By Greg Roumeliotis
NEW YORK (Reuters) - Private equity firm KKR & Co LP on Thursday reported a 3 percent year-on-year drop in first-quarter profit due to a lower appreciation of its investments, overshadowing a near-doubling in fees it received for managing assets and doing deals.
The drop in KKR's earnings, however, was much less than most analysts expected, and the firm's first-quarter dividend, up 59 percent year-on-year on higher proceeds from asset sales, also exceeded most analysts' forecasts.
KKR's private equity funds appreciated by 4.5 percent in the quarter, more than the wider market but less than the 7 percent appreciation of peer Blackstone Group LP's buyout funds in the same quarter and the 5.9 percent appreciation KKR saw in the first quarter of 2013.
Economic net income (ENI), KKR's headline earnings metric that takes into account the mark-to-market valuation of its assets, was $630.3 million (375.3 million pounds) in the first quarter of 2014, down from $647.7 million a year ago, the New York-based firm said.
This translated into after-tax ENI of 82 cents per adjusted share versus the average 52 cents forecast by analysts in a Thomson Reuters poll.
KKR's principal investments, which originate from its balance sheet, accounted for 51 percent of its first-quarter earnings, while its private funds accounted for 38 percent. Its credit and hedge fund investments accounted for the rest.
Huge by industry standards, the size of KKR's balance sheet is the legacy of the firm's merger in 2009 with KKR Private Equity Investors, a fund vehicle whose listing KKR transferred to New York from Amsterdam in 2010.
That balance sheet is expected to grow further with KKR's $2.6 billion acquisition of its specialty finance company KKR Financial Holdings LLC , on which KFN shareholders are set to vote on April 30.
Fee-related earnings, which account for management and deal fee revenue, were $151.7 million in the first quarter, up from $88 million a year ago.
Assets under management totalled $102.3 billion at the end of March, up from $94.3 billion at the end of December, following KKR's acquisition in February of European credit investment manager Avoca Capital.
KKR disclosed it had completed fundraising for its first oil and gas asset-focused Energy Income and Growth Fund, amassing $2 billion.
KKR announced a first-quarter dividend of 43 cents per share, up from 27 cents in the first quarter of 2013.
The firm, which was founded in 1976 by Henry Kravis, George Roberts and Jerome Kohlberg, declared a new payout policy in April 2013 and promised to distribute 40 percent of its balance sheet income as a dividend every quarter.
(Reporting by Greg Roumeliotis in New York; Editing by Mohammad Zargham)