- Market rout hurt investments such as HCA, Walgreens, GoDaddy
- Firm changes dividend policy, authorizes $500 million buyback
KKR & Co. posted its first quarterly loss since 2011 as a stock-market slump reduced the value of its holdings.
The alternative-asset manager, run by Henry Kravis and George Roberts, reported a loss of $315 million, or 37 cents a share, in the three months through September, compared with a profit of $419 million, or 50 cents, a year earlier, according to a statement Tuesday. The results fell short of the 30-cent average per-share loss expected by 16 analysts in a Bloomberg survey.
A market rout in August hit KKR’s holdings, including its stakes in HCA Holdings Inc., Walgreens Boots Alliance Inc., Zimmer Biomet Holdings Inc. and GoDaddy Inc. The Standard & Poor’s 500 Index had its biggest quarterly decline in four years that month, spurred by investor concern that China’s economic growth is slowing.
Private equity firms hold unlisted businesses, whose values are in part marked to the market, and shares of companies they have taken public. Both are affected by stock-market moves.
KKR’s exposure to gains and losses in certain investments is higher than that of peers, because KKR often puts money from its own balance sheet into deals. That gives the firm “acute downside risk,” Wells Fargo & Co. analyst Chris Harris wrote in a note to clients before the results were announced.
The firm’s shares closed at $17.60 in New York trading Tuesday, giving it a market value of about $14.7 billion. The stock has declined 20 percent this year, including reinvested dividends. KKR, which reported earnings after the close of U.S. markets, fell more than 7 percent in after-market trading.
KKR’s distributable earnings, which reflect cash gains on sales of holdings, were $349 million, compared with $505 million a year earlier. It notched gains by selling safety-equipment maker Capital Safety to 3M Co. in a $2.5 billion transaction, as well as shares of Nielsen Holdings Plc.
KKR announced a new dividend policy effective in the fourth quarter, in which it will pay out a fixed amount of 16 cents a share each quarter, compared with 75 percent to 80 percent of cash generated by the company. It also said it will buy back as much as $500 million in shares.
The change in the dividend structure will allow KKR to reinvest more cash in its balance sheet. KKR in the past five years has differentiated itself from other big alternative-asset managers by using more of its own money in deals, allowing it to potentially capture more profit on investments.
“Our strong balance sheet, with approximately $14 billion in assets, allows us to support a meaningful fixed quarterly distribution,” Kravis and Roberts said in the statement. “We will use incremental retained capital to invest behind our ideas and buy back our units.”
Assets under management declined to $98.7 billion as of Sept. 30 from $101.6 billion three months earlier, as KKR raised $2.9 billion for deals and returned $4.3 billion to clients, known as limited partners.
KKR, founded in 1976, manages private equity holdings, credit assets, hedge funds and real estate. The firm sees investment opportunities in Asia as well as in European private credit, where U.S.-based alternative-asset managers are increasingly stepping in to replace banks in lending, Scott Nuttall, KKR’s head of global capital and asset management, said on a conference call with investors and analysts.
Blackstone Group LP, the biggest alternative-asset manager, earlier this month reported a third-quarter loss of $416 million as its investments declined, including its stake in Hilton Worldwide Holdings Inc. Carlyle Group LP and Apollo Global Management LLC plan to report results on Wednesday.