KKR Credit Income Fund reported a slight dip in net assets for FY2025 but upheld its monthly distributions and reinstated its distribution reinvestment plan, navigating currency headwinds with active hedging.
- Net assets decreased marginally by 0.57% to $790.7 million
- Operating profit fell 38% due to currency contract losses
- Monthly distributions steady at 1.67 cents per unit
- Distribution reinvestment plan reinstated from July 2025
- Portfolio maintains 48% exposure to European Direct Lending and 75% floating rate bias
Overview of FY2025 Performance
KKR Credit Income Fund (ASX, KKC) closed the financial year ended 30 June 2025 with net assets attributable to unitholders of $790.7 million, a slight decline of 0.57% compared to the previous year. Despite this modest contraction, the Fund reported total investment income of $70.3 million, up from $60.1 million in FY2024. However, operating profit declined significantly by 38.15% to $60.1 million, primarily driven by net unrealised and realised losses on forward currency contracts amid a volatile foreign exchange environment.
Distribution Stability and DRP Reinstatement
The Fund maintained its monthly distribution at 1.67 cents per unit, amounting to 20.04 cents per annum, consistent with the prior year. Notably, the Distribution Reinvestment Plan (DRP), which had been suspended during the year, was reinstated effective July 2025. This move offers unitholders the option to reinvest distributions at the lower of net asset value or market price, potentially enhancing compounding returns and liquidity for investors.
Portfolio Composition and Risk Management
KKC’s portfolio remains diversified across more than 240 issuers, with a strategic allocation of approximately 48% to European Direct Lending, aligning with the Fund’s target range of 40% to 50%. The Fund continues to emphasize a floating rate bias, with around 75% of assets structured to benefit from rising interest rates, a prudent stance given persistent inflation and expectations of higher rates for longer. The Fund’s investments are concentrated in three key vehicles, the Access Fund Profit Participating Note (PPN), KKR Lending Partners Europe II (Euro) Unlevered SCSp, and KKR Lending Partners Europe III (Euro) SCSp, all valued at fair value.
Currency Hedging and Market Volatility
Currency risk remains a material factor for KKC, given its exposure to US dollar and Euro-denominated assets. The Fund employs forward currency contracts to hedge foreign exchange exposure, though these hedges contributed to significant unrealised and realised losses during the year. The Investment Manager continues to actively monitor and manage these risks through a disciplined hedging strategy and portfolio adjustments, aiming to mitigate volatility impacts while preserving income streams.
Governance and Outlook
Governance remains robust under The Trust Company (RE Services) Limited as Responsible Entity, with Deloitte Touche Tohmatsu providing an unqualified audit opinion. The Fund’s Directors confirm no significant changes in control or associates during the year. Looking ahead, KKC targets an 8.7% dividend yield supported by underlying portfolio income and intends to maintain its disciplined investment approach amid evolving market conditions.
Bottom Line?
KKR Credit Income Fund’s steady distributions and reinstated DRP signal confidence, but currency headwinds warrant close investor attention.
Questions in the middle?
- How will ongoing currency volatility impact KKC’s forward earnings and distributions?
- What is the expected uptake and market impact of the reinstated Distribution Reinvestment Plan?
- Will KKC adjust its European Direct Lending exposure amid shifting credit market dynamics?