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SIMPSON THACHER & BARTLETT LLP

 425 Lexington Avenue

New York, N.Y. 10017-3954

(212) 455-2000

 Facsimile (212) 455-2502

Direct Dial Number

212-455-2948

E-Mail Address

jkaufman@stblaw.com

June 9, 2005

VIA
FEDERAL EXPRESS AND EDGAR

Re:

KKR Financial Corp.

Registration Statement on Form S-11/A

File No. 333-124103

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 June 3, 2005 (the "comment letter")
relating to the above-referenced Registration Statement on Form S-11/A filed on May 19, 2005 (the "Registration Statement").
We have revised the Registration Statement in response to the Staff's comments and are filing concurrently with this letter Amendment No. 2 to the Registration Statement
("Amendment No. 2"), which reflects these revisions and updates a limited amount of other information. In particular, we note that the Company
has approved a one-for-two reverse stock split of its common stock that will become effective at the time of the proposed offering, and the Registration Statement has been
revised so as to give effect to this reverse stock split with respect to all share information.

        For
your convenience, the numbered paragraphs of this letter correspond to the numbered paragraphs of the comment letter. Page references in the text of this letter correspond to the
pages of Amendment No. 2.

Form S-11/A filed May 19, 2005

General

1.We note your response to prior comment 2. Please note that we are continuing to review your analysis of how your portfolio, as of March 31, 2005,
satisfies the requirements of the exemption from the Investment Company Act of 1940 provided by Section 3(c)(5)(C). We may have additional comments.

In
response to the Staff's comment, the Company respectfully advises the Staff that it has engaged in discussions with Ms. Rochelle Plesset of the Commission's Division of Investment Management
on this topic and, as a result of such discussions, has revised the disclosure on pages 14, 15, 16, 39, 81 and 82.

2.We note your response to prior comments 52 and 91. Please tell us supplementally how many non-qualified purchasers, as defined by
Section 2(a)(51) of the Investment Company Act, participated in the offering by CLO 2005-1. In addition, please tell us the exemption you are relying on for sales to

 accredited investors. In the event that you are relying on Reg. D, please tell us why the issuance to qualified institutional buyers under Rule 144A should not be integrated with your offering
to accredited investors under Reg. D. We have the same comment with respect to your issuance of shares on August 12, 2004, to Friedman, Billings, Ramsey under Rule 144A and, on
August 12 and 19, to 624 accredited investors under Reg. D, using Friedman, Billings, Ramsey as placement agent.

The
Company respectfully submits to the Staff that all purchasers in the offering by CLO 2005-1 within the United States were "qualified purchasers", as defined by Section 2(a)(51)
of the Investment Company Act, and all sales to investors outside the United States were made in reliance on the exemption from the registration requirements of the Securities Act provided by
Regulation S. In addition, all sales to accredited investors were made pursuant to Regulation D.

With
respect to the Staff's comment regarding integration of Rule 144A and Regulation D offerings, the Company submits that no integration is warranted since the integration would be of
a Regulation D offering to accredited investors and the initial placement of securities to initial purchasers who subsequently resell such securities under Rule 144A. Integration of the
offering to initial purchasers with the other Regulation D offerings to accredited investors would have no practical impact, as the initial placement of securities to the initial purchasers who
then resold those securities in Rule 144A resales would still qualify under Rule 506 of Regulation D (each such initial purchaser qualifying as an accredited investor and the
additional requirements regarding information, limitation on manner of offering and limitations on resale having been satisfied). Moreover, as noted in preliminary note 4 to
Regulation D, such exemption from Securities Act registration is only available to the issuer of the securities. By contrast, the exemption afforded by Rule 144A is only available to
persons other than the issuer, which persons (if they comply with the rule) are deemed not to be underwriters of the securities within the meaning of Sections 2(11) and 4(1) of the Securities Act. See
Rule 144A(b). Finally, preliminary note 7 to Rule 144A specifically contemplates that purchasers of securities from an issuer may utilize Rule 144A for resales without
affecting the availability to the issuer of an exemption under Section 4(2) or Regulation D for the original issuance of securities. Accordingly, these rules appear to expressly
contemplate a scenario where an issuer may utilize Section 4(2) or Regulation D for the original issuance of securities and purchasers may utilize the exemption from registration
afforded by Rule 144A for resales of securities.

