A key-man conundrum

KKR’s poaching of CLSA’s head of real estate has implications for private fund managers of all asset classes, finds Toby Mitchenall.

For the second time in a short period, events in the real estate sector have caught our eye, after KKR’s raid on Asian private fund firm CLSA Capital Partners caused the latter to halt investment on its latest fund.

In case you missed it: the US alternatives giant, which is by some criteria the dominant force in Asian private equity, recently poached John Pattar – head of CLSA’s real estate platform – to develop its own real estate investment business in the region.

CLSA is an established brand in Asia and certainly no minnow – it has raised around $2.2 billion across various private equity strategies and $2.25 billion for its series of real estate funds – but Pattar’s departure has cast doubt on the future of its real estate platform.

When Pattar left, the platform had invested around $650 million of its $1 billion Fund III. While CLSA intends to keep its real estate platform open for business long term, that fund has stopped investing and the remaining team will focus on managing the three assets in the vehicle.

Key-person events in private equity are rare; in Europe Doughty Hanson and Clessidra both experienced them when founders died, while Alchemy Partners and PAI Partners had “strategic differences” among the top brass. All four are still operating.

Two things mark the CLSA case out as interesting. First is that the circumstances around the departure seem – on the surface at least – undramatic: no death and no major strategic split. Pattar was offered a new role by a heavyweight brand and took it. Will investors look at a future KKR venture and wonder whether, having left one fund during its investment period, Pattar will be in it for the long haul?

Second is that the bigger firm could end up assuming management of the assets in CLSA’s latest fund. Investors will have the option to vote for a change in manager and KKR has raised its hand. As the firm told sister title PERE: “KKR and John are focused on supporting the objectives of the CLSA investors in any way that they would like us to in the stewardship of the few remaining assets in their fund.” It is difficult to predict whether this will happen, but there are a significant number of KKR investors among CLSA’s limited partners – about 80 percent of investors by capital committed to Fund III, PERE understands – which may have a bearing on the situation.

We can safely assume that KKR hired Pattar to raise its first Asian real estate fund. Its success depends on whether investors’ excitement will outweigh their displeasure over the situation at CLSA.

But if investors are keen, KKR could have come up with a new playbook for jumpstarting strategies.