Oregon to commit to KKR Fund XII

KKR’s 12th flagship fund, KKR Americas Fund XII, will offer management fee waivers to investors committing prior to first close, and fee discounts on large commitments. The Oregon Investment Council is looking to invest up to $500m to the fund.

The Oregon Investment Council (OIC) recommended the Oregon Public Employees Retirement Fund (OPERF) to commit maximum $500 million to KKR Americas Fund XII, which is offering a management fee waivers and incentives to LPs.

KKR’s 12th flagship fund is targeting at least $10 billion, with the firm expecting to commit at least $700 million. It is offering a management fee waiver to investors committing to the fund in the first six months, before the expected first close. It is also offering reduced management fees to investors making large commitments to this fund.

KKR charges a management fee, which generally ranges from 1 percent to 2 percent of committed capital during the fund’s investment period, according to June documents from the Securities and Exchange Commission’s case against the firm.

It's unclear about the management fee OPERF would pay KKR as part of this commitment.

The fund also has a 7 percent preferred return, deviating from the typical 8 percent hurdle.

It will seek about 25 investments worth between $350 million and $600 million each, in companies whose enterprise values are between $500 million and $2 billion. It will focus on management buyouts and buildups, and growth equity investments in North American companies, with some in Latin America on an opportunistic basis.

At the 9 December meeting, the OIC made this recommendation citing a long-standing relationship with KKR.

“Oregon’s investments with KKR have been through a variety of separate funds, some of which have performed better than others,” Oregon State Treasury communications director James Sinks told Private Equity International. “KKR has been a productive partner and will continue to play a significant role in the Oregon portfolio.”

The OIC had committed $750 million to Fund XII’s predecessor, KKR North America Fund XI, a 2012 vintage. It has received $90.8 million in distribution from the investment as of 30 June, according to OPERF private equity portfolio data.

Since 1980, the OIC has committed more than $7 billion of OPERF capital to 18 of KKR’s PE funds, the meeting minutes said. As of 30 June, those investments had generated a net internal rate of return of 18 percent and a 1.8x multiple, the report said.

The highest net IRR achieved for the OIC was 39.7 percent with KKR’s 1982 Fund, to which it committed $25 million and received a distribution of $85.1 million, according to OPERF data.

The OIC cited KKR’s “large and experienced team,” “enhanced execution, portfolio construction & portfolio management capabilities,” and “long-term relationship with strong strategic fit” as reasons for its recommendation.

It also listed concerns with investing into the fund, such as KKR’s recent relative performance between 2002 and 2015 that generated a net IRR of 12 percent and net multiple of 1.6x, KKR’s hold size and portfolio construction, and investment team turnover amid a “wholesale generational change in leadership.” It also noted that 17 percent of OPERF private equity portfolio is exposed to KKR, a higher portion than would typically be expected.

The OIC did not work with a placement agent for this offering.

KKR declined to comment.