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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

E-Mail Address

212-455-2948

jkaufman@stblaw.com

June 13, 2005

Re:KKR
Financial Corp.

Registration Statement No. 333-124103

Securities
and Exchange Commission

Judiciary Plaza

450 Fifth Street, N.W.

Washington, D.C. 20549

Ladies
and Gentlemen:

        On
behalf of KKR Financial Corp., a corporation organized under the laws of Maryland (the "Company"), we hereby submit for filing by
direct electronic transmission under the Securities Act of 1933, as amended, a correspondence sent on June 6, 2005 to Ms. Rochelle Plesset of the Securities and Exchange Commission's
(the "Commission") Division of Investment, relating to the Company's exemption from the Investment Company Act of 1940. This correspondence is being
submitted as supplemental information pursuant to the request of Mr. Geoffrey Ossias of the Commission's Division of Corporate Finance.

        Should
you have any questions regarding this filing, please do not hesitate to contact me (phone: 212-455-2948; fax: 212-455-2502) or
Andrew Sossen (phone: 212-455-7279; fax: 212-455-2502).

Best regards,

/s/  JOSEPH H. KAUFMAN, ESQ.       Joseph H. Kaufman, Esq.

Attachmentp

cc: Barbara McKee

HUNTON & WILLIAMS LLP

RIVERFRONT PLAZA, EAST TOWER

951 EAST BYRD STREET

RICHMOND, VIRGINIA 23219-4074

TEL 804 • 788 • 8200

FAX 804 • 788 • 8218

FILE NO: 64268.000006

June 6, 2005

Rochelle
Plesset, Esq.

Division of Investment Management

Securities and Exchange Commission

Judiciary Plaza

450 Fifth Street

Washington, DC 20549

Re:KKR
Financial Corp. ("the Company")

Registration No. 333-124103 and 333-124135

Dear
Ms. Plesset:

        During
our telephone conversation last week, you asked me to explain in detail why the Company is exempt from the Investment Company Act of 1940 (the "1940 Act") under
Section 3(c)(5)(C).

        Section 3(c)(5)(C)
requires a company to be primarily engaged in "purchasing or otherwise acquiring mortgages and other liens on and interests in real estate" to qualify for
exemption from the 1940 Act. The term "primarily engaged" is not defined within the statutory provisions of the 1940 Act, nor is there a regulation that defines the phrase. Instead, the term has been
defined by the Securities and Exchange Commission (the "SEC") staff (the "Staff") in a series of no-action letters. In early no-action letters, the Staff took the position that
for purposes of Section 3(c)(5)(C), the general test of primary engagement is the business in which 65% of a company's assets are invested and from which 65% of its net income is derived.(1)
Over time, however, the Staff has focused solely on the value of the company's assets rather than its net income, and it has refined the asset test. In a series of no-action letters, the
Staff has taken the position that in order to satisfy the "primarily engaged" requirement of Section 3(c)(5)(C), a company:

(1)E.g., S.S. Programs, Ltd., SEC No-Action Letter (October 17, 1974); Merrill Lynch, Pierce, Fenner & Smith Incorporated (November 4,
1981).

must
invest at least fifty-five percent of its assets in mortgages and other liens on and interests in real estate ("qualifying interests"). An additional twenty-five percent
of the [company]'s assets must be in real estate related assets, although this percentage may be reduced to the extent that more than fifty-five percent of the
[company]'s assets are to be invested in qualifying interests.(2)

(2)Div.
of Inv. Mgmt., Sec. & Exch. Comm(1)n, Protecting Investors: A Half Century of Investment Company Regulation 72 (footnote omitted) (1992)(Protecting Investors Study(2)).  See, e.g., Salomon Bros.,
Inc., SEC No-Action Letter (June 17, 1985); Greenwich Capital Acceptance, Inc., SEC No-Action Letter (Aug. 8, 1991); NAB Asset
Corp., SEC No-Action Letter (June 20, 1991); Citytrust, SEC No-Action Letter (Dec. 19, 1990); CDW Mortgage Sec., Inc., SEC No-Action Letter (Sept. 4, 1987).

