KKR fund foregoes management fee

As empowered LPs demand more favourable terms and conditions, Kohlberg Kravis Roberts appears to be listening. The firm said in its registration filing to list on the New York Stock Exchange that its E2 Investors annex fund is breaking tradition by not charging a management fee.

KKR closed the fund last August on $550 million, which will be used to make additional investments in the portfolio companies of KKR’s European Fund II.

Raising capital for annex funds can be difficult, because they are typically used to bolster struggling portfolio companies, and historically haven’t shown encouraging returns. GPs trying to raise these funds should expect LPs to ask for a cut in management fees or a cut in the GP’s portion of the carried interest.

KKR said in the filing that the E2 fund has several other features besides the non-payment of management fees that set it apart from the firm’s other traditional private equity funds. For one, the general partner for E2 will only be entitled to take carry after netting any losses, costs and expenses related to European Fund II investments from the profits of the annex fund’s investments.

The firm has also agreed not to charge transaction or incremental monitoring fees in connection with investments in which the annex fund participates.

The filing comes a few weeks after KKR’s 2009 earnings call, in which the firm confirmed that it is moving ahead with plans to list on the New York Stock Exchange. 

The firm revealed other LP friendly terms in its private equity funds: its carry waterfall is structured so that all invested capital is returned for each deal before shareholders in the partnership receive any carry, and the funds have an 80/20 transaction fees split with the LPs.