Craig Larson:

Thank you, operator. Good morning, everyone and welcome to our second quarter 2024 earnings call. This morning, as usual, I'm joined by Rob Lewin, our Chief Financial Officer; and Scott Nuttall, our Co-Chief Executive Officer. We would like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at kkr.com. And as a reminder, we report our segment numbers on an adjusted share basis. This call will contain forward-looking statements, which do not guarantee future events or performance. Please refer to our earnings release as well as our SEC filings for cautionary factors about these statements. So first beginning with our results for the second quarter, we are pleased to be reporting fee related earnings of $0.84 per share, the highest we reported in our history and 25% above the figures we reported one year ago. And adjusted net income of $1.09 per share is up approximately 50% compared to one year ago. Going into a little more detail, management fees in the quarter were $847 million. This is up 13% year-over-year, driven by the breadth of our fundraising activities alongside a pickup in deployment. Capital markets transaction fees were strong in the quarter at $192 million, mainly from activity in new and existing portfolio companies within private equity and infrastructure, as well as an overall improvement in both the debt and equity capital markets backdrops. Fee related performance revenues in the quarter were $37 million. This was the first quarter our offshore K-Series vehicles earned their annual incentive fee given their launches about a year ago. The fee related performance revenue figure includes our infrastructure vehicle while to be clear, our performance allocation on our private equity vehicle is reflected in our realized performance income line item that is below fee related earnings. Fee related compensation was right at the midpoint of our guided range, which as a reminder is 17.5%. Other operating expenses came in at $158 million. So in total, FRE was $755 million and our FRE margin came in at 68%. Insurance operating earnings were $253 million in Q2 and strategic holdings operating earnings were $41 million in the second quarter as we continued to track towards our expected $300 million plus of net dividends by 2026. Importantly, we're continuing to see consistent growth across the underlying businesses. KKR's share of these businesses as of the first quarter, so on a one quarter lag basis, LTM revenues were $3.6 billion and EBITDA was approximately $900 million or so, with 14% and 12% like-for-like growth in revenue and EBITDA year-over-year respectively. So altogether, total operating earnings were $1.17 per share. As a reminder, total operating earnings equals our fee related earnings together with insurance and strategic holdings operating earnings. This quarter, total operating earnings represents over 80% of pretax adjusted net income. So said differently, over 80% of our pretax earnings this quarter were driven by our more recurring revenue streams. Turning to investing earnings, realized performance income was $482 million and realized investment income was $139 million. This was driven by secondary and strategic sale activity across a number of asset classes, including private equity infrastructure, as well as across multiple geographies pointing to the maturity and the diversity of our business. So, in aggregate adjusted net income was $972 million, or the $1.09 per share figure I mentioned a moment ago. Moving to investment performance on Page 10 of our earnings release, the traditional private equity portfolio appreciated 4% in the quarter and 18% in the last 12 months. Opportunistic real estate was up 1 in the quarter and up 3 in the LTM. Infrastructure continues to perform well, up 3% in Q2 and up 17% LTM. And in credit, the leveraged credit composite was up 2, and the alternative credit composite was up 3 in Q2. And over the past 12 months, performance here was 12% for both strategies. And given this investment performance, our gross unrealized carried interest balance increased to $7.1 billion and that is up over 40% from Q2 of 2023. And finally, before turning over to Rob, we wanted to reflect for a moment on an exciting milestone as KKR entered the S&P 500 Index in June. We believe this is a strong reflection and endorsement of the firm's performance, our people and our culture, and we want to thank and recognize everyone at KKR for the creativity, innovation and focus that got us to where we are today and will continue to propel us going forward. And with that, I'll hand the call over to Rob.

OneStream:

Turning to strategic holdings, we've only reported this segment on a standalone basis for two quarters, but we remain confident in our ability to take the business to over $1 billion of operating earnings by 2030. Stepping back I don't think there are a lot of corporates giving seven-year guidance, so I think this really does speak to our confidence in both the durability and growth orientation of these cash flows. Now, turning to insurance, there are a lot of really positive developments this quarter, so I wanted to spend a bit of extra time taking you through a number of business building initiatives. In Q2, we saw record volume of inflows from Global Atlantic across annuity sales and flow reinsurance totaling over $8 billion in the quarter, compared to less than $3 billion just a year ago. And looking at the last four quarters in aggregate, total inflows including block activity have been over $50 billion. That's the highest point in any 12-month period in GA's history. On the earnings front, we continue to feel good about our ability to generate 14% to 15% pretax ROEs as the right long-term target. The ROE for Q2 came in below this range as a result of a couple of factors, but mostly a function of us leaning into the long-term opportunity at GA. The drivers for the quarter include elevated levels of liquidity from our big block reinsurance transactions, as well as the significant ramp up in quarterly volumes and some of the investments we are choosing to make that favor longer term ROEs, really at the expense of near-term ROEs. Overall, we continue to feel great about the long-term trajectory at GA and the opportunity for us to create significant value together. In particular, given that we are now six plus months into owning 100%, we thought we'd bring you through some tangible examples of how our closer collaboration across investments as well as capital markets are driving real business performance. First, in real estate, we recently closed on a $2 billion unlevered acquisition of a 5000 plus unit multifamily portfolio. Given the dearth of real estate, excuse me, of core real estate capital globally, we are seeing excellent risk return for the few very well capitalized buyers in the market of which we are one. We have conservatively priced this deal to an 8% unlevered return with significant upside potential, which we think is a really compelling risk adjusted return. But it's the type of deal that is going to put some pressure on our near-term ROEs for the benefit of longer term profitability. As an example, we expect the year one yield on this portfolio to be in the low 4% range, obviously less than where we are originating our liabilities today. But the combination of yields increasing over time and the expected appreciation of the asset make this a really interesting deal and one we're excited to pursue for the long-term. Now, there will naturally be a limit to how much of this type of investment that we want to make, but I think it's a really great example of our increased coordination between our real estate equity team and GA. We also have had a very positive development this quarter on the infrastructure side of our business. We announced an investment in Labrador Island Link, which is a transmission line that brings renewable energy to Eastern Canada. This is the first collaboration between Global Atlantic and KKR's infrastructure teams, who work together to structure the equity interest with significant downside protection. And finally, we wanted to take you through a brief case study from early Q3 that combines Global Atlantic, our credit teams, as well as our capital markets franchise. CyrusOne, a data center portfolio company of ours, has been growing rapidly with demand for hyperscale facilities continuing to increase driven by cloud and AI deployment. To support this growth, our capital markets team helped arrange an $8 billion facility of which we sole led the $3 billion institutional tranche that was anchored by Global Atlantic. Strategically, this represents a really exciting evolution in our playbook, where we generated a great outcome for a portfolio company, made a compelling credit investment, and were able to simultaneously drive capital markets fees. All of these examples would not have been possible without the interconnectivity across the firm and our model. We expect many more examples like this to come. Now before handing it off to Scott, I wanted to briefly touch on some of our operating metrics across the firm, where there continues to be very significant momentum. In the quarter we raised $32 billion of capital. This is the second most active fundraising quarter in our history. This is the second most active fundraising quarter in our history. Of particular note, we're very pleased with the initial reception of our global infrastructure V fund. Through July, approximately $10 billion of capital has been raised and in June we launched our Americas private equity flagship fundraise. So our fundraising super cycle is now well underway. Also, within private equity, our middle market strategy called Ascendant has already achieved its fundraising goal of $4 billion and we have not yet held its final close. It's a great outcome for a first time fund, obviously something that is adjacent and benefiting from our existing private equity team, and I think it really speaks to the receptivity of our investors to the quality of our team and our track record as we look to fundraise for our next flagship. Focusing for a moment specifically on private wealth, our K-Series vehicles in the quarter raised $2.8 billion of capital, 60% of which was driven by our private equity strategy. The K-Series suite has gained real momentum, but we are still in the earliest of days of what we view to be a really long-term strategic focus. As a reminder, we now have vehicles across our four key investing verticals. That's private equity, infrastructure, real estate, as well as credit, representing over $11 billion of AUM, and that's up from approximately $3 billion just a year ago. And looking beyond K-Series, we recently announced our exclusive strategic partnership with Capital Group, one of the largest global active asset managers. With $2.6 trillion of AUM and serving 67 million individual investors, Capital Group has built a leading client franchise with world class wealth distribution capabilities. By combining Capital Group's public market investing as well as distribution expertise with KKR's nearly 50-year track record in alternatives investing, we plan to introduce a series of hybrid public, private investment solutions that make the KKR platform available to a broader universe of investors. Importantly, the hybrid products are a step beyond what we are already doing with the K-Series and the accredited investor universe as they expand our reach to include the mass market. We're excited about the future of this collaboration, and we will share much more as we approach the product's expected launch in 2025. Turning to capital invested, we deployed $23 billion of capital in Q2. For the first half of 2024 we have now deployed $37 billion, which is almost double the first half of 2023. Real estate in particular had a strong deployment quarter across equity and credit. On the credit and liquid strategy side, direct lending continued to put capital to work as well as opportunities in high-grade ABF. Importantly, there remains a very healthy pipeline for deployment in the second half of 2024 as well. Overall, we remain very excited around the business momentum that we are seeing across the firm and how that can really translate into further P&L outcomes over the second half of the year. And with that, let me turn it over to Scott.

Operator:

Thank you. [Operator Instructions] Your first question comes from Craig Siegenthaler with Bank of America. Please go ahead.

Rob Lewin:

Hey Craig, it's Rob. Thanks for the question. Why don't I start out and there's a couple of things going on, and maybe the shorter part of your answer is going to ultimately depend on what the growth is from here, but maybe let's talk a little bit about what we're seeing in the business. You referenced a lot of growth and just to put some numbers around that, if you look at the past nine months, we've taken on $50 billion of additional capital. That compares to $20 billion in the preceding nine months. And we're trying to be very thoughtful, as you can imagine, around deployment, as we're digesting that growth. We're also using new muscles inside of our firm as it relates to linking up our real estate equity team, our infrastructure team, our capital markets team and so there's a lot of really good work going on. And as a result, we've been operating at elevated levels of liquidity. And so just again, to put some numbers behind that, if you look at the end of the quarter, we had roughly $8 billion of cash. If you look a year ago, that number was closer to $4 billion and that doesn't even take into account a lot of the high-grade corporates that we have that are being weighted to be rotated into higher yielding assets. And I think the other point that I think is worth talking about, as we think about what the medium term net investment income can look like and ROE could look like, is really this point I was trying to get at in the prepared remarks around us actively making investments today that we believe will generate meaningful long-term ROE, but that's coming at the expense of shorter term ROE. It's that core real estate example that I mentioned where day one, we expect running yields to be roughly 4%. If you think about where we're originating liabilities today, that's north of 5% and so not only are those investments not accretive to our near-term P&L, they're actually dilutive. But for those who have followed us a while, been shareholders with us for a long time, I think they'll know that we're always going to make the decision to take some pain on short-term P&L for long-term earnings power. And so it's tough to then extrapolate from there exactly what that's going to mean to near-term ROEs and returns as a lot of that is a function of the growth that we expect. But as we look forward, we look at Q3 and Q4, our expectation is we'll have operating earnings that are in and around where we are in Q2. And as we think about how we ramp up into 2025, my expectation is we're probably based on the growth we see in front of us, we're probably operating at a level that's a little bit below our 14% to 15% long-term ROE range. But again, all in service for that long-term growth that we feel across the KKR platform and that we believe pretty strongly will benefit GA's long-term P&L.

Rob Lewin:

Thanks, Craig.

Operator:

Next question, Bill Katz with TD Cowen. Please go ahead.

Scott Nuttall:

Hey, Bill, it's Scott. Thanks for the question. There are a couple things. One is just broader context for you. I know there tends to be a lot of focus on the flagship funds, but if you go back and think about what's been going on with the firm, even go back to the beginning of 2022, so call it the last two and a half years, we raised $214 billion. Only $14 billion of the 214 was in flagships. So happy to chat about the flagships, but we should also keep in mind the vast majority of the activity that we've been generating has been outside of that and to your point, we now have the flagships coming back as well. The overall tone in the fundraising market continues to improve. I think it kind of depends on where you are and what you're talking about. So let's just talk about asset classes. Infrastructure and private credit, we continued to see investors very interested and trying to catch-up to the allocations that they have made. So it continues to be quite a bit of activity in those asset classes. I would also include real estate credit in that area. It's kind of a similar theme to private corporate credit. Then you kind of move on into real estate equity, where I think the sentiment is shifting a bit right now. There has been more caution, no doubt. Our perspective is that the sentiment has bottomed in the last year. Valuations have bottomed in the first half of this year, and as you heard in the prepared remarks, we've been quite active deploying into real estate equity. I'd say the fundraising is going to lag that reality a little bit, but we're starting to have more conversations with investors that understand, although it may be perceived as a bit contrarian, this is a really good time to invest in real estate equity. And then in private equity activity is picking up. As you heard, monetizations are up and deployment is up. People are starting to get more money back, so those with more mature programs are starting to see some of that. I think you'll see more of that as we get into the latter half of the year. We have just launched our flagship U.S. private equity funds. There's not a lot to report as of yet. I'll let Craig give an update on our Ascendant strategy, which is a recent data point in a minute. But it feels to us like there's a decent chance the private equity fundraising environment has bottomed as well and you'll start to see sentiment shift to the positive. More broadly, as you know, private wealth, big opportunity for us all upside. Insurance companies we thought might pull back from us a little bit as rates went up, have not seen that, actually are seeing as much activity and momentum in insurance as we've seen in a while. And so we do think there's quite a bit of activity. Sorry for the long answer, but hopefully it gives you a sense that there's a variety of different things happening underneath the surface. And on private equity, Craig, why don't you just give the latest data point we have? It's not a big one, but it's at least indicative.

Rob Lewin:

And Bill, just one other thing from me, maybe two quick, because I know there's a lot of interest in the fundraising environment. We are continuing to see a couple of other themes. One is concentration of relationships. So we're finding more investors want to do more with fewer partners, and so we're continuing to see that trend accelerate. Also, I think there's increased recognition of what we've been talking about for the last decade, plus the power of portfolio construction, deployment, pacing and tools to add value. And you're going to see much higher dispersion of results, I think and we'll figure out who did a good job the last five years and we feel really well positioned in that context.

Operator:

Next question, Alex Blostein with Goldman Sachs. Please go ahead.

Craig Larson:

Alex, it's Craig. Why don't I start? So first, just as it relates to private equity, and you would have seen some of this in the page in our press release, we are have a very healthy backlog of traditional private equity investments. Feels like in the second half of the year, we're going to continue to see an acceleration of activity there, which is great to see. I think on your point on the syndicated versus the direct lending of private debt markets, it just provides optionality. When we think back, or when we all think back to a year ago in the syndicated debt markets were closed, I think we saw M&A volumes, honestly be pretty modest. And as Scott had mentioned, we were very constructive on risk reward. But with many of those financing markets effectively shut in the syndicated markets in particular, it just led to a reduced level of activity. So I think it's actually very helpful in terms of private equity deployment, honestly, in terms of private debt deployment and the outlook to have a very healthy syndicated debt market. But we'll be able to, from again, a PE standpoint, it gives us the flexibility to think through what we think the right solution is in the framework of that particular investment. So I think with a private debt hat on, you may see a smaller market share versus those environments where the syndicated debt markets are really volatile. But you'll see overall volumes be a lot higher.

Operator:

Next question, Patrick Davitt with Autonomous Research. Please go ahead.

Craig Larson:

Patrick, it's Craig. Why don't I begin? And just to step back to level set for everyone, as of June 30, we had around $75 billion of assets under management from individuals, and that number does not include policyholders at Global Atlantic. So if anything, that would understate our presence as you think about the breadth of activities that we have. Now most of that capital is from high net worth and ultrahigh net worth individuals and family offices that are invested directly in our funds and strategies. And over time, we've tended to see teens percentage of our new capital raise come from individuals. So it's been a healthy part of our fundraising. Now, most recently, again is, I know you know wonderfully well, we've introduced our K Series suite of products. These are the funds and strategies that are designed and tailored specifically for that wealth market. So we have K-Infra and KIF for the U.S. and non-U.S. vehicles focused on infrastructure. Similarly, we have U.S. and non-U.S. vehicles focused on private equity, private BDCs also. And then we also have additional real estate and credit vehicles. And so of that $75 billion, around eleven are from these K-Series suite of products. And a year ago that was three. So we're in the early days, but we feel really good about our progress. And I think that's particularly true in infrastructure as well as in private equity, which are newer asset classes here. And it feels like we have an opportunity as a first mover. Now in terms of ramp and pace at the end of 2023, we mentioned that we were raising about $500 million a month. In Q1, we raised $1.8 billion, so we were at $600 million a month. Q2 we raised $2.8 billion, so $900 million a month or thereabouts. So it seems like reception and interests and momentum feels really good. We don't have a specific update in terms of number of platforms, but to be clear, we do expect the number of platforms where we're present to increase over the coming months and quarters. I think that's going to be particularly true in terms of the private BDC, which is the youngest of those, of those products for us. So it feels like great progress. And again, I wouldn't take the eye away from the prize like we do think the more interesting point here is really that long-term secular opportunity, mass affluent individual investors have not had an easy way to access alts over the coming years. We do expect an opportunity for trillions of dollars of assets to flow into these products. And given our brand, our track record, and the investments we've made in distribution and marketing, it just feels like we're really well positioned to continue to be a winner. And our strategic partnership with Capital Group, as we touched on in our prepared remarks, just increases this opportunity set. So hopefully that's helpful.

Operator:

Next question, Dan Fannon with Jefferies. Pease go ahead.

Scott Nuttall:

Thanks, Dan. I'll take a crack. How did it come together? A Capital Group called us and they had been thinking about how they wanted to participate in the alternative space. And if you go back to, I think, the original press release that our partner, Mike Gitlin did a really nice job laying out how they thought about it. Should they acquire something? Should they partner? Should they buy pieces of different businesses? And they decided that partnering was the best act. So, to be clear, they called us. We spent quite a bit of time together, got to know each other really well as firms and as people. And I think the reason this came together is the reason most things come together, just an extraordinary cultural fit. We thought about the world the same way, same focus on delivering value for all the clients counting on us and understanding, really who we work for. So that's how it came together. It was kind of a joint vision and shared values and how we see the world in terms of kind of where we're going and how this is different. So one simple way to think about it, let's just take the U.S. market. And the numbers are never precise, but to be close enough, with our K Series, we're targeting the accredited investor and the qualified purchaser. That's roughly 5%, give or take, of U.S. households. I'm close, but it's single-digits, mid-single-digits percent, depending on what you look at. That means there's 95% of U.S. households that it does not access. And so what we're doing with Capital Group is creating a product that will allow the other 95% of households to participate in what we do. In its simplest form, that's what we're doing. So it's hybrid. So there's going to be an element that is going to be the liquid strategies that will be managed by Capital Group and then a portion that is the private market strategies that will be managed by us. So think of all of these products as having a component of both and geared toward that broader audience, that mass market. As I said, we're starting with credit. So think of it as a component of liquid credit plus private credit. And for us, that will include both direct lending and asset based finance in the private credit sleeve. And then for the other products that we're talking about launching, infrastructure, private equity, real estate, we're in the design phase. So I would expect over time, I'm not going to put a timeframe on it today, but over time, you will likely see products from us together across all of those areas. And so that's how we expect it to play out over the coming years. But we'll keep you posted, but hopefully that helps.

Operator:

Next question, Brian Bedell with Deutsche Bank. Please go ahead.

Scott Nuttall:

Right, thanks Brian. Good morning. So as it relates to capital markets, you're right, that Telecom Italia transaction closed July 1. We will generate a meaningful capital markets fee as part of being involved multiple different aspects of that transaction. But I would tell you, as I look at our broad-based capital markets pipeline, I think pipelines for that business are certainly good one quarter out, but probably two quarters. As I look at that back half of the year, I tell you that our aggregate pipeline is as good as we've ever seen it. And that includes 2021, when we generated roughly $850 million of revenue or capital markets business. So we're quite encouraged around what the back half of the year could look like. Again these are pipelines. They're forward indicators. A lot of stuff needs to come to fruition, but it is broad-based. It's across debt, it's across equity. It's U.S., Europe, Asia. It's also third party. So we're feeling really good about what the back half of the year could look like. As it relates to FRE margin, I would say absolutely. In an elevated capital markets quarter, you are going to see higher FRE margin the flow through is just higher, given our operating expenses are more fixed in nature relative to that incremental capital markets revenue. Here's how I've described our FRE margin in the past. I believe that today we can operate sustainably in the mid-60s on FRE margin basis across the firm, and that includes in most market environments, but that is definitely not the cap for us. And if we're successful with the business model that we've got a lot of conviction in here as a management team. We're going to scale our revenue. We're going to scale our fees at a pace that's meaningfully above our headcount growth and our operating complexity across the firm. And we would expect more margin expansion in the future if we're successful. So hopefully that gives you some color on the back half of the year and what we're feeling in capital markets and how that might translate into FRE margin.

Scott Nuttall:

Thank you.

Brian McKenna:

Thanks. Good morning, everyone. So you have $215 billion of carry eligible, 81 that's above cost and accruing carry. Would be great to get an update on how much this has grown over the past year, specifically on the heels of strong performance and then as you continue to deploy capital? And then is there a way to think about the breakdown of this AUM by vintage? How much is less than a few years old versus how much is older than that? I'm just trying to get a sense of the magnitude of the step up and accrued performance fees and ultimately realizations over the next couple of years.

Brian McKenna:

Helpful. Thanks, Scott.

