February 10, 2015 / 1:05 PM / 5 years ago

KKR misses fourth-quarter profit expectations on energy exposure

Feb 10 (Reuters) - KKR & Co LP reported a much higher-than-expected 89 percent year-on-year drop in fourth-quarter profit on Tuesday, making it the latest alternative asset manager to report lower earnings as a result of the plunge in oil prices.

While a drop in the valuation of many oil and gas exploration and productions companies presents new investment opportunities for firms such as KKR, it has also deflated the value of some of their existing investments, weighing on their earnings. Peer Apollo Global Management LLC said last week its fourth-quarter profit fell by 79 percent.

While KKR took energy-related hits both in its private equity and credit investments, a main driver of its woes was U.S. oil and gas producer Samson Resources Corp, whose $7.2 billion leveraged buyout was led by the New York-based firm in 2011.

KKR’s plan was to shift Samson’s assets from natural gas production more into oil and liquids, but persistently low oil and natural gas prices have hampered this transformation and wiped out most of the value of the equity invested.

KKR’s economic net income (ENI), a metric of profitability that takes into account the mark-to-market valuation of its holdings, was $86.6 million in the fourth quarter, down from $789.6 million a year ago. This translated into post-tax ENI per adjusted unit of 5 cents versus the average forecast of 45 cents in a Thomson Reuters poll of analysts.

KKR’s private equity portfolio appreciated 2.7 percent in the quarter, much less than the 8.4 percent appreciation seen in the fourth quarter of 2013. Rival Blackstone Group LP said last week its private equity funds appreciated 4.2 percent in the fourth quarter of 2014, while Apollo’s private equity funds appreciated less than 1 percent.

KKR also blamed a drop in the value of its collateralized loan obligations and other credit investments for the big decline in its earnings.

Distributable earnings, which shows actual cash generated from asset sales, came in at $376.3 million in the quarter, down from $510.4 million a year ago.

KKR, which was founded in 1976 by Henry Kravis, George Roberts and Jerome Kohlberg, said assets under management totaled $98.6 billion as of the end of December, up from $96.1 billion at the end of September.

KKR declared a third-quarter dividend of 35 cents per common unit. (Reporting by Greg Roumeliotis in New York; Editing by Lisa Shumaker)

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