Kohlberg Kravis Roberts & Co., a pioneer in investing defined benefit plan assets in buyouts, is using an IPO to create a new private equity vehicle that could be offered to defined contribution plan participants.
Mega-buyout firms like KKR are preparing for the day when the pool of capital from defined benefit pension plans will dry up, sources close to these companies said. Sources say U.S. mutual funds and global hedge funds are buying up shares from the initial public offerings.
"The traditional investors in private equity, defined benefit plans, are in some sense shrinking," said Josh Lerner, the Jacob H. Schiff professor of investment banking at the Harvard School of Business, Boston.
Said a source close to KKR, who asked not to be identified: "Maybe in 10 years the U.S. pension market may be a smaller universe, and the private equity sponsors have to think about where the next couple of rounds of money will be coming from."
Attracted by a permanent source of capital, large buyout firms began testing the waters of the public markets a couple of years ago. Their recent test run with business development companies — a public investment company that makes mostly mezzanine investments — didn't succeed. Since then, executives at KKR and other big private equity firms have been searching for another public vehicle.