Kohlberg Kravis Roberts has held a first close for its debut infrastructure fund on $225 million and is hoping to raise another $275 million by the end of the year, a senior executive of the private equity firm said during a conference call with analysts this morning.
The close, which happened during the third quarter of the year, marks a much-anticipated event in the infrastructure community. Alongside The Blackstone Group and CVC Capital Partners, Kohlberg Kravis Roberts is one of three big private equity firms that launched infrastructure funds in the midst of the financial crisis. Together, their progress has been closely watched by the market as one barometer of institutional investor appetite toward the asset class.
The Blackstone Group held an interim close on $200 million for its infrastructure fund in the first quarter and is hoping to hold an official first close on a larger amount by the end of the year, according to a person familiar with the firm.
I think what we're seeing is a much improved fundraising environment
Meanwhile, CVC which has been seeking to raise a €2 billion fund for European infrastructure is believed to have gained significant investor support and is now aiming for a first close in early 2011, according to a person close to the firm.
On today’s conference call with analysts, KKR partner Scott Nuttall expressed confidence in institutional investors’ overall appetite toward private market investments, such as infrastructure.
“I think what we’re seeing is a much improved fundraising environment, especially relative to a year ago,” he said, adding: “The investor universe is across US, Europe, Middle East and Asia. So we’re seeing interest from around the world and across our product set.”
Including a $1.1 billion separately-managed account KKR picked up during the third quarter, its total infrastructure assets under management now stand at about $1.3 billion, Nuttall said.
KKR manages the separate account on behalf of Korea’s $270 billion National Pension Service, which bought a 23.44 percent stake in the Colonial Pipeline alongside KKR in October. Colonial is the longest refined product pipeline in the US, carrying fuels such as gasoline from refineries on the Gulf Coast to major markets on the East Coast.
As part of the deal, Raj Agrawal, one of the leaders of KKR’s infrastructure team, gained a seat on the board of Colonial.
“I’m not sure we’re going to have too many transactions like that,” Nuttall said. “But it was a situation where we knew the asset well and we had a partner that we wanted to work with,” he added.
The National Pension Service contributed the majority of the equity toward the Colonial transaction, with KKR committing the remainder. Because KKR had not yet reached a first close on its infrastructure fund at the time of the transaction, the private equity firm committed its own capital toward the deal – not the commitments from the infrastructure fund.
The infrastructure fund’s $225 million in total commitments remain undrawn at the moment, according to a regulatory filing KKR made today. The $225 million includes a $50 million general partner (GP) commitment from KKR, according to the filing, representing about 22 percent of the fund’s current size.
“We’re expecting that percentage to go down, hopefully, as we continue the capital raising process. So you’re seeing the initial GP number relative to the relatively small dollars that came in first,” Nuttal said.
“We will continue that capital raising process but we do not have a target,” Nuttal added. Infrastructure Investor has previously reported the firm was hoping to raise at least $2 billion for the fund, KKR Global Infrastructure Investors.
The fund is headed by New York-based KKR veteran Marc Lipschultz, who also spearheads KKR’s global energy team. The energy team has been increasingly active in the oil and gas sector in recent months and just closed the first deal from its dedicated natural resources fund earlier this week. The fund purchased natural gas wells in Texas valued at $40 million, according to a press release.
So far, KKR has raised $257.5 million toward the natural resources fund, according to the firm’s regulatory filing.
KKR's New York Stock Exchange-listed shares were up .5 percent on today's filing, standing at $12.71 per share as of press time.