Fidelity Investments and private equity firm Kohlberg, Kravis, Roberts & Co., have struck an agreement to give Fidelity’s customers exclusive access to shares of initial public offerings (IPOs) completed by KKR, the companies announced today. The shares will be distributed to Fidelity’s retail brokerage customers, as well as other investors through Fidelity’s registered investment advisor, correspondent broker-dealer and other institutional networks.

Under the arrangement, New York-based KKR will act as the underwriter of all retail securities that are distributed by Fidelity. The Boston-based financial services firm has been offering IPOs to its retail customers since 1997, according to a company spokesman. To participate in deals underwritten by KKR, brokerage customers must have at least $100,000 in assets held by Fidelity. Eligible individual investors will have access to the new offerings through Fidelity.com, telephone representatives and the company’s 131 investor centers, the spokesman said.  

The arrangement with KKR will lead to more meaningful distributions of future offerings, according to Mark Haggerty, president of Fidelity Capital Markets, the institutional trading division of Boston-based Fidelity Investments. The private equity firm has a portfolio of 50 companies that generate more than $500 billion in annual revenues. “KKR will provide a significant source of investment opportunities for our customers over the coming years and be an important strategic relationship for our company,” Haggerty said.  

From one financial planner's perspective, however, Fidelity's newest initiative is not necessarily a net positive for investors. "Too many ofthem do not do well, and the frenzy that exists when the IPO market is hot makes the problem worse as the average investor tends to significantly overpay when their gambling switch is turned on," said Bill Ramsay, principal of Financial Symmetry, a financial planning firm based in Raleigh, N.C.

The deal also sets up potential conflicts for Fidelity, which are similar to those at brokerage firms that also have investment banking businesses, Ramsay said. "Exclusive access also denotes an understanding that Fidelity markets KKR¹s IPOs sufficiently, regardless of whether they have an opinion about whether it is likely to be a good investment."

Fidelity has other hopes for the arrangement. It could be the first of future similar collaborations with other firms that underwrite IPOs, according to the Fidelity spokesman. The agreement also coincides with a slight pickup in the IPO market, which has been muted this year. Eight IPO deals totaling $1.8 billion have been completed year-to-date, compared with 32 transactions done at this point in 2008, according to Renaissance Capital, a Greenwich, Conn.-based company that specializes in IPO research. Three IPOs are scheduled to price over the next few weeks, said Paul Bard, vice president of Renaissance Capital.