NYSE: KFN

There shall be constituted a standing committee of the board of directors (the "Board") of KKR FINANCIAL HOLDINGS LLC. (the "Company") to be known as the compensation committee (the "Compensation Committee").

The Compensation Committee shall be comprised of three or more directors, each of whom shall satisfy the independence requirements of the New York Stock Exchange for Compensation Committee members. Additionally, members of the Compensation Committee shall qualify as "non-employee directors" for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and as "outside directors" for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended.

The members of the Compensation Committee shall be appointed by the Board, based upon the recommendation of the Nominating and Corporate Governance Committee, at the Board's annual meeting and may be removed by the Board. The members of the Compensation Committee shall serve for one year or until their successors are duly elected and qualified. The full Board shall elect a Chairman and, if a Chairman is not elected by the full Board, the members of the Compensation Committee shall designate a Chairman by majority vote of the full Compensation Committee.

The Compensation Committee is appointed by the Board to assist the Board in discharging its responsibilities relating to compensation of the Company's directors. The Compensation Committee has overall responsibility for evaluating and recommending changes to the director compensation plans, policies and programs of the Company.

Among its specific duties and responsibilities, the Compensation Committee shall:

1. Review the Company's overall compensation structure, policies and programs;

2. Make recommendations to the Board with respect to incentive-compensation plans and equity-based plans with respect to the management agreement by and between the Company and KKR Financial Advisors LLC, the Company's external manager;

3. Annually review the compensation of directors for service on the Board and its committees and recommend changes in compensation to the Board; and

4. Review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval, and annually review the Compensation Committee's performance based upon, among other things, an assessment of the Compensation Committee's fulfillment of its obligations pursuant to this Charter. The Compensation Committee's findings shall be reported to the Board, and such review shall seek to identify specific areas, if any, in need of improvement or strengthening.

The Compensation Committee shall meet at least twice a year and as often as may be deemed necessary or appropriate in its judgment. The Chairman or a majority of the members of the Compensation Committee may call meetings of the Compensation Committee upon reasonable notice to all members of the Compensation Committee. The Compensation Committee shall report at least twice a year to the Board with respect to its activities.

In the course of fulfilling its duties, the Compensation Committee shall, to the extent it deems necessary, have the authority to retain and terminate compensation consultants. The Compensation Committee shall also have, to the extent it deems necessary, the authority to obtain advice and assistance from other internal or external advisors. Such compensation consultants and other internal or external advisors shall be appropriately compensated, as determined by the Compensation Committee, with funding provided by the Company.