KKR Sees AI Financing, Private Credit Fueling Its Next Growth Wave

Key Points

• KKR sees private credit as a durable growth engine: Its credit platform manages roughly $300 billion, while investors increasingly favor diversified, multi-asset credit strategies and evergreen fund structures.
• AI infrastructure is creating substantial financing demand: KKR cited an estimated $7.6 trillion in hyperscaler capital expenditures over the next five years and reported more than $80 billion in private investment-grade transactions originated or placed year to date, up 104% from the prior year.
• Portfolio discipline and regional expansion remain priorities: KKR is emphasizing diversification, bespoke financing and careful underwriting of data-center risks, while viewing Asia as a long-term private-credit opportunity that could require about $800 billion in capital.

KKR & Co. Inc. NYSE: KKR sees continued growth opportunities across private credit, asset-based finance and private investment-grade lending as higher interest rates, demand for financing and evolving institutional allocations support the asset class, according to Chris Sheldon, the firm’s Co-Head of Credit and Capital Markets.

Speaking at a financials conference, Sheldon said KKR’s credit business manages about $300 billion of assets with 250 professionals across 12 cities and 10 countries. The platform includes $143 billion in leveraged credit, nearly $50 billion in corporate private credit, $91 billion in asset-based finance and $11 billion in strategic investments, including structured equity and hybrid capital solutions.

Sheldon said KKR’s acquisition and integration of annuity business Global Atlantic has expanded the firm’s credit-market capabilities. Global Atlantic’s investment office is integrated into KKR’s credit platform, and Sheldon described the business as a “true multiplier” that provides alignment and scale for large private investment-grade and asset-based-finance transactions.

Private Credit Allocations Continue to Expand

Sheldon said credit allocations continue to flow into the market despite investor concerns and media scrutiny surrounding private credit. He attributed the demand to the asset class’s risk-reward profile in a higher-rate environment, as well as a shift toward more permanent and diversified credit allocations.

He said allocators are increasingly seeking multi-asset-class credit partnerships rather than allocating separately across public and private credit, corporate lending, asset-based finance, and senior and subordinated debt. In KKR’s view, this trend favors managers with broad platforms that can assess relative value across credit markets.

Another change has been the growth of evergreen fund structures. Sheldon said investors increasingly are allowing managers to reinvest income rather than distributing it, supporting compounding within private-credit vehicles. He added that private investment-grade credit remains in its early stages and could attract additional pension capital, particularly from allocations currently directed to core fixed income.

“Private credit has now become a permanent asset allocation,” Sheldon said, adding that investors have seen income generation without a broad spike in defaults.

Private Investment-Grade and AI Financing Opportunity

Sheldon highlighted private investment-grade lending as a major opportunity, fueled initially by insurance capital and potentially followed by pension investors. He said the estimated $7.6 trillion of capital expenditures forecast from hyperscalers over the next five years illustrates the scale of financing needs related to artificial intelligence, although he noted that not all of that spending would be financed privately.

KKR has originated or placed more than $80 billion of private investment-grade transactions year to date, Sheldon said, representing a 104% increase versus all of the previous year. He said the activity has extended beyond data centers into sectors including energy, health care, technology and consumer businesses.

Companies are also increasingly looking to finance capital-intensive assets off balance sheet, Sheldon said, as they seek to become more capital-light. He cited financing facilities involving PayPal, Lenovo, Volvo and Harley-Davidson as examples of that trend, though he did not provide transaction details.

In data-center and AI-related lending, Sheldon said underwriting must go beyond evaluating the creditworthiness of hyperscaler customers. Investors also need to understand asset location, power availability, lease terms and the potential value of assets if a lease ends. He said KKR combines expertise from its infrastructure, real estate and credit teams when evaluating such investments.

He also identified financing capacity as a risk, noting that credit investors cannot simply allow data-center exposure to become an outsized portion of their portfolios. The market may require new pools of capital, lower capital-expenditure forecasts or increased cash flow from companies to address that constraint, he said.

Portfolio Construction Remains Central

Sheldon said traditional leveraged-finance markets currently have more capital than deal flow, contributing to tight spreads. KKR’s approach, he said, is to maintain high-quality, diversified portfolios while pursuing areas where supply and demand are more favorable, including bespoke capital solutions and Asian credit markets.

He described origination as a key differentiator, particularly while mergers and acquisitions activity remains muted. KKR has focused on improving coverage of corporate borrowers, sponsors and banks, while drawing on relationships across its private equity, infrastructure and real estate operations.

On direct lending, Sheldon said performance has remained strong across KKR’s institutional portfolios and non-traded business development company. He said KKR has generally avoided annual recurring revenue lending in software and instead emphasized “sticky enterprise software” businesses that generate free cash flow.

Sheldon said annual default rates in both broadly syndicated loans and direct lending have been around 4% to 5% for the last several years. While he does not expect a major spike in defaults, he expects meaningful differences in performance among managers based on portfolio construction, investment vintage and sector exposure.

KKR’s software exposure is about 20%, below what Sheldon described as a market level closer to 25%. He said artificial intelligence could benefit many software companies because businesses need systems to store, organize and connect data before they can effectively deploy AI, though he also expects some dispersion and casualties in the sector.

Asia Seen as a Long-Term Credit Growth Market

Sheldon said Asia could become too large for credit investors to ignore over the next several years. He compared the region’s current development to Europe roughly two decades ago, noting that banks still account for about 80% of financing activity in Asia.

Based on the relationship between private equity capital and private credit capital in the region, Sheldon said Asia could require about $800 billion of private-credit capital to reach a ratio similar to Europe’s current market. KKR has credit professionals embedded alongside its private equity, infrastructure and real estate teams in offices across the region and has raised private-credit funds and operates a liquid strategy in Asia.

He said local presence remains important because the market is fragmented and presents high barriers to entry. KKR also sees potential support from insurance capital, noting that Asia is home to the second-largest annuity market outside the United States.

About KKR & Co. Inc. (NYSE:KKR)

KKR & Co Inc is a global investment firm that manages alternative investment strategies and provides a range of investment and capital-markets services. The company invests across private equity, credit, infrastructure, real estate, insurance and other asset classes, serving institutional investors, wealth-management clients and other investors.

KKR's investment activities include acquiring and managing businesses, providing private and public credit, investing in infrastructure and real estate assets, and developing solutions designed to meet the long-term capital needs of companies and investors.

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