KKR raises $6 billion Asia fund, region's largest ever: sources

HONG KONG/NEW YORK Mon Dec 17, 2012 6:14am EST

HONG KONG/NEW YORK (Reuters) - KKR & Co L.P. has finished raising $6 billion for its second pan-Asia fund, according to sources, the largest private equity pool ever assembled for the region, with strong demand from pension funds and endowments seeking emerging market returns.

KKR's (KKR.N) latest Asia fund, which follows a $4 billion regional fund it raised in 2007, is over-subscribed, the sources told Reuters, meaning demand exceeded the current total despite challenges facing investors putting money into the region's slowing economy.

The Asia fund raising leg of the New York company, founded by cousins and leveraged buyout pioneers Henry Kravis and George Roberts, contrasts with KKR's struggles in the United States, where efforts to raise money for its next North American fund has stalled.

KKR is competing with several other major firms in Asia for investor money, including TPG Capital and Affinity Capital Partners. Several factors appear to be behind KKR's success in raising the record $6 billion.

The core group of managers it brought out to run the Asia operation in 2007 has stayed in place, with Joe Bae remaining at the helm. It has also impressed investors with a solid track record and, unlike some competitors, no major blow-ups according to sources who did not want to be named.

The California public employee pension fund, known as CALpers, invested $275 million into KKR's first Asia fund, according to the CALpers website - one of the few industry investors that publishes the returns.

CALPers' net internal rate of return is 11.4 percent from the fund, the website says. That makes KKR a leader in returns among the other global firms that raised large Asia funds around 2007, CALpers data showed.

KKR even cited its second Asia fund as a reason why it has struggled to meet its fund raising goal for its next North American fund.

"A lot of our investors started to focus on the Asia II fund and we had significant amount of overlap in terms of our investor base between those two geographic areas," KKR's head of global capital and asset management, Scott Nuttall, told analysts on a conference call in October.

The formal close of the fund is expected to be announced early next year, said the sources, who could not be named as the matter was confidential. KKR declined to comment.

KKR's Asia portfolio includes South Korean beer and soju maker Oriental Brewery and Vietnam's Masan Consumer Corp.

APPETITE THERE

Asia-based private equity firms now account for 14.5 percent of funds raised globally this year, or $50.2 billion, up from 8 percent in 2009, according to Thomson Reuters data.

However, that capital is going to a narrower band of funds, as pension funds and endowments are pressing private equity firms to boost returns in Asia, as a crop of funds they seeded from 2006 to 2008 showed disappointing results.

After a steady climb from 2003 onwards, Asia private equity investors have faced a volatile market since late 2008, when returns took a huge hit following the global financial crisis and have remained choppy ever since, despite the region's promise of high economic growth.

That has led some private equity firms to encounter, for the first time, difficulties in raising money in Asia.

KKR was founded in 1976 by Kravis, Roberts and former Bear Stearns colleague Jerome Kohlberg, who left shortly after the firm's launch. Kravis and Roberts are still heavily involved in the day-to-day activities of the firm.

The New York-based company, immortalized in the best seller "Barbarians at the Gates", has been involved in some of the largest leveraged buyouts in the history of the industry, including the $31.8 billion purchase of the former Texas utility TXU. That deal, which it did with TPG, turned out to be a major disappointment.

KKR was a latecomer to Asia, opting to expand with a Hong Kong office that opened in 2007, putting it behind the likes of Carlyle Group and Warburg Pincus, which were long entrenched in the region.

In one of its first notable Asia investments, KKR acquired Singapore disk drive component maker Unisteel Technology International through a leveraged buyout in 2008 for $575 million, beating out bids from Bain Capital and Carlyle Group (CG.O), and delisted the first from the Singapore exchange.

KKR agreed in August this year to sell Unisteel to Switzerland's SFS Group for close to two times the money it invested as equity in 2008.

KKR's other Asian investments include its $1.8 billion acquisition of Oriental Brewery in South Korea in 2009 to a $159 million purchase of 10 percent of Vietnam's Masan Consumer Corp in 2011, is among the best known private equity firms globally.

The firm this year opened its first office in Singapore and put its first deals team on the ground in Southeast Asia, signaling an increasing focus for private equity on that region's growth markets. KKR has invested more than $1 billion in Southeast Asia so far.

It also has a separate, $1 billion China fund.

KKR is currently among second-round bidders for the fiber-optics business being sold by Australian contractor Leighton Holdings Ltd (LEI.AX), a business that analysts say could fetch as much as A$870 million ($917 million).

(Editing by Michael Flaherty and Alex Richardson)