KKR has made its way onto Fortune’s list of top 500 companies.
The New York-based buyout shop clocked in at No. 256 on a list headed by Wal-Mart Stores and Exxon Mobil. KKR made the list because of an accounting oddity, according to our former jefe, Dan Primack. KKR has two sources of revenue: fees (about $435 million) and investment income ($9.18 billion). By combining both of these, and adding $53 million in interest expense, KKR had about $9.67 billion in revenue, Fortune said.
But KKR shouldn’t be on the list, Dan says. To comply with GAAP, KKR consolidates the majority of its funds, which produces the $9.18 billion figure. This total includes the 20% in carried interest that KKR is entitled to and money that KKR — the other 80% — shouldn’t be counting as it own (at least that what I think it does).
Blackstone, a major KKR rival, doesn’t consolidate its PE funds and didn’t make the Fortune list. If it did, the buyout shop would’ve easily made the ranking.
Surprisingly, KKR itself doesn’t think it should’ve made the Fortune 500. “While it’s an honor to be on such a respected list and we are pleased by our growth the past few years, we don’t think this accurately measures our firm results because the methodology used also includes the income on third party capital that we manage,” KKR said in a statement obtained by Fortune.
I agree with Dan that FASB should come up with more relevant/standardized GAAP rules for public PE firms. But with FASB this could take years. PE firms themselves should self-regulate and come up with a figure or standard that investors can understand.