KKR talks to ‘hundreds’ of potential LPs

The firm has a ‘direct line of sight’ to a ‘sizable’ first close on its 11th North American fund, which is targeting between $8bn and $10bn, according to the head of global capital and asset management group Scott Nuttall.

Kohlberg Kravis Roberts has talked to “several hundred” prospective new limited partners as part of fundraising for its 11th North American fund, which is targeting between $8 billion and $10 billion.

The firm has had “a robust dialogue” with both its existing investors and with potential LPs with which it has no relationship, according to Scott Nuttall, the firm’s head of global capital and asset management group, during a third quarter earnings call Friday.

KKR North American XI Fund has not yet reached an initial close, though “we have direct line of sight to a sizable first close”, Nuttall said. The fund has received more than $1 billion in commitments from its two most loyal LPs, the public pension systems of Washington State and Oregon. Fund XI does not have a hard-cap. Bloomberg has reported that the firm has raised $4 billion for the fund.

KKR reported a $592.1 million economic net income loss for the quarter, driven primarily by write-downs in its private equity holdings, the firm said. ENI is a way of measuring earnings that includes unrealised gains and losses. ENI for the quarter represented a decrease of $909.4 million compared to ENI of $317.3 million for the same time period last year. The losses were attributable to the firm’s requirement of marking its finances to market, which ties the numbers to the violent swings in the public markets that occurred over the past few months.

The carrying value of private equity investments declined by 8.5 percent for the quarter, the firm said, but was up 1.5 percent for the nine months ended 30 September, 2011.

We're seeing institutions determining they want to have fewer friends, and we think we'll be the net beneficiary of that.

Scott Nuttall

However, despite the mark-downs, the firm reported increases in its fees as it closed several deals over the quarter and raised capital for various strategies. Fee-related earnings were $98.2 million for the quarter and $300.6 million for the nine-month period ended 30 September, 2011, up from $69.5 million and $223.2 million in comparable time periods last year.

“We have capitalised on attractive opportunities in all of our segments, leading to investments or commitments of nearly $3.5 billion since June 30 and a record quarter in our capital markets business,” firm founders Henry Kravis and George Roberts said in a statement.

KKR has about $9 billion of dry powder for private equity. The firm has returned $9 billion of capital to LPs since 2010, $5 billion of which has been returned this year, Nuttall said.

Regarding LPs, the firm expects to benefit from the trend of private equity investors cutting down on the number of managers in their portfolios. There is a “rotation to alternatives that is absolutely happening,” Nuttall said. “We’re seeing institutions determining they want to have fewer friends, and we think we’ll be the net beneficiary of that.”

KKR’s depressed earnings numbers mirrored those of its large competitors like The Blackstone Group and Apollo Global Management, which have had to mark down private equity investments amid volatility in the public markets over the quarter.