KKR has renegotiated agreements with some institutional LPs to allow a greater share of its private equity deals to be allocated to its fast-growing evergreen vehicles, signalling the growing influence of high-net-worth capital in the buyout market, according to a report by the Financial Times.
For roughly 15 years, KKR’s closed-end flagship funds – backed by pension plans, endowments, and other institutions – have limited other KKR-affiliated vehicles to taking no more than 7.5% of the equity in any deal. But the launch of the firm’s “K-Series” evergreen private equity funds in 2023, designed primarily for wealthy individuals, has changed the dynamic.
The K-Series funds, which have no fixed term and allow regular subscriptions and redemptions, have attracted nearly $12bn to date. With inflows accelerating, KKR sought to increase the carve-out for these vehicles to around 20% in certain cases, including for European Fund VI. Similar terms are being requested in newer flagship funds such as North America Fund XIV, according to people familiar with the matter.
Evergreen funds invest alongside KKR’s traditional buyout funds but, unlike their closed-end counterparts, must put cash commitments to work quickly to avoid return drag. The additional allocation flexibility is seen by KKR as enhancing its ability to deploy capital efficiently, particularly in an environment of larger equity tickets and higher interest rates.
While some LPs initially raised concerns about potential dilution, sources say most agreed to the changes, noting that flagship funds have historically not taken their full pro-rata share of deal equity, with co-investors and other PE firms often participating.
