KKR is aiming to raise a further $4 billion for its second flagship long-term fund, which would bring the offering’s total haul to $16 billion.
The supplementary $4 billion target was disclosed in a mid-February report by Minnesota State Board of Investment. MSBI is investing up to $100 million.
This would add to the initial $12 billion collected last year by KKR Core Platform II. The firm referenced the fundraising, which was not widely reported, in its second-quarter 2021 earnings call. Of the total, $8 billion came from limited partners.
If KKR succeeds in closing at $16 billion, it will have raised the market’s single largest long-life vehicle to date.
Fund II would be almost twice the size of the debut fund under KKR’s core investment strategy, wrapped up in 2018 at $8.5 billion. Fund I included two separately managed accounts as well as balance sheet capital.
KKR’s core strategy oversaw more than $24 billion of cumulative commitments as of the end of December, the firm said in its fourth-quarter 2021 earnings call. This includes a hefty $7.5 billion-plus investment by the general partner, or 31 percent of the overall amount. Managed assets stand at about $30 billion.
The GP commitment represents KKR’s largest strategy investment from its balance sheet, the MSBI report said, suggesting the importance the private equity giant attaches to the asset class.
Long-duration funds, which take a variety of forms, are popular among certain types of GPs and LPs. They allow PE firms to invest in assets flexibly and beyond the usual three-to-five-year hold period, creating the potential for higher returns on committed capital over time.
Along with KKR, sponsors include Blackstone, which in 2020 secured $8.2 billion for a second long-term vehicle, as well as Altas Partners, BlackRock, Carlyle, CVC, Cove Hill Partners, EQT and Silver Lake. Last November, Brookfield Asset Management said it is preparing to launch a first-time fund.
KKR’s long-term investing
KKR created the core investment strategy to invest in lower-risk assets that are more stable, less cyclical and more cash-generative than those targeted by traditional PE firms.
Companies of interest are in industries that are generally less subject to risk or disruption. Examples noted in the MSBI report include dental services, mission-critical software, oncology treatment and veterinary care. Dealflow is sourced in developed markets, such as North America, Western Europe and select countries in Asia.
KKR looks to back well-managed, high-quality businesses that need capital to pursue a growth plan over a 10-to-15-year horizon. To effectively manage cyclical or competitive shifts that may occur over such a long period, it acquires majority or significant minority stakes.
The core strategy invests on its own or alongside other flagship funds. Recent deals include last year’s acquisition of aviation services network Atlantic Aviation from Macquarie Infrastructure for $4.5 billion. KKR also invested in Silver Lake-owned Cegid, valuing the software company at $6.7 billion.
Other 2021 deals include the purchase of sustainability consultancy ERM from OMERS and Alberta Investment Management Corp at a reported $2.8 billion value. In addition, KKR bought early childhood education tools provider Teaching Strategies from Summit Partners.
KKR sees the addressable market for long-duration investing as “strong and growing,” the MSBI report said, with the volume and size of opportunities “exceeding the firm’s original expectations.” The space is also less crowded, “with more favorable supply and demand dynamics” than traditional PE.
The core strategy is so far turning in solid performance. The 2017-vintage KKR Core Platform I was earning a net multiple of 1.6x and a net IRR of 28.4 percent as of September, according to the MSBI report.
KKR’s core investment team is led by partner Webster Chua, who also heads services investing in the Americas private equity group. Other senior team members are partners Tim Franks and Kate Richdale and principal Kevin Murphy.
KKR declined to provide a comment on this story.