KKR and Pacific Alternative Asset Management Company, LLC (“PAAMCO”) today announced that they have entered into a strategic transaction to create a new liquid alternatives investment firm by combining PAAMCO and KKR Prisma. Under the terms of the agreement, the entire businesses of both PAAMCO and KKR Prisma will be contributed to a newly formed company that will operate independently from KKR, and KKR will retain a 39.9% stake as a long-term strategic partner.
This transaction will bring together two leading brands to create one of the largest firms in the liquid alternatives industry, with over $30 billion of assets under management or advisement and the ability to fulfill a broad range of liquid alternatives needs. Founded in March 2000, PAAMCO is a leading private institutional investment firm with $24 billion of assets under management or advisement dedicated to offering alternative investment solutions. KKR Prisma, with approximately $10 billion of assets under management, constructs and manages customized hedge fund portfolios and other products across the spectrum of liquid alternatives investments.
The combined business will operate under the new global brand, PAAMCO Prisma Holdings, with PAAMCO and KKR Prisma’s core investment and client teams remaining unchanged. The Prisma and PAAMCO brands and funds will continue to exist side-by-side in their current separate form. The combined enterprise will have all of the features their clients have invested in historically but with the additional benefits of operational scale and access to an even broader suite of investment solutions.
Jane Buchan, co-Founder and CEO of PAAMCO, said: “As the alternatives industry continues to evolve, expanding our reach will further enhance our ability to innovate and to provide leading solutions to our clients. This transformative step will enable us to provide added scale benefits, wider investment options and faster innovation to all of our investors. Organizationally, we are excited by how well Prisma’s investment franchise complements our own, and by the possibilities that KKR brings. I look forward to working with Girish to capitalize on the experience and expertise of our combined teams to continue to deliver compelling and value-added solutions to our clients.”
Girish Reddy, co-Founder of KKR Prisma and Head of KKR Hedge Funds, added: “Joining forces with PAAMCO will enable us to better serve our clients’ evolving investment requirements. I believe greater scale, flexibility, and additional resources will enhance our ability to generate strong investment performance and to build and service bespoke solutions for our clients. Additionally, we look forward to continuing our strong partnership with KKR.”
Henry Kravis and George Roberts, co-Founders and co-Chairmen of KKR, stated: “We are bringing together two leading names to create an even stronger liquid alternatives firm. The decision to combine KKR Prisma with PAAMCO is based on our shared view that a larger enterprise with exceptional resources, technology and investment acumen will be even better positioned to support clients in today’s marketplace.”
The transaction is not a monetization event for PAAMCO or Prisma’s current management or for KKR. Under the terms of the agreement, the entire businesses of both PAAMCO and KKR Prisma will be contributed to a newly formed company. The new business will be led by co-CEOs Jane Buchan, co-Founder and CEO of PAAMCO, and Girish Reddy, co-Founder of KKR Prisma. As part of the transaction, the combined entity is expected to enhance alignment with investors by re-equitizing the management team and retiring PAAMCO’s existing minority owner. The combined business will be majority employee-owned with employees of PAAMCO and KKR Prisma owning 60.1% of the combined firm and KKR retaining a 39.9% ownership stake. PAAMCO Prisma will be a strategic investment for KKR and will not be a portfolio company in a KKR fund. KKR Prisma and PAAMCO investment solutions, investment processes, investment teams, client service teams and regional presence will remain as is at closing.
Subject to the satisfaction of customary closing conditions, including the receipt of requisite regulatory approvals, the transaction is expected to close in the second quarter of 2017.
Pro forma for this transaction, and based on financial information as of September 30, 2016, KKR’s hedge fund strategic partnerships would have approximately $74 billion in assets under management or advisement in the aggregate, of which KKR’s pro rata share would be approximately $24 billion in assets under management or advisement.
KKR was advised by Simpson Thacher & Bartlett LLP, and PAAMCO was advised by Moelis & Company LLC and K&L Gates LLP.