KKR said on Tuesday that higher management fees tied to an expanding asset base and a pickup in transaction activity helped lift first-quarter profits. The New York-based buyout firm reported that it raised $28 billion of new capital during the quarter, driven largely by inflows into its credit business - the largest component of its $758 billion in assets under management.
Shares of the company were about 1% higher in trading before the bell, reflecting a modest market response to the results. The firm said management fees - the revenue it collects for overseeing client capital irrespective of investment performance - climbed 30% to $1.2 billion.
On an adjusted basis, net income for the period reached $1.2 billion, equivalent to $1.39 per share. Those gains came even as returns from some of KKR's funds moderated. The firm's traditional private equity portfolio produced a 1% return in the first quarter, compared with a 10% return across the last twelve months.
KKR also reported weaker quarterly performance for its debt strategies. Composites for both the leveraged credit and private credit approaches returned -1% in the quarter, after producing 5% and 4% respectively over the preceding twelve months.
KKR's co-chief executives framed the results in the context of market volatility, saying: "Against a volatile backdrop, monetization activity accelerated, and over the past 12 months we’ve invested more capital on behalf of our clients than at any point in our history."
The firm and its industry peers have faced a testing period on the stock market over the past year, as investors weighed concerns about future growth, the impact of artificial intelligence on portfolio companies and credit underwriting standards in private lending. The conflict in the Middle East has also unsettled markets and weighed on expectations for robust dealmaking.
While KKR's shares have regained some ground since a low point in March, they remain roughly 19% below their level at the start of the year. The mixed performance - rising fee revenue and fresh capital on one hand, slower fund returns on the other - underscores the split dynamics confronting large alternative asset managers in the current environment.
Summary
KKR's first-quarter results were supported by higher management fees and $28 billion of new capital, primarily funneled into its credit business inside $758 billion of assets under management. Adjusted net income reached $1.2 billion, though private equity and credit fund returns slowed on a quarterly basis compared with the prior twelve months.
Key points
- KKR raised $28 billion in fresh capital during the quarter, led by flows into its credit business, the largest segment of its $758 billion in assets under management.
- Management fees increased 30% to $1.2 billion, supporting overall adjusted net income of $1.2 billion, or $1.39 per share.
- Gross returns cooled: the private equity portfolio returned 1% in the quarter versus 10% over the past twelve months; leveraged credit and private credit composites were -1% in the quarter versus 5% and 4% over the last year.
Risks and uncertainties
- Investor concerns about the firm’s future growth prospects could pressure share performance - relevant to public markets and capital-raising.
- Potential disruption from artificial intelligence to portfolio companies could affect company-level performance and returns for private equity holdings.
- Changes to lending standards in private credit and geopolitical shocks, such as the war in the Middle East, have rattled markets and could diminish dealmaking activity in private markets.