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SIMPSON THACHER & BARTLETT LLP

425 LEXINGTON AVENUE

NEW YORK, N.Y. 10017-3954

(212) 455-2000

DIRECT DIAL NUMBER

212-455-2948

FACSIMILE (212) 455-2502

E-MAIL ADDRESS

JKAUFMAN@STBLAW.COM

May 19,
2005

VIA
FEDERAL EXPRESS AND EDGAR

Re:

KKR Financial Corp.

Registration Statement on Form S-11

File No. 333-124103

Registration Statement on Form S-11

File No. 333-124135

Securities
and Exchange Commission

Station Place

Division of Corporation Finance

100 F Street, N.E.

Washington, D.C. 20549

Attention: Geoffrey M. Ossias

Dear
Mr. Ossias:

        On
behalf of KKR Financial Corp. (the "Company"), we are writing to respond to the comments set forth in the comment letter of the staff
of the Securities and Exchange Commission (the "Staff") dated May 13, 2005 (the "comment letter")
relating to the above-referenced Registration Statement on Form S-11 filed on April 15, 2005 (the "IPO Registration
Statement") and Registration Statement on Form S-11 filed on April 18, 2005 (the "Shelf Registration
Statement", and together with the IPO Registration Statement, the "Registration Statements"). We have revised the IPO
Registration Statement in response to the Staff's comments and are filing concurrently with this letter Amendment No. 1 to the IPO Registration Statement ("Amendment
No. 1"), which reflects these revisions and updates a limited amount of other information.

        For
your convenience, the numbered paragraphs of this letter correspond to the numbered paragraphs of the comment letter and we have retyped the text of the Staff's comments below. Page
references in the text of this letter correspond to the pages of Amendment No. 1.

Form S-11 filed April 15, 2005

Form S-11 filed on April 18, 2005 (Shelf Registration)

1.Please note that we will monitor your Form S-11 shelf registration, filed on April 18, 2005, for compliance with comments on your
Form S-11 filed on April 15, 2005. Also, we may have additional comments once you have identified your selling stockholders.

The
Company intends to revise the Shelf Registration Statement in response to the comment letter and any subsequent comments from the Staff once we have confirmation that the revisions to the IPO
Registration Statement adequately address the Staff's comments. Furthermore, the Company advises the Staff that it has identified the selling stockholders in the selling stockholder table on
pages 127.

Form S-11 filed on April 15, 2005 General

Comments

2.Disclosure at the bottom of page 65 indicates that as of March 31, 2005 you had mortgage loans and securities totaling $3.5 billion that you
believe meet the intent and definition of qualifying real estate assets for purposes of the 55% requirement under Section 3(c)(5)(C) of the Investment Company Act. We

 further note disclosure that you require $3.7 billion of such assets in order to meet the test, $200 million more than you currently have. Supplementally, please provide a detailed
analysis of your portfolio and how it meets this test.

The
Company respectfully advises the Staff that it intends to operate its business so that it is primarily engaged in holding mortgage loans and interests in mortgage loans and to qualify for the
exemption under Section 3(c)(5)(C) of the Investment Company Act of 1940, as amended (the "Investment Company Act"). Specifically, the Company
intends to invest at least 55% of its assets in residential mortgage loans and other assets that constitute "qualifying assets" for the 55% test. An additional 25% of its assets will be qualifying
assets or other real estate-related assets, such as mortgage-backed securities that are not considered qualifying assets.

At
the moment, the Company has not deployed its resources to satisfy these tests, but the Company has a plan in place, approved by the board of directors of the Company (the
"Board"), to invest in assets satisfying the foregoing tests in full no later than one year after the Company was formed.

A
detailed analysis provided to the staff on a supplemental basis, shows the assets that the Company currently owns that it classifies as qualifying assets for the 55% test and real estate-related
assets for the 25% test.

