KKR & Co. Inc. Quarterly Report for Q1 Ended Mar 31, 2018

Summary

KKR & Co. Inc. reported its first quarter 2018 financial results, highlighting continued growth in Assets Under Management (AUM) across its Private Markets and Public Markets segments. The company saw an increase in AUM to $102.2 billion for Private Markets and $74.1 billion for Public Markets. Revenues from fees and other sources showed a modest increase, largely driven by higher management fees, though transaction fees saw a decline. Performance income, particularly carried interest, experienced a significant year-over-year decrease, primarily due to lower appreciation in the private equity portfolio compared to the strong prior-year period. The company also announced its planned conversion from a Delaware limited partnership to a Delaware corporation, effective July 1, 2018, a move expected to simplify its tax structure and appeal to a broader investor base. KKR's segment performance was mixed, with Private Markets revenue impacted by lower transaction fees and a notable decrease in unrealized carried interest, while Public Markets demonstrated growth in AUM and an increase in performance income driven by incentive fees and carried interest in private credit strategies. The Capital Markets segment experienced a decline in transaction fees due to fewer and smaller deals. Management reiterated its commitment to shareholder returns, noting progress on its unit repurchase program and declaring a quarterly distribution. The firm's overall financial health remains robust, supported by diversified revenue streams and a significant amount of uncalled capital commitments available for future deployment.

Key Highlights

• 1KKR's Private Markets AUM increased to $102.2 billion, and Public Markets AUM reached $74.1 billion as of March 31, 2018.
• 2Total segment revenues were $472.6 million for Q1 2018, a decrease from $767.8 million in Q1 2017, largely due to a significant drop in capital allocation-based income (primarily carried interest).
• 3Compensation and Benefits expenses decreased by approximately $104.8 million year-over-year, mainly due to lower performance-related compensation reflecting reduced portfolio appreciation.
• 4Net income attributable to KKR & Co. L.P. Common Unitholders was $170.1 million, down from $259.3 million in the prior year's quarter.
• 5The company announced its decision to convert from a limited partnership to a Delaware corporation, effective July 1, 2018, aiming for simplified tax structures and broader investor appeal.
• 6Transaction fees across segments saw a decline, with Capital Markets transaction fees down $13.5 million year-over-year, attributed to fewer and smaller deals.
• 7Despite the overall revenue dip, Fee Related Earnings (FRE) remained strong at $223.4 million, indicating stable operating profitability from management and transaction fees.

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