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KKR offers first-close fee discount on next US mega-fund

The inability for LPs to travel to meet new managers in person has favored incumbents with re-ups that don’t necessarily require on-site due diligence. 

The bar for fundraising this year is being set high by firms like Hellman & Friedman, which is targeting $20 billion for its tenth pool

Another major marketing process kicking off is Kohlberg Kravis Roberts, which is back in market with its next flagship North America fund. 

The two mega-pools will be among the high-profile fundraisings this year keeping limited partners busy despite the prolonged lock-down environment. The inability of LPs to travel to meet new managers in person has favored incumbents with re-ups that don’t necessarily require on-site due diligence. 

KKR North America Fund XIII appears to have an initial target of $14 billion, according to sources. Fund XIII is expected to raise at least as much as the prior pool, which closed on $13.9 billion in 2017. 

A first close is set for May. Fund XIII will charge a 1.5 percent management fee, with 1.35 percent charged on commitments received before the first close, according to documents from Chicago Teachers’ Pension Fund. The fund will charge a 20 percent carried interest rate with a 7 percent hurdle rate, the documents said. 

KKR expects to kick in at least $1.25 billion of its own money into the fund, the documents said. 

KKR’s Americas private equity team is led by two recently installed co-chiefs, Pete Stavros and Nate Taylor, who took the helm in 2019. Stavros and Taylor, who both joined in 2005, took over daily operations from Joe Bae, who became KKR’s co-president and co-chief operating officer.

LPs will have to do some work around analyzing the Americas private equity leadership, which is different from the firm’s prior North America fund, according to a source familiar with the firm. “They’re going to have to describe … the leadership change,” the person said.

KKR increased the number of partners dedicated to Fund XIII to 10, from six when the prior Americas private equity fund started marketing, according to a person with knowledge of the firm. 

The performance of Fund XII has been strong. It was generating a 21.6 percent internal rate of return and a 1.6x multiple as of Sept. 30, 2020, according to KKR’s third quarter earnings report. 

Incentives for LPs to invest into the first close are a way for a GP to build momentum around a fundraising process. Around 23 percent of 44 North America buyout shops offered special incentives for investors who come into an early fund close, according to Buyouts’ 2018/2019 PE/VC Partnership Agreements Study. 

Justin Mitchell contributed to this report.