At KKR, our focus is on growth equity and buyout strategies. Diversified exposure across this risk spectrum is essential to maximizing both an investor’s participation in private equity and their long-term return potential.
Growth equity targets businesses with established products, proven business models, and meaningful revenue scale. These companies often prioritize reinvesting cash flow into expansion and product development rather than generating steady free cash flow, and their earnings are less predictable, making high leverage levels unsuitable. Consequently, a growth equity deal’s capital structure is primarily equity with limited or no debt, to provide flexibility for continued growth initiatives and absorb volatility in performance. This structure appropriately capitalizes risk by avoiding debt obligations that could constrain growth or liquidity, while allowing investors to participate in performance upside through equity appreciation.
Buyout investing focuses on control-oriented ownership of business with established market positions, predictable earnings, and stable cash flows. These companies are often past their high-growth phase and have the operating scale and balance sheet robustness to support some degree of leverage. While buyout deals don’t always use leverage and leverage levels have reduced by about a third in the last ten years when implemented, the use of leverage generally reflects the lower business risk and cash flow visibility of the company. This strategy also disciplines capital allocation, encouraging operational improvements, cost optimization, and strategic repositioning to drive earnings growth and cash generation.
For investors, a thoughtful allocation across these strategies enhances diversification, captures a broader share of the private market opportunity, and supports more consistent returns across market cycles.
Core-Satellite Construction for Wealth Portfolios
Historically, individuals have not been able to access drawdown private equity funds because of the operational complexity required to maintain a well-diversified and scaled allocation. Evergreen vehicles can offer an operationally easy and efficient way to achieve diversified, stable, continuously compounding private equity exposure. Some investors may use an evergreen vehicle as a core private equity commitment and expand exposure into high-conviction sectors or geographies through drawdown funds to support their investing goals.
This core-satellite approach mirrors the architecture used by leading institutional investors but adapts it for the scale and liquidity preferences of private wealth. The result can be a more balanced, resilient, and compounding portfolio.
Moreover, evergreen allocations can act as a reinvestment hub for proceeds from maturing drawdown funds, keeping overall exposure stable without manual reallocation. This circular compounding effect — capital returning and immediately being redeployed — is a key advantage for investors seeking to maintain consistent private market exposure through time.
Exhibit 8: Blending Drawdown and Evergreen Structures Could Produce Higher Compounded Returns over Time