By Stephen Aldred and Greg Roumeliotis
HONG KONG/NEW YORK, Dec 17 (Reuters) – KKR & Co L.P. has
finished raising $6 billion for its second pan-Asia fund,
according to sources, the largest private equity pool ever
assembled for the region, with strong demand from pension funds
and endowments seeking emerging market returns.
KKR’s latest Asia fund, which follows a $4 billion
regional fund it raised in 2007, is over-subscribed, the sources
told Reuters, meaning demand exceeded the current total despite
challenges facing investors putting money into the region’s
slowing economy.
The Asia fund raising leg of the New York company, founded
by cousins and leveraged buyout pioneers Henry Kravis and George
Roberts, contrasts with KKR’s struggles in the United States,
where efforts to raise money for its next North American fund
has stalled.
KKR is competing with several other major firms in Asia for
investor money, including TPG Capital and Affinity Capital
Partners. Several factors appear to be behind KKR’s success in
raising the record $6 billion.
The core group of managers it brought out to run the Asia
operation in 2007 has stayed in place, with Joe Bae remaining at
the helm. It has also impressed investors with a solid track
record and, unlike some competitors, no major blow-ups according
to sources who did not want to be named.
The California public employee pension fund, known as
CALpers, invested $275 million into KKR’s first Asia fund,
according to the CALpers website – one of the few industry
investors that publishes the returns.
CALPers’ net internal rate of return is 11.4 percent from
the fund, the website says. That makes KKR a leader in returns
among the other global firms that raised large Asia funds around
2007, CALpers data showed.
KKR even cited its second Asia fund as a reason why it has
struggled to meet its fund raising goal for its next North
American fund.
“A lot of our investors started to focus on the Asia II fund
and we had significant amount of overlap in terms of our
investor base between those two geographic areas,” KKR’s head of
global capital and asset management, Scott Nuttall, told
analysts on a conference call in October.
The formal close of the fund is expected to be announced
early next year, said the sources, who could not be named as the
matter was confidential. KKR declined to comment.
KKR’s Asia portfolio includes South Korean beer and soju
maker Oriental Brewery and Vietnam’s Masan Consumer Corp.
APPETITE THERE
Asia-based private equity firms now account for 14.5 percent
of funds raised globally this year, or $50.2 billion, up from 8
percent in 2009, according to Thomson Reuters data.
However, that capital is going to a narrower band of funds,
as pension funds and endowments are pressing private equity
firms to boost returns in Asia, as a crop of funds they seeded
from 2006 to 2008 showed disappointing results.
After a steady climb from 2003 onwards, Asia private equity
investors have faced a volatile market since late 2008, when
returns took a huge hit following the global financial crisis
and have remained choppy ever since, despite the region’s
promise of high economic growth.
That has led some private equity firms to encounter, for the
first time, difficulties in raising money in Asia.
KKR was founded in 1976 by Kravis, Roberts and former Bear
Stearns colleague Jerome Kohlberg, who left shortly after the
firm’s launch. Kravis and Roberts are still heavily involved in
the day-to-day activities of the firm.
The New York-based company, immortalised in the best seller
“Barbarians at the Gates”, has been involved in some of the
largest leveraged buyouts in the history of the industry,
including the $31.8 billion purchase of the former Texas utility
TXU. That deal, which it did with TPG, turned out to be a major
disappointment.
KKR was a latecomer to Asia, opting to expand with a Hong
Kong office that opened in 2007, putting it behind the likes of
Carlyle Group and Warburg Pincus, which were long entrenched in
the region.
In one of its first notable Asia investments, KKR acquired
Singapore disk drive component maker Unisteel Technology
International through a leveraged buyout in 2008 for $575
million, beating out bids from Bain Capital and Carlyle Group
, and delisted the first from the Singapore exchange.
KKR agreed in August this year to sell Unisteel to
Switzerland’s SFS Group for close to two times the money it
invested as equity in 2008. .
KKR’s other Asian investments include its $1.8 billion
acquisition of Oriental Brewery in South Korea in 2009 to a $159
million purchase of 10 percent of Vietnam’s Masan Consumer Corp
in 2011, is among the best known private equity firms globally.
The firm this year opened its first office in Singapore and
put its first deals team on the ground in Southeast Asia,
signalling an increasing focus for private equity on that
region’s growth markets. KKR has invested more than $1 billion
in Southeast Asia so far.
It also has a separate, $1 billion China fund.
KKR is currently among second-round bidders for the
fibre-optics business being sold by Australian contractor
Leighton Holdings Ltd, a business that analysts say
could fetch as much as A$870 million ($917 million).
