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KKR prepares $9 bln final close for Asian buyout fund

  • Asia Fund II fully deployed after active Q1
  • Nuttall says KKR sees lower valuations, better opportunities in Asia
  • KKR recently completed two corporate carve-outs in Japan

Kohlberg Kravis Roberts & Co expects to close its newest Asia-focused private equity fund on upwards of $9 billion this summer, said Chief Financial Officer William Janetschek on a first-quarter-earnings call.

KKR Asian Fund III held a first close in April on roughly $5.8 billion, according to SEC filings. Limited partners include Minnesota State Board of InvestmentNew York State Common Retirement Fund and Oregon Public Employees Retirement Fund.

Its previous Asia-focused fund closed on $6 billion in 2013 and was netting a 26 percent internal rate of return and 1.4x multiple as of Sept. 30, Minnesota documents show. That vehicle is now fully deployed.

The firm managed to deploy the remainder of Fund II during a first quarter in which Asian PE accounted for a disproportionate amount of deal flow, relative to the platform’s size within KKR’s $80 billion private markets business.

Roughly 65 percent of the $5.4 billion KKR deployed in the quarter was through its private equity funds. Within PE, $1.9 billion of the fund deployment was in Asian deals, which included its acquisitions of power-tools producer Hitachi Koki and Calsonic Kansei Corp, an automotive-components business previously owned by Nissan Motor, Janetschek said on the call.

“The story for us has been a meaningful pickup in Asia deployment, with a focus on corporate carve-outs in Japan,” said Scott Nuttall, KKR’s head of global capital and the asset-management group, during the call.

The firm’s recent activity has been aided by superior market dynamics in Asia, Nuttall said. A spike in Asian buyout activity also provides the potential for the firm to leverage its capital-markets business, which scooped up more than $121 million of transaction fees in the first quarter.

“A lot of the transactions we’re seeing in Asia are in 7x-9x EBITDA range with very low-cost financing,” he said. KKR has sold more companies than it’s purchased in the U.S. lately, where purchase-price multiples “run the gamut depending on growth.”

North American PE accounted for just 17 percent of the capital KKR deployed in the first quarter, Janetschek said. The firm closed its flagship North American buyout fund on $13.9 billion in March.

“The reality is it’s a very highly valued equity market right now, so there are no bargains. You have to be quite selective in terms of where you invest and where you lean into,” Head of Americas Private Equity Alex Navab told Buyouts in an interview upon KKR Americas Fund XII’s close.

KKR closed the quarter with $138 billion of assets under management, $107 billion of which generates revenue in the form of management and transaction fees, as well as carried interest. On Thursday, activist hedge fund ValueAct Capital disclosed it had acquired a 5 percent stake in KKR, valued at $750 million.

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Scott Nuttall, KKR’s head of global capital and the asset-management group. Photo courtesy of the firm.