* Sign of optimism IPO market to return
* Retail investors cautioned on risky IPO shares
(Adds details on deal terms and IPO data)
By Ross Kerber
BOSTON, June 8 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 Fidelity's capital markets unit, referring to the
deals so far. "Overall it's moving in the direction we hope," he
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 KKR's 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 giant's customers access to an IPO by the private
equity firm itself if KKR were to do one, a source familiar
with KKR said.
In April, KKR extended by four months the deadline to buy
its Amsterdam-listed fund KPE KKR.AS, a deal that is key to
KKR's plans for any U.S. stock listing.
KKR announced the complicated transaction last July, saying
it would buy KPE, delist it from Euronext and launch the
combined new company on the New York Stock Exchange under the
stock symbol "KKR." KKR had previously considered a more
The IPO market has only begun to recover gradually from its
near collapse in 2008. After 186 IPOs in 2007 yielded $38.9
billion, only 28 IPOs priced last year, according to Thomson
(Reporting by Ross Kerber, additional reporting by Paritosh
Bansal and Phil Wahba in New York; Editing by Jason Szep, Steve
Orlofsky and Matthew Lewis)