The specialist American investor intends to distribute funds to wealthy clients in the domestic market by cooperating with Swiss private banks. Distribution will be managed by a former UBS executive.
When it was announced last December that KKR was going to open a sales office in Zurich, it made headlines around the world. The American private market giant and the world's leading offshore financial center was seen to be a pairing with undoubtedly clear potential.
The step is eventually expected to lead to KKR's investment solutions being distributed to local private banks and wealth managers as well as their wealthy clients by the firm's Global Wealth Solutions division.
On the Move
Now, the new office in Zurich will be the European hub for the wealth business, sitting alongside London, staffed by a small sales team made up of Hagen Raab and Tomislav Culic.
Beyond that, the wider international expansion of the wealth business is being led by a St. Gallen native – Markus Egloff. He is responsible for sales outside the US and regularly jets around the globe from his base in Singapore. But when he travels to Zurich, it is a kind of a double homecoming for him. Egloff worked at UBS for a quarter of a century, where his last role had been to lead private wealth distribution across the Asia Pacific region for the asset management business.
New Money Flows
He switched over to KKR two years ago, when the business was still a relatively small one. At the time, he told finews.asia that the financial giant's Global Wealth Solutions team numbered just ten employees and they were all based in the US. Since then, growth has been substantial and one in three staff now work outside the US market.
(Image: KKR)
According to him, America's largest banks are the key conduits for the firm's private equity and debt, real estate, and infrastructure investments. After the latest set of quarterly results, KKR's leaders maintained that those types of investment vehicles were getting about $500 million a month in new funds.
Major Swiss Banks as Partners
The major Swiss banks are also an important part of all that. As Egloff maintains, UBS and Credit Suisse were the exclusive partners for the division's first two investment vehicles. Even though the latter was undergoing difficulty at the time, and has since been rescued by Switzerland's largest bank, the launch ended up being successful anyway.
Now, Egloff and his colleagues maintain a close exchange with the investment managers at UBS, as well as with the financial experts at other leading Swiss private banks. An important aspect of the effort underway is training bank staff on how to deal with private markets, something the firm's digital learning platform, KKR Alternatives Unlocked, intends to help with.
These days, the Global Wealth Investment Council initiated by KKR also began its work. The council consists of ten representatives from globally leading wealth management firms and is dedicated to exchanging knowledge on topics such as the economy, capital markets, asset allocation, and the role of private markets.
Growth Potential
The growth opportunities are enormous. Based on research by consultants PwC and McKinsey, the specialist provider believes that only about 1 to 2 percent of all private assets are currently invested in alternative investments, and increasing that to just 5 percent would give the industry tremendous leverage.
A Credit Suisse wealth report in 2023 forecast that privately held assets worldwide would increase to $629 billion by 2027. «Depending on the forecast, we are talking about an additional $1 trillion that could be invested in alternative investments,» Egloff calculates.
Exchanging Information
Moreover, what helps the products to stand out in the market is that KKR itself can participate in all the investments it makes. Beyond that, the firm recently announced the launch of its Global Wealth Investment Council.
According to the announcement, it comprises ten experts from leading wealth management firms around the world who will exchange knowledge on macroeconomics, capital markets, asset allocation, and the role of private markets in individual portfolios.
Certain Downsides
However, Egloff does not hide the fact that doing business with wealthy private individuals also involves risks. Unlike institutional professional investors, such clients are easily frightened by setbacks in what are generally illiquid investments. That is why KKR emphasizes investor education and partners with banks that have experience with private market investments.
One of its main competitors, Blackstone, experienced that vividly with a real estate product that had to repeatedly suspend redemptions, sending shockwaves through the industry in November 2022, and subsequently prompting industry-ride payout processes to be overhauled.
«The upside in the wealth business is enormous», summarizes the ex-banker, «but this goes hand in hand with an increased downside, which is why we have been extremely considered in how we’ve built KKR’s wealth offering».