Unidentified Analyst:

Got it. Thank you, guys.

Scott Nuttall:

Thank you.

Benjamin Budish:

Hi. Good morning and thanks for taking the question. Given a lot of color around the capital markets outlook going into Q3, I was wondering if you could give us an update on the visible pipeline in terms of realizations and along the same lines. Could you talk about the $500 million in expected realization revenues thereabouts? What ended up shaking out better than you expected for Q2? Thank you.

Benjamin Budish:

Got it. Thank you.

Steven Chubak:

Good morning. So wanted to squeeze in just another question on cap markets, but I want to look at it with a longer term lens. It is something I pressed you guys on in the past, but just given the pipeline strength, sponsor recovery still feels like it's in the early stages. You expect to at least monetize the 100% GA ownership better. You're certainly going to see significant franchise growth over the next few years relative to the prior cycle peak. How would you frame what the capital markets trajectory for revenues might look like? Is there a way to maybe size what, under a normalized lens or by 2026, what you think the fee generation potential could be of that business?

Scott Nuttall:

It's a really good question, Steven. Maybe we should invite you to our budget meetings. But to Rob's point, we're working across more asset classes, doing more in Europe and Asia, third parties up GA, we think is hundreds of millions of dollars of potential a year as we get that right. And the other thing that I would point out is our portfolio is bigger across all these asset classes and maturing, which I think is at least as big a contributor as some of the other topics. So we're not going to give you a number, but if you're positing that it should be a lot more than it's been, I agree with you.

Scott Nuttall:

Thank you.

Michael Cyprys:

Great, thank you. Good morning. Just a question on infrastructure. I saw the recent partnership announcement with HASI on sustainable infrastructure projects. Seems like an interesting deal sourcing funnel. Just hoping you could elaborate a little bit on this partnership, how you view this strategically helping KKR, and then just more broadly on infrastructure. Just curious where you're seeing some of the most exciting opportunities right now for putting capital to work in the infrastructure space, and how you're thinking about other potential opportunities for other partnerships over time?

Scott Nuttall:

Yes. Hey Michael thanks for the question. I think the two big themes to that part of your question I point to is digitalization. I think data centers; fiber, powers continue to be incredibly active across all of those areas. And if you look at recent deal announcements, you'll see that's a big theme. And then to Craig's point, it's energy transition, renewables climate. I think the HASI partnership that you referenced, I would think of that as a bit similar to what we've talked about in the past around our partnerships across asset based finance and real estate. And we have 35 platform partnerships there, the better part of 10,000 people out originating. So you'll continue to see us develop more relationships like that. It's in a similar vein.

Scott Nuttall:

Thank you.

Chris Kotowski:

Yes. Good morning and thank you. I heard what Scott said about the, flagship funds playing a lesser role, but I am curious kind of about the kind of expected base management fee dynamics that we should be expecting here in the next couple of quarters. So you raised $8 billion in Infra five, and you said it's up over 10, but there's still $7 billion left in Infra four. So does that, quote, turn on later in the year or is that a third quarter event? And kind of similarly with your next flagship private equity fund, you still have, I think, $8 billion left in the prior fund. So does that turn on, like, later maybe early, mid-2025? Is that kind of what we should be expecting?

Chris Kotowski:

And have you shared kind of the target size of those funds or is that confidential?

Chris Kotowski:

Okay, all right. Thank you. That's it from me.

Operator:

Next question Arnaud Giblat with BNP. Please go ahead.

Scott Nuttall:

Good question, Arnaud. So at this point, there might be an opportunity down the road, but it's nothing front and center for us in terms of the secondaries market. We spent time in that space. We've analyzed it, never say never, but it's not front and center part of how we're thinking about next step strategy at this stage. We think there's plenty to do candidly across the asset classes that we're in.

Scott Nuttall:

Thank you.

Craig Larson:

I would just like to thank everybody for your continued interest in KKR. We look forward to giving an update on next quarter in 90-days and if you have any additional follow-ups please reach out directly. Thank you again.

Before wrapping up this morning, I did want to spend a couple of minutes summarizing the key takeaways from our Investor Day a few weeks back. Scott and Joe led off our Investor Day with a very simple message:

While we have experienced a lot of growth, it feels like we are just getting started.

Second, looking ahead, we feel quite confident in our longer-term trajectory. We expect $15-plus of adjusted net income per share in the next 10 years or less, with approximately 70% of these earnings to be more recurring in nature. Over the next 5 years, we also expect $25-plus billion of cash generation. We anticipate that this cash will get deployed across 4 key areas:

core private equity, share buyback, strategic M&A and insurance. Our model really gives us the confidence across all of these avenues of deployment. In each case, we have a strong track record of being able to deploy capital against high ROE opportunities that also generate recurring and growth-oriented earnings per share.

Operator:

[Operator Instructions] Our first question comes from Craig Siegenthaler with Bank of America.

Craig Larson:

Craig, it's Craig. Thanks for the question. Why don't I start? I'm sure Scott will have a couple of thoughts also. First -- and thanks for beginning in the way that you did. I think as Rob noted in our prepared remarks, the $1.1 billion of deployment you saw this quarter is not representative as we look at our activity. We've got a really healthy backlog of announced transactions. And if anything, it was just a dynamic, where a pretty modest amount of that activity closed in the 90 days ended March 31.

Alexander Blostein:

I wanted to go back to some of the targets you laid out at the Investor Day and really speaking to the $25 billion of cash flow you expect to generate over the next 5 years. Rob, I know you mentioned several buckets which are not that different. They're fairly consistent with kind of how you allocated capital historically. But I was wondering if you could comment on the mix specifically and sort of your priorities within those 4 buckets that you mentioned earlier. And I guess as part of that, when you think about growth in Strategic Holdings and incremental capital that you'll deploy there, how much of that is likely to be driven to sort of allocation to existing portfolio companies versus new investments?

Operator:

Our next question comes from Bill Katz with TD Cowen.

Craig Larson:

Bill, it's Craig, why don't I start. So I think there are a couple of things here. First probably worth highlighting investor interest in private credit as that continues to feel very good. So I think in direct lending, spreads have come in certainly. But if you look at a new direct lending deal, given where base rates are in 3 months so far, that's still a 10%-plus piece of paper. And in ABF, there's just a number of really positive macro tailwinds, as Chris Sheldon, again, walked through a handful of weeks ago. And within that part, we're active in both ABF -- in investment-grade ABF in addition to opportunistic.

Brian Mckenna:

So just a 2-parter here on core private equity. So first, is the $20 million in net dividends in the first quarter a good quarterly baseline for the remainder of this year? Or should we expect some growth off of that? And then bigger picture, I'm curious if interest is picking up at all from LPs around the strategy, specifically as the portfolio continues to mature here while dividends are also set to increase notably in the coming years.

Operator:

Our next question is from Glenn Schorr with Evercore ISI.

Robert Lewin:

Glenn, it's Rob. I'll start. I think you hit on it in your last remarks there. It is not a need-to-have for us. And so we want to be in businesses where there are large addressable markets, and we've got conviction, we can be a top 3 player. Of course, over time, we've looked at the secondary space. You could assume that most every M&A transaction that's happened in the secondary space, has come across our desk here. And either we determined it wasn't the right partner to be a top 3 player or we determined that we just weren't willing to pay the price that was a prevailing price in the market.

Operator:

Our next question is from Patrick Davitt with Autonomous Research.

Robert Lewin:

Yes, sure. Thanks for the question, Patrick. So I'd say that if you look at the flows at GA this quarter, probably about 75% from the institutional side of our business, give or take. Again, that's inclusive of the big block transaction that we did in the quarter with Manulife. We've had really good momentum on the individual side of our business as well, with very strong sales both in Q4 of '23 and again in Q1 of 2024.

Operator:

Our next question is from Dan Fannon with Jefferies.

Robert Lewin:

Sure, Dan, it's Rob. I'll start. So what we're seeing in the GA business is really strong performance, really strong operating performance, and really an even stronger outlook for the future. What happened in Q1 or what transpired from a P&L perspective in Q1, very much by design. When you complete 2 very large block deals north of $20 billion of assets, you're going to take on the cost of those liabilities day one. But we really have a 12- to 18-month period where we've modeled redeployment of the assets into higher-yielding investments. And we're operating at higher levels of cash balance. That was point one.

Benjamin Budish:

Just following up on the topic of GA and some maybe modeling tidbits. So helpful commentary in terms of the time it takes to redeploy some of those assets. Wondering if you could talk a little bit about the pace of growth and the cost of insurance. It looks like quarter-over-quarter, it goes up as kind of the book turns over a little bit. But I guess, how should we think about that just as we forecast longer term?

Robert Lewin:

Yes. Great. So starting on the cost of insurance, and I think you really hit on it. As you see the rotation in a higher interest rate environment, our crediting spreads have, of course, gone up so have the yields that we're able to generate on the investment side of the portfolio. So being able to generate that spread continues to really exist in the business. So you'll continue to see, I think, an upward draft on our crediting spreads for a little bit. And then ultimately, it would be a function of where interest rates shake out.

Operator:

Our next question is from Steven Chubak with Wolfe Research.

Craig Larson:

Why don't I start first. I think as it relates to SRTs, it is a market we are active in. It fits in our view, very well with our ABS strategy. We're knowledgeable across a host of assets, and we do like to partner with the banks. As you note, I think that activity has mainly been EU-focused. It does feel like we are starting to see more activity in the U.S. It also seems like the potential opportunity set could be expanding. I do think the most common underlying assets for SRTs have been in corporate loans, fund finance facilities, consumer term loans, does feel like banks are beginning to explore opportunities across other asset classes.

Scott Nuttall:

Part of the reason, Steven, that we spent so much time on this part of the business at the Investor Day is we do think this is a really interesting and sizable opportunity. Direct lending is really interesting as well in private credit, but asset-based finance is a much larger market, probably a $5 trillion market on its way to $7 trillion to $8 trillion. And it encompasses a significant number of asset classes, and you really need to have scale to be able to do it well.

Operator:

Our next question is from Brian Bedell with Deutsche Bank.

Robert Lewin:

Yes. Brian, a few thoughts. When you look back at 2022 and 2023, really tough operating conditions for our Capital Markets business. And for much of that time, Capital Markets on the equity side, on the leverage finance side, were largely shut. And our business generated ballpark $600 million of revenue in each of those 2 years. And so we're really proud of the durability of the franchise that we created. As I look at our pipelines today for the remainder of 2024, we get updated pipelines weekly, our pipelines are a lot better today than they were at this time last year. Now there's a lot to go execute on between now and the end of the year. But the forward indicators for our capital markets business sitting here in early May are definitely better than they were in May of 2023.

Scott Nuttall:

Yes. So Brian, we've been in this business since 2006. And over that period of time, what you see is that the revenue tends to be quite correlated with deployment and monetization, especially in private equity and infrastructure. So if you go back to the prior discussion around the fact that our pipelines have picked up significantly, especially in those areas, and we're seeing more activity on the monetization side as well as the markets open up and strategic buyers come back. I think that bodes well.

Operator:

Our next question is from Michael Cyprys with Morgan Stanley.

Craig Larson:

So why don't I start, Mike. I think you hit on a lot of the key points. I think that the asset-based finance business for us as a whole has just changed really dramatically post the Global Atlantic acquisition. And this is a business where scale begets scale. And so I think we've seen real advantages of partnering with GA, partnering with additional third-party clients. And then an important part of that have been all the platforms that Scott had mentioned and that Chris Sheldon had run through over the course of our Investor Day.

Patrick Davitt:

Could you give us the updated visible announced but not closed realization revenue number? And then more broadly, I guess we've got some conflicting messages out there about how good the realization environment really is, overall sense that you're still pretty constructive. So maybe just update us on what your -- what's driving your confidence and maybe what you think is -- why your tone is diverging from what we've heard from some other players out there.

Craig Larson:

And only part, Patrick, I'd add on to both of those comments really would relate to that investment performance aspect of this, you look at our gross unrealized carry, that number is up 50% year-over-year. That's a pretty big increase, recognizing both the value creation we've seen, together with the fact that we've been in a more modest realization environment. And I think when you look at some of the underlying statistics, as Scott said, we've got a healthy amount of the portfolio that's pretty seasoned. So roughly 50% of that would be 4 years or greater as we look at the maturity of the private equity portfolio.

Operator:

We've reached the end of the question-and-answer session. I would now like to turn the call back over to Craig Larson for closing comments.

Operator:

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Craig Larson:

Thank you, operator. Good morning, everyone. Welcome to our fourth quarter 2023 earnings call. This morning, as usual, I'm joined by Rob Lewin, our Chief Financial Officer; and Scott Nuttall, our co-Chief Executive Officer. We'd like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at kkr.com. And as a reminder, we report our segment numbers on an adjusted share basis. This call will contain forward-looking statements, which do not guarantee future events or performance. Please refer to our earnings release as well as our SEC filings for cautionary factors about these statements. And as a reminder, our earnings release in our financial reporting for Q4 is consistent with past quarters beginning in Q1 of 2024, our earnings release will reflect the segment and financial metric changes we announced on November the 29th. Turning now to our numbers for the quarter, we're pleased to be reporting strong fourth quarter results with fee-related earnings per share of $0.76. This is a record figure for KKR up 21% from Q3 2023 as well as Q4 of 2022. After tax distributable earnings came in at $1 per share. New capital raised in the quarter was $31 billion, which is also particularly strong. So overall, a really solid quarter for us. I'll begin this morning by walking through our financials in a little more detail. So management fees in the quarter are 785 million. That's up 3.4% compared to just last quarter, with growth across all of our business lines. And comparing full year '23 to 2022, management fees grew 14%. We reported double-digit percentage annual growth in our management fees for several consecutive years now. Net transaction and monitoring fees were 264 million in the quarter. Capital markets transaction fees in particular were quite strong in Q4 with 225 million in revenue that was driven by an increase in investment activity and financing transactions at several of our PE and core PE portfolio companies. So in total, fee-related revenues for the quarter were 1.1 billion, up 17% on a year-over-year basis compared to Q4 of 2022. Turning to expenses. Fee-related compensation, as usual was at the midpoint of our guided range at 22.5 a fee-related revenues for the quarter as well as for the year. Other operating expenses were 156 million. So in total, fee-related earnings were 675 million or $0.76 per share. As I mentioned just a moment ago, this was a record FRE quarter for us. And this growth really highlights in our view the continued strength as well as the diversification that you're seeing across the firm. Our FRE margin in the quarter came in at 63% and on a per share basis FRE was $2.68 for the year. Turning now to realization activity. For the quarter, we generated 411 million a realized performance income. This was driven by multiple successful sales across our traditional private equity and core businesses, with realized incentive fees driven by Marshall Wace in the fourth quarter. Realized investment income in the quarter was 147 million. So together monetizations were 558 million. In total asset management operating earnings were 970 million. Moving to our insurance segment, performance continued to be strong in the quarter with 231 million of pre tax earnings that's up 10% quarter-over-quarter. This was the result of stronger net inflows across both the institutional and individual channels, as well as variable investment income from the sale of a solar developer that generated 16 million of insurance segment pre tax operating earnings. So in total, after tax PE was 888 million or $1 per share. In comparison with the prior quarter, that figure was up 14%. Next, turning to investment performance, you can see this on page seven of the earnings release. The private equity portfolio appreciated 3% in the quarter and 16% in the year. In real assets, the opportunistic real estate portfolio was down one in the quarter and down two for the year. Infrastructure was up 5% in the quarter and up 18% for the year. So very strong broad performance across our infrastructure platforms. And in credit, the leverage credit composite was up three and the alternative credit composite was up 2%. And over the year performance year was up 14% and 10% respectively. And finally, consistent with our historical practice, we are intending to increase our annual dividend from $0.66 to $0.70 per share, which we anticipate will go into effect alongside first quarter 2024 earnings. And with that, I'm pleased to turn the call over to Rob.

Operator:

Thank you. [Operator Instructions] And our first question today will be from the line of Craig Siegenthaler with Bank of America. Please proceed with your question.

Craig Larson:

Good morning, Craig, it's Craig, why don't I start on that. First, look, one of the things that runs mind as it relates to the trajectory of new capital raised, and you would have heard this in the prepared remarks from Rob, relates to the topic exactly as it relates to our flagship strategies. So when you look at the largest fund complexes within our firm, so Americas, Europe, Asia PE, Core PE infrastructure, less than $1 billion of the capital that we raised last year, we raised $70 billion in total, less than $1 billion of that came from those strategies. And if you look over '22 and '23, we raised round numbers, $150 billion of new capital and around $6 billion came from those flagships. And so as we think about '24 and '25, we think that that's going to look different. And so we are actively fundraising for our infrastructure strategy and do expect to launch fundraising for our Americas private equity strategy later in the year, with Asia likely a 2025 initiative for us. On the deployment numbers, you mentioned, those numbers are always a little understated. I remember, if we have platform investments, et cetera, that capital is going to be spoken for, or if there happens to be capital drawn under the line, that's going to be paid back inside of 180 days, again, that capital will be additive. So those deployment numbers always look a little more understated relative to how we think of that positioning. And then I think there's a couple of other points here. The next one would relate to scaling. We mentioned in our press release that we had the final closes on our Next-Gen Tech 3 and Impact strategies. We had nice scaling in those strategies compared to their prior vintages. Again, Rob talked about the good news as it relates to Asia infrastructure for us. We do expect scaling in our wealth strategies alongside of that. And then finally, we feel like we have a lot of momentum in Global Atlantic, both in the individual as well as the institutional channels. So I think the opportunities that we see for new capital raised and, in turn, management fee growth is really an attractive part of our positioning with the flagship certainly being an important part of that.

Scott Nuttall:

Yes. The only thing I would add, Craig, is I think our overall view on fundraising is quite optimistic. I mean, Craig Larson mentioned it, but the $150 billion we raised for 4% of that have come from flagships is a pretty low number speaks to how we've been scaling the diversification of the firm. And as you know, a number of our strategies are kind of in this nice part of the inflection curve Funds II, III, IV, where we can see a significant amount of growth. So you're absolutely right to point out the flagships are coming back at what we think is going to be a really good time. But we also have 22 of our 30 strategies that are coming to market in the next 12 to 18 months, we put in that younger category. Fund I, II, III, open-ended these newer strategies. And you can see it. Asia-Infra, up 66%, tech growth was up 30%. Our impact fund doubled even in the environment that we saw over the last couple of years. Yet, on top of that, private wealth, GA, Asia speaks to the optimism that we see kind of regardless of what's happening with the backdrop.

Alex Blostein:

I was hoping you could start with just building on your prior comments around expansion in the wealth channel. You mentioned you're seeing quite a bit of success early days, only a couple of quarters in some of these platforms. So maybe a little bit about what products you expect to be out in the market with over the course of this year, how many platforms you're on, et cetera. But also, I guess more importantly, I believe in the past your targets for 2026 and FRE MD really did not include a whole lot of conception from these initiatives. So maybe just kind of confirm that and what do you think those initiatives could ultimately contribute over time?

Rob Lewin:

Alex, just as it relates to your question on our 2026 targets. Historically, we haven't included much of anything as it relates to private wealth. As we look forward, given some of the early success that Craig just went through, we do see some contribution coming over the next few years across the number of different investing businesses that we have. And Craig just hit on it at the end, the real opportunity we see as we do long-term financial modeling is really in that post-2026 area, between 2026, '28, as we continue to ramp, that's where you're going to start to see a real inflection and much more material contribution to our P&L.

Glenn Schorr:

So the question relates to the banks, and I see 2-way activity. I see right now, I see a little bit more banks coming back into the leveraged loan space, and you see some movement and them getting into providing some services in private credit. Yet at the same time, we know capital requirements are going up in private credit world and more asset-backed opportunities are coming your way. So I just wonder if you could talk a little bit about that dynamic and what specifically you're doing on the asset-backed side to position for what we all think is a lot of growth ahead. Thanks.

Scott Nuttall:

Yes. The only thing I would add, Glenn, is we see a lot written about the direct lending market, rightly so, it's become a very large and important market. I think Craig is right. M&A volumes have been down. Private credits had a larger share of a smaller amount of volume. And so as the banks come back, our expectation is you'll see M&A volume pick up, and there'll still be plenty for the private credit market to participate in. But this ABF business, I don't think is that well understood yet, whereas the direct lending market is probably roughly $1.5 trillion, the ABS market is probably closer to $5 trillion, on its way to $7 trillion. And it is kind of my view, becoming an asset class for institutional investors to understand a little bit. Like 10, 12 years ago, infrastructure and direct lending were very new concepts for most investors. We're having more dialogue on asset-based finance, seeing more investors start to create an allocation or a sub-allocation on private credit. It's obviously incredibly synergistic with what we're building at Global Atlantic, and we're seeing interest from third-party insurers as well. And I do think there's a significant amount of growth ahead for that business. We have 20 or so origination platforms around asset-based finance so far, and I'd expect that number to continue to go up. I would guess in April when we're together for the Investor Day, we'll go deeper on that topic.

Bill Katz:

So maybe just flipping over to the insurance platform and just sort of adjusting for the solar gain in the quarter. I mean how we should be thinking about the ROE for the platform given sort of, two parts, one, and now you have 100% of the platform. And two, if interest rates were to go lower, is there enough growth in the business to offset any kind of degradation in net spreads? Thank you.

Operator:

Our next question is from the line of Brian McKenna with JMP. Please proceed with your question.

