Kohlberg Kravis Roberts said Thursday during its 2009 earnings call that it would not maintain its current dual listing, and would move ahead with plans to list on the New York Stock Exchange.
As to when that IPO might happen, KKR treasurer and head of investor relations Jonathan Levin said 25 February that the firm “cannot predict an exact date or even which quarter this process would be completed”. But, he added, “the firm does not plan to maintain a dual listing and intends to concentrate its float in New York”. Scott Nuttall, a director of KKR Financial Corporation, added later in the call that the overall level of activity in the IPO market would not impact KKR’s plans.
Nuttall said KKR is not currently raising a fund, but he expects that the general pushback on all terms will continue over the next couple of years. For KKR in particular, though, he said he did not expect to make any major concessions.
“What we’ve found is that if we perform, we’re still able to justify to our investors the economics that we derive from the funds,” Nuttall said.
Levin said KKR has made a large investment in building out relationships with its investors, and adds that any pressure the firm feels on the fee side will be “offset by some extent by adding relationships” next time the firm goes out to market.
Chief financial officer William Janetschek shed some light on the firm’s fee revenue. During the first quarter, which saw few transaction fees and monitoring fees holding at a “normalised” level, KKR had fee-related earnings margins in the low-30 percent range. In the fourth quarter, when deal activity picked up, that margin rose to 45 percent.
Janetschek also gave details on the firm’s carry waterfall structure. Though KKR does not have a preferred return or hurdle rate in any of its funds, its waterfall is structured so that all invested capital is returned for each deal before shareholders in the partnership receive cash carry.
“The way our funds work is if we have an investment in a particular fund that is below cost, and if we exit an investment at a gain, we need to allocate that gain through that netting adjustment in order to fill that hole, so that all the investments in a particular fund are at cost or above,” he said.
Levin added that the private equity funds have an 80/20 transaction fee split.
KKR was asked during the call whether its listed vehicle KKR Financial Holdings (KFN) presented a conflict of interest in the context of the firm’s overall asset management strategy.
“We don’t actually see it as a conflict per se,” Nuttall said. “We have allocation policies and procedures between the different pools of capitals. For the time being, KFN is … basically a public version of a separate account.”
Nuttall was asked whether KKR would essentially be forced to act as a guarantor for the listed vehicle in the event that the share price declined enough that the vehicle would be unable to meet its capital calls – a situation that has come up at some European private equity firms with listed vehicles.
“The firm did end up backstopping some rights offerings and other things for KFN and now has it back on a steady footing,” Nuttall said. “But we don’t view ourselves in that role at all. The investments that KFN has in KKR private equity companies are a limited portion of that portfolio, and our perspective is that those companies have performed well and that portfolio has performed well.”
When asked about the potential impact of the Volcker rule, Nuttall said that it would not negatively impact KKR, and could be slightly positive for the firm if it presented new opportunities to bring talent on board or manage new portfolios.