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US private equity group KKR reported its first quarterly net loss since 2022 as a strong quarter for fundraising in its private equity business was overshadowed by its Global Atlantic insurance unit, which lost more than $1bn in the quarter due to markdowns on its sprawling fixed income portfolio.
KKR, like other private equity groups including Apollo Global and Brookfield, has pushed headlong into managing insurance assets to turbocharge its growth.
But these groups’ insurers are vulnerable to large quarterly accounting swings in the values of their holdings during volatile conditions, as interest rate gyrations shift valuations for even highly rated corporate bonds, mortgages and other loans.
They caused KKR’s insurance unit to lose $1.1bn during the quarter as the insurer absorbed a $1.4bn loss on a $76bn investment portfolio of corporate bonds and other debts that must be marked quarterly.
The insurance-related losses pushed the broader KKR financial empire, which spans corporate buyouts, private loans and infrastructure and property deals, to a $185mn net loss in the first quarter.
However, the insurance unit generated $258mn in pre-tax operating profits excluding the quarterly mark-to-market of its holdings.
The valuation changes stem from KKR’s purchase of Global Atlantic in 2021, when interest rates were far lower. The decision to sell some of the insurer’s portfolio and move into higher-return alternative investments weighed on earnings, chief financial officer Robert Lewin said on an earnings call.
Investors shrugged off the insurance losses, with shares 2 per cent higher by midday in New York.
The insurer is expected to serve as a significant source of asset management and transaction fees in the coming years, bolstering the group’s future profits.
KKR’s growth was buoyed by strong fundraising across its asset management businesses, highlighted by its corporate buyout unit, which disclosed that it has completed a $14bn first close for a targeted $20bn North American buyout fund.
KKR raised $31bn in new capital during the quarter, pushing its assets under management to $664bn, a 15 per cent increase from this time last year. KKR’s rising assets caused its quarterly fee-related earnings, a proxy for management fees, to reach $823mn, an increase of 23 per cent from a year ago and slightly ahead of analysts’ forecasts.
While KKR’s fee earnings and its adjusted net income, which analysts use as a proxy for cash flows, both beat expectations, its $526bn in fee-paying assets slightly fell short of analyst forecasts.
KKR’s earnings continue to benefit from a multibillion-dollar stockpile of equity stakes in 19 companies that the conglomerate holds on its balance sheet.
Those holdings delivered $31mn in earnings to KKR, an increase of more than 50 per cent from the previous year. Last month, KKR raised more than $2bn in a mandatory convertible preferred stock offering to increase its stake in two companies it holds on its balance sheet
KKR co-chief executive Scott Nuttall said the current dislocations in financial markets stemming from US President Donald Trump’s trade war were an opportunity for the group to invest its $116bn in idle investor cash at higher potential returns.
Since tariffs were implemented last month, KKR had already invested $10bn, Nuttall said.
“These periods always end, and we typically look back and wish we had invested more when the world is most uncertain. We are running the firm with those lessons in mind,” he said on a call with analysts.
