Confusion At KKR About Consultancy, Fee Sharing

May 22 2014 | 11:02am ET

Kohlberg Kravis Roberts wasn’t entirely honest with investors about a consulting business, the private-equity giant said.

In its 2011 annual report, the firm listed KKR Capstone as a subsidiary. In addition, Capstone is described as an “affiliate” in regulatory filings, and Capstone’s chief has been called a KKR partner. Those statements were not “technically correct,” the firm now says.

Capstone is not owned by KKR but by its own management team; it licenses the KKR names. KKR said the proper term for Capstone is “variable interest entity.”

The semantics matter because KKR shares 80% of “consulting fees” earned by KKR “affiliates.” Most of KKR’s consulting fees come from Capstone. But because the firm doesn’t own the consultancy, it does not fall under the fee-sharing “affiliate” provision.


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