MODULE 2: PUBLIC-PRIVATE CREDIT 2.4 Capital Group KKR public-private credit funds

Capital Group has partnered with KKR to offer two fixed income public-private solutions. Watch this video to learn more about this investment opportunity.

David Bradin

Fixed income investment director at Capital Group

Holly Framsted

Head of global product strategy and development at Capital Group

7MINVIDEO

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Holly Framsted, Head of product group at Capital Group

 

Holly: Welcome. In this video, we’ll take a look at two public-private funds offered by Capital Group and KKR.

 

You’ll get to know how they work — and how they might fit into your clients’ portfolios.

 

In order to understand these funds, you’ll need to already know about interval funds that contain both public and private assets, and how they work.

 

If you’re not confident of your knowledge on the topic, take some time to review Capital Group’s other content in this series first. Then come back to this video.

 

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David Bradin, Director of fixed income investment at Capital Group

 

David: Let’s start with a quick refresher. As you may recall, public-private solutions are investment strategies that contain both public and private assets. Public-private solutions are often structured as interval funds, meaning, while investors can buy in at any time, they can only withdraw funds up to a certain limit at predetermined intervals.

 

That makes the interval fund structure a semi-liquid investment. Private investments are commonly considered the domain of institutional investors. Through the Public-private solutions, individual investors will be able to access similar opportunities as these institutions.

 

Public-private solutions are better suited for investors who can tolerate some illiquidity for long-term gain potential. Now, let’s take a look at two specific funds.

 

- Now’s the time to introduce you to two of our public-private funds: Core Plus+ and Multi-Sector+. Capital Group is offering these products in partnership with KKR, a firm with a long history of investing in private markets.

 

We call these products our public-private funds. Both contain a blend of public and private investments. The private credit portion of these products includes secured direct lending to private upper-middle market companies — plus asset-based finance rooted in real-world collateral. Both products are interval funds with quarterly withdrawal windows.

 

Each product has a target 60/40 allocation between public and private credit investments and the private allocation provides access to both secured direct lending and asset-based finance investments. The two products differ in how their public fixed income portion is allocated.

 

The Core Plus+ strategy’s public portion looks more like a traditional core plus fixed income fund. It has an intermediate duration and exposure to U.S. Treasury bonds, agency mortgage-backed securities, asset-backed securities and investment grade and high-yield corporate bonds. It is the more conservative of the two fund options.

 

The Multi-Sector+ strategy’s public portion looks more like a multi-sector fixed income fund allocation. This has a greater focus on yield than the Core Plus+ strategy and includes investment grade corporates, high-yield corporates and securitized credit.

 

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- Now that you know a little bit more about the products, let’s consider where they might sit within your clients’ portfolios. Some advisors think of private assets as an investment category, separate from fixed income and equities. That’s not how Capital Group and KKR view allocations to our public-private funds.

 

We considered the broader market when developing our products, envisioning them as a middle ground between traditional public fixed income and private debt investments. The goal is to offer enhanced and diversified sources of yield, as compared to public-only fixed income products.

 

When adding these strategies to a portfolio, consider the portfolio’s existing fixed income holdings. How big an allocation within the fixed income segment will depend on your investor’s capacity for risk, their time horizon and their liquidity preference.

 

- You can explain the strategy for these products like this: Different types of private credit investments have different levels of risk. For an investor, secured direct lending and asset-based finance investments in the private portion of the portfolio may seem similar to publicly issued debt in terms of their risk profile. Secured direct lending is similar to the loans that a bank provides to businesses, then packages to offer to investors in public markets. Asset-based finance may seem similar to asset-backed securities, such as auto loans, home equity loans or credit card receivables.

 

For more about fitting these public-private solutions into your clients’ portfolios, review our other materials. For example, in each of the sample portfolios, we replace a portion of the fixed income segment with Capital Group & KKR’s public-private funds. This gives you a better idea of how the funds might fit into your investment strategy for clients.

 

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- When reviewing our public-private funds with your clients, compare and contrast them with other fixed income assets. All will have different features and potential benefits as well as risks. Which ones are right for your client will depend on a variety of factors, including their income needs, investment time horizon, risk capacity and preference for liquidity.

 

Capital Group & KKR public-private funds may offer higher yields as a result of active fund management and the “illiquidity premium” — the premium over comparable stocks and bond investments which investors expect for investing in private market investments. Both these factors may promote higher returns over the long-term, as compared to traditional fixed income assets.

 

Of course, all investments are subject to risk. These funds are designed to address and mitigate some of the difficulties associated with private credit investments.  Private credit investments in our funds all go through KKR’s rigorous underwriting and investment process.

