(Bloomberg) — Capital Group and KKR & Co. are accelerating their push to offer private assets to retail investors, unveiling plans for a fund that combines traditional US stocks with private equity.
The fund managed by Capital Group will invest as much as 40% of assets in private equity investments or funds overseen by KKR, Capital Group said Tuesday in a filing seeking approval from the US Securities and Exchange Commission.
Earlier this year, the firms launched two funds for wealthy clients investing in bonds and private credit, and they could eventually market the slate of strategies to 401(k)s and other retirement funds sitting on more than $12 trillion.
“There are fewer publicly available companies to invest in, which underscores the need to broaden access to private equity investments to round out an investor’s portfolio,” Holly Framsted, head of product group at Capital Group, said in an interview. “We believe there’s value in investor portfolios both on the public side and the private side, and that the marrying of the two together are a really powerful investment proposition for mainstream wealth clients.”
Capital Group would begin selling the fund to investors upon approval from the SEC, which could come in the first quarter of next year.
The asset manager, which oversees more than $3 trillion largely in actively managed stock and bond funds, aims to offer the new equity strategy to a wider client base than the institutional and high-net-worth investors who currently invest in private equity funds. The minimum allocation would be set at $1,000 for most share classes, and clients wouldn’t have to be accredited investors or qualified purchasers, a requirement for many of the private markets funds currently available to individuals.
Model Portfolios
The new private funds would be distributed to investment advisers and independent brokerage platforms, Framsted said. In the future, they could also be included in model portfolios that typically contain a wide range of public market ETFs and mutual funds.
The new Capital Group KKR US Equity+ fund would invest roughly 30% of assets in K-PEC, an existing KKR private equity fund sold to wealthy retail clients. No more than 10% would be in direct private equity co-investments alongside other KKR strategies. The rest of the assets, about 60%, would primarily be in medium and large US stocks.
The new product is structured as an interval fund allowing investors to redeem up to 5% of outstanding shares each quarter. Capital Group said the fund won’t use leverage to try to boost returns. The company, which has yet to disclose fees, will benchmark the fund’s performance against the S&P 500.
Framsted said the intent is to “continue our commitment to competitive fees.”
The private equity industry is struggling to sell assets and return cash to investors amid a slowdown in dealmaking driven by higher interest rates. The biggest firms have launched products aimed at individual investors to keep growing assets under management while some of their traditional clients, particularly US pensions, have reached the limit of what they can allocate to the asset class.
But KKR said it’s not experiencing the same challenges that have beset many of its peers.
“We are not having problems finding monetization opportunities for our clients,” said Eric Mogelof, KKR’s head of global client solutions. “We don’t have challenges putting capital to work.”
Blackstone, Apollo
Traditional managers of stocks and bonds have splashed out tens of billions of dollars collectively or struck up new partnerships, trying to not get left behind as alternative assets boom.
Blackstone Inc., Vanguard Group and Wellington Management have struck up their own effort, while Apollo Global Management Inc. and State Street Corp. have started products this year. BlackRock Inc., which spent about $28 billion on three deals to grow in private markets, is beginning to include private funds in its own model portfolios and in retirement funds.
Capital Group and KKR have amassed a total of $100 million in their two funds combining public bonds and private credit in the first three months since they were launched.
The companies, meanwhile, are exploring additional funds, including a potential strategy tied to KKR’s investment teams in infrastructure and real estate.
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