EXCLUSIVE KKR launches its first two ESG credit funds

Trading information for KKR & Co is displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York, U.S., August 23, 2018. REUTERS/Brendan McDermid

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July 7 (Reuters) – Private equity firm KKR & Co Inc (KKR.N) is preparing to launch its first two dedicated credit funds for investing based on environmental, social and corporate governance principles ( ESG) later this year, according to an internal memo seen by Reuters.

The funds, offered to institutional investors as well as high net worth individuals, will be managed by KKR’s Sustainable Credit team led by Terry Ing and William Needham, according to the memo.

They will seek to outperform high-yield, leveraged blended benchmarks by delivering high single-digit net returns, said a person familiar with the matter, requesting anonymity because fundraising details are confidential. The target size of the two funds could not be known.

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KKR declined to comment.

ESG investing, which is gaining popularity in the context of tackling challenges such as climate change and social inequality, is becoming increasingly important in capital markets.

Some companies take out “green” or “sustainable” loans and issue bonds with specific ESG commitments. Investors often reward companies with a lower interest charge if they achieve related goals.

The first fund, KKR Credit ESG Climate Opportunity Fund, will invest globally in publicly traded debt of companies whose climate change commitments score high on KKR’s “proprietary ESG scorecard”, according to the memo.

The second fund, KKR Credit ESG Accelerator Fund, will be a sustainability-focused global fund deploying a range of private debt investment strategies, including direct lending, junior debt, asset-based financing and opportunistic credit, indicates the memo.

The funds will engage regularly with the issuers of the debt they invest in to ensure they are meeting their ESG commitments, the person familiar with the matter said. The funds will invest in the credit of oil and gas companies as long as they commit to reducing their carbon emissions to net zero by 2050 or earlier and have credible decarbonization strategies, added the source.

KKR’s head of public relations, Ken Mehlman, will work closely with the new funds, while the company’s expert sustainability advisory board, chaired by Bob Eccles, will provide regular guidance and oversight, according to the memo.

Credit funds are not the first investment product dedicated to ESG launched by KKR. The New York-based company launched a $1.3 billion private equity fund in 2019, the KKR Global Impact Fund, dedicated to investing in companies that provide business solutions to environmental or social challenges. This fund was valued at 1.7 times its investors’ money on a gross basis at the end of March, according to a KKR regulatory filing.

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Reporting by Greg Roumeliotis in New York; Editing by Edwina Gibbs

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