 

Additionally, KKR’s extensive macroeconomic, private equity and public policy resources, offer extensive cross-firm synergies. The size and scale of KKR’s private credit platform provides the resources and capabilities to access and to conduct the necessary due diligence in the private credit market.  Further, these investments are diversified across multiple sectors and industries to reduce overall exposure to a single one.

 

- Your clients will likely have more questions, and these products won’t be the right solution for everyone. But grounding your conversation in this knowledge can help you and your clients make the right choice when considering Capital Group and KKR’s public-private funds.

 

We’re excited to offer these products, and we hope you’re excited to explore public-private solutions as a potential investment for your clients. Private credit is a growing market, and we hope these products can make it more accessible to you and your investors.

 

As a next step, you may want to look at some of the detailed materials about our public-private funds. As you dive into these details, consider which features, potential benefits and risks will resonate with different clients and how you’ll highlight those features in your conversations. Thanks for joining us.

 

Deepen your understanding

Select each resource below to learn more.

Capital Group KKR Core Plus+ quick facts

 

When considering the Core Plus+ public-private fund for your investors, keep the following information in mind:

 

Objective

 

Provide a higher level of current income and seek maximum total returns, consistent with the preservation of capital.

 

Key takeaways

 

  1. Capturing a broader opportunity set: Invests across public and private markets, allowing investors to pursue higher income and total return across the full credit spectrum. The fund will seek to generally invest 60% in traditional fixed income and 40% in private credit under normal circumstances.                                                               
  2. Wide range of potential sources of income: Seeks to identify opportunities in core and core public fixed income sectors — such as Treasuries, asset-backed securities, investment-grade and high-yield corporates — and in private credit — specifically direct lending to upper-middle market companies and asset-based finance.                                                                                                                                                                                                                                                                                                                                                                                                                  
  3. Active risk management: Capital Group’s ongoing risk analysis and controls at the fund level along with Capital Group and KKR’s respective embedded risk analysis and mitigation processes at the individual investment level, seek to create a multi-layer risk ecosystem.                                                                                                                                 

 

Data points

 

  • Duration: Targets a duration +/- 2 years of the Bloomberg U.S. Aggregate Index 
  • Minimum initial investment: $1,000 
  • Repurchase interval: Quarterly        
  • Repurchase maximum: Up to 10% of the fund's outstanding shares 
  • Expense ratio: 1.28/0.98 (gross/net)*

 

Footnotes/Important information:

*Class F-2 shares. Expense ratios are as of the fund's prospectus available at the time of publication. The expense ratios are estimated. The investment adviser is currently waiving/reimbursing a portion of other expenses. Net expense ratios reflect the waiver/reimbursement.

 

The waiver/reimbursement will be in effect through at least April 22, 2026. Please see the fund’s most recent prospectus for details.

Capital Group KKR Multi-Sector+ quick facts 

 

When considering the Multi-Sector+ public-private fund for your investors, keep the following information in mind: 

 

Objective

 

Provide a high level of current income.

 

Key takeaways

 

  1. High income: Offers strategic active exposure to various higher income sectors in the public fixed income markets with a target of 40% of assets to be invested across higher income generating private credit sectors under normal circumstances.                                                                                                                                                                                       
  2. Flexibility: A broad portfolio that invests across investment-grade and high-yield corporates, asset-backed and commercial-backed securities, as well as private loans to direct middle market corporations and asset-based finance instruments.                                                                                                                                                                                                                                                                                              
  3. Enhanced opportunity set: With KKR’s well-established private credit platform, investors can pursue higher yielding credit opportunities that have not been historically available to the typical investor.

 

Data points

 

  • Duration: Targets a duration +/- 2 years of the Bloomberg U.S. Aggregate Index                                                                        
  • Minimum initial investment: $1,000                                              
  • Repurchase interval: Quarterly                    
  • Repurchase maximum: Up to 10% of the fund's outstanding shares 
  • Expense ratio: 1.33/1.03 (gross/net)*                                                                                                     

 

Footnotes/Important information:

*Class F-2 shares. Expense ratios are as of the fund's prospectus available at the time of publication. The expense ratios are estimated. The investment adviser is currently waiving/reimbursing a portion of other expenses. Net expense ratios reflect the waiver/reimbursement.

 

The waiver/reimbursement will be in effect through at least April 22, 2026. Please see the fund’s most recent prospectus for details.

Perspectives: Allocating public-private solutions in a portfolio

 

Discover how to strategize with private-credit based solutions in a client's portfolio. Our team discusses how to think about positioning public-private solutions alongside your investors' other assets. 

