- Proxy Statement (definitive) (DEF 14A)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

	Filed by the Registrant ý
	Filed by a Party other than the Registrant o
	Check the appropriate box:
	o		Preliminary Proxy Statement
	o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
	ý		Definitive Proxy Statement
	o		Definitive Additional Materials
	o		Soliciting Material Pursuant to §240.14a-12

KKR FINANCIAL HOLDINGS LLC
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
ý		No fee required.
o		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
		(1)		Title of each class of securities to which transaction applies:
		(2)		Aggregate number of securities to which transaction applies:
		(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):
		(4)		Proposed maximum aggregate value of transaction:
		(5)		Total fee paid:
o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
		(1)		Amount Previously Paid:
		(2)		Form, Schedule or Registration Statement No.:
		(3)		Filing Party:
		(4)		Date Filed:

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555 California Street, 50 ^th  Floor
San Francisco, California 94104

March 23, 2010

Dear Fellow Holders of Common Shares:

        The directors and officers of KKR Financial Holdings LLC (the "Company") join me in extending to you a cordial invitation to attend the 2010 annual meeting of the holders of the Company's common shares (the "Annual Meeting"). The Annual Meeting will be held on April 29, 2010 at 11:00 a.m., San Francisco time, on the mezzanine level of the Omni San Francisco Hotel at 500 California Street, San Francisco, CA 94104.

        Enclosed you will find the notice of meeting, proxy statement and proxy card. At the Annual Meeting, we are seeking to elect eleven directors, all of whom will be elected by the holders of the Company's common shares, voting as a single class. The holders of the Company's common shares will also be asked to ratify the appointment of Deloitte & Touche LLP as the Company's independent registered public accounting firm for the year ending December 31, 2010.

        Your management and your Board of Directors unanimously recommend that you vote FOR all nominees for directors and FOR the appointment of Deloitte & Touche LLP as the Company's independent registered public accounting firm.

        It is very important that your shares be represented at the Annual Meeting. Therefore, you should complete and sign the enclosed proxy card and return it as soon as possible in the enclosed postage-paid envelope, whether or not you plan to attend personally. This will ensure that your shares are represented at the Annual Meeting.

        On behalf of the Board of Directors, I thank you for your continuing support.

		Yours very truly,
		William C. Sonneborn Chief Executive Officer and Director

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555 California Street, 50 ^th  Floor
San Francisco, California 94104

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NOTICE OF 2010 ANNUAL MEETING OF HOLDERS OF COMMON SHARES
TO BE HELD ON APRIL 29, 2010

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To the Holders of Common Shares of
        KKR Financial Holdings LLC:

        NOTICE IS HEREBY GIVEN that the annual meeting of holders of common shares (the "Annual Meeting") of KKR Financial Holdings LLC, a Delaware limited liability company (the "Company"), will be held on the mezzanine level of the Omni San Francisco Hotel at 500 California Street, San Francisco, CA 94104 on April 29, 2010 at 11:00 a.m., San Francisco time, to consider and vote on the following matters:

        1.     The election of eleven directors, each to serve until the next annual meeting of the holders of common shares and until his or her successor is duly elected and qualifies;

        2.     The ratification of the appointment by the Audit Committee of Deloitte & Touche LLP as the Company's independent registered public accounting firm for the year ending December 31, 2010; and

        3.     The transaction of such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.

        Details concerning those matters to come before the Annual Meeting are set forth in the accompanying proxy statement for your inspection.

        We have also enclosed the Company's Annual Report on Form 10-K for the year ended December 31, 2009. We hope you will find it informative.

        Our Board of Directors has fixed the close of business on March 16, 2010 as the record date for the determination of holders of the Company's common shares entitled to notice of or to vote at the Annual Meeting or any meetings held upon adjournment or postponement of the Annual Meeting. Only the holders of record of the Company's common shares as of the close of business on March 16, 2010 are entitled to notice of and to vote at the Annual Meeting and any adjournment or postponement thereof.

         Holders of the Company's common shares are cordially invited to attend the meeting in person. The presence at the meeting, in person or by proxy, of the holders of shares entitled to cast a majority of all the votes entitled to be cast at the meeting constitutes a quorum. Your vote is important. Whether or not you plan to attend the meeting, please authorize proxies to cast your votes today by following the easy instructions on the enclosed proxy card.

