The speaker candidly discusses a $500 million loss in Turkey due to an unpredictable 'flexible concept' of rule of law. This and other failures in emerging markets led to a firm-wide strategic decision to avoid taking on political and currency risks, focusing instead on more stable Western markets.
A key driver for future growth is the expansion of private equity beyond its traditional institutional LP base. The speaker identifies a $192 trillion pool of individual and high-net-worth savings, of which only 1% is currently in alternatives, as the next frontier for capital raising.
The firm's philosophy involves leaning in during periods of market fear and uncertainty. This was demonstrated by deploying 40% of its current $8 billion European fund during the COVID-19 pandemic and making a key investment in BMG during the 2009 financial crisis.
Europe faces a critical need for an estimated €750-800 billion in annual investment to remain competitive in key sectors like AI, defense, and technology. While this presents a major opportunity for private capital, there's concern that over-regulation, like the EU AI Act, could stifle necessary innovation.
The traditional 10-year fund model is being supplemented by more permanent capital vehicles. KKR and its peers are acquiring insurance companies to leverage their long-term capital float, a strategy pioneered by Warren Buffett, to fund investments without the constant pressure of fundraising cycles.
Keep pulling the thread on Philipp Freise.