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KKR Falls Behind Arch Rival Blackstone

05 August, 2011

Kohlberg Kravis Roberts, the private equity group, has fallen behind its arch rival Blackstone as its main measure of profitability fell by 27 per cent in the second quarter.

A year after it listed on the New York Stock Exchange, KKR reported economic net income of $315m for the second quarter, compared with $433m a year ago. It attributed the 27 per cent drop to a lower level of appreciation in the value of its investments.

That relatively weak performance contrasts with that of Blackstone, which reported profits that more than tripled in the second quarter and marked its best performance since going public four years ago. Blackstone has $159bn under management compared to KKR’s $62bn.

Shares in KKR fell 4.4 per cent to $13.52 by midday in New York trading, amid weak financial markets.

Economic net income is a measure private equity firms use in reporting results that excludes costs associated with listing.

KKR’s private equity portfolio grew by 3.8 per cent in the quarter, subdued in comparison to last year, but far better than the performance of the S&P 500 for the period.

KKR offered an upbeat view of the investment environment, despite the uncertainty and volatility surrounding the sovereign debt crisis in Europe, disappointing economic growth in the US and the political brinkmanship over raising the US debt ceiling. The group also noted that the performance of the companies in its portfolio had held up with little sign of economic weakness.

Since the end of March, KKR put $3.6bn into new investments in the private markets and continued to raise money for various initiatives including energy, infrastructure and credit.

Like many alternative fund management groups, KKR seeks to profit from the reluctance of banks to offer credit to middle market companies. It is also eyeing more assets in Europe as banks there start the long-awaited process of selling assets to raise cash.

KKR is raising its latest North American private equity fund, expected to be between $8bn and $10bn.

Meanwhile, other alternative fund managers including Oaktree Capital and Carlyle are planning to go public. Oaktree will likely begin its roadshow next month while the timing of Carlyle’s IPO is less clear.

KKR will pay a dividend of 11 cents to shareholders, up from 8 cents a year ago, though lower than in some past periods.

While no private equity firm is as closely associated with its founders as KKR, recently cousins Henry Kravis and George Roberts, have worked hard to present a more institutional face to the world and no longer participate in earnings calls with analysts.

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KKR Falls Behind Arch Rival Blackstone

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