Back-Estimating the Revenue of a Private Equity Firm
I've been playing with some back of the envelope math recently and have been puzzled by the income statements of the public private equity firms (KKR, Apollo, Blackstone, and Carlyle).
Lets take KKR for example - they claim here that they have $252B in AUM as of December 31, 2020. According to their last filed SEC brochure, their management and performance fees follow a typical 2/20 structure.
I would have thought that this would mean that KKR's minimum annual revenue would roughly be equal to $5.04B = 2%* $252B (assuming no performance fees are earned). However, looking at their year-end 2020 financial results, I see that the firm has only made $4.2B in total revenue, significanly below the lower-bound.
The same seems to be true of the other PE firms list above as well. Can someone who has intimate knowledge of this please explain it to me?
Also are the gross assets under management listed by PE firms on their ADV forms (e.g. page 37 here) for the SEC including or excluding debt?
Take total AUM and assume They make like 10-100 basis points a year in revenue. Prob a good short hand
Total AUM is prob on website if theirs
The very high-level explanation is that I assume not all AUM is currently earning fees (may be a fee paying AUM metric), lots of strategies will have lower base fees than 2%, and even then early/large investors etc will often get fee breaks so it’ll blend down even lower.
Not all of their funds earn 2% in mgmt fee. Performance fees prob generally go to the employees more or less to incentivize them and keep them happy. Only prob the big flag ship PE funds earn a full 2% mgmt fees. Other funds like credit, real estate, etc, might earn less than 2%. Also some investors/clients demand fee break and KKR might only be able to charge them like 50 bps. Like calpers prob doesn’t have to pay full sticker price on KKR’s funds maybe
Fair enough. What about the reported Gross Assets according to the ADV filings with the SEC. According to the SEC, this is GROSS which is both debt and equity.
So Thoma Bravo has $78B on their ADV, yet claim over $70B in committed equity capital on their wikipedia.
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