Rob Lewin:

Yes. Great. Thanks for the question. Obviously, we're really pleased with the performance of our capital markets business in Q4 and really for all of 2023. If you look at Q4 specifically, great quarter did benefit maybe from a bit of deferrals, some fees that could have been that ended up in Q4. You're right, as the markets picked up in November and December, that definitely helped as well. But I think the more important point on our capital markets business, really, if you look at 2022 and 2023, through much of both of those years, debt capital markets, equity capital markets were largely shut. And our business still was able to generate, on average, close to $600 million of annual revenue in both of those years. So we're quite proud of the resilience of the business model, the durability of the business model. So it wasn't that long ago in a very healthy market environments, our capital markets business was generating roughly $400 million a year. And as you also point out, we've got a business that can generate really outsized outcomes when the markets come back. It wasn't that long ago, 2021, where our capital markets business in very healthy markets generated $840 million of revenue. Now despite the strong Q4, we're not back to those healthy levels of capital markets deployments. It's still relatively muted across the space. Leverage finance market feels better, but the CLO market is continuing to get healthy. IPO markets, secondary markets, they continue to trend in an upward way, but not back anywhere close to where we were in 2021. Now as we think about pipelines going into 2024, we're quite constructive. As it relates to Q1, still very early in the quarter to give you a read. But our pipeline as we're going into the year just across the firm from deployment, the engagement we're having with our third-party clients, we're expecting a constructive 2024.

Finian O'Shea:

Going back to ABF, a lot of color you provided there. Recently in a presentation, you outlined the ABF origination growth in recent years, seeing if you can touch on the potential for improvement into 2024. And then what that can mean for the credit fee rate and potentially the capital markets opportunity. Thank you.

Scott Nuttall:

Yes. The only thing I would add, Fin, is that you're right to ask about the KCM opportunity. As a reminder, when we spoke at the end of November, we talked about all the different positive opportunities we had to unlock more value with GA, including across the rest of the firm from an investing standpoint, creating new product, private wealth distribution, Ivy, which is our third-party fund strategy, and then global in particular, Asia. And as part of that list, we did talk about the capital markets opportunity and we do think that, that can be quite meaningful for us. So think of it as, in effect using the model we've already built with KCM, but more across this ABF platform. We really haven't gotten to that yet. And when we had 37% ownership from third parties, it was a little bit more challenged to get after that. We think over time, that could be a significant opportunity, call it, in the hundreds of millions of dollars if we can get that right. It's going to take time. We'll keep you posted on it, but we do think that is the next big legged growth across all things structured finance, structured credit, asset-based finance for KCM.

Patrick Davitt:

Questions on margin. The FRE margin came in much better than consensus. So firstly, is that mostly a function of the much better capital markets results? And secondly, if so, if this continues into 2024, as you suggest, should we expect a similar incremental positive operating leverage impact as that line item recovers? Thank you.

Operator:

Next question is from the line of Steven Chubak with Wolfe Research. Please proceed with your question.

Craig Larson:

Hey. It's Craig, why don't I start. Look, I think, again, as it relates to the deployment capacity, the numbers are going to be understated given platforms or platform investments we've made, et cetera. So I don't think the dynamic is, one, as it relates to deployment, I think in particular as we look at our pipelines which are building and actually expect across the industry to see deployment increase in '24 as it relates to '23. And I think as it relates to your first question in terms of overall tone, look, I think as a starting point. We've seen a nice increase in public markets. We've seen broad markets improve since mid-October, to say the least. High yield and fees are up, LSD's up. And I think in addition to that, we've all seen the increase in the capital markets. And so I think given that backdrop as it relates to fundraising and tone, I think like if anything, on balance, it feels like clients are more front-footed. And again, it's tough to draw broad conclusions from one-month of activity, and we'll see how things continue to play out from here. But given our track records, the performance that we've had, in particular, in a business for us, like Americas private equity over a long, long period of time, I think we feel very good about the opportunities that we see as we embark upon fundraising for that strategy.

Operator:

Our next question is from the line of Brian Bedell with Deutsche Bank. Please proceed with your question.

Rob Lewin:

Hi, Brian. It's Rob. I'll start off. So we really like our business model and our approach to market with our capital markets business and I think that's a big reason why there's a lot of upside. And the way we face the market really is with one team that represents our private credit pools of capital, where we're one of the largest providers in the world. Our capital markets expertise, it's that same team when they're facing a client, that can well across our liquid credit business, which is one of the biggest liquid credit businesses in the world. And so we combined 3 very large aspects of our business, and we think that's a real benefit to our clients. And there's not a lot of firms out there that can match what we do from a coordination perspective. I like our ability to go compete for talent in the capital market space. We've been able to recruit and retain, over the past number of years, some really talented people at what they do. And especially as we've expanded in product and geography that's a big part of our story and I can see more of that. You referenced what types of upside we have. I think if you look back to 2021, of course, we had a buoyant capital markets at the time. But KKR does a lot more as a firm today, both from a product perspective, deployment perspective and geographically than we did then. We think we're going to continue to be able to take share with third-party clients. And Scott just touched on the opportunity to coordinate with Global Atlantic and the opportunity that, that can create on the ABF side. And so no specific numbers -- excuse me, on the ABF side of KCM. Those specific numbers of course, as it relates to 2026, but we think this is a growth-oriented business and we think in a really good capital markets environment, we're going to be able to grow off of that $840 million revenue number that we put up in 2021.

Operator:

Next question is from the line of Benjamin Budish with Barclays. Please proceed with your question.

Rob Lewin:

We have a pretty healthy pipeline as we're coming into 2024 from a monetization factor. But what I'd say is timing is a little bit less certain given some regulatory approvals that are required around some of these monetizations. But taken together, we have somewhere around $500 million of very high visibility, monetization-related revenue. But we currently don't expect all that to hit in Q1. Obviously, still a couple of months to go in the quarter as well. And as usual, at the end of Q1. We'll provide our standard press release that gives you more detail around the monetization related revenue for the quarter. Maybe while we're on the topic of monetization, one other thing that I think is worth calling out given the growth across a number of our businesses and also the strategic announcements that we made in November, including moving our comp down on fees and up on carry, this is just a much smaller part of our business than it used to be at KKR. It's part of the reason why you'll see us introduce this new metric in Q1, total operating earnings. Our expectation going forward is north of 70% of our earnings is going to come from total operating earnings. So of course, monetization-related revenue is going to be a big part of where we're going as a firm, it's just a lot smaller on a relative basis than it used to be.

Michael Brown:

Great. I just wanted to ask on infrastructure. So strong performance there in the quarter. Can you maybe just expand on some of the key drivers behind that 5% performance in the quarter? And then if we look forward, how do you expect investor demand for this asset class to evolve and as allocations grow, where are the dollars kind of shifting from? And then, specifically, on the Asia side, what's kind of making the strategy there so attractive to LPs? If you could maybe just touch on some of the deployment opportunities.

Scott Nuttall:

Hey, Mike. It's Scott. Just I think in terms of your question about performance in the quarter, it was broad-based. There's nothing that we use to specifically. The portfolio has been assembled incredibly thoughtfully, as Craig mentioned, and is performing very nicely. And as expected, ahead of expectations. In terms of your question about investor demand where it's shifting from, I mean, for the most part, we've seen people creating allocation to infrastructure over the last several years. It hasn't really been a shift out of other parts of alternatives to some extent, where we've seen alternative allocations to increase, it's to be able to accommodate an infrastructure allocation. And I think a lot of that is investors have focused on the fact you've got a real asset that is mission critical, has an attractive yield. And the way we do it is to have to have that contractual yield and it is inflation protected, so it's also viewed as an inflation hedge. And I think as people have done the work on the space, you've started to see more and more dollars flow into it. So largely speaking, and none of these comments are universal, but largely speaking, it's been an and as opposed to an or. And I think on Asia, Craig hit it. I mean our Asia Infra business has gone from a standing start to $10 billion of AUM in 4 years. We have a great team on the ground. They're leveraging our Pan-Asia presence across our 9 offices. And as you know, we run the firm as one firm, so everybody helps each other. I think that's really allowed us to scale very rapidly in that market. There's a significant amount of capital required to develop infrastructure all across Asia in those themes that Craig just walked you through. And candidly, on the margin, there's less competition in Asia, because fewer firms have built the platform that we've built. So I think large opportunity, fewer competitors, firm well integrated.

Michael Cyprys:

Just wanted to ask about insurance. I was hoping you might be able to talk about the opportunity to expand the organic insurance origination, how much you expect to do annually there. Maybe talk about some of the opportunities around getting on more platforms, how meaningful could that be at this point. And if interest rates were to come down, what sort of impact might that have for customer demand and origination volumes. Maybe you could also speak to some of the pipelines from new blocks, which you guys have been quite active with.

Operator:

The next question is a follow-up from the line of Bill Katz of TD Cowen. Please proceed with your question.

Craig Larson:

Sure. Thanks, Bill. So why don't I start on the dividend policy and then just, I think, more importantly, talk about our overall approach to capital allocation, which is of equal importance. So on dividend policy, we really like our policy a lot. We started with a fixed dividend of $0.50 annually when we converted to a C Corp 5 years ago. And every year, we have increased that dividend. And we believe we've got the visibility going forward to have consistent and stable growth to our dividend. And so we like our dividend policy. Now a big reason why we have the dividend policy that we have is because we see so much opportunity to be able to invest back into KKR's business for growth. And you've heard us talk about our capital allocation policy for some time in a very consistent way. And I don't think there's anything more important from the capital allocation policy than being consistent. And our approach is to optimize for recurring and growth-oriented earnings per share. And we've talked about 4 core areas, strategic areas of deployment from our excess free cash flow back into our business. And those are going to come in insurance, core private equity, strategic M&A and share buybacks. And so I think we feel very fortunate that because of the business model we have, the brand we have, the access to capital we have and distribution, that we've got the opportunity to be able to invest back into our business at high levels of ROE that are going to drive really recurring and growth-oriented earnings per share over a long period of time for our investors. So that's our focus. We feel really good about our approach to capital allocation. I think it's a real core competency of our management team and think that that's what's going to drive the highest amount of ultimate shareholder accretion for a long period of time. And of course, it's very much a highly aligned decision since the management team of KKR own 25-plus percent of the stock.

Craig Larson:

Rob, thanks for your help. And thank you, everyone, for joining this call. We know that with our announcements that we made in late November, earnings today and with Investor Day on the horizon on April 10, we're asking everyone to spend a healthy amount of time on all things KKR. Just want to thank everybody in advance for investing the time. Look forward again in particular to the deep dive on April 10. And if you have any questions following this call, please, of course, reach out to us directly. Thank you so much.

Craig Larson:

Thank you, operator. Good morning, everyone. Welcome to our third quarter 2023 earnings call. This morning, as usual, I'm joined by Rob Lewin, our Chief Financial Officer; and Scott Nuttall, our co-Chief Executive Officer. We'd like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at kkr.com. And as a reminder, we report our segment numbers on an adjusted share basis. This call will contain forward-looking statements, which do not guarantee future events or performance. Please refer to our earnings release as well as our SEC filings for cautionary factors about these statements. So to begin, I'm going to walk through the quarter's financial results before Rob discusses our key operating metrics. Turning to our results for the quarter, we're pleased to be reporting fee-related earnings per share of $0.63, and after tax distributable earnings of $0.88 per share. Management fees in the quarter came in at $759 million. This was up 13%, compared to Q3 of 2022, and up 16% over the trailing 12 months. Real assets management fees have been a bright spot for us, increasing 6% compared to last quarter, and 25% over the last 12 months, driven by growth across several infrastructure and real estate strategies. Net transaction and monitoring fees were $124 million in the quarter, $100 million of which came from our capital markets business. Fee-related compensation was right at the midpoint of our guided range at 22.5% of fee-related revenues. Other operating expenses were $142 million. This expense figure is actually a little lower compared to both last quarter as well as Q3 of 2022. Here you're really seeing us continue to invest for growth, while maintaining our discipline at the same time. So putting this together, fee-related earnings came in at $558 million or the $0.63 per share figure I mentioned a moment ago. In Q3, our FRE margin was 61.7%. We've talked consistently about our FRE margin being in this low-60s areas, and we've delivered on this. This is the 12th consecutive quarter where that margin has been at or above the 60% level. And we continue to feel very good about this migrating up from here into the mid-60s. Realized performance income was $329 million and realized investment income generated $231 million. Both realized performance and investment income together were up over 2x from last quarter as exit activity increased in both our private equity as well as our U.S. real estate businesses. Realized performance investment income compensation ratios were again both right at the midpoint in the quarter. So in total, our asset management operating earnings were $869 million. Global Atlantic again had a very strong quarter with our insurance segment generating $210 million of pre-tax earnings. To spend a moment on GA, on the institutional front. GA's blocked reinsurance transaction with MetLife remains on track to close in Q4 2023. We disclosed this transaction on last quarter's call. We expect our AUM to increase by approximately $13 billion upon closing and looking farther ahead GA's pipeline and level of dialogue on future block activity remains healthy. And in terms of GA's individual business, GA experienced an increase in activity in Q3. So overall business momentum within this channel continues to feel very good as well. Global Atlantic AUM pro forma for the MetLife block now totals $158 million. This is up from $72 billion or over two times since the announcement of our acquisition in July of 2020. In our view, this really demonstrates the strength of GA franchise, the power of the KKR, GA partnership, as well as the high level of execution we've seen since the onset. So back to our P&L, in aggregate after tax distributable earnings totaled $780 million, or $0.88 per share. Next, just turning to page 7 of our earnings release, you see investment performance summarized for the quarter as well as the trailing 12-month periods. Looking at the figures on the page for the third quarter, our performance metrics broadly compare very favorably relative to public indices, which were mixed in the quarter. The traditional private equity portfolio was up 5% in the quarter, and over the 12 months is up 12%. And looking to add our inception to-date blended IRR for our most recent flagship funds, that figure continues to stay strong at 23%. In real assets, the real estate portfolio was up 1% for the quarter and down 9% over the last 12 months. Importantly, underlying NOI growth has remained strong across our portfolios. So the decline you see over the trailing 12 months reflects the change in interest rates as well as cap rate assumptions. Infrastructure was up 3% in the quarter and is up 14% over the last 12 months, as this asset class has continued to be resilient for us. In credit, the leveraged and alternative composites were both up 3% in the quarter, and 14% and 9%, respectively over the last 12 months. And turning for a moment to page 25, our core private equity portfolio has performed. Today, we're the largest manager of core PE capital with $35 billion of AUM, which includes third party capital alongside of our balance sheet. And as you can see on the page, the fair value of investments we've made off the balance sheet at 9/30 was $6.5 billion. As a reminder, core PE is a long duration investment strategy. We expect to hold these investments for 10 to 15 plus years. These investments generally have lower leverage over their hold periods compared to traditional PE and are more cash generative. The portfolio this at this point is global, spans a wide range of industries. So we've continued to see strong growth in the portfolio that in our view is more stable and less cyclical in nature, which has really helped during periods of dislocation, such as the early stages of COVID, as well as over the last 12 to 18 months. We got into this asset class, and have really treated it as a strategic growth avenue for us since we started. Because it's an area where we firmly believe that our business model, including our industry depth, geographic breadth, collaborative culture, and ability to drive business building all set us up very well to be the best global player in the asset class. We're big believers in the earnings power this strategy can create, and we continue to think about how to unlock that potential. And with that summary, I'll turn the call over to Rob.

Operator:

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Thank you. And the first question is can the line of Craig Siegenthaler with Bank of America. Please proceed with your question?

Scott Nuttall:

Good morning, Craig.

Scott Nuttall:

Craig, you want to kick off?

Robert Lewin :

Yeah the only thing I'd add Craig, I think it's just part of the strategy. Our approach is really quite broad based. It's global. It's multi-channel all around the world. So what got picked up was just one element of that in the U.S.

Glenn Schorr:

Hi, thanks very much. Let's focus on, I guess GA a little bit. I heard your comments about potential for more blocks ahead. In the quarter the cost of insurance went up a little bit more than the net investment income. I'm curious on your thoughts on how a higher for longer environment A, plays into that dynamic and B, plays into your distribution mix. And whether or not you saw much impact from the DOL rules that have been floated out there? Thanks very much.

Operator:

Next question comes from Steven Chubak with Wolfe Research. Pleased proceed with your question.

Scott Nuttall:

Good morning.

Steven Chubak:

So wanted to start off with a question on capital markets where activity continues to be subdued. But as we think about what the business could generate in a more normalized environment, the growth in your PE real asset AUM versus the average level in '19, so pre COVID baseline suggests normalized capital markets fees could be about 160% higher than 2019 levels. So closer to about a $1.2 billion fee bogey. And I was hoping you could frame what your view is on normalized capital markets activity, what that might look like, and is the increase in AUM the right lens for assessing the potential upside here?

Scott Nuttall:

Yeah, thanks for the question, Stephen. There's no doubt the baseline for the capital markets business has gone up materially over the last few years. I think AUM is one metric you could look to. You could also look to deployment. And frankly, you could also to some extent look to monetization, as the capital markets business often participates in particularly our public market exits. So I'd probably look at those few things. As Rob said in the prepared remarks, we're seeing activity pick up in the fourth quarter across those areas. So we'd expect that to flow through to the capital markets business as well.

Alexander Blostein:

Hey, good morning, everybody. Thanks for the question as well. I was hoping we could talk for a couple of minutes around the interplay between your deployment comments in the coming quarter and the quarters ahead. And the flagship fundraising cycle, especially as it relates to some of the bigger funds like the Global Infra in North America and Asia. So the North American and Asia, particular still seems to have lots of dry powder. So maybe help us frame what kind of deployment outlook you're seeing for those strategies, and how that informs your view on when you can come back to the market with the next impetus? Thanks,

Operator:

Our next question comes from the line of Patrick Davitt with Autonomous Research. Please proceed with your question.

Robert Lewin :

Yes, Patrick. Thanks. Thanks a lot for the question. As we look forward in our business, really, the way I think about it, is in regular way organic part of our business, in the individual side, as we look at '24 that could be in that $10 billion to $15 billion range of organic flows. The institutional part of our business, again, more in that organic flow basis, probably in that plus or minus $10 billion range. And the outflows call it in the mid-teens. And so on a net basis, organically, we feel like GA should have, call it $5 billion to $10 billion of organic growth next year. Now you layer on top of that block activity as an example of the MetLife Block, which is all incremental and upside to that. As we look at our pipeline on the block side, it feels as good today, as it has since we started our ownership of Global Atlantic. We're seeing some very specific deals out there where we can really partner with close relationships and be able to come up with win-win solutions for both us and our clients and partners in that space. And so that's really how I would think about Global Atlantic and its ability to grow over the coming 12 months, both organically and then on the block side. We continue to see real momentum there, offset, of course, as you noted, by regular way withdrawals.

Operator:

Our next question is from the line of Brian McKenna with JMP Securities. Please proceed with your question.

Robert Lewin :

Yes. Thanks for the question, Brian. I'll start. And so I think as you know, we've got a $4 plus billion healthcare growth strategy at the firm. We've got a big private equity focused on the healthcare space and our investment in Katalio [ph], which is really a leading life science investment firm at the more earlier stage, is a real partnership that we think can help make their business better, and then also make our business better from an origination perspective. And we think we'll get a very nice return on our capital based on their business growth and the ability to help originate flow for both our healthcare growth strategy as well as potentially our private equity strategy, maybe strategies across our credit business, a big reason why we did that transaction.

Operator:

Next question is from the line of Ben Budish with Barclays. Please proceed with your question.

Robert Lewin :

Yes. Thanks for asking that question. I'm glad you asked it because I know when that article came out, Craig Larson and his team got a lot of inbounds and questions. And since the shareholder agreement is not public, there is only so much color that him and his team are able to provide. To be very clear, KKR has got no contractual obligation to buy out the minority shareholders at Global Atlantic. What we do have is an obligation in the future to the extent that they want to seek liquidity to help them in that process, which of course, we'd be happy to do. So no obligation on our part in any way. But of course, that option remains open to us in the future as well.

Brian Bedell:

Great, thanks. Good morning, folks. Thanks for taking my questions. Maybe just to focus on the FRE margin comment. I think, Craig, you started off with that in your prepared remarks, the migration up to the mid-60s from the low 60s. Can you just talk a little bit about the timing around that? And is it mostly a scale-based improvement? And so therefore, does that require the flagship fundraising cycles to come in? And then I guess, just strategically, how you think about that in terms of -- versus investing in growth initiatives? And I think the big one I'm thinking about is the wealth distribution, particularly if you're having good traction there. Is that something that you're sort of happy to spend into to grow that, and maybe delay the improvements in the mid-60s?

Operator:

Our next question is from the line of Mike Brown with KBW. Please proceed with your question.

Robert Lewin :

Great. Thanks for the question, Mike. So I think it's really multiple different factors. I think it's FRE growth, as you stated, and we can unpack that a little bit. And we definitely see further opportunities to grow and expand what we're doing with Global Atlantic to increase our earnings contribution from there. And then it's our $11 billion plus of embedded gains that sit on our balance sheet today. And that gives us a great deal of comfort in terms of our forward-looking earnings power. So it's a combination of those three things working together that ultimately gives us confidence in our numbers. And we said it last call, and I'll reiterate this call, we feel more comfortable today than we did when we initiated that guidance, I think, two years ago now in our ability to achieve our numbers. And I think that's saying quite a bit because if you think about what's happened at least in our space since we initiated that guidance two years ago, we've had very tough overall operating conditions. Tough fundraising market, tough overall monetization, volatile marks across the board, but we're sitting here now telling you two years in that we feel, even in spite of that, more confident than ever in our ability to achieve our targets.

Operator:

Our next question is from the line of Michael Cyprys with Morgan Stanley. Please proceed with your question.

