KKR impact fund’s ag-focus to vary between regions

Ken Mehlman says the $1.3bn vehicle will draw on KKR’s previous protein investments in Asia and support a focus on wastewater treatment in North America and Europe.

Agriculture-related investments from KKR’s $1.3 billion impact fund are likely to focus on alternative proteins and wastewater in Europe and North America, while targeting animal protein opportunities in Asia, said the firm’s head of impact.

“Having a safe and reliable source of protein or dairy in the US is not an SDG-related [sustainable development goals] problem. We have that, across the board,” Ken Mehlman told Agri Investor.

“Historically, it has been a challenge in markets like China and Southeast Asia. In the US and in Europe, what is a challenge is alternative, non-animal proteins. Organic waste is a problem globally; the amount of energy and resources used to generate the food that we waste is a massive contributor to climate change.”

KKR closed its debut impact fund on $1.3 billion last month after securing commitments from public pension plans, family offices, high-net-worth individuals and other institutions. Mehlman declined to identify any LPs in the KRR Global Impact Fund beyond saying the vehicle received strong interest from investors in Europe and the US.

The fund will target “private-equity risk adjusted returns” through investments in lower mid-market companies, which contribute to measurable progress on one or more of the UN’s SDGs. Mehlman declined to address returns in more detail.

The firm will invest in what it describes as “solutions-oriented” investments, which Mehlman explained to be those that support companies whose core product or service is a critical response to a locally relevant policy area.

In sourcing those investments, KKR plans to draw on its previous experience building chicken and pork companies in China, he added. Sustainable seafood is also among sub-sectors the Global Impact Fund plans to explore.

Mehlman said that while it is too early to estimate the balance between sectors and regions, the impact fund team works together with KKR’s global macro team to determine a balance between investments designed to respond to current economic conditions – such as workforce development – and more structural challenges such as treatment of organic waste in India.

“I would argue that our strategy is one that is less cyclically driven. At the same time, we are very focused on portfolio construction in a way that anticipates macro and other volatility, and balances our various exposures – currency, commodity risk, etc,” he said.

Water quality is another area into which the Global Impact Fund will invest, said Mehlman, with KKR having already invested nearly $1 billion in companies in and around the sector over the past decade.

Though agricultural run-off is very difficult to regulate directly, Mehlman explained, KKR hopes to help address the challenge through investments in wastewater treatment. The firm drew from the Global Impact Fund in December when it partnered with XPV Water Partners to create a water treatment platform, which began with the acquisition of two nutrient management technology providers: Nexom, Inc and Environmental Operating Solutions, Inc (EOSi).

“Everyone I talk to about the investments we’ve made, the moment I bring up algae bloom or red-tide, someone has a local story that they tell me,” said Mehlman. “That is why there is such an imperative behind dealing with it, which is why we think from a commercial perspective, it is an attractive investment area.”

KKR plans to measure the social impact of investments from its impact fund, he said, by employing a set of key performance indicators tied either to specific SDGs or adherence to metrics being developed by third-party organizations like IRIS, SDG Compass and others.

Mehlman’s 12 years in national politics before joining KKR in 2008 included serving as campaign manager of President George W Bush’s 2004 re-election campaign and his current role includes involvement with fundraising for KRR Global Impact Fund. His role also includes overseeing ESG efforts throughout KKR.