KKR earnings sink 26% in first quarter as asset sales slow

KKR earnings fell 26 per cent during the first quarter from a year earlier as a dealmaking drought continued to weigh on the alternative asset manager.

The firm reported US$719.3 million in distributable earnings, or 81 cents a share, during the quarter ended Mar 31, according to a Monday (May 8) statement. That beat the 74-cent average estimate of 15 analysts surveyed by Bloomberg.

Fee-related earnings dropped 9 per cent to US$549 million, driven by a decline in its capital markets business.

New York-based KKR took in US$12 billion of new capital in the quarter, led by US$9 billion gathered for its credit and liquid strategies. Assets under management grew 6 per cent to US$510 billion.

“Over the last 12 months, 95 per cent of the new capital entrusted to us has been outside of our traditional private equity funds, reflecting our continued diversification,” co-chief executive officers Joe Bae and Scott Nuttall said in the statement.

In an era of ultra-low interest rates prior to last year, private equity grew rapidly as pensions and endowments scouted around for alternative investments with higher returns. More recently, institutional investors have hit the limits of what they can invest in private equity – and higher interest rates have put the brakes on borrowing that greases deals.

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On Thursday, Carlyle Group’s shares tumbled the most in three years after the firm reported disappointing earnings and told investors its next private equity vehicle would be smaller than previous funds.

While KKR’s traditional private equity portfolio grew 2 per cent during the quarter, it fell 9 per cent over the past 12 months as the firm marked down the value of investments. Its opportunistic real estate portfolio fell 3 per cent during the quarter and 9 per cent over the past year. Infrastructure assets gained 7 per cent during the period and 9 per cent over the past year.

Realised investment income from selling assets fell 43 per cent to US$198 million and realised performance income, or carried interest, fell 71 per cent to US$175.4 million.

Uncalled commitments – money pledged by investors – declined 7 per cent year-over-year to US$106 billion as investing outpaced fundraising. KKR invested US$10 billion during the quarter, about half of which the firm deployed in infrastructure and real estate.

KKR’s shares have gained about 3.3 per cent over the past year. BLOOMBERG