Robert Lewin :

Why don't I start with the deployment and realization and Craig will take up on some of the private credit related questions. So Mike this quarter, we're roughly $300 million of deployment and $300 million monetization of our balance sheet. Say, on the deployment side, it's pretty broad-based across our platform on the monetization side, maybe a little bit heavier weighting towards real assets.

Scott Nuttall:

Yes. Mike, and you asked if there's any gaps. There's nothing that I would point to in terms of a gap. We've got a big organic build opportunity here.

Chris Kotowski:

Yes. Good morning. I guess I wonder if you could spend a minute or two talking about your approach to the real estate businesses, both in the United States and globally. I mean your latest flagship fund in the United States has been mostly invested already. And on the one hand, I guess it just doesn't feel like we are anywhere near the end of the cycle in office or in the -- concerns about the impact of rising rates. But on the other hand, every commercial bank in the world is trying to reduce their exposure to real estate. So this is usually the kind of environment where private equity sponsors can thrive. So what's your general view on real estate? Is it still time to be cautious and defensive or is this the time to lean in?

Scott Nuttall:

Sure. Thanks for the question, Chris. Look we started our real estate platform, probably 10 to 12 years ago, somewhere in there, call it, 2011, '12, Chris. And we've been building that business over a period of time where obviously, rates were dropping. We are seeing a significant move in cap rates in one direction. I think our team has been incredibly thoughtful about how they built the business. It's been very thematically focused, perhaps our most thematic investing business across the firm. As a result, very careful about where they were deploying capital as a result. We don't really have much U.S. office exposure. That's just one example. But we've been building across opportunistic equity, to your point about the fund table, core plus real estate, and we have a very large real estate credit business. So in terms of kind of where we stand, we're continuing to raise capital. I think the real estate credit opportunity is showing up, to Craig's point, before the opportunity gets really interesting. But we think that will be even more interesting with time. And so we are continuing to raise capital, deploying selectively all around the world and getting ready for things to get even more attractive as we head into the next several quarters. And one of the ways we've been able to grow this business is through Global Atlantic, which we expect to continue to be the case. So we're really optimistic about what this business can be. And I think you're right. It's periods of time like this where you can grow significantly especially if we continue to see valuations under pressure.

Brian Mckenna:

Thanks for the follow-up. Just two quick items for Rob, interest income and dividend line kicked up in the quarter. What drove this? And is the $120 million quarterly run rate level a good starting point moving forward? And how the $400 million plus of monetization slated for the fourth quarter how much of that is tied to Marshall Wace?

Operator:

Thank you. At this time, we've reached the end of our question-and-answer session. And I'll turn the floor back to Craig Larson for closing remarks.

Operator:

Thank you, everyone. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Craig Larson:

Good afternoon, everyone. Welcome to our second quarter 2023 earnings call. As usual, I'm joined by Rob Lewin, our Chief Financial Officer; and Scott Nuttall, our co-Chief Executive Officer. We'd like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at kkr.com. And as a reminder, we report our segment numbers on an adjusted share basis. This call will contain forward-looking statements, which do not guarantee future events or performance. Please refer to our earnings release and our SEC filings for cautionary factors about these statements. Turning now to the quarter. We're pleased to be reporting fee-related earnings per share of $0.67 and after tax distributable earnings of $0.73 per share. I'm going to begin by walking through the financials. Management fees in the quarter came in at $749 million; net transaction and monitoring fees were $190 million in Q2, with capital markets generating $150 million of revenues. Capital markets activity was most pronounced in our infrastructure business, which contributed approximately 45% of revenues in the quarter. And along with core private equity, these two strategies generated over 60% of capital markets transaction fees in the quarter, reflecting the continued diversification of the business. So, in total, fee-related revenues were $967 million. This was up 7% from last quarter, and it's up 25% year-over-year. Fee-related compensation was right at the midpoint of our guided range at 22.5% of fee-related revenues and other operating expenses were $147 million. Putting this together, fee-related earnings came in at $602 million or $0.67 per share with an FRE margin of 62%, which continues to be best-in-class looking across our industry. And for the quarter, FRE improved 10% from last quarter and on a year-over-year basis, so this is compared to the second quarter of 2022, FRE is up 31%. Moving to realized performance income. Realization activity, as we discussed last quarter, was more muted against the slower transaction environment. So, for the quarter, we generated $149 million of realized performance income, while realized investment income came in at $115 million. In total, our asset management operating earnings were $752 million. Our Insurance segment generated $170 million of pretax earnings in the quarter as Global Atlantic continues to operate at a high level. As a reminder, we expect pretax ROE to be in that 14% to 15% range, so performance this quarter was just above the top end of that range. In aggregate, this resulted in after-tax distributable earnings of $653 million or the $0.73 per share figure that I mentioned a minute ago. Next, moving to investment performance. The traditional private equity portfolio was up 5% in the quarter and over the last 12 months appreciated 2%. Importantly here, inception to date, IRRs for our blended flagship funds, so that's Americas XII, Europe V and Asia IV remains strong at 22%, which is meaningfully ahead of the corresponding 9% figure for the MSCI world. In real assets, the real estate portfolio was flat for the quarter and down 11% over the last 12 months. Our portfolio continues to be heavily weighted towards those assets and themes where you're seeing strong fundamentals and cash flow growth. So, think industrial assets, data centers, rental housing, student housing, and self-storage. However, as cap rates have increased over the last 12 months, that more than offset the underlying NOI growth and that's what's leading to the decline you've seen over the LTM period. Infrastructure was up 2% in the quarter and up 10% over the last 12 months, reflecting the strength of the portfolio really on a global basis. And with higher interest rates, we've strategically leaned into more inflation protected assets. And in credit, the leveraged in alternative composites were up 3% and 2%, respectively for the quarter and 12% and 5%, respectively over the last 12 months. Moving next to capital metrics. We raised $13 billion in the quarter. Fundraising activity was actually quite diverse, driven by our middle market private equity strategy. Our case series suite of products focused on private wealth, which Rob is going to touch further on in a moment. Our core infrastructure strategy and real estate across all geographies, and this is in addition to inflows from Global Atlantic as well as capital raised for our Ivy reinsurance sidecar fund, which held its final close in the quarter. With that, our assets under management increased to $519 billion and fee paying AUM to $420 billion. And finally, we've continued to deploy capital. In the quarter, we invested approximately $10 billion, pretty evenly spread across private equity, real assets and credit. Deployment within private equity was largely driven by core PE, while real estate deployment was most focused on credit in the U.S. as well as equity investments in Asia. And in our credit business, deployment was relatively diversified across asset-based finance and direct lending. Now, before turning it over to Rob, we want to spend a minute or two on our work to create and protect value through sustainability, which we detailed in our 12th annual sustainability report that we published in June and is also available on our website. Now, one of the areas where we've shown real leadership is our work around broad-based employee ownership in our portfolio companies and billing off of the CHI overhead doors and Minnesota rubber and plastics examples discussed previously, we've another case study in RBmedia. RBmedia is one of the largest audiobook publishers in the world, and in connection with our investment, we introduced a broad equity ownership program across the company. And by partnering with the workforce and through all of their great work, wonderful things have happened, including a 22% CAGR in its core publishing business EBITDA over the life of our investment. So, we announced the sale of RBmedia in late July, and this will be a very successful outcome for its employees. All RBmedia colleagues will earn significant cash payouts with non-management employees receiving a 100% of annual income on average, and the most tenured employees receiving two years of their annual income. This outcome can be a financial game changer for people, and it's driving real value. Over these three recent exits, we've averaged approximately a 6x multiple of costs on behalf of our clients. So, at this point we've introduced broad-based employee ownership programs at over 35 companies and we've touched over 60,000 employees. And we expect these numbers to continue to grow from here and hope and expect we'll have more stories like RBmedia to share with you in the quarters and years ahead. And with that, I'll turn it over to Rob.

Operator:

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Craig Siegenthaler with Bank of America. Please proceed with your question.

Craig Larson:

Hey, Craig. It's Craig. Why don't I start? Thanks for the question. I think as we look forward, we continue to see a really active amount of funds and strategies that we expect to be in the market with. We talked historically about having 30-plus strategies in the market over the coming 12 to 18 months. I think if anything, that number probably would've increased relative to what we would've talked about six or 12 -- three or six months ago. So, I think the level of activity and the number of strategies remains at a high level. We don't have any guidance or specificity as it relates specifically to our infrastructure strategy. But I think when you look at the back of the tables and you look at invested and committed capital relative to the size of the fund, I think fair to assume that that's something that is becoming a front of mind topic for us, but nothing to announce specifically as it relates to individual timings, let alone closings at this point.

Operator:

Our next question is from the line of Alex Blostein with Goldman Sachs. Please proceed with your question.

Robert Lewin:

Yeah. Great. Good morning Alex, and thanks a lot for the question. So, taking a step back just more broadly as it relates to capital allocation, the most important thing for us, and you've heard me say this and us as a management team say this before, most important thing is to have a consistent approach. And ours is one that I think is really maniacally focused on driving ROE and the highest per share earnings that we can with the lowest per unit of risk. And we talked about four strategic areas of deployment that we think can accomplish that. And so that's core private equity investing, continuing to invest across the insurance space. You mentioned strategic M&A. And the fourth one is share buybacks. And we think a real core competency of our management team is being able to move that marginal dollar of liquidity around to the highest return opportunity. And the thing that's going to drive the most earnings per share over time. And maybe the final point here is we're highly aligned in that decision-making process. As you know, KKR management owns close to 30% of KKR stock. And so, back to your specific question on share buybacks, as you mentioned, I noted on the prepared remarks, we've bought back over 90 million shares that represent almost 15% of our free float since we initiated our buyback program seven, eight years ago and just over $27 per share. So, we really like the body of work that's been accomplished over a long period of time. And so, all to say share buybacks going to continue to be a very important part of our go-forward capital framework and capital allocation policy. But we're going to continue to look at other ways of driving growth in earnings per share over time as well, including in areas like core private equity insurance and M&A. Hope that's an helpful overview.

Alexander Blostein:

Got it. Okay. All makes sense. Thanks.

Glenn Schorr:

Hi. Thank you. So, I'm curious to get a little more color on KPAC. I know it's early. I know it was on one platform in a short period of time in a slow PE backdrop, but you raised a couple hundred million. So, I'm curious what you learned from that one platform in that short period of time. Maybe the timing of the other platform ads. And then sidebar question, is this structure able to be included in 401 Ks if and when we get there? Thanks so much.

Robert Lewin:

And Glen, just a quick follow up on the 401 K point, no plans in the immediate future as it relates to that. I do think it's worth noting though that KPAC is structured in a way that can be distributed through to the accredited investor and not just qualified purchasers. It's one of those points of innovation that I highlighted in our prepared remarks.

Operator:

Our next question comes from the line of Ben Budish with Barclays. Please receive your question.

Robert Lewin:

Yeah. Great. Thanks a lot for the question. As you noted, GA continues to perform at a really high level, and in Q2 was ahead of our target returns for GA at a 15%-plus, pretax ROE. In terms of the operating earnings in the quarter and why you saw that quarter-on-quarter decline, that you referenced, really a function of a strategic decision at the GA level to position our book in more liquid securities at the beginning of Q2, more cash, more liquid fixed income. If you think back to early part of Q2, we were still in that regional bank crisis timeframe and I think we made the right decision to reposition the book at that point in time, gave up a little bit of ROE in the quarter, as you noted, but I think the right decision for the business.

Operator:

The next question is from the line of Brian McKenna with JMP Securities. Please proceed with your question.

Craig Larson:

Hey, Brian. It's Craig. Why don't I start? First, thanks for all of the detail and noticing core PE again, it's one of the reasons we'd added that page in our press release focused on the asset class and the strategy. So, a lot of innovation in our firm happens when we can't find a home for great investments, and that's what happens with core private equity. It's a long duration strategy where we expect to hold investments in compound value for 10 to 15 years, but the risk reward is fundamentally different than our relative to our opportunistic PE funds. And so, at this point, we put together what we think is a really great portfolio of companies diversified across the world. As you noted, since inception returns have been very positive. That $34 billion of AUM was $12 billion three years ago. That's all organic growth. And I think, another point just as it relates to this in our model, because you're right, we've got the $6.2 billion of fair value relative to the $3 billion of cost. So with shareholders, we're participating in the economics, both in terms of the management fees and performance fees on the third-party piece, the compounding you see on the balance sheet. And then on top of that, we'd expect capital markets revenues to continue to grow alongside. Capital markets revenues in the quarter were between $25 million and $30 million. So, we've got a number of ways to win. I think from an LP standpoint, the types of LPs who find this asset class most interesting are those -- I think probably larger plans with longer dated liabilities and are interested in the matching aspect related to the asset class. So, I think that the opportunity for us to continue to grow both the third-party piece as well as on the balance sheet is one we're going to be talking about, have an opportunity to talk about for a long period of time.

Brian McKenna:

Great. Thank you guys.

Operator:

The next question is from the line of Mike Brown with KBW. Please proceed with your question.

Robert Lewin:

Sure. Thanks a lot for the question, Mike. If you look our capital markets business year-to-date, we've generated $250 million of revenue. And if you look back over the past four quarters, we've averaged $110 million to $115 million of revenue. And so, we're really proud of that performance and environment where the capital markets put that in equity we're largely shut for most of that period of time. So, I feel like we've built a business model that is quite durable in tough operating conditions. In terms of the back half of the year, you've noticed some green shoots and we've certainly seen some signs of life in the leverage finance market, a little bit in the IPO market, maybe the secondary market follows. I think it's a little early to call that we're out of it, but we do really think that we're positioned in an environment where the capital markets come back to generate really outsized outcomes. Hopefully that environment really persists and we can generate those types of outcomes for our shareholders in 2024 and beyond. Like I remind you that in 2021, our capital markets business in a really up market generated $850 million of revenue. So, I feel like we've built this model that protects in the downside, but really offers the opportunity for outsized -- outcomes when the markets are open. And I think we are doing much more as a firm today than we did in 2021. So, I think the opportunity is greater as we go forward here with that business.

Robert Lewin:

Yeah. Thank you. And then, on your question on the monetization side, it's a bit of an odd quarter for us. We've got a couple of pretty meaningful monetizations that sit on the bubble between Q3 and Q4. So, instead of providing just a Q3 number in isolation, what I can let you know is that we have at least $350 million of visibility around monetization related revenue over the second half of the year. As usual, as we get to the end of this quarter, we'll provide that specific press release, which details our performance through the quarter. And so, what we're seeing a bit of an uptick here for sure. I think consistent with the overall tone and what we're all feeling is a bit more of a constructive environment. I'd still say that we're in the part of the cycle where we are underearning our intrinsic earnings power. So, hopefully more to come here, but a little bit of upside relative to where we've been.

Michael Brown:

Great color. Thank you.

Operator:

Our next question is from the line of Arnaud Giblat with BNP. Please proceed your question.

Craig Larson:

Thanks for the question. I think, the answer is yes, distribution continues to expand. If you think of this as a funnel, I think from our standpoint, the funnel continues to grow at the very top end and that's global. So, as we talk about, for instance, private equity and infrastructure, those are vehicles where we specifically had created vehicles focused on individual markets in the U.S. and outside of the U.S., that opportunity again is, is one that's global and we're pursuing along those lines. So, nothing specific in terms of number of platforms today versus a year ago or anything along those lines. But I think the broader point again is just when we look at the opportunity we have ahead of us, trillions of opportunity of dollars that can move over into the Alts and we think we're really well-positioned to take a healthy piece of that.

Arnaud Giblat:

Great. Thank you.

Operator:

Our next question is from the line of Brian Bedell with Deutsche Bank. Please proceed with your question.

Craig Larson:

Hey, Brian. It's Craig. Why don't I start and then Rob will pick up as it relates to the monetization piece, I think specifically. So, a couple of observations. If you think, and let's start with private equity and real assets and then as you note we'll switch to credit, but I think over the last 18 months, a lot of the primary markets have effectively been shut. The IPO market's been pretty much shut over this period of time. The syndicated debt markets have been dislocated for the majority of that period, and capital has been quite precious. There's no question. Now those from a deployment standpoint, those are all things that are good for us. And so that's why I think on a number of these calls, you've heard us actually be quite constructive on risk reward. I think as it relates to private equity and real assets, we're value focused. We're looking for those opportunities where we can bring our operational resources to bear and where those can really move the needle. We love corporate carve outs. We've also been very active on pursuing public's private at this point. We've announced or closed on 14 take private transactions since the beginning of 2022. The most recent of those, you probably would've seen some articles this morning. So, I think that's been an area for us where we've been as active as anybody. I think as it relates to credit, and again, this is a big business for us. We've detailed in our press release, you see it on page 11, the composition of that overall amount of AUM $227 billion, of that we have $80 billion in private credit, really broken into those two pieces. Asset-based finance, real secular drivers as Rob had mentioned in his prepared remarks. And I think in direct lending, we remain very constructive on the risk reward, but you've seen overall transaction volumes be pretty modest within direct lending. So, I'd think of that asset class as one that has been taking a greater share, but of a smaller piece of the pie. But on overall risk reward, we remain very constructive on regular way direct lending at the same time.

Scott Nuttall:

Hey, Brian. It’s Scott. I'd say -- I would expect both deployment and monetizations to increase if the capital markets open up. As a reminder, we've got $100 billion of dry powder, and so that's great news from a deployment standpoint. When markets are shut, it's harder to get deals done. We've been more active, especially recently, but there's no doubt if the capital markets open, there'll be more -- overall M&A activity, which will accrue to our benefit, and you'll also see more monetizations and that'll run across asset classes, including to your question infrastructure.

Operator:

Our next question is from the line of Finian O’Shea with Wells Fargo. Please proceed with your question.

Craig Larson:

Hey, Finian. It’s Craig. Why don't I start? And again, I think the product creation part is an important component as it relates to this. So, across all four as it relates to real estate, private equity, infrastructure, as well as the private BDC. We're focused on having the opportunity to launch those vehicles and fundraise across both of those markets. So, the entire case suite is again allowing us to look to raise capital both through accredited investors and not just through qualified purchasers. And that's meaningful in our view. Like -- I think the accredited investor market is multiples the size of the qualified purchasers market. So, again, that pie or the top of that funnel is one that is in our view very broad and helps just increase that long-term opportunity that we see.

Michael Cyprys:

Hey, good morning. I was hoping you could spend a moment just on infrastructure, which is a real differentiator for KKR. So, just how are you thinking about driving the next leg of growth for infrastructure? What sort of steps might you take over the next couple years, and how are you expanding your capacity to deploy capital into infrastructure? And then just a housekeeping question for Rob, just on how much was invested and deployed off the balance sheet in the quarter?

Robert Lewin:

And then, Mike, very quickly, your second part of your question, in the quarter we deployed approximately $850 million off the balance sheet. A good chunk of that -- most of it is a core private equity. And then our realizations were a little under $250 million on the quarter.

Craig Larson:

Thank you.

Rufus Hone:

Hey, good morning. Thanks very much. Maybe if you could spend a minute giving an update on your Asia business. You've now owned the KJRM business for a little over a year. It'd be great to hear more about how that acquisition's performing and whether you see any more opportunities to consolidate your position in the region inorganically, and also what the near-term outlook is for fundraising. Thanks very much.

Scott Nuttall:

Hey, Rufus. It's Scott. I'd say to your question on would we do more M&A in the region and consolidate in that way. We'd be open to it. We're always looking. So, definitely open-minded. The only other thing I would add is Global Atlantic is also now growing with partnerships in Asia. Something that we've been able to do now that we're together. We announced Block with AXA in Hong Kong. We, of course, announced the Japan Post Partnership this past quarter. We've announced some flow partnerships in Singapore is just one more example. And there's other discussions along those lines. Some are between organic and inorganic, but we do see opportunities to expand our insurance efforts in Asia as well.

Craig Larson:

Thank you.

Alexander Blostein:

Hi. Thank you guys for taking the follow-up. Appreciate it. I wanted to touch on your credit business, specifically asset-backed finance. It's a place where you spend a little bit more time just communicating to the street of sort of how big it's gotten over the years, and you've got a number of origination platforms that are supporting it. So, as you think about raising capital for those type of strategies outside of Global Atlantic, so whether it's third-party insurance companies or maybe other institution LPs, what does that look like over the next couple of years? And maybe just remind us what the fee rates are? I'm assuming it's a -- generally a lower fee rate, like separate account type of business, but curious to get more. Thanks.

Scott Nuttall:

Yeah. Alex, it’s Scott. Just maybe a little bit more color on the types of capital raising. This is going to be a bunch of different formats, so you're not going to see a large flagship fund would be my guess. But we do have an ABF fund. We have our BDCs. We have leveraged separate accounts. We have unleveraged separate accounts. We have a high grade ABF strategy, which also tends to be in separate account format, and there's other things that we're working on. So, it all aggregates up to the $45 billion or so that Craig mentioned. I say you're right, the initial interest over the last several years has been from a number of different places. But if there's a thematic to it, if insurance, we now manage roughly $200 billion for insurance companies, 140, 150, give or take from GA, the rest from third parties. And we have 150 insurance companies that invest with us on a third-party basis. But also increasingly we're seeing interest from institutions. This asset class reminds me a little bit of infrastructure 10-plus years ago. There's a lot of education. In the early days, growing market, not a lot of people understood what it was. We are finding that there's increased interest in it as the focus on private credit has continued to broaden and go global. So, we're optimistic.

Craig Larson:

Thank you.

Operator:

This concludes today's conference. Thank you for your participation. You may now disconnect your lines at this time.

