Kohlberg Kravis Roberts & Co (KKR) grew its portfolio by $2.3 billion quarter on quarter, with assets under management totaling $61.5 billion as of December 31, 2014, primarily due to capital raised for its European Fund IV and Global Infrastructure Investors Fund II, the New York-based private equity firm said in a press statement announcing its fourth quarter and full-year 2014 financial results.
The firm held a first close of $2 billion on its second infrastructure vehicle, which is already nearly double the size of its predecessor, Global Infrastructure Strategy, which closed in June 2012 on $1.04 billion.
The firm is aiming for a final close on between $2.5 billion to $3 billion, KKR’s global head, capital and asset management, Scott Nuttall, said during a conference call.
Global Infrastructure Investors II has a 12-year investment horizon and will invest in long-lived (10+ year contracts) core infrastructure assets globally, according to documents submitted for review to the Arkansas Legislative Council by the Arkansas Teacher Retirement System, whose board also approved a $50 million commitment to the fund in July 2014.
Other limited partners investing in the fund include the Employees’ Retirement System (ERS) of the State of Hawaii, the Maine Public Employees Retirement System, the Public Employees Retirement Association of New Mexico, and the Leicestershire County Pension Fund (UK), according to Infrastructure Investor Research & Analytics.
As for the firm’s financial performance, KKR reported a loss of $600,000 for the fourth quarter last year and net income of $477.6 million for the year ended December 31, 2014, posting a decline from $277.9 million and $691.2 million, respectively in the comparable periods of 2013.
“The decreases in [GAAP] net income (loss) were primarily due to a decrease in investment income, partially offset by an increase in KKR & Co LP’s ownership percentage in the KKR business,” KKR said in its statement.
The firm’s private markets revenue also declined. For the quarter ended December 31, revenues fell to $283.4 million from $1.0 billion in the comparable period of 2013; while total segment revenues for the full year of 2014 fell $532.6 million to $2.3 billion.
“The decrease in revenues for the quarter and year ended December 31, 2014 was principally attributable to a decrease in investment income due primarily to net unrealized losses in our energy portfolio, which were only partially offset by appreciation in our private equity portfolio,” the firm said.
“We marked down the energy portfolio at year-end as a result of the precipitous decline in crude oil, natural gas, and natural gas liquid prices,” Nuttall said during the call. “Keep in mind that public oil and gas companies with market values below $1 billion fell, on average, almost 50 percent in the fourth quarter,” he added.
However, cash flow was up 40 percent in 2014 over the previous year to stand at $2 billion, while distribution per unit was up 36 percent.
“We generated strong returns in exits for our fund LPs, had a record year for our capital markets business with revenues up 50 percent and generated a 21 percent cash return on equity,” Nuttall said.
The firm’s private equity portfolio outperformed the MSCI World index in 2014 by over 700 basis points, while other non-PE strategies, such as infrastructure and real estate, also achieved strong returns of 13 and 17 percent, respectively.