Three things to know about KKR’s Impact Fund

Capital raised for the firm's first dedicated impact vehicle will make investments under $100m in companies focused on workforce development, agtech, water and energy.

KKR made its foray into impact investing last year with a dedicated fund for the strategy, joining peers TPG, Bain Capital and Partners Group.

While it is unclear how much KKR is targeting for its Global Impact Fund, it has raised more than $1 billion for the vehicle, according to a source with knowledge of the matter. It has yet to hold a final close.

Bloomberg first reported the fund’s haul.

Here’s what we know about KKR’s impact fund.

Lower mid-market is a focus

KKR, known for financing mega buyouts, is moving from its traditional roots to investing in the lower mid-market.

Ken Mehlman, co-head of KKR Global Impact, told Private Equity International the fund has a very clear delineation for investment: “Where the size is under $100 million, the impact fund is a priority, if it’s one of those impact themes. And where it’s larger, the larger funds are the priority.”

Ken Mehlman, co-head of KKR Global Impact Fund
Ken Mehlman

Mehlman added that the impact fund lets the firm capture missing dealflow. “We created the impact strategy because we were having to say no to opportunities that we thought were both commercially strong and valuable from an impact perspective because of their size. We were seeing opportunities in companies that were offering solutions in the workforce development space or the water space that were $75 million equity and we didn’t have the right capital for that because our funds were too large.”

Capital raised for KKR Global Impact has already been deployed in two investments: up to S$45 million ($32.4 million; €28.9 million) in Singapore-based energy-saving company Barghest Building Performance, and about $510 million in Mumbai-based environmental management company Ramky Enviro Engineers. It is understood capital for the firm’s investment in Ramky came from the impact fund and KKR’s 2017-vintage $9.3 billion Asian Fund III.

It will use the PE playbook for deals

Nothing changes in terms of KKR’s investment playbook for the impact fund, Mehlman said. “Our approach – the type of investments we are making, how long we expect to invest, our commitment to value-add – is the same toolkit we use across private equity at KKR. It’s our PE playbook put to work for private equity investments in the lower middle market.”

Attractive investment themes include workforce development and learning, water, waste management, agtech and companies that provide a product or service that contributes to one of the UN Sustainable Development Goals.

KKR will use the SDGs to measure impact and has subscribed to the IFC’s Operating Principles for Impact Management, a common market standard for what constitutes an impact investment, as previously reported by PEI.

There could be an opportunity for individual investors

KKR could look to tap individual investors for its impact fund via a feeder vehicle set up by iCapital Network, which uses technology to streamline access to alternative investments, according to a September 2018 filing with the SEC.

Mehlman declined to comment on iCapital or provide details on the fundraise.

New York State Common Retirement Fund has contributed $300 million to the fund, according to PEI data.