Craig Larson:

Thank you, operator. Good afternoon, everyone. Welcome to our first quarter 2023 earnings call. As usual, for the call, I'm joined by Scott Nuttall, our co-Chief Executive Officer; and Rob Lewin, our Chief Financial Officer. We'd like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at kkr.com. And as a reminder, we report our segment numbers on an adjusted share basis. This call will contain forward-looking statements, which do not guarantee future events or performance. Please refer to our earnings release and our SEC filings for cautionary factors about these statements. This quarter, fee-related earnings per share came in at $0.62, and after-tax distributable earnings came in at $0.81 per share. I'm going to begin the call by walking through the details for the quarter before turning things over to Rob. So, beginning with management fees. Management fee growth continues to be a real bright spot for us. In Q1, management fees were $738 million. That's up 18% year-over-year, and looking over the last 12 months, management fees are up 23%. Looking a little deeper, over the last 12 months, management fees in private equity and credit both increased 18%, while in real assets, management fees are up 40%. Net transaction and monitoring fees were $142 million for the quarter, $102 million of which came from our Capital Markets business. Our fee-related compensation margin was at the midpoint for the quarter at 22.5% and other operating expenses were $150 million. So, putting that together, fee-related earnings were $549 million for the quarter or $0.62 per share, which I mentioned a moment ago, and that's with an FRE margin of 61%. This is now the 10th consecutive quarter where you've seen our FRE margin at or above that 60% level. Walking further down the income statement. Realized performance income totaled $175 million, driven by our traditional and core private equity businesses, and realized investment income was $198 million for the quarter, driven by activity in growth equity. Both realized performance and investment income compensation margins were at their midpoints for the quarter. Our asset management operating earnings were $778 million, and our insurance segment generated $205 million of pretax operating earnings, which I'll spend another minute on shortly. So in aggregate, this resulted in after-tax distributable earnings of $719 million or $0.81 per share. Now turning to investment performance. The traditional private equity business was up 2% for the quarter, and over the last 12 months, was down 9%. Importantly here, inception-to-date IRRs for our blended flagship funds, so Americas XII, Europe V and Asia IV remained strong at 22%, which is meaningfully ahead of the corresponding 7% figure for the MSCI World. In real assets, the real estate portfolio was down 3% in Q1. While we are all seeing a difficult market for a handful of areas within real estate, our portfolio continues to be heavily weighted towards those assets and themes where you're seeing strong fundamentals and cash flow growth. So, think industrial assets, data centers, rental housing, student housing and storage. However, as cap rates increased in the quarter, that more than offset NOI growth, leading to the modest decline in the portfolio for the quarter. Infrastructure was up 7% in the quarter. This performance reflects the strength of our infrastructure portfolio on a global basis. And with higher interest rates, we've strategically leaned into more inflation-protected assets. On the leveraged credit side, the portfolio was up 4% in the quarter, outperforming its index, while the alternative credit portfolio was up 2%. And for the balance sheet, investment performance was flat in Q1. Now, in addition, we have two new updates that can be seen through the earnings release. First, I briefly mentioned our insurance results this quarter. Turning back to this topic, we expect you saw the recast financials we posted last week on our website and also filed through an 8-K. These changes reflected two things. First, per FASB guidance and as required for all SEC filers, we implemented the accounting principles of LDTI within KKR's insurance segment to reflect the new accounting standards for long-duration contracts such as life insurance and annuities. Overall, the impact here on our segment financials are quite modest. There was a $1 million positive impact to 2021 pretax insurance segment operating earnings and a $74 million positive impact to 2022 pretax insurance segment operating earnings. And in terms of 12/31 book value, there is an increase of $480 million. And second, to conform to other alternative asset management companies and enhance comparability, we're reporting our insurance segment operating earnings on a pretax, not an after-tax basis. So, as you look at Page 3 of the earnings release, income taxes attributable to KKR's asset management and our insurance segment are now captured within that single line item titled Income Taxes on operating earnings. The 8-K referenced a moment ago recast our financials reflecting all of these changes for 2021 as well as on a quarterly basis for 2022 to help everyone look at our results on a comparable basis. And the second change within our press release you'll see on page 25. We’ve included additional disclosure on our core private equity strategy. With $34 billion of AUM, we believe we have the largest core PE asset management business in the world. And core PE remains the largest allocation we have on our balance sheet, so we thought the additional disclosure and context would be helpful for investors this quarter as well as in quarters to come. As a reminder, this is a long-duration investment strategy for us where we expect to hold investments for 10- to 15-plus years and believe these investments carry a more modest risk return profile compared to traditional PE. And as you can see on the page, our core PE balance sheet investments have increased steadily from $1.4 billion in 2018 to over $5.7 billion of fair value today. The $5.7 billion of fair value compares to the $2.7 billion of costs or 2.1 multiple of cost currently, a strong return over approximately five years. In total, core comprises approximately 32% of total balance sheet investments and consists of 19 companies across multiple industries and geographies. And with a little over 20% of total PE capital invested in the last 12 months into core PE, we remain very active in the space. And one final note. Consistent with historical practice, we increased our dividend to $0.165 per share per quarter or $0.66 on an annualized basis. This is now the fourth consecutive year we've increased our dividend since we changed our corporate structure. And with that, I'm pleased to turn the call over to Rob.

Scott Nuttall:

Thank you, Rob, and thank you, everybody, for joining our call today. I thought today, I'd talk about what we're seeing near term and how we're feeling longer term. Near term, the market volatility is doing three things

Alex Blostein Sachs:

Maybe we could start with some of the dynamics you're seeing in private credit. And specifically, I was hoping we can zone in on direct lending. So, Scott, you suggested that's an area where you continue to see opportunities and the environment remains, obviously, quite interesting there. Can you help maybe unpack like sort of the sizing of that business for you guys outside of the BDC? And ultimately, how much of third-party capital outside of GA you have in there and the opportunity to really scale that where you could bring in third-party assets into the franchise? Thanks.

Craig Larson:

Yes, sure. So look, I think in terms of the industry, just to start there, Alex, and some of the dynamics we're seeing, I think mid-market private equity firms which really are a lot of the driver of the deployment you see here do have a lot of dry powder. And so you're seeing more of these firms, more mid-market borrowers generally who want to use the private debt markets. So we expect the private debt markets broadly in direct lending specifically to continue to grow and take share. And I think in terms of KKR, you should expect to see us grow here in a number of ways. First, in a traditional institutional format. So we're fundraising for our U.S. and European direct lending strategy. Second, we have our BDC, as you mentioned. And we think there'll be opportunities over time to introduce additional vehicles focused on the private wealth opportunity. And finally, Global Atlantic is also active here. So I think in summary, direct lending, it's a core part of our credit business, lots of ways for us to grow. We think that can be in the institutional private wealth, insurance businesses across multiple forms of capital, traditional funds, separately managed accounts, perpetual capital, and that's both in the U.S. and outside the U.S. So again, the backdrop for us just feels really constructive with lots of opportunities going out.

Operator:

The next question is from the line of Patrick Davitt with Autonomous Research.

Rob Lewin:

Patrick, thanks for the question. I think -- and I provided this in the prepared remarks, we're seeing a pretty quiet monetization outlook out there right now. That's what we're seeing in our current pipeline. And our expectation is probably going to remain that way for the duration of the year. Now I think there's a few separate points to hit on here for KKR specifically. I think the most important point, and I mentioned this earlier, is that 90-plus percent of our capital at KKR is either perpetual or locked up for eight-plus years from inception. In terms of our carry-eligible AUM, I'd bet that number is probably closer to 100%. And so, we are generally not forced sellers into the marketplace. Number two, while the near term here could be pretty slow, there are a number of factors that really contribute to our confidence in being able to generate very meaningful step-ups in monetization-related revenue in the future when the environment improves. Number one, it's the health of our existing portfolio. It's really strong. I don't think that we can overstate that point enough. We feel really good that we got the macro right coming into this period of time, and we'll exit it in a stronger position competitively as a result. Number two is really the scaling and diversification of our capital deployment over the last 5 years that's going to generate the carry and balance sheet gains in the future. Scott hit on this in his prepared remarks, but our carry-eligible AUM is up 3 times versus the last vintage, which is generating today's carry. And number three, it's our dry powder, $106 billion, almost a record number for us, and 95-plus-percent of that $106 billion is carry-eligible. And so really the question here around the trade-offs between monetizing investments today versus in the future was one of the key reasons why we included that earnings power framework that we did in our teaching materials from January. It's that metric, I think, that really speaks to the go-forward opportunity for us and why we remain so constructive on the longer-term ability to generate real monetization outcomes and ultimately $7-plus per share of TDE by 2026.

Operator:

The next question is from the line of Brian McKenna with JMP Securities.

Craig Larson:

Brian, it's Craig. Why don't I start? First, on deployment, one of the things that is interesting and you've picked up on this is the real scaling you've seen over time in deployment. So in 2019, infra deployment was $2.1 billion. In 2020, it was $2.2 billion. And over the trailing 12 months, we've invested $14 billion across the infrastructure platform. Activity is very high. This remains among the busiest teams and the framework of our firm and it's global. And returns, again, as you would have seen the snapshot from page 7, have continued to be, we think, strong and differentiated. So I think the activity level continues to be high. We haven't announced anything as it relates to timing of future fundraising, et cetera. But I think if we continue to execute the way that we have, there'll be continued opportunities for us. And then 1 other point here is, again, innovation is not -- is going to continue in the framework of the firm. And I think you're seeing that real time in terms of what we talked about in the prepared remarks on democratized infrastructure as an avenue that also will continue to help us both from a deployment and honestly from a fundraising standpoint as well.

Mike Brown:

So in the quarter, concerns related to the fixed annuity surrenders really picked up in March as the liquidity stress really led the market. In GA, what did you guys see in terms of the fixed annuity surrenders in the quarter and what have you seen thus far in the second quarter? And then if you just take the other side, what are you guys seeing on the organic growth side? How has that performance been in the first quarter, specifically towards the tail end and then into the second quarter?

Operator:

The next question is from the line of Brian Bedell with Deutsche Bank.

Craig Larson:

Brian, it's Craig. Why don't I start and then Rob can pick up on the $37 billion number? So just a couple of observations, I guess, in terms of deployment. Look, first, over the last 18 months, we've seen a lot of dislocation and valuations have come down pretty meaningfully. And a lot of the primary markets have either been shut, thinking of the IPO market or the syndicated debt markets, again, as an example, which aren't fully healed. So capital at the moment is precious, but all of those things from a deployment standpoint, we look at, I think, are very good things for us. And as Rob pointed out in our prepared remarks, with our fundraising success heading into this period, we're really well positioned when you put those 2 things together. Now I think in this backdrop, look, we're going to be value focused. We're going to look for those opportunities where our operational resources and focus can really move the needle. We love corporate carve-outs. We've been active in pursuing public to private, so I think that's an example of where you're seeing probably as much activity from us as anybody within the industry. And so we're going to continue to be opportunistic across that -- across those parts of the opportunity set. And I think finally, the other thing you're seeing because it's interesting is the balance you're seeing across the firm. Real diversification, real balance. Over the trailing 12 months, traditional private equity deployment was $11 billion. Real estate was $10 billion and infrastructure, again, as I mentioned a moment ago, was $14 billion. So you're seeing a real balance in that level of investment activity. And I think it's also just worth highlighting and it's kind of related to the first, but the growth you've seen also in terms of real asset deployment with the growth in our infrastructure and real estate platforms, you've seen a big step-up in overall deployment, and that is also true within the credit business. So in 2019, deployment in credit was $10 billion, 2020 was $10.3 billion, trailing 12 months, it was $17 billion. And then I think as it relates to capital markets, you're bringing up a very fair point just as it relates to the strength of the team and what having 70 people can do for us as we're trying to put capital structures together and look to finance those deployment opportunities. And to date, despite all of the disruption, we've not had a situation where we haven't been able to finance an opportunity that we wanted to pursue. And I think the strength of the team and the breadth that we have in terms of the global capital markets franchise has a critical part in that.

Rob Lewin:

And Brian, just a quick follow-up on the $37 billion of capital, no firm guidance there, but our -- a decent rule of thumb would be 3 to 4 years until that shows up in fee-paying AUM. As a reminder, that capital comes in at close to 100 basis points on a weighted average fee basis.

Michael Cyprys:

As you guys have continued to grow out your insurance relationships, can you talk about how you have expanded your investment capabilities there, where you see room to further scale some of those capabilities maybe in real estate credit? And maybe you could talk about some of the initiatives there. And then what white space opportunities remain at this point where you could broaden out the investment capability set there?

Michael Cyprys:

Great. And if I could just sneak in a housekeeping question for Rob, just on the investment deployment off the balance sheet.

Rob Lewin:

Mike, we were at $500 million of deployment in the quarter and realization is about $150 million.

Arnaud Giblat:

I'd like to follow up on the deployment in credit. It's been detected by yourself and most of your peers as a significant opportunity to take market share from the banks. Yet when we look at Q1 data here, the promise in credit is quite soft. I was just wondering if you -- what sort of dynamics to work out for us to see really deploy and pick up here?

Operator:

Our next question is from the line of Benjamin Budish with Barclays.

Scott Nuttall:

Thanks, Ben. Look, in terms of the LP dynamics, it really depends on what product area you're talking about, what kind of investor you're talking about. So I'd say where there has been perhaps a bit more caution on the margin has been around U.S. and European pensions. And some of that is definitely a denominator effect as they're trying to get their bearings heading into this year. And some of them are over their alternatives allocation and trying to sort out how much of the budget do they want to spend and how quickly. But that is just that particular segment, and it tends to be more equity-focused as opposed to credit and real estate credit-focused in terms of those dynamics. But when you kind of go broader than that, you got the sovereign wealth funds, we're not feeling that dynamic at all, whether it's Asia or the Middle East, they seem to have a good amount of capital and are looking to put it to work across different asset classes and geographies. Insurance companies, despite the higher base rate, we continue to see a significant amount of interest in what we're doing. And you heard the comments that we're now a couple of hundred billion near enough that we're managing for insurance companies. It's been quite good for their businesses in terms of -- especially on the life and annuity side. And so we're getting the benefit of that growth. The family offices are actually a bit contrarian in this environment and reviewing this, which we agree with, is a great period to put money to work. So we're actually finding family offices leading in. And you can -- you know what we said about private wealth, that's all new. So this is the first time some of these spaces have had access to things like private equity and infrastructure. And so we'll see what all that yields but this is a new dynamic for us. So I wouldn't over-index to just the U.S. and European pensions. And I would say the footnote even on that score, I think some of them have learned from the post-GFC period, where maybe some invested less coming out of the financial crisis than they might have hoped. And so as opposed to turning off, we're finding maybe they're reducing the amount they're committing in this environment but not turning it off. The bigger point I would make is that if you think more broadly across everything that we're doing across private equity, infrastructure, real estate and credit, there is a significant amount of investor dialogue, both institutions and individuals. So I wouldn't take too much caution from the comments. Just on the margin, we are hearing this from some people. And I think the bank crisis in March probably fed that a bit, but there's also acknowledgment from a number of the people that we're talking to, but they don't want to underinvest or undercommit because I think there's an understanding the next couple of years are going to be a really good investment period. And as your question on the 30 investment strategies, I think most of those will be in the market over the course of the next 12 months, including the back half of this year.

Scott Nuttall:

Maybe just one other macro comment I'd make, Ben, is if you think about this. If you step back and think about our firm, so 15 years ago, we managed about $50 billion of capital; 10 years ago at less than $100 billion; 5 years ago less than $200 billion. We're now in excess of $500 billion. And what we tend to find coming out of periods of time like this, we've got a bit of a market dislocation and the question around economic cycles is investors tend to look back and say what performed when the markets were difficult. And what we found is, over time, alternatives has tended to perform quite well. And usually, what happens coming out of an environment like this is they increase their allocation to alts. Our expectation is that the same thing will happen here. That will be a nice wind at our back as we kind of head into the next several years and launch the flagship funds that Craig was referencing. And then you've got on top of that, the compounding benefit of private wealth. So the reason you hear the optimism in our voices is over the next several years, we actually think we're going to look back on this period of time, I feel like this has been quite helpful and helps fuel the next leg of growth for the industry and for the firm.

Michael Kelly:

This is Michael Kelly on for Bill. You've seen a nice uptrend in the non-GA-related credit fee rate over the last 4 quarters with a nice step-up in 1Q. Was there anything to call out in the fee rate this quarter? And then how should we think about the trend in that moving forward from here?

Operator:

The next question is from the line of Finian O'Shea with Wells Fargo.

Rob Lewin:

And yes, just to clarify for -- just to separate those 2, that question was related to Global Atlantic. When we first purchased Global Atlantic, we spent a lot of time working with the team to make sure that we were very thoughtful around how we rotated the book from GA-sourced assets to KKR-sourced assets. We weren't in a rush. We continue not to be in a rush and that's happened methodically over time. And as a result, you've seen our blended fee rate step up in a pretty balanced way over the last couple of years. Today, our blended fee rate at GA when you cut through all the math is roughly 30 basis points. I think there's some opportunity over time to continue to rotate the book. We'll continue to do that in the most thoughtful way. We can in conjunction with the GA investment team. But I wouldn't expect any market changes from the trajectory that we've had over the last couple of years.

Alex Blostein:

Maybe just like zooming out for a second. I was hoping to get your latest perspective on capital management in light of kind of where we are in the cycle. Yourself and, obviously, many of your peers are going through a bit of an earnings lull, but you outlined multiple times now that the firm continues to be really well positioned. You guys have a significant amount of embedded earnings power as you've outlined. So why not lean into the share count shrinkage a little bit more here to take advantage of significantly higher earnings power down the road?

Operator:

Our final question is from the line of Finian O'Shea with Wells Fargo.

Rob Lewin:

Yes. We're really proud of how durable our Capital Markets business has been in what has been a really tough capital markets environment. Obviously, equity markets largely shut. Leveraged finance markets have been largely shut for some period of time. And if you look at our average quarterly revenue over the past four quarters, it's been a little bit north of $100 million per quarter. And so I think it's important to think about that in context of our Capital Markets franchise. 7-plus years ago is probably a $200 million a year business in good markets. 5-plus years ago is probably a $400 million year in good markets type business. And today, our LTM revenue is a little bit north of that $400 million number in a really tough environment. And so no guidance as it relates to forward-looking quarters, but we do look at the performance that the team has been able to generate in a really tough market and feel really great about how we're positioned and do know that when we do come out of this period of time, when markets open back up, we, as a management team, have every expectation that we're going to be talking about a Capital Markets business 3, 5 years from now that's well in excess of the size that it is today for a number of reasons, just how we're positioned competitively, our access to talent. We see a lot of talent potentially coming out of, traditional source of capital markets institutions where we could take advantage of that. And then as KKR expands what we do, that's a real opportunity for our Capital Markets business.

Rob Lewin:

Great. Thanks for that question. It's plus or minus around $125 million of forward look that we have, again, in context of the $9-plus billion of embedded gains on our balance sheet.

Craig Larson:

Rob, thank you for your help, and thank you everyone for your interest in KKR. We look forward to speaking again post our Q2 results. And if you have any questions in the interim, please, of course, follow up with us directly. Thank you once again.

Craig Larson:

Thank you, operator. Good morning, everyone. Welcome to our fourth quarter 2022 earnings call. This morning, as usual, I’m joined by Rob Lewin, our Chief Financial Officer; and Scott Nuttall, our Co-Chief Executive Officer. We’d like to remind everyone that we will refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at kkr.com. And as a reminder, we report our segment numbers on an adjusted share basis. This call will contain forward-looking statements, which do not guarantee future events or performance. Please refer to our earnings release and our SEC filings for cautionary factors about these statements. So this quarter, we’re pleased to be reporting solid results with $0.63 of fee-related earnings per share and $0.92 of after-tax distributable earnings per share. I’ll start by walking through the quarter. So beginning first with management fees. Management fee growth continues to be a real bright spot for us. In Q4, management fees were $706 million, that’s up 5% compared to last quarter, and up 19% compared to Q4 of 2021. And comparing full year 2022 to 2021, management fees increased 28% from $2.1 billion to $2.7 billion. Growth in full year 2022 was greatest within our Real Assets business where management fees increased over 50%. Net transaction and monitoring fees were $195 million, with our Capital Markets business, generating $144 million of revenue in the quarter. Now to go through expenses. Our fee-related compensation margin for the quarter was 20%, which is at the low end of our 20% to 25% range. Rob is actually going to circle back on this topic in a moment. And other operating expenses for us were $177 million. The increase here compared to last quarter was driven by higher professional fees given activity levels across the firm as well as increased expenses related to capital raising. So in total, fee-related earnings for Q4 were $559 million or $0.63 per share with an FRE margin of 61%. Moving to realized performance income. We generated $339 million with realized carried interest driven by monetizations of Minnesota Rubber and Plastics as well as a number of public positions while realized incentive fees were driven by the crystallization of performance fees at Marshall Wace. Realized investment income was $223 million for the quarter. Overall, our asset management operating earnings came in at $946 million. Now turning to our insurance segment. Global Atlantic had another strong quarter, generating $165 million of operating earnings. This quarter, the results were driven by an increase in invested assets from new business growth alongside a continued rotation into higher-yielding assets. This resulted in after-tax DE for us of $822 million, or $0.92 per share. Now turning to investment performance and Pages 7 and 8 of our earnings release. Page 7 shows investment performance across our major asset classes for the fourth quarter as well as the full year. Beginning first with traditional private equity, the portfolio was flat in Q4 and off 14% for the year. Those figures are below public indices for the quarter and ahead of public indices for 2022. In real estate in the quarter, the portfolio was marked down by 8%, driven by a widening of cap rates on unrealized investments, offset some by strong rent growth in the quarter. And for the year, the portfolio appreciated 3% meaningfully ahead of public REITs as well as broad real estate indices. The infrastructure portfolio was up 3% in the quarter and up 9% for the year, very strong performance in infra given broad volatility again across markets. And on the leveraged credit side, the portfolio was up 3% for the quarter and minus 3% for the year. And our alternative credit portfolio was up 1% in Q4 and up 2% for the year. Volatility in 2022, of course, was not limited to trust the equity markets, investment grade and high-yield indices declined 13% and 11% over the course of the year. Now perhaps more important are the figures that you see on Page 8 of the earnings release. This page shows investment performance since inception across our recent funds that have been investing for two-plus years. The figures you see here, of course, reflects any marks taken in Q4 or over the course of 2022. Looking at this page and taken together, we continue to feel very good about the returns we’ve been generating on behalf of our clients. In terms of our balance sheet investments, performance was flat in the quarter and down 5% for the year, again, against a volatile backdrop. Of note here, core private equity investments on the balance sheet have continued to perform. For the quarter and the year, the core PE portfolio appreciated 7% – excuse me, appreciated 5% and 7%, respectively. Turning to capital metrics. We raised $16 billion in the quarter. This was driven by fundraising across our growth and traditional PE strategies, leverage credit, a block transaction at Global Atlantic alongside incremental flows at GA. This brings our full year 2022 total new capital raised to $81 billion. Our assets under management increased to $504 billion as of 12/31 with fee-paying AUM coming in at $412 billion. We continue to find opportunities to invest deploying $16 billion in the quarter. Infrastructure and traditional private equity accounted for about half of the Q4 deployment with opportunities to disperse globally. And finally, before handing it to Rob, consistent with our historical approach, we’re pleased to announce our intention to increase our annual dividend policy from $0.62 to $0.66 per share. This change will go into effect for the dividend announced alongside first quarter 2023 earnings. And at the same time, we’ve increased our stock repurchase authorization back up to $500 million. And with that, I’ll turn it over to Rob.

