KKR annex fund foregoes management fee

Kohlberg Kravis Roberts' $550m E2 fund will only pay carried interest to the GP after netting any losses, costs and expenses from the primary fund.

Kohlberg Kravis Roberts, in need of fresh capital to support its existing portfolio companies, said in a recent registration filing to list on the New York Stock Exchange that its E2 Investors annex fund will not charge a management fee.

KKR said in the filing that the E2 fund has several other features that set it apart from the firm’s other private equity funds. The general partner 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.

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.

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.