KKR Is Overvalued

| About: KKR (KKR)

KKR & Co. L.P. (NYSE:KKR) earned $509.9 million in the third quarter, swinging from a loss over the same period last year. The firm's assets under management grew 7.8 percent to $66.3 billion.

While economic net income declined from $546 million in the second quarter, the private market segment economic net income increased from $174 million in the second quarter to $213 million in the third. The private market segment reported a loss of $152 million in the year-ago quarter.

The public market segment increased economic net income from $6.8 million in the second quarter to $34.9 million in the third quarter. That compares with $8.9 million in the year-ago quarter.

The capital market and principal activities segment economic net income declined from $364.5 million in the second quarter to $261 million in the third quarter. Economic net income was negative $449 million in the year-ago quarter.

The operating segments performed well during the third quarter compared to the second quarter and the year-ago quarter.

KKR & Co. co-founders Henry Kravis and George Roberts are struggling to wrap up their first main buyout fund in six years as the company's prior fund underperforms and investors scale back private-equity commitments.

Investors such as public pension funds and endowments have cut allocations to private equity since the financial crisis, which froze deals and reduced the cash distributions they received.

Marc Lipschultz, one of KKR's most senior partners, has been trying to build a business dedicated to energy and infrastructure outside of the firm's main buyout unit. Besides the infrastructure fund, Lipschultz is also raising a pool dedicated to energy investments.


The short-term multiplier model valuations are near a recent peak: KKR is overvalued. On an absolute basis, the multiplier model valuations suggest KKR is overvalued. The firm trades at 30 times earnings and 5 times sales.


KKR's financial performance and positions are solid. However, the firm is overvalued. Traders should consider short selling shares of KKR, and investors should be neutral on the issue.

Disclosure: I am short SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: This article is not meant to establish or continue an investment advisory relationship. Before investing, readers should consult their financial advisor. Christopher Grosvenor does not know your financial situation and ability to bear risk and thus his opinions may not be suitable for all investors.

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Tagged: , Asset Management, Alternative Investing, Earnings
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