Scott Nuttall:

Thank you, Rob, and thank you, everyone, for joining our call today. I thought today, I would share how things look from Joe’s and my seat. There is no doubt that markets and the economy remain dynamic. There’s also no doubt many remaining focused on the macro, quarterly results, short-term catalysts and the near-term outlook for our industry and business. In summary, there’s a lot of noise out there. We find that noise is just that noise. We continue to raise capital, find interesting deployment opportunities and selectively monetize our portfolio. It’s business as usual at KKR. So from our seats, while the noise creates some questions, it’s important to not let it become a distraction. Building KKR is a long-term effort that takes years of planning and investment to get right. Many of the businesses we are scaling now were started over 10 years ago. And many of the businesses we are starting now will be scaling for decades to come. We are singularly focused on what we need to get right

Craig Siegenthaler:

Good morning, everyone. Hope you’re all doing well.

Rob Lewin:

Hey Craig.

Rob Lewin:

Hey Craig, it’s Rob. Thanks a lot for the question. The very short answer is that GA continues to trend really well as it relates to its credit exposures. We’ve talked about this in prior calls, but 95% of GA’s book is rated NAIC 1 or NAIC 2, so investment-grade in nature. The equity book at GA is sub 1% of total assets. And so we’ve done a bottoms up across the entire portfolio as we’ve gone into year-end and feel really good with how the strength of the balance sheet is holding up.

Alex Blostein:

Hey guys, good morning. I was hoping maybe we could talk a little bit about margins and scale in the business. So Rob, this is probably for you. But you guys were able to bring down FRE comp this year partially because of pretty good monetization activity this year, I think, as you alluded in your prepared remarks. So if monetization income weakens in 2023 for variety of cyclical factors, should we think about that drifting back higher? Or is there enough sort of scale in the business where FRE comp rate could be at a lower run rate on a more sustainable basis? And I guess, bigger picture, I was hoping we can maybe just, again, kind of double click into how monetization activity flows through the margins in other parts of the business. You guys report and we sort of think about it in silos, but that’s ultimately not how you sort of pay your people. So wrapping all of that around, we’re hoping get a little more color. Thanks.

Scott Nuttall:

Yes, Alex, the only thing I would add is our people understand that monetizations, if they come down, compensation is going to come down as a result. Our business, you get paid on cash outcomes. So I don’t think that would be a surprise to anybody.

Glenn Schorr:

Hi. Thanks very much. So I’m a big believer in the big picture growth picture that you laid out. So cool with that. One of the five things you talked about getting right is performance, and I think your long-term performance is awesome. I want to focus on 2022 for a second, get the right perspective, PE down 14%. I think just the fourth quarter real estate was down 8%, leveraged credit down 3%. I want to – I know it’s a longer tail. I know your long-term track record is great. I wonder if we could talk about the right perspective on portfolio composition or how you do marks relative to Publix – that was only the only Achilles heel that caught my eye in the quarter. Thanks.

Craig Larson:

And then Glenn, it’s Craig. I did have – why don’t I just pick up on one of the statistics you mentioned on opportunistic real estate. And there are really two points there. Rob’s already hit on the first just as it relates to the consistency around that process for us and the work we do with evaluation agent. In the case of real estate, specifically that value agent will look at recent transactions and they’ll come up with cap rate and discount rate assumptions for that specific quarter. So in a quarter like Q4, transaction activity was really muted. Volumes in the U.S. were off something like 60%, but in those observable transactions our cap rates widened. And so that’s really what drove the performance figure in real estate that you saw for the quarter. Now, the second point, which we think is more important honestly, is the fundamentals in the portfolio itself. As our – we continue to feel great about the portfolio as well as those fundamentals. So our exposures continue to be weighted towards those assets and themes where you’re seeing strong fundamentals and strong growth. Industrial assets, data centers, rental housing, student housing, storage, those are over 80% of the portfolio in total, and we’re seeing strong fundamentals and cash flow growth there. On the flip side, we globally have only 1% exposure to retail, and our U.S. office exposure is below 5%. And then just to help put those two things together, to give you a sense, if we had used constant cap rate and discount rate assumptions in Q4, you actually would’ve seen the portfolio marked up in the quarter instead of that down for the quarter percentage that you did see. So again we are really benefiting from strong underlying NOI growth, and that dynamic is really the reason that we put in Page 8. So I think as our clients evaluate us across our strategies, they’re looking at this inception performance, much less focused on any 90 day period, et cetera. And I think when you look at, since inception, as you noted and we appreciate that in your beginning of the question, the performance figures and in the case of real assets and real estate, the blue bars, I think we feel great about how we’ve been performing on behalf of our clients.

Operator:

Our next question comes from Brian McKenna with JMP Securities. Please proceed with your question.

Rob Lewin:

Brian, thanks for the question. I think it’s going to be much more focused around taking what we have today and scaling that up. We think there’s more than enough room to have very substantial growth. And as we’ve outlined, our 2026 profitability measure is greater than $4 of FRE per share, $7 of TD per share, that doesn’t rely on adding a lot of new products that we’re doing. That said, we continue the focus on innovation. We are likely to add products over time where we believe there’s large addressable markets and where we can be a top player in the world of what we do. But that list is going to be small because I think we believe that if we go execute on what we have in front of us today take that 50% of our products that aren’t yet at scale and get them to scale that the growth opportunity is going to be much larger than starting something new from scratch.

Mike Brown:

Great. Thanks for taking my question. So I wanted to start with GA. It’s clearly a strong quarter there. And then given the favorable rate backdrop and the good new business trends that you’ve been seeing, any thoughts on how we should think about the next six to 12 months from that business? If you could maybe touch on the net investment income and the net cost of insurance, that would certainly be helpful. Thanks.

Operator:

Our next question is from Gerry O’Hara with Jefferies. Please proceed with your question.

Scott Nuttall:

Thanks, Gerry, it’s Scott. I’ll take that one. It’s hard to answer that question in Chris [ph] fashion because it kind of depends on where you are and who you’re talking to. So there’s no doubt, kind of as we got into the back half of last year, some of our LPs were struggling with allocations on the back of a reduced denominator, that was predominantly a U.S. pension fund dynamic. As the calendar has turned, and there’s a new budget year, some of that has softened and we’re having conversations that indicate they’re looking to put capital to work. But if you go outside the U.S., Middle East, Asia, sovereign wealth, insurance, in particular, you find investors aren’t struggling with those same issues. In fact, several of them are very forward leaning and trying to figure out how to invest into this environment. So the overall picture is not consistent depending on where you are. What is very consistent, though is, we’re finding this year, just like last, a lot of interest in a couple of themes. Anything with inflation protection and yield. So, I think real estate, infrastructure, credit, significant amount of interest. I’d say an increased awareness that in times like this, all things, private equity tend to perform quite well. So it should be some very strong vintage years coming out of this period of time. So people are kind of swinging a bit to think about how to take advantage of this environment. So, I’d say people are more in their front foot this year overall than maybe last year. And there’s more of the conversations gearing toward how do I invest into this in a thoughtful way. And then part of that is people look back and post-GFC and maybe post the initial stages of COVID, some of which they were maybe a little bit more aggressive in terms of deploying into the environment spend. And I think that’s what’s leading to some of this shift in sentiment.

Bill Katz:

Okay thank you very much. Good morning everyone and appreciate taking the question. Maybe circling back to one of your growth drivers. If you could talk a little bit about on the global private wealth opportunity. You mentioned a couple of new products coming out. Maybe update us on what you’re hearing from the respective channels, just given some of the mixed macro backdrop with higher yields in more liquid products. And what might be having in terms of behavior and demand as you scale the business? Thank you.

Operator:

Our next question is from Patrick Davitt with Autonomous Research. Please proceed with your question.

Craig Larson:

Patrick, we haven’t disclosed the specific cap rates. I think the dynamic this quarter is, one, I think I wouldn’t be – we wouldn’t be surprised if you’d actually see a real variability in those cap rate assumptions is, again, it’s – each manager is probably going to view the data points differently. And what you’re going to see in this 90-day period. And again, like the book that we have is going to be predominantly U.S. based just given the maturation of our portfolio. And again, from an overall exposure piece, as I’d mentioned, our largest allocation is 35% in those industrial themes and 80% in those themes where we’re continuing to see really strong growth. But almost by definition, those are going to have the big – just given the significance of those in the portfolio, those are the instances that are going to be the biggest contributors to that movements in the court. [Ph]

Brian Bedell:

Great. Thanks. Good morning, folks. Just wanted to come back to the retail democratized part of the retail strategy. Maybe if you could just remind us on the AUM you have right now in the actual democratized products where you might think that could go to over the long term. Realize it’s a – it’s definitely a long-term build. And then, how many products you plan to launch this year? And then, going back to the FRE margin, part of that as you scale the overall business and improve the FRE margins, should we be thinking of the rollout of those democratized products as a near-term headwind as you pay for shelf space and build up the infrastructure to scale that?

Rob Lewin:

Brian, some of those costs that you reference are costs that we’ve talked about, where we’ve been investing back into the firm in distribution and marketing as well as in technology. Some of that technology supports our efforts in the democratized vehicles. So as we talk about operating in the low 60s and over time, gravitating our business model to get to the mid-60s, that incorporates how we’re thinking about the democratized access vehicle space.

Operator:

Our next question is from Finian O’Shea with Wells Fargo Security. Please proceed with your question.

Rob Lewin:

Yes, Fin, thanks for the question. Listen, I do think that 12% to 13% range continues to be a good one for next year. And while there’s some things that can elevate that number as we look forward, there were some timing elements in 2022 as well on that portfolio rotation. So I think that’s still the good range for the near term. As I said, we hope that the GA team is able to generate returns that are in excess of that. They’ve done that in 2021 and 2022. But our internal modeling suggests that’s the right range for 2023.

Michael Cyprys:

Hey, good morning. Thanks for taking the question. Just on deployment, just curious how you would characterize the 71 billion of capital that was deployed in 2022. Seems like a large quantum of capital, similar level as 2021, but a tougher backdrop. So just curious how you’d characterize that relative to your full potential? And what’s the scope for that deployment to say grow at a meaningfully step function higher level, maybe in 2023 or 2024. Just how you’re thinking about the capacity you have to deploy and what that might look like five years from now? And then just a quick housekeeping question for Rob, just if you could help quantify the investments and realizations off the balance sheet in the quarter? Thank you.

Scott Nuttall:

Yes. The only color I’d add to that, Mike, is if you take the numbers apart you’re right, deployment was relatively flat in the low $70 billion in 2022 versus 2021. But if you look at the makeup, there’s a bit of a shift. Credit was actually down year-over-year. Part of that is overall transaction activity in the market, part of it is we had a lot of work on the GA front to do in 2021, in particular. But if you look at private markets, I think private equity, infrastructure and real estate our deployment was actually up 20%. So we were leaning in to Craig’s point into kind of what was happening with the markets last year after maybe being a little bit more cautious in late 2021 in a high valuation environment.

Operator:

Our next question is from Arnaud Giblat with BNP. Please proceed with your question.

Craig Larson:

Yes. Thanks for the question. I think on deployment, I looked at the debt markets haven’t fully healed, but despite that, we’ve continued to find ways to deploy capital. I do think the capital markets business actually gives us a real leg up in helping to put together the debt side of a cap structure. Where we’re interested now would include those areas where we think we can really bring our operational resources to bear and move the needle. Again, we love carve-outs. We’ve been very active public to privates. I think by strategy, you actually hit on probably the single busiest area in our firm, and that’s infrastructure. And I think infrastructure has just continued to be a real success story and a real growth story for us. I think it’s – when we look back at our April 2021 Investor Day, we gave a bunch of statistics there of actually where we thought Infra would be over the course of 2022. Just to give you a sense, at that point Infra-AUM was $17 billion. We estimated at that Investor Day that Infra-AUM would exceed $30 billion and as of year-end we’re at $51 billion against that $30 billion estimate all organic. We look for management fees effectively to double from that $150 million to $275 million to $300 million was our estimate for 2022. And for the full year, infra management fees came in at $340 million, so nicely ahead of the top end of that range. And we’ve got $9 billion of infra for capital that will become fee-paying as it’s invested at a weighted average fee rate of about 120 basis points. So not only will we build the high end, but we’ve got lots of visibility towards future management fee growth. And I think as we look at opportunities for us, that opportunity for continued growth and innovation hasn’t stopped. So again, we think it’s an asset class that can lend itself nicely to the democratized marketplace. And we think the renewable space is again an area where our presence can increase. So I appreciate you’re asking about, but it’s been a real bright spot for us.

Operator:

Our next question is from Rufus Hone with BMO. Please proceed with your question.

Rob Lewin:

Yes. Thanks for the question, Rufus. You’ve hit on a spot of a lot of activity, actually. And our pipeline around the institutional side of our business at Global Atlantic as frankly is big as it’s been certainly since our ownership and probably since Jay’s founding. And so a lot of resources going into the institutional side of the business. And that’s both in the U.S., but that’s also global. I think there’s a real opportunity to leverage KKR’s franchise in Europe and Asia to help Global Atlantic grow in those parts of the world. So a lot of effort there. We do have today, as you talk about third-party close capital, we do have side car pool capital called IV Today [ph] that participates alongside some of our block reinsurance activity. It’s a big part of our go-forward strategy, and I would certainly look to continue to be able to add capacity to the IV strategy to help support Global Atlantic and its growth in the future.

Chris Kotowski:

Good morning and thanks for taking the question. I wanted to ask about the core private equity business. And I think if I heard him correctly, I think Rob referenced that it’s $600 million of EBITDA which is about 15% of your pretax earnings, but only 1% of DE. And I guess I’m wondering when and how – what is your philosophy or outlook on when and how the EBITDA starts converting into DE. I mean, do we have to wait 15 or 20 years until these investments are mature and ready to be monetized? Are these companies in a position where they can start throwing off steady dividends? Or do the cash flows have to be reinvested to keep the growth going? Or are there dividend recaps down the line? Or what is the, I guess, the strategy for converting the EBITDA into DE for KKR shareholders?

Operator:

We have reached the end of the question-and-answer session. I’d like to turn the call back to Craig Larson for closing comments.

Rob Lewin:

Thank you.

Craig Larson:

Thank you, operator. Good morning, everyone. Welcome to our third quarter 2022 earnings call. This morning, as usual, I'm joined by Rob Lewin, our Chief Financial Officer; and Scott Nuttall, our Co-Chief Executive Officer. We'd like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at kkr.com. And as a reminder, we report our segment numbers on an adjusted share basis. This call will contain forward-looking statements, which do not guarantee future events or performance. Please refer to our earnings release and our SEC filings for cautionary factors about these statements. I'm going to begin the call by spending a few minutes walking through the quarter. So we look at our results, I think they really highlight the resiliency of our business model. Our management fees for the quarter were $671 million. That's up 20% compared to Q3 of last year. Management fee growth for the quarter as well as over the last 12 months has been most meaningful within our Real Assets business which, as you'll recall, we began reporting separately last quarter. Net transaction and monitoring fees were $168 million for the quarter with capital markets contributing $116 million. To go through our expenses. Our fee-related compensation margin consistent with prior quarters, was 22.5%, and other operating expenses increased modestly from last quarter, coming in at $146 million. In total, our fee-related earnings grew to $542 million or $0.61 per share with an FRE margin of 61%. The -- this is now the eighth consecutive quarter that our FRE margin has exceeded 60%. Next, realized performance income was $498 million, with realized carried interest driven by monetizations of CHI overhead doors, Fiserv as well as Max Healthcare. Realized investment income was $285 million, driven by similar monetization events. Adding these 2 lines together, so looking at realized performance income, together with realized investment income, really to get a complete picture of our monetization activities Total realized gains for the first 9 months of the year are 10% ahead of last year, given all of the volatility experienced across markets in 2022, we think this speaks to the breadth of our platform, and again, the resiliency of our business model. So overall, our Asset Management operating earnings were $959 million. And our Insurance segment had another very strong quarter, generating $127 million of operating earnings. Together, this resulted in after-tax distributable earnings of $824 million or $0.93 per share. Turning to investment performance. You can see the details of the quarter and the LTM period on Page 7 of the press release. Just looking at this page, the traditional private equity portfolio was down 4% in the quarter compared to broad indices that were down 5% to 6%. And over the last 12 months, the PE portfolio was minus 8% compared to the S&P 500 and MSCI World indices that were down 15% and 19%, respectively. In Real Assets, our portfolio has continued to perform again in a quarter with a lot of volatility. The opportunistic real estate portfolio was minus 1% in the quarter and plus 11% over the last 12 months, while the infra portfolio was up in the quarter and is plus 5 LTM. On the leveraged credit side, the portfolio was up 1% in the quarter and down 5% over the last 12 months, and our alternative credit portfolio was down 1% for the quarter and up 3% in the LTM. There's been meaningful volatility in the credit markets over these periods as well. The high-yield index declined 1% in the quarter and is off 15% over the last 12 months just as a point of comparison. In terms of our balance sheet investments, investment performance was flat in the quarter and down 5% over the last 12 months. Core private equity, which Rob will touch on in a moment and is still our largest allocation, was up 2% in the quarter, and it's up 8% over the LTM. Turning to fundraising in the quarter. We raised $13 billion, bringing new capital raised to $65 million year-to-date. With that, our assets under management increased to $496 billion, and fee paying AUM now totals $398 billion. To help put these figures into perspective, over the past 2 years, both our AUM and our FPAUM have more than doubled. We also continue to deploy capital with $16 billion invested in Q3. And Credit strategies invested $7 billion in the quarter, with the remainder of the quarter's deployment roughly split between real assets and private equity. And with that, I'm pleased to turn the call over to Rob.

Operator:

[Operator Instructions]. Our first question is from Alex Blostein with Goldman Sachs.

Craig Larson:

Alex, thank you for the multiple partner. Why don't I start? Look, a couple of observations just on deployment. One, public market and why do we start there, public market valuations have obviously come down very meaningfully. Our macro team does this work every quarter where they look across a breadth of markets and asset classes and look at current valuations versus a 20-year average and Japanese equities, as an example, are at 8% of their long-term average. That's just 1 example. That's a pretty remarkable statistic. And at the same point in time, capital is obviously very precious, as you noted. So I think the combination of markets coming down, together with capital being very precious is a great thing for us. And we have lots of tools at our disposal in terms of finding ways to be relevant. I expect you remember our deployment history during COVID again, in a period which even arguably was more dramatically dislocated and more dramatically shut down. I think we feel great about the connectivity that we had as a firm and the opportunities that we were able to find in terms of deploying capital in private equity and private markets broadly. And I guess the final thought that I'd make just as it relates to the financing market is, look, we have 70 people globally in our capital markets business and the strategic value of this business increases during periods of volatility and distress. And so I think as it relates to our ability to finance transactions, given our position, the best-in-class talent we have here on a global basis, our ability to access and finance the capital markets during periods of distress is actually something that we think of as being as a real competitive advantage for us.

Craig Larson:

And then, Alex, switching to your question as it relates to management fees across private equity and growth from here. Obviously, as you know, a couple of our big flagships, we got done over the last 12 to 24 months. But we continue to raise a number of adjacent products that we're excited about that are in their scaling phase. And also remember that our core private equity business is a business that generates management fees as capital is deployed as opposed to committed capital at the onset of the fund. And so as we continue to deploy capital and core private equity, you should see some natural growth there as well. So we're constructive as it relates to growth in our private equity management fees over the coming quarters. And then obviously, at some point there in the future, we'll have a reraise of our flagship strategies.

