KKR Naxi Fund Nears $8B; Sets Distribution Plan

  • KKR’s 11th North America fund raises $7.5B
  • Asian Fund II expected to hit $6B hard cap
  • Shares touch all-time high on new cash distribution plan

KKR also drew praise for its move to make quarterly cash distributions to its public shareholders in amounts that “are expected to constitute substantially all of the cash earnings of its investment management business and 40 percent of the net cash proceeds from realized principal investments,” the firm said.

“We view the change to the distribution policy as an incremental positive, as the lack of explicit shareholder participation in KKR’s balance sheet investments had been a subject of continuous investor focus,” Barclays analyst Roger Freeman said in a note to clients. The bullish comment came as KKR shares touched an all time high of $21.50 on April 25. Freeman said the firm’s overall first-quarter results were strong.

Scott Nuttall, the global head of capital and asset management at KKR, held out the possibility for further growth in his closely watched quarterly update of the firm’s wide-ranging deal activity in finance and private equity. “Naxi is still fundraising,” Nuttall said. “We … expect to wrap up in the second half. We’re still in the market.”

Meanwhile, KKR’s Asian Fund II had raised more than $5 billion at the end of the quarter, with the expectation of hitting its hard cap of about $6 billion by the end of June. The investment period of its inaugural Asian fund closed in April, and with that, KKR activated its Asian Fund II. The capital from the second fund will be included in its second-quarter assets under management.

Among other efforts, KKR confirmed plans for a new real estate fund and hopes to ramp up its roster of limited partners to 1,000 from about 580 now. Nuttall said it’s “very early days” on a new real estate fund. “It’s not going to be our typical long fundraise,” he said. “We’ll club together a group of investors, drop some of those investors into the fund and seed it with investments off our balance sheet.” He did not offer further details.

Word leaked out during the quarter that KKR had planned to launch a real estate fund in the $500 million to $1 billion range as a move to diversify, Buyouts reported on March 25.

CFO Bill Janetschek said KKR continues to raise a “modest amount of capital” on two mutual funds. Last year the firm submitting regulatory filings for funds that will invest in credit products, on the heels of similar moves by rival firms. “It’s early days on that and we’re not expecting anything big,” Janetschek said. “We hope that will ramp up over time.”

Last year, KKR filed plans for the KKR Alternative Corporate Opportunities Fund, a closed-end vehicle with a quarterly redemption opportunity, and the KKR Alternative High Yield Fund, an open-ended fund. Nuttall said KKR is creating a variety of products aimed a wealthy individuals, who contributed about 15 percent of the firm’s raised capital last year.

Some of the products will carry fees of 1.5 percent for management and 20 percent of carried interest if marketed through a major bank, he said.

Nuttall said KKR has opportunity to grow its base of limited partners, which invest in an average of 1.7 products each offered. “If you look at our top clients—the biggest investors we have—they’re between three and four products each or more,” Nuttall said. “We have some that are in five-plus, so we could make progress.”

With high profile investments in retailer Toys R Us, Internet domain name specialist Go Daddy Group and others, KKR said its assets under management rose to $78.3 billion at the end of March from $75.5 billion at the end of December.

KKR’s economic net income of 88 cents per share for the first quarter beat the average Wall Street target of 82 cents. Distribution per unit of 27 cents missed the Barclays target of 31 cents.

Additional reporting by Thomson Reuters.