A GUIDE for INVESTORS | 2020
Introducing a new era in private equity.
› Private equity provides the potential to outperform listed stocks over time. › Accredited investors can now access private equity with a modest minimum investment and no exposure to capital calls. › Kohlberg Kravis Roberts & Co. (KKR) has over 43 years’ experience in private equity.
RETHINKING PRIVATE EQUITY Altegris KKR Commitments Fund.
Altegris invites accredited investors to gain broad exposure to private equity managed by KKR via the Altegris KKR Commitments Fund, a continuously offered closed-end fund.
References herein to the “Fund” or “Altegris KKR Commitments Fund” in each instance refer to the Altegris KKR Commitments Master Fund, unless specified otherwise. KKR is neither a sponsor, promoter, advisor nor affiliate of the Fund. There is no agreement or understanding between KKR, Altegris, Artivest, or StepStone regarding the management of the investment program of the Fund. 2 • altegris.com/KKR • January 2020 Why privateWhy equity now? Institutional investors recognizedInstitutional have long the value Two reasons:Diversification ofpublicequity 100% Diversification ensure not profit does protect or apositive in loss market. against declining or There guarantee is no that any investment will 1 achieve itsachieve objectives, generate profits avoid losses. or guarantee Past is no of future performance results. that private equity provides in a long-term portfolio. inthat along-term private equity provides fiscal 2018, fiscal largest commitment its single real estate natural and resources. AS OF FIGURE 1.YALE’S GROWINGSTAKE INPRIVATE EQUITY University endowments’ average commitment to University 2 What attracts theseinstitutions toprivate equity? on managers. Many investors’ experience, financial means, objectives, risk tolerance and time frame will differ from that of institutions, and they may not be able to access access to able be not may they and institutions, of that from willdiffer frame time and tolerance risk objectives, means, financial experience, investors’ Many managers. on for example, allocated33.1 pe exposure andthepotentialfor outperformance. We construed as investment advice. For illustrative purposes only. large institutions invested more. Yale The Endowment, the same investment opportunities as institutions. These factors should be taken into consideration when creating an allocation to alternatives. The above should not be be not should above The alternatives. to allocation an creating when consideration into taken be should factors These institutions. as opportunities investment same the private private believe thatpublicequities willproducelow returns Not everyone can invest like an institution. institution. an like invest can everyone Not Source: 2017 2017. 30, Study as of June of Endowments NACUBO-Commonfund 20% 40% 0% 80% Source: 2018 Yale private Includes Endowment. equity, private real estate venture and capital allocations. For 2012–2018, real assets include 0% JUNE 2018 equity was 21 percentequity in 2017, 198 1988
1990 1992 1994 rcent in to private equity Institutions are professional money managers who have unique access and the ability to perform extensive due diligence diligence due extensive perform to ability the and access unique have who managers money professional are Institutions 199 1 though some some though 1998 [ FIGURE 1 FIGURE
2000
2002 ] . 2
2004 Endowment, have significantlyincreased exposure to outperformance topersist.Private canprovide equity over thenext tenyears, butexpect private equity’s volatility. Enhanceddiversification isalsoanimportant equities may help in reducing a total portfolio’sequities may helpinreducingatotal a potentiallypowerful return enhancementtoan investor’s allocation publicequity reason why institutional investors, such as The Yale low diversification between private andpublic equity private over equity the pasttwodecades. 200 2008 2010 2012
2014 201 [ FIGURE 2 FIGURE 2018 T D R Fi Forei A P A C ri eal om sol ash ed O LLO v ] . Additionally, at T est
asset n 1% ut e i A ncom i e ui e e ui c C L ret
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17% t e urn 26% : ty T y
4% 33% t 2 I 15% y
O 0 4% 1 N 8
The referenced indices are shown for general market comparisons and are not meant to represent any particular investment. There are significant differences in differences significant are There investment. particular any represent to meant not are and comparisons market general for shown are indices referenced The Source: State data Street on from Bloomberg, based and S&P. period of availability. common on Date range based fact equities that public barrier have alower to private entry than equities. There is to also greater information access public about DURING 3 Past is indicative not performance of future results. There guarantee is no that any investment will its achieve objectives, generate public equitiespublic provide greater liquidity whereas private equities are highly illiquid. considered 11 Refer to page for further disclosure profitsor avoid losses. Thereare and significant public private equities,differences between but include notare limited which the to, on theStateon Street Private Exchange Global Equity Index. fees that may be charged to an investment product based on the index, which may materially affect the performance data presented. presented. data performance the affect materially may which index, the on based product investment an to charged be may that fees the risks and potential for volatility of the Fund relative to an index. An investor cannot invest directly in an index. Moreover, indices do not reflect commissions or commissions reflect not do indices Moreover, index. an in directly invest cannot investor An index. an to relative Fund the of volatility for potential and risks the companies. Privatecompanies. equities time horizon typically equities have alonger public than before profits, any,if are realized.Additionally,
