Nephila investment roughly tripled in value for KKR

Private equity, buyout and investments giant KKR & Co. L.P. (or Kohlberg Kravis Roberts) said today that its 2013 investment in the largest insurance-linked securities (ILS) and reinsurance linked investment manager Nephila Capital has generated a significant profit for the firm.

With Nephila Capital being 100% acquired by Markel Corporation, in a deal announced at the end of August, KKR is set to realise the profit generated by its investment in the ILS manager and it looks set to be significant.

KKR acquired a 24.9% stake in Nephila Capital in January 2013 for an undisclosed sum.

At the time KKR bought into Nephila the ILS manager had roughly $8 billion of ILS and reinsurance linked assets under management.

Over the following years, up to the acquisition agreement with Markel Corporation in August, Nephila Capital grew its assets under management to roughly $12.5 billion.

But the value created by the firm was significantly higher and KKR’s management today divulged that the investment in Nephila is set to result in a roughly three times return on its initial investment.

William Janetschek, CFO of KKR, said that, “Since our initial investment in 2013, Nephila’s management team has done an excellent job of growing AuM from $8 billion to $12 billion,” since the investor bought into the ILS manager.

“Over this timeframe our investment also proved successful. The exit reflects a roughly 3 times return on our investment, allowing us to book an attractive realised gain,” he continued.

The mention of a three times return aligns well with Man Group’s profit from its stake in Nephila Capital as well, which said its 18.5% stake in Nephila would be worth around $130 million.

It suggests, based on our math, that the KKR stake was worth approximately $175 million, based on the acquisition price Markel paid (which remains unknown).

It’s important to also note that KKR benefited from incentive fees related to its stake in Nephila every quarter, which appeared to be as high as $9 million in a single quarter in previous years.

Hence the investment has delivered ongoing benefits over the years that KKR held the stake and now the three times return is a final monetisation event, as KKR exits its stake in the firm.

The profits set to be realised by both KKR and Man Group clearly show the significant value the Nephila leadership and team have created through their work in reinsurance-linked investing and breaking down value-chain barriers in the global insurance market place.