October 26, 2012 / 12:05 PM / 5 years ago

CORRECTED-KKR back in the black as investments yield cash

(In 4th paragraph, removes reference to “second quarter”; figures are third quarter vs year earlier)

NEW YORK, Oct 26 (Reuters) - KKR & Co LP said on Friday it swung to profitability in the third quarter on the back of its strongest showing in delivering cash from performance fees since going public in 2010.

The New York-based private equity firm followed the performance gains posted last week by Blackstone Group LP which too saw its funds appreciate in the third quarter helped by a buoyant stock market and profitable exits from some of its investments.

But KKR’s fee-related earnings which are not based on performance, such as fees charged to manage assets, and are traditionally quite stable, fell 7.6 percent year-on-year on lower capital markets transaction activity.

KKR said third-quarter economic net income (ENI), a measure of profitability taking into account the mark-to-market valuation of its assets, came in at $509.9 million, compared with a loss of $592.1 million a year ago.

A major driver of KKR’s gains was Walgreen Co’s investment in pharmacy group Alliance Boots GmbH. The biggest U.S. drug store chain agreed this summer to pay $6.7 billion for a 45 percent stake in the KKR portfolio company.

KKR’s earnings also benefited from the sale of Singapore-based disc drive component maker Unisteel Technology which it agreed to sell in August to Switzerland’s SFS Group.


KKR, whose investments include retailer Toys R US Inc, Internet domain registration company Go Daddy Group Inc and hospital operator HCA Holdings Inc, said assets under management rose to $66.3 billion at the end of September from $61.5 billion at the end of June.

KKR struggled on the fundraising front as far as its latest North American buyout fund is concerned. It had amassed $6 billion in investor commitments as of February and has since only raised an additional $200 million, KKR said. The fund has a target of $8 billion and is due to wrap up fundraising by February 2013.

The third-quarter distribution per common unit was 24 cents, almost double the combined distribution of the previous two quarters. Out of those 24 cents, 15 cents was cash from carried interest -- KKR’s slice of the funds’ profits.

KKR was founded in 1976 by Henry Kravis, George Roberts and Jerome Kohlberg. The firm gained fame through its $25 billion leveraged buyout of RJR Nabisco in 1988, a battle that was immortalized in the 1990 bestseller, “Barbarians at the Gate.”

While private equity still accounts for most of KKR’s assets under management, the firm has been diversifying into credit, real estate and hedge funds and completed this month the acquisition of Prisma Capital Partners LP, a hedge fund of funds manager with $8.1 billion of assets under management as of the end of September. (Reporting by Greg Roumeliotis in New York; Editing by Muralikumar Anantharaman)

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