Riding High on Q4 Profit, KKR Expects to Fully Deploy ’06 Fund

KKR reported fourth quarter earnings today. Economic net income — which represents income from fees, investment income minus expenses and gains on investments–-increased by 39% to $714.6 million for the quarter ended Dec. 31, 2010, up from $515.3 million for the same time period in 2009. Full-year ENI was $2.1 billion, up marginally from $2 billion in 2009.

Assets under management hit $61 billion as of Dec. 31, 2010, up 9.9.% from $55.5 billion as of the previous quarter. This sorts out to $46.2 billion AUM for its private market segments (an increase of 10.3% from $41.9 billion as of Sept. 30, 2010) and $14.8 billion AUM for its public markets segment (up 8.8% from $13.6 billion the prior quarter).

KKR has $756.3 million in available cash and about $500 million in outstanding debt.

On a conference call Wednesday morning, KKR executives were asked about investment options for their last mega-fund which raised $17.6 billion in 2006. The fund has $4.7 billion left to invest and KKR has until September 2012 to put the money to work.

“We have all of this year and a good portion of next year,” said Scott Nuttall, who heads KKR’s global capital and asset management group. “We feel very comfortable getting capital to work.”

KKR is raising capital for its next North American fund, which will be much smaller than the 2006 pool (it has a target of around $8 to $10 billion). KKR expects it will need a year or more to complete marketing for the fund. In all, KKR has about $12.6 billion in uncalled PE commitments.

Nuttall, during the call, said he was “pretty excited” about the current investment environment. There are a number of companies KKR has been following that are “more in the mood for a transaction,” he said. “The credit markets have obviously opened up,” he said.

KKR was very active last year. The PE firm’s capital markets group completed three IPOs, eight secondary offerings and one dividend recap. KKR continued fundraising across all segments, raising $3.5 billion in fourth quarter and $5 billion across 2010. “The IPO market has been a bit of an open and shut market,” Nuttall said. “Right now, it happens to be open. We’ve been very focused that our IPOs perform.”

KKR is one of the investors in HCA Holdings, the hospital operator expected to go public early next month.

Michael Kim, Sandler O’Neill’s associate director of research, called KKR’s results very strong. Fourth quarter results “seemingly reinforce fundamentals are on the rise across fundraising, deal flow, and exit opportunities, with management focused on unlocking value related to the firm’s scale, manufacturing expertise, broad distribution capabilities, and strong brand,” he wrote in a research note Wednesday.