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KKR Private Markets See Lower Investments, Subdued Returns

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Marginal improvement

KKR & Co.’s (KKR) Private Markets segment reported total segment revenues of $549 million in 4Q15, compared to revenues of $375 million in 4Q14. The company ended the quarter with assets under management (or AUM) of $66 billion under its Private Markets segment, a fall of $700 million compared to 3Q15.

The fall was primarily due to higher distributions to limited partners of private equity funds, which arose from realizations that were partially offset by new capital raised and appreciation in portfolio valuation. The fair value of the private equity portfolio rose by $1.6 billion, or 4.8%, in 4Q15. The new capital raised was low at $327 million in 4Q15.

Of the total AUM, fee-paying AUM stood at $45.3 billion, a drop of $1.1 billion compared to 3Q15. This fall was due to higher distributions and relatively low fundraising in new funds.

KKR’s revenue fell 15% in the last year. Let’s compare this to the revenue growths of KKR’s peers:

  • BlackRock (BLK) rose 12%.
  • Blackstone Group (BX) rose 12%.
  • Apollo Global Management (APO) fell 59.6%.

Together, these companies form 4.1% of the PowerShares Global Listed Private Equity ETF (PSP).

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Lower investment income

KKR saw higher performance income from increased carried interest, primarily reflecting more favorable performance in its carry earning Private Markets funds. The increases were partially offset by lower total investment income, driven primarily by a lower level of net interest and dividends in the current period.

Investment income has fallen across insurance and asset management companies, mainly due to lower interest rates and slowing equity markets.

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