Bloomberg News

KKR Profit Rises 4.6% on Gains in Private-Equity Holdings

April 27, 2012

KKR & Co. (KKR:US), the private-equity firm run by Henry Kravis and George Roberts, said first-quarter profit rose 4.6 percent, beating estimates as the carrying value of its buyout holdings rose.

Economic net income after taxes, a measure of profit excluding some costs, increased to $683.8 million, or 99 cents a share, from $653.8 million, or 96 cents, a year earlier, driven by a 9 percent gain in private-equity investments, New York- based KKR said in a statement today. Analysts had expected a profit of 72 cents a share, according to the average of 12 estimates (KKR:US) compiled by Bloomberg.

“Some volatility is great for our business,” Scott Nuttall, KKR’s head of global capital, said on a call with reporters. “This is a period of time where we’re seeing volatility but we’re also seeing quite a bit of activity.”

The value of the firm’s private-equity assets climbed as stock markets increased early in the year. The Standard & Poor’s 500 Index, a benchmark for U.S. equities, surged 12 percent this year through March 30, its second straight quarterly gain.

KKR rose 2.5 percent to $14.40 at the close of trading in New York. The stock has gained 12 percent this year.

Fee-related earnings fell 42 percent as transaction and monitoring fees declined, KKR said. Assets under management rose 5.6 percent to a record $62.3 billion, boosted by the increased value of the investments.

Net Income Rises

Economic net income excludes some expenses tied to a combination with KKR’s public fund that allowed the firm to list its shares on the New York Stock Exchange in 2010. The measure doesn’t comply with U.S. generally accepted accounting principles. Under those rules, KKR reported net income of $190.4 million, or 80 cents a share, compared with $159.6 million, or 75 cents, a year earlier.

Blackstone Group LP (BX:US), the world’s biggest buyout company, last week reported its net income rose 37 percent to $58.3 million. Like KKR, Blackstone says investors should focus on a non-standard measure of profit that excludes some costs tied to its IPO in 2007. By that measure, first-quarter profit fell 24 percent to $432.3 million as performance fees and investment income declined.

KKR’s investment income advanced 6.3 percent to $657.1 million, while gross distributable earnings decreased 42 percent to $111.5 million, driven by lower fee-related earnings. The company will pay out 15 cents a share to stockholders in May.

LBOs Increase

Private-equity firms pool money from investors including pension plans and endowments with a mandate to use it to buy companies within five to six years, overhaul then sell them, and return funds with a profit after about 10 years. The firms, which use debt to finance the transactions and amplify returns, typically charge an annual management fee equal to 1.5 percent to 2 percent of committed funds and keep 20 percent of profit from investments.

Worldwide, the value of private-equity deals announced in the first quarter dropped 41 percent to $53.7 billion from a year earlier, with leveraged buyouts increasing 7 percent to $22.1 billion, according to data compiled by Bloomberg.

“There was somewhat less activity this quarter than this time last year in private equity, but a lot of activity everywhere else,” Nuttall said. “The debt financing is available; it’s just hard to predict how much is going to get done. But the markets are open for the right deals.”

Nuttall said KKR isn’t planning any “imminent” IPOs for its portfolio companies. Growth of the firm’s private-equity portfolio isn’t expected to experience “meaningful” slowdown, he said, because KKR’s exposure to risky European markets is low.

Energy Deals

KKR and Chesapeake Energy Corp. (CHK:US), the second-largest U.S. natural-gas producer, partnered in March to buy mineral rights and royalties from owners of oil and gas properties. KKR said it will commit an initial $225 million toward the partnership, and today said it invested $600 million in energy and infrastructure in the first quarter.

“They like energy,” Nuttall said of the firm’s investors, or limited partners. “It’s a theme that we’re seeing a lot of interest across the energy spectrum.”

KKR during the quarter also appointed former Morgan Stanley Chief Executive Officer John Mack as a senior adviser to the firm. Mack joins a roster of former executives including Caterpillar Inc. CEO James Owens and Bertelsmann AG’s former co- chairman Richard Sarnoff in advising KKR on investments.

Mack will help “think strategically about where we want to go next, how to help on the fundraising side and help us source investments given his myriad of CEO relationships,” Nuttall said.

To contact the reporter on this story: Devin Banerjee in New York at dbanerjee2@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net


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Companies Mentioned

  • KKR
    (KKR & Co LP)
    • $23.0 USD
    • 0.04
    • 0.17%
  • BX
    (Blackstone Group LP/The)
    • $32.75 USD
    • -0.13
    • -0.4%
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