The Teamsters Union has requested that private equity firms be prohibited from acting as underwriters for the public offerings of companies they control in a letter to the chief executives of NYSE Euronext and the Financial Industry Regulatory Authority.
Teamster-affiliated pension and benefit funds have more than USD100bn invested in the capital markets.
Citing concerns about the Kohlberg Kravis Roberts initial public offering of Dollar General last year, the Teamsters called Finra’s current rules "woefully inadequate to deal with the striking conflict of interests caused by private equity firms such as KKR acting as managers for IPOs of their portfolio companies."
In the letter, Teamsters general secretary-treasurer C. Thomas Keegel noted that the selling shareholders in the Dollar General transaction were private equity investors, including majority owner KKR, which participated as a joint lead-manager of the IPO. Of the USD716.1m raised from new investors, over USD239m went to the private equity ownership consortium in the form of a special one-time dividend, and KKR, along with the IPO syndicate team, took home the lion’s share of the USD64m in transaction fees.
Contrary to the conflicts of interest present in the Dollar General underwriting syndicate, neither NYSE Euronext nor the industry’s chief regulating agency Finra objected to the deal as constructed.
"KKR makes no secret of its plans to develop a robust capital markets franchise using its own private equity portfolio as the primary driver of the business," Keegel said. "It is imperative, in our view, that NYSE Euronext and Finra take aggressive, proactive measures to address the unique situation presented by KKR’s capital markets initiatives before investors and the broader markets are put at risk."
Founded in 1903, the International Brotherhood of Teamsters represents 1.4 million men and women in the US, Canada and Puerto Rico.
