KKR emerges as frontrunner for $3 bln NYC pension strategic relationship

  • Mandate totals $3 bln across asset classes
  • KKR expected to win final approval to run mandate
  • Firm emerged as leader among group of large firms

New York City’s public pension system is creating a huge strategic-relationship mandate similar to structures launched by pension systems in New Jersey and Texas.

Kohlberg Kravis Roberts has emerged as the frontrunner to win the $3 billion strategic-relationship mandate with New York City’s pension system, two people with knowledge of the situation told Buyouts.

It’s not clear whether all the city’s pension boards have voted on the mandate. The city’s system, with about $181 billion of total assets, is composed of five public pension funds for police, firefighters, public workers, teachers and the board of education. Spokespeople for KKR and city Comptroller Scott Stringer’s office declined to comment.

KKR would have some level of discretionary control over the mandate, with the ability to direct the city’s money into its funds, across multiple asset classes like private equity, real estate and credit, the people said. KKR also would have the ability to recycle proceeds back into the relationship, potentially expanding the initial $3 billion, the people said.

The firm emerged as the top choice among a group of large shops vying for the mandate. It’s not clear which other firms bid for the city contract, but the group included large firms with the ability put the city’s money to work across multiple asset classes, one of the people said.

Interestingly, New York City’s pension system has little exposure to KKR funds, at least on the PE side. This may have been advantageous to the firm because the city did not want overwhelming exposure to one firm already in its portfolio, one of the people said.

In 2011, Teacher Retirement System of Texas pledged $3 billion each to KKR and Apollo Global Management to run strategic relationships. At the time, this was unique in the industry but reflected some big institutions’ desire to cut big checks to fewer managers with the ability to invest across asset classes.

New Jersey’s pension system followed quickly with a large strategic relationship with Blackstone Group.

Bloomberg reported earlier that KKR was in the lead for the New York City mandate.

New York City Comptroller Scott Stringer — then Manhattan borough president — speaks during a primary debate for New York City comptroller in the WCBS-TV studios in New York on Aug. 22, 2013. Photo courtesy Reuters/Frank Franklin II