The firm targets senior and junior debt deals in Asia that offer outsized risk-adjusted returns, with senior loans carrying a 50 to 100 basis-point premium and junior deals offering a 300 to 500 basis-point premium versus the US and Europe.
KKR & Co. raised three-quarters of its $2.5 billion Asia private credit fund from new investors, as deepening economic decoupling pushes firms to broaden exposure and hedge geopolitical risk, according to top executives.
Diversification has been a central theme in conversations with global insurance companies, sovereign wealth funds and pensions that are turning to Asia for yield as pockets of the US and European credit markets look increasingly crowded, Diane Raposio, head of Asia credit and markets, said in an interview.
"What we're starting to see, with some of this geopolitics, is Asia maybe decoupling," she said. "We are seeing a premium versus US and Europe. It's an underserved, underpenetrated market."
The optimism around Asian private credit runs counter to a broader global pullback. Investors in the US asked to redeem more than $2.9 billion from large non-traded private credit funds in the fourth quarter -- a 200% surge -- as fears grow over falling returns and deteriorating credit quality. Still, concerns about stress in North American credit markets were "idiosyncratic rather than systemic," Raposio said.
Asia offers better risk-adjusted returns, enabling KKR to secure deals with lower leverage, better lender protections and higher spreads compared with the US and Europe. The region has just $1 of private credit for every $30 of private equity, versus roughly $1 for every $4 in Europe, she said.
KKR last week completed fundraising for its second private credit fund, with a quarter of capital coming from existing investors. The new pool targets low double-digit net returns, similar to its first $1.1 billion fund in 2022. The second vehicle and other credit funds have already committed $1.9 billion on 10 investments, with enterprise value totaling $4.6 billion.
Developed Asia accounts for about 70% of the firm's first fund and is expected to make up a similar share of the second. Australia remains the largest market at 25%-35% of the pool, followed by Korea, Singapore and India. Japan is emerging as a key growth opportunity.
The Asia market is "not that overcrowded," said SJ Lim, KKR's head of Asia private credit. He prefers deals focused on cash flow, downside protection and capital preservation, rather than equity-like strategies targeting 18% to 20% returns.
"We are not here to chase high return in exchange for that," he said.
Many global investors prefer performing credit over distressed strategies to access Asia's growth, providing senior and junior loans to high-quality borrowers while backing the region's structural tailwinds, Lim said in the same interview. Asia-based investors accounted for about 60% of the commitments, in line with its first fund.
"We want to build the asset class in Asia because we think that that's when the scale player, the incumbent player actually gets the benefit," he said. "We plan in these 10-year cycles, and we think we are in early innings."
KKR in Asia operates two pillars for its private credit business: direct lending and bespoke capital solutions, each deploying 40% to 50% of capital, with the remaining 10% to 20% on asset-backed financing. Overall leverage in Asia is "materially lower" than in the US or Europe, Raposio said.
The firm targets senior and junior debt deals in Asia that offer outsized risk-adjusted returns. Senior loans carry a 50 to 100 basis-point premium, but benefit from lower leverage, stronger protections and limited competition. Junior deals offer a 300 to 500 basis-point premium versus the US and Europe, she added.