Kohlberg Kravis Roberts’ Asian portfolio companies experienced a combined 46 percent increase in earnings before interest, taxes, depreciation and amortisation last year, while its Asia Fund rose 51 percent in 2010.
“The growth has been fairly spectacular this past year,” head of Joseph Bae told investors at the firm’s first-ever investor day following its listing on the New York Stock Exchange last July. KKR Asia, the firms newest platform established in 2005, is one of the fastest growing parts of the business, Bae added. The firm has six offices in the region, having opened one additional office every year since establishing a presence in Hong Kong in 2005.
In China and India, KKR has been pursuing nearly all growth investments. “The truth is, in Asia today, in these markets, the best companies are not for sale,” Bae said. “Buying 100 percent control is just not available. We feel it’s better to partner with the best entrepreneurs whether we’re a 10, 20, 30 or 40 percent shareholder.”
Bae cited current investments in Dalmia Cement and China International Capital Corporation (CCIC). “We like cement in Asia,” Bae said. “We think about the massive urbanisation trends, the big infrastructure spending, the real estate spending [and] the development.” Bae called the financial services industry in China “highly underdeveloped,” citing the significant growth potential for CCIC, the “number one domestic investment bank in China today.”
Co-head of Johannes Huth told investors the aggregate EBITDA of its European portfolio increased 20 percent in 2010, while aggregate revenue of businesses in the portfolio rose 13 percent year-on year. “We’ve seen a much more friendly climate in 2010 than in 2009, but the growth has not been uniform,” he said. “Northern Europe has done well, while Southern Europe continues to suffer.”
Huth said the European market also has been experiencing significant polarisation in the size of firms completing deals, with large global firms and smaller more-focused investors at either end of the market comprising the majority of the activity. “I think the middle is getting squeezed,” he said. “Middle-sized players find it increasingly hard to compete.”
While Huth said the risk of the euro falling seemed “remote”, he considers a “real risk” to be inflation. “We certainly see price increases happening across many of our European portfolio companies.”
In 2009, the firm closed KKR E2 Investors, an annex fund to its €4.5 billion second European vehicle. The fund is used to make additional capital infusions in portfolio companies in KKR European Fund II and for add-on commitments in the firm’s third European fund, which closed on €4.7 billion in 2008, well below its €6 billion target.