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NEW YORK, March 11 (Reuters) - KKR's KKR.N publicly traded private credit fund has experienced pressure on near-term returns, but the company sees more opportunity in non-traded vehicles, Chief Financial Officer Robert Lewin said on Wednesday.
Private debt funds known as business development companies (BDCs) have seen their share prices fall on public exchanges and redemption requests from the non-traded versions rise as investors worry about credit markets and exposure to the software sector. KKR FSK Capital Corp's FSK shares are down 29% so far this year.
"The minority of our capital, roughly $17 billion in direct lending, sits in BDC format," Lewin told the RBC Capital Markets Global Financial Institutions conference in New York. He said $14 billion of that sits in FSK, which "has had pressure on returns of the near term, largely from some subordinated exposure."
"We don't have much capital in that private BDC space, and we think there can be a real opportunity for us here," he added.
Rivals Blue Owl OWL.N and BlackRock BLK.N have seen their shares sold as redemption requests for key funds crossed the 5% threshold, which conventionally allows an asset manager to limit redemptions. Some, like Blackstone BX.N, have responded by relaxing the limit to 7% or beyond.
Jitters across private credit came to the fore last year with the collapse of auto parts supplier First Brands and subprime lender Tricolor.
They have extended as artificial intelligence threatens to disrupt the pricing power of software companies, which have drawn a large share of private funding over the past two decades.
FSK has over 16% exposure to software and related companies, company filings show. The software exposure of Global Atlantic - KKR's insurance business - is roughly 2.5%, Lewin said.
"You're going to have real winners that will benefit from AI, and you're going to have some businesses that will likely underperform and that may get disintermediated over time," he said.
Capital markets also remain fairly robust across the world despite geopolitical and tariff volatility, Lewin added.
KKR expects first-quarter capital markets revenue to be in the $200 to $225 million range, largely in line with the year-ago period.
(Reporting by Isla Binnie in New York, Arasu Kannagi Basil and Ateev Bhandari in Bengaluru; Editing by Emelia Sithole-Matarise)
((isla.binnie@thomsonreuters.com))