KKR prepares for rapid AUM growth

The firm, which is gearing up to launch its three largest funds, expects AUM to ‘compound significantly’ on the back of increased distribution efforts and more mature track records.

KKR is anticipating rapid growth in its assets under management as younger investment products mature, its investor base expands and cross-selling potential improves.

Speaking on the firm’s second-quarter earnings call last Thursday, co-president and co-chief operating officer Scott Nuttall said KKR had been making large investments into its distribution capabilities.

“We were late to building out our distribution efforts,” he said. “Remember, 10 years ago we had about a dozen people on our fundraising team and 275 investors. We now have 90 people in the team and nearly 1,000 investors. But we still have a long way to go. Our investor count has been growing, and our cross-sell stats have been improving, but we still see an opportunity to meaningfully expand both of those numbers.”

Nuttall pointed out that while the firm is more than four decades old, many of its platforms are 10 years old or less, and therefore have a lot of growth ahead.

“As a result, going forward, we expect to see our AUM compound significantly from the powerful combination of more mature track records and a growing investor base.”

In the near term, KKR will be returning to market with its three largest funds in the next six to 18 months: private equity vehicles in the Americas and Asia, and an infrastructure fund.

KKR Americas Fund XII closed on almost $14 billion in 2017, while the firm raised $9.3 billion for its third Asia fund the same year.

KKR raised $6.5 billion of capital in the second quarter, including holding an initial close on its latest Asia real estate strategy. Capital in its long-term core investment strategy reached $10.5 billion, of which $3.5 billion is KKR’s own balance sheet capital. Thus far, the firm has invested $4 billion of that into transactions across the US, Europe and Asia, with an unrealised gross internal rate of return of 21 percent, according to chief financial officer Bill Janetschek.

The firm invested $5.8 billion in the quarter across its business lines, $1.8 billion into public markets and the remainder into private markets.

Its three flagship private equity funds – the $9 billion North America XI, the $6 billion Asia II and the €3.54 billion Europe IV – appreciated 12 percent on a blended basis over the last 12 months, and the private equity portfolio as a whole appreciated 15 percent.

Last September, the firm closed its third flagship infrastructure fund, KKR Global Infrastructure Investors III on $7.4 billion, surpassing the initial target of $7 billion and becoming the largest infrastructure fund to be raised in 2018.

The firm reported $206 billion in assets under management and $287.11 million in fee-related earnings. KKR posted a $0.93-a-share income on a diluted basis.