KKR raises watershed $6 billion for second Asia fund

KKR has formally closed its Asian II Fund at $6 billion, the biggest pan-Asia PE fund to date, with one-quarter of the assets raised from within the region.

Although the buyout firm, which runs $78.3 billion in AUM globally, announced the closure yesterday, the fundraising is said to have been completed late last year, with high demand resulting in the vehicle being oversubscribed.

Existing KKR limited partners contributed the bulk of capital, representing 77% of money raised. 

 Geographically, the Americas comprise 45%, or $2.6 billion, of assets in the new fund, followed by Asia (26%) and rest of the world (29%).

Allocations from four North Amercian pensions are well-represented in the LP base, with investors that include California Public Employees’ Retirement System ($500 million), Canadian Pension Plan Investment Board ($450 million), Washington State Investment Board ($400 million) and New York State Teachers' Retirement System ($85 million). 

The figures come from public disclosures by the four pensions which collectively comprise more than half of the fund’s allocation from the Americas.

KKR Asian II Fund follows the firm’s first Asia vehicle which raised $4 billion in 2007 – of which $908 million came from investors in the region – and a $1 billion China Growth Fund in 2010.

The latest vehicle marks a new watershed for private equity funds in the region, where some PE players are finding it difficult to reach fundraising targets.  

Hong Kong-based RRJ Capital earlier this year closed its second Asia-focused fund at $3.5 billion, below its $5 billion goal. Meanwhile TPG Capital is reportedly nearing a close of its sixth Asia fund at $3.5 billion – just shy of its $4 billion target.

While track records can help explain the difference between a fund that is oversubscribed and one that is under target, it is not the only factor.   

PE capital-raising has overall become more competitive, as the number of funds in the market has risen against a backdrop of static allocations.

Capital-raising has been especially difficult for so-called first-time fund managers – general partners in the market with their maiden vehicle. Only 6% of PE capital raised in Q1 flowed into first-time managers, according to data provider Preqin, compared to a high of 20% in Q4 2010.

Large institutions, such as pensions, are likely to view big established buyout firms as a safe bet for investment. KKR's first Asia fund had a net internal rate of return of 13.46% as of December 2012, according to a Washington State Investment Board document.

KKR says Asian II Fund will seek opportunities in sectors that include domestic consumption, financial services and infrastructure.  

No specific markets were named, although KKR Asia managing partner Joseph Bae has recently expressed interest in China, which continues to offer attractive returns, and Japan, where Abenomics has revived a staid PE market.

South Korea and Greater China each represent 25% of KKR’s current investments in Asia, followed by Australia (15%), India (14%), Japan (9%), Singapore (6%) and Vietnam (6%).