While other public alternative asset companies have reported less-than-stellar earnings, Kohlberg Kravis Roberts & Co. LP is on the rise, reporting a 73.4% hike in earnings in the second quarter of 2012 from the same period a year ago.
Earnings per share were 74 cents, beating analysts' estimates of 58 cents per share.
The firm attributed the boost largely to exits within and a rise in the value of its private equity portfolio, which it said appreciated 5.1% in the second quarter. Comparatively, Blackstone Group LP reported a 74% loss year-over-year in its earnings, while its portfolio lost 4.2% of its value. Carlyle Group's portfolio lost 2%.
KKR executives said two private equity deals were primarily responsible for its second-quarter boost. U.S. drugstore chain Walgreen Co. paid $6.7 billion for a 45% stake in European pharmacy chain Alliance Boots GmbH in June, the primary driver of the good returns. A secondary notes sale of Dollar General Corp. worth $500 million also helped.
Separately, KKR said it is setting up a joint venture with Stone Point Capital called KKR-SPC Merchant Advisors LLC to advise middle-market and sponsor-backed companies on the capital markets. Both firms are committing $150 million to the venture. Eventually, the firms hope to add risk management and fundraising services.
The venture will be entirely separate from KKR's existing capital markets advisory service, KKR Capital Markets.
"We were finding a lot of opportunity in the middle market to provide capital to both companies and sponsors," KKR's Scott Nuttall said on a conference call with analysts. "The banks have pulled back meaningfully from the standpoint of providing capital. The first thing that the JV will provide is dedicated and incremental capital to balance sheets in the middle market."
Economic net income, the measure by which private equity firms show earnings, was $546 million for the second quarter, up from $315 million in the same period a year ago. Another metric, net income based on generally accepted accounting principles, rose from $39.6 million in the second quarter of 2011 to $146.3 million this year. The income, for the first six months of 2012, was more than double what it was in 2011.
The firm declared a second-quarter distribution of 13 cents per unit.
Two other measurements of the company's performance, fee-related earnings and assets under management, fell. Fee-related earnings were $69.8 million, down from $76.1 million in the same period a year ago. KKR's assets under management fell from the first quarter of 2012 by $800 million, to $61.5 billion.
Debevoise & Plimpton LLP advised Stone Point on the joint venture, led by Stephen R. Hertz, Jeffrey J. Rosen and Rebecca F. Silberstein, and including associates Caitlin Gibson, Michael Bolotin and Jeremy R. Delman.