Private equity firm KKR & Co LP posted better-than-expected earnings on Thursday as a jump in income on the back of higher investment returns lifted the bottom line.
A buoyant U.S. stock market, which hit a record high last quarter, has helped to bolster the investment performance of buyout firms that rely on strong returns to generate fees. KKR’s larger peer Blackstone Group LP also reported earnings that more than doubled earlier this month.
New York-based KKR said it had earned economic net income of $549.9 million after taxes in the first quarter, compared to a loss of $553 million a year ago. That translated to 65 cents a share. Analysts had forecast earnings of 50 cents a share, according to Thomson Reuters I/B/E/S.
Economic net income is a key metric for U.S. private equity firms that accounts for unrealized gains or losses in investments.
Indeed, KKR said its investment income, comprising net realized and unrealized investment gains, stood at $298.7 million in the first quarter, reversing a loss of $529.6 million a year ago when sliding oil prices dragged on returns.
That helped to boost performance income, made up of realized and unrealized gains in fees tied to investment returns, to $348.5 million in the first three months of 2017, compared with a loss of $124.9 million a year ago.
KKR said its transaction fees also more than doubled to $243 million from $96.1 million a year ago.
Better performance led to higher employee payout. KKR said total compensation and benefits leapt more than five times to $284.7 million from a year earlier.
In line with KKR’s promise this year to increase its quarterly dividend to shareholders by a cent, the firm said it was distributing 17 cents per share, up from 16 cents previously.
Although buyout firms pride themselves on generating market-defying returns, the broader market is still a significant influence on their performance.
For instance, sources told Reuters earlier this year that KKR is preparing an initial public offer of U.S. industrial machinery maker Gardner Denver Inc that could value it at between $6 billion and $7 billion, underscoring the firm’s recovery as energy prices rebounded.
KKR had taken Gardner Denver private in 2013 for $3.9 billion.
Photo: CEO of Kohlberg Kravis Roberts & Co (KKR) Henry Kravis (C) departs after meeting India’s Prime Minister Narendra Modi at a breakfast in the Manhattan borough of New York, September 29, 2014. Reuters/Carlo Allegri