KKR & Co. is making a slice of one of its private-equity funds available on the public blockchain, in the latest bid to expand individual investors’ access to private investment vehicles.
The buyout firm is partnering with digital-assets specialist Securitize, which will tokenize an interest in the second iteration of KKR’s Health Care Strategic Growth Fund and make it available on the Avalanche public blockchain, executives from both companies said.
Qualified purchasers – generally those with at least $5 million in investible assets – who create a digital wallet and sign up with Securitize will be able to invest in the KKR fund via what will effectively be a tokenized feeder fund. After a year of holding the security, investors will be able to sell it to other qualified individuals on a secondary market managed by a unit of Securitize.
Blockchain is a data structure that makes it possible to create a digital ledger of transactions and share it among a distributed network of computers. Executives said the move by KKR will be the first time a major private-equity firm has made a portion of a fund available on the blockchain in the U.S.
As they look for new sources of assets to manage, the biggest private-equity firms have been aggressively courting high-net-worth individuals. They have done this both by creating products designed for everyday millionaires and by finding new ways for them to pool their money together to invest in funds previously reserved for institutions and the ultrawealthy.
KKR managed about $70 billion of private-wealth assets as of the end of the second quarter, out of a total of $491 billion. It said last November it expects 30% to 50% of its annual fundraising will eventually come from wealthy individuals, up from 10% to 20% at the time.
A tokenized fund will allow individuals to invest smaller amounts than would be required of institutions and provide a smoother process for monitoring transactions and vetting investors through Securtize’s digitized onboarding process, as well as greater potential for liquidity, said Dan Parant, co-head of U.S. private wealth at KKR.
“There’s just so many barriers that have made private markets difficult to access for individual investors,” he said.
Mr. Parant said KKR had been exploring using blockchain technology for a while but was waiting for it to mature. The firm decided to try it with the healthcare growth fund, which backs rapidly growing healthcare companies in North America and Europe, because there had been significant interest from individual investors in the strategy, he said.
KKR finished raising its second Health Care Strategic Growth Fund, a $4 billion vehicle, in January. That fund’s predecessor was a $1.45 billion pool that closed in 2017.
Founded in 2017, Securitize spent years acquiring the necessary regulatory licenses to let private businesses raise capital using decentralized blockchain ledgers. The company owns multiple transfer agents and a broker-dealer that are registered with the Securities and Exchange Commission and has a unit that is a registered investment adviser.
In April, beauty company Oddity Tech Ltd. said it would offer a token that converts into a share of stock in an eventual initial public offering at a 20% discount. The offering was issued through Securitize.
The arrangement with KKR opens up a possible new frontier for the company.
“When there’s something new, nobody wants to be the first one,” said Securitize Chief Executive Carlos Domingo. “KKR has been so far the most innovative in terms of making the decision to do this, and we hope that a lot of other asset managers will take note.”
From DJN