Exclusive: KKR eyes $5bn third infra fund

The vehicle might launch as early as this summer, and will follow a similar strategy to its $3.1bn predecessor, which is two to three deals away from being fully invested.

KKR hinted at a third infrastructure fund during its first-quarter earnings call, which Infrastructure Investor understands will be sized at around $5 billion and might be launched as early as this summer. 

The third fund will follow on from the firm’s $3.1 billion Global Infrastructure Investors II fund, which is two to three deals away from being fully invested, and will follow a similar strategy. The latter includes being able to fund deals from KKR’s balance sheet that are later syndicated to investors. That gives KKR’s infrastructure team considerable flexibility on the scale of transactions it is able to target.

KKR did not comment on the size of the third fund.

On the earnings call, Scott Nutall, the firm's head of global capital and asset management, used KKR’s £750 million ($967.8 million; €889.6 million) purchase of UK smart meter company Calvin Capital as an example of its capacity to “acquire and scale new businesses rapidly using balance sheet and syndication ability”.

He explained that the deal required more equity than KKR wanted to invest from Fund II, but in the end the firm decided to commit. “Ultimately, given our conviction, our balance sheet, and our infrastructure and capital markets relationships, we committed to the entire £750 million transaction, debt and equity,” Nutall said. “By doing so, we presented a fast, certain and compelling solution for the seller and created proprietary opportunity for the firm and our fund investors.”

Calvin Capital pays upfront for smart meter installations on behalf of energy suppliers in the UK. “We like the company because of its high recurring revenue, visible growth opportunity from recent regulatory changes, and attractive financial profile,” Nuttall said.

Discussing KKR's best opportunity to grow their fee-paying assets under management, Nutall said that “over time, you'll see a third infrastructure fund”, along with future private equity and real estate funds on the horizon. All three asset classes performed well and were drivers for growth in Q1, he said.

The New York-based private equity firm reported deploying $5.4 billion during the quarter, including $3.5 billion in private equity and nearly $1 billion across real assets.

Looking ahead to the second and third quarters, Nutall said KKR has signed $200 million in energy commitments and “a few hundred million” in infrastructure. “All of the platforms are deploying a good amount of capital in the first quarter and that trend will continue in the second and third,” KKR chief financial officer William Janetschek said.