Even with the lure of high investment returns, many corporate and union pension funds are passing on a new $5 billion Kohlberg Kravis & Roberts Inc. corporate buy-out fund.
A KKR list as of Sept. 10 showed 42 funds committing $4.583 billion to the fund.
Only two of those were corporate funds and no union pension funds were identifiable.
Since that list was compiled, at least one more corporate pension fund and one more public fund made commitments to the KKR fund.
Some investors have praised KKR's ability to turn around acquired companies or corporate spinoffs, although the turnarounds sometimes involve corporate management changes and layoffs.
Those making commitments to the first closing of the fund - KKR's first megafund since 1993 - expect a total return of around 20% or so, in keeping with past fund returns.
But the only corporate pension funds on the Sept. 10 list are the $1.6 billion fund of Georgia-Pacific Co., Atlanta, which committed $25 million, and the $275 million fund of Dayton Power & Light Co., Dayton, Ohio, which committed $50 million.
Corporate pension fund contributions based on the list amount to only 1.6% of KKR's list of commitments.
Public pension and endowment funds on the list, 17 in all, committed $2.855 billion, or 62% of all listed commitments.
The remainder comes from banks and insurance companies, and a $125 million contribution from KKR itself.
The percentages might have changed just before the fund's first closing this month. Since the list was tabulated, two more funds made commitments: the $7.7 billion Massachusetts Pension Reserve Investment Management Board, Boston; and the $4.9 billion pension fund of the Aluminum Co. of America, Pittsburgh. Figures on PRIM's and Alcoa's commitments weren't available.
A spokeswoman for KKR declined to answer questions about the paucity of corporate and union pension fund contributions.
According to the spokeswoman, KKR executives can't comment because they are still raising money for subsequent closings.
Several of the investors expressed surprise at the comparative rarity of corporate and union pension fund investors in the current fund.
Said John Stettler, senior director-benefit risk management at Georgia-Pacific: "It kind of floors me. I can't imagine why that would be the case."
The current KKR fund should seem attractive to funds because fees and other terms are "significantly more favorable" for limited partners than past funds, said Mr. Stettler.
While many pension fund executives that have commited assets to the new KKR fund said the new fees were lower, none provided details.
One of the largest contributors to the new KKR fund is the $25 billion Washington State Investment Board, Olympia. James Parker, executive officer, said he didn't know why few corporate pension funds were on the list.
"Just off the top of my head, my guess is that KKR often renews relationships with prior clients . . . (and the client list) is just the same as it always was."
Other sources (who requested anonymity) suggested corporate executives in the previous decade blamed leveraged buy-out funds for destroying corporate America and encouraged pension committee executives to refrain from investments in buy-out funds.
Jay Fewel, equities manager for the Oregon Public Employes' Retirement System, Salem, said corporate pension funds are not as "big a player" in the private equity sector in recent years.
The Oregon fund, typically a major player in KKR funds, has committed $800 million to the new fund.
Even though many corporate plans have lower cash inflows and are putting greater emphasis on defined contribution plans, corporate plans still have billions of dollars in defined benefit plans and aren't shy about seeking high investment returns. Many corporate funds would have the cash available to make a $7.5 million investment, the smallest commitment on the KKR list.
As for union pension funds, Simon S. Russin, a trustee for the Los Angeles fund, said he asked KKR executives about the lack of commitments from union funds.
"(T)hey said they had a good relationship now with the unions and the Teamsters. But I don't see their (union) pension funds investing in these deals," said Mr. Russin.
KKR executives said relations had been "sour" with some unions in the past, but they now had good relations with the unions, said Mr. Russin.
Banks, however, did make many commitments. Bank of New York committed $100 million as did Chase Manhattan Bank, First Chicago NBD, Bank of America, Bankers Trust and Citibank.
Possible reasons for so many bank commitments is the high investment return and potential fees resulting from banking relationships with KKR, said Robert Zobel, investment director-private placements, with the $35.6 billion Wisconsin State Board of Investment. The Wisconsin board committed $75 million to the KKR fund.
Pension fund executives say they expect high investment returns from the new KKR fund. They are aware that year-end 1996 could hit a new peak in buy-out commitments, up from $14 billion in 1995.
Many pension funds are spending more time on alternative investments because of many observers' predictions that the bond and stock markets won't continue to be the horn of plenty as they have in the past. But the commitments to buy-out funds are so large the question has arisen as to whether too much capital is chasing too few investments.
However, some pension funds executives say that the corporate downsizing and spin-off trends should make more buy-out targets available.
However Oregon's Mr. Fewel said that trying to time the buy-out market is a mistake, and few buy-out funds will be able to invest in large deals like the KKR fund.