KKR & Co. is making a portion of one of its private-equity funds available on the public blockchain, in the latest bid to expand individual investors’ access to private investment vehicles.
The buyout firm is partnering with digital asset specialist Securitize, which will tokenize an interest in the second iteration of KKR’s Health Care Strategic Growth Fund and make it available on the Avalanche public blockchain, executives from both companies said.
Eligible buyers — typically those with at least $5 million in investable assets — who create a digital wallet and register with Securitize will be able to invest in the KKR fund via what will effectively be a tokenized feeder fund. After one year of holding the security, investors will be able to sell it to other qualified persons in a secondary market managed by an entity of Securitize.
Blockchain is a data structure that makes it possible to create a digital ledger of transactions and share it between a distributed network of computers. Executives said the move by KKR will be the first time a major private equity firm has made part of a fund available on the blockchain in the US
As they look for new sources of assets to manage, the biggest private equity firms have been aggressively courting high-net-worth individuals. They have done this both by creating products designed for everyday millionaires and by finding new ways for them to pool their money to invest in funds previously reserved for institutions and the ultra-rich.
KKR managed about $70 billion in private assets at the end of the second quarter, out of a total of $491 billion. It said last November that it expects 30% to 50% of annual fundraising to eventually come from wealthy individuals, up from 10% to 20% at the time.
A tokenized fund will allow individuals to invest smaller amounts than required by institutions and provide a smoother process to monitor transactions and vet investors through Securtize’s digitized onboarding process, as well as greater potential for liquidity, said Dan Parant, co-head of US private wealth at KKR.
“There are just so many barriers that have made private markets difficult to access for individual investors,” he said.
Mr Parant said KKR had been exploring blockchain technology for some time but was waiting for it to mature. The firm decided to try it with the healthcare growth fund, which backs fast-growing healthcare companies in North America and Europe, because there had been significant interest from individual investors in the strategy, he said.
KKR completed the raising of its second Health Care Strategic Growth Fund, a $4 billion vehicle, in January. The fund’s predecessor was a $1.45 billion pool that closed in 2017.
Founded in 2017, Securitize spent years obtaining the necessary regulatory licenses to allow private businesses to raise capital using decentralized blockchain ledgers. The company owns several transfer agents and a broker-dealer that is registered with the Securities and Exchange Commission and has an entity that is a registered investment adviser.
In April, beauty company Oddity Tech Ltd. said that it would offer a token that converts to a share of stock in an eventual IPO at a 20% discount. The offer was issued through Securitize.
The arrangement with KKR opens up a possible new frontier for the company.
“When there’s something new, nobody wants to be the first,” said Securitize CEO Carlos Domingo. “KKR has so far been the most innovative in making the decision to do this and we hope that many other asset managers will take note.”
From DJN
