Private equity firm KKR & Co Inc (KKR.N) is getting ready to set up its first two funds committed to investing based on environmental, social, and corporate governance (ESG) principles later in the year, according to an internal memo seen by reporters.
The funds, given to high net-worth individuals as well as institutional investors, will be under the custody of KKR’s sustainable credit team headed by William Needham and Terry Ing, according to the memo.
They will aim at outperforming leveraged loan index and blended high yield benchmarks by achieving high-single-digit returns on a net basis, a person with knowledge of the matter said, asking for anonymity since the fundraising details are confidential. The targeted size of the two funds could not be determined.
KKR refused to comment.
ESG investing, which is rising in popularity amid a push to tackle challenges such as social inequality and climate change, is becoming quite popular in capital markets.
The KKR Funds
Several companies are asking for “green” or “sustainable” loans and are offering bonds that carry specific ESG commitments. Investors normally reward the companies with a lower interest expense if they achieve related targets. According to the memo:
The first fund, KKR Credit ESG Climate Opportunity Fund, will target climate change and invest globally in the publicly listed debt of companies that yield high results on KKR’s “proprietary ESG scorecard.”
The second fund, KKR Credit ESG Accelerator Fund, will be a global sustainability-focused fund exercising a range of private debt investing strategies including junior debt, direct lending, asset-based finance, and opportunistic credit, the memo said.
The funds will engage consistently with the issuers of the debt they invest in to make sure they are reaching their ESG commitments, the person with knowledge of the matter said. The funds will invest in the credit of oil and gas companies given that they are devoted to decreasing their carbon emissions to zero on a net basis by 2050 or earlier and have feasible decarbonization strategies, the source added.
Buy Crypto NowKen Mehlman, KKR’s global head of public affairs and co-head of its global impact strategy, will work closely with the new funds, while the firm’s Sustainable Expert Advisory Council headed by Bob Eccles will offer regular oversight and guidance, according to the memo.
The credit funds are not the first ESG-dedicated investment product established by KKR. The New York-based firm set up a $1.3 billion private equity fund in 2019, the KKR Global Impact Fund, committed to investing in companies that offer commercial solutions to social or environmental challenges.
By the end of March, that fund was valued at 1.7 times its investors’ money on a gross basis, according to a KKR regulatory filing.
