KKR's second-quarter earnings plunge on fund values

Fri Jul 26, 2013 1:46pm EDT
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By Greg Roumeliotis

NEW YORK (Reuters) - KKR & Co LP (KKR.N: Quote) said on Friday that its second-quarter earnings declined by 74 percent as a lower appreciation in its private equity funds overshadowed a quadrupling in the cash it received from the profits its funds generated.

With KKR meeting more of the performance hurdles agreed to with fund investors, over 80 percent of its private equity assets were in a position to pay carried interest - KKR's share of the profits. Carried interest cash jumped to $161.9 million in the quarter from $39.4 million a year ago.

But economic net income (ENI), which takes into account the market value of assets and is an alternative asset manager's headline earnings metric, dropped to $144.4 million from $546.1 million a year ago, as KKR's private equity portfolio appreciated 0.9 percent compared with 5.1 percent a year ago.

This translated into second-quarter after-tax ENI of 18 cents per share versus 26 cents per share forecast on average by analysts in a Thomson Reuters poll. KKR shares fell and were trading down 1.7 percent to $20.60 in afternoon trading.

In a statement, Henry Kravis and George Roberts, KKR's co-chief executives who founded the firm in 1976 together with Jerome Kohlberg, focused on the company's dividend following a change in the company's distribution policy last quarter.

"Our realization activity in the second quarter drove the highest cash carry we have reported since going public, contributing to a quarterly distribution of 42 cents per unit," they said.

Cashing out in the second quarter included the sale of music rights management company BMG to Bertelsmann AG BTGGg.F, Europe's largest media company, where KKR made 1.8 times its original investment, and the sale of Japanese recruitment services firm Intelligence Holdings Ltd to peer Temp Holdings Co Ltd (2181.T: Quote), which saw KKR make 5.4 times its money.

KKR also sold shares in four of the companies it has already taken public, valuing its investments in them at an average 2.5 times the money it paid for them as equity. About 23 percent of KKR's private equity portfolio is in publicly listed companies.   Continued...