KKR Posts Biggest Loss as Deals Sour

NEW YORK ( TheStreet) -- KKR ( KKR) reported a quarterly loss Friday of $243.4 million Friday, signaling a deteriorating deal environment that is taking a toll on the firm.

On a non-GAAP basis, the private equity firm reported a $621.7 million loss in economic net income after taxes and was equal to 91 cents a share. At this time last year, KKR earned economic net income of $317.3 million, or 39 cents a share. Its loss beat analysts' estimates of $1.02 a share that were surveyed by Bloomberg. Still, it was the firm's largest ever loss since going public in 2010.

The decline comes from unrealized losses of investments, which in spite of rising management fee revenue, pushed earnings into negative territory. KKR took down the value of its private equity investments by 8.5% in the quarter, reflecting an investing loss of $688 million. Nevertheless, investments are still up 1.5% nine months into the year and free earnings increased over 40% in the quarter to $98.2 million.

KKR shares fell over 3% in early trading at $13.09 a share. The company's stock has fallen over 7% this year, but has gained nearly 40% since its 2010 IPO.

In the third quarter, the S&P 500 index fell 14% and the MSCI World Index dropped 17%. Meanwhile, the VIX, a gauge of general risk aversion, averaged 31 during the quarter reflecting an almost doubling of fear from the second quarter's average level of 17.

In the quarter, KKR's biggest deal was a divestiture of a Banco Santander unit for $1 billion, according to Bloomberg data. This year its biggest deal is a $3.5 billion shale sale to Marathon Oil ( MRO)

In October, Blackstone ( BX) posted a quarterly loss as deals dried up and market volatility increased. In contrast to competitor Blackstone, KKR reported that assets under management increased by just over $100 million compared with Blackstone's significant fund inflow in the quarter.

The company, co-founded in 1976 and run by Henry Kravis and George Roberts, is one of the world's largest buyout firms with over $58.7 billion in assets under management. It still holds blockbuster leveraged-buyout deals like First Data, TXU and U.S. Foodservice as private companies in its portfolios, in addition to large interests in recently IPO'ed companies like Dollar General ( DG), HCA ( HCA) and Nielsen ( NLSN). In spite of overall investing gains, many publicly trading investments fell significantly in the quarter, following a broad market decline.

Among its investments, KKR now carries its recently IPO'ed companies at near 100% gains and above, while it's marked down its First Data investment by nearly half and its TXU buyout by 90%. TXU, a Texas utility, was the largest private equity buyout in pre-crisis boom years at $43.3 billion.

According to earnings filings, KKR's investments are concentrated in the U.S., where it holds 69.8% of its portfolio and Europe where another 22.8% is allocated. It's also invested 7.4% of holdings in Asia, which contain its top performing Asian Fund and China Growth Fund. Among investing sectors, KKR holds nearly a quarter of investments in retail, 22.4% in healthcare and another 17.1% in financial services investments.

Volatile markets arent just impacting private equity, In October Goldman Sachs ( GS) reported its second ever quarterly loss as a public company. JPMorgan ( JPM), also reported a nearly 50% drop in its investment banking fees, leading to its worst investment bank earnings since the financial crisis when excluding debt adjustments.

-- Written by Antoine Gara in New York

Readers Also Like:


More from Personal Finance

This Should Be Your Retirement Savings Plan When the Stock Market Crashes

This Should Be Your Retirement Savings Plan When the Stock Market Crashes

Former General Electric CEO Jack Welch Has 4 Tips to Getting a Promotion

Former General Electric CEO Jack Welch Has 4 Tips to Getting a Promotion

What Is Neymar's Net Worth?

What Is Neymar's Net Worth?

How to Make a Fortune Like Microsoft Billionaire Founder Bill Gates

How to Make a Fortune Like Microsoft Billionaire Founder Bill Gates

Goldman Sachs' Marcus Service Has What Other Fintech Firms Don't

Goldman Sachs' Marcus Service Has What Other Fintech Firms Don't