By Echo Wang

(Reuters) - KKR is seeking about $20 billion from investors for its latest flagship North America private equity fund, according to people familiar with the matter, three years after it launched its predecessor fund of similar size.

The New York-based firm, which had $578 million in assets under management as of the end of March, is returning to a tougher fundraising market for buyout funds.

Some investors have been reluctant to make new commitments because they have received less capital back from private equity firms, as high interest rates make refinancing companies or selling them to other buyout firms more challenging.

The new KKR fund is called North America Fund XIV and began its marketing to investors earlier this month, the sources said. It is targeting a net internal rate of return (IRR), as a percentage, of at least high-teens, and a steady annual deployment of 20% to 25% of its amassed capital, the sources added.

The sources requested anonymity because the fundraising process is confidential. KKR declined to comment.

The fundraising will be a test of how KKR's investors view its recent record with buyouts in the region. The last North American private equity fund that KKR has fully deployed, which it launched in 2017, reported an IRR net of fees of 20.5% as of the end of March, according to a regulatory filing.

By comparison, a rival North American private equity fund launched by Carlyle Group in 2018 reported a net IRR of 8% as of the end of March, according to a separate regulatory filing. Bain Capital's North America private equity fund, that launched in 2017, reported a net IRR of 17.1% as of the end of September, according to the most recent public disclosure of the Public School Employees' Retirement System, one of its investors.

KKR said in April that its $19 billion predecessor fund, KKR North America Fund XIII, has deployed 64% of its capital, three years into its six-year investment period. KKR also said it has achieved steady annual deployment in its previous North American funds and that it has distributed to its investors twice as much capital as it has received from them for private equity investments in the Americas over the last seven years.

CHALLENGING MARKET

The challenges in the fundraising market have led to overall activity slowing down. A total of 90 U.S. buyout fundraising closures took place during the first quarter of 2024, attracting a combined $55 billion in commitments, down 57% from a year earlier, according to LSEG data.

KKR's chief financial officer Robert Lewin acknowledged the challenging landscape at the TD Cowen financial services summit earlier this month, but said conditions were improving.

"It feels a little bit better today on the fundraising side than it felt maybe 12 or 18 months ago," Lewin said. KKR raised about $180 billion from investors from the beginning of 2022 through the first quarter of 2024, Lewin said.

KKR has also committed to offering rank-and-file employees of its portfolio companies in North America equity in these companies, an incentive the corporate world traditionally reserved only for senior executives.

This broad-based employee ownership program was started by KKR's global private equity co-head Pete Stavros in the firm's investments in the industrial sector, and was then expanded in North America and globally.

KKR says the program has led to higher revenue, improved productivity and lower turnover at its portfolio companies. KKR co-founder and co-executive chair Henry Kravis told the firm's investor day in April that the scheme has resulted in about $175,000 of additional income per employee.

(Reporting by Echo Wang in New York; editing by Diane Craft)