KKR Addresses Its Mis-Step In Acquiring Prisma Through PAAMCO Deal

By Hedge Fund Insight staff

It was announced today that PAAMCO and KKR Prisma are to form a Strategic Partnership to create a new liquid alternatives investment firm. As PAAMCO has been fiercely independent and Prisma was acquired by Private Equity giant KKR in 2012 to give growth to its’ liquid alternatives business this has piqued some interest.

At the end of 2011 PAAMCO had $14.97bn in assets under management and Prisma had $7.3bn in AUM, putting the firms at 10th and 18th in the global ranking for size of funds of funds. Prisma was in a growth phase then, having doubled its assets over the two-and-a-half years to June 2012, the point of acquisistion by KKR.

At the time of acquisition the Prisma team were said to be going going to work with KKR executives around the world to provide broader investment solutions to clients. That is Prisma was expected to benefit from cross-selling by KKR staff, particularly through introductions to sovereign wealth funds. The second strategic benefit of the acquisition by KKR of Prisma was the “benefit of global cross-segment “one-firm” sourcing and diligence/research capabilities” for their hedge fund activities. That is the hedge fund management and alternative credit firms within KKR or with which KKR has a strategic partnership (Nephilia, Avoca and KFN) would share knowledge and insight with KKR Prisma at the senior level.

In the first quarter of 2017 KKR Prisma’s AUM are around $10bn, giving a compound growth rate of around 3% per annum since acquisition. In the year in which it was acquired Prisma’s assets were growing at 16% p.a.

In 2016 nine out of the ten largest funds of hedge fund groups had smaller asset bases in June than they had at the start of the year. And one of those was PAAMCO – still ranked as the 8th largest fund of funds group in the world, but only by including the considerable assets under advisement ($14bn under advisement, $10bn under management). That is PAAMCO’s higher margin business, the management of  assets, has shrunk, and the lower margin business of advising on hedge fund investments has expanded over the last five years.

At the time of the acquisition of Prisma Scott Nuttall, Global Head of Capital & Asset Management at KKR, described  it as a big commercial opportunity to scale their two platforms of hedge fund business – direct investing in hedge fund strategies and the fund of hedge funds opportunity. “They’ve been scaling nicely already, ” said Nuttall. “We think we can take it to the next level.”

KKR has gone from acquiring a majority in a growing fund of hedge funds business to owning a large minority stake in a bigger one. The growth bit has gone. When Prisma was acquired by KKR, Aegon sold it’s minority stake in Prisma. It looks like it is kudos to Aegon in that deal.


related articles:

KKR Looks to Grow Prisma As Its Consolidated Hedge Fund Platform (Aug 2013)

KKR Excited By The Potential For Growth Of European Credit Through Avoca (Feb 2014)

Marshall Wace Partners Cut Deal with KKR for Liquidity and Distribution (Sep 2015)