        As
a practical matter, many companies hold their interests in real estate through wholly-owned or majority-owned subsidiaries, through partnerships, limited liability companies or
trusts. For example, companies may form special purpose, bankruptcy remote, subsidiaries to hold mortgage loans, so that mortgage-backed debt (generally called "collateralized mortgage obligations" or
"CMO debt") can be

rated
without reference to the credit ratings of the operating company. The Staff has analyzed this issue and has indicated that it would not recommend action if 55% of a company's assets, including
those held by a wholly-owned subsidiary or majority-owned subsidiary of the company, or a general partnership in which the company or its wholly-owned subsidiary owns an interest, were qualifying
assets and at least 25% of its remaining assets are real estate related assets.(3) Based on these precedents, the Company measures the value of its assets on a consolidated basis, following generally
accepted accounting principles ("GAAP"). It is the Company's understanding and belief that many other real estate investment trusts also measure the value of their assets on a consolidated basis,
following GAAP, for purposes of determining compliance with the tests required for the exemption under Section 3(c)(5)(C).

(3)NAB
Asset Corp., SEC No-Action Letter (June 20, 1991).

        The
Staff has issued numerous no-action letters describing the types of assets that constitute qualifying assets for the 55% test prong of the "primarily engaged"
definition.(4) Among the assets that clearly constitute qualifying interests according to the Staff are fee simple interests in real estate,(5) leasehold interests in real estate (that is, ground
leases),(6) and mortgages or deeds of trust that are "fully secured" by fee simple or leasehold interests in real estate.(7) Also qualifying are condominium and cooperative housing loans,(8)
installment land contracts,(9) and loans backed by interests in oil and gas properties.(10)

(4)See, generally, Exclusion from the Definition of Investment Company for Certain
Structured Financings, 1940 Act Release No. 18736 [1991-1992 Transfer Binder] Fed. Sec. L. Rep. (CCH) ' 84,950, at 82728 (May 29, 1992) (proposing Rule 3a-7).

(5)See, e.g., Statement of the Commission as to the Application of the Federal Securities Laws to Real Estate Investment Trusts, 1940 Act
Release No. 3140, 5 Fed. Sec. L. Rep. (CCH) ' 47,356 at 36,329 (Nov. 29, 1992); United States Prop. Invs., SEC No-Action Letter (May 1, 1989): United Bankers, Inc., SEC No-Action
Letter (Mar. 23, 1988); Burger King Investors Master L.P., SEC No-Action Letter (Mar. 5, 1986); Great Am. Mgmt. and Inv., Inc., SEC No-Action Letter (Sept. 27, 1982).

(6)See, e.g., Burger King Investors Master L.P., SEC No-Action Letter (Mar. 5, 1986). See also City Nat(1)l Bank, SEC No-Action Letter
(Mar. 9, 1984) (permitting reliance on Section 3(c)(5)(C) with respect to interests in individual municipal leases).

(7)See, e.g., Statement of the Commission as to the Application of the Federal Securities Laws to Real Estate Investment Trusts,
5 Fed. Sec. L. Rep. (CCH) at 36, 329 (mortgages or liens secured by real estate); NAB Asset Corp., SEC No-Action Letter (June 20, 1991) (real estate loans secured by a mortgage or deed
of trust on real estate when 100 percent of the principal amount of each loan was secured by real estate at the time of origination and 100 percent of the fair market value of the loan was secured by
real estate at the time of the acquisition of the loan); Cal. Dentists(1) Guild Real Estate Mortgage Fund II, SEC No-Action Letter (Jan. 4, 1990) (mortgage loans secured by mortgages or deeds
of trust on real property); United States Prop. Invs., NV, SEC No-Action Letter (May 1, 1989) (mortgage loans secured by real estate and interests in joint ventures formed to acquire fee
interests in real estate, interests in joint ventures formed to make mortgage loans secured by real estate or some combination of the foregoing); Am. Housing Trust I, SEC No-Action Letter
(May 21, 1988) (residential mortgage loans and installment land contracts); United Bankers, Inc., SEC No-Action Letter (Mar. 23, 1988) (loans secured primarily by first mortgages and deeds of
trust); Breen Mortgage Fund I, SEC No-Action Letter (Jan. 20, 1988) (loans secured by deeds of trust on real property); Gustavus Adolphus Coll. Pooled Life Income Fund, SEC No-Action
Letter (Oct. 19, 1987) (real estate and notes secured exclusively by real estate); Am.Dev.Fin.Inc., SEC No-Action Letter (July 23, 1987) (loans to borrowers for economic
2

