Asia and tech exposure boost KKR’s private equity portfolio

The investment giant’s flagship private equity funds have delivered a gross return of 27% over the last 12 months as fundraising continues for its record Asia fund.

KKR’s private equity portfolio has been benefiting from high exposure to tech assets and a strong presence in Asia, according to the firm.

The firm’s flagship private equity funds – the $13.9 billion Americas Fund XII, the $9.3 billion Asian Fund III and the €3.5 billion Europe Fund IV – delivered a gross return of 16 percent in the quarter and 27 percent for the last 12 months.

Talking through the results on the firm’s third-quarter earnings call on Friday, partner and head of investor relations Craig Larson said the flagship funds are “meaningfully outperforming” their benchmark indices on a since-inception basis, in part due to portfolio construction.

“We are underweight in some of the harder hit sectors, while also importantly choosing to have a larger exposure to technology, with a focus on investments in data, e-commerce and digitalisation,” he said. “Our relative weighting to Asia has also benefited our performance.”

Larson said the firm has seen “real strength” in areas that have been “given tailwinds from covid” such as e-commerce, gaming, mobile gaming software, housing-related themes and health and wellness.

Asian Fund III is delivering a since-inception net internal rate of return of 24 percent against a total return of 8 percent for the MSCI Asia Pacific.

The firm’s focus on Asia “helped us learn in the spring, as these economies recovered first”.

“Currently it should help as most Asian economies haven’t seen the recent spike in covid trends that we’ve seen across several states in the US and European countries.”

Co-president and chief operating officer Scott Nuttall added that, on aggregate, the firm’s exposure to hotels and leisure, retail and energy – sectors heavily impacted by covid-19 – is around 8 percent.

On the deployment front for the year, chief financial officer Rob Lewin said it was evenly split for private equity across the Americas, Europe and Asia.

“That geographic breadth and diversification has really helped us be able to lean into different opportunities on a global basis,” he said.

KKR raised $8.7 billion in the quarter across several strategies and has raised more than $32 billion this year, an 80 percent increase on the $17.8 billion raised in the first three quarters of 2019.

A large chunk of this was for KKR Asian Fund IV, which stands at over $13 billion – already a record for the region – and which is still in market.

KKR’s assets under management hit $234 billion at quarter end, up 5 percent quarter-on-quarter.