Kohlberg Kravis Roberts & Co. (kkr) this morning revealed just how severely public market volatility has affected private equity investors. At least on paper.
The firm reported third quarter economic net income of negative $592.1 million for, compared to positive $315 million in Q2 and positive $317.3 million in Q3 2010. It put most of the blame on mark-to-market accounting in its private portfolio, which reversed previously-recognized carried interest (i.e., investment profits).
Fee-related earnings rose to $98.2 million from $69.5 million in the year-earlier period, while assets under management grew to $61.9 billion.
Scott Nuttall, head of KKR's global capital and asset management group, told reporters that the ENI figure at any one time (like Sept. 30, 2011) should not be overemphasized, pointing out that private equity is "a long-dated option business and we can determine when to exercise that option."
In the quarter, KKR completed secondary offerings for publicly-traded portfolio companies like Dollar General (dg) and Avago (avgo), and completed strategic sales like Hilcorp Resources to Marathon Oil (mro).
KKR did not say if it has held a first close on its new North American private equity fund, although Nuttal insisted that the $2.8 billion left in its 2006 fund would be plenty of money to fund any potential North American buyout opportunity.
Sign up for my daily email newsletter on deals and deal-makers: GetTermSheet.com