Kentucky pension fund commitments to KKR, H&F fail to close

Sofia Karadima
04 December 2018

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Despite approving commitments to KKR European V LP and to Hellman & Friedman Capital Partners IX, Kentucky Teachers' Retirement System (TRS) has communicated that the investments have not closed successfully.

The investment committee of the $19.8bn pension fund had decided to commit to those investments at a meeting on 23 August, but KKR and Hellman & Friedman (H&F) refused to accept requirements by the CFA Institute, according to a document from the private manager contract discussion, which took place on 27 November.

The document reveals that both general partners have refused to accept the requirement of KRS 161.430(1) that provides managers "shall adhere" to the various codes of conduct promulgated by the CFA Institute. It also states that one investment manager commented that they perceived a general negative business environment in Kentucky.

Another pension fund, Kentucky Retirement Systems (KRS), currently has an active lawsuit against KKR and Blackstone, as the firms have failed to deliver the advertised returns, according to press reports.

Robert Barnes, deputy executive secretary and general counsel to TRS, told Unquote that as a a result of state legislation enacted in 2017, general partners and other money managers that invest TRS assets are now required by law to acknowledge specific compliance with the CFA code of ethics. He added that KKR and H&F, as is the case with all general partners, have their own codes of ethics that have greater applicability to their business model and that also meet or exceed CFA standards, and they are regulated by the SEC and subject to enforcement action by that federal entity.

"As such, they did not agree to acknowledge compliance with an additional code of conduct," said Barnes. "Thus, TRS could not proceed to contract with these two general partners despite the initial approval to do so by the investment committee on 23 August."

However, the TRS investment committee has approved a $55.5m secondary fund investment with Lexington Capital Partners IX LPL fund at the meeting on 27 November. Of this total amount, $50m is with the pension fund, $5m with the medical insurance fund, and $500m with the life insurance fund.

The pension fund has invested 5.5% of its portfolio to private equity as of June 2018, up from 4.6% the year before. Other recent commitments include Carlyle Europe Partners V, KKR European Fund V, and Apax Digital Fund.

Spokespeople from KKR and H&F could not be reached for comment.