KKR recorded a net loss of $4.2bn in the first quarter as economic fallout from the coronavirus pandemic cut in half its carried interest pot, or share of profits for partners.
Despite the tide of red ink, the buyout firm celebrated an 18 per cent quarterly gain on its $3bn global infrastructure fund, which offloaded its largest investment to Swedish rival EQT weeks before the crisis struck.
The February sale of German broadband provider Deutsche Glasfaser locked in gains on that investment shortly before the global economic shutdown gutted portfolio valuations across the private capital sector.
But the virus wrought destruction elsewhere in KKR’s portfolio, forcing the pioneering buyout firm to write down its private equity portfolio by 12 per cent in the first quarter.
Among KKR’s most significant investments is Envision, a US medical staffing company that has hired restructuring advisers to explore ways to reduce its big debt pile.
“We can’t help but . . . express our gratitude for the sacrifices, efforts and professionalism exhibited by all essential workers, including the many who work for our portfolio companies, standing on the front lines of the Covid-19 pandemic,” said co-chief executives Henry Kravis and George Roberts, in a joint statement.
Coronavirus-related losses have decimated the portfolios of Wall Street’s biggest investment groups, potentially robbing them of performance income and casting uncertainty on the finances of public pension schemes that are among the sector’s biggest investors.
KKR’s larger rival Blackstone last week reported investment losses of 22 per cent in its private equity business, partly as a consequence of its exposure to energy companies — a sector that KKR has largely shunned.
At Apollo Global Management the damage struck even closer to home, with the group calculating that its partners and employees would have been on the hook to hand back $390m in performance-related pay if its portfolio had been liquidated at the valuations recorded in late March.
KKR calculated it would receive just over $1bn in carried interest from selling all of its assets at March valuations, down from nearly $2bn at the end of last year.
However, much of the firm’s revenue takes the form of stable “management fees”, which are usually calculated as a percentage of the amount that clients have agreed to invest and remain constant even if they suffer losses because of economic headwinds or bad bets.
KKR earned $332m in management fees in the first quarter, up from $292m in the same period last year.