KKR & Co. LP, the prominent U.S. buyout firm that pioneered the leveraged buyout industry, filed with regulators on Tuesday to raise up to $1.25 billion in an initial public offering.

The planned IPO follows last month's high-profile listing of rival Blackstone Group LP, which raised $4.13 billion and ushered in a new era for an industry that has come to dominate financial markets worldwide by pursuing ever-larger takeovers and raising record amounts of capital.

Unlike the Blackstone IPO, however, KKR's owners are not selling any common units or receiving any net proceeds.

Blackstone's co-founders, Stephen Schwarzman, 60, and Peter Peterson, 81, earned a huge windfall from the Blackstone offering, pocketing more than $2.4 billion between them.

The relatively modest size of the offering and the timing of the announcement -- late on the eve of the U.S. Independence Day holiday -- suggested that KKR hopes that its IPO will be a lower key affair than Blackstone's, which attracted unwelcome attention from Congress.

Last year, KKR raised $5 billion for a publicly traded fund on the Euronext exchange -- KKR Private Equity Investors LP.

Now, KKR plans to take a portion of its own general partnership public.

It's not surprising. KKR had already tested the public markets. If this offering performs well then other firms are sure to follow, said Monte Brem, CEO of StepStone Group, a private equity consultant and asset manager.

Blackstone and KKR believe that the ability to offer public equity incentives for their staff stabilizes their talent base, at least in the short term, Brem added.

BUYOUT KINGS

Founded in 1976, KKR is led by founders Henry Kravis and George Roberts, both 63.

It has $53.4 billion in assets under management and earned $1.11 billion in 2006, according to its filing with the Securities and Exchange Commission.

KKR, as Kohlberg Kravis Roberts & Co., rose to prominence on the back of the debt-fueled leverage buyout craze of the 1980s.

The firm carried out its first $1 billion LBO in 1984 and was involved in dozens of deals building up to the decade-defining 1988-1989 buyout of RJR Nabisco -- at the time the largest ever buyout of a commercial firm -- which was immortalized in the bestseller Barbarians at the Gate.

While long reigning as Wall Street's buyout king, Kravis also established himself in New York's high society and a patron of the arts who has an entire wing of the Metropolitan Museum of Art and named after him.

But over the last few years, the spotlight has been on Schwarzman, who was hailed on the cover of a recent issue of Fortune magazine as The new king of Wall Street.

Pointedly, Kravis was not invited to Schwarzman's lavish 60th birthday party in February.

And even as KKR unveiled its IPO, Blackstone pushed its way on stage with an announcement that less than an hour later that it would buy Hilton Hotels Corp. for $26 billion.

Still, KKR has generated its share of recent headlines.

The firm is taking over credit card payment processor First Data Corp. in a $26 billion deal and is leading a group of investors that is buying Texas utility TXU Corp. for $32 billion, two of the largest leveraged-buyouts ever.

TAX RISK

Blackstone's IPO highlighted the massive paydays being won by the partners of private equity firms, and brought the favorable tax treatment they receive into the public eye.

Last month, a bill was introduced in Congress that would raise the tax rate on the profits of publicly traded private equity firms to 35 percent from 15 percent.

KKR said in its SEC filing that an increase in the tax rates paid by private equity funds could hit it hard.

If this or any similar legislation or regulation were to be enacted and apply to us, we would incur a material increase in our tax liability that could result in a reduction in the value of our common units, KKR said.

In a sign of how sensitive the tax question has become for KKR and the private equity industry, about one third of the more than 50 risk factors for potential investors listed in the IPO filing relate to tax concerns in the United States and other countries, such as Germany and Denmark.

Morgan Stanley and Citi are underwriting KKR's IPO.

KKR intends to list its common units on the New York Stock Exchange under the symbol KKR. It said it expected to complete the offering in the third or fourth quarter of 2007.

In addition to the Blackstone IPO, KKR's offering follows IPOs and planned offerings by hedge funds and investment firms Fortress Investment Group, Och-Ziff Capital Management, GLG Partners and Third Point LLC.

Blackstone's shares closed at $29.72 on Tuesday, below the IPO price of $31 they fetched in June.

(Additional reporting by Michael Flaherty, Megan Davies and Martin Howell in New York and Julie Vorman and Karey Witkowski in Washington)

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