3.We note your response to prior comment 92. That your manager has held the stock issued to it since August 2004 does not, in and of itself, establish that
the stock was not purchased with a view toward distribution. Section 8 of the management agreement grants the manager the right to make allocations in its sole and absolute discretion and
clearly contemplates the registration of such shares for resale. Also, any restrictions placed on shares ultimately allocated to individuals (who, we note, are not limited to employees of the manager)
do not address the nature of the initial issuance by you to the manager. Please provide us with additional analysis as to why your manager should not be considered an underwriter. In the event that
your manager is an underwriter, please amend your disclosure accordingly and tell us how allocations by the manager to individuals would be exempt from registration under the Securities
Act.

The
Company respectfully submits to the Staff that the Manager does not have the right to make allocations in its sole and absolute discretion. The Company further submits that the management
agreement is not the only operative document and that the text of Section 8 of the management agreement should not be viewed in isolation but rather collectively with all of the documentation
governing the terms of the restricted stock and option awards granted to the Manager in August 2004. Specifically, the terms of the Amended and Restated 2004 Stock Incentive Plan, the
Nonqualified Stock Option Agreement under which the options were issued and the Restricted Stock Award Agreement under which the restricted stock was granted (which documentation has been filed as
exhibits 10.2, 10.3 and 10.4 to the registration statement, respectively) contain

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meaningful
restrictions on the ability of the Manager to transfer such awards. In particular, Section 6 of the Option Agreement and Section 7 of the Restricted Stock Agreement limit the
transferability of the awards to employees of the Manager and to other individuals providing services to the Company or its affiliates, and in such cases only upon advance notice to the Company's
compensation committee and upon such specified terms and conditions as the committee may require. As disclosed on page 123 of the prospectus, the Company's compensation committee is comprised
solely of directors independent of the Manager. In addition, Sections 5 and 9 of the Restricted Stock Agreement and Sections 5 and 8 of the Option Agreement impose further restrictions on the Manager
with respect to restrictive legends and compliance with applicable securities laws. Finally, the letter to the Company's transfer agent relating to the restricted stock awarded to the Manager via book
entry (such letter to be provided to the Staff on a supplemental basis) also contains legends restricting the transferability of such shares. As disclosed on page 109, as of March 31,
2005, the Manager had a total of 28 full-time employees and two founders. Moreover, at the time the awards were granted to the Manager in August 2004, it had fewer than 5 employees.

With
respect to the "sole and absolute discretion" language contained in Section 8 of the management agreement, the Company maintains that, in the context of all of the award documentation,
this language was designed to indicate that, to the extent that the Manager was permitted by the compensation committee to transfer the award, the Manager would have the ability to determine which
individual employee of the Manager would receive such allocation and the size of such allocation. Such language does not override the significant limitations on transferability contained in the award
documentation. Moreover, the language contained in Section 8 of the management agreement with respect to registration of the awards under a registration statement on Form S-8
was included in the agreement solely due to the fact that Form S-8 is limited to employees, officers and directors of an issuer as well as consultants and advisors  who are natural persons. See
General Instruction A(1)(a)(1) to Form S-8. As a result,
regardless of any potential allocation of awards, the Manager would not be eligible to sell shares underlying the awards into the public market under Form S-8 as would a natural
person receiving the same awards.

Finally,
while the Company agrees with the Staff that a holding period does not, in and of itself, establish that the stock was not purchased with a view towards distribution, the existence of a
holding period should not be disregarded as evidence supporting such an assertion. The Company has further been advised by the Manager that it will not make any allocation of awards prior to the first
anniversary of the respective grant date. Accordingly, as a result of all of the foregoing, the Company continues to believe that the Manager should not be considered an underwriter with respect to
the awards granted to it in August 2004.

Summary

4.We note your response to prior comment 8. Please revise the italics to make it clear that the summary highlights the material aspects of the
offering.

