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US private equity group KKR reported its first quarterly net loss since 2022 as a strong quarter for fundraising in its private equity business was overshadowed by its Global Atlantic insurance unit, which lost more than $1bn in the quarter due to markdowns on its sprawling fixed income portfolio.
KKR, like other private equity groups including Apollo Global and Brookfield, has pushed headlong into managing insurance assets to turbocharge its growth.
But these groups’ insurers are vulnerable to large quarterly accounting swings in the values of their holdings during volatile conditions, as interest rate gyrations shift valuations for even highly rated corporate bonds, mortgages and other loans.
The valuation changes, which include both realised losses of assets held for sale and paper losses on bonds that could recover in coming quarters, caused KKR’s insurance unit to lose $1.1bn during the quarter. The insurer absorbed a $1.4bn loss on a $76bn investment portfolio of corporate bonds and other debts that must be marked quarterly.
The insurance related losses pushed the broader KKR financial empire, which spans corporate buyouts, private loans and infrastructure and property deals, to a $185mn net loss in the first quarter.
However, the insurance unit generated $258mn in pre-tax operating profits excluding the quarterly mark-to-market of its holdings.
Overall, KKR’s finances were buoyed by strong fundraising across its asset management businesses, highlighted by its corporate buyout unit, which disclosed that it has completed a $14bn first close for a targeted $20bn North American buyout fund.
KKR raised $31bn in new capital during the quarter, pushing its assets under management to $664bn, a 15 per cent increase from this time last year. KKR’s rising assets caused its quarterly fee-related earnings, a proxy for management fees, to reach $823mn, an increase of 23 per cent from a year ago and which slightly beat analysts’ forecasts.
While KKR’s fee earnings and its adjusted net income, which analysts use as a proxy for cash flows, both beat expectations, its $526bn in fee-paying assets slightly fell short of analyst forecasts.
KKR’s earnings continue to see a growing benefit from a multibillion-dollar stockpile of equity stakes in 18 companies that the conglomerate holds on its balance sheet.
Those holdings delivered $31mn in earnings to KKR, an increase of more than 50 per cent from the prior year. Last month, KKR raised more than $2bn in a mandatory convertible preferred stock offering to increase its stake in two companies it holds on its balance sheet
“Our first-quarter results and significant April activity bear testament to the strength of our diversified and durable business model,” said KKR co-chief executives Scott Nuttall and Joe Bae.