In
the case of Bear Stearns ARM Trust 2005-2 ("BSARM"), as an economic matter, the Company owns a large pool of mortgage loans. To obtain
better financing for the loans, the Company decided not to purchase them as whole loans, but to require that they first be placed into an owner trust, and that it purchase the owner trust certificate
(the equity in the owner trust) along with all of the debt securities issued by the owner trust. Accordingly, the Company owns 100% of the securities backed by the mortgage loans in the owner trust. A
third party servicer services the mortgage loans on the Company's behalf. When any loan in the pool becomes 60 days delinquent, the servicer makes a preliminary determination whether to
foreclose on the loan or to pursue alternatives to foreclosure. The servicer shares the recommendation with the Company. If the Company agrees (or fails to disagree within a period of time), then the
servicer proceeds with its original course of action. If the Company disagrees with the decision of the servicer, it is permitted to purchase the loan out of the pool at its then fair market value,
whereupon it can foreclose or pursue alternatives at the Company's option. Thus, the Company has the right, without the consent of any other party, to foreclose upon any loan that becomes delinquent.

A
similar approach was taken in the Structured Asset Mortgage Investments II 2004-AR8 ("SAMI") transaction. In this case the Company was
interested in purchasing a pool of mortgage loans, but decided, in essence, to purchase only about 47% of the pool. The remaining interests, about 53%, were sold to third parties. The Company,
however, is at risk for losses on all the mortgage loans in the pool. Losses on the loans are allocated to Class B-6 until the balance of that class is reduced to zero, and then to
Class B-5, until its balance is reduced to zero, and so on to Class B-4, Class B-3, Class B-2, and then to
Class B-1. In the unlikely event that losses occur after all of the Class B Securities have been reduced to zero, those losses are allocated to the Class M Securities,
which the Company also owns. The rating agencies have rated the remaining classes, of which the Company owns a significant portion, AAA, which means that they do not anticipate losses ever being so
great as to be allocated to those classes.

The
Company, like any owner of mortgage loans, has been cautious about being able to protect itself from those losses. An experienced servicer is servicing the mortgage loans on behalf of the trust.
Like in the BSARM transaction, whenever a loan becomes 60 days delinquent, the servicer recommends foreclosure or an alternative to the Company, as holder of the most subordinated class of
securities that is outstanding at that time. If the Company agrees with the recommendation, the servicer proceeds. If the Company disagrees, it can purchase the loan from the pool at its fair market
value and foreclose upon it or pursue alternatives of the Company's

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choosing.
In this manner, the Company can determine the best way to protect itself from losses. The Company has the right, without the consent of any other party, to foreclose upon delinquent loans.

The
transaction documents for the SAMI securitization reflect the Company's foreclosure rights as belonging to the Company as the owner of the most subordinated class of securities, which was
Class B-6 at closing and remains Class B-6. If losses eliminate Class B-6, then the foreclosure rights will belong to the Company as the
majority holder of Class B-5. It is important to note that, if the Company desired, it could have purchased all of its interests in the SAMI securitization in the form of a single
certificate coupled with foreclosure rights. However, to avail itself of more favorable financing terms, it requested that SAMI divide its interests into eight separate classes, each with a separate
credit rating. In the Company's view this does not change the fact that it is at risk of loss on the underlying mortgage loans to the full extent of its investment in all of the classes it purchased,
and that it has obtained foreclosure rights to enable it to control the variables that increase the severity of losses that it might suffer.

The
remaining qualifying assets listed on the analysis, provided to the Staff on a supplemental basis, are whole mortgage loans that the Company owns; they have not been securitized. The Company has
hired third party servicers to service the loans. The Company considers these mortgage loans to be qualifying assets for the 55% test.

The
analysis, provided to the Staff on a supplemental basis also includes a listing of other assets that are real estate-related, and thus qualify for the 25% test, but do not constitute "qualifying
assets" for the 55% test. These additional assets include some residential mortgage-backed securities that are not qualifying assets because the Company does not have foreclosure rights associated
with them and because they are not "whole pool" securities, commercial mortgage-backed securities that do not qualify for the 55% test for similar reasons, commercial real estate mezzanine loans, and
REIT preferred stocks.

3.Supplementally, please provide us with all diagrams, pictures and graphic information to be used in the prospectus. We may have additional
comments.

In
response to the Staff's comment, the Company will supplementally provide to the Staff all diagrams, pictures and graphic information, if any, to be used in the prospectus when such materials become
available.

4.We note that you intend to offer shares overseas. Supplementally, please tell us the exemption from U.S. registration upon which you intend to
rely.

In
response to the Staff's comment, the Company respectfully advises the Staff that all of the shares to be sold in this offering, including any shares that may be offered overseas, will be registered
pursuant to the IPO Registration Statement.

Summary, page 1

5.In order to ensure consistency, please conform your business section and other parts of your prospectus to changes made in response to the comments on your
summary.

