November has been a busy month for KKR & Co.
On the fourth day of the month, Kohlberg Kravis Roberts (KKR) released out their third quarter results. There are two sides to the report. One, the company was going strong in terms of business transactions. Two, the company was nevertheless losing out money in private equity investments. Assets under management (AUM) went up to $58.7 billion, over $55.5 billion in the last year's quarter. Fee related earnings shot up to $98.2 million from $69.5 million same quarter previous year. This was because of the increase in the fee-paying AUMs, funded by new capital raised. This totally brings home the point that the company is rolling pretty fast.
But wait! Is it gathering any moss? Maybe not the perfect analogy, but I guess you know what I mean to say. Is the company getting enhanced returns from the investments that it makes? The carrying value of private equity investments declined by 8.5% for the quarter ended September 30, 2011, but is up 1.5% for the nine months ended September 30, 2011. Economic net income (ENI) was ($592.1) million for the quarter ended September 30, 2011, a decrease of $909.4 million, as compared to ENI of $317.3 million for the quarter ended September 30, 2010. Yes, it can be said that last quarter's return on investments might not have been that good enough, but over a longer time period, it seems that the company hasn't really lost that much, rather gained a bit.
"For the nine months to September 30, our private equity investments outperformed the S&P 500 by over 1,000 basis points despite the recent market volatility," said Henry R. Kravis and George R. Roberts, Co-Chairmen and Co-Chief Executive Officers of KKR. "We have capitalized on attractive opportunities in all of our segments, leading to investments or commitments of nearly $3.5 billion since June 30 and a record quarter in our capital markets business. Our ability to take advantage of volatile market environments stems from the long-dated capital entrusted to us by a growing base of limited partners across our diverse set of strategies."
The company hasn't stopped after that. In the era of energy crisis, the company signs an agreement to buy Samson, one of the largest private exploration and production companies in the United States, for $7.2 billion. Founded in 1971, Samson owns interests in over 10,000 wells of which it operates over 4,000 wells in the United States, with key positions in oil and liquids-rich plays such as the Bakken, Powder River, Green River, Granite Wash, Cana Woodford and Cotton Valley as well as in the Haynesville and Bossier gas shales. KKR is slowly gaining share of the domestic energy sources, nice way to go. It must be remember that 39% of the energy requirement in U.S. is met by petroleum supplies.
On 28th November, KKR signs another definitive agreement to buy Capital Safety, a leading provider of fall protection equipment ("FPE"), from Arle Capital Partners, for $1.12 billion. With roots dating back to 1938, Capital Safety is a global leader in the design and production of FPE solutions for workers at height. A subset of the $20 billion safety equipment sector, FPE is a rapidly growing industry driven by rising social and regulatory focus on worker safety, in addition to underlying growth in key end-markets across developed and emerging geographies.
Time is rough, but KKR still seems to go on pretty strong. KKR's return on average assets, standing at 22.67%, is better than (-4.3%) of Blackstone Group (BX), 15.65% of American Capital (ACAS) and 1.15% of BlackRock (BLK). So, even when the financial performance might not be inspiring last quarter, the company scores higher than the others. And in the leverage section, KKR's total debt to assets ratio of 3.87x is much less than 25.58x of Morgan Stanley (MS) and 15.74x of Franklin Resources (BEN). So for the time being, I give my support to KKR.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.