'Vulture Capitalism' Goes Retail

July 20, 2012 1:24 PM EDT
Private equity firm KKR (NYSE: KKR), an investment firm specializing in leveraged buyouts, will be targeting retail investors with two new mutual funds. According to reports, KKR's new funds will include an Alternative High Yield Fund that invests in junk bonds and corporate securities. The second mutual fund, KKR Alternative Corporate Opportunity Fund, will invest in "special" opportunities such as distressed debt in Europe and Asia.

KKR isn't the only private equity firm targeting retail investors. Recently the Blackstone Group (NYSE: BX) raised capital for a real estate fund, and Apollo Global Management operates a closed-end fund called the Apollo Senior Floating Rate Fund.

Throughout the 2012 presidential election campaign, private equity has been a hot-button topic. It is no secret republican nominee Mitt Romney made his fortune working for private equity firm, Bain Capital. Because of this, supporters of Obama claim Romney is unfit to be president. They accuse Bain of slashing U.S. jobs and outsourcing them abroad for the sake of profits.

Private equity also faces criticism from the other side of the aisle. While seeking the republican nomination, Romney came under fire from his own party when some called his former occupation "vulture capitalist."

In a recent "Delivering Alpha" industry conference, KKR CEO, Henry Kravis, commented on public opinion of private equity and Mitt Romney.

"I'm not sure [Romney] needs to be defending private equity per se," noted the billionaire investor. "Because he comes from Bain and the private equity world he will get a lot of arrows shot at him."

Kravis also took time to defend the industry as a whole. "In the '70s and '80s, what private equity did is it changed corporate America. It started holding companies accountable and for the first time owners started thinking like managers."

Kravis has an estimated net worth of $4 billion and is ranked by Forbes as the 88th richest man in America and the 281st richest man in the world. In 1988, Kravis helped orchestrate a leveraged buyout of RJR Nabisco, which was documented in the book "Barbarians at the Gate." Recently, Kravis and other billionaires were criticized by members of the Occupy Wall Street movement, who oppose unfair distribution of wealth.

Despite all the talk of 1-percenters and vulture capitalism, KKR is not likely to have trouble raising money for its new mutual funds, expected to have a paltry $2500 minimum investment. If managed correctly, the funds may actually help bridge differences.

"Quite frankly the financial community has to improve its image. The financial community has to be much more transparent than it is," said Kravis. With two new retail mutual funds, Kravis will soon get his chance at transparency, and a shot at the hearts of retail investors to boot.

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