The beginning of 2019 has been an eye-opener for investors, who've gone from despair to euphoria in just three short months. The end of 2018 made many investors fearful that the long bull market was coming to an end, but the first quarter has helped the stock market recover all of its losses and head to new all-time highs. That's been good news for private equity specialist KKR (KKR 0.86%), which had to deal with volatility at the end of last year but put itself in position to reap rewards from the subsequent bounce.
Coming into Tuesday's first-quarter financial report, KKR investors wanted to see just how much the company could benefit from more favorable market conditions. Many of KKR's key metrics reflected solid performance, and the company is hopeful that it can take its newfound momentum and carry it throughout the rest of 2019 and beyond.
KKR bounces back
KKR's first-quarter results stood in stark contrast to the mixed numbers it gave three months ago. Segment revenue, which is arguably the best indicator of performance for the business as a whole, jumped 25% to $850 million, which was stronger than the growth rate that most investors were prepared to see. After-tax distributable net income rose 33% to $314.1 million, and that produced distributable earnings of $0.38 per share, topping the consensus forecast among those following the stock for $0.37 per share.
KKR showed fundamental success during the period. Assets under management climbed to $199.5 billion, up 13% from where they were 12 months ago, and fee-paying asset levels rose by an even more impressive 23% over the same period. Nearly all of those gains came from rising market values of KKR's investment securities, as distributions and other payouts largely offset new capital that the private equity company raised. Management fees were higher by 16% year over year to $292 million for the quarter, and book value climbed to $16.99 per share, up 9% in just the past three months.
KKR's return performance remained solid and improved from past levels. Private equity produced a 10% gross return over the past 12 months, while its real asset strategies returned between 8% and 11%. Credit products had weaker performance, with alternative credit returning 7% and leveraged credit posting a 4% rise, but those numbers were consistent with the broader industry.
What's next for KKR?
KKR was happy with the first quarter's results. "We had a good start to the year," said co-CEOs Henry Kravis and George Roberts, "as investment performance led to meaningful book value growth." The executives pointed to strong operating fundamentals and rising asset levels that generate fees for KKR as key drivers of gains over the past 12 months.
KKR also indicated that it's been active in buying back the company's own shares. The private equity company spent $82 million between the beginning of 2019 and late April repurchasing 1.4 million shares from the open market and retiring 2.3 million shares' worth of equity compensation awards. With open-market purchases made at an average of $20.85 per share, KKR shareholders have gotten the benefit of lower share counts while seeing their share prices rise above KKR's purchase price.
KKR shareholders didn't have a dramatic reaction to the news, and the stock fell less than 1% in morning trading following the announcement. With plenty of strategic activity across the stock market, KKR will have ample opportunities to make forays toward taking publicly traded companies private. And investors' hunger for alternative investments that can produce better returns than regular stock market indexes without necessarily seeing high levels of correlation to other common asset classes should help KKR expand its business as long as financial conditions on Wall Street remain favorable.