KKR expects to close its KKR Americas Fund XII soon on $13 billion, including GP commitment, and to begin deploying capital in the first half of 2017.
“Americas XII should be wrapping up soon,” the firm’s chief financial officer Bill Janetschek said during KKR’s third-quarter earnings call with investors on Tuesday, adding that the figure includes the GP commitment.
The New York-based private equity firm launched KKR Americas Fund XII at the end of 2015 with a target of $12 billion, according to PEI data. The private equity behemoth renamed this fund to reflect its strategy targeting Latin America in addition to North America as predecessor funds focused on.
As previously reported by Private Equity International, this twelfth flagship fund offered a management fee waiver to investors committing to the fund in the first six months of fundraising, before the expected first close. It also offered reduced management fees to investors making large commitments to this fund. The fund has a 7 percent preferred return, deviating from the typical 8 percent hurdle.
According to the third-quarter earnings release, Americas Fund XII has raised $11.99 billion, as of 30 September. Of that amount, 8.3 percent, or $995.5 million, was the GP commitment. The earnings announcement also indicated that the latest fund has not made any investments, and will begin deploying capital once its predecessor, the North America Fund XI, finishes its investment period.
“Our NAXI [North America Fund XI] is about 70 percent invested,” Janetschek said during the call. “It won’t be long before Americas XII turns on; certainly in the first half of 2017.”
According to PEI data, some of the largest commitments to Americas XII came from limited partners such as Washington State Investment Board, which wrote a $750 million cheque, the New York State Common Retirement Fund, which committed $600 million, and Oregon Public Employees’ Retirement System, which committed $500 million.
The California Public Employees’ Retirement System (CalPERS), the largest public pension fund in the US, might have joined their ranks, having considered a $750 million commitment to Americas XII. However, after conducting due diligence on the investment vehicle, CalPERS ultimately decided not to commit, and declined to comment on the decision to PEI.
The latest fund seeks to make about 25 investments of $350 million to $600 million each. It targets companies with an enterprise value of $500 million to $2 billion in the retail, energy, financial services, healthcare, industrials, and TMT sectors, according to a December 2015 investment committee meeting document from the Oregon Investment Council.
“We are seeing good opportunities this year and for Americas XII,” KKR head of global capital and asset management group Scott Nuttall said during the same call. “Volatility [in the markets] has produced some interesting opportunities. Valuations were high in some instances that caused us to back away, but in others we thought we could add to the business operationally. We’re seeing both deployment and exit opportunities.”
During the call, Janetschek added that because Americas Fund XII is about $4 billion larger than its predecessor, it will generate additional revenue going forward, including an additional $95 million in management fees.
North America Fund XI launched in 2012 and raised $9 billion when it closed at the end of 2012. Janetschek noted that North America Fund XI was generating a 25 percent internal rate of return since inception.
KKR’s overall private equity portfolio also includes other funds that are currently investing such as KKR European Fund IV, which raised $3.5 billion in 2014, KKR Asian Fund II, which raised $5.83 billion in 2013, and China Growth Fund, which raised $1.01 billion in 2010.
In terms of existing investments, KKR’s private equity portfolio stood at a fair value of $3.14 billion, or 42 percent of its overall portfolio. According to Janetschek, KKR is targeting a 40 to 45 percent range for the private equity portion of its overall portfolio.
KKR’s overall assets under management remained flat at $131.1 billion at the end of the third quarter. This was due to distributions to its LPs offsetting new capital raised through its funds and the appreciation of the fair value of its portfolios, it said in the filing.
“We invested over $3.7 billion in the quarter,” Janetschek said in the call. “But it still leaves us with $38 billion in dry powder, which is a 40 percent increase year-over-year.”
For the quarter, KKR reported a $669.3 million economic net income, up 168 percent, or $420 million, from the previous quarter, and up $955 million from an economic net loss in the third quarter of 2015.