(In final paragraph, corrects to 2017 intead of 2016)
By Joshua Franklin
Feb 8 (Reuters) - KKR & Co LP said on Thursday its top executives are evaluating whether to change its structure from a partnership into a corporation, the most definitive statement made by a private equity firm so far that is seriously considering the move.
While becoming a so-called C-Corp would expand these firms’ shareholder base by enabling investors such as index funds to buy their stock, publicly listed alternative asset managers such as KKR have so far been reluctant to entertain this switch due to tax concerns.
The partnership structure allows them not to pay taxes on performance fees before distributing them to shareholders, while converting to a C-Corp would mean they would have to pay corporation tax on these capital gains.
However, a U.S. tax overhaul signed into law in late December slashed the corporate rate to 21 percent from 35 percent, making the potential switch from partnership to C-Corp appear less onerous.
“KKR’s senior management and board of directors are evaluating whether to convert from a partnership to a corporation,” KKR said in a statement for its fourth-quarter results.
In their earnings calls in the last few days, peers Apollo Global Management LLC, Blackstone Group LP and Carlyle Group had also flagged that they are examining the pros and cons of making such a change, but in terms that suggested the considerations are less advanced.
Credit Suisse analysts said last month KKR and Ares could be the first to convert into C-Corps, as the tax hit might be less severe given the pair’s earnings mix that relies less on performance fees.
In its fourth-quarter earnings released on Thursday, KKR said its economic net income rose 22 percent year-on-year to $414.9 million.
Quarterly economic net income per share came in at 48 cents, missing analysts’ expectations for 52 cents, according to Thomson Reuters I/B/E/S.
Economic net income reflects the mark-to-market valuation gains or losses on KKR’s portfolio and is a key earnings metric for U.S. private equity firms.
The slight earnings miss came in a quarter in which its main peers exceeded analysts’ estimates as a U.S. stock market rally buoyed the value of their private equity holdings.
KKR’s assets under management totalled $168 billion at the end of 2017, up 30 percent from end-2016. Distributable earnings - the actual cash available for paying dividends - totaled $427.1 million in the quarter, up from $389.9 million a year ago. KKR also declared a distribution of 17 cents per common unit. (Reporting by Joshua Franklin in New York; Editing by Edwina Gibbs)