Cap Group, KKR Approved to Launch Public-Private Funds

Move over, Wall Street: Alternative assets managers are coming for Main Street investors.

Two of the world’s largest managers just won approval to launch public-private credit funds, investments that were once the playground of the richest investors. Capital Group and KKR got the greenlight from the Securities and Exchange Commission to launch two new credit interval funds that use both public debt and private credit inside a single product. The new funds specifically target retail investors, a segment that could turn into a lucrative, untapped marketplace for the industry and are designed to be used by financial advisors and their clients. 

“Private assets are usually for high-net-worth investors, so it has this air of exclusivity to it — which sort of implies that it’s better — and that’s sort of the same with credit,” said Morningstar research analyst Daniel Sotiroff, adding that some advisors have expressed general concerns about a lack of transparency, liquidity, and higher fees. “On the surface, you’re just getting access to loans.”

It’s a Private Affair

For Cap Group, the credit will be packaged inside interval funds, which are closed-end funds that typically offer liquidity to investors quarterly, not daily, like mutual funds or ETFs. The Capital Group KKR Core Plus+ and Capital Group KKR Multi-Sector+ funds will have a split of 60% publicly traded debt and 40% private credit. They’ll also offer:

• Redemptions of as much as 10% of the fund’s net asset value quarterly, according to a report from Bloomberg. 
• The funds will be managed jointly by both firms, and valuations of the funds will be provided daily.

The products are just the latest example of the industry rushing to push private investment products into Main Street portfolios. State Street and Apollo got the so-called “first-mover” advantage last month by landing approval from the SEC to launch an exchange-traded fund that surprised many analysts (inflows are also surprisingly lean). And just last week, Vanguard and Wellington Management teamed up with Blackstone to offer similar products; details are forthcoming. 

“Hopefully, initiatives like this will someday even reach the ETF listing arena,” said Ben Fulton, CEO of WEBs Investments. “I’m always an advocate for new, innovative ideas that help investors access hard-to-reach investment solutions.”

The Feeling’s Mutual. While there’s a ton of buzz around private-public investing, mutual funds have been doing it for years, according to Morningstar. The outcomes, however, haven’t been exactly “encouraging.” The firm’s research found that the mutual funds it analyzed would have been better off actually taking those private stakes and investing them in the public markets over the last decade. “What we’ve seen, in the limited sample that we have access to, is not impressive,” Sotiroff said. “The question becomes: Is this legitimately good for investors at the end of the day?”