28 January 2014 Brokers. Asset Managers & Exchanges Alternative Asset Manager Initiation Rating Corti pa rry Hold KKR & Co. Rosoarch Analyst 14 North Arne.' ic a United States Price at 24 Jan 2014 24.56 (USD) Price Target 26.00 Brokers, Asset KKR N KKR US 52.week range 26.30- 16.86 Managers & Exchanges Price/price relative A battleground valuation stock; initiating at Hold on higher risk profile Initiating coverage of KKR with a Hold rating and $25 PT We see KKR units trading in a range near current levels over the next 12 months for the following reasons: 1) market debate around the merits of KKR's differentiated balance sheet strategy should remain intense, but should the equity markets be choppier in 2014 vs. 2013 (as is the case so far), we think KKR units will struggle to advance as investors avoid stocks with more volatile & market-dependent earnings, and 2) KKR's distributable earnings (DE) profile through 2015 looks okay to us, and in fact could be less volatile than peers, but we also do not see a major growth catalyst in DE, thus investors may focus more on downside risks, & 3) KKR units look attractive on a sum-of- parts basis, but we see the heavier business mix toward principal income & capital markets as a weight on the PIE. Positively, KKR is executing well across each of its businesses, including generating strong organic growth, while using the balance sheet to both leverage its investing acumen and generating a higher recurring distributable earnings base (to be helped by KFN in '14). Ea, nings outlook We believe DE, from which cash distributions are paid to unit holders, is the most important earnings metric to value the Alts, rather than economic net income (ENI) that forms Consensus estimates. We forecast KKR's DE per unit to remain steady, from $2.01 in 2013 to $1.99 in 2014E and $2.09 in 2015E. Drivers are: 1) steady growth in realizations & 2) good AuM organic growth. Valuation s We think KKR uni