KKR closes $3.1bn infrastructure fund

September 2015 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

Private equity giant KKR & Co LLP announced in July that it has raised $3.1bn through its Global Infrastructure Investors II fund. The fund closed at its hard cap, and contributions came from a diverse cross section of investors, including public and corporate pensions, asset managers, sovereign wealth funds, insurance companies and foundations.

According to a statement released by the firm, KKR intends to utilise the find by investing primarily in projects in countries which belong to the Organisation for Economic Cooperation and Development (OECD). Specifically, KKR will look to invest in projects to replace, upgrade and expand existing infrastructure.

KKR is just the latest in a long line of private investors to take a continued interest in infrastructure development. Like many other firms, KKR’s appetite for investment in OECD infrastructure projects has been fuelled by the retrenchment of local governments from infrastructure spending. The firm’s first infrastructure focused fund raised $1bn in 2012 and has generated a 6.1 percent annualised return after fees, according to a regulatory filing from the firm. KKR is now managing about $5.6bn in infrastructure assets and has deployed about $1bn via infrastructure co-investment.

Marc Lipschultz, KKR’s global head of energy and infrastructure, noted in a statement that persistent economic difficulties across OECD countries have created opportunities for private investors. “A decrease in public funding and weakened economic conditions in many regions are driving tremendous global demand for private investments in infrastructure, and KKR’s differentiated strategy allows us to meet this need with value-added solutions,” he said. “In a volatile world, our infrastructure strategy offers stability with both current income and capital appreciation for investors.”

Infrastructure development is one of the most urgent current investment opportunities. According to a 2014 PwC report, global infrastructure development will require an estimated investment of $70 trillion over the next 10 years. This need for infrastructure development will be precipitated by a significant global demographic change, as more and more people globally shift into cities.

KKR’s Global Infrastructure Investors II fund has already invested in a number of portfolio companies, including Acciona Energia Internacional, a renewable energy generation business, and Veresen Midstream, a natural gas midstream business. The fund has attracted significant investments from the Maine Public Employees Retirement System, the Hawaii Employees’ Retirement System, and the New Mexico Public Employees Retirement Association.

Raj Agrawal and Jesus Olmos, KKR’s respective heads of North American and European Infrastructure, said: “By leveraging our team’s deep industry experience and global resources, we are uniquely positioned to pursue and capitalize on exciting opportunities within a stable asset class. We look forward to investing the Fund successfully.”

KKR will look to invest in a number of key infrastructure projects as it has done for a number of years. The firm is believed to be considering investing in schemes including the New Jersey wastewater system, as well as a number of renewable energy projects. KKR is a well documented investor in infrastructure projects. The firm has been active in the energy and infrastructure space for around 30 years. As a result of the firm’s commitment, it manages investments in energy and infrastructure, including oilfield services, petroleum, shale gas, social infrastructure, renewable energy and utilities assets in a variety of markets including France, the Netherlands, Spain, the UK and North America.

“Infrastructure here and around the world is really in need of substantial investment,” notes Mr Lipschultz. “We go after very low-risk, low-volatility underlying assets, but in places where operational engagement, stakeholder management and relations with the management really matter.”

Though the fund was only closed in July, KKR has already put it to work. On 21 July it announced that KKR had entered into a definitive agreement to acquire an 80 percent stake in Gestamp Asetym Solar, a global solar PV developer and operator, from Gestamp Renewables. The deal for Gestamp Asetym came just one day after KKR formed a partnership with Dutch investment firm Reggeborgh, which saw the firm take a majority stake in Deutsche Glasfaser. Under the agreement, the two companies will invest around €450m into the roll out of German fibre optic infrastructure in the next few years.

KKR is by no means alone in its interest in the infrastructure space, a number of other high profile investment groups have ploughed resources into much needed infrastructure development in recent years. In 2013, Brookfield Asset Management Inc, Canada’s biggest alternative-asset manager, finished raising $7bn for a global infrastructure fund. In 2012, Global Infrastructure Partners completed a close on the firm’s second fund for $8.25bn.

Richard Summerfield