* Early talks with investors have begun
* KKR's new fund would be pitted against TPG's Asian fund
* Low global rates, Asian growth seen boosting PE fund
(Adds funds raised in Asia, returns for KKR's second Asian
By Elzio Barreto and Denny Thomas
HONG KONG, Sept 7 Private equity firm KKR & Co
has started talks with investors for a third Asia fund,
targeting a record $7 billion with a formal launch expected by
year-end, people familiar with the plans said.
KKR's fundraising plan would pit it against rival U.S.
buyout firm TPG Capital Management which is launching a
new Asia fund in the coming months with a target of more than $4
billion, sources familiar with the plans previously told
The ramp-up in fundraising by private equity firms for
Asia-focused investments comes as long term investors such as
pension funds, sovereign wealth funds and insurance firms seek
to boost returns in an environment of ultra-low or even negative
The investors are also looking to boost their exposure to
fast-growing Asian countries such as China, India and Indonesia
due to their massive populations of increasingly affluent
consumers and because they are churning out businesses with the
potential to become global corporations.
KKR set a record for Asia private equity fundraising with
its $6 billion Asian Fund II in 2013, of which it has already
deployed or committed about two-thirds, added the sources, which
included investors and advisers to KKR who couldn't be named
because details on the new fund have not been made public.
KKR declined to comment on its new fund.
Against the backdrop of low returns from traditional asset
classes such as bonds, KKR's Asian Fund II posted an internal
rate of return (IRR) of 26.4 percent through December 2015,
according to data from the California Public Employees'
Retirement System (CalPERS), which invested in the fund.
Returns above 20 percent are considered good for private
But returns could face pressure as private equity firms are
increasingly finding it difficult to profitably deploy the huge
sums at their disposal because sellers of businesses in Asia are
asking higher prices, buyout funds have warned.
Asia-focused buyout funds have raised $9.4 billion so far
this year, according to data provider Preqin. Some of the
largest capital raisings in the past year include a $3.6 billion
fund by Hong Kong-based private equity firm PAG, $2.7 billion by
Hony Capital and $3 billion from Bain Capital.
KKR's planned fundraising comes amid a recent reshuffle of
senior executives in Asia.
The firm last week named Ming Lu as the sole head of its
Asia private equity business, after David Liu and Julian
Wolhardt decided to leave the firm to form their own investment
firm. Liu had been co-head of private equity with Lu previously.
Liu and Wolhardt were instrumental in several of KKR's China
deals, including investments in China Modern Dairy Holdings
, pork producer COFCO Meat, chicken meat company Fujian
Sunner Development Co, leasing firm Far East Horizon
, appliance maker Qingdao Haier and
investment bank China International Capital Corp, said
KKR last week also announced appointments in China and South
Korea, and unveiled a new head for Southeast Asia.
China has been the recipient of nearly $3 billion of KKR's
$10 billion committed or deployed to the Asian region since
2005, the company has said.
(Reporting by Elzio Barreto and Denny Thomas; Editing by