KKR brings in initial $1.9bn for sophomore global impact fund

KKR raised nearly $1.9 billion for a global impact offering, the private equity giant’s second since unveiling the strategy in 2018.

Initial commitments to KKR Global Impact Fund II and parallel vehicles were disclosed this week in Form D documents.

The target for Fund II is not known. It is already 45 percent larger than KKR’s inaugural impact pool, closed two years ago at $1.3 billion, ahead of a $1 billion target. The firm declined to comment.

The impact strategy was set up to invest in lower mid-market companies whose products or services address an environmental or social challenge. Investments, sourced across the Americas, Europe and Asia, fall under four core themes: climate action, lifelong learning, sustainable living and inclusive growth.

KKR chooses opportunities according to their alignment of financial performance and societal impact. In practice, this means target businesses must exhibit the potential to deliver both superior risk-adjusted returns and measurable progress toward one or more of the United Nations’ 17 Sustainable Development Goals.

KKR Global Impact Fund I was performing strongly as of June, earning a gross IRR of 39.4 percent and a net IRR of 28.9 percent, KKR reported in a Form 10-Q filing.

LP demand for opportunities in harmony with their ESG policies, such as impact and sustainability products, has been a key trend in recent PE fundraising. In fact, at a time when capital inflows are decreasing due to an overcrowded market and an LP dry spell, impact and sustainability funds have proved fairly durable.

Examples include TPG’s debut climate vehicle, wrapped up in April at $7.3 billion, against an original target of $5 billion. TPG has also already secured more than half of the $3 billion targeted for Rise Fund III, launched earlier this year. In another example, Brookfield in June closed a debut global energy transition fund at $15 billion, twice its original target.

One of the first deals done under KKR’s impact strategy was Barghest Building Performance, a Singapore energy savings solutions provider to heating, ventilation and air conditioning systems. About $32 million was invested in the business in 2018.

Since then, the portfolio has grown to 17 investments. Among the latest is Accel, a Dutch maker of bicycles, bicycle parts and accessories, acquired this year by a KKR-led consortium for roughly $1.6 billion. And in October, the firm announced a $300 million investment in Advanta, a seed affiliate of Indian agricultural conglomerate UPL.

The impact strategy is co-headed by partner Ken Mehlman, who joined KKR in 2008, and partner Robert Antablin, who came onboard in 2005.

The application of ESG criteria to investing in private markets has come under fire of late, seen in the actions and statements of a few US pension systems, including Florida State Board of Administration. Asked about this in a recent CNBC interview, Mehlman said KKR believes ESG “is a way to make us better investors.”

“We think about it practically,” he said. “And what we’ve found is there is a whole series of areas like employee engagement, like emphasizing diversity, like helping companies reduce the energy they use, the forest products they use, the water they use, cybersecurity – everyone of those things has a bottom-line benefit and also makes our world a better place.”