KKR & Co. plans to offer investors in its new European pool for the first time a bigger share of the profits after the firm’s similar funds underperformed peers, said two people with knowledge of the matter.
For KKR’s fourth Europe buyout fund, investors will receive all the profits from asset sales until a minimum rate, the hurdle, is met, said the people, who asked not to be identified because they weren’t authorized to speak publicly.
The investment hurdle, which is common to most buyout funds and typically set at about 8 percent, is designed to compensate backers for the longer holding period a private-equity investment requires compared with other asset classes.
While leveraged-buyout firms such as Permira Advisers LLP and CVC Capital Partners Ltd. employ hurdles, KKR has previously told investors its ability to generate higher returns meant it wasn’t necessary. The New York-based firm, one of the world’s largest alternative-asset managers, will offer a lower rate than the industry standard for the new fund, the people said, without providing details.
A KKR spokeswoman in London declined to comment.
While no previous KKR European vehicle has the hurdle, the firm has added it to other buyout funds including KKR North America Fund XI LP, which raised $9 billion in 2012, said a person with knowledge of the matter.
KKR is seeking as much as 3.5 billion euros ($4.4 billion) for KKR European Fund IV LP, less than its predecessor, which raised about $6 billion in 2008. Both that fund, KKR European Fund III LP, and its 2005 predecessor are ranked in the third quartile of comparable pools started in the same year, according to data compiled by Bloomberg.
Exits from its European investments include U.K. retailer Pets at Home Group Plc, which went public on the London Stock Exchange in March at 245 pence. The shares were trading at 194 pence in London today. KKR is planning to start a European real estate group, Scott Nuttall, the firm’s head of global capital and asset management, said in a conference call last month.
KKR, using its own balance sheet, is already buying stakes in companies that will eventually be offered to investors in the new fund, according to the people. U.K. offshore equipment company OEG Offshore Ltd., which KKR bought in July, is the first of those investments, they said.
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