KKR's Henry Kravis: experience shows that private equity works...over the long-term

KKR is the firm that pioneered the private equity business getting its start in the mid 1970s. Over the years, the firm has established 14 funds and generated average returns of 20% (net of fees).

Lately, though, KKR has come under attack (as have many other private equity operators). So, when the firm's Private Equity Investors holding, which is publicly traded in Amsterdam, had its conference call recently, Henry Kravis talked about the state of private equity.

It was not an easy talk since the fund had to mark down the valuations of seven holdings. In fact, the return of the portfolio was a horrible -0.1% last year, and the fund is trading at a 38% discount to its net asset value.

Simply put, Kravis says that dealmakers will need to be creative. This means locating capital from alternative sources, such as private investors and hedge funds. There will also be more minority investments.

Kravis also stressed that KKR will continue to stick to its investment philosophy. This means focusing on companies that have stable revenues, diversified global platforms and room for operational improvement.

More importantly, Kravis said that the private equity business is about the long-term. If anything, the best opportunities are when markets are in the midst of dislocations – which is certainly the case now.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.