KKR Sweetens Terms For Biggest LPs

Kohlberg Kravis Roberts & Co. has begun offering incentives to a few large institutional investors to help it close its latest fund, the KKR North American XI Fund, which has a target of $8 billion, according to news reports.

The enticements are aimed at institutions committing at least $500 million to the fund, according to a report from Dow Jones. The incentives include giving investors all of the fees that the buyout firm charges to the companies it buys. Another incentive, the report said, involves a discount on the fund’s annual management fee.

Private equity firms have had more difficulty raising money since the end of the financial crisis, and large investors like pension funds have been more reluctant than ever to write big checks, according to one prominent placement agent. That reluctance has led private equity firms to launch smaller funds than they did before the crisis. And It has led to longer periods of time between a fund’s launch and its closing.

The recent $525 million commitment by the Oregon Investment Council to the new KKR fund is substantially smaller than its $1 billion commitment to KKR in 2006. Oregon was reported in Pensions and Investments to have successfully negotiated getting 100 percent of the deal fees charged by KKR to portfolio companies.

In Oregon and other states, there is great concern over the fees that investment companies charge for their services. Oregon promoted its recent efforts to renegotiate contracts with eight investment firms that help manage the state’s pension money. Ted Wheeler, Oregon’s treasurer, said his department’s efforts to renegotiate contracts with financial advisers have likely helped the state save pensioners more than $8 million as of last July.

“We do business with some of the best investing minds in the world,” Wheeler said in a statement. “But that doesn’t mean we will overpay for their services.”

Still, Oregon’s concerns over fees have not diminished its commitment to private equity. The state’s private equity investments, which like neighboring California and Washington are among the nation’s largest, have returned an average of 16 percent a year over the last 30 years, according to the state treasury’s office.

Investors will be watching closely to see if other big pension funds make similar commitments to KKR in coming weeks, and on what terms.