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KKR reports $1.2bn investment loss

The buyout giant has said ‘a number of market conditions’ caused its investment portfolio to lose $1.2bn in value in the first half of 2008, while the firm’s compensation costs for an expanding stable of employees grew by 80 percent.

Kohlberg Kravis Roberts has said that “a number of market conditions” contributed to a $1.2 billion (€815 million) investment loss for the first six months of the year, according to a Securities and Exchange Commission filing. This compares with a gain of $3.1 billion for the same period in 2007.

KRK attributed the loss “primarily [to] decreases in the market value of [its] investment portfolio and to a lesser extent a decline in net realized gains”.

“Debt underwriting declined meaningfully in the second half of 2007 and the backlog resulting from pending private equity-led transactions reached record levels,” KKR said in a statement. “Recently announced private equity-led acquisitions have mostly been smaller in sizes, with less leverage and less favourable terms for the debt provided, all of which has had a significant impact on our business.”

As well as debt market constraints, KKR also cited declining and illiquid equity markets and general market volatility as contributing to the tough market conditions.

Based upon “higher incentive compensation reflecting [its] improved financial performance during 2007”, the firm’s payroll for the first six months of the year grew by around 80 percent to $92 million. KKR has hired around 100 employees since July as part of ongoing expansion ahead of its intended listing later this year.

The firm’s net income, which for the first half of 2007 was $667 million, dipped into the red for the same period this year, showing a loss of over $1 million.

“The duration of current conditions in the credit and high-yield debt markets is unknown,” the statement goes on to say.

Despite the ongoing market turbulence, the firm is till pushing ahead with its plans – announced in July – to acquire its Euronext-listed vehicle KKR Private Equity Investors, known as KPE for short, and subsequently list the combined entity on the New York Stock Exchange before the end of the year.