(Bloomberg) -- KKR & Co. is predicting the coronavirus crisis will ultimately be another inflection point for its business even as its holdings took a hit.
Scott Nuttall, co-president of KKR, said during an earnings call that the possibilities for the firm to expand are even greater now than during the last financial crisis.
“We find ourselves in the fortunate position of being ready as a firm this time to not only play defense but also playing more offense and we've been doing a lot of both over the last several weeks,” Nuttall said.
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The New York-based firm spent about $8 billion across credit and equity since the start of the crisis, Nuttall said. And, in a sign there's an appetite for deals, KKR has raised $10 billion over the last two months.
KKR executives focused on looking ahead after the company posted declines in the first quarter across most of its businesses. The firm's private equity portfolio fell 12%, according to a statement Wednesday. Global infrastructure had the only gain, an 18% increase, helped by an asset sale from the second fund.
The major private equity firms suffered in the first quarter along with most other assets managers as the damage inflicted by the pandemic spread to all corners of the market. Apollo Global Management Inc., Carlyle Group Inc. and Blackstone Group Inc. saw depreciation last quarter across most of their business segments. Apollo also faces the prospect of having to hand back earlier profits from several funds.
The potential for a global recession threatens to slow future sales of businesses as well as fundraising efforts by asset managers. Even so, private equity firms are sitting on about $1.5 trillion of capital and in several cases looking to gather more to invest in potential bargains created by market turmoil.
KKR is finding opportunities to provide liquidity to struggling companies, said Nuttall. As an example he cited public and private companies that are looking to sell non-core subsidiaries to delever. The firm is also working with several of its portfolio companies that are looking to grow and consolidate through acquisitions. While there was a pause in the deal pipeline at the start of the crisis, opportunities have picked up, particularly in Asia.
Some of KKR's key holdings, including financial technology company Fiserv Inc. -- its largest balance sheet investment -- had double-digit declines during the quarter. The S&P 500 Index fell 20%, its biggest quarterly drop in more than a decade.
Portfolio companies squeezed by the pandemic include Envision Healthcare Corp., one of the largest physician-staffing firms in the U.S. It has been facing steep losses after elective surgeries were stopped because of the virus.
But like its peers, KKR is trying to take advantage of the market stress. Its credit business purchased discounted secured debt in resilient sectors such as telecommunications and natural-gas distribution. The firm also rebooted an unsuccessful credit fund in hopes that it can raise money to buy loans and bonds affected by the outbreak.
The firm brought in $7.1 billion during the quarter, lifting its dry powder to $58 billion, and executives said KKR plans to raise money for three of its largest funds in the coming months.
KKR rose 3% at 12:26 p.m. in New York. The stock was down 16% this year through Tuesday, trailing Apollo and Blackstone but faring better than Carlyle.
Among KKR's first-quarter financial highlights:
- Distributable earnings of 42 cents matched the average estimate among analysts surveyed by Bloomberg.
- Fee-related earnings rose 6% from a year earlier to $236 million.
- Firm expects more than $400 million of carry for closed and pending sales.
- KKR disclosed that it has $90 million in clawback exposure.
- Among major publicly traded holdings, Fiserv fell 18% and drug developer BridgeBio Pharma Inc. declined 17% during the quarter.
- Realized performance income increased 6% from a year earlier to $372 million.
- Assets under management dropped 5% from the prior quarter to $207 billion, in part because of investment declines and client redemptions. Fee-paying assets slid 1% to $159 billion.
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