Champion private equity firm KKR is throwing its considerable weight behind the Institutional Limited Partners Association guidelines. However, even in its endorsement of the industry’s self-imposed quasi-regulations, the private equity firm’s Co-CEOs Henry Kravis and George Roberts acknowledged they’re not quite 100% on board.
“We believe that the entire private equity industry—limited partners and general partners—will benefit from increased focus on the three basic tenets,” Kravis and Roberts said in a joint statement. They added that KKR doesn’t feel the need to specifically adhere to each guideline outlined in the ILPA, and didn’t say which ones didn’t sit right with them.
We’ve got a couple of guesses, however.
Judging by allegations that KKR booted one of its LPs from a later fund after its fees were called into question during an LP meeting by former CalPERS CIO Sheryl Pressler, it’s possible that the ILPA item calling for “management fees [to] be based on reasonable operating expenses and reasonable salaries” didn’t pass the smell test at the PE firm.
Maybe it doesn’t need to. After all, CalPERS came crawling back for more.
Also take into consideration the ILPA guideline suggesting “fees and carried interest generated by the GPs of a fund should be directed predominantly to the professional staff responsible for the success of that fund.” Then think about whether KKR’s top dogs (you know, Kravis and Roberts, the ones who said they’re not really up for the total ILPA shebang) were wholly entitled to the near-$20 million carried interest checks they took for a year’s work.
ILPA formulated its guidelines in September 2009 when private equity’s missteps were highlighted painfully by multiple media organizations following the recession’s nadir. The industry faced aggressive regulators and lawmakers in Washington eager to dispense blame and needed a good faith move to put a better spin on what was rapidly becoming an untenable situation. Clearly, as PE firms now fight having to register with regulators, the industry feels its luck has turned.
ILPA’s guidelines, at the time they were first published, were hailed as having the potential to set benchmarks and standards in an industry known for doing as it pleased. But if private equity firms are permitted to pick and choose which obligations they must uphold to the LPs the non-profit organization purports to support, we’re not too far away from the days when behemoth financial sponsors could look a contributing LP with an honest question in the eye and say, “Go screw.”