In
response to the Staff's comment, the Company has conformed the business section and other relevant parts of the IPO Registration Statement to the changes made in the summary of the IPO Registration
Statement.

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6.Where relevant, please discuss the fact (from page 141) that you have filed a separate resale registration statement and indicate the size of that
offering.

In
response to the Staff's comment, the Company has revised the disclosure on the cover of the IPO Registration Statement and on page 1.

7.Please remove cross references from your summary and risk factors sections. Material information should be included.

In
response to the Staff's comment, the Company has removed the cross references from the summary and risk factors sections.

8.We note your disclosure in italics that the summary highlights "some" of the information in the "prospectus." Please revise to make it clear that the summary
highlights the key aspects of the offering. Refer to the instruction to Item 503(a) of Reg. S-K.

In
response to the Staff's comment, the Company has revised the disclosure on page 1.

9.Please include a separate section describing briefly how you derive income from the bulk of your investments (i.e., the interest rate spread) and the risks
posed by a rising rate environment and continued inflation (i.e., prepayment and default and a decreasing spread). Discuss briefly the magnified risks associated with leverage, the costs associated
with and practical limitations on hedging, and the continuing impact of fixed management fees that are not tied to performance. The object of this section should be to give investors an idea of the
mechanics of your business in light of the dominant risks to it.

In
response to the Staff's comment, the Company has revised the disclosure on pages 6 and 99.

Our Company, page 1

10.We note that you "believe" that your investment strategy "allows" you to generate cash for dividends, provide "competitive total returns" to your investors,
and mitigate risk through diversification. Please balance this disclosure by making it clear that:

•your belief applies only to future dividends and capital appreciation, which are not guaranteed;

•your belief is not based on your operating history or REIT experience, which is "limited" (in fact, your manager was formed only in
July 2004); and

•not all of your portfolio risk will or can be mitigated through asset allocation. On this note, please provide summary disclosure here of the
characteristics of your portfolio that suggest areas of exposure. For instance, we note that more than 80% of your investments are residential in nature. Moreover, the bulk of these investments are in
securities, as opposed to actual loans. Finally, please consider whether the investments are geographically concentrated in any way.

On a supplemental basis only, please tell us what your beliefs are based on, in light of the foregoing.

In
response to the Staff's comment, the Company has revised the disclosure on pages 1, 48, 78 and 79. Such disclosure includes the topics requested by the Staff and no longer expresses a
"belief" as to the results of our future operations.

11.We note the summary discussion of your results for the first quarter of 2005. Please omit this in favor of the more detailed and balanced disclosure in your
MD&A.

In
response to the Staff's comment, the Company has revised the disclosure on page 1.

12.To complement your asset description:

•please disclose key strategic objectives for various asset categories (such as your leverage ratio, hedge correlation, weighted average rating
factor, weighted average FICO score, weighted average

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 loan-to-value ratio, target debt rating) and explain how they diverge from your current portfolio, if at all;

•please describe, in summary form, the other key aspects of your portfolio, including weighted average maturities and interest rates and prepayment
and default rates; and

•please provide summary disclosure of your liabilities and other obligations, including the types and amounts of financing and hedging mechanisms
currently in use.

In
response to the Staff's comment, the Company has revised the disclosure on pages 1, 2, 3, 4 and 5.

Competitive Strengths, page 2

13.We note that this section duplicates disclosure in your business section, beginning on page 75. Since your summary should focus on the key aspects of
the offering and not merely repeat general information that can be found elsewhere in the prospectus, please omit this section. Refer to the instruction to Item 503(a) of Reg. S-K. Also,
in general, please avoid aggregating the experience of management.

In
response to the Staff's comment, the Company has revised the disclosure on pages 1 and 2 to present the Company's competitive strengths in summary form and to eliminate the aggregation of
management experience.

Our Financing Strategy, page 4

14.Please explain briefly the difference between, and when you intend to use, term or non-term financing.

In
response to the Staff's comment, the Company has revised the disclosure on page 5.

Management Agreement, page 5

15.Please explain on page 6 the difference between "cause" and, from page 5, "unsatisfactory performance" that is materially detrimental to you,
which does not, apparently, constitute cause.

In
response to the Staff's comment, the Company has revised the disclosure on page 7.

16.Please disclose how your management fees compare to the fees charged by other investment managers in this area.

In
response to t