KKR nears its largest fund close ever for ‘poster child’ infra

The firm expects its third infrastructure vehicle to raise about $7bn later this year, boosting management fees from the asset class by $80m.

KKR will close its third infrastructure fund on “roughly” $7 billion later this year, executives for the New York-based firm said on Monday.

An example of its infrastructure strategy KKR highlighted is its £1 billion ($1.33 billion; €1.13 billion) acquisition of smart metre company Calvin Capital, where the firm used £750 million balance sheet equity to finance around two-thirds of the deal while structured debt covered the rest.

A final close on $7 billion would cap the third and most successful infrastructure fundraising for a private equity powerhouse that officially launched a dedicated strategy for the asset class less than eight years ago. It would also be one of the industry’s largest funds to close this year.

Global Infrastructure Investors III will target investments in core and core-plus assets primarily in OECD countries, but it highlighted emerging markets as one area in which to potentially expand its business. In its presentation, KKR also noted that “the final closing of the fund and ultimate amount of capital raised are subject to uncertainty and change”.

A spokeswoman for the firm declined to comment for this story due to the ongoing fundraising.

Fundraising, fees and carry

The expected final close would be half the amount leading fund managers Brookfield Infrastructure and Global Infrastructure Partners collected in recent years, but it’s still enough to land KKR among the largest investors in the industry. Its peers include Stonepeak Infrastructure Partners, which is nearing its own $7 billion close, and I Squared Capital, which is raising a $6.5 billion sophomore vehicle.

KKR has been raising Fund III for around 10 months, starting with a $5 billion target and a reported $7 billion hard-cap. Commitments include $400 million from New York State Common Retirement Fund and $150 million from Minnesota State Board of Investment.

Starting with $1 billion in 2010, KKR’s infrastructure assets under management now total $13 billion – when including Fund III – and make up 3.1 percent of its total portfolio. The firm reported Fund II was around 75 percent invested as of March after closing in 2015 on $3.1 billion. It has not divested any of those assets yet, and the fund is generating 20 percent gross returns.

KKR’s first fund, closed in 2013 on $1 billion, has 14.4 percent gross returns as of March, according to pension documents posted online. Both Fund I and Fund II have over a 5.5 percent annual yield since 2013.

Page 59 of KKR’s presentation to investors on “Investor Day.”

Bill Janetschek, KKR’s chief financial officer, told investors the latest pool of capital will push management fees from infrastructure up by $80 million. He said management fees increased from 1 percent to 1.2 percent from Fund I to Fund II and, “more importantly”, he said, carry went from 10 percent to 16 percent.

Raj Agrawal, who took over sole management of the group in April after working alongside global infrastructure co-head Jesus Olmos, is leading KKR’s infrastructure efforts. Olmos left KKR to launch his own investment venture.