Private equity firms have unmistakably transformed over the past few years. At first, it was simply that industry titans like Apollo Global Management Inc., Blackstone Inc., Carlyle Group Inc. and KKR & Co. preferred to be called “alternative asset managers,” reflecting their sweeping investment strategies beyond leveraged buyouts. More recently, they have earmarked tens of billions of dollars for opportunities tied to sustainability, impact and the climate.

Yet through it all, leadership was slow to change with the times. It took ties with sex offender Jeffrey Epstein to cause Leon Black to step down as Apollo’s chief executive officer, forcing a shake-up that elevated Marc Rowan to the top position and pushed fellow co-founder Josh Harris to make plans to strike out on his own. Stephen Schwarzman, 74, remains atop Blackstone, which he established in 1985. 

Perhaps the most striking example of this generational inertia, though, was at KKR. Henry Kravis and George Roberts, cousins who founded the firm in 1976 and are a “K” and the “R” in its name, had initiated a succession plan four years ago but hadn’t publicly indicated much urgency to step aside. This fostered speculation that rising stars in the industry would seek employment elsewhere, knowing there was a cap on how high they could ascend.

Those rumblings were put to rest on Monday when KKR named Joe Bae, 49, and Scott Nuttall, 48, as co-CEOs. The move, effective immediately, means the firm immortalized by the book “Barbarians at the Gate” suddenly has younger leadership than its publicly traded peers Apollo, Blackstone and Carlyle. It’s a well-timed shift to keep pace with the industry, which has become so large that executives are sitting on hundreds of billions of dollars of uncommitted capital, known as dry powder.

Rather than chasing only blockbuster private equity deals, the biggest buyout firms have consciously shifted to more stable sources of capital. Apollo opted in 2009 to make a large investment in Athene Holding Ltd., quickly building it into one of the top fixed-annuity providers in the U.S. and a bedrock of Apollo’s business. In March, it announced a full acquisition. KKR was comparatively late to the game — in February, it closed on its purchase of a 60% stake in insurer Global Atlantic Financial Group. As my Bloomberg Opinion colleague Chris Hughes wrote at the time, it still left no doubt it was the old KKR.

KKR is also racing to keep up with the rest of its peers in amassing funds to invest in businesses addressing environmental and social challenges. It raised $1.3 billion for its first global impact fund in February 2020, before the onset of the Covid-19 pandemic in the U.S. Since then, with alternative asset managers flooded with cash, the targets have only grown: Apollo Impact Mission is aiming to raise $1.5 billion despite the backlash over Black and Epstein; growth equity shop General Atlantic is eyeing $4 billion for its new climate strategy; and the TPG Rise Climate fund, whose chairman is former Treasury Secretary Hank Paulson, has already brought in $5.4 billion. Even Blackstone, which has long invested in fossil fuel firms, has sought deals focusing on the clean-energy transition.

As if that weren’t enough, KKR is facing heightened competition for its bread-and-butter private equity strategy. Bloomberg News reported in July that Carlyle is looking to raise up to $27 billion for its latest flagship fund in what would be the industry’s largest-ever private equity pool, beating out Blackstone’s $26 billion record from 2019. Hellman & Friedman raised $24.4 billion for a flagship fund in July. Bloomberg reported in August that Silver Lake, which is known for technology deals, is in preliminary discussions with investors for a new flagship private-equity fund that may raise at least $20 billion. 

Kravis and Roberts, for their part, could be seen as going out on top. KKR raked in about $59 billion in the second quarter, far and away its largest fundraising haul on record. That was driven largely by the initial closings of its latest North America buyout fund, global infrastructure fund and core private equity fund — that is to say, exactly what the two dealmakers do best.

The cousins aren’t leaving the firm entirely: They will serve as executive co-chairmen. KKR will also move to a one-share, one-vote structure within five years, giving common stockholders more rights and making the company eligible for broader market indexes. “We are proud of what we have built to support companies and serve our clients over the last four and a half decades,” Kravis and Roberts said in a statement.

This is a watershed moment for the private equity industry — the clearest indication yet that running the likes of Apollo ($472 billion in assets), Blackstone ($684 billion), Carlyle ($276 billion) and KKR ($429 billion) requires an approach that goes beyond the leveraged buyouts that minted a class of billionaires and drew public scorn. These are huge asset managers that have evolved into one-stop shops for institutional investors and wealthy individuals. They have stakes in virtually all corners of the economy, from single-family homes to  manufacturers to businesses that grade sports trading cards.

Bae, who spent a decade in Hong Kong leading KKR’s expansion in Asia, and Nuttall, who oversaw growth in the firm’s credit, capital markets, hedge fund and fundraising groups, appear ready for the moment. Just don’t expect a takeover of an American industrial giant like Kravis and Roberts did with RJR Nabisco in 1988. If all goes according to plan, their story won’t be told by one stunning deal. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.

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