By Chibuike Oguh
(Reuters) - Buyout firm KKR & Co (NYSE:KKR) Inc said on Tuesday its after-tax distributable earnings more than doubled in the fourth quarter, thanks to strong asset sales from its private equity portfolio and record transaction fees from its capital markets business.
The strong earnings performance, in line with that of KKR's peers, reflects a record-breaking dealmaking year in 2021 that was driven by buoyant markets, access to cheap capital, and the economic rebound from the COVID-19 pandemic.
Blackstone (NYSE:BX) Inc and Carlyle Group (NASDAQ:CG) Inc both reported record fourth-quarter earnings, as the buyout firms took advantage of the favorable environment to sell assets at top dollar.
But investors are bracing for a more uncertain market climate this year after the U.S. Federal Reserve reiterated its intention to raise interest rates and end its bond-buying program in an effort to curb rising inflation.
KKR said it remains positive notwithstanding the expected rise in rates, and added that some of its business segments, particularly its credit business and Global Atlantic insurance franchise, will benefit from any rise in the cost of capital.
"Our expectation is that we can be in an environment here where real rates are still low or negative over the next couple of years, which I think is an overall positive place for us to be from a business model perspective," KKR Chief Financial Officer Robert Lewin said during an analyst call on Tuesday.
KKR's shares were down 7.6% at $65.37 in early afternoon trading on Tuesday, tracking the share prices of its peers but underperforming the broader market, which was higher.
"It's just macro fears driving the selloff and fears around realizations. Part of it is also around messaging and targets on what they plan to do because for rates and inflation it's hard to say," said Jefferies analyst Gerald O'Hara.
STRONG EARNINGS
The New York-based firm said its after-distributable earnings, which represent the cash used to pay dividends to shareholders, rose to a record $1.4 billion compared with $544.1 million a year earlier. That translated to after-tax distributable earnings per share of $1.59, exceeding the average Wall Street analyst estimate of $1.21 per share, according to financial data provider Refinitiv.
During the quarter, KKR generated $568.3 million as it booked profits from asset divestments, including the sale of its controlling interest in Max Healthcare, an Indian hospital chain operator, and a minority stake in Japan's Kokusai Electric. Transaction fees from its capital markets unit rose to $320 million, up 66% from $193 million a year earlier, driven mostly by infrastructure and private equity deals in North America.
KKR said it invested $23 billion to buy assets in the fourth quarter, including the acquisition of Norwegian ship-owning company Ocean Yield and a stake in South Korean energy company SK E&S Co Ltd.
Private equity portfolio rose 7% in the quarter and opportunistic real estate funds rose 4%, KKR said. Blackstone and Carlyle reported appreciation in their private equity funds of 4.8% and 6%, respectively.
KKR's assets under management rose 2.6% during the quarter to $471 billion, driven by strong fundraising, while unspent capital was flat at $112 billion.