With Kohlberg Kravis Roberts (KKR) reporting a 17 percent on-year decline in its net income for the third quarter ending 30 September, its executives were keen to reassure investors that its infrastructure funds were not majorly affected by recent market volatility and a sharp fall in oil prices.
“We like to invest in complex situations when other investors may be nervous… we are hopeful this will lead to more opportunities,” said Scott Nuttall, head of the global capital and asset management group at the private equity giant, during a call with analysts, adding that the firm has $17.5 billion in dry powder in its various funds.
Global oil prices shed about 20 percent from their June highs last week, leading to equities in the energy sector coming under pressure.
While falling oil prices have the potential to adversely affect some of KKR’s investments, Nuttall said its overall oil exposure is limited compared with available opportunities going forward.
KKR’s infrastructure business is not directly exposed to commodities price swings “by design” and has “no meaningful oil exposure” he said.
The firm’s infrastructure funds are currently investing in five sectors, including renewables, water and waste water treatment, communications infrastructure, district heating and cooling, and parking.
“Our investment in Colonial Pipelines is inflated from commodity price movements given the nature of the underlying contracts,” Nuttall said.
Nuttall added that energy investment accounted for a “very modest percentage” of third-quarter fair value.
As of 30 September, KKR had over $40 billion of fair value investments across its private equity funds, of which only 3 percent was in direct energy investments, he said during the call.
This position was “purposeful” Nuttall said, given a backdrop of high valuations in energy private equity and a large amount of capital chasing investments.
“We expect the drop in value to make the market more sober, significantly broadening our opportunities going forward,” he added.
Nuttall admitted during the call that KKR’s energy income growth and natural resources funds do have direct oil exposure – “these products are purposefully exposed to commodities”. But he said that investors should look at the details and would realise that there is little net exposure to oil prices.
He said only $1 billion of the $3 billion in those funds is invested so far, and two-thirds, or $2 billion, is dry powder “ready to be deployed.”
“Energy income growth (fund) is a young strategy with a lot of dry powder, and KKR natural resources is largely exposed to natural gas… (and) what oil exposure we do have is about 50 percent hedged,” he added.
KKR reported a 17 percent on-year decline in its net income for the third quarter ending 30 September – economic net income (ENI) slipped to $508.7 million from $613.7 million a year earlier.