Craig Siegenthaler:

So my question is on Global Atlantic. I wanted to see how early stage credit quality metrics have trended inside of GA in 3Q. And we know it's coming off very strong levels, but have you seen a pickup in delinquencies, non-accruals, criticized assets, OTTI. And then if the U.S. does enter an economic recession next year or at least if the economy does slow a lot, do you expect to see a pickup in OTTI next year off of a very, very low base currently?

Operator:

Our next question comes from Gerry O'Hara with Jefferies.

Craig Larson:

Gerry, it's Craig. I'm glad you asked about why don't I start? First, just to your specific question on flows. We did see new capital raise in the quarter slow versus Q2 with volatility in the quarter. I guess we're not really terribly surprised by that. So new capital raise across all of our democratized products was about $500 million in the quarter, and KREST would have been about half of that. Now what that doesn't tell you is all that's going on under the hood because there's quite a lot. I think first, just as it relates to Crest and distribution, there are 3 main wire houses in the U.S. As you know, we've been on 1 of those since we launched 15 months ago and we're really pleased with our market share and our positioning there. We were added to a second warehouse in August and then launched on the third right at the very end of September. So with all the volatility in the quarter and the timing of these launches, you're not really seeing the impact of that in our 9 to 30 numbers, but the breadth of our distribution there certainly increased in the quarter. Second, we did make a series of filings, as you may have seen on our infrastructure products. Now unfortunately, not that we have an active registration statement on file, there isn't a lot of additional detail we can give you here because of the SEC's private placement rules, but I wanted to highlight that as something noteworthy. Third, we have made additional filings on additional private equity as well as credit products in the quarter. And fourth, we continue to hire and onboard and build the team that's focused on this opportunity for us. I think the main takeaways, if you were to kind of step back from the 90-day period, if you will, is we expect to have democratized products across our 4 main asset classes, real estate, infrastructure, private equity and credit. This continues to be a real priority for us, and the great news for us, one, this is a huge end market. It's a massive opportunity. And in many ways, it's all upside for us, and it continues to feel like we're really wonderfully well positioned against this just enormous opportunity.

Operator:

Our next question is with Patrick Davitt with Autonomous Research.

Robert Lewin:

Sure. Patrick, thanks for the question. Based on transactions that have happened or where we have deals that have either been signed up or we expect that have closed or we expect to close this quarter, we've got approximately $350 million of realized performance revenue and realized investment revenue that we feel good about. So continued momentum on the monetization front in spite of the environment. And if we achieve those numbers, and this price is important, ballpark around 30% comes from carried interest and the balance from realized investment income and incentive fees that will come in at that lower comp range. And so a higher flow-through on monetization is at least what we've got quarter-to-date. In respect of realized monetization revenue in the future, of course, some of this is going to be impacted by the environment. and I've said this before, we don't need straight line up markets when we need or periods of time where volatility is down and pockets of time where volatility is down to be able to monetize our portfolio. And while you're right, we've taken some marks as an industry and as a firm, we still have approximately $9 billion of embedded revenue that sits on the balance sheet across our carried interest outline item as well as our balance sheet. And so that's the fair value of those assets relative to their cost that gives us a good bit of visibility in terms of generating meaningful revenue in the future when we do get those pockets or opportunities to be able to monetize our portfolio.

Unidentified Analyst:

So maybe circling back to the insurance platform. Just wondering if you could talk a little bit about the implications of higher interest rates as it relates to any kind of lapse or surrender dynamics and/or block opportunities.

Operator:

Our next question is from Brian Bedell with Deutsche Bank.

Craig Larson:

Brian, it's Craig. Why don't I start. And I'll start on your last point first. Look, I think with market volatility, the tone of the fundraising market has become more challenging. But to be clear, we feel great about the body of work here. So as Rob noted and as you mentioned a second ago, new capital raise for the first 9 months of $65 billion, again, through 9 months, already the second most active fundraising year for in our history without a lot of flagships in the market. And when I think back to where consensus estimates were for us at the beginning of this year, that number for 2022 for the full year was in that $55 billion to $60 billion range. So again, we've already raised more capital relative to what was expected at the outset of the year. and that's been accomplished in a more difficult fundraising environment, and we still got another quarter to go. So look, I think, again, we feel great about everything that we've accomplished a couple of other thoughts. One, you mentioned the fundraising that we've had in some of the real assets areas. And when I think of activity for us in strategy like infrastructure, real estate and credit. So strategies that can -- or should participate in a rising rate environment or our inflation protected. That's been 2/3 of the capital that we've raised over the trailing 12 months. And then finally, I think also in terms of innovation, over half of the capital we raised in the trailing 12 months, again, were in strategies that didn't exist within taking our 5 years ago. In real assets, one of those contributors to the quarter is a great example. So our Asia infrastructure strategy is a great example of this. It was outside of the mandate of our flagship fund series, the first generation fund. Again, we feel great about performance. And that was certainly one of the contributors to real assets in the quarter. That would have been the largest piece as it relates to the infrastructure component. And then within real estate, you had a handful of components. The largest of which would have included GA's contribution within our real estate footprint. But again, I think the main takeaway, we feel really great about everything that we've done so far this year.

Operator:

Our next question is with Arnaud Giblat with BNP.

Craig Larson:

Yes, Craig, why don't I start? Look, on the main point, there is a massive need for infrastructure capital globally. And alongside of that massive need, you're really seeing a step function change in the footprint of our business. So whether that's our Global and for fund series, Asian for fund series, diversified core AUM 2 years ago was $15 billion, and today, we're at $50 million. So alongside of that presence, you're seeing similarly a step function increase in terms of our deployment and that teams remained among the busiest within KKR. We've invested $11 billion of capital globally over the last 12 months in infrastructure. In 2020, that number was a little over $2 billion. So again, you've seen a big ramp in that activity, and that's something that I think we'd expect that you should continue to see for us. One of our largest deployments in the quarter was in a -- it was a take private of a French renewables business. We have another take private that is announced is scheduled to close in Q4. And I think the take private dynamic is actually also something that's just worth mentioning. It's true in infrastructure. It's also true more broadly. We've announced again or we've closed on for take private this year with a fifth set to close in Q4. But again, the main takeaway on Infra is a high level of activity for us.

Operator:

Our next question is from Michael Cyprys with Morgan Stanley.

Scott Nuttall:

You want to start with realizations?

Craig Larson:

Why don't I start on the first part, I'll let Scott then that. Look, I think if you look at a statistic to kind of help frame the growth and the presence in the marketplace, we had $118 billion of AUM in real assets at the end of the quarter. Two years ago, that number was 30. And naturally, in the evolution of these businesses, your CapEx runs through your income statement. And so you hire people, you need to bring on world-class talent to then have the opportunity to raise capital. And then you're looking to earn your right to grow, build and scale both those funds themselves as well as where you see opportunities to expand into other areas where you can be relevant. So I think we feel great about the progress that we've made, but our hockey sticks aren't in the air as I think we see the opportunity set ahead of us and look where the leading 1 or 2 providers are in some of those businesses, and it just feels like there's a tremendous opportunity for us to continue to build and grow and scale off of all of the growth that you've already begun to see.

Operator:

Our next question comes from Rufus Hone with BMO Capital Markets.

Robert Lewin:

Yes, Rufus, you hit on it there at the end. As we think about that line item in our P&., -- that is going to be largely driven by our open-ended and more perpetual vehicles that are more yield based in nature. As you would have heard a couple of times already on this call, we have a lot of conviction that we can scale that part of our business. We've got a lot of conviction that we continue to perform on behalf of that client base and as you combine those 2 things, our view as you look over the coming quarters and years, you're going to see a real ramp up in that line item over time.

Christoph Kotowski:

Yes. I wonder if you could give us your thoughts on the financing markets. I guess Twitter has done Tenneco got European approval. So the banks are, in fact, kind of perhaps have some inventory to work through. And I'm wondering if you can talk a bit about how long do you think that, that is going to be an obstacle for financing transactions in the public markets? And how much is that an obstacle for you to do pursue public to privates in general?

Scott Nuttall:

Yes, Chris, it's Scott. Just a couple of other things. One, I use the word obstacle. I think first, it's important to understand, we think it's a real opportunity for us. So to Craig's point, private credit deployment, real estate credit deployment, we are seeing dramatically more interesting risk reward than we saw even a few months ago. I'd also point to mezzanine. We think this is going to be a really interesting opportunity for mezz. New transactions with sponsors in particular, tend to be over-equitized in this type of environment and you've got a more attractive risk reward there. Opportunistic credit fundraising. Every time the high-yield market trades below 85%, the 1-year returns tend to be in the high 20s. And so we're having really productive dialogue with investors all around the world who are looking to pivot into the leveraged credit markets on the traded side in addition to the private side. You're right, new deals are harder to finance. It's part of the reason we built the capital markets business, and we have that team sitting in the middle of the firm that can dock directly to debt investors, so we can place our own capital structures. You may lean a bit more on the private credit market in this environment, maybe some portable capital structures. But we're finding ways to get deals done. So I think as we sit here today, we're finding ourselves incredibly enthusiastic about the opportunity that this environment represents for a large part of the firm across our credit platforms.

Craig Larson:

We'd just like to thank everybody for your time and interest in KKR, and we look forward to connecting next quarter. Thank you so much.

Craig Larson:

Thank you, operator. Good morning, everyone. Welcome to our second quarter 2022 earnings call. This morning, as usual, I’m joined by Rob Lewin, our CFO; and Scott Nuttall, our Co-Chief Executive Officer. We’d like to remind everyone that we’ll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at kkr.com. And as a reminder, we report our segment numbers on an adjusted share basis. This call will contain forward-looking statements, which do not guarantee future rental performance. Please refer to our earnings release and our SEC filings for cautionary factors about these statements. This quarter, we’re reporting fee-related earnings per share of $0.52 and after-tax distributable earnings of $0.95. Looking at the first half of 2022 compared to 2021, we feel very good about our performance. Against a challenging market backdrop, our management fees are up 39%, fee-related earnings increased 28% and our after-tax DE increased 14%. Now, before we go into more details on our results, we’d like to highlight the changes to our business lines that we posted to our website last week and are also reflected in today’s earnings release. We’ve seen a dramatic increase in the scale of our real assets business. So, we split private markets into two business lines, private equity and real assets. Our private equity business line is comprised of our traditional PE, core PE and growth strategies while real assets include real estate, infrastructure and energy. And at the same time, we’re changing the name of our public markets business line to credit and liquid strategies, a more descriptive name for the capital that we manage here. The driver of these changes is the growth and increasing significance of our real assets business. KKR today is a meaningfully more diversified firm by strategy and by geography than it was only a few years ago. To give you a sense of the growth we’ve experienced here at the end of 2019, so two and a half years ago, real assets AUM was $28 billion. Today, that number is $114 million. So it’s over four times the size today compared to just two and a half years ago, and the drivers of this growth are several. At the end of 2019, infrastructure AUM was $15 billion, driven by the scaling of our flagship fund together with our expansion into adjacencies like Asia and core infra, AUM today is almost $50 billion. Within real estate, AUM has increased from $9 million at the end of 2019 to over $60 billion today, and that’s pretty evenly split between real estate equity and real estate credit. Our opportunistic equity strategies have been scaling. We now have core plus [ph] strategies across the Americas, Europe and Asia. We acquired the Japanese REIT business earlier this year, and that’s all alongside a meaningful increase in the breadth of our real estate credit platform driven by Global Atlantic. And in energy, our strategic positioning has improved through our ownership interest in Crescent Energy, while AUM has increased to almost $4 billion. Page 9 of the earnings release helps profile is increasing significant more visually. So the bars that you see on this page in total reflect to what we previously referred to as private markets. And you see each of the bars broken into their private equity and real assets components. So alongside of the AUM growth we just ran through, you’re beginning to see a meaningful increase in real asset management fees and deployment. And at the same time, private equity strategies have been scaling. AUM increased from $92 billion at the end of 2019 to $172 billion [ph] today, driven by the continued growth of our flagship private equity funds alongside the scaling of core private equity and our growth strategies. When you look at the private equity figures for June 30, 2022, and compare those to 2019, AUM, management fees and capital invested have all been growing at a compounded annual growth rate of approximately 30%. Now turning to the quarter itself in our key operating metrics. Assets under management came in at $491 billion. That’s up 14% year-over-year, while fee-paying AUM increased to $384 billion, up 20% compared to last year. This growth is driven by our continued fundraising momentum with $25 billion of new capital raised in Q2 and $52 billion for the first half of the year. In terms of fundraising for the quarter, we’d highlight four things. First, really building on what we just ran through a few moments ago, is the increasing significance of real assets as fundraising across infrastructure and real estate contributed over 40% of new capital raised in the quarter. Of particular note, we closed on over $4 billion of capital for our Asia Infrastructure strategy. Second, we closed on a new $5 billion multi-asset class strategic partnership in the quarter. The broad framework of this partnership is similar to those we’ve talked about with you before. It’s long-dated in nature with recycling provisions. And with around $2 billion recently committed, the net impact on new capital raised in Q2 was approximately $3 billion. This helps bring our total strategic and perpetual capital to $232 billion or 44% of our fee-paying AUM. Third is Global Atlantic. It’s been a good environment for organic activity at GA as new capital raised in the quarter totaled approximately $6 billion. This is seen in both our credit and real assets business lines. And finally, the fourth point is really the breadth of activity that we’re seeing across the credit business. In addition to GA, we were active in the CLO markets in the U.S. and Europe and the private credit markets. And of note here, in Q2, we held the final closing of our Asia Credit Fund. And early in Q3, we announced the final close of our asset-based finance firm. Now alongside of our capital raising, we also continue to find compelling opportunities in which to invest. We deployed $19 billion in the quarter and over $40 billion year-to-date. Again, one of the key drivers of our activity in the quarter was our real assets business with $8 billion of capital invested. Within Infrastructure, core infra was most active deploying across the U.S. and Europe, real estate credit, including Global Atlantic and KREF totaled $4 billion. Real estate equity investment was concentrated in the Americas, really on both the opportunistic and core plus fronts and private equity accounted for $6 billion in the quarter, driven by activity in the U.S. In credit, deployment of $5 billion was driven by GA-related private credit activity. And importantly, at the end of the quarter, we had $115 billion of dry powder ready to deploy into new opportunities. Now before turning it over to Rob, we want to spend a few minutes on a piece of KKR that permeates everything that we do, and that’s ESG. So two things here. First, in June, we published our 11th annual Sustainability Report. The report this year titled scaling up outlines how we’ve been scaling efforts to manage ESG issues across our investment portfolio as well as our global operations. This year marked a significant expansion of the scope of our ESG reporting, which builds on our history of transparency. We hope you’ll take time to go through the report in more detail. And on the back of that, we want to drill down and spend a few minutes on the S in ESG, the social component. This is really important to us. And one spot where we’ve shown real leadership and we’re going to walk through now is our work around broad employee ownership in our portfolio of companies. And we plan to share more stories like this with you in the future. Many of you will recall Pete Stavros’ presentation on C.H.I Overhead Doors at our 2018 Investor Day. We were the fourth private equity owner of the business. It’s across to our manufacturing business and EBITDA margins at that time were already top quartile for building products company at 21%. Now one of the things that our team saw was an opportunity to engage with this workforce in a way that hadn’t been done before. And so began our seven-year journey. We introduced a broad-based equity program at the outset of our investment, so all 800 employees, largely hourly workers, received an ownership interest in the company and we continue to invest in the employee base along the way. And by partnering with the workforce, operational improvements were seen at every level. Injury rates declined meaningfully, employee engagement increased meaningfully and product quality improved. So in total, revenues more than doubled over our ownership and EBITDA more than tripled as EBITDA margins increased from 21% to 35%, all organic. So it was a very successful investment for us. It was a 10x multiple of money transactions for our clients. And through the broad-based equity program, it was also a very successful investment for the employees of C.H.I. On average, the warehouse and factory workers each made $175,000 on the sale and the most tenured workers made approximately $800,000. So they are in multiples of their annual salary through the sale. And now just this morning, we’re pleased to have announced the sale of Minnesota Rubber and Plastics or MRP. Like C.H.I, we introduced a broad-based equity ownership program across all of MRP employees, including many hourly workers when we acquired MRP in 2018. Over 1,300 non-management employees across six countries and four states. In the company and it employs it performs, we’ve seen significant improvements in safety, waste reduction, the speed of new product delivery and earnings growth as EBITDA margins grew from 21% to 25% over our ownership. So again, this will be a strong investment for our fund investors. We expect the sale to be a 3x multiple of our cost in approximately three and a half years. And at the same time, we think it’s a great event for MRP’s employees. On average, employees will receive 100% of their annual income and equity payouts from the sale with the more tenured employees receiving 200% of their annual income. And now we want to turn these experiences into a movement. We’ve implemented broad-based employee ownership programs across many of our traditional PE and impact investments over 25 to-date. We’ve touched over 50,000 employees, and that number is going to grow meaningfully from here. In addition, we have found a new nonprofit called Ownership Works to support public and private companies that are transitioning to shared ownership models like the ones we implemented at C.H.I and MRP. At this time, Ownership Works includes over 60 member firms pursuing this mission. We think part of creating a movement will be storytelling, which is why we walked through the C.H.I and MRP examples, and we look forward to having many additional stories to review with you in the quarters and years ahead. And with that, I’ll turn it over to Rob.

Scott Nuttall:

Thank you, Rob, and thank you, everybody, for joining our call this morning. A few weeks ago, we hosted a conference for our global private equity and real asset clients. People from around the world came and spent three days with us at our first in-person event like this since 2019. I thought today, I’d share a handful of key takeaways from the event. First, as a whole, investment performance has never been stronger across the firm. This is a quarterly earnings call. So the discussion on investment performance tends to be focused on the last 90 days. But when you take a step back and look at inception to date IRRs across our key funds, we’ve been delivering differentiated absolute and relative performance for our clients. Second, we’ve talked a great deal on these calls about how we’re highly thematic in our investment approach. This was evident in all of the presentations. We think we got the macro right. And with volatility expected to continue and a more challenging economic environment ahead of us, it will be critical for us to continue to be on the right side of key macro trends and highly connected across the firm. Third, we’ve been balanced investors. As just one example, across our traditional PE funds over the last 12 months, we’ve returned more capital than we deployed. This is in contrast to perception and has helped us in the fundraising numbers that you’ve been seeing. Fourth, our newer businesses are off to a fantastic start. Over the last five years, we’ve launched a series of adjacencies that are early in their life cycle. You’re seeing innovation across our firm. And in our experience, it takes 10 years for businesses to scale and inflect in a way that can move the needle. So there continues to be a great deal of growth ahead of us. And finally, our people. We have never felt better about the talent in the firm. It was fun to be able to show up our deep bench at the conference. As we listen to three days of presentations and discussions, it becomes apparent, we have a unified team that is focused on generating exceptional outcomes. Our numbers speak to the strength, quality and resiliency, not only of our model, but of our most important asset, our people. As we step back from the conference and the markets for a minute, while there’s no doubt the operating environment has shifted compared to six months ago, we are not overly concerned with near-term volatility or the business cycle. In fact, nothing has changed about the path we are on. With record dry powder, multiple scaling businesses, a large and liquid balance sheet and further innovation and expansion underway, our confidence level is high. And we find it as exactly times like this when we make some of our best investments and strategic moves. So, our outlook has not changed, and we are focused on capitalizing on the opportunity any short-term market behavior gives us to create even greater long-term value for all of us. With that, we’re happy to take your questions.

Alex Blostein:

Hey, good morning everybody, thanks for the question. Question on deployment and a bit of a multipart, I guess, but all related. So the $44 billion of committed capital, they’ll turn on fees once deployed. Can you help break down, which businesses these balances sit within? And how are you thinking about the pace and timing of deploying this capital over the next over the next 12 months or so? What it means for management fees and transaction fees is kind of part of that? And I guess when you take a little bit of a step back, we’ve seen a pretty meaningful decline in sponsor-backed announcements in the space over the last month or two. To what extent is sort of tighter financial conditions do you think could weigh on KKR’s ability to deploy capital?

Craig Larson:

And then Alex, it’s Craig. Maybe just on point two. Look, I think as it relates to deployment, it’s interesting. A couple of things. One, just on the stacks. private equity and real assets deployment in the first half of the year was $27 billion. That’s up from 12% in the first half of last year. So, when you look broadly in terms of overall level of activity, you’ve actually seen a healthy amount of activity. Now your point on the state of the credit markets, though, is certainly a fair one. I think we’re seeing a couple of dynamics there. Announced M&A as a whole is down. So, I think when you look at new issuance, you’re seeing that, that overall new issuance number is down. I think banks to us are feeling more cautious. So, I think when you’re seeing both of those things reflected in terms of overall levels of activity in the private credit markets. But I think importantly, markets are open and functioning and we still have the ability to finance transactions. We’re not at a point where our ability to finance transactions is impacting our ability to get things done.

Craig Siegenthaler:

Thank. Good morning everyone.

Craig Siegenthaler:

I had a question on private equity performance. And I know it’s just 90 days. But inside of the 7% mark for corporate Private equity, do you have the breakout of public versus private in the quarter? And also, do you have any color on the main funds like Americas XII, Next Gen 2? Thank you very much.

Scott Nuttall:

Yes. I think the only thing I’d add Craig, fundamentally, the companies are continuing to perform well. So I think you’re largely seeing some multiple contraction this quarter. But in terms of the underlying fundamental performance of the portfolio continues to be strong.

Scott Nuttall:

Hey Gerry, are you there? We can’t hear you.

