KKR reported quarterly returns of 11 per cent in its private equity funds and added a record $16bn to its stock of unspent cash in the three months ending June 30, becoming the latest Wall Street group to reveal standout results as markets surged back from March lows.
The firm’s investment income of $1.6bn compared with losses of $3.7bn in the previous quarter, which ended days before Federal Reserve chair Jay Powell vowed to use his powers “forcefully, proactively and aggressively” to limit economic fallout from the pandemic.
The US economy has suffered heavily since those early weeks of lockdown, recording its sharpest postwar contraction in the quarter ended June 30, while 17m Americans were receiving unemployment benefits as of mid-July.
But share prices of alternative asset managers have rallied. They have been buoyed by an expanded bond-buying programme in which the US central bank bought up a wide range of corporate credits, including, for the first time, some junk-rated debt — a key source of funding for private equity firms’ acquisitions.
“Our year-to-date results demonstrate the resiliency of KKR’s model with growth seen across our key financial metrics despite broad market volatility,” said KKR’s billionaire founders, Henry Kravis and George Roberts. “We continued to scale our businesses organically, raising a record amount of capital in the second quarter, while finding opportunities to invest globally on behalf of our limited partners.”
Assets under management rose 8 per cent to $222bn, helped by the raising of a $10.6bn fund focused on private equity deals in Asia.
KKR is poised to add another $70bn to that total with the takeover of life insurance group Global Atlantic, which was announced last month.
That deal will create a stock of “permanent capital”, much of which will be invested by KKR’s credit unit, with no fixed schedule over which it has to be returned to investors.
The transaction mirrors similar initiatives by private equity peers such as Carlyle and Apollo Global Management, which have invested in insurance companies as a means of feeding money to lending units that are increasingly taking over the role of traditional financial institutions.
Such deals are also becoming a significant source of private equity firms’ management fees. KKR estimated it will add $200m a year in net fee revenue as a result of the Global Atlantic transaction, equivalent to 11 per cent of the firm’s total fee revenue last year.