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What’s Expected of KKR’s Private Equity Segment in 1Q18?

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2017 performance

KKR & Company’s (KKR) Private Markets segment generated net management, monitoring, and transaction fees of $724.6 million in 2017 compared to $559.7 million in 2016. 

The company generated transaction fees amounting to $288.8 million in 2017, while in 2016 it generated transaction fees of $132.6 million.

The rise in transaction fees was witnessed mainly due to a rise in the investments that generate the transaction fees. However, these investments were also sizable, which contributed to the rise. The Private Markets segment witnessed a rise in total performance income from $836.3 million in 2016 to $1.7 billion in 2017 thanks to the positive momentum in its net carried interest gains, which was mainly aided by the upward movement in the private equity portfolio’s value.

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Expectations

KKR’s AUM (assets under management) in the private equity segment witnessed a rise from $87.6 billion in 3Q17 to $97.5 billion in 4Q17. However, in 1Q18, not much of a rise is expected in the segment’s AUM because of the weak performance of the S&P 500 Index in January and February 2018, which could, in turn, affect the segment’s management fees. Moreover, the S&P 500’s weak performance could affect the private equity portfolio’s value, which could further affect the segment’s income in 1Q18.

Other alternative asset managers (XLF) such as Blackstone Group (BX) and Carlyle Group (CG) could also experience negative effects in their private equity segments because of the weak performance of the S&P 500.

KKR has a free-cash-flow yield of 11.9% on a trailing-12-month basis. Peers CBRE Group (CBG), Oaktree Capital Group (OAK), and Ameriprise Financial (AMP) have free-cash-flow yields of 6.7%, 7.7%, and 5.9%, respectively, on a trailing-12-month basis.

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