In yet another example of a private fund manager expanding its businesses to include registered investment funds, KKR Asset Management LLC (a subsidiary of Kohlberg Kravis Roberts & Co. L.P.) recently made filings with the Securities and Exchange Commission (the “SEC”) to register three newly-formed funds under the Investment Company Act of 1940 (the “1940 Act”). The funds include KKR Alternative High Yield Fund (the “High Yield Fund”), a mutual fund, and KKR Alternative Corporate Opportunities Fund P (the “Opportunities Fund”), a closed-end fund that will invest in fixed-income and equity securities with a credit-oriented focus. (The closed-end fund pursues its investment program by investing in a master fund, KKR Alternative Corporate Opportunities Fund, also registered under the 1940 Act as a closed-end fund.) The investment programs of the funds involve the use of short sales and leverage. Shares of the funds are being registered under the Securities Act of 1933 and will be publicly offered. Because the funds will not pay any performance-based advisory fees, there will be no investor-eligibility limitations.
Shares of the High Yield Fund (the mutual fund) will be redeemable daily at their then-current net asset value per share. Shares of the Opportunities Fund are not redeemable and will not be listed for trading on any securities exchange. However, the fund will provide liquidity to shareholders by making discretionary quarterly offers to repurchase its shares at net asset value.
Recent developments, including the KKR filings, illustrate that managers of private investment funds are seeking to increase assets under management, diversify their product lines and access new and expanded distribution channels by offering funds registered under the 1940 Act. This trend, which has led to an increase in the number of private fund managers serving as advisers and sub-advisers to registered funds, is being fueled by the growing appetite of financial firms for liquid alternative investment products to satisfy recommended client portfolio allocations. In addition, because any adviser to a registered fund must be SEC registered, new rules requiring the registration of many private fund managers have had the effect of eliminating a barrier that made unregistered private fund managers reluctant to manage 1940 Act registered funds.