| SINGAPORE/HONG KONG
SINGAPORE/HONG KONG U.S. private equity firm KKR (KKR.N) is seeing a "real opportunity" to invest in Spain's real estate and financial services in the wake of the country's debt crisis, said its co-founder Henry Kravis.
"We are not in any way writing off Europe. In fact, we are putting money to work there," Kravis said at a press conference in Singapore on Thursday.
Kravis, who co-founded KKR & Co LP in 1976 with his cousin George Roberts and colleague Jerry Kohlberg, was in Singapore to open the firm's new office there - its seventh in Asia since entering the region in 2005.
While KKR's new home in Asia underscores the growing investor interest in Southeast Asia, the legendary leveraged buyout pioneer spent a good part of the press conference discussing Europe, specifically, Spain.
Kravis said the country's financial system was broken and most banks are unable to lend to small and mid-sized companies, with KKR eyeing companies in the financial, hotel, leisure and real estate sectors.
KKR's move into Singapore comes at a time when regional funds are growing and deal volumes are falling.
The U.S. private equity firm has invested more than $1 billion in Southeast Asia, ploughing money into companies such as Singapore's MMI Holdings and Vietnam's Masan Consumer Corp. KKR expects to exceed that amount in the next five years, said Ming Lu, head of KKR's Southeast Asia team.
He said financial services, consumer and parts of the resources sector such as palm oil were attractive.
KKR is raising $6 billion for its second Asia private equity fund, which would be the largest such fund ever devoted to the region.
It has already raised about $4 billion for the Asia fund, sources with knowledge of the fundraising said, declining to be identified because the information is private.
Competition among local and global investment firms is rising in Asia.
In Southeast Asia, Blackstone Group (BX.N) and General Atlantic are also opening Singapore offices, while Warburg Pincus WP.UL and Bain Capital are hunting for executives to build teams to invest in the region's fast-growing economies.
But with deal volumes falling and an average equity investment per deal in Asia of around $40 million, according to an industry estimate, investors in private equity firms are concerned.
Private equity M&A deals in the Asia-Pacific region fell 17 percent in the first nine months to $22 billion from a year earlier, according to Thomson Reuters data.
The drop came as regional markets declined, forcing buyers to wait out the storm and sellers to wait for better valuations.
Investors are worried that managers will end up either overpaying in order to put a large pool of money to use, or will be unable to put the entire amount to use given the relatively small deal sizes.
Some investors, however, point out that corporates are in great need of capital across Asia, and the time will come when private equity cash will increasingly fill that void.
Asia now has $139 billion in so-called dry powder, or uninvested capital, with another $130 billion in new funds currently being raised for investments, according to Singapore-based data provider Preqin.
Preqin estimates that around $10 billion is being raised through Indonesia-focused funds alone.
Kravis's visit to Asia coincides with a similar trip by rival Stephen Schwarzman, CEO and co-founder of Blackstone Group LP (BX.N), who is hosting a press conference at his firm's Hong Kong office on Friday.
(Additional reporting by Saeed Azhar; Editing by Ryan Woo)