Ascendant will target companies with enterprise values between $200 million to $1 billion and EBITDA of less than $75 million, working across seven industry verticals: consumer, financial services, healthcare, industrials, media, software, and tech-enabled services.

"We are very proud of the strong response we have received from our fundraising efforts and believe that Ascendant is well-positioned to address the robust and attractive opportunities in the North American middle market," said Pete Stavros and Nate Taylor, Co-Heads of KKR Global Private Equity.

A long-running advocate for employee ownership initiatives (see KKR's CHI Overhead Doors investment and Stavros-led Ownership Works), Stavros’ influence is apparent. Ascendant is the first fund of its kind with an explicit commitment to broad-based employee ownership programs at every majority-owned company in which it invests.

KKR says all employees will be offered an equity stake, to be paid out at exit, worth at least six months of salary.

To be clear, KKR has not transformed into some sort of philanthropic organization—properly implemented employee ownership appears to have measurable benefits that directly impact financial performance and returns.

Stavros, who previously ran the firm's Industrials group, has been using similar programs in his investments since at least 2011. In all, more than 50 KKR portfolio companies now have equity incentive plans that extend beyond senior management, and the firm cites a range of positive outcomes across topline growth, margins, and employee turnover.

The firm also plans to make its operational consulting arm, KKR Capstone, readily available to Ascendant investments. The group includes nearly 100 professionals with expertise across sales & marketing, price optimization, inorganic growth, procurement, and talent management.

Less operationally mature companies in the middle market could mean greater leverage for Capstone initiatives relative to typical KKR deals. One example, says KKR, is an ability to attract talent that would otherwise be out of reach for companies of this size.

Within the firm, the fund is supported by a dedicated Ascendant team whose members—15 in total—have been embedded within the individual industry groups of the firm’s flagship buyout strategy.

For limited partners, Ascendant offers exposure to an attractive segment of the market through a well-known manager. Though it may be harder for KKR to deploy capital at scale, middle market and lower middle market strategies have been shown to consistently outperform large-cap buyout—a combination of greater opportunities for value creation and multiple expansion (both from increased scale at exit and less competitive processes at entry).

KKR’s early marketing materials for Ascendant showcased a target returns profile of around 30 percent net IRR and 3.0x net MOIC, citing an "Ascendant Fund Reference Portfolio" that was said to be representative of the strategy.

As a benchmark, the firm’s 2016 vintage flagship Americas Fund XII was held at a net IRR of 18.7 percent and TVPI of 1.86x as of March 31.

There is some precedent for the optimism. Similar efforts have already demonstrated a track record of success: Thoma Bravo launched its first middle market software-focused Discover Fund in 2015. After a series of positive outcomes and quick subsequent funds, the firm is now actively fundraising for a $7 billion Discover Fund V.

KKR’s Ascendant fund has already completed six investments, including software provider Alchemer, dental care chain 123Dentist, and fire equipment provider Marmic Fire & Safety. Marketed terms include a management fee of 1.5 percent and carried interest of 20 percent above a 7 percent hurdle with full GP catch-up.