What We Learned from the Challenges of 2020

Joe Bae, Co-President and Co-COO of alternatives giant KKR, finds many positives in a turbulent year that saw the firm invest and distribute record amounts of capital

2020 was one of the most extraordinary years in living memory. The outbreak of COVID-19 and the declaration of a global pandemic has affected the lives of everyone around the world. While we have witnessed the tragic consequences of the loss of life and intense hardship caused by this crisis, we have also been inspired by remarkable examples of human resilience and ingenuity, not least in the progress toward developing a reliable vaccine in record time.

At KKR we have always tried to be agile in the face of change, and in no other year have we been put to the test as much as we were in 2020. Certain sectors of the world’s economies came under unprecedented pressure, such as traditional retail, travel, and hospitality; while others, notably those in online consumer services, experienced an exceptional year.  

In many cases, COVID-19 has accelerated trends that have been ongoing for some time – in April 2020, for example, Microsoft CEO Satya Nadella commented that two years of digital transformation had occurred in just two months. Elsewhere, businesses that have been negatively impacted by lockdowns have shown themselves to be quick to rebound when restrictions were lifted and demand returned, while others have continued to struggle. Even in the most optimistic of scenarios, however, there is no doubt that with record levels of public debt, as governments across the world have scrambled to shore up their struggling economies, we will be living with the economic consequences of COVID-19 for some time.

Business Continues, if Not as Usual
How should a firm like KKR react in this complex and uncertain environment? Going back to the earliest days of the crisis, KKR, like all of our peers, activated business continuity plans as the entire firm transitioned to remote working. From the outset we have been focused on ensuring the safety of our people: both our employees and the employees of our portfolio companies. We have also actively supported our portfolio companies in their work to help the broader community. For example, Global Medical Response, a US-based emergency medical transportation services provider that we acquired in 2015, has provided ambulance services to over 350,000 COVID-19 patients, while our portfolio company Envision is fielding over 27,000 clinicians on the frontline of healthcare services in the US. And KKR is funding its own $50mn COVID-19 Relief Fund, which is providing grants to support the people and places in our communities that have been most impacted by the crisis.

While all of us have faced the task of addressing the everyday challenges of COVID-19, from an investment standpoint, 2020 was also one of the most active years in the history of KKR. Within our private equity business alone, we invested approximately $14.5bn in 2020. This heightened investment activity was largely because of, rather than in spite of, the crisis. Across the world we saw opportunities to invest in companies at attractive valuations, either because of dislocation in the public markets or an absence of competition. Our investments in food service distributor US Foods, Spanish telco Masmovil, and Japanese supermarket group Seiyu were all acquired for single-digit EV/EBITDA multiples. Importantly, these were all businesses that we had been tracking for some time, in some cases for years. But we were quick to seize the opportunity to invest in these companies when they arose.

We also continued to lean into areas of the economy where we have a strong conviction in long-term, secular growth. In particular, we have been active in technology and healthcare. Among our most high-profile technology investments last year was our investment into Jio Platforms, a landmark transaction in India’s leading digital services platform that we believe is a highly attractive opportunity to invest behind India’s nascent macro-digitization story. In healthcare, we were able to invest into Elsan, one of the largest private hospital groups in France, which is well positioned to benefit from the sustained trends of aging demographics and efforts to optimize healthcare spending among public policymakers.

Responsible Owners
While we were active deploying capital globally, we remained focused on ensuring that our existing portfolio companies were defensively positioned. First in Asia, and then in Europe and the US, we created task forces dedicated to supporting our investments throughout this period of crisis. These task forces met daily and demonstrated the tremendous value of cross-collaboration between our private equity deal teams, our operational professionals in KKR Capstone, our financing specialists in KKR Capital Markets, and our Global Macro team. We were able to make sure our portfolio companies had the support they needed to manage costs and preserve liquidity where this was needed.  

Lastly, we also saw attractive opportunities to sell our companies, as asset prices did not come down in the way many predicted at the outset of the crisis. The strong rally that we saw in the public markets from April, buoyed by the significant monetary and fiscal stimulus that has been pumped into economies globally, created some strong opportunities to exit businesses through the public markets. Once again, technology was a favored sector, as we saw in the stock price performance of our investment in the Swiss company SoftwareOne, and also in the private sale of Epicor, a software vendor in the US. In total, we were able to distribute approximately $10bn from our private equity funds in 2020.

Once in Our Lifetimes
Looking back on 2020, we are optimistic that in time this will prove to be a strong vintage year for private equity. Indeed, we feel some of the investments we made in the last year were truly once-in-a-generation opportunities. The road ahead is less clear and we expect to continue seeing areas of dislocation as a result of the crisis, as well as exciting opportunities to partner with dynamic businesses with excellent long-term growth prospects. Above all, we are hopeful that a swift resolution is brought to the human element of this crisis, and that the world can come together in a coordinated implementation of a vaccine.

About KKR
Joseph Bae is Co-President and Co-Chief Operating Officer of KKR, as well as Chairman of KKR’s Asia and Americas Private Equity Committees. He joined KKR in 1996 and held a number of senior positions, including managing partner of KKR Asia and the global head of KKR's infrastructure and energy real assets businesses, before being promoted to his current position in July 2017.

KKR is a leading global investment firm that manages multiple alternative asset classes, including private equity, credit, and real assets, with strategic partners that manage hedge funds. It has $234bn AUM and offices in 20 cities across four continents.