KKR's 37% fee jump masks uneven private-credit recovery

KKR reported record second-quarter earnings Thursday as fee-related income jumped 37 percent from a year ago and the firm raised $34 billion, while private-credit rival Blue Owl said redemption requests have begun to ease.

"Our industry is increasingly K-shaped," Scott Nuttall, chief executive officer at KKR, said on a conference call with analysts. "Most of the external focus will be on the unhappy part of the K — we find ourselves on the happy part."

KKR's fee-related earnings rose to $1.25 billion, up 25.5 percent from a year earlier, while adjusted net income of $1.63 per share beat the $1.41 consensus from an LSEG analyst poll. Carried interest nearly doubled to $211.9 million, driven by the sale of Kokusai Electric at 20 times what KKR paid and Global Medical Response at roughly three times cost. Blue Owl's fee-related earnings climbed 7 percent, but fundraising fell 37 percent from a year ago as $4.7 billion in redemption requests hit its private-credit funds sold to wealthy individuals.

The divergence matters because large fund managers' shares have lost 15 to 35 percent of their value this year as investors questioned the resilience of private credit. KKR's diversification across private equity, credit, real estate, and infrastructure gives it ballast that Blue Owl — still dependent on direct-lending funds for about 35 percent of AUM — lacks. The question now is whether easing redemption requests mark a durable turning point or a temporary lull.

KKR's Monetization Machine

KKR's record quarter was powered by a bumper crop of company sales from its private-equity funds. The firm raised more than $34 billion, a 24 percent increase from the prior quarter, with inflows driven by its real-assets business that houses infrastructure strategies. Private equity brought in $9.56 billion, while credit attracted $9.1 billion — a roughly 36 percent slump from a year ago.

The traditional private-equity portfolio returned a gross 4 percent, while composites for leveraged credit and private credit showed returns of 2 percent and 1 percent, respectively, having been negative in the prior quarter. KKR's total assets under management reached $796 billion.

"Further evidence of the bifurcation in the sponsor market between large- and mid-cap, with bigger deals getting done more readily," said Glenn Schorr, an analyst at Evercore.

In June, KKR agreed to buy EDF's North American renewable business for $4.2 billion, aiming to capitalize on rising power demand for artificial intelligence. Co-CEO Scott Nuttall said AI infrastructure and related real estate and credit deals represent a huge opportunity.

Blue Owl's Slow Thaw

Blue Owl, a relative newcomer that pioneered selling private-credit funds to wealthy individuals through brokers, is still navigating the fallout. The firm's direct-lending funds now account for about 35 percent of the money it manages, down from 50 percent two years ago, as it launches new products to balance the mix.

The $4.7 billion in withdrawal requests from its private-credit funds — many from investors worried about potential losses in software companies — were contained by redemption limits that prevented forced liquidations but fueled anxiety among some investors.

"It takes time after a hurricane blows through to clean up," said Marc Lipschultz, Blue Owl's co-chief executive.

Redemption requests have started to ease, and new fund sales improved in June and July, although only slightly. The firm reaffirmed its commitment to beat fee-related earnings of $1.02 per share for the year and reported 10 percent growth in fundraising from the prior quarter for its real-asset business, which has become one of the biggest backers of large data centers feeding AI.

Blackstone reported last week a 26 percent jump in distributable earnings, due in large part to AI investments, highlighting the broader industry's shift toward digital infrastructure as a growth driver.

The stakes are high: if the private-credit thaw continues, fund manager shares that have shed 15 to 35 percent this year could recover. If redemption requests resurge, the K-shaped divergence Nuttall described will only widen.

This article is for informational purposes only and does not constitute investment advice.