KKR closed the second iteration of its Global Impact Fund on $2.8 billion in November, as the New York-headquartered firm more than doubled its predecessor’s capital haul while attracting three times as many investors.
The firm was a relatively early mover among its class of generalist growth and buyout firms that have branched into impact, with Impact Fund I launched in 2018, hitting a $1.3 billion close in early 2020.
Ken Mehlman, a KKR partner and global head of public affairs, who also serves as co-head of KKR Impact, tells Agri Investor that the main development in the time since Fund I has been an intensification of interest in its key themes and a more holistic approach to sustainability that includes ag.
The investment strategy for Global Impact Fund II is organized around pillars of inclusive growth, lifelong learning, sustainable living and climate action. It has attracted new and existing investors including pension funds, insurance companies, high-net-worth individuals and others.
Mehlman says that although there were not any investors in the fund that specifically highlighted agriculture as a driving motivation for the investment, the sector is relevant to LPs’ growing interest on preparedness and resiliency, which has been heightened by the covid-19 pandemic and war in Ukraine.
“The energy transition isn’t just where we get our energy from. It’s also dealing with how to address the climate challenge – and that’s where I think agriculture, water and land remediation are really important,” says Mehlman, who joined KKR in 2008 after a career in national politics, according to his LinkedIn profile.
Four of the 17 investments included with KKR’s Global Impact unit are into businesses relevant to food and agriculture: Axius Water, a provider of nutrient removal for industrial wastewater facilities based in Canada and Massachusetts; seed provider Advanta, headquartered in Hyderabad, India; Resource Environmental Services, a Houston, Texas-headquartered company focused on water quality, flood migration, stormwater management and other environmental mitigation projects and carbon project specialist GreenCollar.
In September, Ontario Teachers’ Pension Plan acquired the remaining portion of KKR’s Fund I stake in GreenCollar it did not already own in a deal that a source told Agri Investor was valued at $A600 million ($385 million;€364 million).
Mehlman highlighted that while significant sums of capital have been raised to support strategies focused on traditional investing in renewable assets and cutting-edge technology through climate tech, there remains a wide swath of worthy climate-related companies in search of capital.
“If you look at what one has to do as a civilization to deal with climate change, there’s a whole lot of stuff to do that’s in between,” he says. “It involves how do you help the most high-emitting sectors to adjust operations? How do you address the issue by making nature your ally when it comes to climate?”
‘Impressive, hopeful and game-changing science’
In March 2020, Mehlman identified animal protein in Asia and alternative proteins in developed markets of North America and Europe as likely among the food and ag related investments from KKR’s first impact fund, which closed on $1.3 billion.
Speaking after the close of Fund II, Mehlman explained that although KKR did not end up finding an alternative protein supplier that was a good fit for its first impact fund, it was already an investor in Upfield, a Dutch provider of plant-based margarine products, through an existing private equity strategy.
He added that he has continued to monitor developments in alternative proteins closely and that his visit to Upfield’s agricultural innovation center in the Netherlands was among the most interesting places he’s had a chance to visit over the course of deploying the first fund.
“I could have spent a month there,” he added.
Although the alternative protein market is still at an early stage, he says, there is a reason it remains attractive to investors across a variety of strategies.
“The remarkable amount of impressive, hopeful and game-changing science around how we nourish ourselves using plants more than animals is remarkable,” he says. “Our approach, as a strategy, focuses on companies that have a proven business model and typically are profitable. We just didn’t find the right opportunity. It’s something we think about a lot and it’s something we think about a lot across the firm, not just in the impact strategy.”
Policy and regulatory backdrop
Mehlman’s experience in national politics included stints as chairman of the Republican National Committee and campaign manager of the Bush/Cheney 2004 campaign. That background, he says, has shaped his approach in various ways since joining KKR in 2008.
“In today’s world, where we have the kind of geopolitical challenges we face and there is in the United States, and much of the world, unprecedented populism and political upheaval within parties and between parties, it requires us to make sure we understand and are thoughtful with respect to the policy and regulatory backdrop of everything that we do,” he says.
Mehlman noted the appreciation of agriculture’s potential role as a carbon sink has gained steam among policymakers at the federal and state levels. He says the support for development of related markets within recent pieces of industrial policy legislation, including the Inflation Reduction Act, are likely to continue attracting bipartisan support.
“There’s a way to make farming your friend when it comes to addressing climate change,” says Mehlman. “Even if you do everything right, these increased weather emergencies are going to threaten human life and harm life on the land and in the water, so the way you deal with that through companies like RES and Axius becomes incredibly important.”
KKR had about $290 billion in assets under management as of late 2022, according to a March filing.