* Q2 after-tax economic net income 18 cents per share
* Street view economic net income 26 cents per share
* Assets under management $83.5 billion as of end of June
* Q2 dividend 42 cents per share vs 13 cents per share last
By Greg Roumeliotis
NEW YORK, July 26 KKR & Co LP said on
Friday that its second-quarter earnings declined by 74 percent
as a lower appreciation in its private equity funds overshadowed
a quadrupling in the cash it received from the profits its funds
With KKR meeting more of the performance hurdles agreed to
with fund investors, over 80 percent of its private equity
assets were in a position to pay carried interest - KKR's share
of the profits. Carried interest cash jumped to $161.9 million
in the quarter from $39.4 million a year ago.
But economic net income (ENI), which takes into account the
market value of assets and is an alternative asset manager's
headline earnings metric, dropped to $144.4 million from $546.1
million a year ago, as KKR's private equity portfolio
appreciated 0.9 percent compared with 5.1 percent a year ago.
This translated into second-quarter after-tax ENI of 18
cents per share versus 26 cents per share forecast on average by
analysts in a Thomson Reuters poll. KKR shares fell and were
trading down 1.7 percent to $20.60 in afternoon trading.
In a statement, Henry Kravis and George Roberts, KKR's
co-chief executives who founded the firm in 1976 together with
Jerome Kohlberg, focused on the company's dividend following a
change in the company's distribution policy last quarter.
"Our realization activity in the second quarter drove the
highest cash carry we have reported since going public,
contributing to a quarterly distribution of 42 cents per unit,"
Cashing out in the second quarter included the sale of music
rights management company BMG to Bertelsmann AG,
Europe's largest media company, where KKR made 1.8 times its
original investment, and the sale of Japanese recruitment
services firm Intelligence Holdings Ltd to peer Temp Holdings Co
Ltd, which saw KKR make 5.4 times its money.
KKR also sold shares in four of the companies it has already
taken public, valuing its investments in them at an average 2.5
times the money it paid for them as equity. About 23 percent of
KKR's private equity portfolio is in publicly listed companies.
The second-quarter distribution of 42 cents per share
compared with a distribution of 13 cents per share a year ago.
This was not just due to a rise in carried interest but also
because KKR shared with its shareholders more of its profits
from its principal investments coming from its balance sheet.
In April, KKR declared a new payout policy and promised to
distribute 40 percent of its balance sheet income as a dividend
every quarter. This resulted in $60.1 million in principal
investment income being distributed to shareholders in the
second quarter of 2013 compared with no such income being
distributed a year ago.
Huge by industry standards, the size of KKR's balance sheet
is the legacy of the firm's merger in 2009 with KKR Private
Equity Investors, a fund vehicle whose listing KKR transferred
to New York from Amsterdam in 2010.
Its balance sheet profits, referred to as net realized
principal investment income, halved compared with a year ago to
$150.3 million, as KKR's own investments failed to match the
profit growth seen by its funds.
This resulted in total distributable earnings - money
available to pay dividends - falling slightly in the second
quarter to $403.8 million from $406.1 million a year ago.
CONTRAST WITH BLACKSTONE
Fee-related earnings, mostly reflecting fees it charges to
investors and portfolio companies that are not based on KKR's
performance, rose to $98.2 million from $69.8 million a year
ago, on the back of new capital raised as well as the
acquisition of hedge fund investor Prisma Capital Partners LP.
KKR's earnings contrasted with Blackstone's results
released last week. Blackstone's second-quarter earnings more
than tripled as the value of its private equity and real estate
funds rose more than 5 percent and it cashed out on parts of its
portfolio, including SeaWorld.
KKR's results were a reversal from the second quarter of
2012, when its earnings jumped 73 percent while Blackstone's
fell 74 percent, underscoring the volatile and lumpy nature of
the earnings of these complex investment firms when viewed on a
KKR, whose investments include retailer Toys R Us Inc,
Internet domain registration company Go Daddy Group Inc and
payment processing company First Data Corp, said assets under
management rose to $83.5 billion at the end of June from $78.3
billion at the end of March. Besides private equity, the assets
include credit investments, hedge funds and infrastructure.
KKR reported progress in raising capital for a key fund seen
as a test of its fundraising power in private equity, its
flagship North American Fund XI (NAXI).
KKR's head of global capital and asset management Scott
Nuttall told analysts on a conference call that NAXI had secured
just over $8 billion from investors this month, in line with its
fundraising goal. Nuttall, however, did not say that fundraising
for NAXI had been completed.
KKR also gave an update on real estate, a new initiative for
the firm. A property fund with investor commitments of $500
million appeared in KKR's earnings statement for the first time,
with 40 percent of the capital coming from KKR itself.
KKR will invest an additional $250 million each to real
estate, energy and special situations strategies, Nuttall said,
with the money coming from cash available on its balance sheet
and not affecting dividends paid to shareholders.
Earlier this week, KKR announced with less than a day's
notice that its credit investment chief William Sonneborn would
step down, to be succeeded by its head of capital markets Craig
Asked what KKR's investors thought of Sonneborn's
resignation, Nuttall said they appreciated the firm's increased
deployment of capital in credit and that KKR had already started
to consolidate some of the operations of the credit and capital