FundFire - Artivest

KKR Cranks up Advisor Asset Push
By Tom Stabile
May 6, 2015
KKR is adding muscle to its distribution push targeting wealthy investors through a platform delivering private
equity to independent advisors and efforts to expand its private bank and wirehouse partnerships.
The $99.1 billion fund manager this week announced it played the lead role in a $15 million investment
in Artivest, a platform that crafts feeder vehicles aggregating capital from independent advisors, and which also
is distributing a flagship KKR fund. The format mirrors qualified investor feeder funds KKR has launched through
wealth management platforms at J.P. Morgan Private Bank, UBS Financial, Goldman Sachs, Morgan
Stanley, Merrill Lynch, and Deutsche Bank.
KKR only recently built out its distribution to advisors, from roughly none of its capital raised in 2009 to about
20% today. It has made inroads after having catered mostly
to institutional investors in the past, says Jim Burns, head of
the individual investor business at KKR, which he joined in
2010 from Morgan Stanley’s wealth management arm.
“Over the past four and a half years, we’ve tried to build a
business of scale that’s relevant to individual investors at
every point along the wealth spectrum,” he says.
The firm has pursued various approaches, such as launching
a non-traded business development company through a
partnership with CNL in 2011 and by offering its funds
through a new registered fund of funds for accredited
investors from Altegris, an alts turnkey platform, which is
subadvised by StepStone, an alts advisory firm. KKR also
launched a pair of alternative strategy mutual funds in 2012, but folded them last year.
But in delivering private equity funds to advisors, it joins rivals Blackstone Group, Carlyle Group, and others that
are aiming at what has become a hot market, according to the Money Management Institute and Dover
Financial Research, which are releasing their fourth annual report on alternatives use at the wirehouses next
week.
“We saw a really big surge in private equity,” says Jean Sullivan, managing principal at Dover, with wirehouse
alts assets up by 59% to $34.1 billion in 2014 from $21.5 billion in 2013. “Investors continue to seek alternative
forms of yield and income, and that was a major driver for private equity and private credit-oriented products.”
KKR has a long relationship with J.P. Morgan, but only added feeder funds at UBS in 2012 and at other big
wealth managers afterwards, Burns says. And KRR plans to add new feeder fund relationships at other wealth
management firms in the future. “We want to continue to broaden and deepen the relationships,” he adds.
The same trends may play out in the independent market because advisors face an investment landscape
dominated by low-cost products that make it difficult to tell clients they offer a unique value, says Alois Pirker,
research director at Aite Group, a consultancy.
“It makes perfect sense for advisors to start differentiating on the product side with alternatives,” he says. “The
pressure is on to be more innovative.”
The difficulty for any manager targeting the independent market has been delivering products to a dispersed
and diverse universe. That’s a challenge Artivest will tackle in part with its new round of funding, with plans to
invest in its sales teams, says James Waldinger, the firm’s CEO.
“We’ve spent a lot of time building the technology and the product to make it right for the [fund managers] to
work with,” he says. “Now, we’re going to go more widely and bring attention to the advisors.”
Artivest is not alone in targeting feeder funds at independent advisors, with CAIS having run a similar model,
mostly on the hedge fund side, for several years, and iCapital Network launching a private equity-tilted platform
last year. While Artivest has been in operation for several years with a low profile, it now may gain more notice
through the investment from KKR, which the manager made off its own balance sheet, not through a private
equity fund, joining several venture investors.
Despite the endorsement from the latest round of funding, Artivest will maintain its independence when
considering funds for its platform, Waldinger says, requiring KKR to undergo the same due diligence as others.
He declines to disclose the number of funds on the platform, but says today’s lineup leans toward buyout funds
across a range of sectors.
“We’re pretty careful about selecting specific funds that are of interest to the retail investor,” he says.
KKR’s own experience as a manager delivering a strategy on the platform was positive, Burns says. The fund
manager now intends to “earn a spot” for additional KKR funds on the platform, and to use Artivest as its
primary way to access the independent market, he says.
The biggest hurdle for private equity managers is that the majority of independent advisors remain stock
allocators, says Tim Welsh, president of Nexus Strategy, a consultancy. “Most of these advisors don’t come at
clients with exotic investing opportunities and long-term commitments,” he says. “Managers see the assets
flowing to this space. The question is what level of sophistication does the advisor have?”
Still, managers will benefit from any platform that simplifies the process of investing in complex products for
advisors, he adds. “Anytime you make it operationally easy to place assets with you, that’s going to be a win,”
Welsh says.
Artivest’s model relies heavily on technology to streamline how advisors and their clients can research funds,
make investments, and manage reporting for private funds, Waldinger says.
Indeed, independent advisors may find themselves ahead of the game as more venture capital flows toward
technology platforms, Pirker says. Years ago, the wirehouses set the bar because they had the bulk to build
expensive platform technology, but today, small firms are leading investment technology innovation, and
independent advisors are the ones getting the benefit of the latest tools and capabilities, he says.
“Big firms have big budgets, but big hurdles and administration to jump over,” Pirker says. “Soon, their advisors
may be the ones trailing the pack.”
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