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3 Private Equity Plays to Keep Up With Kim Kardashian
The newest entrant in the private equity game is none other than celebrity icon Kim Kardashian.
Kardashian has formed Los Angeles and Boston-based SKYY Partners with Jay Sammons, the former global head of Carlyle Group’s (CG) consumer, media, and retail business. Sammons spent 16 years at Carlyle, investing in Beats Electronics -- it was sold to Apple (AAPL) in 2014 for $3 billion -- and many other growth brands. Kardashian’s mother, Kris Jenner, will be a partner in the private equity firm.
SKYY Partners has yet to raise any capital, but it is expected to invest by the end of 2022.
If you want to get into the private equity game before SKYY Partners invests, here are three great ways to do it.
The Easiest Way to Get in the Game
There are two U.S.-listed ETFs that invest in private equity firms: Invesco Global Listed Private Equity ETF (PSP) and ProShares Global Listed Private Equity ETF (PEX). The former is the larger of the two, with $170 million in total net assets compared to $13 million for the latter.
For this reason alone, I would go with the former rather than the latter.
PSP tracks the performance of the Red Rocks Global Listed Private Equity Index. The index has had spotty performance over the past decade, generating an annualized total return of 9.3% on Aug. 31. That’s considerably less than the S&P 500 over the same period.
However, if private equity exposure is what you want, the index represents 40 to 75 private equity firms that, in turn, own more than 1,000 private businesses.
The ETF currently holds 76 companies, with the top 10 accounting for almost 45% of the fund’s $170 million in assets. In terms of country weighting, the U.S. has the largest at 42.40%, followed by the United Kingdom (19.70%) and Sweden (7.55%) to round out the top three.
One of the more attractive attributes of the ETF is that it’s pretty evenly split between large-cap (20.57%), mid-cap (33.48%), small-cap (25.76%), and micro-cap stocks (6.73%). If you believe in all-cap investing, PSP fits the bill.
Overall, the average holding in the ETF has an average market cap of $5.85 billion, about $2 billion less than the index.
The Best Play in Private Equity
Looking at the top 10 names in PSP, there are a bunch of interesting private equity firms, such as UK-based 3i Group PLC (TGOPY) and Swedish PE firm Partners Group Holding AG (PGPHF).
However, to save you the aggravation of investing over-the-counter, I’m sticking with the U.S. -listed options. That leaves me with five options: KKR & Co. (KKR), Blue Owl Capital (OWL), Blackstone (BX), Carlyle Group (CG) -- Sammons old firm -- and TPG (TPG).
If you ever read the book Barbarians at the Gate, the story of how KKR acquired RJR Nabisco for $25 billion in 1988 -- using only $15 million of its own money -- you’ll understand why the private equity firm has been one of the industry’s finest dealmakers for more than 45 years.
KKR has more than $470 billion in assets under management, including $172 billion in private equity investments that generated $316 million in fees during the second quarter. In 2022, its private equity business raised $15 billion in organic new capital during the quarter.
According to its Q2 2022 presentation, it finished the second quarter with $98.3 billion in fee-paying assets under management, up from $87.9 billion a year earlier.
The firm’s largest private equity fund -- North America Fund XIII at $18.4 billion -- was launched in June 2021. Approximately $3.07 billion has been invested to date, with KKR contributing $552 million as a general partner.
Down 32% year-to-date and trading at 3.2x revenue, KKR hasn’t been this cheap since 2018.
The Best of the Rest
Coming in at a weighting of 1.48% is StepStone Group (STEP), a New York-based private markets investment firm that provides customized investment solutions and advisory, data and administrative services to pension funds, sovereign wealth funds, insurance companies, family offices, high-net-worth and mass affluent individuals.
As of June 30, it had $137 billion in assets under management (AUM) and $452 billion under advisement (AUA) for a total of $588 billion. A decade ago, StepStone’s AUA was $62 billion, or slightly more than 10% of what it’s got today.
In Q1 2023, its AUM grew 1% over Q4 2022 and 52% higher than in Q1 2022. Its fee-earning AUM was $78.6 billion. 4% higher than Q4 2022 and 48% above Q1 2022.
As for private equity, it finished the first quarter with $76 billion in AUM, accounting for 55% of its $137 billion total AUM, and $234 billion in AUA, accounting for 52% of its $452 billion in AUA. Private equity investments represent 53% of StepStone’s AUM/AUA.
The company’s net internal rate of returns is 19.3% for primary investments, 20.5% for secondary investments, and 23.4% for co-investments.
Of its $78.6 billion fee-earning AUM, 53% is from its private equity investments.
StepStone earns two performance fees: Incentive fees and carried interest allocations. Incentive fees are a percentage of the profits up to 10%, while carried interest allocations are between 5% and 15% of the realized gains from an investment over the minimum rates of return.
In Q1 2023, its accrued carried interest allocations were $1.37 billion. As the investments in each fund are sold, accrued carried interest allocations will decline. It’s important to note that revenue regarding unrealized carried interest allocations changes each quarter as the value of investments changes.
In August, StepStone launched the Conversus StepStone Private Venture and Growth Fund (CSPRING) through its Conversus platform for high-net-worth individuals and smaller institutions. The fund will purchase venture and growth equity interests on the secondary market. It will also make some direct investments and primary market investments.
While StepStone is a riskier stock to buy than KKR, the future rewards could be worth a small bet.
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