(Adds news that activist shareholder ValueAct has taken stake in KKR)
By Koh Gui Qing and Michael Flaherty
NEW YORK, April 27 (Reuters) - Activist shareholder ValueAct Capital said on Thursday it had invested in private equity firm KKR & Co LP after the buyout firm posted stronger-than-expected earnings on a stock market rally that boosted investment returns.
ValueAct President Mason Morfit said the $16 billion activist investment firm has economic exposure of less than 5 percent in KKR and that the firm has done an excellent job investing in new products and businesses.
KKR said separately that it welcomed ValueAct's investment. The stock rose 7.2 percent to $19.05 on Thursday.
A buoyant U.S. stock market, which hit a record high last quarter, has helped to bolster the performance of buyout firms that rely on strong returns to generate fees. Earlier this month, KKR's larger peer Blackstone Group LP reported earnings that more than doubled.
New York-based KKR said it had earned economic net income of $549.9 million after taxes in the first quarter, compared with a year-earlier loss of $553 million.
On a per-share basis, that came to 65 cents, while analysts on average were expecting 50 cents, according to Thomson Reuters I/B/E/S.
Economic net income, a key metric for U.S. private equity firms, accounts for unrealized gains or losses in investments.
KKR said its investment income, comprising net realized and unrealized investment gains, stood at $298.7 million in the quarter, reversing a loss of $529.6 million a year earlier, when sliding oil prices dragged on returns.
As a result, the company reported $348.5 million in performance income, made up of realized and unrealized gains in fees tied to investment returns, compared with a year-earlier loss of $124.9 million.
KKR said its transaction fees more than doubled to $243 million from $96.1 million.
An improved performance led to higher employee payouts. KKR said total compensation and benefits jumped more than five times to $284.7 million.
In line with KKR's promise this year to increase its quarterly dividend to shareholders by 1 cent, the company said it was distributing 17 cents per share.
Although buyout firms pride themselves on generating market-defying returns, the broader market is still a significant influence on their performance.
For instance, sources told Reuters earlier this year that KKR was preparing an initial public offering of Gardner Denver Inc.
The IPO could value Gardner at between $6 billion and $7 billion, well above the $3.9 billion that KKR paid to take it private in 2013, as higher energy prices have increased the U.S. industrial machinery maker's value. (Additional reporting by Svea Herbst-Bayliss in New York; Editing by Chizu Nomiyama and Lisa Von Ahn)