KKR basks in LBO nirvana, for now

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Trading information for KKR & Co is displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York, U.S., August 23, 2018. REUTERS/Brendan McDermid

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NEW YORK, Nov 2 (Reuters Breakingviews) - Henry Kravis knows how a thing or two about exiting at the peak. His private equity firm, which named read more Scott Nuttall and Joe Bae as co-chief executive officers last month, said on Tuesday that its fee-related earnings, a closely watched-metric for shareholders, surged 63% in the third quarter from a year earlier. It’s hard to see how KKR (KKR.N) can do much better.

Each part of the 45-year-old firm, whose stock price has more than tripled in the past three years, seems to be getting stronger. The amount of dry powder in its coffers surged 65% to $111 billion, and sales of companies like Academy Sports and Outdoors (ASO.O) bolstered its carried interest by 90%. The $67 billion firm now has almost half of its assets under management from permanent capital, after buying an insurance company last year.

Returns are, however, closely tied to public equity prices. That has tripped up KKR in the past: The net internal rate of return on its 2006 fund, raised shortly before the financial crisis, is half that of the fund raised in 2002, according to the California Public Employees’ Retirement System. As Kravis knows from past cycles, the leveraged buyout sweet spot doesn’t last forever. (By Lauren Silva Laughlin)

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Editing by Swaha Pattanaik and Sharon Lam

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