The long-anticipated U.S. stock debut of Kohlberg Kravis Roberts & Co proved a disappointment on Thursday as investors shied away from the private equity firm that made its name with the leveraged buyout of RJR Nabisco in 1988.

Shares of KKR, co-founded by buyout king Henry Kravis, fell 3 percent on the New York Stock Exchange as investors sold partly in nervousness ahead of a potential $500 million stock sale, which KKR plans at some point after the listing.

It's surprising, said Sandler O'Neill analyst Michael Kim, about the stock decline. Maybe people don't want to step in front of that.

KKR's move from Amsterdam-based Euronext to the NYSE means it finally catches up with rival Blackstone Group , led by CEO and co-founder Stephen Schwarzman, which went public in 2007.

The listing on the Big Board brings a wide investor audience to the private equity firm and could be a bellwether for rivals looking to follow suit.

KKR shares opened at $10.50, rose as high as $11.08 and then fell back, closing on the NYSE at $10.20, down 2.8 percent.

Blackstone shares, which went public in 2007 at $31 a share, were higher, up 2.7 percent to $10.56.

Today's NYSE listing is an important milestone for KKR and will provide an opportunity for investors to share in the value being created by our firm, Henry Kravis and George Roberts, co-founders and co-chief executives, said in a press release.

KKR has said the move will allow it to have a more permanent capital base, use stock to retain and attract staff, and have a currency to use in making acquisitions.

Michael Kim, who has a buy rating on the stock and a 12-month price target of $14, said the slip in the stock could also have been due to a run-up in price in the past weeks.

If you look at the stock and what it did when it was trading in Europe over the past couple of weeks, it has had a good run, so maybe some of that initial enthusiasm was tempered by the fact it had run up a bit, Kim said.

Some investors had little enthusiasm for the stock.

We seek fundamentally strong companies demonstrating a current history of price appreciation, said investment adviser Mike McGervey, president of McGervey Wealth Management in North Canton, Ohio, speaking ahead of the listing on Wednesday. Investing in KKR would involve high levels of speculation.

KKR, behind huge acquisitions such as RJR Nabisco and TXU, originally announced plans to list on the NYSE through a traditional initial public offering in July 2007, a month after Blackstone went public and just before the markets started to tumble.

It later followed a more complex route that involved buying its Amsterdam-quoted fund, KKR Private Equity Investors, becoming a Euronext-listed company and then applying to move the listing to New York.

Hot on KKR's heels will also be the expected listing on the NYSE of Apollo Global Management .

There's probably a lot of temptation for other groups to do this, said Josh Lerner, a Harvard Business School professor specializing in private equity. Once someone makes a competitive move, even if it is not the right move, you feel compelled to follow.

Kravis and Roberts, who co-founded the firm in 1976 with Jerome Kohlberg Jr, each own just under 13 percent of KKR, or 87 million shares each, valued at about $887 million at Thursday's closing price.

The company has a total of 683 million shares, giving it a market capitalization of $7 billion. Blackstone has a market value of about $11.6 billion.

The ownership stake of Kravis and Roberts has gradually decreased as the company has grown. KKR has assets under management of about $55 billion and employs about 600 staff worldwide. Those employees own a significant portion of the company.

Public private equity models have sometimes been criticized

for potentially incentivising earnings from fees over profits from selling assets in their funds.

Certainly there has been a lot of criticism of ... publicly traded management companies in terms of the inherent conflict of interest, said Lerner.

Still, he said there is a real need for some sort of mechanism for individuals to hold private equity investments.

My sense is that the future lies not in publicly traded management companies, but in privately-traded funds of privately-held management companies, Lerner added.

(Reporting by Megan Davies; additional reporting by Aaron Pressman in Boston; editing by Lisa Von Ahn, Steve Orlofsky and Matthew Lewis)

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