Kohlberg Kravis Roberts’ sees Asia as the only region with standout economic growth and has built a strong deal pipeline in Japan and Australia for deploying a portion of its record Asia Fund II, according to Scott Nuttall, head of the global capital and asset management group, speaking on a recent earnings call.
Nutall's global snapshot was an improving US, a slow Europe and a growing Asia.
“Asia is a bit mixed, but overall, much better growth than we can find in other places in the world.”
Earlier this month, KKR closed the largest private equity fund ever raised for Asia on $6 billion, KKR Asian Fund II. New Asia investments will come from this fund.
Overall, our Asian private equity portfolio is continuing to do really well because we're exposed largely to the consumer and internal consumption-driven demand across those markets as opposed to the export market
Scott Nuttall, head of the global capital and asset management group
The firm has, year-to-date, invested only $700 million in Asia from previous funds, said Nuttall. Nonetheless, he is confident the firm can deploy the record capital from the new fund across the region.
“We've seen activity in places like Australia, in terms of the pipeline being busy. Japan is looking a bit more active as well. It's hard to predict where that goes. But as that market opens up, there's meaningful opportunity there. So I'd say the pipeline is strong and broad-based.”
KKR’s China investments have had “some decline in growth”, he said, adding that the export market is especially tough, and the rest of Asia is a mixed set of stories.
“Overall, our Asian private equity portfolio is continuing to do really well because we're exposed largely to the consumer and internal consumption-driven demand across those markets as opposed to the export market.”
Globally, on the investment side, KKR’s private equity deals for the quarter reached $1.3 billion. The total includes the April acquisition of Alliance Tire Group from Warburg Pincus, reportedly for $500 million, with most of the capital coming from KKR's Asia Fund I, Private Equity International reported earlier.
On the returns side, KKR gave back about $2.7 billion of cash to its private markets investors in Q2, the firm said. KKR exited BMG to media group Bertelsmann and Japanese recruitment firm Intelligence to Temp Holdings at 1.8x and 5.4x its costs, respectively, he said. Four secondary deals in the quarter were done at a 2.5x blended multiple of invested capital.
Total distributable earnings for the first six months of this year were about $700 million, up 22 percent from the $570 million for the first half of last year, the firm reported.
The value of KKR’s private equity portfolio increased 0.9 percent during the quarter and has risen 6.6 percent through the first six months of 2013, according to the firm.
Nonetheless, KKR expects to shift somewhat from private equity and increase its holdings in other alternatives as a percentage of its overall investment portfolio.
“I think you will see over time private equity come down a bit,” Nutall said. “You'll see real estate and energy go up, and you'll see public markets continue to increase as a percentage.”
Along those lines, the firm will allocate $250 million in additional capital to each of its real estate, special situations and energy strategies, he said.
“We continue to diversify the balance sheet and use it to accelerate the momentum in our non-private equity businesses in particular,” Nutall said. “We like the yield and overall return profile of these assets.”