		By Order of the Board of Directors,
		Jeffrey M. Smith Assistant Secretary

Dated: March 23, 2010
San Francisco, California

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TABLE OF CONTENTS

			Page
PROXY STATEMENT			1
	Information About Attending the Annual Meeting		1
	Information About the Record Date		1
	Information About this Proxy Statement		1
	Address of Our Principal Executive Office		3
	Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Holders of Shares to Be Held on April 29, 2010		3
PROPOSAL ONE: ELECTION OF DIRECTORS			4
PROPOSAL TWO: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			9
CORPORATE GOVERNANCE			9
	Corporate Governance Guidelines		9
	Code of Ethics		9
	Director Independence		10
	Communications with the Board of Directors		10
	Director Attendance at Annual Meeting		11
BOARD OF DIRECTORS AND COMMITTEES			11
	Leadership Structure		11
	Risk Management		12
	Meetings of the Board		12
	Committees of the Board		12
DIRECTOR COMPENSATION			15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			19
EXECUTIVE OFFICERS			22
EXECUTIVE COMPENSATION			23
	The Management Agreement		23
	The Collateral Management Agreements		26
	2007 Share Incentive Plan		26
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE			28
COMPENSATION COMMITTEE MATTERS			28
	Compensation Committee Report		28
	Options and Restricted Share Rewards		28
	Compensation Committee Interlocks and Insider Participation		28

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			Page
AUDIT COMMITTEE MATTERS			29
	Audit Committee Report		29
	Principal Accountant Fees and Services		30
	Pre-Approval Policy for Services of Independent Registered Public Accounting Firm		30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			31
	Relationships With The Manager		31
	Relationships With KKR; Other Relationships and Related Transactions		32
	Related Parties Transactions		33
PROPOSALS BY HOLDERS OF SHARES FOR THE NEXT ANNUAL MEETING			34
OTHER MATTERS			35

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555 California Street, 50 ^th  Floor
San Francisco, California 94104

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PROXY STATEMENT

        

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April 29, 2010
Annual Meeting of the Holders of Common Shares

        This proxy statement is being made available to the holders of common shares of KKR Financial Holdings LLC (the "Company") in connection with the solicitation of proxies for use at the annual meeting of holders of our common shares (the "Annual Meeting").

Information About Attending the Annual Meeting

        The Annual Meeting will be held on the mezzanine level of the Omni San Francisco Hotel at 500 California Street, San Francisco, CA 94104 on April 29, 2010, at 11:00 a.m., San Francisco time. An admission ticket (or other proof of share ownership) and some form of government issued photo identification (such as a valid driver's license or passport) will be required for admission to the Annual Meeting. Only holders of record of our common shares at the close of business on March 16, 2010 will be entitled to attend the Annual Meeting.

Information About the Record Date

        Our Board of Directors (the "Board") has fixed the close of business on March 16, 2010 as the record date for the Annual Meeting (the "Record Date"). Only holders of record at the Record Date are entitled to notice of and to vote at the Annual Meeting or at any adjournments or postponements thereof, in person or by proxy. At the Record Date, there were 158,359,757 common shares outstanding and entitled to vote at the Annual Meeting.

        If your common shares are held in a bank or broker account, contact your bank or broker to obtain a written legal proxy in order to vote your shares or take any other actions at the Annual Meeting. If you do not obtain a legal proxy from your bank or broker, you will not be entitled to vote your common shares or take any other actions, but you may still attend the Annual Meeting as our guest if you bring a recent bank or brokerage statement showing that you owned KKR Financial Holdings LLC common shares at the close of business on March 16, 2010.

Information About this Proxy Statement

General

        This proxy statement is furnished to you in connection with the solicitation by our Board of proxies from the holders of our common shares to be exercised at the Annual Meeting to be held on April 29, 2010, at 11:00 a.m., San Francisco time, and at any adjournment(s) or postponement(s) of such meeting, to consider and vote on the following proposals:

        1.     The election of eleven directors, each to serve until the next annual meeting of the holders of common shares and his or her successor is duly elected and qualifies;

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        2.     The ratification of the appointment by our Audit Committee of Deloitte & Touche LLP ("Deloitte") as our independent registered public accounting firm for the year ending December 31, 2010; and

        3.     The transaction of such other business as may properly be brought before the Annual Meeting or any adjournment or postponement thereof.

        This proxy statement and the enclosed proxy card are intended to be mailed to the holders of our common shares on or about March 26, 2010. Our Annual Report on Form 10-K for the year ended December 31, 2009 (the "Annual Report") is enclosed, but does not constitute a part hereof.

Quorum Requirement

        The presence at the Annual Meeting, in person or by proxy, of the holders of common shares entitled to cast a majority of all the votes entitled to be cast at the Annual Meeting constitutes a quorum for the transaction of business at the Annual Meeting. Abstentions and broker non-votes (i.e., votes not cast by a broker or other record holder in "street-name" or nominee name who has returned a properly executed proxy solely because such record holder does not have discretionary authority to vote on the matter), if any, will be counted toward the presence of a quorum.

Information About Votes Necessary for Action to be Taken

        With respect to Proposal 1, the directors will be elected by a plurality of the votes cast by the holders of common shares entitled to vote thereon at the Annual Meeting. Under the current New York Stock Exchange ("NYSE") rules, a broker will not have discretionary authority to vote your shares at the Annual Meeting on this proposal. Accordingly, abstentions and broker non-votes as to the election of directors will have no effect on the result of the vote.

