KKR Said to Seek $2 Billion for Second Infrastructure Fund

Apr 02, 2014 9:42 am ET

(Updates with Bastion, I Squared in eighth paragraph.)

April 2 (Bloomberg) -- KKR & Co., the private-equity firm led by Henry Kravis and George Roberts, is seeking $2 billion for its second fund making infrastructure investments globally as it looks to profit from a void left by traditional lenders.

KKR Global Infrastructure Investors II LP is trying to gather about twice as much as the prior fund raised in 2012, according to two people with knowledge of the plans, who asked not to be identified because the information is private. The fund will primarily invest in renewable energy, pipelines, utilities and transportation-related assets, one of the people said.

The New York-based firm, which Roberts and his cousin Kravis started in 1976 with Jerome Kohlberg to do leveraged buyouts, is gathering capital as investors increasingly turn to asset classes that promise steady cash flow and a hedge against inflation. Japan’s Government Pension Investment Fund will invest as much as $2.7 billion in infrastructure over the next five years as its moves away from low-yielding domestic bonds, and the California Public Employees’ Retirement System, the largest U.S. public pension plan, in February raised its infrastructure target to 3 percent from 2 percent.

“Funds created in the early 2000s targeting infrastructure were formed by banks,” said Glen Matsumoto, a partner at EQT Partners AB, which last year raised 1.925 billion euros ($2.7 billion) for its second infrastructure fund. “Private-equity firms continue to look at this space as a natural extension of their core buyout business. However, the need for the right combination of project financing experience and PE investment skills has made it less than a slam dunk for firms to succeed.”

Non-Bank Sources

Kristi Huller, a KKR spokeswoman, declined to comment on fundraising. The firm oversees $94.3 billion in private-equity funds, real estate, credit investments and other assets.

Non-bank sources of money are becoming increasingly important in financing infrastructure projects as banks adapt to heightened capital standards and governments seek to fix their balance sheets, according to a report last year by PwC, the network of accounting and consulting firms.

“Banks are continuing to lend but will likely be unable to meet the financing demands of a growing project pipeline,” according to the PwC report. “It is now clear that institutional investors are keen to support the infrastructure market.”

Funds Raising

Bastion Infrastructure Group, the investment firm led by a former chief operating officer of Morgan Stanley’s infrastructure arm, is seeking $2 billion for a debut fund that will invest globally, Bloomberg News reported last year. I Squared Capital LLC, a New York-based private-equity firm also led by former executives of Morgan Stanley’s infrastructure unit, is seeking a similar amount.

KKR’s debut infrastructure fund, which started buying assets in 2011, is 60 percent to 70 percent invested, said the person familiar. Vincent Policard, a London-based director at KKR, told Bloomberg News in 2012 it’s targeting annual returns of 10 percent to 15 percent.

The private-equity firm has invested in parking, alternative energy, district heating and contracted electricity generation, water and wastewater and telecommunications infrastructure, according to a U.S. Securities and Exchange Commission filing. KKR last month announced an investment in European Locomotive Leasing.

KKR had also raised about $1.4 billion through co- investment funds to invest in the industry as of Dec. 31, according to an SEC filing.

--With assistance from David Carey in New York.