10-QPeriod: Q1 FY2013

KKR & Co. Inc. Quarterly Report for Q1 Ended Mar 31, 2013

Filed May 2, 2013For Securities:KKRKKRTKKR-PDKKRS

Summary

KKR & Co. Inc. reported solid financial results for the first quarter ended March 31, 2013. Total revenues saw a significant increase, driven by higher management and incentive fees, reflecting growth in Assets Under Management (AUM) and successful acquisitions. The firm's Fee Related Earnings (FRE) demonstrated continued strength, indicating robust operational profitability. Investment income, while lower than the exceptional performance in the prior year's first quarter, remained substantial, primarily driven by unrealized gains in the private equity portfolio. Net income attributable to KKR & Co. L.P. common unitholders showed a slight increase year-over-year, reflecting effective management of expenses despite increased operational scope. Key operational highlights include continued expansion of AUM across both Private Markets and Public Markets segments, supported by strategic fundraising and positive investment valuations. The company's disciplined approach to expenses, particularly in compensation and benefits, contributed to the solid profitability. KKR also maintained a strong liquidity position, with significant cash and short-term investments available to support ongoing operations and strategic growth initiatives. The report also detailed the company's segment performance, with Private Markets and Public Markets both contributing positively to overall financial results, and highlighted the segment's focus on strategic growth and value creation.

Financial Highlights

26 data points
Beta

Net Income

$193.44M

Total Assets

$45.54B

Cash & Equivalents

$1.50B

Free Cash Flow

$1.51B

Financial Statements
Beta
Interest Expense$23.02M
Net Income$193.44M

Key Highlights

  • 1Total Revenues increased to $151.2 million for Q1 2013, up from $116.3 million in Q1 2012, driven by growth in management fees (+ $20.8M) and incentive fees (+ $9.2M).
  • 2Net Income Attributable to KKR & Co. L.P. was $193.4 million for Q1 2013, a slight increase from $190.4 million in Q1 2012.
  • 3Assets Under Management (AUM) in the Private Markets segment grew to $50.3 billion as of March 31, 2013, up from $49.1 billion at the end of 2012.
  • 4Fee Related Earnings (FRE) increased across all segments, demonstrating strong operational profitability, with total FRE reaching $88.0 million for Q1 2013.
  • 5Investment Income (Loss) remained substantial at $2.4 billion for Q1 2013, primarily driven by unrealized gains in the private equity portfolio, though lower than the prior year's $3.3 billion.
  • 6The company completed the acquisition of Prisma Capital Partners LP in October 2012, which contributed to increased management fees and overall segment performance in Q1 2013.
  • 7KKR maintained a strong liquidity position with $1.5 billion in cash and cash equivalents as of March 31, 2013.

Frequently Asked Questions

KKR's total revenues were $151.2 million for the three months ended March 31, 2013, an increase of $34.9 million compared to $116.3 million for the same period in 2012. This increase was primarily driven by higher management fees (up $20.8 million), a rise in gross monitoring fees (up $10.2 million), and an increase in incentive fees (up $9.2 million). The growth in management fees was largely attributed to the acquisition of Prisma Capital Partners and new capital raised. Transaction fees, however, saw a decrease of $5.2 million, mainly due to lower syndicated equity volumes in the capital markets business.

Net income attributable to KKR & Co. L.P. common unitholders increased slightly to $193.4 million for Q1 2013, from $190.4 million in Q1 2012. While total investment income decreased from $3.3 billion to $2.4 billion, largely due to a lower level of net appreciation in the private equity portfolio, this was offset by a decrease in total expenses from $445.3 million to $439.3 million. The decrease in expenses was primarily due to lower equity-based compensation and carry pool allocations, partially offset by increased cash-based compensation and other operating expenses related to the Prisma acquisition.

KKR's AUM is driven by its capital raising activities and the overall activity in its investment funds and vehicles. For the Private Markets segment, AUM increased to $50.3 billion by March 31, 2013, up from $49.1 billion at the end of 2012. This growth was primarily due to an appreciation in the market value of its private equity portfolio ($2.1 billion) and new capital raised ($1.0 billion), which was partially offset by distributions ($1.8 billion) and foreign exchange movements. The Public Markets segment's AUM also grew to $27.9 billion from $26.4 billion, driven by new capital raised and increased net asset values, partially offset by distributions and redemptions.

KKR manages its liquidity by focusing on cash flows from operations, investment realizations, and borrowings. Primary sources of liquidity include fees earned, carried interest distributions, sales of principal assets, and borrowings under credit facilities. On a consolidated basis, net cash provided by operating activities was $1.5 billion for Q1 2013, significantly up from $0.4 billion in Q1 2012. This increase was largely due to proceeds from investment sales and net realized gains. Financing activities primarily involved distributions to noncontrolling interests and partners, and net proceeds from debt obligations.