Kohlberg Kravis Roberts will charge investors in its debut infrastructure fund a 1 percent management fee on committed capital and a 10 percent carry fee on its investments.
Credit Suisse is currently marketing the fund, which has a $4 billion target. Various market sources who have seen its private placement memorandum have confirmed the 1-and-10 fee structure.
Most European and US infrastructure, private equity and hedge funds operate with a base fee of between 1.5 percent to 2.5 percent per annum of funds under management (usually around 2.0 percent) and an outperformance fee of 20 percent in excess of a hurdle, usually fixed at 8 percent.
In addition, many employ a “catch-up” provision, which allows a GP to collect a higher percentage of the upside on the fund's returns over and above a stated threshold. For example, rather than collecting 20 percent of returns over an 8 percent IRR hurdle, the GP could collect 20 percent of returns overall using a 100 percent catch-up provision.
The size and appropriate timing of fees has been a hot topic of debate in recent years among private equity firms entering the infrastructure asset class. Many GPs have sought to apply the traditional 2-and-20 model into the asset class, but given the steadier, lower returns many LPs expect from the asset class, that pricing model has come into question.
At PEI's Infrastructure Investor Forum in Berlin on Wednesday, many LPs expressed growing frustration at the pricing mechanisms being proposed to them by GPs and warned that, in the current market, they have more leverage in fee negotiations.
“Is a 100 percent catch-up realistic in today's market? Probably not,” Serge Lauper senior investment professional at fund-of-funds Horizon21 Infrastructure told delegates at the conference.
In light of current market turmoil, many private equity firms have also been cutting their fees. Last month, mega-buyout firm TPG sent a letter to its LPs saying that it would allow them to reduce their commitments by as much as 10 percent and cut its annual management fees by one-tenth, regardless of whether the LPs cut commitments.
KKR's fundraising effort is its first foray into the asset class. The firm was busy hiring its staff for most of last year, marked by high-profile hires – such as former Endesa chief executive officer Jesús Olmos Clavijo in Europe – as well as the high profile departure of Lazard investment banker George Bilicic in New York. Bilicic had originally been hired to lead the efforts.