Henry Kravis, co-founder of KKR, said on Monday that the pull-back in emerging markets had created opportunities for private equity investors.
Now is “a terrifically interesting time for us”, said Kravis during a media briefing in Hong Kong. “George Roberts and I have always believed you can make your best investments going against the tide” he said referring to his fellow co-founder of KKR.
KKR said earlier this year it had amassed a record $6 billion from investors for deals in Asia at a time when many of the region’s companies are struggling to secure capital. The fund, called Asian II Fund, is the firm’s third in the region, following its $4 billion regional fund in 2007 and its $1 billion China Growth Fund in 2010.
Emerging markets are experiencing a tumultuous time as investors readjust their growth expectations for China and India, and try to figure out the impact in Asia of the Federal Reserve’s tapering of asset purchases.
The result has been a dramatic decline in emerging market valuations, rising borrowing costs for companies and tougher access to capital. Growth markets such as China are trading at less than 10 times forward price/earnings ratios.
Kravis was sanguine about the impact of the recent market volatility on the region’s economies longer term and said it was all part of the countries becoming more mature.
Kravis said that, for long-term investors, market corrections will create buying opportunities and added that KKR’s average holding period of its investments has been 7.5 years for the last 37 years.
“This creates incredible opportunities to deploy capital in a dislocated environment, where valuations are at the lowest levels that we’ve seen in five to seven years in Asia.” said Joseph Bae, Kravis’s key man in Asia.
KKR has been building its team in Asia and now has seven offices with about 100 executives, up from about 25 executives four years ago. KKR is betting on long-term trends such as urbanisation across Asia, and it expects that the region’s middle class will grow in size five times over the next twenty years.
“This is a really exciting time to be sitting on $6 billion of dry powder,” said Bae.