Holly Framsted

Head of global product strategy and development at Capital Group

Wesley Phoa

Solutions portfolio manager at Capital Group

John Queen

Fixed Income Portfolio Manager

3MINVIDEO

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Holly Framsted, Head of product group at Capital Group

 

Holly: Welcome. Today, I'm joined by two of our most senior investment professionals. Wesley Phoa, who is one of our solutions principal investment officers, and John Queen, who is a fixed income principal investment officer. 

 

Wesley, maybe I can ask you to put your solutions hat on, and can you help frame up an appropriate starting point for clients who want to think about adding private markets assets and private credit to their overall asset allocation?

 

Wesley Phoa, Solutions portfolio manager at Capital Group

 

Wesley: Sure. And of course, all this is understanding where you end up is going to depend on the needs and the characteristics of the particular client. The first thing is that you should think of these, they're deliberately designed to be thought of as alongside our existing fixed income strategies. Core Plus+ is something that you should think of all alongside Core Plus, um, Multi-Sector+ alongside our existing multi-sector income strategy.

 

You can bring a lot of the same intuitions you have to portfolio construction, just knowing that there's this extra sleeve that's adding value and diversification alongside. If you've already built a portfolio for your clients that's got a diversified mix of strategies, you have maybe 5, 10, 15% allocations to individual strategies, then I don't think you want to start out looking at these as any different. That allocations of a comparable size are a reasonable place to start and to think about what makes sense. But then, of course, you have to bring in what you know about your individual client, what their liquidity needs are all those different considerations that make the portfolio construction very personal.

 

- In the context of understanding a client's particular return profile, risk targets, liquidity needs, then a swap out at a 5, 10 or 15% level feels appropriate. For anyone who'd like to dig deeper into that concept of a 5, 10 or 15% allocation, you can reference the brochure, which will bring to life what this hypothetical allocation might look like in your client's portfolios, so that you can better evaluate the risk and return and liquidity tradeoffs of that portfolio.

 

Thank you so much. Three key takeaways that I had are, first, that private credit is a durable asset class, and we should think about incorporating it now in client portfolios and in broadening access to that asset class. Second, as we think about managing these public-private interval funds, the process for portfolio management is going to look and feel very similar to what Capital Group has long delivered multiple portfolio managers, now including KKR. And third, when you think about incorporating these in a portfolio, it doesn't have to be fundamentally different from how you're managing money today. Even a 5, 10 or 15% allocation, sized according to credit in your portfolio today, might be very appropriate for clients. Thank you so much for joining us, and I hope that you enjoyed this conversation.

Checkpoint

Now that you have completed this lesson, you should be able to confidently:

 

  • Describe to your clients the key difference between the Capital Group KKR Care Plus+ and Capital Group KKR Multi-Sector+ funds.    
  • Think about how you might strategically position these two public-private solutions alongside your clients’ other assets. 
  • Apply insights from the described Capital Group and KKR’s models to assess how institutional design can influence portfolio outcomes.

Takeaways

Core Plus+ and Multi-Sector+

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End of Module

Continue to the next module to learn about private equity, and how public-private equity solutions can increase access and potential returns for clients

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For financial professionals only. Not for use with the public.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the interval fund prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
For Public-Private+ Funds: Capital Group KKR Core Plus+ and Capital Group KKR Multi-Sector+ are interval funds that currently provides liquidity to shareholders through quarterly repurchase offers of up to 10% of its outstanding shares. Capital Group KKR U.S. Equity+ is an interval fund that currently provides liquidity to shareholders through quarterly repurchase offers of 5% of its outstanding shares. To the extent a higher percent of outstanding shares are tendered for repurchase, the redemption proceeds are generally distributed proportionately to redeeming investors (“proration”). Due to this repurchase limit, shareholders may be unable to liquidate all or a portion of their investment during a particular repurchase offer window. In addition, anticipating proration, some shareholders may request more shares to be repurchased than they actually wish, increasing the likelihood of proration. Shares are not listed on any stock exchange, and we do not expect a secondary market in the shares to develop. Due to these restrictions, investors should consider their investment in the fund to be subject to illiquidity risk.

- Investment strategies are not guaranteed to meet their objectives and are subject to loss. Investing in the fund is not suitable for all investors. Investors should consult their investment professional before making an investment decision and evaluate their ability to invest for the long term. Because of the nature of the fund's investments, the results of the fund's operations may be volatile. Accordingly, investors should understand that past performance is not indicative of future results.

- Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility. These risks may be heightened in connection with investments in developing countries.

