KKR: ‘Asia business can be as big as North America franchise’

The second quarter was a record period for fundraising for KKR.

The firm amassed $16.4 billion – more than twice its average new capital raised per quarter of $7.3 billion – the majority of which was for its latest Asia private equity fund, according to the firm’s second-quarter results published Tuesday.

KKR Asian Fund IV now stands at around $11 billion – 18 percent larger than its predecessor, the $9.3 billion Asian Fund III, a 2017 vintage – and the largest pan-Asian private equity fund in the world. KKR is still fundraising for the vehicle, which was switched on in July.

Of all the “significant growth opportunities” KKR has ahead, “maybe our biggest is in Asia,” chief financial officer Rob Lewin said on an earnings call accompanying the results. Asia assets under management are up almost 60 percent to $30 billion as of June 30, compared with a year ago, as non-private equity strategies such as infrastructure and real estate begin to scale in the region.

“Between the continued economic growth in Asia, secular tailwinds for the alternatives space in the region, and our differentiated track record as well as best-in-class local team, we really believe our Asia business can be as big as our North America franchise in the coming years,” Lewin said.

Co-president and chief operating officer Scott Nuttall added that the firm is “also working on private credit in Asia and growth tech in Asia.”

“We’re bringing, if you will, the rest of the KKR product suite to that part of the world and leveraging this footprint we’ve already built, and adding specific talent in each market as well to be able to execute on all this.”

KKR has completed three record-breaking deals in Asia during the pandemic, as sister publication Private Equity International reported in June. These include leading a consortium to acquire a minority stake in Vietnamese real estate developer Vinhomes for $650 million; investing 113.7 billion rupees ($1.5 billion; €1.4 billion) in Indian telecom network Reliance Jio Platforms in May – a record sum for its Asia private equity business; and agreeing to acquire a 55 percent stake in wealth management company Colonial First State from Commonwealth Bank of Australia for around $1.2 billion.

“One challenge is the difficulty in assessing the covid-19 impact, both in terms of the magnitude and the duration,” Ming Lu, head of Asia-Pacific at KKR told PEI in June, noting target companies had launched online data rooms and virtual meetings to facilitate due diligence.

“Another is that travel restrictions limit our ability to meet management teams and make site visits, which are important parts of our due diligence process. For most of our recent investments we had already been in discussions with the management team for quite a while – six or nine months – and completed deep diligence work, which gave us comfort.”

The New York-headquartered giant also raised $4 billion for its dislocation opportunities fund in the quarter, around 30 percent of which is committed or invested.

The firm’s flagship private equity funds – the $13.9 billion Americas Fund XII, the $9.3 billion Asian Fund III and the €3.5 billion Europe Fund IV – delivered a gross return of 11 percent in the quarter.

Nuttall said the firm has “learned a lot” during the current period of market volatility.

“We’ve really picked up our dialogue with our investors and prospects during this period: a lot of discussions, a lot of outreach, easily two [times] or three [times] what would be typical in a pre-covid environment,” he said.

“A lot of that has been comparing notes on what we’re seeing, talking about what we’re doing in terms of playing offense, a little bit on what we’re doing to play defense. So, I think one of the big lessons for us is that communication and transparency has really been beneficial to enhancing those relationships.”

‘Strategic weapon’

On the firm’s first-quarter earnings call in May, Nuttall spoke of “aggressive” growth plans for the firm, taking advantage of the market volatility and leveraging KKR’s balance sheet to “meaningfully expand.”

Since then the firm wielded its balance sheet as “a strategic weapon,” Nuttall said on Tuesday, agreeing to acquire retirement and life insurance company Global Atlantic in what will be its largest balance sheet investment to date.

KKR will pay the amount of GA’s book value when the deal closes – expected in early 2021 – which as of March 31 was around $4.4 billion, and initially expects to hold an ownership stake of 60 percent. Existing shareholders will be offered the chance to roll over, and KKR plans to syndicate a portion to co-investors, PEI reported in July.

Through the transaction, KKR plans to take over management of more than $70 billion of Global Atlantic’s assets, which will boost KKR’s AUM by 33 percent and its perpetual capital by almost five times.

As the transaction has yet to close, it is not reflected in KKR’s results for the second quarter.

Firmwide, KKR’s assets under management were up 7 percent quarter-on-quarter to $222 billion.

This article first appeared in sister publication Private Equity International