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KKR seeks $2 bln for middle-market lending

  • New fund to provide loans to mid-market companies
  • KKR Lending Partners II closed $1.34 bln in 2015
  • Fund II netting a 16.2 pct IRR through Dec. 31

Kohlberg Kravis Roberts & Co set a $2 billion target for its newest direct-lending fund, almost a 50 percent increase from the $1.34 billion it raised for its previous direct-lending vehicle in mid-2015.

KKR Lending Partners III will provide loans to middle-market companies, typically those with $25 million or more in EBITDA, Minnesota State Board of Investment documents show. Fund III’s portfolio will include independent businesses and companies that are backed by a financial sponsor.

The firm disclosed it had launched Fund III during an earnings call with analysts on May 4. The fund is co-led by Daniel Pietrzak and Chris Sheldon, who also sit on the fund’s investment committee, Minnesota documents say. The committee’s other three members are Marc Ciancimino, Dev Gopalan and Nathaniel Zilkha.

The fund’s general-partnership group will commit at least $50 million to Fund III. Limited partners will pay a 1.5 percent management fee on invested capital.

Minnesota approved a commitment of as much as $200 million to KKR Lending Partners III at its May 31 meeting. The commitment remains subject to final negotiations.

The state investment board, which manages Minnesota’s $85.3 billion portfolio of pension, cash and trust funds, committed $75 million to KKR’s previous direct-lending fund.

Fund II returned a 16.2 percent net internal rate of return and 1.2x multiple on invested capital as of Dec. 31, an investment memo shows. Fund I, which raised $460 million in 2011, was netting a 6.9 percent IRR and 1.2x multiple as of that date.

KKR did not respond to a request for comment.

Minnesota approved the commitment through its allocation to private, yield-oriented assets, which was valued at a little more than $1 billion as of March 31. The yield-oriented portfolio has delivered a 1.82x multiple on invested capital as of that date.

Separate from its yield-oriented investments, Minnesota valued its private equity portfolio at $4.8 billion as of March 31, according to state investment documents. The PE portfolio has returned a 1.57x multiple as of that date.

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Henry Kravis (right), CEO of Kohlberg Kravis Roberts, departs after meeting India’s Prime Minister Narendra Modi on Sept. 29, 2014. Photo courtesy Reuters/Carlo Allegri