SEGMENT REPORTING |
SEGMENT REPORTING KKR operates through four reportable business segments. These segments, which are differentiated primarily by their business objectives and investment strategies, are presented below. These financial results represent the combined financial results of the KKR Group Partnerships on a segment basis. KKR earns the majority of its fees from subsidiaries located in the United States. Private Markets Through KKR’s Private Markets segment, KKR manages and sponsors private equity funds and co-investment vehicles, which invest capital for long-term appreciation, either through controlling ownership of a company or strategic minority positions. KKR also manages and sponsors investment funds and co-investment vehicles that invest capital in real assets, such as infrastructure, energy and real estate, and growth equity investments. Public Markets KKR operates and reports its combined credit and hedge funds businesses through the Public Markets segment. KKR’s credit business invests capital in leveraged credit strategies, such as leveraged loans and high yield bonds, and alternative credit strategies such as special situations, mezzanine or corporate credit opportunities, direct lending, and revolving credit. KKR’s Public Markets segment also includes its hedge funds business, which includes customized hedge fund portfolios, hedge fund-of-fund solutions and strategic partnerships consisting of minority stakes in other hedge fund managers. Capital Markets KKR’s global capital markets business supports the firm, portfolio companies, and third-party clients by developing and implementing both traditional and non-traditional capital solutions for investments or companies seeking financing. These services include arranging debt and equity financing for transactions, placing and underwriting securities offerings and providing other types of capital markets services.
Principal Activities
Through KKR's Principal Activities segment, we manage the firm’s assets and deploy capital to support and grow our businesses.
KKR's Principal Activities segment uses its balance sheet assets to support KKR's investment management and capital markets businesses, including to make capital commitments as general partner to its funds, to seed new businesses or investments for new funds or to bridge capital selectively for its funds’ investments.
The Principal Activities segment also provides the required capital to fund the various commitments of KKR's Capital Markets business or to meet regulatory capital requirements. Key Performance Measure - Economic Net Income (“ENI”) ENI is used by management in making operating and resource deployment decisions as well as assessing the overall performance of each of KKR’s reportable business segments. The reportable segments for KKR’s business are presented prior to giving effect to the allocation of income (loss) between KKR & Co. L.P. and KKR Holdings and as such represents the business in total. In addition, KKR’s reportable segments are presented without giving effect to the consolidation of the funds that KKR manages.
ENI is a measure of profitability for KKR’s reportable segments and is used by management as an alternative measurement of the operating and investment earnings of KKR and its business segments. ENI is comprised of total segment revenues; less total segment expenses and certain economic interests in KKR’s segments held by third parties. The following tables present the financial data for KKR’s reportable segments: | | | | | | | | | | | | | | | | | | | | | | As of and for the Three Months Ended March 31, 2017 | | Private Markets | | Public Markets | | Capital Markets | | Principal Activities | | Total Reportable Segments | Segment Revenues | |
| | |
| | |
| | |
| | | Management, Monitoring and Transaction Fees, Net | |
| | |
| | |
| | |
| | | Management Fees | $ | 123,512 |
| | $ | 84,772 |
| | $ | — |
| | $ | — |
| | $ | 208,284 |
| Monitoring Fees | 13,220 |
| | — |
| | — |
| | — |
| | 13,220 |
| Transaction Fees | 117,882 |
| | 4,056 |
| | 121,097 |
| | — |
| | 243,035 |
| Fee Credits | (85,650 | ) | | (3,367 | ) | | — |
| | — |
| | (89,017 | ) | Total Management, Monitoring and Transaction Fees, Net | 168,964 |
| | 85,461 |
| | 121,097 |
| | — |
| | 375,522 |
| | | | | | | | | | | Performance Income (Loss) | |
| | |
| | |
| | |
| | | Realized Incentive Fees | — |
| | 1,686 |
| | — |
| | — |
| | 1,686 |
| Realized Carried Interest | 206,204 |
| | — |
| | — |
| | — |
| | 206,204 |
