KKR posts 5% LTM gross returns in alternative credit during Q2

The alternatives giant is in market with its latest direct lending vehicle focused on Europe, where executives said the firm has seen increased investor interest due to negative-yielding debt.

KKR’s alternative credit strategies – funds for special situations, senior and mezzanine debt – have posted a gross internal rate of return of 5 percent over the last 12 months, the New York-based firm said on Thursday.

The alternative asset giant, which does not break out fund performance in its quarterly earnings material, saw that gross return figure decrease from the 7 percent it reported at the end of the first quarter.

KKR will break out its fund returns in its Form 10-Q, which it has yet to file for the three months ending 30 June.

As of 31 March, Special Situations Fund II was delivering a 2.9 percent net internal rate of return and a 1.1x multiple of invested capital; Private Credit Opportunities Partners, a mezzanine debt fund, was delivering 2.6 percent and 1.0x, respectively; and Lending Partners II, a senior debt fund, was delivering 9.1 percent and 1.3x, respectively.

On its second-quarter earnings call, KKR executives emphasised the firm’s plans to continue building out its fundraising team, a key focus alongside the launching of new investment products. The firm said it still sees an opportunity to cross-sell products to investors.

KKR is currently in market with multiple vehicles, including its latest European direct lending fund and an Asian real estate fund, the latter of which held an initial close during the quarter on an unspecified amount. In addition, the firm will be back in market with its Americas- and Asia-focused private equity funds as well as its next infrastructure vehicle in the next six to 18 months.

Executives on the call also said the firm still has plenty of room to grow because despite being four decades old, many of its platforms are 10 years old or newer. The firm launched its first business development company and direct lending fund in 2011, the same year it established a standalone real estate platform. Its infrastructure platform was set up in 2009.

Firm executives said they are seeing an increased interest in private markets strategies from investors in Europe due to the continent’s negative yielding debt. The European Central Bank signalled on Thursday it could cut rates further, pushing the interest rates even further below zero.

On the topic of subscription lines, KKR cited the administrative ease of using such facilities and said it had been doing so for the “past few years”. The outstanding amounts are paid down every six months, and the firm also reports returns to its limited partners both with and without the subscription line, which critics say private equity firms can use to boost returns.

For the second quarter, the firm reported $206 billion in assets under management and $287.11 million in fee-related earnings. KKR posted a $0.93-a-share income on a diluted basis.