Saturday, August 18, 2007

Changing the incentive structure - KKR philosophy

KKR doesn’t like to have trouble sleeping at nights. They make sure that by making the mgt invest heavily in the business, so that the mgt has trouble sleeping in the night.

Something to ponder – ROE, ROCE

Through leverage the company takes on debt and can raise its ROE above its ROCE as long as ROCE is higher than the net cost of debt.