20VC: Inside KKR's Monster $8BN European Fund | The $500M Turkey Gamble That Went Wrong | Do Andreessen & General Catalyst Scare KKR? | Will AI Kill the PE Model? | Can The PE Model Survive without IPOs and Where is the Liquidity with Philip Freise
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Key Quotes
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Topics
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Insights
🎯 Summary
20VC Podcast Summary: Inside KKR’s Monster $8BN European Fund with Philip Freise
This episode of 20VC features Harry Stebbings in conversation with Philip Freise, Co-Head of European Private Equity at KKR, discussing the firm’s massive $8 billion European fund, lessons learned from past investment mistakes, and the evolving landscape of private equity (PE) versus venture capital (VC).
1. Focus Area
The discussion centers on Private Equity and Growth Investing, specifically focusing on large-scale European buyouts, portfolio construction, managing market cycles (especially liquidity droughts), and the strategic differences between PE and early-stage venture capital. Secondary themes include the impact of technological disruption (AI) and geopolitical risks on investment theses.
2. Key Technical Insights
- PE Portfolio Construction Discipline: KKR manages its $8 billion fund with a disciplined structure, targeting around 15 investments. Freise emphasizes the necessity of forcing sales on “good” but not “great” performers (those compounding below 20%) to concentrate capital on true winners, contrasting this with the VC model that often relies on a few massive outliers.
- Deployment Pacing: Despite market volatility (like COVID-19), KKR maintained a disciplined, linear deployment schedule (targeting 20-25% per year over a 4-5 year cycle), learning from the GFC when they were too hesitant. They deployed aggressively during COVID, believing in controlling what they could.
- Partnership vs. Outright Buyout: Over the last 10-15 years, three-quarters of KKR’s European investments have been structured as partnerships (minority or significant stakes, e.g., 30-35%), rather than outright majority buyouts, reflecting a more collaborative approach with founders.
3. Market/Investment Angle
- Turkey Investment Failure: Freise detailed a painful $500 million loss in Turkey on a logistics player (UNRORO), stemming from underestimating the flexibility of the rule of law in emerging markets. This led KKR to adopt a blunt view: avoid political and currency risk when Western Europe offers ample opportunity.
- COVID-19 Investment Thesis: KKR deployed 40% of the fund during the pandemic, making bold calls like investing in Vella (a hair color brand) and Koti, based on conviction in underlying consumer behavior (e.g., demographics) that AI or lockdowns wouldn’t fundamentally change.
- Liquidity Cycle View: Freise dismisses the current liquidity drought as structural, viewing it as a cyclical hangover from the “artificial” exuberance of 2021/2022. He expects a return to “normal” liquidity, contrasting with predictions of permanent scarcity.
4. Notable Companies/People
- Philip Freise (KKR): Co-Head of European Private Equity, managing the $8B fund.
- KKR’s European Fund: Currently the largest private equity fund in Europe ($8 billion).
- Past Failures: UNRORO (Turkey logistics) and an investment in Africa (tulips/roses in Ethiopia).
- Successful Investments Mentioned: FGS Global, Superstruct, Assur-Springer, BMG Rights Management, GetYourGuide, and Vella/Koti during COVID.
- Web 1.0 Experience: Freise referenced his early involvement with Venture Park in 1999/2000, highlighting the critical lesson of choosing long-term oriented investors over those seeking quick flips.
5. Regulatory/Policy Discussion
Freise expressed a free-market view, stating that tariffs are not the answer to underlying economic issues in Western democracies. The discussion on Turkey implicitly highlighted the risk of weak regulatory and legal frameworks in certain emerging markets.
6. Future Implications
- AI vs. Traditional PE: Freise believes that while AI companies (like those in legal tech) may scale revenue faster than ever seen before, the fundamental principles of capital allocation remain crucial. He predicts that the hyper-scaling seen in early AI winners will not become the norm for all SaaS/software investments, maintaining a role for traditional, capital-intensive businesses (like his fertility clinic portfolio).
- PE vs. VC Skill Sets: He strongly asserts that the DNA and skill set required for late-stage PE (operational involvement, deep industry knowledge) are fundamentally different from those needed for early-stage VC (pattern recognition, speed). He admires VC leaders but sees KKR remaining focused on its later-stage operational expertise.
- Public Markets Decline: Freise noted that some family foundations are choosing PE partners over public markets due to the perceived lack of support and volatility in public listings (citing OHB and GFK as examples).
7. Target Audience
This episode is highly valuable for Private Equity professionals, Growth Equity investors, institutional Limited Partners (LPs), and corporate strategists interested in large-scale European deal-making, portfolio management discipline, and navigating market cycles.
🏢 Companies Mentioned
Open AI
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AI/Tech (Potential overlap)
British Bank
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unknown
Norwegian Sovereign Wealth Fund
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unknown
United States
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unknown
Angela Merkel
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unknown
EU AI Act
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unknown
European SEC
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unknown
Founders Fund
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unknown
Brian Singerman
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unknown
And Recrevis
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unknown
Can I
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unknown
United Nations
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unknown
World Bank
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unknown
Second World War
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unknown
Mansion House
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unknown
💬 Key Insights
"That's why what I said earlier, the fact that we were only allowing 1% of all the private individuals to participate in the, in our industry in the, alternative investing industry, that is not sustainable."
"It's a brilliant question and it's the most important question. And that's exactly why our industry, the investing industry needs to open for the many."
"The challenge with the extension of private markets is the wealth creation is shared between a very few number of people compared to public markets where it's obviously available to many more."
"Productivity gains, which will be extremely beneficiary to the world, don't mean that the challenges I just mentioned will be solved because there will be this disruption phase where many, many people who are... Why don't they be worsened? Because you'll have more people who are removed from labor force at the end, so even people of like working age will not be working."
"It only works if Norges Bank, that's assumed Norges Bank, which is the Norwegian Sovereign Wealth Fund, would suddenly be the British Bank and everybody of us has a stake in those companies. So if we had a fund that is actually catering to the pensions of everyone, which owns 20% of Open AI, you would be celebrating that development, right?"
"The only other way to do it to get rid of your interest income if your interest load is to inflate away your debt, right? So you do financial repression, which means you force your interest rates to be below the rate of inflation, which means in real terms, everybody who has assets loses."
📊 Topics
#artificialintelligence
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#startup
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#investment
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🧠 Key Takeaways
invest in Europe