European Discretionary Spending Accelerating, Kravis Says

KKR & Co.’s Henry Kravis said corporate sales are growing faster in Europe than in the U.S. or Asia as consumers in the region accelerate spending.

“Revenues in European companies have grown faster than anywhere else in the world,” Kravis said today at The Year Ahead: 2014, a two-day conference sponsored by Bloomberg LP in Chicago. “We’re starting to see discretionary spending picking up in health care, beauty products, et cetera,” said Kravis, who spoke on a panel with George Roberts, his cousin and KKR co-founder.

The two KKR founders, whose New York-based firm oversees $90.2 billion in assets, said U.S. consumer confidence took a hit after the gridlock in Washington over raising the nation’s debt limit. Roberts said chief executive officers of companies that KKR has invested in are expecting a difficult holiday season as customers pull back on spending during Christmas. Those CEOs also expect new hiring to remain slow in 2014 as uncertainty in the economy persists, Roberts said.

“Our CEOs are really quite concerned about Christmas,” said Roberts. “Until they see a return to normality, we don’t see a lot of hiring.”

KKR’s assets include private equity, credit, hedge funds and other alternatives to stocks and bonds. The firm has been among the most active buyout firms in deploying capital into transactions this year, taking advantage of the low financing costs afforded by monetary easing, and it expects to have invested $6.5 billion of equity by year-end, Roberts said.

‘Stars’ Aligned

“The stars are lining up right now,” said Kravis, referring to the low-rate environment that allows buyout firms to obtain cheap financing. “But you have to be careful. This economy will not keep rising.”

KKR this month agreed to buy Brickman Group Ltd., a landscape-maintenance company, from Leonard Green & Partners LP for $1.6 billion, outbidding two other private-equity firms. KKR is set to finish raising its 11th North America buyout fund by the end of the year with more than $8.3 billion.

Kravis, 69, and Roberts, 70, are facing questions from investors about succession at KKR as its new North American pool begins deploying cash, starting a typical 10-year process of investing, managing companies, selling holdings and returning the money to clients. Kravis said he and Roberts have no reason to step back from their roles and plan to continue growing the firm they created with their former partner Jerome Kohlberg 37 years ago. Since the 2008 financial crisis, the firm formed a team dedicated to real estate investments and expanded its hedge fund and credit businesses with acquisitions.

“We feel like we’re in the second inning as far as KKR is concerned,” Kravis said.

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