KKR and Carlyle Move to Private Credit
The private equity industry is facing a challenging environment as the pandemic continues to affect the global economy. As a result, two of the world’s largest private equity firms, KKR & Co. and Carlyle Group, are turning to private credit to make up for the lack of dealmaking.
Private Equity Firms Feel the Impact of the Pandemic
The pandemic has had a significant impact on the private equity industry. The global economy has been hit hard, and the uncertainty has caused many companies to be hesitant to make deals. This has resulted in a decrease in the number of deals being made, and private equity firms are feeling the effects.
KKR and Carlyle are two of the largest private equity firms in the world, and they have both been affected by the decrease in dealmaking. KKR has seen its assets under management drop from $209 billion in 2019 to $193 billion in 2020. Carlyle has also seen a decrease in its assets under management, from $222 billion in 2019 to $204 billion in 2020.
KKR and Carlyle Turn to Private Credit
In order to make up for the lack of dealmaking, KKR and Carlyle have both turned to private credit. Private credit is a form of financing that is provided by private lenders, such as banks, hedge funds, and private equity firms. It is typically used to finance deals that are too risky for traditional lenders.
KKR has launched a new private credit fund, which has raised $2.5 billion in capital. The fund will focus on providing financing to companies in the technology, media, and telecommunications sectors. Carlyle has also launched a new private credit fund, which has raised $1.5 billion in capital. The fund will focus on providing financing to companies in the healthcare, consumer, and industrial sectors.
Benefits of Private Credit
Private credit can provide a number of benefits to private equity firms. It can provide access to deals that may not be available through traditional financing, and it can also provide access to deals that may be too risky for traditional lenders. Private credit can also provide access to deals that may not be available through the public markets.
Private credit can also provide a source of income for private equity firms. Private credit funds typically charge higher interest rates than traditional lenders, which can provide a steady stream of income for the firm.
Risks of Private Credit
While private credit can provide a number of benefits, it also carries a number of risks. Private credit funds are typically more risky than traditional lenders, as they are investing in companies that may not be able to repay the loan. This can lead to losses for the fund if the company defaults on the loan.
Private credit funds also carry the risk of illiquidity. Private credit funds typically invest in illiquid assets, which means that the fund may not be able to quickly sell the assets if it needs to raise cash. This can lead to losses for the fund if the assets cannot be sold quickly.
Conclusion
KKR and Carlyle are two of the world’s largest private equity firms, and they have both been affected by the decrease in dealmaking due to the pandemic. In order to make up for the lack of dealmaking, KKR and Carlyle have both turned to private credit. Private credit can provide a number of benefits to private equity firms, but it also carries a number of risks. It is important for private equity firms to understand the risks associated with private credit before investing in it.