In its continuing push into asset-based finance, KKR has purchased a $373 million portfolio of prime auto loans from Synovus Bank. Terms were not disclosed.
KKR’s ABF assets under management amount to $42 billion, representing more than half the firm’s $76 billion private credit platform. Its ABF strategy focuses on privately originated and negotiated credit investments that are backed by large and diversified pools of financial and hard assets with attractive risk-adjusted returns, the manager said in a statement.
KKR has made 65 ABF investments globally since 2016 through a combination of portfolio acquisitions, platform investments and structured investments, the statement said.
“We’ve taken the broad approach to asset-based finance,” Dan Pietrzak, global head of private credit at KKR, told Private Debt Investor in a wide-ranging interview. He said that under the various categories of ABF, which include consumer loans, leasing and commercial finance, there are numerous sub asset classes, and that he wants the 50 people who are involved in the ABF investment strategy to be “thinking about relative value, and not have a singular focus”.
Pietrzak told PDI that the asset sales that banks are doing and considering today “are a tailwind” to KKR’s ABF business. Although banks’ reevaluation of their balance sheets is part of the normal course of business, Pietrzak said that this year, in the wake of the regional banking issues, banks are “probably taking a harder look at it”.
He said KKR has “always been able to partner quite well and effectively with banks and will continue to do so”, either by providing capital to them or obtaining financing from them. That partnership sentiment has been echoed by several competitors, including Ares, which in late June announced the purchase of a $3.5 billion asset-based loan portfolio from PacWest Bancorp.
“We feel quite good about the investing environment, and our ability to be an attractive buyer for these portfolios,” Pietrzak said, adding that KKR was filling a void that might have been left by speciality finance. He said the syndicated loan market had been picking up a bit recently, although the formation of CLOs – a big buyer of leveraged loans – is still down.
On the macroeconomy, Pietrzak believes that both inflation, though cooling, and interest rates will be higher for longer than people expect, and that he believes growth will slow into 2024; if the US experiences “some type of a recession, it will be mild”.
New York-based KKR, with a total of $519 billion of AUM as of 30 June, said it made the Synovus investment through its private credit funds and accounts.