| Unrealized Carried Interest | 123,506 |
| | 17,120 |
| | — |
| | — |
| | 140,626 |
| Total Performance Income (Loss) | 329,710 |
| | 18,806 |
| | — |
| | — |
| | 348,516 |
| | | | | | | | | | | Investment Income (Loss) | |
| | |
| | |
| | |
| | | Net Realized Gains (Losses) | — |
| | — |
| | — |
| | 79,451 |
| | 79,451 |
| Net Unrealized Gains (Losses) | — |
| | — |
| | — |
| | 204,036 |
| | 204,036 |
| Total Realized and Unrealized | — |
| | — |
| | — |
| | 283,487 |
| | 283,487 |
| Interest Income and Dividends | — |
| | — |
| | — |
| | 56,882 |
| | 56,882 |
| Interest Expense | — |
| | — |
| | — |
| | (41,709 | ) | | (41,709 | ) | Net Interest and Dividends | — |
| | — |
| | — |
| | 15,173 |
| | 15,173 |
| Total Investment Income (Loss) | — |
| | — |
| | — |
| | 298,660 |
| | 298,660 |
| | | | | | | | | | | Total Segment Revenues | 498,674 |
| | 104,267 |
| | 121,097 |
| | 298,660 |
| | 1,022,698 |
| | | | | | | | | | | Segment Expenses | |
| | |
| | |
| | |
| | | Compensation and Benefits | |
| | |
| | |
| | |
| | | Cash Compensation and Benefits | 60,008 |
| | 19,784 |
| | 22,561 |
| | 37,082 |
| | 139,435 |
| Realized Performance Income Compensation | 87,393 |
| | 674 |
| | — |
| | — |
| | 88,067 |
| Unrealized Performance Income Compensation | 50,366 |
| | 6,848 |
| | — |
| | — |
| | 57,214 |
| Total Compensation and Benefits | 197,767 |
| | 27,306 |
| | 22,561 |
| | 37,082 |
| | 284,716 |
| Occupancy and Related Charges | 8,107 |
| | 1,856 |
| | 664 |
| | 3,742 |
| | 14,369 |
| Other Operating Expenses | 26,887 |
| | 8,338 |
| | 5,328 |
| | 12,945 |
| | 53,498 |
| Total Segment Expenses | 232,761 |
| | 37,500 |
| | 28,553 |
| | 53,769 |
| | 352,583 |
| | | | | | | | | | | Income (Loss) attributable to noncontrolling interests | — |
| | — |
| | 1,584 |
| | — |
| | 1,584 |
| | | | | | | | | | | Economic Net Income (Loss) | $ | 265,913 |
| | $ | 66,767 |
| | $ | 90,960 |
| | $ | 244,891 |
| | $ | 668,531 |
| | | | | | | | | | | Total Assets | $ | 1,815,404 |
| | $ | 1,191,199 |
| | $ | 573,162 |
| | $ | 10,758,695 |
| | $ | 14,338,460 |
|
| | | | | | | | | | | | | | | | | | | | | | As of and for the Three Months Ended March 31, 2016 | | Private Markets | | Public Markets | | Capital Markets | | Principal Activities | | Total Reportable Segments | Segment Revenues | |
| | |
| | |
| | |
| | | Management, Monitoring and Transaction Fees, Net | |
| | |
| | |
| | |
| | | Management Fees | $ | 117,798 |
| | $ | 76,802 |
| | $ | — |
| | $ | — |
| | $ | 194,600 |
| Monitoring Fees | 12,037 |
| | — |
| | — |
| | — |
| | 12,037 |
| Transaction Fees | 37,398 |
| | 1,132 |
| | 57,555 |
| | — |
| | 96,085 |
| Fee Credits | (22,596 | ) | | (211 | ) | | — |
| | — |
| | (22,807 | ) | Total Management, Monitoring and Transaction Fees, Net | 144,637 |
| | 77,723 |
| | 57,555 |
| | — |
| | 279,915 |
| | | | | | | | | | | Performance Income (Loss) | |
| | |
| | |
| | |
| | | Realized Incentive Fees | — |
| | 1,593 |
| | — |
| | — |
| | 1,593 |
| Realized Carried Interest | 93,450 |
| | 3,838 |
| | — |
| | — |
| | 97,288 |
| Unrealized Carried Interest | (194,699 | ) | | (29,106 | ) | | — |
| | — |
| | (223,805 | ) | Total Performance Income (Loss) | (101,249 | ) | | (23,675 | ) | | — |
| | — |
| | (124,924 | ) | | | | | | | | | | | Investment Income (Loss) | |
| | |
| | |
| | |
| | | Net Realized Gains (Losses) | — |
| | — |
| | — |
| | (24,183 | ) | | (24,183 | ) | Net Unrealized Gains (Losses) | — |
| | — |
| | — |
| | (564,991 | ) | | (564,991 | ) | Total Realized and Unrealized | — |
| | — |
| | — |
| | (589,174 | ) | | (589,174 | ) | Interest Income and Dividends | — |
| | — |
| | — |
| | 108,120 |
| | 108,120 |
| Interest Expense | — |
| | — |
| | — |
| | (48,544 | ) | | (48,544 | ) | Net Interest and Dividends | — |
| | — |
| | — |
| | 59,576 |
| | 59,576 |
| Total Investment Income (Loss) | — |
| | — |
| | — |
| | (529,598 | ) | | (529,598 | ) | | | | | | | | | | | Total Segment Revenues | 43,388 |
| | 54,048 |
| | 57,555 |
| | (529,598 | ) | | (374,607 | ) | | | | | | | | | | | Segment Expenses | |
| | |
| | |
| | |
| | | Compensation and Benefits | |
| | |
| | |
| | |
| | | Cash Compensation and Benefits | 48,967 |
| | 19,054 |
| | 8,168 |
| | 24,710 |
| | 100,899 |
| Realized Performance Income Compensation | 37,380 |
| | 2,172 |
| | — |
| | — |
| | 39,552 |
| Unrealized Performance Income Compensation | (75,000 | ) | | (11,642 | ) | | — |
| | — |
| | (86,642 | ) | Total Compensation and Benefits | 11,347 |
| | 9,584 |
| | 8,168 |
| | 24,710 |
| | 53,809 |
