KKR's private equity performance for the second quarter was strong thanks to the exit environment among other factors, KKR chief operating officer Scott Bookmyer told analysts in a second quarter earnings call.
At the end of the quarter on 30 June, the firm had made a total of $3.11 billion in private equity investments, or $4.01 billion in fair value.
Its three key flagship PE funds posted quarterly gross returns of 10.7 percent for its North America Fund XI (NAXI), which is 60 percent committed, 9.3 percent for European Fund III, and 15 percent for its Asian Fund II, according to its second quarter results.
The value of KKR's publicly traded securities within its PE portfolio jumped to $11.9 billion at the end of Q2 from $4.6 billion on 30 June 2014.
The private equity giant reported a record quarterly economic net income for the second quarter, thanks to its strong investment performance. Its earnings for the period reached $839.9 million, or 88 cents per share, up 67 percent from $501.6 million in the same period a year ago.
“The first take away from the quarter is we're generating strong investment performance,” Bookmyer said, speaking generally about the firm's investments. “Performance in the quarter was not only strong but also broad-based.”
In the private markets KKR posted an economic net income of $666.2 million, up 77 percent from $376.2 million in the second quarter last year.
It earned $243.27 million in realised carried interest in the private markets, and a total of $555.65 million including unrealised carried interest for the quarter.
KKR's shadow assets under management jumped 72 percent in value to $9.8 billion from $5.7 billion in the first quarter. Shadow AUM reflects commitments for which the firm does not earn management fees or carried interest. KKR spokeswoman Kristi Huller told Private Equity International that the remarkable increase in shadow AUM relates to fundraising: the firm raised more capital from which it receives fees on invested, not committed, capital and is therefore not reflected in AUM.
“We have had several second time funds in the market and they are scaling,” Huller said.
KKR chief financial officer Bill Janetschek said the biggest component of KKR's shadow AUM is its credit business.
“We continue to see significant investment in alternatives,” Bookmyer said. “Liquid alternatives specifically are expected to be a fast-growing component.”
At the time of publication, KKR's shares were priced at $24.68 on the New York Stock Exchange, up 59 cents or 2.45 percent, giving the firm a market capitalization of $10.90 billion. It plans to distribute 42 cents per share to its shareholders on 18 August 2015.
KKR reports a non-US Generally Accepted Accounting Principles value of ENI, in addition to GAAP earnings, to illustrate the firm's performance including carried interest and related carry pool allocations and investment income.