(Reuters) – Private equity firm KKR & Co LP reported a lower-than-expected 27 percent year-on-year drop in third-quarter profit on Thursday, as its holdings appreciated more than many analysts foresaw and it generated more cash by exiting its investments.
KKR’s steep earnings drop was driven by a lower appreciation of its private equity investments compared with peers Blackstone Group LP and Carlyle Group. Its private equity portfolio rose 2.2 percent in the quarter compared with a 5.9 percent increase in the third quarter of 2013.
Blackstone’s private equity funds appreciated 3.7 percent in the third quarter of 2014, while Carlyle’s private equity funds rose 3 percent.
Nonetheless, many analysts expected a bigger earnings slump at KKR. Its economic net income (ENI), a metric of profitability that takes into account the mark-to-market valuation of the portfolio, was $419 million on a post-tax basis, down from $571 million a year ago. This translated into post-tax ENI per adjusted unit of 50 cents versus the average forecast of 44 cents in a Thomson Reuters poll of analysts.
Distributable earnings, which shows actual cash generated from asset sales, more than doubled year-on-year in the third quarter to $505 million.
KKR’s divestments in the quarter included the $975 million sale of capital markets software provider Ipreo Holdings LLC to Blackstone and Goldman Sachs Group Inc’s merchant banking division, and the sale of part of its stake in software company Visma AS to buyout firm Cinven Ltd.
KKR also sold shares in the quarter in publicly listed companies Jazz Pharmaceuticals Plc, China Modern Dairy Holdings Ltd and Santander Consumer USA Holdings Inc .
KKR, which was founded in 1976 by Henry Kravis, George Roberts and Jerome Kohlberg, said assets under management totaled $96.1 billion as of the end of September, down from $98 billion at the end of June, as it returned some capital to investors.
KKR declared a third-quarter dividend of 45 cents per common unit.
Last week, Blackstone reported a rise in third-quarter earnings that missed most analysts’ expectations.