Why KKR & Co (KKR) Stock is a Compelling Investment Case

Greenhaven Road Capital recently released its Q3 2020 Investor Letter, a copy of which you can download here. Greenhaven’s estimated returns for the third quarter totaled approximately +50% net of fees and expenses. August was the best month in the partnership history. The net result is that both funds are up around 55% for the year, comparing favorably to the Russell 2000, which ended September down -8.7% year to date. You should check out Greenhaven Road Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.

In the said letter, Greenhaven Road Capital highlighted a few stocks and KKR & Co. Inc. (NYSE:KKR) is one of them. KKR & Co. Inc. (NYSE:KKR) is an investment management company. Year-to-date, KKR & Co. Inc. (NYSE:KKR) stock gained 28.4% and on November 3rd it had a closing price of $34.89. Here is what Greenhaven Road Capital said:

“KKR – Private equity is a phenomenal business: scalable, high margin, and non-capital intensive. It is not surprising that the Forbes 400 list of wealthiest Americans is stuffed with private equity folks. As it turns out, there is an even better business than private equity: private equity with permanent capital. It is a massive never-ending call option. During this quarter, KKR announced the acquisition of Global Atlantic Financial Group, which sounds innocuous enough, but is actually pretty exciting as it jumpstarts their drive towards more permanent capital. Issuing no new KKR shares, the company grew AUM from $207 to $279 billion (on a pro forma basis) through the acquisition, and permanent capital as a percentage of total AUM increased from 9% to 33%. More importantly, KKR has a platform to grow permanent capital further by buying annuity portfolios in the same way that the private equity firm Apollo Global has done through their ownership of Athene.

As discussed in previous letters, KKR is likely underearning now as they have 18 of 25 strategies that are 10 years or younger. During a fundraising period in a PE fund, the strategy simply centers around expenses and is ultimately a money loser. When the first fund is raised, management fees can be charged and, depending on size, it may be moderately interesting financially. The economics get more interesting in years four and on when incentive fees may be realized and subsequent larger funds can be raised. To give a specific example, KKR’s Asia business had $4B in AUM in 2007. By 2018, that had risen to $17B with additional Asia funds and strategies, and in 2020, the Asia AUM is $30B, or more than 7X the 2007 AUM. The true earnings power of the Asia business is just starting to reveal itself.”

In August, we published an article revealing Greenhaven Road Capital bullish investment thesis on KKR & Co. Inc. (NYSE:KKR) stock in its Q2 2019 investor letter. This suggests that the investment firm has been bullish for a long time on KKR & Co. Inc. (NYSE:KKR).

In Q2 2020, the number of bullish hedge fund positions on KKR & Co. Inc. (NYSE:KKR) stock decreased by about 6% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t believe in KKR’s growth potential. Our calculations showed that KKR & Co. Inc. (NYSE:KKR) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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Disclosure: None. This article is originally published at Insider Monkey.