Stealing the show

At Kohlberg Kravis Roberts’ first annual investor day in March, KKR Asia, the firm’s Asia-focused platform established in 2005, was the hot topic of conversation.

KKR’s Asian portfolio companies experienced a combined 46 percent increase in earnings before interest, taxes, depreciation and amortisation in 2010, to about $3 billion from $2 billion the prior year.

“The growth has been fairly spectacular this past year,” Joseph Bae, managing partner of KKR Asia, told the firm’s investors gathered in New York.

Since raising its first dedicated Asia Fund, which closed on $4 billion in 2007, the firm has benefited from a relative lack of competition for larger deals, due in part to the small number of funds larger than $2 billion in the region.

“The competitive intensity we face in Asia today is much different than in the US and Europe where there are a lot of large, capitalised competitors,” Bae said.

The truth is, in Asia today, in these markets, the best companies are not for sale

Joseph Bae

Today, KKR’s Asia Fund is valued at 1.4x cost, and all Asian investments are at 1.7x, Bae said. Over the course of 2010, the fund increased in value by 51 percent.

 In 2010, KKR made seven investments in Asia combining for a little over $900 million in value. In total, the firm has nearly $8.5 billion in assets under management in the region, having completed 18 total investments.

“We’re at the stage where, given the maturities of some of our earliest investments, we can start thinking about realisations, and with each investment carried above cost, we’re in the position to deliver cash and carry back to our investors in the near future.”

The firm has already begun making realisations from its Asia Fund. Last November, for example, KKR and CDH Investments took Chinese dairy company Modern Dairy public, raising HK$3.5 billion (€338.8 million; $450 million). KKR was also “on the road” trying to pursue an IPO for another Chinese company, Bae said.

On the fundraising front, most noteworthy was the fact that firm’s China Growth Fund, KKR’s first-ever country-specific vehicle, had recently collected $1 billion. Originally marketed with an $800 million target, the fund will make equity investments between $30 million and $75 million – a bite size that is admittedly smaller than KKR usually takes.

“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.”

KKR has also taken care not to rush into any Asian deals until truly establishing local presence, Bae added.

“We did not do our first investment in Korea for the first four years,” he said. “We made our first investment in Japan after five years of having a presence on the ground.”

Looking ahead, KKR plans to add resources in Southeast Asian markets including Indonesia and Vietnam. Some of the strategies Bae said the firm is most excited about in Asia are the oil and gas industry and credit products.

“These could be major platforms for us in Asia over the next five to 10 years”.