Private equity firm KKR & Co LP is increasing the sources of capital it taps as it gears up to raise its next buyout fund, the company said at its first ever investor day on Tuesday.

KKR, which raised an $18 billion global buyout fund in 2006, is just starting to raise a new North American-focused fund with a target size of $8 billion to $10 billion.

Private equity firms raise capital that they typically use to buy companies, turn them around and sell for a higher price, returning the profit to the investors that supplied the capital.

The credit crisis limited dealflow and made raising capital for new funds hard, as investors were less willing and able to commit capital to new funds. The harder fundraising environment has caused funds have to search out new investors.

Nuttall said that KKR, which has 350 fund investors or limited partners, is working on adding more. Arch-rival Blackstone Group has more than 1,300, a source close to the company said.

It is incumbent on us -- and we will do this in the next fundraise that we are in process of doing for North America -- to find other sources of capital that are not invested in us, co-founder and co-Chief Executive George Roberts said.

More money is being attracted to the alternative investment space, increasingly from new investors, co-founder and co-CEO Henry Kravis said.

KKR said it has more than $11 billion of dry powder, or capital available to invest, and sees potential deals around the world.

We believe that is incredible capital to take advantage of the opportunities we see in private equity around the globe, said Alexander Navab, KKR's co-head of North American private equity.

Leveraged buyouts -- the debt-fueled deals private equity is known for -- have been increasing in the past year as financing for deals has become easier to find.

KKR said North America is attractive for private equity, with improved credit markets and generally reasonable equity valuations. The company's European head said KKR sees opportunities in France and the financial services sector.

In Asia, KKR cited opportunities in China and said Japan looks attractive from a pure valuation point of view. It is seeking large transactions in markets such as Australia, Singapore, Korea, Japan and India.

KKR's $11 billion includes $3.5 billion of uncommitted capital remaining in its 2006 fund, which will probably prove one of the strongest of its vintage, said Michael Michelson, co-head of North American private equity.

KKR also raised more than $1 billion for a China fund in record time for the firm, Navab said.

However, its European Fund II is valued at 93 percent of cost, which KKR described as disappointing (but) an improvement on 2009.

Roberts said KKR probably paid too much for a couple of deals, which was probably why Europe II is still not performing as it thinks it should.

In November Dallas Fed President Richard Fisher suggested that a bubble is forming in private equity, with cheap debt fueling high-priced deals in an echo of the torrid days of LBOs before the subprime credit crisis cut off financing in 2007.

KKR remains focused on buyouts even though it has expanded over the past few years into areas such as real estate and capital markets.

Private equity is our heritage, our core business, and we've been able to build a number of businesses around it, Scott Nuttall, global head of capital and asset management, said at the event, which was attended by about 100 investors.

KKR said it was confident its new long-short team would be in the market soon and raise significant capital over time. Last October, KKR hired nine members of Goldman Sachs Group Inc's proprietary trading team.

THINKING SUCCESSION

Buyout king Kravis, who co-founded KKR nearly 35 years ago, said he and co-founder Roberts think about succession issues every day but added that their stepping down, I hope is in the distant future.

KKR has a deep bench of potential successors, Kravis said.

KKR listed on the New York Stock Exchange on July 15, joining rival Blackstone Group LP , which made its debut in 2007.

Shares of KKR fell 4 percent to close at $16.59 on the New York Stock Exchange.

Other large private equity firms such Carlyle Group and Apollo Management are also likely to go public. Apollo is expected to set terms soon for an IPO of up to $500 million, sources told Reuters late on Monday.

Private equity firms going public have sometimes been questioned by investors concerned about whether their interests will be aligned.

Roberts said that forward-thinking investors realize that over the next five years the other established private equity firms will be public in one form or another... this is a trend and is probably in their best interests as well.

(Editing by John Wallace, Richard Chang and Steve Orlofsky)

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