KKR Q2 ENI falls Nearly 74% to $144.4 Mln

KKR on Friday said that second quarter economic net income dropped to $144.4 million for the time period ended June 30, from $546.1 million for the same time period in 2012. GAAP net income fell to $15.1 million for the quarter, off from $146.3 million in 2012.

PRESS RELEASE

GAAP net income (loss) attributable to KKR & Co. L.P. was $15.1 millionand $208.6 million for the quarter and six months ended June 30, 2013, respectively, down from $146.3 million and $336.7 million in the comparable periods of 2012.
Assets under management (“AUM”) totaled $83.5 billion as of June 30, 2013, up from $78.3 billion as of March 31, 2013.
Fee related earnings (“FRE”) were $98.2 million and $186.2 million for the quarter and six months ended June 30, 2013, respectively, up from $69.8 million and $143.1 million in the comparable periods of 2012.
Total distributable earnings were $403.8 million for the quarter ended June 30, 2013, down from $406.1 million for the quarter ended June 30, 2012. Total distributable earnings were $694.4 million for the six months endedJune 30, 2013, up from $570.2 million in the comparable period of 2012.
Economic net income (“ENI”) was $144.4 million and $792.2 million for the quarter and six months ended June 30, 2013, respectively, down from$546.1 million and $1,273.3 million in the comparable periods of 2012.
After-tax ENI was $0.18 and $1.06 per adjusted unit for the quarter and six months ended June 30, 2013, respectively, down from $0.74 and $1.73per adjusted unit in the comparable periods of 2012.
Book value was $6.9 billion on a total reportable segment basis as of June 30, 2013 or $9.65 per adjusted unit.
KKR & Co. L.P. declares a second quarter distribution of $0.42 per common unit, which includes $0.23 per common unit of cash carry and $0.09 per common unit of net realized principal investment income.

NEW YORK–(BUSINESS WIRE)– KKR & Co. L.P. (NYSE: KKR) today reported its second quarter 2013 results.
AUM and fee paying assets under management (“FPAUM”) were $83.5 billion and$68.0 billion, respectively as of June 30, 2013, both up from March 31, 2013. The increases in both AUM and FPAUM were primarily attributable to new capital raised relating to the Asian Fund II. The increases were partially offset by distributions to fund limited partners and to a lesser extent the impact of theAsian Fund entering its post-investment period.
For the quarter and six months ended June 30, 2013, FRE was $98.2 million and$186.2 million, respectively, up from $69.8 million and $143.1 million in the comparable periods of 2012. The increase in both comparable periods was primarily driven by new capital raised over the past twelve months and the acquisition of Prisma.
For the quarter and six months ended June 30, 2013, the carrying value of our private equity investment portfolio appreciated 0.9% and 6.6%, respectively. ENI was $144.4 million and $792.2 million for the quarter and six months endedJune 30, 2013, respectively, down from $546.1 million and $1,273.3 million in the comparable periods of 2012. The decrease in both comparable periods was primarily due to lower investment income earned from our principal investments as well as a lower level of net carried interest earned from our private equity funds. While the fair value of our principal investments increased during the quarter and six months ended June 30, 2013, the level of appreciation was lower than in the comparable periods of 2012.
“Over the past year, organic fee-paying AUM inflows have exceeded $19 billion, supporting the continued growth of our Private Markets business as well as the scaling of our newer strategies in Public Markets,” said Henry R. Kravis andGeorge R. Roberts, Co-Chairmen and Co-Chief Executive Officers of KKR. “In addition, our realization activity in the second quarter drove the highest cash carry we’ve reported since going public, contributing to a quarterly distribution of $0.42 per unit.”
 
