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KKR: Why Gabelli is Bullish

Updated with opening share price.

NEW YORK ( TheStreet) -- KKR & Co. (KKR - Get Report) started trading on the New York Stock Exchange Thursday, and among the shareholders is well-known investor Mario Gabelli.

Gabelli, Chairman, CEO and CIO of Gamco Investors (GBL - Get Report), says he has known KKR co-founder Henry Kravis since 1979, when both men were in their mid-thirties. An analyst at the time, Gabelli wrote a report on Houdaille Industries, a public company in which clients of his were invested.

Henry Kravis
Kravis on Gabelli: "Who the hell are you?"

Soon after he wrote the report came KKR's then-historic buyout of the Fortune 500 conglomerate, and Gabelli took out a ad in The Wall Street Journal.

"My ad was very tiny. It was like 140 bucks. I said 'Congratulations to my friends at Houdaille, and thanks to Henry Kravis, we made money.' He Kravis calls me up and says 'Who the hell are you?' I said 'Henry we went to Columbia business school two years apart. I'm older than you. Stop! And so we've done a lot of things together over the last 30 years."

Still, Gabelli did not buy shares of KKR & Co. Guernsey (KPEQF.PK), the offshore KKR vehicle that is being merged into the new U.S.-listed company, until they were near their historic lows in the $2-$3 range during the worst days of the 2008 crisis. Gabelli says he added to that allocation Tuesday morning, when the shares were above $10. According to Thomson Reuters data, Gabelli's Gamco Investors Inc. owns about $12 million worth of KKR & Co. Guernsey, making it the 10th largest shareholder. That stake amounts to just half a percent of the company.

Mario Gabelli
Gabelli on Kravis: "He's got an ego."

While part of the original rationale for the investment was that it was a cheap way to play Sun Microsystems, which was part of the KKR portfolio at the time, Gabelli is now betting on a private equity turnaround and the fact that Kravis is putting his reputation on the line.

"He's got an ego. It's not as visible as The Blackstone Group (BX - Get Report) Steve Schwarzman's, but he's got proven global skill-sets, and he's willing to go back and keep hammering away to do another KKR IV or VI or VIII--and Fund VIII will come at the right time. The way I look at it is like great wine vintages. Some years like 2000 are going to be fabulous and two years later the Bordeaux are not going to be as good," Gabelli says.

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