Annual ReturnofUSStocksversusPrivateEquityIndexRates(%)Q32004–Q32019 an FIGURE 2.PRIVATE EQUITYHASSHOWNHISTORICALOUTPERFORMANCEOVERTIME YEAR The State Street Private Exchange Global therefore, was created Equity 2004, Index Q3 in data reflectspartialperformance. a of year AVERAGE (MEAN) AVERAGE 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 MAXIMUM MINIMUM AVERAGE RETURN 3 the PAST PRIVATE DECADES, TWO EQUITY -37.0% -4.38% -37.0% YEARLY RETURN 12.0% 1.4% 13.7% 16.0% 15.1% 15.8% 7.2% 7.2% 500 0 5 P & S 10.3% 4.9% 28.31% 21.8% 2.1% 26.5% 32.4% 5.5% 32.4% that is 3 HIGHER
than PUBLICLY TRADEDSTOCKS -25.1% -25.1% 12.3% 17.5% 17.3% 17.6% 10.1% 18.7% 12.3% 18.0% PRIVATE EQUITY INDEX EQUITY PRIVATE STATE STREET GLOBAL EXCHANGE GLOBAL STATE STREET 11.9% 21.1% 30.8% 9.74% 8.70% 8.9% 6.0% 6.3% 30.8%
3 has
PRODUCED
3 • Altegris KKR Commitments Fund 4 • altegris.com/KKR • January 2020 Does private equity meet your needs? Source: of US Bureau Labor Statistics; World Federation of Exchanges; Artivest. Thissignificant market depth provides investors opportunityto invest the in universea large of private The numberoflargeprivate companiesismorethanthreetimesthesize ofpubliclytradedfirms. 4 information and public company services. services. company public and information
February 2008, NASDAQ and OMX merged to form the NASDAQ OMX Group Inc., which is a leading provider of trading, exchange technology, listing, listing, technology, exchange trading, of provider is aleading which Inc., Group OMX NASDAQ the form to merged OMX and NASDAQ 2008, February through initialpublicofferings, or recapitalizations that canbeimproved throughoperationalefficiencies NASDAQ Private firmsattempt equity tocapitalizeuponthe established in 2004 as the result of the merger between the Swedish futures and stock exchange (OM AB) and Helsinki Stock Exchange (HEX). In In (HEX). Exchange Stock Helsinki and AB) (OM exchange stock and futures Swedish the between merger the of result the as in 2004 established opportunity setby buildingaportfolio ofcompanies AS OFMARCH2018 sales toastrategicbuyer. companies thathave acquisitionandgrowth potential and strategicgrowth initiatives. Value isrealized FIGURE 3.PRIVATE EQUITYOPPORTUNITIESDWARF THELISTEDMARKET Depicts the percentage of listed domestic companies on US exchanges versus of US private thetotal US exchanges number on of firms, listed sector Depicts percentage the companies domestic
NASDAQ NYSE; date and OMX of data common on Date range listed based exchanges. foreign these on excludes companies availability from sources. not seasonally adjusted. Listed companies on US exchanges is derived from the number of domestic companies on the the on is derived adjusted. seasonally not Listed of from companies domestic US exchanges on number the companies on USexchanges listed domesticcompanies with 500+employeesversus of USprivatesectorfirms Percentage oftotalnumber 81.1% stands for National Association of Securities Dealers Automated Quotations. Quotations. Automated Dealers Securities of Association National for stands NYSE stands for New York Stock Exchange, and is one of the world’s leading equities markets. equities leading world’s the of is one and Exchange, York Stock New for stands [ FIGURE 3 FIGURE “illiquidity premium.”“illiquidity To promotevalue creationonalong-termbasis, their commitments. The potentialfor outsized pay-off for private investments equity isreferred toasthe holding periodsfor companiestendto private equity accordingly, shouldnotexpectfor immediateliquidity be lengthy, perhapsasmuch astenyears. Investors, ] .
OMX 4
is the brand name of the company, which was was which company, the of name brand is the
PRIV LISTED A TE C COM OMP
A P A NIES NIES
R E T U R N P E R C E N TAG E “J-curve” effect Investment private the and equity returns The concept that the curve depicted by plotting the returns generated by a private equity fund against time (from inception to termination) will resemble the letter “J.” letter the resemble will termination) to inception (from time against fund equity aprivate by generated returns the plotting by depicted curve the that concept The The “J-curve” describes a typical pattern of returns pattern “J-curve”The atypical describes that this illustrative will example reflect actual returns flows cash or of any private equity fund. investment aprivate in An equity entails fund The INVESTMENT RETURNS RETURNS INVESTMENT investment in the Fund. 5 a high degree of risk. degree a high where Except specifically reference named, to “a private “private or equity fund” equity investors” to apply an not does
Capital call: call: Capital equity fund tends toequity show low negative or returns due to fees whereas investment ifany, gains, in a private equity fund. In early years, aprivate fund. In early in aprivate equity This illustrative flows of cash returns example and of aprivate only. equity is fund purposes provided for discussion There assurance no be can r a I R P AR n e
f H R t
u a t u h n A i r LIFECYCLE AR e d w n se ca S
i s an n E O i ill e t Private equity funds issue capital calls to investors (limited partners) when a portion of their committed capital is needed to fund investments. investments. fund to needed is capital committed their of aportion when partners) (limited investors to calls capital issue funds equity Private i d a N l y
x c pit h a E AR e s i ar b h fl it lowo a s o l o f i ws n v r es
n R tme e AR gat of a of n i v t , e PRIVATE INVESTMENT: EQUITY En P Cap a i P AR 5 n s n H RIV v e C A e i h s t R e t a S d e a A l i E T d o and the and e n T s c d ; t E c v a A W e y
e v l E r f l p R e AR O i Q d f o c
a u a U
r l r t l l o I y u m i T o six , f e Y “J-CURVE” EFFECT “J-CURVE” EFFECT u n n
F v
d y es UND s ar R e ar AR t
usually come inusually the come later years as companies commitment being called. commitment called. being receive to distributions prior their entire mature. investors to Private equity often start o s e r
s