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KKR’s profits, stock jump as firm eyes index inclusion

In its Q4 2019 earnings report, private equity giant KKR posted positive net income, while YoY after-tax distributable earnings tumbled.

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Roughly 18 months after converting to a C-Corporation, KKR reported sliding distributable earnings in Q4 2019. However, the New York-based firm also posted profits—an upswing from a year ago, when the investor saw a net loss.

By the after-tax distributable earnings metric, KKR fell short of public private equity rivals in the fourth quarter, with a year-over-year drop in this measure of cash available to pay shareholders. At 44 cents per share, it tumbled about 20% from Q4 2018’s level of 55 cents per share; the firm cited a decline in realizations by its private markets business and suppressed transaction fees in its capital markets unit.

For comparison, Blackstone‘s YoY distributable earnings jumped more than 26% to 72 cents per share, while Apollo Global Management‘s distributable earnings were up roughly 83% to $1.10 per share.

Nonetheless, KKR’s net income was in the green. The firm posted profits of $523.4 million in Q4 2019, whereas a year prior, it generated a net loss of $384.6 million. Strong management fees—about $317 million, up more than 13% YoY—helped drive revenue during the quarter.

Wall Street reacted positively to the Q4 earnings report: KKR’s stock price increased about 5% to $31.90 per share by market close on Friday.

KKR reaffirmed its intent to be included in the Russell indices when the firm rebalances in a few months. Inclusion in the indices was a major reason KKR converted to a C-Corp. in 2018.

“The full impact of C-corp. conversion, we believe, is not yet in our stock,” said Scott Nuttall, KKR co-president and co-chief operating officer. “We believe being part of Russell indices would allow us to further our goal of broadening our shareholder base and is the sensible next step on our journey to getting proper price discovery and a proper valuation for our stock.”

Another element of growth is seen through KKR’s focus on expanding its presence in Asia.

It’s currently raising $12.5 billion for a fourth buyout fund targeting the continent, according to Bloomberg. That fund’s predecessor closed on $9.3 billion in 2017. KKR’s Asian portfolio includes ByteDance, the Beijing-based owner of viral video app TikTok.

When asked on Friday how the coronavirus outbreak could impact its Chinese portfolio, managing director of investor relations Craig Larson said: “The largest part of our business in China is within private equity.” He noted that it’s between 1% and 1.5% of the firm’s total AUM—underlining limited exposure—and acknowledged that “there’s obviously a very large human element.”

Featured image via Alexander Spatari/Moment/Getty Images

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    Written by Eliza Haverstock
    Eliza Haverstock was a PitchBook writer covering venture capital, startups, and private equity.

    A graduate of the University of Virginia where she majored in history and economics, she’s also a native of the Washington, DC, area. Previously, Eliza worked as a news editor for her college paper, The Cavalier Daily, and interned as an industrials reporter for Bloomberg in New York.
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