KKR $6 Billion Fund May Lead to More China Real Estate Acquisitions

A record $6 billion Asia fund announced by U.S. private equity firm KKR Co on Wednesday will be deployed at a time when an economic slowdown and emerging market sell-off has knocked the overall value of Asia Pacific corporations to historic lows.

Private equity giant KKR has announced a final close of $6 billion on its second pan-Asian fund, and this new fund could have a profound impact on real estate investments in China.

According to sources in the banking industry, KKR has been actively scouting real estate investments in China, and may be planning to put capital from either its global real estate fund, or its second Asia buyouts fund into what is already a hot market for en bloc real estate investments.

Already in the past year there have been several notable acquisitions of Chinese real estate assets by regional and global private equity funds, including BlackRock acquiring MGPA in May, Hong Kong-based Gaw Capital buying the Cross Tower in Shanghai during May, the Carlyle Group buying Central Plaza in Shanghai in April, and Blackstone buying the Huamin Imperial building in Shanghai in October 2012.

The new KKR fund is 50% larger than its 2007 predecessor, and is the largest regional private equity pool ever accumulated. For its part, Blackstone also plans more investments in Asian real estate, and is currently raising a $4 billion Asian real estate fund of its own.

Commenting on the the closing of the new fund, Joseph Bae, managing partner of KKR Asia, said the successful fundraise is testament to the firm’s strong track record in the region, with more than $5.5 billion invested since it set up shop here in 2005. Most of the capital has come from the $4 billion Asian Fund I but the firm also raised a $1 billion China growth fund in 2010.

Of KKR’s current portfolio, China and South Korea account for 25% each, followed by Australia on 15% and India on 14%. Japan, Vietnam and Singapore are in the single digits.

KKR was founded in 1976 by two cousins, Henry Kravis and George Roberts, and Jerry Kohlberg, after they worked together at Bear Stearns. Kohlberg left the partnership early on, but the firm went on to pioneer the the leveraged buyout business of buying a company on borrowed money, restructuring it in certain cases, and selling it later for more than the cash invested.