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KKR’s poach of ex-CLSA boss validated with target-beating Asia fundraise

The private equity giant has been given a vote of confidence in its controversial appointment of John Pattar in 2018 after it raised 40% of the capital for its first Asia real estate fund from investors also invested in his former Fudo Capital fund series.

The $1.7 billion close of KKR’s first Asia real estate fund has demonstrated investor support for the private equity powerhouse’s high-profile hire of former CLSA real estate chief John Pattar in 2018.

Not only did the firm beat its original $1.5 billion fundraising target, PERE can reveal that 40 percent of the capital raised for the KKR Asia Real Estate Partners vehicle came from investors of CLSA’s Fudo Capital property fund.

These included Texas Permanent School, according to sources close to the situation. The pension fund committed $50 million in Fudo Capital III in 2014 and $75 million in KKR’s Asia Real Estate Partners in 2019, according to PERE data.

Pattar, who is head of Asia real estate at KKR and was formerly chief executive of CLSA Capital Partners’ real estate business, declined to comment on the investors involved in the KKR fund and anything related to CLSA. But it is understood that there was a crossover of KKR and CLSA investors that placed cornerstone investments in the vehicle, according to PERE sources.

In 2018, Pattar’s departure from CLSA led to the cancellation of the remaining investment period of the $1 billion Fudo III. The fund was left with $350 million still to deploy. CLSA decided to keep the vehicle as an asset management exercise with the remaining assets to be exited overtime. However, the Hong Kong-based firm could deploy no more capital, causing certain investors at the time to question support for KKR Asian real estate funds.

One Fudo investor said at the time he would not entertain a KKR approach for equity. He said then: “I was quite displeased to say the least. I’m not going to forget about this.” Others took a more nuanced position then, saying: “People gave [CLSA] money because of John.”

But speaking of gaining support for KKR upon Pattar’s transition, sources told PERE that the firm ultimately had a smooth process as the majority of the fund investors were existing investors with KKR across different platforms.

Overall, the fund has 48 percent of its capital from the US, 30 percent from Asia and 22 percent from EMEA, according to the firm.

Although the New York firm had only invested in Asia real estate on a deal-by-deal basis using its private equity capital before the introduction of KKR Asia Real Estate Partners, it has a broad client base and track record from its private equity business across the region.

Last year, it raised more than $13 billion for KKR Asian Fund IV,  the world’s largest Asia-focused private equity fund. The vehicle and its parallel funds received support from 260 investors, according to an SEC filing. The series has so far produced a return above 1.5x gross multiple of invested capital and 9.4 percent plus net internal rate of return, according to the firm’s quarterly report.

Said Pattar: “Investors like our strategy. KKR differentiates itself by offering a crossover between physical real estate and private equity real estate. We have a broad skill set in the team to handle both complex transactions and to provide solutions to a number of different real estate situations. This is similar to our approach across investment strategies and asset classes at the firm.”

He told PERE the firm raised $1.1 billion for the real estate fund during covid-19 and has already deployed 25 percent of its capital into seven assets. It is expected to deploy up to 30 percent of its capital raised by the first quarter this year.

Since joining KKR, Pattar has grown the firm’s real estate investment team from six to 12 people. The firm plans to expand the team’s headcount to 16 people by the end of the year.