- Illiquid assets are more difficult to sell and may become impossible to sell in volatile market conditions. Reduced liquidity may have an adverse impact on the market price of such holdings, and the fund may be unable to sell such holdings when necessary to meet its liquidity needs or to try to limit losses, or may be forced to sell at a loss. Illiquid assets are also generally difficult to value because they rarely have readily available market quotations. Such securities require fair value pricing, which is based on subjective judgments and may differ materially from the value that would be realized if the security were to be sold. Situations involving uncertainties as to valuation of assets held by the fund could have an adverse effect on the returns of the fund.

- The fund is a non-diversified fund that has the ability to invest a larger percentage of assets in the securities of a smaller number of issuers than a diversified fund. As a result, poor results by a single issuer could adversely affect fund results more than if the fund were invested in a larger number of issuers.

 

For Public-Private Credit+ Funds:

- Bond investments may be worth more or less than the original cost when redeemed. High‐yield, lower‐rated, securities involve greater risk than higher‐rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not.

- The funds may invest in structured products, which generally entail risks associated with derivative instruments and bear risks of the underlying investments, index or reference obligation. These securities include asset-based finance securities, mortgage-related assets and other asset-backed instruments, which may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market's perception of issuer creditworthiness; while generally supported by some form of government or private guarantee, there is no assurance that private guarantors will meet their obligations.

- While not directly correlated to changes in interest rates, the values of inflation-linked bonds generally fluctuate in response to changes in real interest rates and may experience greater losses than other debt securities with similar durations. The use of derivatives involves a variety of risks, which may be different from, or greater than, the risks associated with investing in traditional securities, such as stocks and bonds.

- The fund invests in private, illiquid credit securities, consisting primarily of loans and asset-backed finance securities. The fund may invest in or originate senior loans, which hold the most senior position in a business's capital structure. Some senior loans lack an active trading market and are subject to resale restrictions, leading to potential illiquidity. The fund may need to sell other investments or borrow to meet obligations. The funds may also invest in mezzanine debt, which is generally unsecured and subordinated, carrying higher credit and liquidity risk than investment-grade corporate obligations. Default rates for mezzanine debt have historically been higher than for investment-grade securities. Bank loans are often less liquid than other types of debt instruments and general market and financial conditions may affect the prepayment of bank loans, as such the prepayments cannot be predicted with accuracy.

 

For Public-Private Equity+ Funds:

- The fund also intends to concentrate in the financial services group of industries, and to invest at least 80% of its assets in securities issued by companies based in the United States.

- K-PEC and co-investment risks: The fund's investments in KKR Private Equity Conglomerate LLC (“K-PEC”) and co-investments alongside K-PEC or one or more other KKR vehicles that pursue private equity strategies entail additional risks. Private equity investments are typically illiquid, speculative, and difficult to value, often requiring multi-year holding periods with returns generally realized only upon sale or refinancing of a portfolio company. These investments depend on access to financing, and market disruptions or increased competition may limit opportunities and affect performance. The fund's significant investment in K-PEC creates concentration risk and a decline in K-PEC's value could materially impact the fund's returns. Co‑investment opportunities are competitive and limited and there is no assurance the fund will receive allocations or comparable terms and will generally have less information than for public companies. Through its investments in K-PEC or other KKR Vehicles and co-investments, the fund may have exposure to portfolio companies with limited operating histories, evolving markets, unproven technologies, and inexperienced management, which may require significant capital and create heightened vulnerability to downturns. Most holdings are illiquid, subject to resale restrictions and may require consents or be sold at a discount. Costs associated with investments in private equity are generally greater than those of investments in other asset classes. In addition to bearing their portion of the fund's fees and expenses, shareholders in the fund will indirectly bear a portion of the asset-based fees, incentive fees and other expenses incurred by the fund as an investor in K-PEC or other KKR Vehicles and in co-investments. Incentive fees are paid to KKR when the fund's investments in K-PEC or other KKR Vehicles and/or co-investments deliver returns in excess of a specified hurdle; when paid, these fees reduce the net realized returns of such investments.

This material does not constitute legal or tax advice. Investors should consult with their legal or tax advisors.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.
Capital Group and Kohlberg Kravis Roberts & Co. L.P. (“KKR”) are not affiliated. The two firms maintain an exclusive partnership to deliver public-private investment solutions to investors. KKR serves as the sub-adviser of Capital Group KKR Core Plus+ and Capital Group KKR Multi-Sector+ with respect to the management of each fund's private credit assets. KKR is not a sponsor, promoter, investment adviser, sub-adviser, underwriter or affiliate of Capital Group KKR U.S. Equity+.
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