UPDATE 3-KKR lifts payout, assets; earnings down

* Dividend 15 cents vs 8 cents in second quarter

* Economic net income lower than year-ago pro forma

* Progress in China, infrastructure funds

* To start raising next NA buyout fund in coming quarters

* Shares slip slightly
(Adds China, infrastructure fund, comments from conference
call, portfolio valuations, share price update, analyst
comment)

By Megan Davies

NEW YORK, Nov 3 (BestGrowthStock) – Private equity firm Kohlberg
Kravis Roberts & Co (KKR.N: ) said on Wednesday it was raising
its quarterly payout to shareholders, but earnings were lower
than a year earlier as the growth in the value of its portfolio
slowed.

KKR, one of the world’s biggest private equity firms, has
investments in retailer Dollar General Corp (DG.N: ), hospital
operator HCA and media company Nielsen. Co-founded by “buyout
king” Henry Kravis and George Roberts, the firm listed on the
New York Stock Exchange in July, finally joining rival
Blackstone Group LP (BX.N: ), which listed in 2007.

KKR partner Scott Nuttall, who leads the company’s
quarterly earnings calls, said on Wednesday that credit markets
are now strong, allowing for the amount of debt in new deals to
rise. Traditional private equity deals are structured as
leveraged buyouts and rely on using significant debt.

But Nuttall said the initial public offering market remains
uncertain, with many IPOs left on the shelf.

Private equity firms typically exit their investments
through IPO or trade sale and KKR has some IPOs of portfolio
companies waiting in the wings, such as Toys R Us and Nielsen,
which have filed to go public but have yet to launch.

Exiting investments partly drives profit, which feeds
through into distributions to shareholders.

KKR is paying a dividend to shareholders of 15 cents per
unit, up from 8 cents in the previous quarter. Of that 15
cents, it said half was attributed to fee-related earnings and
the remainder was profit on the sale of assets.

Nuttall said KKR’s private equity funds continuing to
perform “would lead to meaningful increases in our
distribution.”

PORTFOLIO VALUE

While the value of KKR’s investments increased during the
quarter, the rate of growth slowed from a year earlier, when it
rebounded from a low in the market early in 2009.

KKR’s private equity funds rose 6 percent during the
quarter, faster than the 3.5 percent increase it marked in the
second quarter of this year, but slower growth than the 18.5
percent increase this period last year.

Economic net income, a measure used by private equity firms
to report earnings, was $317.3 million in the third quarter,
compared with a pro forma figure of $822.7 million a year
earlier.

That was well below the $511 million estimated by analysts
at Sandler O’Neill. In a research note, Sandler O’Neill said
this was due to lower-than-expected investment income as KKR
seemingly marked its portfolio lower than peers.

Blackstone, KKR’s arch-rival and its closest
publicly-traded peer, said a week ago that third-quarter
economic net income rose to $339 million from $275 million a
year earlier. The value of Blackstone’s private equity
investments rose 6 percent over the previous quarter and its
real estate funds rose 19 percent.

KKR said assets under management rose to $55.5 billion from
$50.4 billion a year earlier and $54.4 billion as of June 30.

All KKR private equity funds except for European Fund II
are valued above cost, the company’s data showed.

CHINA, INFRASTRUCTURE

KKR has raised more than $700 million so far for a China
growth equity fund and expects that fund to reach $1 billion.

Infrastructure fundraising has picked up and it expects to
raise about $500 million for an infrastructure fund before the
year end, of which $245 million was raised in the third
quarter.

KKR expects to start raising money in the next few quarters
for its next private equity fund, which will focus on North
America.

Investors have been anticipating a new KKR fund for more
than a year, but do not expect it to be close to the size of
the global $18 billion buyout fund it raised in 2006. It still
has about $5 billion to invest from its previous fund, it said.
Rival Blackstone is in the process of wrapping up the loose
ends on raising its latest buyout fund, which it has said will
be over $13.5 billion.

KKR shares were 12 cents lower at $12.53.
(Reporting by Megan Davies; editing by Lisa Von Ahn and Andre
Grenon)

UPDATE 3-KKR lifts payout, assets; earnings down