U.S. private equity group KKR reported that its first-quarter net loss since 2022 was a strong quarter for fundraising for its private equity business, with its global Atlantic insurance units covering up the quarter, losing more than $100 million in the quarter due to sales of its massive fixed-income portfolio.
KKR, like other private equity groups, including Apollo Global and Brookfield, has also prompted Hearllong to manage insurance assets to grow its growth.
However, the insurers of these groups are vulnerable to large quarterly accounting volatility in the value of their holdings under volatile conditions, as interest rate echoes shift the valuation of highly rated corporate bonds, mortgages and other loans.
They caused KKR's insurance units to lose $1.1 billion in the quarter as insurers absorbed $1.4 billion in losses in the $76 billion corporate bond portfolio and other debts that must be marked in the other quarter.
Insurance-related losses have led the broader KKR financial empire to span the company's acquisitions, private loans, infrastructure and real estate transactions, with a net loss of $185 million in the first quarter.
However, the insurance unit's pre-tax operating profit was $258 million, excluding quarterly markings to the market for its shares.
The change in valuation stems from KKR's purchase of the global Atlantic in 2021, when interest rates were much lower. Chief Financial Officer Robert Lewin said on the revenue call that the decision to sell some of the insurer’s portfolios and move into higher alternative investments had an impact on revenue.
Investors got rid of insurance losses, and stocks rose 2% at noon in New York.
The insurer is expected to become an important source of asset management and transaction fees in the coming years, thereby strengthening the group's future profits.
KKR's growth has been hit by strong fundraising from its asset management business, with its company buyout unit highlighting that the unit has revealed that the company has completed its first closing price of $14 billion, targeting a $20 billion North American acquisition fund in North America.
KKR raised $31 billion in new capital this quarter, pushing its assets under management to $66.4 billion, a 15% increase over the period last year. KKR's rising assets resulted in its quarterly fee revenue, the agency for management fees, reaching $823 million, up 23% from the same period last year, slightly higher than analysts' forecasts.
Although KKR's fee income and its adjusted net income (analysts both used as agents for cash flows, both surpassed expectations, its $52.6 billion fee assets were slightly more than analysts' forecasts.
KKR's earnings continue to benefit from billions of dollars in equity stocks in 19 companies, which the company's conglomerate holds on its balance sheet.
These holdings paid $31 million to KKR, an increase of more than 50% over the previous year. Last month, KKR raised more than $20 billion in mandatory convertible preferred stock to increase stake in two companies it owns on its balance sheet
KKR co-executive Scott Nuttall said the dislocation in the current financial markets of President Donald Trump’s trade war is an opportunity for the group to invest in cash with higher potential returns on idle investors.
Nuttall said KKR has invested $10 billion since the tariffs were imposed last month.
"These periods are always over, and we usually look back and hope we invest more when the world is most uncertain. We are keeping these lessons in mind," he said in a call with analysts.