KKR (KKR) - Get Report , the fourth-biggest publicly traded U.S. private-equity firm, said Friday that second-quarter net income tumbled 24% as investment income dropped, joining its larger rival Blackstone (BX) - Get Report in reporting a profit decline.
Net income was $514.4 million, down from $680.4 million a year earlier, the New York-based company said in a press release.
Revenue and investment income increased by a combined $33.5 million, or just 1.5%, while compensation and other expenses climbed by $133.8 million, or about 20%.
In discussions with investors, KKR prefers to use earnings measures that aren't derived in accordance with generally accepted accounting practices.
One such measure, called "after-tax distributable earnings," fell by 19% to $327.3 million, or 39 cents a share. On that basis, the results beat Wall Street analysts' average forecast for 34 cents a share.
KKR's fall in after-tax distributable earnings was "primarily due to a decrease in realized carried interest resulting from a lower level of realizations within our private markets business line," according to KKR. Translated, that means KKR's fund managers booked fewer gains from sales of stakes in investments like private companies and real estate.
"Given our integrated business model, the ongoing development and diversification of our Firm, and our growing fundraising pipeline, we feel well positioned to deliver strong results for our shareholders," KKR's co-CEOs Henry Kravis and George Roberts said in the statement.
Private-equity firms have thrived since the financial crisis of 2008, benefiting from their investments in companies and real estate during a decade of appreciation in asset prices. The firms commonly use borrowed money, known as leverage, to pay for their investments -- a way of juicing returns that also carries higher risk.
As a result, private-equity giants like Blackstone and KKR, along with Apollo Global Management (APO) - Get Report and Carlyle Group (CG) - Get Report have built up impressive track records, drawing significant interest from big institutional investors like public pension funds that invest money on behalf of government employees and retirees.
The pension funds are chasing the returns because they've struggled to meet performance targets of 7% or higher in a low-interest-rate environment where 10-year U.S. Treasury bonds are yielding historically low levels around 2%.
KKR's assets under management nudged above $200 billion during the second quarter, up 36% from a year earlier.
KKR shares fell 0.88% to $27.15 in trading Friday.
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