St. Louis pension fund sues FS/KKR advisor over alleged excessive fees

A St. Louis pension fund says the advisor to a roughly $12 billion credit fund kept asset values high to keep its own fees high. 

The Employees Retirement System of the City of St. Louis filed suit on July 15, 2026, in the US District Court for the Southern District of New York, case No. 1:26-cv-06003. The pension fund owns shares in FS KKR Capital Corporation, or FSK, and is suing on the fund's behalf under Section 36(b) of the Investment Company Act - the rule that bars a fund advisor from charging fees that do not match the services it provides. 

The defendant is FS/KKR Advisor, LLC, run jointly by Future Standard, formerly FS Investments, and KKR Credit. The reason this matters to anyone in private credit comes down to one setup. FSK is a business development company that lends to private firms, so its loans have no public price. The advisor estimates what they are worth each quarter, and the advisor is paid based on those estimates. The complaint calls that a built-in conflict, alleging the advisor had an incentive "to inflate, stabilize, or delay markdowns." 

The numbers sit at the heart of the filing. It says the advisor collected about $1.696 billion in fees over the five years since a June 2021 merger, while FSK's net asset value per share dropped 23%, from $27.17 to $20.89, and investors booked $848 million in cumulative net realized losses. 

Then there is PIK, or payment-in-kind income. Rather than paying interest in cash, a shaky borrower can add it to the loan balance. The complaint says the advisor books that as income and collects cash fees on it anyway, even when FSK may never collect. PIK income nearly doubled, it states, from 18.3% of net investment income in FY2021 to 34.3% in FY2025, hitting $224 million. 

That left the fund short on cash. Because FSK must distribute most of its income to hold its tax status, the complaint says it had to pay out money it had not received. Cash income covered only 55% of declared distributions in FY2025, a $354 million gap, according to the filing. Across FY2023 to FY2025, it pegs the cumulative shortfall at $642 million while the advisor "extracted $484 million in incentive fees over the same period." 

The complaint drills into single loans, too. On one loan to a distressed borrower, it alleges two slices of the same restructured debt were marked at once at 101.4% and 13.9% of cost - a split the complaint says suggests income was recognized in ways that "maximized fee-eligible earnings." 

The filing also points to a run of developments in early 2026. It says FSK traded at a 45.9% discount to NAV as of March 31, that Moody's and Fitch both downgraded the fund to junk, that lenders cut its credit line by roughly $650 million, and that the fund reduced its dividend from $0.70 to $0.48 a share. It adds that KKR Credit agreed to waive half of one incentive fee for four quarters - a move the plaintiff calls an implicit acknowledgment that the fees were too high. 

The pension fund is seeking damages, disgorgement of fees, and cancellation of the advisory agreement. 

The allegations are untested, and no court has ruled on any of the claims.