Private equity firm KKR & Co LP said on Friday that income from carried interest -- its cut of investment profits from its funds -- and fees it charges for its assets fell year-on-year in the first quarter, resulting in a smaller dividend.

KKR, whose investments include retailer Toys R US Inc, Internet domain registration company Go Daddy Group Inc and hospital operator HCA Holdings Inc, said first-quarter gross distributable earnings, which are used to pay dividends, were down 42 percent to $111.5 million.

The company declared a first-quarter distribution of 15 cents per unit compared to 21 cents a year ago. Economic net income (ENI), a measure of the firm's profitability that takes into account the mark-to-market valuation of its assets, fell 2 percent year-on-year to $727.2 million.

This was despite its private equity portfolio being marked up 9 percent on a buoyant equity market, as the rate of appreciation in its funds was lower than it was a year ago.

Valuations of private equity portfolios are notoriously difficult to predict. KKR beat analyst expectations by posting an after-tax ENI of $0.99 per adjusted unit. The consensus view was for 74 cents.

With the pricing of the initial public offering (IPO) of peer Carlyle Group LP due less than a week away, on May 2, investors are monitoring the earnings of alternative asset managers closely.

Shareholders often find the financials of alternative asset managers too complex to understand and evaluate.Blackstone Group LP, the world's largest alternative asset manager, reported a 20 percent drop in first-quarter distributable earnings to $162.1 million.

KKR's shares are up 8 percent year-to-date, compared with a 10.6 percent rise in the S&P 500 Index and a 15.8 percent rise in the S&P Asset Management and Custody Banks Index, according to Thomson Reuters data.

Fee-related earnings, which are derived from the various fees charged by KKR's funds, were down 42 percent to $73.4 million, while cash from realized carried interest was down 39 percent to $44.9 million.

The drop in fees came from a decline in deal activity compared to the first quarter of 2011, whose highlights included the IPOs of Nielsen Holdings NV and HCA, as well as significant acquisitions such as the $5.5 billion leveraged buyout of Del Monte Foods Co.

Net income however, which is reported on a consolidated basis, was up 19 percent to $190.4 million thanks to the firm's big balance sheet, which KKR uses to invest in assets. Earnings from these investments are used to invest in KKR's platforms rather than pay dividends to shareholders.

Assets under management reached a record $62.3 billion. While private equity still accounts for most of KKR's assets under management, the firm has been diversifying into credit and hedge funds and announced its first retail real estate investment last week.

KKR was founded in 1976 by Jerome Kohlberg, Henry Kravis and George Roberts. Kravis and Roberts are joint chief executives. They became widely known through their $25 billion leveraged buyout of RJR Nabisco in 1988, a battle that was immortalized in the 1990 bestseller "Barbarians at the Gate."