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KKR Quarterly Profit Falls as Markets Curb Investment Income

KKR Ceo Henry R. Kravis
Henry R. Kravis, co-chairman and co-chief executive officer of Kohlberg Kravis Roberts & Co., said second-quarter profit fell 25 percent as market swings curbed the rebound of its buyout holdings and income earned from them. Photographer: Peter Foley/Bloomberg

KKR & Co., the private-equity firm managed by Henry Kravis and George Roberts, said second-quarter profit fell 25 percent as market swings curbed the rebound of its buyout holdings and income earned from them.

Profit excluding some costs decreased to $245.3 million, or 36 cents a share, from $328.1 million, or 48 cents, a year earlier, New York-based KKR said today in a statement. The shares fell the most in nine months as results missed the 41-cent average estimate of 10 analysts in a Bloomberg survey.

Investment income fell 35 percent to $239.8 million in the quarter as asset growth slowed, curbing earnings from principal investments. Fee-related earnings rose to $76.1 million from $63.3 million, while gross distributable earnings increased to $103.2 million from $77.1 million. The firm said it would pay an 11-cent per share distribution to stockholders, up from 8 cents a year earlier.

KKR and its rival private-equity firms are navigating an unstable global economy that’s delaying them selling or taking public some companies they own. Corporations that have held off making strategic acquisitions amid uncertainty are beginning to shop, providing a likely “supplement” to initial public offerings and secondary sales, Scott Nuttall, the firm’s head of global capital, said today on a conference call.

KKR fell 75 cents, or 5.3 percent, to $13.39 at 4:15 p.m. in New York Stock Exchange composite trading. The stock has lost 5.7 percent this year.

Raising Money

KKR stands to benefit from an increase in assets under management from new funds, as pensions and other institutional investors seek better returns and consolidate holdings with fewer alternative fund managers, executives said on today’s call.

The firm raised $750 million for oil and gas deals in the second quarter and created a $500 million account for an investor it didn’t name for deals in energy and infrastructure. KKR said it’s raised $3.2 billion for those types of deals during the past 18 months.

Assets under management increased 1.5 percent from the previous quarter and 14 percent from a year earlier, to $61.9 billion. Private-equity investments grew 3.8 percent in value from a year earlier.

KKR has about $14 billion in unspent capital, including $12 billion in private equity “dry powder” for buyout deals, Nuttall said.

Net Income Rises

“We’re pretty well funded in Europe right now with our Europe 3 fund, we have a reasonable amount of capital left in Asia, but we’re putting that to work relatively quickly,” Nuttall said. For North America, the firm has about $4 billion remaining that will be used to complete existing deals and fund “a few more transactions” within the next three quarters, he said.

KKR’s economic net income, the profit measure that Wall Street analysts’ base their estimates on, hinges in part on how much the value of KKR’s investments rose relative to how much they gained in the same period a year earlier. It excludes some expenses related to the firm’s public listing in New York last year. The measure doesn’t comply with U.S. generally accepted accounting principles.

Under those rules, KKR’s net income rose 32 percent to $39.6 million from $29.9 million. Revenue climbed 35 percent to $117.6 million.

Kravis and Roberts, who created the firm with Jerome Kohlberg in 1976, are expanding KKR’s efforts beyond traditional corporate leveraged buyouts. The firm is raising funds for natural-resources deals and has said it will start its first hedge fund this year.

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