In the movie Jerry Maguire, Cuba Gooding Jr. plays pro football player Rod Tidwell.
Tidwell repeatedly utters the now-famous phrase: “Show me the money.”
In that same vein — and with that same frequency — I like to follow the money.
Observing the stocks that large money managers own can lead you to profitable opportunities.
Institutions that manage more than $100 million of assets must report their quarterly holdings within 45 days of the end of the quarter on a Form 13-F.
That’s February 15 … and it’s approaching fast.
I monitor these trades on a regular basis, as some firms report even more frequently.
Barbarians at the Gate
ValueAct Capital Partners is a top-notch activist firm.
Compared to its peers, it owns a relatively small number of stocks: 23.
Since it manages more than $10 billion of assets, this means its positions are large. Three of its equity holdings are worth more than $1 billion.
Its third-largest position is private equity firm KKR & Co. Inc. (NYSE: KKR).
KKR is one of the original buyout firms.
Co-founders Jerome Kohlberg, Henry Kravis and George Roberts started the firm in 1976. It completed its first buyout one year later.
But it was KKR’s 1988 leveraged buyout of food and tobacco giant RJR Nabisco that made the firm a household name in financial circles.
The $25 billion deal was the largest buyout ever. The record would stand until the next century. (KKR was part of that deal, too.)
Barbarians at the Gate was the title of a book about the buyout. It was based on a series of Wall Street Journal articles, and later became an HBO movie.
It chronicles the tug-of-war between RJR’s CEO, F. Ross Johnson, and Kravis and Roberts. (Kohlberg resigned in 1987 to pursue other interests.) Johnson wanted to do the deal with another group even though he had brought the idea to Kravis first.
In the end, RJR’s board deemed KKR’s bid as the best.
The deal and the later accounts of it made people more aware of private equity than they otherwise would have been.
KKR Goes Public
KKR shares began trading on the New York Stock Exchange in July 2010.
ValueAct began buying shares in the second quarter of 2017. ValueAct’s CEO, Jeff Ubben, bought because KKR’s total asset base was much larger than its peers. Ubben believes this gives KKR flexibility.
Today, ValueAct is the largest shareholder, with 49.7 million shares.
Since its initial purchase, KKR has converted from a limited partnership to a C corporation to increase investor interest.
Today, it is a normal stock like Apple or Johnson & Johnson. You don’t have to deal with a Form K-1 come tax time like you did before.
As of the end of the year, KKR managed $195 billion of assets. That’s up 16% from the year before.
KKR can still raise some serious capital. In the fourth quarter, it raised $11.3 billion in its private equity and leveraged credit strategies. (Coincidentally, these are the same strategies it used for RJR Nabisco.)
The firm earned more than $1 billion of management fees last year. That was an 18% increase.
Expect to see this trend continue. With the Federal Reserve’s rate increases on hold, deals will continue to get done at strong valuations.
Announced mergers and acquisitions in January were the highest for the month since the year 2000. If the pace continues, the value of this year’s deals will be as large as we’ve ever seen.
I assure you KKR will be involved. Owning its shares is a great way for you to take part, too.
Good investing,
Brian Christopher
Editor, Insider Profit Trader