Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

KKR & Co. on Thursday delivered Wall Street-estimate-beating second-quarter profit that upstaged its much larger rival, Blackstone Group LP. One part of the firm that played a handy role in its blowout quarter? Its capital markets arm, which mainly arranges debt and equity transactions for the companies owned by KKR's private equity funds:

Stepping It Up
KKR's capital markets arm is beginning to have a bigger impact. Its first-half revenue haul is already greater than its 2016 total.
Source: Company presentation

KKR Capital Markets's biggest client is, unsurprisingly, KKR. But it's heartening to see that 28 percent of its fees come from third parties (most likely other private equity firms and the companies they own), a figure that may continue to climb. 

Geographical Split
KKR Capital Markets has gained ground offshore, too
Source: Company presentation

KKR has had success in this area in part because banks have been forced to retreat amid increased regulatory scrutiny. Even if regulations are loosened and those lenders ramp up their efforts, the fact that KKR's capital markets arm is so closely linked to its parent should help it defend a large chunk of its market share. Plus, newly introduced regulation in Europe  may provide even more opportunities. 

Honing In
After years in the periphery, KKR Capital Markets has cracked the top 15. It sits ahead of established lenders including UBS, BMO and their unregulated rivals Macquarie and Nomura.
Source: Bloomberg

It's a little surprising to me that other large alternative asset managers haven't followed KKR's lead in this area, especially since being directly plugged into buyers of debt and equity sets them up to avoid liquidity crunches and facilitate deals at times others may find impossible. (One widely-trumpeted instance is KKR Capital Markets's financing of the firm's buyout of Mills Fleet Farm when banks retreated in late 2015 amid a market pullback.) 

As long as they continue to refrain, it'll be KKR's gain.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Gillian Tan in New York at

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