ImpactAlpha, April 30 – KKR, the latest private-equity giant to move into impact investing, has launched fundraising for what it expects to be a $1 billion Global Impact Fund, led by KKR veterans Ken Mehlman and Robert Antablin.
The fund managers expect to make 12-15 investments in sustainable business development, next-generation energy, agriculture and food and other sectors aligned with the UN Sustainable Development Goals. The fund is looking for deals averaging $50 million each across the Americas, Asia and Europe, and will take perhaps five key positions of up to $100 million.
Reuters first reported the broad outlines of the fund, signals of which had seeped out in regulatory filings in recent weeks. ImpactAlpha confirmed additional details independently. KKR declined to comment for this article.
KKR told investors the Global Impact Fund will seek to invest in businesses that deliver “commercial solutions that solve global challenges in credible and measurable ways,” ImpactAlpha has learned. With such a “commercial” focus, the firm says, “we believe that we can generate private equity returns, while driving positive impact to global challenges.”
The size of the new impact fund would position KKR between fellow private-equity giants Bain Capital and TPG, which have raised $390 million and $2 billion, respectively, for the Bain Capital Double Impact Fund and TPG Growth’s Rise Fund.
Higher raises, higher stakes
The arrival to impact investing of private equity players means not only larger raises from investors (making possible big checks from institutional investors) and bigger investments in companies (providing middle-market growth capital to scale up revenue-generating enterprises). It also broadens the range of possible exits for early-stage investors, as mid-market private-equity players move in to take majority, or at least controlling, positions.
It also raises the stakes for the emerging field of impact measurement, as private equity firms pledged to deliver market-beating returns above 20% (in gross “internal rate of return”) also strive to show that they can at the same time deliver specific, measurable impact. TPG’s Rise Fund, for example, commits to generating a specific “impact multiple of money” from each investment, but doesn’t publicly disclose the targets it sets.
KKR will require companies under its ownership to measure and report on specific impact outcomes, which KKR will in turn report to investors annually. Each investment’s alignment with the U.N.’s 17 global goals will be validated by a non-governmental organization. Improvements to companies’ environmental, social and governance, or ESG, performance will be guided by the Sustainable Accounting Standards Board’s “materiality” analysis.
Skepticism of private-equity’s track record to date runs deep, as Bain Capital co-founder Mitt Romney discovered when he ran for president in 2012. Even Bono, a co-founder of TPG’s Rise Fund, used some choice words to describe his initial reaction to TPG’s entrance into impact investing, or #impinv, as it is often called on Twitter.
In March, the Ford Foundation’s Graham Macmillan tweeted: “As more #impinv funds emerge from established PE players, impact performance should be considered across all of their funds not just impact one(s). 30,000 retail workers losing jobs because of LBO (leveraged buyout) fund will far outweigh upside impact in your other fund. Total portfolio impact matters.”
As more #impinv funds emerge from established PE players, impact performance should be considered across all of their funds not just impact one(s). 30,000 retail workers losing jobs b/c of LBO fund will far outweigh upside impact in your other fund. Total portfolio impact matters
— Graham Macmillan (@grahamgmac) March 17, 2018
KKR, along with Bain Capital and Vornado Realty Trust, has been in the hot seat since the bankruptcy of Toys ‘R Us Inc., which the three firms bought in 2005 for $1.3 billion in equity and many times that in debt. The losses on that investment were offset by more than $470 million the firms took over time in fees and interest. The closure of hundreds of toy stores meant job losses for many of Toys ‘R Us’s 31,000 employees.
Major trends, big challenges
In pitching the new fund, KKR points to its decade of “ESG” investing and $4.5 billion in previous investments that align with the half-dozen sustainability oriented themes it has identified for the Global Impact Fund. Among $328 million in equity invested in sustainable business development, for example, the firm points to water infrastructure investments such as the Bayonne Water and Wastewater Concession. KKR’s nearly $1 billion invested in agriculture and food production includes a stake in Masan Nutri-science, a leading swine and poultry feed producer in Vietnam. Late last year, KKR disbanded its Africa buyout team.
The firm will find opportunities in major trends and big challenges. It has told investors, for example, that there is a $9 trillion opportunity to invest in stronger and more resilient cities and infrastructure. Arable land is being lost at more than 30 times the historical rate, and one in seven people worldwide lack access to electricity.
The co-heads of Global Impact will bridge KKR’s public-affairs team in New York and its energy and environmental services team in Houston. Ken Mehlman, KKR’s global head of public affairs, was chairman of the Republican National Committee and managed President Bush’s 2004 re-election campaign. Mehlman chairs the policy advisory board of the Chan-Zuckerberg Initiative, the philanthropic and impact investing vehicle established by Facebook CEO Mark Zuckerberg and his wife, Priscilla Chan.
Robert Antablin, who joined KKR in 2005 and established its Houston office, is identified on the firm’s website as co-head of Global Impact, “the firm’s private market investing platform focused on investing in businesses that promote commercial solutions to global issues associated with economic development, environmental management, next generation energy, agricultural and food production, responsible land use and education and learning.” Other members of the Global Impact team include Elizabeth Seeger in Washington DC and Kyle Matter in Houston.
KKR told investors it will look for common elements across its impact-related investments, including identifying markets with strong growth trends and companies with competitive differentiation. In addition, it will seek companies with multiple markets and potential exits and in which KKR has the ability to affect a company’s performance with “a credible set of levers KKR can pull to impact a company’s performance.”