KKR & Co., one of the world’s biggest investment firms, beat Wall Street estimates of its first quarter earnings but they still weren’t good enough to escape the turmoil period in the private equity and real estate sectors, what company executives colloquially called “dynamic in the macro sense.”
KKR’s earnings fell in the first quarter compared to both the prior quarter and year ago periods, to $548.6 million, or $0.81 per share, from $604.0 million, or $1.11 per share in the year-ago quarter.
Executives were quick to point out, however, that management fees, assets under management, private equity business, insurance, infrastructure portfolio, and other investments were up substantially, somewhat cushioning the decline in the real estate sectors.
“While we are all seeing a difficult market for a handful of areas within real estate, our portfolio continues to be heavily weighted towards those assets and themes we are seeing strong fundamentals and cashflow growth,” said Craig Larson, head of investor relations at KKR.
Despite earnings drop, assets grow
Indeed, the bright spots in the company financial results showed assets under management growing from $503.9 billion at the end of December, to $510.1 billion at the end of March. Revenue of $3.13 billion rose from $2.53 billion in the prior quarter and from $999.4 million in the year-ago quarter.
Insurance revenue surged from $1.84 billion in the fourth quarter of 2022, and $1.16 billion in the first quarter of last year, to $2 billion at the end of March. The company also announced a shareholder dividend increase.
“We increased our dividend to 16 and a half cents per share per quarter, or 66 cents on an annualized basis,” said Larson. “This is now the fourth consecutive year we’ve increased our dividends.”
The company, more formally known as Kohlberg Kravis Roberts & Co., specializes in leveraged buyouts, direct investment, and fund of funds investments. It’s known as a long-term strategist delivering attractive investment returns for patient clients. In fact, in a recent filing with the Securities and Exchange Commission it said about 91% of its assets under management consists of capital that is either not subject to redemption for at least eight years from inception or what it referred to as “perpetual capital.”
Company says it is well positioned for growth
Looking ahead, the company said it was well positioned for growth once the real estate market steadies. KKR executives said it has plenty of working capital and what it calls “dry powder” – $106 billion of uncalled commitments – to put them in good stead for the future.
”Different backdrops do create opportunities, especially for firms like ours, that have substantial locked up capital, a significant amount of dry powder, and a global and highly coordinated investment team with expertise that spans multiple different asset classes,” said Rob Lewin, KKR’s chief financial officer.
Lewin said the company has been especially successful with raising money for its various funds. KKR raised $12 billion of capital in the quarter in private equity, that included the close on a European fund at $8 billion, about 20% larger than its predecessor fund.
“That’s a really great outcome in what is the most challenged part of the fundraising market and now gives us $40 billion of committed capital in total,” Lewin said. “Looking at our active traditional private equity funds across Asia, North America, and Europe, we believe this is the largest active capital base for traditional private equity by a wide margin.”
Wall Street traders, who had predicted slightly worse results for KKR’s first quarter, nonetheless, sent the company’s stock down slightly in mid-day training, to $49.38 per share, down $2.13, or more than 4%.
Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at email@example.com.
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