KKR’s oversubscribed North America fund puts employee ownership in the spotlight

KKR’s $19bn NA XIII, the largest fund in its history, is the first dedicated fund which will implement employee ownership across all majority-owned companies.

KKR this week held the final close on its largest-ever private equity vehicle, gathering $19 billion against a $14 billion target.

KKR North America Fund XIII was oversubscribed and received strong support from both new and existing investors globally, according to a statement. These included public and private pension plans, sovereign wealth funds, insurance companies, endowments and foundations, private wealth platforms, family offices and high-net-worth individual investors.

At the heart of NA XIII is KKR’s broad-based employee ownership programme, which it aims to implement at majority-owned companies, according to the statement.

From this point forward, KKR has committed to implementing the model across the Americas private equity platform for all majority control investments, co-head of America private equity Pete Stavros told Private Equity International.

“We started with our industrials investments, but we are now doing it across all sectors and private equity strategies in the US. We were testing, learning and evolving the model. And now we are at a point in the US where this is the new approach. This is what we do everywhere when we have the control to do it,” he added.

Stavros noted that the model works because it’s not just about ownership – it also includes employee engagement efforts and other programmes such as worker safety and financial literacy training.

“It’s a package of things that we do together that really drives the results we’ve seen,” he said.

The concept, in which everyone – from the chief executive to an entry-level colleague – participates in equity ownership in the company, builds a shared sense of mission in the company, Stavros said in an interview with affiliate title New Private Markets last year. Benefits include reduced worker turnover, lower absenteeism and enhanced employee engagement and productivity, among others, he added.

Stavros and his team have now awarded equity to over 45,000 non-senior employees across over 25 companies.

One example involved manufacturing business Ingersoll Rand, formerly known as Gardner Denver. In September 2020, 16,000 employees (excluding management) were granted stock options worth a combined $150 million. This was the second grant during KKR’s ownership of the 150-year-old manufacturing business; at the time of the 2017 Gardner Denver initial public offering, all employees participated in a $100 million grant.

Stavros was named as the 2020 PEI Game Changer of the Year for his work in this arena.

The final close comes on the heels of the launch of Ownership Works, a non-profit with Stavros as its figurehead and formed by a number of private equity firms, investors including the California Public Employees’ Retirement System and Washington State Investment Board and public companies. Its aim is to help companies implement and execute broad-based ownership programmes. Participating PE firms, including the likes of KKR, Apollo Global Management and Warburg Pincus, have pledged to institute employee ownership at a minimum of three portfolio companies by the end of 2023.

Stavros said he hopes for a future where PE firms and corporate America sharing upside with employees becomes the norm. That said, private equity’s governance model makes it easier to roll out this kind of initiative.

“That’s what’s exciting about private equity as it relates to ESG. We could really move the needle on important issues,” he said.

– Toby Mitchenall contributed to this report.

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