KKR hunts for major infrastructure assets after closing Asia’s largest targeted fund

KKR will be targeting large-scale acquisitions across the Asia Pacific after closing out a massive $US6.4bn infrastructure fund.

The New York-based global investment firm announced on Thursday the final close for the KKR Asia Pacific Infrastructure Investors II fund - the largest of its type in the region.

The closure of the fund, which has been accepting investments for two years, follows the 2021 close of the $US3.9bn first iteration of the fund, which was at that time once again the largest Asia-dedicated vehicle of its type.

KKR managing director and head of infrastructure Australia, Andrew Jennings, said the new fund had already committed more than half of its capital across 10 investments, bringing the total assets under management on KKR’s Asia Pacific infrastructure platform to about $US13bn.

Mr Jennings said KKR’s Asian infrastructure holdings had grown quickly from a standing start just five years ago.

“The strategy is similar to the first fund - the target markets for us are a mix of developed and developing Asia,’’ Mr Jennings said.

“So India, Philippines, Korea, Japan, and then Australia and New Zealand.

“We think the demand for Asian infrastructure is only increasing - Asia accounts for 60 of global growth driven by domestic consumption and productivity, continuing urbanization, and like we’re seeing elsewhere in the world, a deep push into digitalization and decarbonization themes.

“I think there’s also an increasing greater public acceptance of private capital in Asia, so we’re seeing that there are also greater investment opportunities.’’

Mr. Jennings said the fund would be targeting primarily brownfields opportunities in sectors such as regulated utilities, renewables, transportation, and water and waste management, however digital and decarbonization were seen as providing the biggest opportunities.

While Australia and New Zealand assets were certainly in the mix, particularly in areas such as transport, digital, and decarbonization, Mr Jennings said those sectors were competitive locally and finding relative value would potentially be a little more challenging.

“And then the other one that we’re focused on is what I’ve described as industrial infrastructure - businesses that are essential services not correlated to the economic cycle with strong downside protection,’’ Mr Jennings said.

KKR said the fund received strong backing from new and existing global investors including public and corporate pension funds, sovereign wealth funds, insurance companies, endowment funds, and asset managers.

Mr Jennings said there was a strong ESG focus from investors, and with KKR typically holding an asset for five to seven years, the firm was also mindful of the saleability of assets going forward, which meant ESG was also top of mind internally.

In areas of high carbon intensity, the ability to decarbonize also provided an opportunity, Mr. Jennings said.

On the industrial infrastructure side, the fund would be looking for assets with one or all of these characteristics including long-term contracts, high barriers to entry, and regulation, “which will then give you confidence around that downside protection’’.

KKR is not revealing the targeted return of the fund, which to date is yet to invest in Australia.

Mr Jennings said while Australia was a good place to do business, some of the asset sectors were more mature and competitive.

In contrast, there was potentially more room for growth in markets such as India.

“There are plenty of opportunities that we’re seeing across the region that are maybe not as competitive (as Australia),’’ Mr Jennings said.

“So a good example of that is India. We’ve made several investments in the renewable energy space and we’ve seen that from a relative value perspective, it’s been more attractive than Australia.

“A part of that is fewer people are competing for those investment opportunities.’’

Mr Jennings said India was also a market where longer-term contracts could be achieved than in Australia.

KKR Mumbai-based infrastructure partner Hardik Shah said rapid urbanization and consumption across Asia, as well as an “enormous emerging middle class’’, meant “the need for new infrastructure and sustainable energy sources will continue to accelerate’’.

“We believe this backdrop presents a significant opportunity for value-added private infrastructure investors, and we welcome the chance to invest behind the development and success of critical infrastructure across the Asia Pacific.”

KKR in 2021 led the $5.2bn takeover of Australian electricity company Spark Infrastructure, which owns SA Power Networks, Citipower, and Powercor.

Other Asia Pacific assets include New Zealand transport operator Ritchies, Indian pallet provider Leap, Philippines power company First Gen, and South Korean waste management firm Ecorbit.

The latter is reportedly soon to hit the market, with a value of more than $US2bn.


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