KKR raises largest-ever pan-Asia private equity fund

The private equity firm reached a first close of $3 billion in June 2012 and market sources had been tipping it to reach the full $6 billion target since the start of this year.

The announcement comes at a difficult time for private equity fundraising in Asia. According to AVCJ Research, funds in the region attracted just $13.8 billion in commitments in the first half of 2013, the lowest six-monthly level since January-June 2009. The $3 billion KKR has raised since its first close will be included in the second-half numbers.

Joseph Bae (pictured, left, with KKR co-founder Henry Kravis), managing partner of KKR Asia, said the successful fundraise is testament to the firm's strong track record in the region, with more than $5.5 billion invested since it set up shop here in 2005. Most of the capital has come from the $4 billion Asian Fund I but the firm also raised a $1 billion China growth fund in 2010.

Of the current portfolio, China and South Korea account for 25% each, followed by Australia on 15% and India on 14%. Japan, Vietnam and Singapore are in the single digits. In terms of sectors, consumer products and technology between them make up more than half of the total.

According to year-end 2012 fund performance data issued by California Public Employees' Retirement System (CalPERS), KKR Asian Fund I had delivered an IRR of 13.5% and a multiple of 1.48x. By comparison, Carlyle Asia Partners III (2008) was on -1.9% and 0.9x and TPG Asia V (2007) - the largest regional PE fund raised prior to KKR Asian Fund II - was on 0.3% and 1.01x.

Both Carlyle and TPG are currently in the market with their latest regional funds, which launched around the same time as KKR's offering. TPG is said to be approaching a second close of $2 billion, having already reduced its target from a purported $5 billion to $4 billion and now $3.5 billion. Carlyle passed the $1.5 billion mark in May and, like TPG, is eying a final close of $3.5 billion by the end of the year.

The issue for KKR is how to deploy capital efficiently, with some industry participants suggesting that $6 billion is too big. The private equity firm will likely have to be more prolific in Japan and Southeast Asia than in recent years, and to this end efforts have been made to strengthen operations in Tokyo and Singapore.

KKR now employs 101 people throughout the region - up from just 27 the year it launched the first Asia fund - and 51 of these are on the private equity side. Since Hong Kong operations commenced in 2005, offices have opened around the region at a rate of one per year, with the addition of Singapore in 2012 taking the Asia count to seven out of 18 globally.

Capstone, KKR's dedicated operations arm, opened in the region in 2008, alongside the client and partners group and the capital markets division. There are now 15 Capstone professionals in Asia.

LPs that participated in KKR Asian Fund I accounted for 61% of commitments to the new vehicle. Of the investor base as a whole, North American and Latin American LPs put in 45% of the capital, with 26% coming from Asia and 29% from the rest of the world. The KKR commitment was $265 million.

The Asia contribution is understood to have increased meaningfully in Fund II over Fund I.

Institutions that have disclosed their involvement in the fund include Arizona Public Safety Personnel Retirement System, Canada Pension Plan Investment Board, Cathay Life Insurance, New York State Teachers' Retirement System, Oregon Public Employees' Retirement System and Washington State Investment Board.

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