KKR turns to Asia for deployment in Q1

With valuations in the US and western Europe elevated, more than half of KKR’s private equity investments were in Asia, with a focus on Japan.

KKR investment activity was tilted toward Asia in the first quarter, as the alternative asset manager sees attractive opportunities in that part of the world.

KKR deployed $5.4 billion during the quarter, including $3.5 billion in private equity. Of the private equity investments, $1.9 billion – more than half – was in Asia, making it the most active geographical region during the quarter for private equity.

Some of its investments included the purchase of auto part maker Calsonic Kansei for about $4.5 billion from Nissan Motor, and Hitachi’s chip-making equipment and video unit, Hitachi Koki, for about $2.3 billion. The largest transaction of the quarter was in Bharti, India’s largest telecom tower operator, which KKR previously owned.

“The story has really been for us a meaningful focus on Asia deployment with a particular focus on corporate carve-out transactions in Japan,” Scott Nuttall, the head of global capital and asset management group, said during the earnings conference call on Thursday morning. “Given all this activity, our Asian Fund II is now fully deployed.”

Nuttall noted that valuations of many KKR transactions in Asia have been in the 7X to 9X EBIDTA range with very low-cost financing. In the US and western Europe, valuations on average in the market have been above 10X EBIDTA. “It’s late in the cycle, so in the US and in Europe we’re a net seller,” he added.

As KKR Asian Fund II became fully deployed, given for modest reserves, KKR turned on Asian Fund III, which is still fundraising.

The firm held a first close on $5.8 billion on Asia III in the first quarter, including $5.3 billion of third-party capital. It expects to hold a final close in late summer on $9.25 billion, including balance sheet and employee capital.

For the next couple of quarters, the firm has more than $700 million in Asian transactions that are signed and not yet announced.

Nuttall explained that KKR’s private equity business in Asia was more concentrated on minority growth investments in the last several years, but it is changing.

“What we’re seeing more recently is more controlled buyout transactions, especially in Japan,” he said. “In the first quarter between Calsonic and Hitachi Koki, those transactions are some where we were able to use the balance sheet and capital markets for a significant portion of the capital and syndicate them.”

KKR posted an economic net income of $668.5 million in the first quarter, up from an economic net loss of $506.9 million a year ago. Assets under management stood at $137.6 billion as of 31 March, up from $129.6 billion as of 31 December.