Korean investors jointly set up a $770 million SPC to invest in KKR funds

Local institutional investors have injected $500 million (600 billion won) into a special purpose company to invest in diverse funds managed by private equity giant Kohlberg Kravis Roberts (KKR). The SPC was jointly set up by Korean institutional investors and KKR to invest in various strategic funds as an LP investor.

The total amount raised for the SPC is $770 million (925 billion won). KKR committed subordinate loans worth $270 million, in addition to the local investors' $500 million in senior loans.

Local investors will be able to enjoy the benefits of diversified investment through the SPC. The portfolio including KKR’s flagship fund is made up of varied funds that offer a wide range of investment strategies, geographies, and vintage years.

This SPC will also reduce the possibility of loss for senior investors since KKR will be responsible for subordinate loans.

The Kroll Bond Rating Agency (KBRA), a credit rating agency, gave A- credit rating to the senior loan. The expected annual yield is likely to be above the general rate of 5% for senior loans with a similar rating.

Domestic institutions have steadily invested in structured products because of the swelling uncertainties surrounding alternative asset prices as well as travel restrictions that make on-site due diligence for overseas assets nearly impossible. Amid such reservations, investors have turned to structured debt instead of direct investments to reduce risk and to secure profitability.

“The inability to conduct on-site due diligence for overseas assets has fueled domestic investors' interest in indirect investment assets," said a source from the alternative investment industry.

Recently, US private equity firm Carlyle Group raised $600 million for an infrastructure credit fund in Korea with two domestic financial firms Shinhan Alternative Investment Management Inc, and Hana Financial Investment Co. Ltd. The fund is set to lend to infrastructure projects such as roads, harbors, and railways in developed countries as senior investors.

This is similar to the $500 million investment raised by KKR with domestic insurers for the structured debt at the end of last year. Investors had sought mid-risk, mid-return by investing in securities backed by KKR-held companies and real-estate assets as well as bonds with a 30-year term.

Private equity firms such as KKR and Carlyle will be able to raise investment funds through structured debt, and domestic investors made up of insurers and mutual aid associations will be able to achieve higher yields by lowering its risk-based capital requirements.

 

Write to Jung-hwan Hwang at jung@hankyung.com