        With respect to Proposal 2, the affirmative vote of the holders of a majority of the common shares then outstanding entitled to vote thereon present in person or represented by proxy at the Annual Meeting is necessary for the ratification of the appointment of Deloitte as our independent registered public accounting firm for the fiscal year ending December 31, 2010. Accordingly, abstentions will have the same effect as a vote against the proposal. We do not expect that there will be any broker non-votes with respect to this proposal.

Information About Voting

        Holders of common shares can vote in person or by mail. Also, if the common shares are held in "street-name", it may be possible to vote by telephone or over the Internet. Holders of common shares that have gained admission to the Annual Meeting can cast one vote for each common share held on all matters to come before the meeting. The admission ticket will serve as verification of ownership. Holders of common shares may authorize a proxy to cast their votes by signing and returning the enclosed proxy card in the postage-paid envelope provided. Please note that holders of common shares who hold their shares in "street-name" (i.e., through a bank, broker or other nominee) may also be able to provide voting instructions to their street name holders by telephone or via the Internet by following the instructions provided by such nominee. The votes entitled to be cast by the holders of our common shares represented by properly authorized proxies will be cast at the Annual Meeting as indicated or, if no instruction is given, will be voted in favor of Proposals 1 and 2. Additionally, the votes entitled to be cast by the holders of such shares will be cast in the discretion of the proxy holder on any other matter that may come before the meeting. We do not presently know of any other business that may come before the Annual Meeting.

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Revocation of Proxy

        Any person giving a proxy has the right to revoke it at any time before it is exercised by (1) filing with our Secretary a duly signed revocation, (2) authorizing a proxy having a later date than any previously delivered proxy or (3) voting in person at the Annual Meeting.

Inspector of Election

        We have retained American Stock Transfer & Trust Company to act as the independent inspector of the election.

Expenses

        All expenses in connection with the solicitation of proxies will be borne by us. In addition to solicitation by mail, our officers and directors may also solicit proxies by telephone, facsimile or in person. We have retained Innisfree M&A Incorporated ("Innisfree"), to assist in the distribution and solicitation of proxies and to verify records related to the solicitation for a fee of $8,500 plus reimbursement for out-of-pocket expenses incurred during the solicitation. We will pay no additional compensation to our officers and directors or to officers or employees of our manager, KKR Financial Advisors LLC (the "Manager"), for these activities. We have agreed to indemnify Innisfree against liabilities arising in connection with the proxy solicitation unless caused by Innisfree's negligence or misconduct.

Address of Our Principal Executive Office

        The complete mailing address of our principal executive office is:

KKR Financial Holdings LLC
555 California Street, 50th Floor
San Francisco, California 94104

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Holders of Shares to Be Held on April 29, 2010.

         The following Proxy Materials are available for you to view online at www.kkr.com/kam/kkr_financial_holdings.cfm: (i) this proxy statement (including all attachments); (ii) our Annual Report (which is not deemed to be part of the official proxy soliciting materials); and (iii) any amendments to the foregoing materials that are required to be furnished to shareholders. In addition, if you have not received a copy of our Proxy Materials and would like one, you may download an electronic copy of our Proxy Materials or request a paper copy at www.kkr.com/kam/kkr_financial_holdings.cfm under the caption "Investor Relations—Proxy Materials".

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PROPOSAL ONE:
ELECTION OF DIRECTORS

        Our Board has nominated eleven of the current directors, Messrs. Hazen, Sonneborn, Finigan, Hubbard, Kari, Licht, Nuttall, Ryles and Strothotte and Mmes. Collins and McAneny, to serve until the next annual meeting of the holders of common shares and until their respective successors are duly elected and qualify. The holders of our common shares have the right to annually elect all eleven director nominees to our Board.

        In connection with evaluating our director nominees, the Nominating and Corporate Governance Committee considers the following qualifications: leadership experience, financial expertise, risk experience and public policy experience. The Nominating and Corporate Governance Committee does not have a formal policy with respect to diversity; however, the Board and the Nominating and Corporate Governance Committee believe that it is essential that the Board members represent diverse viewpoints. In considering candidates for the Board, the Nominating and Corporate Governance Committee considers the entirety of each candidate's credentials in the context of these standards.

        The Nominating and Corporate Governance Committee knows of no reason why any of these nominees would be unable or unwilling to serve, but if any nominee should be unable or unwilling to serve, the proxies will be voted for the election of such other person as director as the Nominating and Corporate Governance Committee may recommend in the place of such nominee. In accordance with the Amended and Restated Operating Agreement of the Company (the "Operating Agreement"), directors are elected by a plurality of the votes cast at the Annual Meeting. This means that the eleven nominees receiving the highest number of votes will be elected.

