousins who started KKR in 1976 with Jerome Kohlberg, also have branched into stock and bond underwriting, infrastructure investing and real estate.

“In backing Nephila, we are partnering with a team we have known for more than 15 years,” Kravis and Roberts, KKR co-chairmen and co-chief executive officers, said in the statement. “As the first dedicated manager of catastrophe-risk investment strategies, they share the entrepreneurial spirit that pervades KKR’s culture.”

Nephila was founded in 1998 by Frank Majors and Greg Hagood as part of Willis Ltd., a reinsurance broker that was then owned by KKR. Nephila, which spun out of Willis in 2003, invests mostly in insurance-linked securities, catastrophe bonds and weather derivatives.

Man Group

Man Group, which bought a 25 percent stake in Nephila in 2008, will retain 18.75 percent of the firm following the transaction. Nephila management will invest the proceeds of the sale back in its own funds.

Blackstone Group LP, the firm created in 1985 by Stephen Schwarzman and Peter G. Peterson, has expanded its similar unit, known as Blackstone Alternative Asset Management, which managed $46 billion as of September.

Nephila also said in the statement that it is closing its Juniper Catastrophe Fund and Triton Catastrophe Fund to new investments as a way to help ensure the funds reach their target returns of 10 percent to 15 percent. Its other strategies remain open.

The hedge fund is named after a species of spider, Nephila Clavipes, which according to Bermuda folklore is known for its ability to predict the weather.

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