UPDATE 1-KKR reports 42% drop in earnings on lower asset sales

(Updates with details from earnings call, share reaction, analyst comment)

By Chibuike Oguh

NEW YORK, Feb 7 (Reuters) - KKR & Co Inc said on Tuesday its fourth-quarter after-tax distributable earnings dropped 42% year-on-year, driven by asset sale declines in its private equity portfolio and lower transaction fees in the capital markets division.

After-tax distributable earnings, which represent the cash available to pay dividends to shareholders, fell to $821.8 million from $1.4 billion a year earlier.

That resulted in after-tax distributable earnings of 92 cents per share, which exceeded the average analyst forecast of 86 cents per share, according to financial data provider Refinitiv.

KKR and other private equity firms struggled to sell assets for top dollar for much of the last year due to market volatility, rising inflation, recession worries and geopolitical tensions.

KKR said its income from carried interest, which consists of profit from asset divestments, fell 66% to $194 million in the fourth quarter.

Transaction fees from its capital markets business, which collects lucrative fees for arranging financing for KKR portfolio companies, declined by 55% to $144.4 million. KKR's income from investments made out of its balance sheet dropped 34% to $223.2 million. Even with the slowdown in asset sales, KKR expects to boost profit from divestments in the first quarter to $250 million, KKR Chief Financial Officer Robert Lewin said during an analyst earnings call on Tuesday. "Things have slowed a bit on the monetization side, but nothing that is surprising to us given the environment and how we're thinking about the timing of when we want to generate realization outcomes for our limited partners," Lewin said.

KKR shares were up 3.43% at $57.94 per share, edging above the sector in early afternoon trading.

During the quarter, KKR said its private equity portfolio was flat in value, while opportunistic real estate funds depreciated by 8%. Infrastructure and leverage credit funds both gained 3%. By contrast, Blackstone Inc had reported that its opportunistic and core real estate funds depreciated by 2% and 1.5%, respectively, while its corporate private equity funds gained 3.8%.

Under generally accepted accounting principles (GAAP), KKR said its net income dropped sharply to $83.2 million from $507.6 million. That drop takes into account the mark-to-market value of its funds from a year ago.

KKR said it raised $16 billion of new capital, invested $16 billion in new acquisitions, generated $559.4 million in fee-related earnings, retained $108 billion of unspent capital, and amassed total assets under management of $504 billion. It declared a quarterly dividend of $0.155 per share.

"KKR's fourth quarter earnings report was roughly what we expected with earnings a bit stronger than expected, the carried interest receivable a bit lower, and fund-raising basically quiet," Oppenheimer analysts wrote in a note to investors. (Reporting by Chibuike Oguh in New York; Editing by Subhranshu Sahu and Caitlin Webber)