Name		Age			Biography
Paul M. Hazen			68		Mr. Hazen is the chairman of our Board and has been a director since July 2004. Mr. Hazen joined Wells Fargo & Company, or Wells Fargo, in 1970, serving as Chairman of Wells Fargo from February 1997 to May 2001, Chairman and Chief Executive Officer from February 1997 to November 1998, Chief Executive Officer from January 1995 to February 1997, President and Chief Operating Officer from 1984 to 1995 and Vice Chairman from 1981 to 1984. Mr. Hazen was also the President of Wells Fargo Real Estate Investment Trust, a publicly traded REIT, from 1973 to 1978. Mr. Hazen retired after he left his post as Chairman of Wells Fargo in May 2001 and remained in retirement until he accepted his appointment as Chairman of our Board of Directors. During his retirement, Mr. Hazen has carried out his duties as Chairman of Accel-KKR Company, Deputy Chairman and Lead Independent Director of Vodafone PLC and Lead Independent Director of Safeway, Inc. and is also a director of Xstrata plc. He was recently a director of Prosper Marketplace, Inc. and Willis Group Holdings Limited. Among many qualifications, Mr. Hazen's extensive business and management experience within financial services, including through his tenure as Chairman and CEO of Wells Fargo, are of incredible value to the Board.

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Name		Age			Biography
William C. Sonneborn			40		Mr. Sonneborn has been our Chief Executive Officer and a director since December 2008. He is the Chief Executive Officer of our Manager and serves on its investment committee. Prior to joining Kohlberg Kravis Roberts & Co. L.P. ("KKR"), he spent over 10 years at The TCW Group, Inc. most recently as President and Chief Operating Officer of The TCW Group, Inc. and Chief Executive Officer of The TCW Funds, Inc. and a member of the international executive committee of Societe Generale Asset Management, S.A. His responsibilities at TCW included overseeing and developing portfolio management, operations, and sales and marketing in both traditional and alternative investments. He has also served as a member of the board of directors of The TCW Group, Inc., The TCW Funds, Inc., The TCW Strategic Income Fund, Inc. and Sompo Japan Asset Management in Tokyo, Japan. Prior to TCW, he spent six years in investment banking at Goldman, Sachs & Co. in both New York and Hong Kong predominately focused on executing mergers and acquisitions for financial institutions. Mr. Sonneborn graduated with honors from Georgetown University. Mr. Sonneborn brings valuable experience and background within investment management and financial services to the Company as our Chief Executive Officer, and to our Board as a director.
Tracy L. Collins			46		Ms. Collins has been a director since August 2006. During her career in financial services, Ms. Collins worked as a Senior Managing Director and Head of Asset-Backed Securities Research at Bear Stearns & Co., Inc. from March 1996 through December 2000 and prior to that as a Managing Director and Head of Asset-Backed Securities Research at Credit Suisse Group (formerly known as Credit Suisse First Boston) for approximately nine years. Ms. Collins' strong knowledge of structured finance products and general business background are significant assets to the Board.
Vincent Paul Finigan			63		Mr. Finigan has been a director since February 2006. He is currently with the law firm of Snyder Miller & Orton LLP. He was a partner at the law firm of Morgan, Lewis & Bockius LLP from 2003 to 2007 and was with the law firm of Brobeck, Phleger & Harrison LLP from 1972 to 2003. With over thirty-eight years of experience in the legal field representing a diverse range of companies on complex matters, Mr. Finigan brings important experience, judgment and perspective to the Board.

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Name		Age			Biography
R. Glenn Hubbard			51		Mr. Hubbard has been a director since October 2004. He was named the Dean of Columbia University's Graduate School of Business in 2004. From 1994 to the present time, Mr. Hubbard has been the Russell L. Carson Professor of Finance and Economics in the Department of Economics and Graduate School of Business of Columbia University. From February 2001 until March 2003, he took a leave of absence from his teaching post to serve as Chairman of the U.S. Council of Economic Advisers. He was Deputy Assistant Secretary of the U.S. Treasury Department for Tax Policy from 1991 to 1993. Mr. Hubbard is a research associate at the National Bureau of Economic Research, and a visiting scholar at the America Enterprise Institute in Washington, D.C. He is currently a director of ADP, Inc., BlackRock Closed-End Funds, ITU Ventures and MetLife, Inc. He is also Chairman and a trustee of the Economic Club of New York and an elder of the Fifth Avenue Presbyterian Church of New York. He was previously a board member of Capmark Financial, Duke Realty Corporation, Ripplewood Holdings, RH Donnelly and Information Services Group, Inc. Among many qualifications, Mr. Hubbard provides the Board with substantial knowledge and expertise on global macroeconomic conditions, regulatory change and perspective on financial markets. Mr. Hubbard serves as our Lead Independent Director.
Ross J. Kari			51		Mr. Kari has been a director since August 2004. He is currently the Chief Financial Officer of the Federal Home Loan Mortgage Corporation (Freddie Mac). Until September 2009, he was the Chief Financial Officer of Fifth Third Bancorp. Prior to that he was Executive Vice President and CFO of Safeco Corporation from June 2006 to November 2008 and Executive Vice President and Chief Operating Officer of the Federal Home Loan Bank of San Francisco from March 2002 to June 2006. Mr. Kari was Chief Financial Officer of MyCFO, a wealth management firm, from 2001 to 2002, and prior to that, was employed at Wells Fargo for 18 years, including as Chief Financial Officer from 1998 to 2001. Having served as Chief Financial Officer of various publicly-traded financial services companies, Mr. Kari brings valuable finance and accounting expertise as well as extensive experience with financial institutions to his positions as a director and Chair of our Audit Committee.

