KKR buys 24.9% stake in Nephila

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US private-equity company KKR & Co has acquired a 24.9 percent stake in Bermuda-based Nephila Capital Ltd, an investment management firm that focuses on natural catastrophe and weather risk. Terms of the deal were not disclosed.

KKR obtained shares from Nephila’s management as well as from hedge fund manager Man Group Plc, which retained an 18.75 percent stake in the firm.

Nephila has around $8 billion in assets under management. Frank Majors and Greg Hagood started up the firm as part of global insurance broker Willis, at the time a KKR portfolio company.

It has more than 50 employees based at offices in Bermuda, San Francisco and Nashville.

Nephila is one of the pioneers of the ongoing convergence between the reinsurance industry and the capital markets, which has gathered pace with the high volume of catastrophe bonds and other insurance-linked securities established in recent years.

KKR is a leading global investment firm with $66.3 billion in assets under management as of September 30, 2012.

Reinsurance has become an attractive investment for hedge funds and private-equity firms seeking a sector that can return a decent yield while not being correlated with the financial markets.

Nephila’s management committee said: “Having access to KKR’s global network of relationships, infrastructure and management expertise will open up new doors for Nephila and our investors.

“We’re confident that our new partnership will strengthen relationships with our insurance counterparties and introduce new sources of investment opportunity, particularly with state governments that are exploring new ways to transfer catastrophe exposures.”

Nephila added that its management team would continue to manage the business as they do today, and Nephila’s investment strategies would also remain unchanged. In addition, all proceeds received by management at closing will be reinvested in Nephila funds.

KKR is best known for its corporate buyouts, but the Nephila deal is further evidence of the firm’s push into asset management. Last June, KKR acquired Prisma Capital Partners, an investment firm focused on hedge funds.

Henry Kravis and George Roberts, co-chairmen and co-CEOs of KKR, said: “In backing Nephila, we are partnering with a team we have known for more than 15 years, dating back to our investment in Willis Group. As the first dedicated manager of catastrophe risk investment strategies, they share the entrepreneurial spirit that pervades KKR’s culture and, with an excellent 14-year track record, we think they are the best team in the industry.”

Nephila also announced it will be closing its Juniper Catastrophe Fund and Triton Catastrophe Fund to new investor subscriptions based on its current assessment of market conditions. Its other strategies remain open.

Nephila’s investment committee stated: “We are committed to building the optimal profile of risk/return for our investors and will continue to actively monitor our investment capacity in each strategy relative to market opportunities.”

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