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

5.Please make it clear in your summary and risk factors that you do not currently comply with the requirements for exemption under Section 3(c)(5)(C) of
the Investment Company Act of 1940.

In
response to the Staff's comment, the Company has revised the disclosure on pages 14 and 39. The Company respectfully advises the Staff that the Staff has previously taken the view that a
company may rely on Section 3(c)(5)(C) even if it temporarily does not satisfy the 55% test and the 25% test if the company intends to invest in appropriate assets as soon as possible, and in
any event within one year. See Medidentic Mortgage Investors, SEC No-Action Letter (May 23, 1984). It

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is
the Company's intention to invest in assets in such a way so that, at least a year after the date of its formation, 55% of its assets, on a consolidated basis, will constitute qualifying
investments, and at least another 25% of its assets will be real estate-related assets.

6.Please revise to include an organizational chart depicting the REIT, its subsidiaries, the manager and the ownership interests of each
entity.

        In response to the Staff's comment, the Company has revised the disclosure on page 12.

        Competitive Strengths

7.We note your response to prior comments 13 and 69 and further note that you have opted to retain this disclosure in your summary. Please balance your summary
disclosure by moving your discussion of key risks to an adjacent position and revise to include the following details:

•that your "investment focus differs from those of other entities that are or have been managed" by your management team and, more specifically, that
your management team has "not executed business strategies that involve investing in real estate related debt instruments," which is your primary focus (see page 100);

•that the benefits of your affiliation with KKR, in terms of deal flow, is significantly limited by REIT and 1940 Act restrictions, that less than 2%
of your current portfolio is invested in KKR-affiliated entities, and that KKR has no obligation to grant you favorable or any access to its own investments (see page
100);

•that your manager's officers and employees are not dedicated to your business on a full-time basis (and, if true, that your manager has
full discretion as to how much time to spend on your investments and will get paid regardless of performance, under the fixed portion of its fee); and

•that the diversification of your portfolio is significantly constrained by REIT and 1940 Act limitations and, if true, that you expect a high degree
of correlation among your real estate-related investments (which must comprise the bulk of your portfolio).

In addition, please try to avoid characterizing the experience of your managers in subjective ways. The exact nature and extent of your managers' experience is best described
in detail in your business section.

In
response to the Staff's comment, the Company has reconsidered its prior response to prior comment 13 and has revised the disclosure on page 1 to omit "Competitive Strengths" from the summary.

Conflicts of Interest, page 8

8.On page 9, please identify the natural persons who own KKR who are also officers of your manager. Also, please describe the liabilities against which you have
agreed to indemnify your manager.

In
response to the Staff's comment, the Company has revised the disclosure on pages 8, 9, 22 and 129.

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9.We note your response to prior comment 19 and reissue that part of the comment calling for conflict of interest disclosure in your summary and risk factors. In
this connection, supplementally tell us the amount of the proceeds that will be used to repay debt to the underwriters or their affiliates. In revising your disclosure here and on page 123:

• Please be sure to explain how these relationships constitute a potential conflict of interest with regard to the underwriters' due diligence
obligation;

•Please clarify whether Citigroup (or any other underwriter) will be a selling shareholder in the resale registration statement. Supplementally tell
us the amount of proceeds of that offering that will be received by the underwriters or their affiliates;

•You should discuss with as much specificity as possible the amount of offering proceeds to be received by your under writers and the debts to be
repaid; and

•Please revise to disclose the more particularized information concerning transactions with entities affiliated with your underwriters contained in
your responses to prior comments 20 and 77. In this connection, please disclose the percentage of your portfolio purchased from affiliates of the underwriters and the purchase price of such
investments. The information contained in your responses does not appear to be overly burdensome to reproduce.

In the alternative, you may disclose your intention to voluntarily comply with NASD Rule 2720 by having an unaffiliated underwriter act as a Qualified Independent
Underwriter.

In
response to the Staff's comment, the Company has revised the disclosure on pages 9, 10, 132 and 133.

10.We note from your response to comment 20 that you purchased from affiliates of Bear, Stearns & Co. Inc. RMBS with an aggregate amortized cost of
$3,468,280,000. Please supplementally t