10-QPeriod: Q1 FY2016

KKR & Co. Inc. Quarterly Report for Q1 Ended Mar 31, 2016

Filed May 6, 2016For Securities:KKRKKRTKKR-PDKKRS

Summary

KKR & Co. Inc. (KKR) reported a significant net loss for the first quarter of 2016, primarily driven by substantial unrealized losses in its investment portfolio, particularly within the Private Equity and Credit segments. This financial performance contrasts sharply with the strong net income achieved in the same period of the prior year. The company also adopted new accounting guidance (ASU 2015-02) which led to the de-consolidation of most investment funds, impacting the presentation of revenues and expenses, though not the net income attributable to KKR & Co. L.P. Despite the headline net loss, Assets Under Management (AUM) saw an increase, driven by new capital raised, especially in the Private Markets segment, indicating continued investor confidence and fundraising success. The company's segment analysis reveals that Private Markets experienced a decrease in fees and performance income, largely due to a significant drop in monitoring fees and carried interest losses. The Public Markets segment also saw a decline in performance income. However, the Capital Markets segment demonstrated growth in transaction fees. KKR continued its share repurchase program, indicating a commitment to returning capital to shareholders. The company ended the quarter with a solid cash position, supporting its liquidity needs.

Financial Highlights

25 data points
Beta

Net Income

-$329.94M

Total Assets

$34.43B

Cash & Equivalents

$1.28B

Free Cash Flow

-$740.26M

Financial Statements
Beta
Interest Expense$171.39M
Net Income-$329.94M

Key Highlights

  • 1KKR reported a net loss of $329.9 million for Q1 2016, a significant decline from a net income of $270.5 million in Q1 2015, mainly due to investment losses.
  • 2Assets Under Management (AUM) increased to $126.4 billion as of March 31, 2016, up from $107.6 billion at the end of 2015, driven by new capital raised.
  • 3The adoption of ASU 2015-02 resulted in the de-consolidation of most investment funds, impacting revenue and expense reporting but not the net income attributable to KKR & Co. L.P.
  • 4Private Markets segment revenue decreased significantly, primarily due to a large drop in monitoring fees and net carried interest losses, despite an increase in AUM.
  • 5Capital Markets segment revenue increased by 33%, driven by higher transaction fees from larger capital markets transactions.
  • 6KKR continued its share repurchase program, buying back approximately 14.2 million units for $195 million in Q1 2016.
  • 7The company ended the quarter with $1.5 billion in cash and short-term investments on a segment basis, indicating strong liquidity.

Frequently Asked Questions

The significant net loss of $329.9 million for the first quarter of 2016 was primarily driven by substantial net losses from investment activities, totaling $735.2 million. This was largely attributable to unrealized losses in the private equity and credit portfolios, as well as net realized losses from certain investment redemptions and dispositions.

KKR adopted ASU 2015-02 on January 1, 2016, which resulted in the de-consolidation of most of its investment funds. This change means that revenues and expenses related to these previously consolidated funds, such as management fees and carried interest, are now recognized in 'Fees and Other' rather than being eliminated in consolidation. While this impacts the gross reporting of revenues and expenses, the company states it did not impact net income attributable to KKR & Co. L.P.

The Private Markets segment saw a revenue decline, mainly due to lower monitoring fees and negative carried interest, despite an increase in AUM. The Public Markets segment experienced a decrease in performance income. The Capital Markets segment showed strength with increased transaction fees due to larger deal sizes. Overall, while investment performance faced headwinds in Q1 2016, the company continues to attract new capital, particularly in Private Markets.

KKR continues to actively repurchase its common units under its share repurchase program, having bought back approximately 14.2 million units for $195 million in the first quarter of 2016. The company also declared a quarterly common unit distribution of $0.16 per unit, indicating a commitment to returning capital through both repurchases and distributions, subject to board discretion and preferred unit distribution requirements.