- Firm ”adequately reserved” for legal risk
- Dialogue with SEC ongoing
- Firm raises $2.3 bln for Europe Fund IV
The majority of the refund related to the allocation of expenses between KKR’s flagship private equity funds and its co-investments in other vehicles that invest alongside the funds, the firm said on its quarterly earnings call Feb. 10.
Craig Larson, managing director, investor relations, said the move stemmed from a routine review by the SEC of one of its registered investment advisors, but he didn’t say which one. KKR has three investment advisors under the working names of KKR Prisma, Kohlberg Kravis Roberts & Co LP and KKR Credit.
Larson said the dialogue with the SEC is ongoing.
“We can’t comment now on what additional developments may occur on this in the future, but we look at our reserve each quarter and as of year-end believe we are adequately reserved for our legal risks,” Larson said. “Obviously, if and when there are any material updates, we would disclose them as you’d expect, as appropriate.”
Larson said KKR couldn’t provide more details.
“We take our fiduciary responsibilities to our fund LPs very seriously, so these types of issues are very important to us,” Larson said.
KKR revealed the refund to LPs after an article published last month by The Wall Street Journal about a reimbursement to fund investors. The newspaper report stemmed from a Freedom of Information Act request with Washington State Investment Board.
Overall, the industry has been under greater scrutiny dating back to 2012, when most private equity firms were required to register with the SEC under the Dodd-Frank act. In a widely cited speech last year, Andrew Bowden, the director at the SEC’s office of compliance, said more than half of the private equity firms examined showed “violations of law or material weakness in controls.”
Also on the fee front, WL Ross recently said it reimbursed investors in its fifth flagship fund after a miscalculation of fee offsets.
KKR raises $2.3 billion for fourth European fund
On the fundraising front, KKR said it raised $2.3 billion for KKR European Fund IV, including $700 million raised so far in 2015.
“The economic picture in Europe is a bit more positive than it’s been,” said Scott Nuttall, global head of capital and asset management. “We’ve got low oil (prices), a low euro, expansionary monetary policy; consumer sentiment seems to be getting a bit better and so the overall macro picture feels a bit better. The risk is obviously much more political, but we think a lot of that is priced in.”
KKR is seeing a big opportunity for private credit investments in Europe, in addition to real estate in Germany and elsewhere.
The firm closed on $2 billion for KKR Global Infrastructure Investors II LP during the fourth quarter, and it’s working toward a final close of $2.5 billion to $3 billion on the pool. It’s also raising KKR Direct Lending II, and KKR Special Situations II.
KKR expects to launch several other successor vehicles in the face of a “strong” fundraising market.