Subdued transaction activity in 1Q16
KKR & Company’s (KKR) Capital Markets and Principal Activities segment saw revenues rise in 4Q15 due to higher transaction fees. The segment reported revenues of $59 million in 4Q15 as compared to $34 million in 4Q14.
KKR’s Capital Markets and Principal Activities segment advises its invested companies and third-party clients on capital market solutions. It provides various services such as placing and underwriting securities offerings, arranging equity, and debt financing for transactions, as well as managing other capital market services. The company earns agency or underwriting fees for managing these transactions.
Subdued performance in 1Q16
KKR’s Capital Markets segment is expected to see a decline in transaction activity this quarter on the backdrop of the global equity rout that was seen in the first two months of 2016. The slowing economic activity and the risk-aversion environment across the globe are likely to impact KKR’s quarterly performance as well.
Historically, this segment’s revenues have shown a stronger correlation with the company’s portfolio performance. The company generates 40%–50% of this segment’s revenues from its portfolio companies. For the third quarter, the decline in performance of portfolio companies also impacted revenues in this segment.
In 2015, KKR posted a fall of $27 million in its revenues over the previous year, totalling $191 million on account of fewer capital market transaction activities in 3Q15. KKR’s total AUM (assets under management) stood at $120 billion in 4Q15. The AUM of KKR’s peers are as follows:
- The Carlyle Group (CG) had $193 billion in AUM.
- Blackstone Group (BX) had $333 billion in AUM.
- BlackRock (BLK) had $4.5 trillion in AUM.
- Apollo Global Management (APO) had $163 billion in AUM.
Together, these companies form 4.1% of the PowerShares Global Listed Private Equity ETF (PSP).
In the next part, we’ll examine KKR’s deployment of capital.