Minnesota State Board slates $150m for KKR Asian Fund III

The US pension fund had earlier committed $200m to KKR’s flagship vehicle Americas XII Fund which closed on nearly $14bn.

The Minnesota State Board of Investment (MSBI) is considering a $150 million investment in KKR Asian Fund III, according to an agenda item discussed by the pension on Monday.

KKR Asian Fund III is targeting $7 billion and if successful will be the largest pan-Asian fund ever. Capital from the fund will be used to support expansion of Asian companies, and also back corporate carve-outs, traditional buyouts and take-privates, and industry consolidation. KKR has also identified favoured industries for Fund III such as financial services, healthcare, and food safety and agriculture.

KKR’s management fee is 1.5 percent of committed capital during the investment period, stepping down to 1.25 percent on invested capital after the investment period. Management fees decline by 0.25 percent after every two years thereafter but will not be reduced below 0.75 percent per annum, according to the terms of the limited partnership agreement for KKR Asian Fund III.

The commitment is subject to final negotiations between the firm and the MSBI.

KKR's $6 billion 2013-vintage Asian Fund II generated a net IRR of 21.9 percent while its $4 billion 2007-vintage Asian Fund I delivered a net IRR of 13.6 percent to KKR and its investors.

MSBI has previously committed to other KKR funds, including the $6 billion KKR Millennium Fund, which primarily targets US and Canadian companies for investment; KKR Americas Fund XII, which this week closed on $13.9 billion; and its $17.6 billion KKR 2006 Fund.

The $82.7 billion US public pension allocates 6.7 percent of its portfolio to private equity investments, according to PEI data. MSBI’s alternatives portfolio, which includes private equity, real estate and yield-oriented investments, generated a 9.6 return annualised over the past 10 years as of 30 June 2016.

Meanwhile MSBI’s commitment plan for private equity from its 23 February 2017 board meeting also includes planned allocations of $150 million to Vestar Capital Partners VII, $150 million to Silver Lake Partners V, as well as $100 million to Adams Street Global Secondary Fund 6.