KKR ON A ‘STRING’
NYC set to squeeze Kravis on $3B pension deal
Henry Kravis is about to blink.
In exchange for roughly $3 billion in New York City pension money, Kravis’ KKR & Co. has agreed not to take any piece of the investment’s gain until it surpasses a minimum threshold, sources tell The Post.
It could not be learned what that threshold is, but New York City Comptroller Scott Stringer’s office targets a 7 percent annual return.
The five city pensions, which have a combined $181 billion in assets, expect returns from private market investments like this to at least match the public markets.
However, the KKR money could have a lower or higher minimum, sources familiar with the situation cautioned.
Stringer and the Big Apple’s Chief Investment Officer Scott Evans are in late-stage negotiations with KKR — the firm immortalized in the book “Barbarians at the Gate” — on the precedent-setting deal, sources said.
Stringer’s demand is the latest in a long-simmering battle between state and local pension funds and firms getting alternative investment cash over high fees and low returns.
Pension funds have been pushing the hedge funds and buyout firms to accept fees and profits below the traditional 2 percent management fee and 20 percent of the profits.
Many firms have cut their prices in order to get the pension loot.
Stringer’s pending deal with KKR may be the first in the US to include a zero take of profit below an agreedupon level of return across a variety of asset classes.
“This is really about investing with a top private equity firm with extremely favorable terms,” one of the sources said.
“Scott has struck a great deal,” the other source said. KKR is expected to invest the $3 billion across its platforms, including private equity, infrastructure, real estate and credit. New York City currently has no investments with a single asset manager over a varietymark The the deal,of firstitsif finalized,funds.time KKR would received NYC pension cash.
If KKR’s blended returns across all investment areas surpass the minimum, the firm will get its piece of the upside, sources said.
Stringer approached several firms about the $3 billion investment, seeking similar termsone “It of is the beforea new sources selecting approach”said. KKR, for pensions, a source said.
Stringer’s choice is a bit of an eyebrow-raiser.
In 2008, Stringer, then the Manhattan borough president, took part in a rally in front of KKR’s offices calling on officials to close tax loopholes that allow buyout firms to pay a lower tax rate.
vantageKKR, of whichthe samestill loopholestakes adStringer complained about in 2008, made the case in recent meetings with the comptroller that it was working to create sustainable value in the companies it owns by addressing environmental, social and governance challenges, a source said. KKR’s businesses include credit card processor First Data, GoDaddy and Toys ‘R’ Us. A Stringer spokesman declined to comment on the talks with the firm. KKR declined to comment.