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KKR’s Earnings Impacted by Oil Prices, High Yield Debt Investment

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KKR misses estimates

KKR & Co. (KKR) reported its 4Q15 earnings on February 11, 2016. The company missed Wall Street analysts’ earnings per share estimates of $0.26 per unit, with posted earnings per share of $0.08 per unit. The company’s net earnings rose 53% on portfolio appreciation and higher fees. Alternative asset managers have reported positive but lower-than-expected earnings in the fourth quarter on subdued equity markets.

The company’s major investments have seen appreciation due to a recovery in US equities (SPY) following the market rout in 3Q15. These investments include Walgreens Boots Alliance (WAG), HCA Holdings (HCA), Zimmer Biomet Holdings (ZBH), and GoDaddy (GDDY).

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Economic net income

KKR reported an economic net income of $70.5 million in 4Q15 compared to an economic net income of $46 million in 4Q14. As of December 31, 2015, the company’s assets under management and fee-paying assets under management stood at $120 billion and $92 billion, respectively, up 12% and 7%, respectively, on a year-over-year basis.

The company began with a change in its distribution policy to a fixed $0.16 per common unit per quarter.

In a February 11, 2016, company press release, Henry Kravis and George Roberts, KKR’s co-chairmen and co-CEOs, noted, “KKR delivered strong investment results in 2015 as our private equity portfolio appreciated 14.2%, outperforming the S&P 500 by over 1,200 basis points despite challenging markets. We capitalized on attractive opportunities across our segments in the fourth quarter including record deployment within our Credit and Infrastructure businesses.”

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Continuing, Kravis and Roberts stated, “Our ability to take advantage of volatile market environments stems from the long-dated capital entrusted to us by a growing base of limited partners across our diverse set of strategies. With $20 billion of new capital raised in 2015, we ended the year with record dry powder and over $10 billion of cash and investments on our balance sheet to invest as attractive opportunities arise.

Alternative investment giant

Founded 37 years ago, KKR provides investment management services to fund limited partners or investors. The limited partners commit capital to private equity players to earn returns over and above the indexed returns. KKR also provides capital market services to its own company, portfolio companies, and external clients.

In the following parts of this series, we’ll discuss KKR’s private and public markets, distribution, balance sheet, and valuations.

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