KKR grows assets through credit strategies

The alternative asset manager reported that it has bought back $270m worth of shares through the $500m share buyback programme authorised in October and revealed that net income fell on the back of energy and credit mark-downs and market volatility.  

KKR’s assets under management (AUM) stood at $120 billion at the end of 2015, a 12 percent year-on-year (y-o-y) rise.

The New York-based alternatives manager’s fee earning AUM stood at $92 billion at the close of the year, a 7 percent y-o-y increase.

Speaking on the firm’s fourth quarter and full year 2015 earnings call today (11 February), management said that it has several fundraising initiatives underway in credit, real estate and infrastructure, as well as its twelfth North America flagship private equity fund, which was launched last year and is seeking $8 billion.

The firm’s economic net income (ENI) was $1.3 million for the year ended 31 December 2015, down from $1.7 million in 2014. The firm put the fall down mainly to lower total segment revenues, which stemmed from mark-downs related to market volatility and energy declines.

The firm also announced that it had so far bought back $270 million worth of shares as part of the $500 million share buyback programme it announced in October. The firm’s executives said they could look to extend the share buyback plan after the current authorisation runs out.

Speaking on market conditions, Scott Nuttall, KKR’s head of global capital and asset management, said KKR is seeing a lot of opportunities, particularly in lending, driven by market volatility. The firm now has about $29 billon in dry powder, which is a record figure for the firm.

KKR expects to close its second special situations fund, which is targeting $3 billion, this quarter. It’s also in the process of raising a second mezzanine fund, which was launched last summer, and is also seeking capital for its debut European direct lending fund.

KKR recently seeded a new real estate credit vehicle and is thinking about launching fundraising or seeking capital via a publicly-traded vehicle for the strategy. The firm is also raising money (about $500 million to $1 billion) for a European real estate fund.

“The fundamentals in almost everything we’re seeing are positive: investment returns are strong, deployment pace is high, with credit and infrastructure at record levels; the performance of our underlying portfolio companies is good and our fundraising success continues,” Nuttall said.

The firm deployed $11 billion across its funds and strategies in 2015, with activity picking up in the fourth quarter. In credit, the deployment was at a record $1.7 billion in the fourth quarter.

“When things get cheaper and companies need help, we tend to deploy more capital especially in infrastructure and credit,” said Nuttall.

Of the $20 billion raised in 2015, $16 billion came outside of private equity, Nuttall noted. The firm is also in the process of raising its first infrastructure fund.

“We like this environment of fear and volatility. The vast majority of our capital is locked up for a long period of time. When you have locked up capital, it’s great when things get cheaper. We can move quickly and with size, when traditional financing is unavailable and can monetize those investments later when markets swing back from fear to greed,” Nuttall said. “So we’re actually quite bullish on what we’re seeing.”