| Occupancy and Related Charges | 8,925 |
| | 2,675 |
| | 628 |
| | 3,722 |
| | 15,950 |
| Other Operating Expenses | 37,126 |
| | 9,278 |
| | 4,096 |
| | 11,386 |
| | 61,886 |
| Total Segment Expenses | 57,398 |
| | 21,537 |
| | 12,892 |
| | 39,818 |
| | 131,645 |
| | | | | | | | | | | Income (Loss) attributable to noncontrolling interests | — |
| | — |
| | 667 |
| | — |
| | 667 |
| | | | | | | | | | | Economic Net Income (Loss) | $ | (14,010 | ) | | $ | 32,511 |
| | $ | 43,996 |
| | $ | (569,416 | ) | | $ | (506,919 | ) | | | | | | | | | | | Total Assets | $ | 1,738,931 |
| | $ | 1,080,077 |
| | $ | 306,996 |
| | $ | 9,663,781 |
| | $ | 12,789,785 |
|
The following tables reconcile KKR’s total reportable segments to the most directly comparable financial measures calculated and presented in accordance with GAAP: Fees and Other | | | | | | | | | | Three Months Ended | | March 31, 2017 | | March 31, 2016 | Total Segment Revenues | $ | 1,022,698 |
| | $ | (374,607 | ) | Management fees relating to consolidated funds and placement fees | (47,102 | ) | | (38,270 | ) | Fee credits relating to consolidated funds | 939 |
| | 428 |
| Net realized and unrealized carried interest - consolidated funds | (11,057 | ) | | 9,561 |
| Total investment income (loss) | (298,660 | ) | | 529,598 |
| Revenue earned by oil & gas producing entities | 17,273 |
| | 13,561 |
| Reimbursable expenses | 23,549 |
| | 15,881 |
| Other | 8,312 |
| | 6,653 |
| Fees and Other | $ | 715,952 |
| | $ | 162,805 |
|
Expenses | | | | | | | | | | Three Months Ended | | March 31, 2017 | | March 31, 2016 | Total Segment Expenses | $ | 352,583 |
| | $ | 131,645 |
| Equity based compensation | 111,036 |
| | 63,823 |
| Reimbursable expenses and placement fees | 36,123 |
| | 24,107 |
| Operating expenses relating to consolidated funds, CFEs and other entities | 13,430 |
| | 43,671 |
| Expenses incurred by oil & gas producing entities | 11,177 |
| | 17,826 |
| Intangible amortization | 6,366 |
| | 17,393 |
| Other | 9,299 |
| | 9,858 |
| Total Expenses | $ | 540,014 |
| | $ | 308,323 |
|
Net Income (Loss) Attributable to KKR & Co. L.P. Common Unitholders | | | | | | | | | | Three Months Ended | | March 31, 2017 | | March 31, 2016 | Economic net income (loss) | $ | 668,531 |
| | $ | (506,919 | ) | Income tax | (40,542 | ) | | (1,890 | ) | Amortization of intangibles, placement fees and other, net (1) | (32,837 | ) | | (28,882 | ) | Equity based compensation | (111,036 | ) | | (63,823 | ) | Net income (loss) attributable to noncontrolling interests held by KKR Holdings | (216,432 | ) | | 271,575 |
| Preferred Unit Distributions | (8,341 | ) | | — |
| Net income (loss) Attributable to KKR & Co. L.P. Common Unitholders | $ | 259,343 |
| | $ | (329,939 | ) |
(1) Other primarily represents the statement of operations impact of the accounting convention differences for (i) direct interests in oil & natural gas properties outside of investment funds and (ii) certain interests in consolidated CLOs and other entities. On a segment basis, direct interests in oil & natural gas properties outside of investment funds are carried at fair value with changes in fair value recorded in Economic Net Income (Loss) and certain interests in consolidated CLOs and other entities are carried at cost. See Note 2 "Summary of Significant Accounting Policies" for the GAAP accounting for these direct interests in oil and natural gas producing properties outside investment funds and interests in consolidated CLOs and other entities.
The items that reconcile KKR’s total reportable segments to the corresponding consolidated amounts calculated and presented in accordance with GAAP for net income (loss) attributable to redeemable noncontrolling interests and income (loss) attributable to noncontrolling interests are primarily attributable to the impact of KKR Holdings L.P., KKR's consolidated funds and certain other entities.
Assets | | | | | | | | | | As of March 31, | | 2017 | | 2016 | Total Segment Assets | $ | 14,338,460 |
| | $ | 12,789,785 |
| Impact of Consolidation of Investment Vehicles and Other Entities (1) | 25,963,256 |
| | 20,236,392 |
| Carry Pool Reclassification to Liabilities | 1,035,671 |
| | 1,113,450 |
| Impact of KKR Management Holdings Corp. | 298,325 |
| | 288,956 |
| Total Assets | $ | 41,635,712 |
| | $ | 34,428,583 |
| | | | | (1) Includes accounting basis difference for oil & natural gas properties of $7,700 and $78,416 as of March 31, 2017 and 2016, respectively. |
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