Buyout giant KKR sees opportunities in AI-related volatility

By Isla Binnie and Pritam Biswas

NEW YORK, Feb 5 (Reuters) - Investment firm KKR KKR.N said on Thursday it saw ways to make money from current market volatility linked to fears that artificial intelligence will disrupt industries, and that the technology was already showing returns at its companies.

Markets have convulsed in recent days with fears AI will up-end sectors like software, compounding lingering worries about credit risk and future returns growth that have weighed on the stocks of alternative asset managers like KKR.

KKR's shares took a further 5% tumble on Thursday after it reported earnings including a one-off charge.

"We took an inventory of our portfolio the last two years" and identified whether AI was "an opportunity, or a threat, or a question mark", Nuttall told analysts on a conference call.

"We have $118 billion of dry powder, it is multiples of any exposure we have that we have any AI-related anxiety about," he added. "This type of dislocation creates really strong return opportunities for us."

Around 7% of KKR's portfolio consists of software assets, Nuttall said.

It has more than 200 equity investments in companies worldwide which can act "like 200 different labs" to see how AI can improve efficiency and growth in different industries, he added.

"We're pleased with the early results, and we're seeing an uplift in the EBITDA of the underlying companies," Nuttall said, referring to core profits.

SPORTS INVESTMENT DEAL

For the fourth quarter, KKR reported a rise in fees made from managing new capital, but lower income from transactions and asset sales, while a charge for an underperforming fund in Asia weighed on a key profit metric.

KKR's adjusted net income of $1 billion for the quarter translated to $1.12 per share. This included the impact of the charge, without which ANI per share would have been $1.3, KKR said.

Analysts on average had expected ANI per share of $1.16, excluding repayment obligations, according to LSEG data.

Total investing earnings, which includes gains from asset sales, dropped 78.8% to $84.8 million in the quarter.

Shares fell around 5%, leaving the company's market value nursing a more than 33% loss over the past year.

KKR also said it was buying Arctos, an institutional investor and asset management solutions provider, in a transaction valued initially at $1.4 billion with a further $550 million in future equity, tied to KKR's share price and certain targets being met.

Executives said the Arctos investment was the conclusion to many years of browsing to potentially buy a manager of so-called secondaries, a fast-growing asset class which allows investors to buy commitments to funds or direct stakes in private companies from each other.

Arctos also owns minority stakes in a number of sports teams around the world and KKR sees big opportunities in "sports-adjacent financing" like stadium real estate, Nuttall said.

Chief Financial Officer Rob Lewin said he expected Arctos to reach over $100 billion in assets under management.