Capital Markets segment
Due to higher transaction fees, KKR’s (KKR) Capital Markets segment reported a rise in revenues of $58 million in 1Q16 from $43 million in 1Q15. The momentum is expected to continue in the June quarter due to transactions in the energy, renewables, food, technology, and retail spaces.
KKR’s Capital Markets segment advises its invested companies and third-party clients on capital market solutions. It provides services such as placing and underwriting securities offerings, arranging equity and debt financing for transactions, and managing other capital market services. The company earns agency or underwriting fees for managing these transactions.
Between 2014 and 2015, KKR posted a decline of $27 million in revenues to $191 million. The decline was mainly due to the fall in capital market transaction activity in 3Q15.
KKR’s total AUM (assets under management) stood at $126 billion in 1Q16. Let’s compare that to the AUM for KKR’s peers:
- Carlyle (CG): $193 billion
- Blackstone (BX): $333 billion
- BlackRock (BLK): $4.5 trillion
- Apollo Global Management (APO): $163 billion
Together, these companies form 4.1% of the PowerShares Global Listed Private Equity ETF (PSP).
Mergers and acquisitions
KKR’s Capital Markets segment allows the company to access equity and debt capital directly, even in difficult markets. Historically, the Capital Markets segment’s revenues have shown a higher correlation with the company’s portfolio performance. The company generates 40%–50% of the segment’s revenues from its portfolio companies. For 1Q16, the trend continued and translated to revenues in the Capital Markets segment.
The company saw increased third-party deals due to innovative structured solutions. Overall, the equity markets were weak in 1Q16, both inside and outside the United States. The slowing economies, especially in China, resulted in transactional activity for restructuring, mergers, and acquisitions.