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Oregon allocates $3bn to KKR debt arm

The long-time KKR loyalist will be the first public pension to invest in a “dedicated separate account” managed by KKR Fixed Income. The commitment dwarfs previous Oregon commitments to KKR’s buyout funds.

The Oregon Investment Council (OIC), custodian of the $61 billion Oregon Public Employees Retirement System, has committed $3 billion to a “dedicated separate account” to be managed by KKR Fixed Income, the newly reformed debt investment wing of buyout group Kohlberg Kravis Roberts.

The private investment vehicle, briefly explained in the minutes of the OIC’s June 27 investment board meeting, creates the first KKR Fixed Income fund managed exclusively on behalf of a public institutional investor.

The commitment also dwarfs OIC’s past investments in KKR’s buyout funds. Last year OIC invested $1.3 billion in KKR 2006, the pension’s largest publicly disclosed commitment to date to the New York-based firm.

OIC, which started investing in KKR funds as early as 1981, is considered one of the longest and most loyal of KKR’s institutional investors. KKR declined to comment on the fixed-income commitment.

Just last month KKR purchased a further 35 percent stake in KKR Financial, which it subsequently rebranded as KKR Fixed Income. The debt investment arm currently operates KKR Financial Holdings, a publicly traded specialty finance company which invests in corporate loans and debt securities, and KKR Strategic Capital Fund, a companion fund that specialises KKR debt-related deal flow, market dislocations and distressed opportunities.

“We believe that this change will allow [KKR Financial] to further build upon the substantial benefits of its KKR relationship in providing management services to both [KKR Financial Holdings] and [KKR Strategic Capial Fund],” KKR Financial chief executive Nino Fanlo and chief operating officer Dave Netjes wrote in a shareholder letter last month. “In addition, we have decided to rebrand KKR’s credit business…to “KKR Fixed Income” to reinforce the full integration of the credit business both internally and externally.

KKR Financial Holdings, which manages more than $18 billion in assets, experienced a tumultuous 2007 in which saw its share price drop by more than 50 percent as its real estate investments suffered from the subprime mortgage crisis. In March, the group sold a controlling interest in its real estate trust to Rock Capital, a London-based real estate investment firm.