Chillin' out till it needs to be funded
BOSTON Reuters – Boston mutual fund giant Fidelity Investments and New York private equity firm Kohlberg Kravis Roberts & Co KFN.N have struck a deal to sell shares of KKR initial public offerings to retail customers, hoping for a comeback in the frozen market.
KKR has investments in 50 companies with a combined $200 billion of revenue. But KKR has not had an IPO since it took Sealy Mattress Co public in 2006.
There have been only seven traditional IPOs on U.S. exchanges this year, according to Thomson Reuters data. But that string of deals came after a six-month period that had seen only one U.S. IPO.
The market “may be picking up momentum,” said Mark Haggerty, president of Fidelitys capital markets unit, referring to the deals so far. “Overall its moving in the direction we hope,” he added.
IPOs tend to be riskier investments, their image strongly tied to the dot-com era, and the recession has all but eliminated them this year.
Under the terms of the deal, Fidelity will get the right to sell retail securities to its customers. Traditionally, retail customers had trouble getting IPO shares to buy through their brokers, since underwriters first look to wealthier customers and institutional investors to buy large numbers of the securities. Also, many financial advisers caution that these shares can be too risky for the average investor saving for retirement or similar goals.
Craig Farr, head of KKRs Capital Markets group, said he hopes the deal with Fidelity will increase demand for shares, or what he called greater “pricing tension.” If retail customers typically buy around 25 percent of an IPO, he said the new arrangement might increase that to 30 percent.
The deal between KKR and Fidelity would also give the mutual fund giants customers access to an IPO by the private equity firm itself if KKR were to do one, a source familiar with KKR said.