Cash distributions from several private equity investments helped to boost Kohlberg Kravis Roberts & Co.’s economic net income, firm executives said during a conference call this morning discussing KKR’s second-quarter results.

“W-

e feel pretty good about our 2006-2007 investments,” said KKR principal Scott Nuttall on the conference call. “They helped to reinforce our message [to limited partners] that there is a lot of opportunity in big buyouts.”

In addition, Nuttall said, “Cash back is helping a lot in fundraising.”

Value retail chain Dollar General Corp., for instance, had a fourth secondary offering over the last nine months and is now valued at five times cost. A joint venture with El Paso Corp. that was sold to Kinder Morgan Inc. returned twice KKR’s capital, representing a more than 60% internal rate of return.

An even bigger winner lies in U.K. health and beauty retailer Alliance Boots, which is selling a 45% interest to Walgreen Co. for $6.7 billion of cash and stock. KKR has about $2.8 billion of equity invested in Alliance Boots, including $2.1 billion from its 2006 fund and second European buyout fund. The retailer is now valued at about 1.9 times KKR’s c-

ost.

Alliance Boots contributed about 82% of the increase in ENI – a “meaningful contributor,” said Goldman Sachs Group research analyst Marc Irizarry.

It also shows how “idiosyncratic, or company-specific results from private equity can be,” Mr. Irizarry said. “It shows how one investment, good or bad, can make you look like a winner or loser at any given point of time.”

Other large private equity investments, such as television viewership ratings company Nielsen Ltd. and hospital operator HCA Inc. have all distributed cash either through secondary stock offerings or dividend events.

When the Alliance Boots deal is completed in the third quarter, it will give the 2006 fund a particular kick in returns. That fund still has about $1.5 billion of dry powder left, with half of it reserved for follow-on investments.

KKR is in the market raising an 11th North American buyout fund, and although the process has been slower relative to its latest Asian buyout fund, the new North American fund is expected to have a final close around February 2013.

The new Asian fund, meanwhile, had a $3 billion first closing during the second quarter – “faster and larger” than KKR had anticipated it to be, said Nuttal – thanks to investors’ interest in getting exposure to Asia.



(blogs.wsj.com)