AFL-CIO Asks for Reins on Firms

http://www.forbes.com/feeds/ap/2007/08/03/ap3986790.html

By MARCY GORDON 08.03.07, 4:47 PM ET

WASHINGTON -

The AFL-CIO has asked the Securities and Exchange Commission to require that private-equity powerhouse Kohlberg Kravis Roberts & Co. and hedge fund Och-Ziff Capital Management Group, both planning public stock offerings, be regulated as investment companies.

The companies would have to publicly disclose information about their finances and would be subject to limits on the amount of debt they could assume, additional governance requirements and other mandates if they were regulated by the SEC under the Investment Company Act of 1940, as are mutual funds.

The SEC is reviewing the plans for initial public stock offerings by Kohlberg Kravis Roberts, known as KKR, and Och-Ziff, both announced in early July after weeks of drama on Wall Street and in Washington over private-equity titan Blackstone Group LP's $4 billion IPO. The AFL-CIO, which is a major shareholder in public companies, had called on the SEC - without success - to delay its approval of the Blackstone IPO and require it to be regulated as an investment company.

The Blackstone public offering in mid-June, the largest U.S. IPO for a private-equity firm and the biggest overall in five years, appeared to open the floodgates for other alternative investment funds to go public.

In a letter Thursday to the SEC, the labor federation said KKR's planned $1.25 billion IPO and Och-Ziff's proposed $2 billion offering raise concern because one of the companies owned by KKR holds $11.9 billion in mortgage-backed securities, while Och-Ziff's IPO would indirectly sell unregulated hedge funds to the public.

The market for mortgage securities - home loans that are purchased from lenders and bundled together for sale on Wall Street - has experienced upheaval in recent months as a result of a surge in defaults among borrowers with weak credit histories.

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