By Isla Binnie and Arasu Kannagi Basil (Reuters) -Investment firm KKR reported a rise in third-quarter profit that beat Wall Street’s expectations on Friday, boosted by strong fundraising, particularly in credit and its insurance unit. Adjusted net income of $1.27 billion, or $1.41 per share, surpassed the $1.17 billion, or $1.30 per share, that analysts […]
Business
KKR’s profit beats forecast on credit-led inflows, one-off charge weighs
Audio By Carbonatix
By Isla Binnie and Arasu Kannagi Basil
(Reuters) -Investment firm KKR reported a rise in third-quarter profit that beat Wall Street’s expectations on Friday, boosted by strong fundraising, particularly in credit and its insurance unit.
Adjusted net income of $1.27 billion, or $1.41 per share, surpassed the $1.17 billion, or $1.30 per share, that analysts on average had expected from the alternative asset manager, according to estimates compiled by LSEG.
The firm’s shares rose about 3% early then retreated after the company said it would take a fourth-quarter charge for an underperforming fund in Asia. Executives said other private equity funds in Asia had been “a bright spot”.
The stock was last broadly flat on the New York stock exchange, leaving its overall market value 19% lower on the year.
GUARD AGAINST VOLATILITY
Total assets climbed to $723 billion as KKR hauled in $43 billion in new capital, driven by $27 billion to credit.
Along with rivals Blackstone, whose assets have breached the $1 trillion mark, and Apollo, which hopes to get there by 2026, KKR has added new business lines to grow beyond the traditional private equity strategy of buying and selling businesses.
KKR’s co-CEOs Scott Nuttall and Joe Bae have set a target for assets to reach $1 trillion by 2030.
Fee-related earnings rose to $1 billion.
Private equity firms have branched out as higher interest rates hampered sales of companies they bought during a long period of lower rates. As exits from investments through sales or refinancing have slowed, so has the return of capital to investors, some of whom have become reluctant to commit to new funds.
KKR said on Friday it had raised $17.5 billion for its latest North America-focused fund, which people familiar with the matter said was targeting around $20 billion. It played down concerns about challenges around raising funds, selling assets and weakening credit faced by some in the industry.
Piper Sandler analysts noted KKR’s returns from traditional private equity were 2%, down from 5% in the second quarter.
Meanwhile Global Atlantic, which represents a third of the firm’s assets, saw operating earnings rise 28%.
“Results for alternative asset managers with balance sheets have demonstrated that the moat created from these businesses has increasingly immunized against rate volatility,” the Piper Sandler analysts said.
Analysts have been watching the retirement segments at KKR and Apollo for any signs of strain on profits from selling annuities, which are sold for a lump sum and guarantee regular payouts.
KKR also tapped the wealthy individuals whom alternative investment firms are increasingly targeting. Its K-Series business offering funds to retail investors grew to $29 billion from $14 billion a year ago.
Dry powder, or money investors have pledged but has not yet been used, totaled $126 billion. During the quarter, KKR closed a deal to buy a majority stake in biopharma royalty acquisition company Healthcare Royalty Partners, and a $2 billion investment from Japan Post Insurance Company.
After the end of the quarter, KKR teamed up with Apollo to invest $7 billion in Keurig Dr Pepper.
(Reporting by Isla Binnie in New York and Arasu Kannagi Basil in Bengaluru; Editing by Arun Koyyur, Mark Potter and Cynthia Osterman)