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Name		Age			Biography
Ely L. Licht			62		Mr. Licht has been a director since April 2005. From March 2007 to February 2009 he was Executive Vice President and Chairman of Credit Policy for Capmark Financial, and from March 2009 to August 2009 he served as a consultant to Capmark Financial. Prior to joining Capmark Financial, Mr. Licht was in retirement. From January 2002 to December 2002, Mr. Licht was semi-retired, serving as a consultant to Wells Fargo on a part-time basis. Prior to his semi-retirement, Mr. Licht was employed at Wells Fargo for 18 years, including as Chief Credit Officer from November 1998 to December 2001, and Executive Vice President for Credit Administration from February 1990 to November 1998. Mr. Licht's experience at Wells Fargo as Chief Credit Officer and Chairman of Credit Policy for Capmark Financial is invaluable to the Company in reviewing credit exposures contained within the Company's business.
Deborah H. McAneny			50		Ms. McAneny has been a director since April 2005. Ms. McAneny was the Chief Operating Officer of Benchmark Assisted Living, LLC from April 2007 to May 2009. Prior to that she was employed at John Hancock Financial Services for 20 years, including as Executive Vice President for Structured and Alternative Investments of John Hancock Financial Services and as a member of its Policy Committee from 2002 to 2004, Senior Vice President for John Hancock's Real Estate Investment Group from 2000 to 2002, and as a Vice President of the Real Estate Investment Group from 1997 to 2000. She is currently a director of HFF, Inc., Benchmark Assisted Living, LLC, and a Trustee of the University of Vermont and the Rivers School and is a past President of the Commercial Mortgage Securities Association. Ms. McAneny brings substantial structured finance knowledge and real estate and financial services company experience to our Board.
Scott C. Nuttall			37		Mr. Nuttall has been a director since July 2004 and has been with KKR for over ten years. He is currently a member of the board of directors of Capmark Financial, First Data Corporation and Legg Mason. He was recently on the boards of Masonite International, Alea Group Holdings (Bermuda) Ltd., Bristol West Holdings Inc. and Willis Group Holdings Limited. Prior to joining KKR, Mr. Nuttall was with the Blackstone Group where he was involved in numerous merchant banking and merger and acquisition transactions. Mr. Nuttall brings substantial financial services and private equity expertise and judgment to our Board.

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Name		Age			Biography
Scott A. Ryles			51		Mr. Ryles has been a director since November 2008. He has been Vice Chairman of Cowen and Company since February 2007. Prior to joining Cowen and Company, Mr. Ryles served as the Chief Executive Officer of Procinea Management LLC and was the founder, Chief Executive Officer and President of Epoch Partners, Inc. Mr. Ryles also spent 18 years at Merrill Lynch in various investment banking positions including Co-Head of West Coast Investment Banking, Global Head of Natural Resources, Global Head of Technology and was a member of the firm's Operating Committee. Mr. Ryles is a Director of ArcSight,  Inc. and The Gymboree Corporation. Mr. Ryles is also a director of Ramius Trading Strategies and certain of its affiliates. Mr. Ryles brings significant experience in finance, investment banking and management to our Board.
Willy R. Strothotte			64		Mr. Strothotte has been a director since January 2007. Mr. Strothotte is Chairman of Glencore International AG. From 1961 to 1978 Mr. Strothotte held various positions with responsibility for international trading in metals and minerals in Germany, Belgium and the USA. In 1978, Mr. Strothotte joined Glencore International, taking up the position of Head of Metals and Minerals in 1984. Mr. Strothotte was appointed Chief Executive Officer of Glencore in 1993 and held the combined positions of Chairman and Chief Executive Officer from 1994 until 2001, when the roles of Chairman and Chief Executive were split. Mr. Strothotte has been Chairman of Xstrata AG since 1994, and Chairman of Xstrata plc since February 2002, and is currently a director of Century Aluminum Corporation, Glencore International AG and Minara Resources Limited. Among many qualifications, Mr. Strothotte brings to our Board extensive experience in business strategy, management and energy and commodities as the leader of a successful global business.

         Our Board unanimously recommends that you vote "FOR" the eleven nominees listed above. In the absence of instructions to the contrary, executed proxies solicited in connection with this proxy statement will be voted " FOR " such nominees.