development
projects, backed by a mortgage on the project being financed); Dayton Area Bldg. and Constr. Indus. Found., SEC No-Action Letter (May 7, 1987) (construction period mortgage loans);
Embarcadero Mortgage Fund I, SEC No-Action Letter (Nov. 5, 1986) (conventional mortgages); DSM Co., SEC No-Action Letter (Nov. 5, 1986) (whole mortgage loans); Redwood Mortgage
Investors, SEC No-Action Letter (Aug. 25, 1986) (deeds on trust on real property); The State St. Mortgage Co., SEC No-Action Letter (July 17, 1986) (mortgage loans); Barons Mortgage Co.,
SEC No-Action Letter (May 27, 1986) (loans secured exclusively by mortgages or deeds of trust on real property); First Nat'l Bank of Fremont, SEC No-Action Letter (Nov. 18, 1985) (first
mortgages on or deeds of trust conveying specific parcels of real estate and improvements thereon); Health Facility Credit Corp., SEC No-Action Letter (Feb. 6, 1985) (deeds of trust); Baton
Rouge Bldg. and Constr. Indus. Found., SEC No-Action Letter (Aug. 31, 1984) (construction period mortgage loans); Medidentic Mortgage Investors, SEC No-Action Letter (May 23, 1984) (loans secured by
real estate); Northwestern Ohio Bldg. & Constr. Trades Founds., SEC No-Action Letter (May 21, 1984) (construction period mortgage loans); M.L. Stern & Co., SEC No-Action Letter (May 21, 1984)
(real estate liens); Van Kampen Merritt Inc., SEC No-Action Letter (Oct. 11, 1983) (mortgages); Independence Mortgage, Inc., SEC No-Action Letter (Oct. 3, 1983) (small business lending
company guaranteed by the United States Small Business Administration and secured by real estate lien); GEM Sav. Ass(1)n, SEC No-Action Letter (Aug. 12, 1983) (mortgages); Mr. Greg Todd (Keogh Plan),
SEC No-Action Letter (May 3, 1982) (first or second deeds of trust covering real property); Prescott, Ball & Turben, SEC No-Action Letter (Feb. 19, 1982) (whole nonrecourse mortgages which
secure tax-exempt permanent financing loans but not construction financing loans); Coast Fed. Sav. & Loan Ass(1)n, SEC No-Action Letter (Feb. 15, 1982) (second mortgages on residential
real estate); Banco de Ponce, SEC No-Action Letter (Sept. 22, 1980) (mortgages insured by a Puerto Rican government agency).

(8)See, e.g., Greenwich Capital Acceptance, Inc., SEC No-Action Letter (Aug. 8, 1991); D.B.G. Prop. Investors, Inc., SEC No-Action Letter
(Dec. 29, 1986); P&B Realty Dev. Corp., SEC No-Action Letter (Dec. 4, 1985). See also Props. in Paradise, Inc., SEC No-Action Letter (Aug. 27, 1972)
(permitting limited partnerships that purchase condominium units to sell one-month interests in each condominium without registering as investment companies either because, in the opinion of counsel,
they were not investment companies within the meaning of Section 3(a) of the 1940 Act or, if so, they were excepted from the definition of investment company by Section 3(c)(5)(C)).

(9)See, e.g., Am. Housing Trust I, SEC No-Action Letter (May 21, 1988). The typical installment land contract provides that the purchaser,
with little or no down payment, will have the right to occupy the real estate financed under the contract as long as the purchaser maintains the property in good condition and makes the required
installment, tax, and other payments on the property. The seller retains legal title to the property until full payment is made by the purchaser. Upon a default by the purchaser, the entire
indebtedness may be accelerated, and the purchaser forfeits all rights in the property. Id.

