KKR’s Special Situations Platform and CLOs
KKR & Co.’s (KKR) Public Markets segment saw revenues decline in the third quarter due to net investment losses across multiple strategies, primarily in the Special Situations platform and domestic collateralized loan obligations, or CLOs. Revenue was also impacted by net carried interest losses in the third quarter due to a decline in the value of carry paying vehicles. As debt markets have stabilized, the performance of domestic CLOs has improved in the fourth quarter. KKR expects improved performance in its Special Situations platform and other strategies.
KKR has $11 billion in committed capital for its Public Markets segment. When the company deploys this capital, it’s going to see higher fees in upcoming quarters. The company ended the third quarter with AUM (assets under management) of $37.9 billion in its Public Markets segment, a decrease of $0.5 billion compared to the previous quarter. The decrease was due mainly to distributions and redemptions across multiple strategies, offset by new capital either raised or invested, primarily in Special Situations Fund II and CLOs.
Out of the total AUM, the fee-paying assets under management, or FPAUM, came in at $36.7 billion, a decline of $0.3 billion compared to 2Q15.
In the third quarter, the Public Markets segment reported an economic net loss of $183 million, as compared to an economic net profit of $48 million in 3Q14.
In the first nine months of 2015, the Public Markets segment generated total revenues of $75 million, as compared to $396 million in the first nine months of 2014. The decrease was mainly due to net investment losses, primarily net unrealized losses in CLOs and certain other Public Markets–related investments.
KKR posted an operating loss last year. Let’s compare this to the operating margins of KKR’s peers:
- The Carlyle Group (CG) posted an operating margin of 2.7%.
- Blackstone Group (BX) posted an operating margin of 48%.
- BlackRock (BLK) posted an operating margin of 40.4%.
- Apollo Global Management (APO) posted an operating margin of 34.0%.
Together, these companies form 0.82% of the Guggenheim Defensive Equity ETF (DEF).