KKR may team with Japan’s state-backed funds on buyout deals

(Reuters) – KKR & Co LP may team up with a Japanese state-backed fund to find buyout targets for its $6 billion Asian fund, a year after the U.S. private equity firm and some rivals complained that state funds could impinge on their investment opportunities.

KKR has been in talks with the Innovation Network Corporation of Japan (INCJ) for possible joint investment, Hirofumi Hirano, chief executive of KKR Japan, said at the Reuters Japan Investment Summit on Monday.

KKR lost out to INCJ in 2012 for control of chipmaker Renesas Electronics Corp. Several months later it teamed up with Carlyle Group LP and other private equity peers to issue a public statement that the state’s three biggest funds, with $34 billion, were potential competitors to private equity firms seeking investments.

The group said state-backed funds would not be as strict as private equity firms on restructuring troubled assets, and called for limits to both the amounts and time periods for state-backed funds’ investments.

Private equity firms typically seek higher returns in shorter periods than do state-backed funds, but Hirano — who joined KKR last year from turnaround advisory firm AlixPartners — said it was possible to structure deals to accommodate investment partners with different return targets.

“Each deal has a different group of investors, such as equity investors, senior debt providers and mezzanine debt providers and they all have different return targets,” Hirano said at the summit, held at the Reuters office in Tokyo.

“The benefit to teaming with state-backed funds is that they have a lot of information. What they know is different from what we do. For example, they know who has the most advanced technology,” he added.

KKR has raised a record $6 billion of private money to invest in Asia. After closing the Asian II Fund last year, Hirano said he wanted to spend a significant portion in Japan.

In September, KKR agreed to buy the healthcare business of Panasonic Corp (6752.T) in a deal worth about 165 billion yen ($1.62 billion), in one of Asia’s largest buyouts.

Prior to that deal, KKR’s only acquisition since opening an office in Tokyo in 2006 was for temporary staffing agency Intelligence Holdings, which it sold last year to another staffing agency.

KKR’s Asian II Fund follows the $4 billion Asia fund raised in 2007 and $1 billion China Growth Fund of 2010. The firm said it has invested more than $5 billion in Asia since 2005.

By Junko Fujita

(Editing by Edmund Klamann and Louise Heavens)

Photo: Hirofumi Hirano, Chief Executive Officer of Kohlberg Kravis Roberts (KKR) Japan, speaks during the Reuters Japan Investment Summit in Tokyo May 19, 2014. REUTERS/Toru Hanai