Note: Certain financial measures, including FRE, ENI, after-tax ENI, ENI after taxes and equity-based charges, fee related EBITDA, book value, cash and short-term investments and adjusted units, are not presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). See Exhibits A and B for a reconciliation of such measures to financial results prepared in accordance with GAAP.
GAAP RESULTS
GAAP results for the quarter and six months ended June 30, 2013 included net income attributable to KKR & Co. L.P. of $15.1 million and $208.6 million, respectively, and net income attributable to KKR & Co. L.P. per common unit of$0.05 and $0.72, respectively, on a diluted basis. For the quarter and six months ended June 30, 2012, net income attributable to KKR & Co. L.P. was$146.3 million and $336.7 million, respectively, and net income attributable toKKR & Co. L.P. per common unit was $0.58 and $1.37, respectively, on a diluted basis. The decrease in both comparable periods was primarily due to a lower level of investment appreciation recorded in net gains (losses) from investment activities. The decrease in net gains (losses) from investment activities was partially offset by increases in fees primarily attributable to the acquisition of Prisma and higher transaction fees. The decrease in compensation and benefits expense was primarily attributable to lower carry pool allocations as a result of the recognition of lower carried interest during the quarter and six months ended June 30, 2013 compared to the comparable periods in 2012.
SEGMENT RESULTS
Private Markets
AUM was $54.5 billion as of June 30, 2013, an increase of $4.2 billion, or 8.3%, compared to AUM of $50.3 billion as of March 31, 2013. The increase was primarily attributable to new capital raised from the Asian Fund II and to a lesser extent appreciation in the fair value of our private equity portfolio. These increases were partially offset by distributions to the limited partners of our private equity funds arising from realizations and a reduction in AUM as a result of the Asian Fund entering its post-investment period.
FPAUM was $45.9 billion as of June 30, 2013, an increase of $4.7 billion, or 11.4%, compared to FPAUM of $41.2 billion as of March 31, 2013. The increase was primarily attributable to new capital raised from the Asian Fund II partially offset by distributions to the limited partners of our private equity funds arising from realizations and the reduction in the fee base of the Asian Fund as a result of the fund entering the post-investment period.
FRE was $42.6 million for the quarter ended June 30, 2013, an increase of $6.4 million, or 17.6%, compared to FRE of $36.2 million for the quarter ended June 30, 2012. FRE was $83.4 million for the six months ended June 30, 2013, an increase of $9.4 million, or 12.7%, compared to FRE of $74.0 million for the six months ended June 30, 2012. The increase in both comparable periods was primarily driven by higher management fees resulting from new capital raised and higher transaction fees. These increases were partially offset by higher compensation expense due to additional headcount.
ENI was $72.0 million for the quarter ended June 30, 2013, a decrease of $102.7 million, or 58.7%, compared to ENI of $174.7 million for the quarter ended June 30, 2012. ENI was $338.7 million for the six months ended June 30, 2013, a decrease of $101.4 million, or 23.0%, compared to ENI of $440.1 million for the six months ended June 30, 2012. The decrease in both comparable periods was primarily attributable to lower net carried interest resulting from a lower level of appreciation in our private equity portfolio, partially offset by the increase in FRE discussed above.
Public Markets
AUM was $29.0 billion as of June 30, 2013, an increase of $1.1 billion, or 3.9%, compared to AUM of $27.9 billion as of March 31, 2013. FPAUM was $22.0 billionas of June 30, 2013, an increase of $0.8 billion, or 3.7%, compared to FPAUM of$21.2 billion as of March 31, 2013. For both AUM and FPAUM, the increases were primarily attributable to net new capital raised and to a lesser extent appreciation in the net asset values of certain credit investment vehicles.
FRE was $34.4 million for the quarter ended June 30, 2013, an increase of $22.1 million compared to FRE of $12.3 million for the quarter ended June 30, 2012. FRE was $71.5 million for the six months ended June 30, 2013, an increase of$43.8 million compared to FRE of $27.7 million for the six months ended June 30, 2012. The increase in both comparable periods was principally attributable to (i) higher management fees related to new capital raised, (ii) the acquisition of Prisma and (iii) higher incentive fees earned.
ENI was $40.5 million for the three months ended June 30, 2013, an increase of$33.7 million compared to ENI of $6.8 million for the three months ended June 30, 2012. ENI was $89.6 million for the six months ended June 30, 2013, an increase of $58.9 million compared to ENI of $30.7 million for the six months ended June 30, 2012. The increase in both comparable periods was primarily driven by the increase in FRE discussed above and to a lesser extent higher net carried interest due to investment appreciation of certain carry-earning investment vehicles.
Capital Markets and Principal Activities
FRE was $21.2 million for the quarter ended June 30, 2013, which was the same as in the quarter ended June 30, 2012.
FRE was $31.3 million for the six months ended June 30, 2013, a decrease of$10.2 million, or 24.5%, compared to FRE of $41.5 million for the six months ended June 30, 2012. The decrease was primarily driven by a lower level of overall capital markets transaction activity.
ENI was $31.9 million for the quarter ended June 30, 2013, a decrease of $332.6 million compared to ENI of $364.5 million for the quarter ended June 30, 2012. ENI was $363.8 million for the six months ended June 30, 2013, a decrease of$438.8 million compared to ENI of $802.6 million for the six months ended June 30, 2012. The decrease in both comparative periods was primarily due to a lower level of investment income from our principal investments. While the fair value of our principal investments increased during the quarter and six months ended June 30, 2013, the level of appreciation was lower than in the comparable periods of 2012.
CAPITAL AND LIQUIDITY
As of June 30, 2013, KKR had $2.0 billion of cash and short-term investments on a total reportable segment basis and $1.0 billion of outstanding debt obligations. KKR’s availability for borrowings was $750.0 million (reduced for an outstanding letter of credit), which does not include a $500.0 million revolving credit facility for use in its capital markets business that was undrawn as of June 30, 2013.
As of June 30, 2013, KKR’s portion of total uncalled commitments to its investment funds was $786.6 million, consisting of the following (amounts in thousands):

Uncalled
Commitments
Private Markets

North America Fund XI

$
229,600
Real Estate Fund

135,100
European Fund III

125,100
Asian Fund II

75,000
2006 Fund

63,800
Infrastructure

28,900
E2 Investors (Annex Fund)

14,000
Asian Fund

10,900
Natural Resources

10,300
China Growth Fund

6,500
Other

 
11,300
Total Private Markets Commitments

 
710,500

 
Public Markets

Direct Lending Vehicles

30,100
Mezzanine Fund

29,600
Special Situations Vehicles

 
16,400
Total Public Markets Commitments

 
76,100

 
Total Uncalled Commitments

$
786,600

 
DISTRIBUTION
A distribution of $0.42 per common unit has been declared, comprised of (i)$0.10 per common unit from after-tax FRE, (ii) $0.23 per common unit from realized cash carry, and (iii) $0.09 per common unit from net realized principal investment income. The distribution will be paid on August 20, 2013 to unitholders of record as of the close of business on August 5, 2013. Please refer to the distribution policy presented later in this release.