KKR Raises $1.1 Billion for First Asia-Pacific Credit Fund

KKR & Co. raised $1.1 billion for its first credit fund focused on investments in the Asia-Pacific region, betting volatility will spark opportunities and deliver returns as high as in the mid-teens.

KKR, which globally manages $184 billion in credits, has already earmarked a third to half of the fund, with three quarters placed in Australia and Southeast Asia, Brian Dillard (picture), head of Asia credit at the New York-based company, said in an interview. The firm and its employees contributed more than $100 million to the fund, which is targeting low- to mid-teen returns, he said.

“During times of uncertainty and volatility, traditional capital pulls back and that is an opportunity for alternative capital,” Dillard said in an interview from New York. With concerns over geopolitics, inflation and a potential US recession eroding sentiment, “we’re seeing the opportunity set accelerate,” he said.

KKR’s fundraising spanned 20 months and more than half of the dollars raised came from Asia, with remainder spread among other regions. Asset managers and private investment group were among the biggest investors, with smaller contribution from public pension funds and family office.

Ahead of raising its first fund, KKR has made 14 credit investments totaling $2.4 billion in Asia-Pacific since 2019. It has provided acquisition financing as well as capital for companies and financial sponsors in the environmental services, real estate, education, infrastructure, and health-care sectors.

The close of the fund comes as many private-equity firms are suffering delays to finalising pools of capital with U.S. pension funds and endowments reluctant to invest in China. U.S. dollar-denominated funds that invest in the world’s second-largest economy raised $1.4 billion in the first quarter, the lowest amount for the same period since 2018 and a third consecutive quarter of declines, according to research firm Preqin.

The fund as of now has zero exposure to Chinese property developers, but has invested in businesses that have some links to the sector or have been lending against assets that are source of liquidity for cash-strapped developers, Dillard said. That included investing in the subordinated credit of a car park operator which looks to acquire more such assets as liquidity-strapped real estate developers divest.

The Asia credit effort has been boosted by KKR’s $50 billion platform in the region that spans from private-equity, real estate to infrastructure. About three quarters of the opportunities are internally driven, and vast majority of the remaining situations are where the credit team accesses resources from KKR’s Asian or global teams before making the investment.

The global markets turmoil and rising interest rates means KKR will stick to a conservative play book on capital structures in loans, funding healthy and strong businesses and safeguarding its downside protection, Dillard said.

Most Opportunity

Australia and Southeast Asia “tend to be where we see the most opportunity” because of demand from financial sponsors and corporates, he said. The fund has also completed a few credit deals in India and China and South Korea in the past 12 months. China and India exposure are each expected to be about 5% to 15%, Dillard said.

“It’s tough to paint Asia with a broad brush,” he said. “We have re-openings in South Asia and Australia, while closings have occurred in North Asia,” he said.

While Asia is the world’s largest credit market, and growing faster than the US and Europe, it’s dominated by relatively risk-averse banks, Dillard said. The region contributes to two-thirds of global growth but accounts for only 8% of private credit capital. The amount of cash available for credit investments in Asia is only a quarter of the level of Europe, while it reached 150% for private equity in Asia, he said.

Globally, the private equity powerhouse established its credit platform in 2004 and made its first private credit investment in the following year. – Bloomberg