Going Private revists the KKR offering memo.
Typically, private equity funds have provisions to "claw-back" fees paid to general partners of the fund in the event the fund closes with a net-loss. Not so here. To wit:
"Distributions that are made to the general partners of a KKR private equity fund pursuant to a carried interest in the returns generated by the fund’s investment generally are subject to reimbursement in the event that the fund is in a net loss position upon the termination of the fund. Distributions that are payable to KKR’s affiliates in connection with our co-investments and opportunistic investments will not be subject to similar reimbursement, although such distributions will take into account prior realized and unrealized losses."
In other words, KKR PEI could be a total bust except for three big LBOs that KKR Proper was only able to complete because of the additional funds available from this public entity. Those LBOs would pay 20% carries to KKR Proper, but the rest of KKR PEI's investments could tank and drop the fund to below the initial offering price. Despite this, KKR Proper keeps the LBO gains, and keeps the management fees it has packed in over the last many years.