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PROPOSAL TWO:
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

        The Audit Committee of the Board has selected Deloitte to act as our independent registered public accounting firm for the fiscal year ending December 31, 2010. Our Board, upon the recommendation of the Audit Committee, is asking the holders of our common shares to ratify such appointment. Deloitte served as our independent registered public accounting firm for the fiscal year ended December 31, 2009 and the Audit Committee and the Board believe it is desirable and in our best interests to continue to retain that firm. A representative of Deloitte is expected to be present at the Annual Meeting and will have the opportunity to make a statement if he or she so desires and will be available to respond to appropriate questions from the holders of common shares.

        If the foregoing proposal is not approved by the holders of a majority of the common shares represented at the Annual Meeting, it will be considered as notice to the Board and the Audit Committee to consider the selection of a different firm. Even if the selection is ratified, the Audit Committee, in its discretion, may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.

         Our Board and Audit Committee unanimously recommend that you vote "FOR" the ratification of the appointment of Deloitte as our independent registered public accounting firm for the fiscal year ending December 31, 2010 . In the absence of instructions to the contrary, executed proxies solicited in connection with this proxy statement will be voted " FOR " such ratification.

CORPORATE GOVERNANCE

Corporate Governance Guidelines

        Our Board is committed to establishing and maintaining corporate governance practices that reflect high standards of ethics and integrity. To that end, we have established a Nominating and Corporate Governance Committee and adopted Corporate Governance Guidelines to assist our Board in the exercise of its responsibilities. The Nominating and Corporate Governance Committee Charter and our Corporate Governance Guidelines are available on our website located at www.kkr.com/kam/kkr_financial_holdings.cfm under the captions "Corporate Governance—Nominating and Corporate Governance Committee" and "Corporate Governance—Corporate Governance Guidelines", respectively. They are also available in print by writing to KKR Financial Holdings LLC, Attn: Investor Relations, 555 California Street, 50th Floor, San Francisco, California 94104. Any modifications to the Corporate Governance Guidelines will be reflected on our website.

Code of Ethics

        Our Board has established a Code of Ethics that applies to our officers, directors and employees (should we in the future have any employees) and to the officers and employees of the Manager, when such individuals are acting for or on our behalf. Among other matters, our Code of Ethics is designed to promote our commitment to ethics and compliance with the law, provide reporting mechanisms for known or suspected ethical or legal violations and help prevent and detect wrongdoing. We have specific policies in place to address:

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conflicts of interest;



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corporate opportunities;



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fair dealing;



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insider trading;

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confidentiality;



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protection and proper use of Company assets;



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compliance with laws, rules and regulations;



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timely and truthful public disclosure;



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reporting of known or suspected violations or accounting deficiencies; and



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accountability for violations.

        Any waiver of the Code of Ethics for our executive officers or directors may be made only by our Board or the Audit Committee and will be promptly disclosed as required by law or stock exchange regulations. The Code of Ethics is available on our website located at www.kkr.com/kam/kkr_financial_holdings.cfm under the caption "Corporate Governance—Code of Business Conduct and Ethics" and is also available in print to any holder of shares on request in writing to KKR Financial Holdings LLC, Attn: Investor Relations, 555 California Street, 50th Floor, San Francisco, California 94104. Any modifications to the Code of Ethics will be reflected on our website.

Director Independence

Director Independence

        Our Board is comprised of a majority of independent directors. In order for a director to be considered "independent", our Board must affirmatively determine that the director satisfies the criteria for independence established by Section 303A of the NYSE Listed Company Manual. Our Board has determined that the following directors, comprising a majority of our directors, are independent: Tracy L. Collins, Vincent Paul Finigan, R. Glenn Hubbard, Ross J. Kari, Deborah H. McAneny, Scott A. Ryles and Willy R. Strothotte. Our independent directors meet regularly in executive sessions without the presence of our corporate officers.

Board Committee Independence

        All of our committees, except for the Executive Committee, consist solely of independent directors as consistent with the applicable NYSE rules and Securities Exchange Commission ("SEC") regulations. Please refer to "Board of Directors and Committees—Committees of the Board" below for more information on our Board committees.

Communications with the Board of Directors

        Holders of our common shares and other interested parties who wish to communicate with a member or members of our Board, including communications directed to the independent members of the Board, may do so by addressing their correspondence to such member or members; the Company will forward all such correspondence to the member or members of the Board to whom such correspondence was addressed:

By mail:		KKR Financial Holdings LLC Attn: Investor Relations 555 California Street, 50th Floor San Francisco, California 94104

        The Audit Committee of our Board has established procedures for employees of our Manager, holders of our common shares and others to report openly, confidentially or anonymously concerns regarding our compliance with legal and regulatory requirements or concerns regarding our accounting,

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internal accounting controls or auditing matters. Reports may be made orally or in writing to the chairman of the Audit Committee:

By mail:		Ross J. Kari c/o Freddie Mac 8200 Jones Branch Drive McLean, Virginia 22102
By phone:		[phone]

        In addition, reports can also be made directly to management by mail or in person at:

By mail:		KKR Financial Holdings LLC Attn: General Counsel 555 California Street, 50th Floor San Francisco, California 94104
By phone:		[phone]

Director Attendance at Annual Meeting

        Although director attendance at our annual meeting each year is encouraged, we do not have an attendance policy. We expect all of our directors to attend the Annual Meeting. All of our then directors attended the 2009 annual meeting.

