Here’s what private-equity billionaire Henry Kravis learned from losing a deal to Warren Buffett

KKRRick Wilking/ Reuters

Billionaire private-equity chief Henry Kravis has learned a thing or two from Warren Buffett.

In an interview with Jason Kelly of Bloomberg published Monday, Kravis recalled how the private-equity firm KKR, which he cofounded with his cousin George Roberts, broke into alternative asset management.

KKR now dabbles in many areas, including real estate, credit, and hedge funds. Private-equity business makes up about 47% of what KKR does, according to its first-quarter earnings results.

The journey to that diversification was a long and winding road, and the firm missed some deals along the way.

Here’s Kravis on a particular deal that he lost to Warren Buffett that inspired him and his colleagues to move into a new area (emphasis ours):

In 2002, I remember going to see an energy company called Williams, in Oklahoma. I’d grown up with the Williams family in Tulsa, and they were having some financial difficulty and needed to restructure their balance sheet. We said, “Why don’t we buy the company, take it private, and as part of that we’ll restructure the balance sheet?” They thought about it and decided they didn’t want to go private. So we said, “All right, let us provide you with a structure that can fix your balance sheet.” They thought about what we gave them and said, “That’s a great structure, but we have no money for this.” They ended up taking the exact structure we gave them and calling Warren Buffett. After about five minutes, Buffett said, “This is a no-brainer,” and he did the deal. We decided right then that KKR needed to get into the credit business.

Big banks have been pulling back from lending amid high regulatory pressure. That means opportunity for alternative lenders, like KKR, to fill that vacuum.

For more, check out the full interview at Bloomberg.

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