KKR & Co. (KKR) reported first-quarter results this week, which means that it's next on my "private-equity parade." As I noted earlier this week, I like to check out publicly traded private-equity firms' earnings reports and conference calls because they often contain great information and investment ideas.
Here are some interesting things that KKR said:
Invest for the Long Haul
Management focused during this week's earnings call on investment time frames. Executives acknowledged that large public-company holdings like First Data (FDC), HCA (HCA) and Walgreens Boots Alliance (WBA) all fell during the first quarter, so KKR had to take a negative mark on its balance sheet.
But management also reminded investors that with the exception of First Data, most of KKR's publicly traded holdings still fetch several multiples of what the firm originally paid.
"We have built KKR with a focus on long-dated capital, and in turn measure performance through a lens much longer than any 90-day period," said Scott Nuttall, KKR's head of global capital and asset management. "Our model allows us to weather and capitalize on short-term dislocations, and that is exactly what we have been doing."
Nuttall added that "having long-term capital with the ability to enter and exit investments at points in time and at valuations we deem attractive is, quite frankly, one of our largest strategic advantages and beneficial to all of us as investors. This advantage, however, does not exempt us from mark-to-market losses in volatile quarters."
That's an important lesson. Most investors focus way too much on the short term, which hurts their returns over time. All of the studies that I've read say that over-trading and chasing the market's "flavor of the day" are the chief contributors to individual investors' dramatic underperformance over time.
If you focus on buying good companies at great prices (or better yet, great companies at good prices), a single month or quarter's underperformance shouldn't be all that important. In fact, you should treat short-term price setbacks as opportunities to buy more of a stock at a better price.
Quit trying to trade every little market movement and let time and value do the "heavy lifting" for you.
European Real Estate Looks Good
I also appreciated what KKR had to say about the real estate market.
When asked about KKR's 2016 approach to that sector, Nuttall said: "We are in the market and have had the first closing on our first European real estate fund. And that's because we saw so much opportunity to invest in real estate in Europe. We filled up the basket on our global fund and needed more capital. So that fund is progressing quite nicely. We've already raised $600 million of capital for real estate in Europe."
I found that interesting, as Colliers International also discussed potential European opportunities earlier this year in its 2016 real estate outlook. And since KKR has a very strong real estate track record, I feel that I should at least look into the European market further if the firm likes it. I have a list of European REITs and holding companies on my desk for further investigation, and I'll report back if I find anything interesting.
WMIH Corp. (WMIH)
KKR execs also mentioned that they've deployed some cash in WMIH Corp., which is basically what remains of former banking giant Washington Mutual.
WMIH consists of mortgage reinsurance in runoff mode, as well as some cash and securities. But the firm's real value is the more than $5 billion of long-term net operating losses on its books.
I expect WMIH will eventually purchase a high-cash-flow business and use those NOLs to avoid taxes for years. So, I think it's worth owning a few shares because WMIH could end up becoming a publicly traded private-equity fund of sorts.
It's also worth noting the KKR has a fantastic blog that you should bookmark and read on a regular basis.
Adopting a private-equity mindset can make you a better investor, and reading press releases and reports from great firms like KKR is a great way to start!