KKR & Co. announced Thursday that effective July 1 it is switching to a corporation from a partnership, a move that could give the alternative investment firm a lower tax rate under the new federal tax bill and expand its investor base to include more retail investors, including from mutual funds, according to the firm's earnings report.
KKR is the second public alternative investment firm after Ares Management to announce such a conversion.
"The change has no impact on our funds or how we conduct our business," KKR spokeswoman Kristi Huller said in an email.
David Fann, president and CEO of consulting firm TorreyCove Capital Partners, said in a separate email that the switch should have no impact on limited partners.
One benefit, according to the KKR announcement, is an expansion of its shareholder base.
"There has been a view that the stock price of publicly traded partnerships trade at a discount relative to corporations because certain shareholders (mostly, retail investors) don't want to deal with K1s (partnership tax reporting) which complicate income tax filings for individuals," Mr. Fann said.
Mr. Fann thinks other public alternative investment firms could follow Ares and KKR's lead. During Apollo Global Management's earnings call Thursday, Joshua Harris, Apollo co-founder, said firm executives "continue to analyze" whether to switch to a corporation from a partnership, noting that there is no specific timetable.
However, James Gelfer, senior analyst at research firm PitchBook, said the other firms are taking a "wait and see" approach.
"The common hypothesis is by switching to a C-corp PE firms could become eligible for indices and therefore gain exposure to new investors by being included in retail products, potentially leading to higher valuations; however, this has yet to be proven," Mr. Gelfer said in a written statement.
Also in its earnings report, KKR reported $176.3 billion in assets under management as of March 31, up 4% from Dec. 31, and up 28% from March 31, 2017. The increase was primarily driven by new capital raised, including $6 billion raised for its flagship infrastructure fund in the first quarter, and an increase in value in its private equity and credit strategies. These increases were partially offset by distributions to limited partners of its private equity funds and distributions to investors in its public markets business.
KKR's private markets business AUM was $102.2 billion as of March 31, up 5% from three months earlier, and up 27% from a year earlier. KKR's AUM for its public markets business totaled $74.1 billion, up 5% from Dec. 31, and up 29% from March 31, 2017.
Management fees for the first quarter were $251.6 million, up 7% from the fourth quarter and up 21% from $208.3 million for the first quarter of 2017. Monitoring fees were $17.5 million, down 24% from the previous quarter , and up 33% from the year-earlier quarter.
GAAP net income was $170.1 million for the quarter, compared to $166.4 million in net income for the fourth quarter 2017 and $259.3 million net income for the first quarter of 2017.
Total revenues, made up of fees and other revenues, were $394.4 million, compared to $941.6 million in the fourth quarter and $380.2 million in the year-earlier period.