(10)See, e.g., Prudential-Bache Sec., Inc., SEC No-Action Letter (Aug. 19, 1985); Apache Petroleum Mortgage Co., SEC No-Action Letter
(Apr. 30, 1982).

        In
addition, the Staff has taken the position that securities representing an interest in a mortgage loan, or a pool of mortgage loans, may be qualifying interests in certain
circumstances.

        The
Staff has permitted companies to count "Whole-Pool Agency Certificates" (as defined below) as qualifying interests for the 55% test. For example, when a company owns a
certificate issued by the Government National Mortgage Association ("Ginnie Mae") that represents the entire beneficial interest in the mortgage loans backing that Ginnie Mae certificate, the Staff
indicated that it would consider these Ginnie Mae certificates, "although they are clearly securities within the meaning of Section 2(a)(36) of the [1940] Act, to be
included within the phrase "mortgages and other liens on and

3

interests
in real estate' in Section 3(c)(5)(C) of the 1940 Act."(11) Thus, real estate investment trusts and other companies who invest 55% or more of their assets in Ginnie Mae certificates
representing the entire beneficial interest in the underlying mortgage loans have been able to avail themselves of the exemption afforded by Section 3(c)(5)(C).(12) The Staff similarly has
agreed that certificates issued by the Federal National Mortgage Association ("Fannie Mae") or Federal Home Loan Mortgage Corporation ("Freddie Mac") that represent the entire beneficial interest in a
pool of mortgage loans constitute qualifying interests for the 55% test.(13) Thus, certificates issued or guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac (collectively, "Agency Certificates" or
"Agency MBS") that represent the entire beneficial interest in the underlying pool of mortgage loans ("Whole Pool Agency Certificates") constitute qualifying interests for the 55% test.

(11)American
Home Finance Corp., SEC No-Action Letter (May 11, 1981).

(12)Investors
GNMA Trust, Inc., SEC No-Action Letter (July 22, 1983) (Staff declined to recommend enforcement against a real estate investment trust that intended to invest 65% of its
assets in Ginnie Mae certificates representing whole pools of mortgage loans and the remainder in partial pool Ginnie Mae certificates).

(13)See, e.g., Rule 3a-7 Proposing Release, 1940 Act Release No. 18736, [1991-1992 Transfer Binder] Fed. Sec. L.
Rep. (CCH) ¶ 84,950, at 82,728 (May 29, 1992); Protecting Investors Study, supra n.2, at 72; Centex Credit Corp., SEC No-Action Letter (Dec. 15, 1988) (Ginnie Mae, Fannie Mae, and Freddie
Mac certificates); HOME Investors Trust, SEC No-Action Letter (Sept. 29, 1988) (same); CDW Mortgage Sec., Inc., SEC No-Action Letter (Sept. 4, 1987) (same); DSM Co., SEC No-Action Letter (Nov. 5,
1986) (same); Bear, Stearns & Co., Inc., SEC No-Action Letter (Oct. 3, 1986) (Fannie Mae certificates); Sec. Mortgage Acceptance Corp., SEC No-Action Letter (Mar. 24, 1986) (Ginnie Mae, Fannie Mae,
and Freddie Mac certificates); Ray Ellison Mortgage Acceptance Corp., SEC No-Action Letter (Jan. 17, 1985) (Ginnie Mae certificates); Landmark Funding Corp., SEC No-Action Letter (Sept. 20, 1984)
(Ginnie Mae, Fannie Mae, and Freddie Mac certificates); MSA Realty Corp., SEC No-Action Letter (Mar. 19, 1984) (Ginnie Mae and similar agency certificates); Dean Witter Reynolds Inc., SEC No-Action
Letter (Dec. 1, 1983) (Ginnie Mae certificates); Salomon Bros. Mortgage, SEC No-Action Letter (Nov. 8, 1983) (Ginnie Mae certificates); Equibank, SEC No-Action Letter (Aug. 29, 1983) (Ginnie Mae,
Fannie Mae, and Freddie Mac certificates); Investors GNMA Trust, Inc., SEC No-Action Letter (July 22, 1983) (Ginni