* Q2 economic net income down 74 percent at $144.4 million
* Assets under management of $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 could pay carried interest - KKR's entitlement of the
fund 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 its assets, dropped to $144.4 million from
$546.1 million a year ago, as it private equity portfolio
appreciated 0.9 percent compared with 5.1 percent a year ago.
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,"
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 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.
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, however, was reversing a trend seen in 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 quarterly basis.
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 also unveiled progress in 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.