BOARD OF DIRECTORS AND COMMITTEES

        Our Board directs the management of our business and affairs, as provided by our Operating Agreement and Delaware law, and conducts its business through meetings of the Board and five standing committees: the Affiliated Transactions Committee, the Audit Committee, the Compensation Committee, the Executive Committee and the Nominating and Corporate Governance Committee. Our Board also has a Lead Independent Director. All of the committees, except for the Executive Committee, consist solely of independent directors. Matters put to a vote at any one of our committees must be approved by a majority of the directors on the committee who are present at a meeting at which there is a quorum or by unanimous written or electronic consent of the directors on that committee. Our Board has adopted written charters for the Affiliated Transactions Committee, the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, current copies of which are available at our website located at www.kkr.com/kam/kkr_financial_holdings.cfm under the caption "Corporate Governance" and are also available in print to any holder of common shares on request in writing to KKR Financial Holdings LLC, Attn: Investor Relations, 555 California Street, 50th Floor, San Francisco, California 94104. Our Board may from time to time appoint other committees as circumstances warrant. Any new committees will have authority and responsibility as delegated by our Board.

Leadership Structure

        The offices of our Chief Executive Officer and Chairman of the Board are currently occupied by separate persons. We believe that having a separate Chief Executive Officer and Chairman of the Board promotes the active involvement of the Board in the oversight of the Company and their active participation in setting the agenda and priorities for the Company. Similarly, our Chief Executive Officer's participation on the Board as a Director provides direct access to and accountability of management. Because the Chairman is not independent, we have designated a Lead Independent Director who calls meetings of the independent directors, and serves as the principal liaison between the independent directors and the Chairman of the Board, Chief Executive Officer and Chief Operating Officer. The Lead Independent Director serves as Chairman of the Board when the

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Chairman is not present. Mr. Hubbard has been designated as our Lead Independent Director. We believe that having a Lead Independent Director enhances the independence of the Board and strengthens our oversight.

Risk Management

        The Board is actively involved, as a whole and at the committee level, in overseeing the management of the Company. Enterprise risks are identified by management and the Board and are handled by an appropriate committee where potential issues are reviewed and discussed. In particular, the Affiliated Transactions Committee oversees the Company's investment policies and ensures the appropriateness of any investments with affiliates and transactions that otherwise present actual or perceived conflicts of interest; the Audit Committee oversees financial risks and reviews internal policies; the Compensation Committee oversees incentive grants to our Manager; and the Nominating and Corporate Governance Committee oversees and manages risks associated with our Board and potential conflicts of interest. The Board satisfies its responsibilities by reviewing the full committee reports regarding each committee's actions and deliberations, in addition to regular reports from management regarding potential issues.

Meetings of the Board

        During the 2009 fiscal year, our Board met on eight occasions. Each director attended at least 75% of the aggregate of the total number of meetings in 2009 (held during the period for which such person was a director) of our Board and of the committees on which the director served (held during the period that such person served on such committees).

Committees of the Board

Affiliated Transactions Committee

        The members of the Affiliated Transactions Committee are Vincent Paul Finigan, Deborah H. McAneny, Scott A. Ryles and Willy R. Strothotte. Vincent Paul Finigan chairs the Affiliated Transactions Committee. The Affiliated Transactions Committee is responsible for reviewing and monitoring the Manager's compliance with the investment policies established by our Board and the affiliated transactions policy that the Manager has adopted, as well as providing pre-approval of specified transactions with affiliates, and reviewing transactions with related parties, including directors, officers, employees and holders of greater than 5% of our common shares. A detailed discussion of the specific guidelines observed by the Affiliated Transactions Committee when evaluating investment opportunities is included below in "Certain Relationships and Related Transactions—Relationships with KKR, Other Relationships and Related Transactions".

        Our Board has determined that each of the directors on the Affiliated Transactions Committee satisfies the independence requirements of the NYSE. The Affiliated Transactions Committee held eight meetings during 2009.

Audit Committee

        The members of the Audit Committee are Tracy L. Collins, R. Glenn Hubbard, Ross J. Kari and Scott A. Ryles. Ross J. Kari is the chair of the Audit Committee. Among other things, the Audit Committee is responsible for:

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our accounting and financial reporting processes;



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the integrity and audits of our consolidated financial statements;



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our compliance with legal and regulatory requirements;

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•

the qualifications and independence of the independent registered public accounting firm;



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the performance of the independent registered public accounting firm and any internal auditors;



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engaging an independent registered public accounting firm;



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reviewing with the independent registered public accounting firm the plans and results of the audit engagement;



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approving professional services provided by the independent registered public accounting firm;



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reviewing the independence of the independent registered public accounting firm;



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considering the range of audit and non-audit fees; and



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reviewing the adequacy of our internal accounting controls.

