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Why ValueAct bought into KKR

Jeff Ubben, the CEO of activist investor ValueAct Capital, spoke briefly with Axios about his firm's acquisition of a 5% stake in private equity giant KKR & Co. Two notes:

Investment thesis: Ubben believes that KKR stock is undervalued, so either the markets begin to get it "right" or KKR management will eventually choose to convert the structure (perhaps a take-private?). Either way, ValueAct would get paid.

Differentiator: So why KKR, given that stock price undervaluing could also be an argument for buying into, say, Apollo? The answer is KKR's outsized balance sheet, which Ubben sees as a flexibility boon whereas many other managers view it as a burden. For context, S&P Capital IQ shows that KKR's total balance sheet assets were around $39 billion at the end of 2016. Blackstone was $26 billion, Carlyle was around $10 billion and Apollo was $5.6 billion.