KKR, which is on the verge of closing what might be the year’s largest infrastructure fund, has said goodbye to the last of its European infrastructure team’s early hires, following the mid-July departure of senior director Ram Kumar, a nine-year veteran of the firm.
Kumar – who was involved in several of the firm’s European investments, including French district-heating firm Coriance, UK utility South Staffordshire Water and Spanish renewables firm Acciona Energia International, to name a few – joined KKR in early 2009 after a near seven-year stint at Goldman Sachs, including in its infrastructure team.
His departure follows the March exit of Guido Mitrani, a director, who joined KKR in mid-2010 after five years at Goldman Sachs.
Both were among the European infrastructure team’s first hires, preceded only by former global co-head Jesús Olmos, who joined in late 2008 and left in April. Olmos joined after 17 years at leading utility Endesa, where he served as a member of the executive board and developed Endesa’s European business, which was sold to E.ON in 2008 for an enterprise value of €11 billion.
Winnie Wutte, a director with KKR’s investor relations team who had been involved with the firm’s European infrastructure fundraisings from the beginning, also left the company last October.
It is not yet known where Kumar, Mitrani and Wutte will head next, whereas Olmos is said to be raising his own infrastructure fund.
Following Olmos’s departure, KKR eschewed the global co-head system and made Raj Agrawal, who has been with the firm since 2006, the sole global head. Tara Davies, who joined in 2016 after 17 years at Macquarie, now leads the European team. Brandon Freiman, who’s been with KKR since 2007, is head of North America.
Olmos’s exit was a well-planned affair, several sources told Infrastructure Investor, with KKR given plenty of time to prepare his succession.
“The success of our infrastructure capital-raising efforts to date is a testament to the trust our clients place in our team today and to our thoughtfully planned and executed leadership transition in Europe, where we are led by Tara and Vincent, who both have a strong track record in the infrastructure space – both inside and outside of KKR,” Agrawal said, referring to Davies and Vincent Policard, who came onboard in 2012 after a decade at Morgan Stanley.
He was promoted to partner late last year and has been involved in several of the firm’s European investments, including Coriance, German locomotive leasing firm ELL and Netherlands-based parking company Q-Park, to name a few. Both Davies and Policard are part of the infrastructure investment committee.
The year’s largest fundraising?
KKR is close to wrapping up fundraising for its third infrastructure fund, with sources suggesting it could top the $7.2 billion raised by Stonepeak’s third vehicle, the year’s largest fundraising. The vehicle is its biggest yet – more than twice the size of its $3.1 billion second infrastructure fund, which closed in 2015. Its first fund raised $1 billion in 2012.
In its Q2 earnings call last week, chief financial officer William J. Janetschek said the firm would start investing Fund III in the third quarter, adding it already signed, though not yet closed, a deal for it. He went on to say the number of “signed-but-not-yet-closed transactions for infrastructure, looking out probably over the next three months, is going to be roughly $600 million of equity”.
Funds I and II are performing well, with the former generating a 14.4 percent gross IRR (12.4 percent net), 5.5 percent average yield since inception and 1.6 times gross money multiple (1.5 times net), as at 31 March, according to pension documents. The newer Fund II is returning a gross 15.9 percent (12.8 percent net), a 6.1 percent yield from inception and a 1.2 times gross money multiple (1.1 times net).
The firm is currently exiting Fund I, having fully or partially sold at least six of its 13 assets. As of 31 March, those exits had generated a gross IRR of 19 percent. Sources familiar with its portfolio told us Fund I’s best-performing investments were the US’s Middletown and Bayonnne water and wastewater concessions (now monetised), Coriance (also exited), and ELL (yet to be sold). The latter was classed by the UK’s Suffolk pension fund last December as “by far the most exciting of the remaining assets”.
The fund also attracted around $1 billion in co-investments alongside the $1 billion it raised, two sources familiar with it said.
Syndicated equity co-investments are a key part of KKR’s strategy, with the firm often using its muscular balance sheet to underwrite deals, while tapping its capital markets arm to secure favourable debt terms.
Its syndications prowess was highlighted in a 9 July Investor Day presentation, in which Davies pointed out that €1.5 billion of the €1.8 billion in equity used to fund the €3 billion acquisition of Q-Park was syndicated to co-investors. What’s more, she added that 11 of the 18 investors that participated in the Q-Park syndication went on to become LPs in KKR’s third infrastructure fund.
To drive the point home, head of investor relations Craig Larson told analysts at last week’s Q2 earnings call that in 2017, “we syndicated more capital than we invested in our [infrastructure] funds”.