        Our Board has determined that all of the Audit Committee members satisfy the independence and financial literacy requirements of the NYSE. Our Board has also determined that Ross J. Kari is an "audit committee financial expert" as such term is defined in Item 407(d)(5) of Regulation S-K. The Audit Committee held eight meetings during 2009.

Compensation Committee

        The members of the Compensation Committee are Tracy L. Collins, Vincent Paul Finigan, Deborah H. McAneny and Willy R. Strothotte. Deborah H. McAneny is the chair of the Compensation Committee.

        The principal functions of the Compensation Committee are to:

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review the compensation payable to the directors;



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oversee the annual review by our independent directors of the fees that we pay to our Manager under the Amended and Restated Management Agreement (the "Management Agreement") among the Manager and us; and



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administer our 2007 Share Incentive Plan and approve the grant of awards under that Plan to our directors and our Manager.

        The Compensation Committee has authority to determine the compensation payable to our directors and to grant awards under our 2007 Share Incentive Plan and solicits recommendations from our executive officers and outside compensation consultants in determining the amount or form of such director compensation or awards. The Compensation Committee also oversees risk when it considers granting options and restricted shares to our Manager under the Management Agreement. In particular, the factors considered by the Compensation Committee in making grants to our Manager may include performance related factors such as achievement of specified levels of net income. In evaluating investments and other management strategies, the opportunity to earn incentive compensation based on net income may lead our Manager to place undue emphasis on the maximization of net income at the expense of other criteria, such as preservation of capital, maintaining sufficient liquidity, and/or management of credit risk or market risk, in order to achieve higher incentive compensation. Investments with higher yield potential are generally riskier or more speculative. As a result, the Compensation Committee evaluates performance factors, such as net income, in conjunction with other key risk exposure factors in making grants to our Manager.

        The Compensation Committee has the discretion to retain and terminate compensation consultants as it deems necessary to fulfill its duties. From time to time, the committee has received advice from Johnson Associates, Inc. to assist the committee in the determination of the amount and form of director compensation, including by providing information on compensation provided at other

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externally managed specialty finance companies. Furthermore, because the Management Agreement provides that the Manager is responsible for managing our affairs, our executive officers, all of whom are employees of the Manager, do not receive compensation directly from us for serving as our executive officers.

        Our Board has determined that all of the Compensation Committee members satisfy the independence requirements of the NYSE. The Compensation Committee held five meetings during 2009.

Executive Committee

        The members of the Executive Committee are William C. Sonneborn and Scott C. Nuttall. The Executive Committee exercises the authority of our Board on such matters as are delegated to it by our Board from time to time and exercises the powers of our Board between meetings of our Board.

        The Executive Committee did not hold any formal meetings during 2009.

Nominating and Corporate Governance Committee

        The members of the Nominating and Corporate Governance Committee are Vincent Paul Finigan, R. Glenn Hubbard and Deborah H. McAneny. R. Glenn Hubbard chairs the Nominating and Corporate Governance Committee.

        The Nominating and Corporate Governance Committee recommends to the Board future nominees for election as directors and considers potential nominees brought to its attention by any of our directors or officers. The committee has not established a specific set of minimum qualifications that must be met by director candidates. In making recommendations, however, the committee considers and will evaluate such candidates based on their backgrounds, skills, expertise, accessibility and availability to serve effectively on the Board. The Nominating and Corporate Governance Committee does not have a formal policy with respect to diversity; however, the Board and the Nominating and Corporate Governance Committee believe that it is essential that the Board members represent diverse viewpoints. In considering candidates for the Board, the Nominating and Corporate Governance Committee considers the entirety of each candidate's credentials in the context of these standards.

        In addition, the committee reviews and makes recommendations on matters involving the general operation of our Board and our corporate governance, and annually recommends to our Board nominees for each committee of our Board. The Nominating and Corporate Governance Committee annually assesses our Board's performance as a whole and of the individual directors and reports thereon to our Board and is also responsible for overseeing the implementation of, and periodically reviewing, the Company's Corporate Governance Guidelines.

        The Nominating and Corporate Governance Committee will evaluate director candidates proposed by holders of common shares on the same basis that it evaluates other director candidates. The proposing holder of our common shares should also include his or her contact information and a statement of his or her share ownership (how many common shares owned and for how long). Holders of our common shares may submit the candidate's name, credentials, contact information and his or her written consent to be considered as a candidate to:

By mail:		R. Glenn Hubbard c/o KKR Financial Holdings LLC 555 California Street, 50th Floor San Francisco, California 94104

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