Gerry O’Hara:

How about now? Can you hear me all right?

Gerry O’Hara:

Okay. Thanks. Just actually hoping to get a little bit of an update on capital management. And it looks like just during the quarter, there wasn’t any incremental buybacks or at least from the period from May 1 onward, just kind of hope we might get a little bit of an update how you’re thinking about that and potentially how we should think about it going forward.

Operator:

Thank you very much. And the next question is from Brian Mckenna of JMP. Please go ahead.

Rob Lewin:

Yes. Thanks a lot for the question. And so we’re probably going to stay away from providing levels of forward guidance, certainly on things like realization. I think what we will say though is that we’ve been really proud of our ability to be able to monetize through the first half of this year in a highly volatile environment. I think that speaks to a couple of things. Scott touched on the strength of our underlying portfolio. And no doubt, without real strong performance in our portfolio, we wouldn’t have been able to achieve those exits. It also speaks to the diversification of our business model. And what we have talked about over time is a real scaling of our capital that is eligible for carry as well as our deployment. And as a result of that, our expectation over time is you’re going to see our carried interest and realized performance income scaling over time and we think can be pretty significant scaling as we move out a number of years and some of our newer funds that are much larger start to get to scale and are maturing. So hopefully, that gives you a bit of color.

Patrick Davitt:

Hi, good morning everyone. It looks like the mark-to-market on the fee paying side of the AUM rolled forward was significantly worse than most people expected. So could you flush out kind of some of the key drivers in the negative marks on the fee-paying AUM side, maybe by strategy and/or vehicle? And in that vein, it looks like management fees actually came in more or less in line. So is it fair to assume that the fee rate on the more negatively marked AUM was dramatically lower than the inflows.

Operator:

Thank you. The next question is from Arnaud Giblat of BNP. Please go ahead.

Rob Lewin:

Yes. And so we have no – thanks a lot for the question. We have nothing that’s imminent to report as it relates to secondaries, whether that’s organic or inorganic. It’s a space that we continue to look at with interest. It is certainly adjacent to our core private equity strategies across the firm. And so it’s one that we’re spending time on. I think what’s important to note is we’ve talked about our goals, our financial measures that we expect to achieve over the next four to five years generating $4-plus of FRE. That’s based on principally things that KKR is doing today. Doesn’t rely on any inorganic activity. And so while we’ll continue to look at the space, and spend time on it. There’s a lot of areas that we’re focused on KKR that are in front of us that we’ve started where we have track records, and we’ve got a lot of opportunity to scale this.

Brian Bedell:

Great. Thanks. Good morning folks. Thanks for taking my question. Maybe just to focus on the real assets segmentation and more strategically and how you’re thinking about it. I guess a two partner first, are you – you’ve already built this business, obviously, hence this, the – reason for or justification for segmenting it out, but is there also a change in management focus in focusing on this area disproportionately going forward? And then the second part of that is on the infrastructure side. Can you talk about your view on energy transition? I don’t know if that would fit into an infrastructure strategy or whether you would consider over the long-term raising an energy transition fund. And maybe just your views long-term in that area given that you’ve got a lot of focus on real assets broadly in general.

Scott Nuttall:

Yes. Brian, just in terms of your question on the strategic focus, is there any change? The answer is no. I think it was really just recognition that these businesses had scaled both infrastructure and real estate were efforts that we started post financial crisis. And we’ve been in business building mode. We continue to be. But we found that there was a time a bit of a misunderstanding under the private markets prior segmentation. There is periodically a presumption that, that was mostly Private equity. And that’s just not the case, as you can see in the chart. Just to give you a sense for the numbers. We deployed about $40 billion in the first half of this year. real assets was $17 billion of the $40 billion; credit was $13 million; and private equity was $10 million. So to the – partially pick up the prior question on the deal environment, private equity has been sub-25% of our deployment over the last 12 months, give or take, and real assets just as a larger and larger part of our firm. So we thought it was time to break it out and share it with you more explicitly going forward, but no change in focus.

Finian O’Shea:

Hi, good morning. A question on BDCs, one of your peers lowered its fee pretty meaningfully this morning, seeing if you have any initial take on what that might mean for the product line? And maybe if this is more of a first mover or just a one-off for that group? Thank you.

Operator:

Thank you, sir. The next question is from Michael Cyprys of Morgan Stanley. Please go ahead.

Craig Larson:

Thanks Mike. So why don’t I begin? Just first, as it relates to overall AUM, we have about $70 billion in total. That’s in three buckets. That includes funds and strategies that we market through channels. That also includes the efforts of our own team that is focused on direct sales and activities with wealth and private wealth and high net worth and ultra high net worth individuals. And then that also includes the democratized piece that you’re mentioning, which was a hair below $6 billion as of June 30. In terms of the update on the democratized front, so first on KREST. So reminder on KREST, we began taking third-party capital in June of 2021. As of June 2022, it was $1.3 billion. It crossed that $1 billion threshold earlier this year, obviously. We believe that’s the fastest that any private REIT has crossed that threshold. Performance has been very strong. Net annualized returns net north of 20%. And the distribution footprint is growing, which is great to see. So as I know you will be well aware, in particular, there are three main wire houses in the U.S. KREST has been on e of those since launch. It was onboarded at a second quite recently within the last week, actually, and it’s scheduled to be launched on the third in the coming weeks. So also in Q3 and these are important milestones for us with the wire houses. And at the same time, we’re focused on expanding distribution. That’s true as it relates to the RIA and broker-dealer channels domestically as well as the private wealth channels internationally. So we feel great about the long-term path that KREST is on, the performance that’s delivered and the opportunity ahead of us. And then as it relates again to the – just your questions on democratize where we are holistically. Again, AUM in total was 5.7% a year ago. It was at 3.5%. We’ve been hiring distribution talent and we expect to continue to do so as we think about broadening distribution of these products. And then finally, you’re going to see more innovation here. So we expect over the coming two or three quarters, we’ll have launched democratized, infrastructure and private equity strategies, and we expect to see those launched quite broadly, both in the U.S. as well as internationally. So I think to date, these democratized products have really been focused in real estate and credit. And it feels to us like there’s real interest in expanding those opportunities into additional asset classes like Infra and PE, where honestly, there’s a lot more white space for us. So I think with our track record, our ability to innovate the brand, how we’re positioned, it just feels like we’re really well positioned.

Operator:

Thank you, sir. Our next question is from Rufus Hone of BMO Capital Markets. Please go ahead.

Craig Larson:

Sure. And Rufus, you cut out on the second part there. So I’ll let you repeat that or actually, if you could repeat that in a second. So it was private equity portfolio. And then what was the second part?

Craig Larson:

Got it. First, as it relates to the revenue and EBITDA trends I think as Scott noted at the outset, we’ve been really well situated given the focus we have and the themes that we’ve invested behind. So the underlying performance of the portfolio of companies continues to be quite strong. So we’re in – looking back historically and we look at this on a fair value weighted basis, the revenue and EBITDA growth that we’ve seen in the private equity portfolio is in double digits on a trailing 12-month basis. So we’ve been really pleased with the resiliency that you’ve been seeing in terms of the underlying private equity portfolio. And then as it relates to the growth strategies that we’ve seen in performance this quarter, again, recognizing that the S&P and MSCI were down 16% in the quarter, our next-gen tech portfolio was down in the low double digits. Healthcare was actually up honestly in the quarter. So I think in the quarter, a really volatile period, we feel good about that overall performance and in particular, feel very good about the performance and the experience that our LPs have had on an inception-to-date basis.

Chris Kotowski:

Yes. I thought Craig’s discussion of the equity participation was interesting. But both of the examples you listed were kind of traditional Midwestern industrial companies. And so I’m wondering that kind of deep equity participation is that a strategy that you kind of pursue across the board in all your transactions, whether it’s Private equity, Energy, Health Care or – do certain industries lend themselves to this kind of deep broad participation and others don’t? And just kind of curious, how you think about employing that strategy strategically.

Operator:

Thank you, sir. The next question is from Robert Lee of KBW. Please go ahead.

Rob Lewin:

Yes. Rob, I’ll take both of those. And so on the monetization point, another positive area for us this quarter, and I think continues to show the momentum. So as we sit here today, based on transactions that have happened or where we have deals that have been signed up and we expect to close this quarter, we have visibility to around $500 million of monetization related revenue. So again, some pretty good momentum on the monetization front in spite of the environment that we’re in. And if we achieve those numbers, ballpark will be about 75% realized performance revenue and the balance from realized investment income. As it relates to Global Atlantic, you are right, in a rising rate environment. I think we see a little bit more momentum certainly in the individual channel from a sales perspective. And flows this quarter were really strong. They were about $6 billion of total inflows in the quarter, which is a great quarter for GA. Again, there’s no block activity in that number. And the spread, give or take, around 100 basis points in the business. And so we’re feeling really good about how GA is positioned going into this period of time and their relationships across the bank and broker-dealer channel I think have served them really well and to take advantage of what is quite an apply environment in terms of annuity sales.

Operator:

Thank you, sir. The next question is a follow-up from Brian McKenna [JMP Securities]. Please go ahead.

Rob Lewin:

Yes, sure. Thanks, Brian. And so we’re not going to give specific numbers on individual deals as it relates to the Q3 monetization. I think the punchline is we feel pretty good across the board in terms of our ability to generate monetization outcomes at least so far this year. And you’ve seen that in Q1 and Q2, and we’re off to a good start in Q3. As it relates to Marshall Wace, maybe just take a step back, we feel great about that partnership. They’re north of $60 billion of AUM today, when we started that partnership. That business was right around $20 billion of AUM maybe a touch below. So they’ve done just a phenomenal job on behalf of their clients and have grown considerably as a result. Again, year-to-date, they’ve got a bunch of different strategies. But overall, the performance has been strong. It’s been on the positive side. We’ll see how things wrap up between now and the end of September. As you know, that will dictate their annual incentive fee for most of what they do. And so as we sit here today, they’re in positive territory, certainly not quite like last year, but we feel overall, just great about that partnership so far.

Rufus Hone:

Great. Thanks for taking the follow-up. I wanted to come back to your earlier comments around returning more capital to LPs than you’ve deployed, and that’s helping conversations in Private equity. And I was wondering whether you’ve seen any change in LP appetite for core Private equity, and how do you view the outlook for deployment there? thank you.

Rob Lewin:

Yes. Just a quick follow-up there, Rufus. So of our $115 billion of dry powder, approximately $13 billion of that is in core Private equity. So we came into this period of time with a lot of firepower in that part of our business. And as Craig said, we feel pretty advantaged. And as we think about owning businesses in that part of our business for a 10- to 15-year period of time, gives you just a different lens in being able to evaluate acquisition opportunities and some of the things that might matter more than a three- to five- to seven-year investment might matter a little bit less when your hold period for that duration of time. So we would continue to expect there to be a real deployment across that business over the next several quarters.

Operator:

Thank you, sir. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would now like to turn, the call back to Craig Larson for some closing comments.

Operator:

Thank you, sir. Ladies and gentlemen, this concludes today’s conference. You may disconnect your lines at this time and thank you for your participation.

Craig Larson:

Thank you, operator. Good morning, everyone. Welcome to our first quarter 2021 earnings call. This morning, I'm joined this morning by Scott Nuttall, our Co. Chief Executive Officer; and Rob Lewin, our CFO. We'd like to remind everyone that we'll refer to non-GAAP measures on the call which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at kkr.com and as a reminder, we report our segment numbers on an adjusted-share basis. This call will contain forward-looking statements, which do not guarantee future events or performance. Please refer to our earnings release and our SEC filings for cautionary factors about these statements. So we're pleased to be reporting strong results this morning. Fee-related earnings per share for the first quarter were $0.69, up 66% year-over-year and as high a quarterly figure as we've ever reported and after-tax DE per share came in at $1.10, that's up almost 50% compared to the first quarter of 2021 and is the second highest quarterly figure we reported. And when you look at the quarter, our results and our activities you're seeing really four things. First, you're seeing the strength and resiliency of our model, as well as our people. Despite all of the volatility and uncertainty, we reported strong results pretty much across every metric. Second, as businesses inside KKR are growing and scaling, they're inflecting and they're having a real impact on our numbers. In private markets, for example, our infrastructure and our real estate platforms of scale, so our real asset strategies comprised over half of both our fundraising and our deployment over the last 12 months. Third, we're finding creative ways to enhance our strategic positioning. Last week we closed on the previously announced acquisition of a Japanese REIT business. It's one of the largest real estate platforms in the second largest real estate market in the world. And finally, despite the volatility and increased uncertainty, our limited partners are continuing to entrust us with their capital. Strong investment performance has been a critical driver of all of the success that we've had here. Now looking at a few topics in more detail, let's begin with fundraising. New capital raised in Q1 totalled $26 billion and $132 billion over the last 12 months. Of note in private markets, both our Global Infrastructure IV fund and North America Fund XIII held final closes in the first quarter. Including employee commitments, Infrastructure IV totalled $17 billion, that's over two times larger than Infra III and North America XIII closed out at $19 billion over 35% larger than its predecessor. Also we're continuing to raise capital for our European private equity strategy. At this point, we are at $7.1 billion already surpassing in size, the prior European PE vintage, and it's worth highlighting the regional approach we've taken in our traditional private equity business with individual funds across the Americas, Asia and Europe, instead of having a single global fund. We think this allows us to maximize our fundraising potential. Committed capital across our three regional private equity funds currently exceeds $40 billion, and we're still raising capital for our European PE strategy. At the same time, it allows us to diversify our carry pools, reduces our vintage risk across these funds and importantly, we're less susceptible to the tone of the fundraising environment at a single point in time. And at public markets, $9 billion of new capital raise is among the highest quarterly figures we've reported. Activity here was widespread, including hedge funds and credit. In alternative credit, we raised capital across our asset-based finance, Asia credit and direct lending strategies, private credit strategies in Europe and the next vintage of our opportunistic strategy. And in leverage credit, we saw activity across a number of separately managed accounts and loan strategies, in addition to our CLO business, where we issued our 41st US CLO in the quarter. Global Atlantic closed on a block transaction in the quarter, which contributed $3 billion. This is reflected in both private and public markets and so these fundraising efforts helped bring AUM to $479 billion and fee paying AUM to $371 billion, both up approximately 30% year-over-year. Turning to investment activities, capital invested in the quarter, totalled $21 billion. In private markets, our real assets platform invested $9 billion of capital, including $4.5 billion in real estate, driven by activity in our Americas and our European opportunistic equity strategies as well as real estate credit. Our infrastructure platform invested over $3 billion of capital led by activity in the US and Asia with $3.5 billion of PE deployment, relatively evenly spread across geographies. In public markets, GAs really added to the pace of investment activity in private credit, most meaningfully in asset-based finance as well as in direct lending. Spending a minute, actually in asset-based finance, we invest in ABF across a number of pools of capital that are all looking for different risk reward, all the way from our private credit funds and our BDC platform to global Atlantic. So the addressable market for us and available investable capital has increased materially as our credit platform’s grown. We're excited about this. And deployment here has become meaningful. In the quarter, total ABF deployment was a little over $5 billion and we had $2.4 billion in direct lending activity and Q1 alongside of this. Now shifting to investment performance, you can see these details on Page 7 of the press release. The private equity portfolio was marked down 5% in the quarter, which was right in line with a decline of the MSCI world. While over the last 12 months, the PE portfolios was up 19%, 800 basis points ahead of the MSCI world. In real assets, our portfolios continue to perform. In real estate, the opportunistic portfolio feels well positioned given its focus on industrial and multi-family themes, you see the opportunistic real estate portfolio appreciated 11% in the quarter and is up 30% over the last 12 months. And in infrastructure, a strategy in our view, that's also well positioned in an inflationary environment, you see the portfolio appreciated 6% in the quarter and it's up 11% over the last 12 months. On the credit side, leverage credit was down two for the quarter and up three over the last 12 months, essentially in line with broad high yields and leverage loan indices, while alternative credit was down 1% in the quarter and up 9% LTM. Circling back to the acquisition of the Japanese REIT, which is now known as KJRM, the acquisition adds AUM, but it really goes far beyond that. It's a wonderfully strategic transaction for us across a number of areas of focus, including real estate Asia, perpetual capital, as well as private wealth. And one final note here as a piece of the financing for the acquisition, in April, we raised approximately $475 million equivalent of Japanese yen denominated notes across a range of maturities at a weighted average coupon of around 1.2%. And with that, I'll turn the call over to Rob.

Scott Nuttall:

Thank you, Rob. It's been a dynamic three months since our last call and there's certainly more information to process and uncertainty to navigate. While environments like this are anxiety creating for most, it is exactly times like this, when the strength of our culture and business model becomes more apparent. Our connected firm and culture is excellent at making sure information travels and opportunities find the right pools of capital. With valuations down and costs of capital up, more companies need solutions that are not readily apparent and our clients want more information. The result is the investments we make during times like these have the potential for higher returns and our clients develop an even better understanding of what makes us special. Said another way, when dislocation occurs, you get a real sense for culture and investment acumen, and we feel incredibly well-positioned for this environment. We have record dry powder. We have clients that trust us. We have multiple growing businesses globally. We have sustained our connected culture and we feel ready for what's next. I'm sure we'll talk more to today about the macro and what all this means, but regardless of speculation about near term rates, inflation and the economy, we remain focused on executing our strategy and confident we will achieve the five-year plan we shared with you in November. With that, we're happy to take your questions.

Alex Blostein:

Thanks. Good morning, everybody. I was hoping we could start with fundraising comments. For the last couple of months, we've heard a lot and talked a lot about some of the crowdedness in the private equity space. It doesn't seem to be affecting you guys a whole lot, given your comments on the latest fundraisers and obviously Europe is going quite well as well. So while I understand it's probably hard to generalize, but maybe you can help us sort of contextualize what are you hearing from LPs that's going well and maybe some of the areas as you look out for the next 12 to 18 months that could become more challenged with respect to your own fundraising efforts.

Alex Blostein:

Great. Thanks for that. And my follow up is around the wealth channel and Scott, you mentioned you guys are kind of continuing your build out there. I wanted to zoom in on KREST a little bit, really strong investment performance, looks like you guys are up 9%-ish year to date, and that's on the back of north of 20% return last year. The pace has been slower than maybe some of us would've expected. So wondering if you can talk to some of the hurdles that you might be facing in accelerating growth in KREST and getting it out on platforms and what would it take for that product to scale perhaps a little bit faster?

Alex Blostein:

Great. Thanks very much.

Michael Cyprys:

Hey, good morning. Thanks for taking the question. Just given everything going on from inflationary backdrop, rising rates, supply chain bottleneck, so we're just hoping you could talk a little bit about how you see that impacting your portfolio companies. And maybe you could talk a little bit about how you're helping your portfolio companies manage through this environment. And if you could just update us on what sort of revenue and EBITDA growth trends you're seeing across your portfolios.

Scott Nuttall:

Hey, Michael it's Scott. Let me just add a couple things. As you know, we have taken this thematic approach the last several years. One of the things that we have been focused on besides some of the very specific themes we've discussed in the past is we knew at some point inflation would show up. So we've been quite focused on investing in businesses all around the world that have real pricing power. And that's part of the reason I think you've seen the portfolio perform well, and in terms of your question about how we're helping our portfolio companies, in addition to the very specific procurement programs and other things that we do to kind of be able to use our scale thoughtfully, we're making sure that they have access to the information that we have, that the information is traveling. They can see what we're seeing across the markets and I think that's helped them get ahead of what you know is kind of happening in some of these supply chains. And the portfolio is performing well. Our stats through last year revenues and EBITDA in a lot of parts of what we're doing up 20%, 30%, we continue to see very strong trends in the first quarter, despite the macro backdrop.

Scott Nuttall:

Yeah, of course. All good questions. Thanks Mike. So, there's obviously a lot of pros and cons across our business as it relates to a rising rate environment. But on balance, we feel like we're relatively pretty well positioned. You reference that we've got a very sizable credit business. Most of our leverage credit AUM is floating rate in nature. Most of our private credit AUM is also floating rate in nature. And so as interest rates go up, our returns will go up. And as you know, most of our fun products, our hurdles are fixed. So the likelihood of earning additional incentives goes up as well. On the whole, as we look at Global Atlantic and there's some puts and takes, we think a rising rate environment over time is largely a net positive to Global Atlantic and what you can see certainly is rising rates impacting the fixed income book you referenced, but our assets and liabilities are very well matched at Global Atlantic and so as interest rates rise, the value of your liabilities effectively offset the degradation and value in your assets, in a rising rate environment. I think the other important point to note across KKR and I reference this in our prepared remarks, think about our own liability structure. We've set ourselves up a 20-year duration capital that's all fixed in nature at less than a 3% after-tax cost of debt. And then I think the last thing that we think about at KKR in this kind of a rising rate environment, increased volatility in the markets, potential for multiples to come down is we sit on $115 billion of dry powder across the firm. That's a record number for us and really allows us, I think, to be on our front foot as it relates to investing through this period of time.

Scott Nuttall:

Thank you.

Glenn Schorr:

Hello there. Thanks. So a question, capital markets and transaction fees were pretty good, pretty darn resilient considering the environment. But the markets, got a little worse in April. So I wonder if you could just help talk through, exits down, but deployment is good, diversification is good, like tell us what to expect because I feel like people discount it as a component of management fees, but it's a big piece and it seems to be more resilient than something. Thanks.

Glenn Schorr:

That's great. Something you said during the prepared was interesting on ABS deployment I think you said $5 billion with an average fee. So the question I have is you're -- do you expect to be increasing the ramp in terms of ABF both growth and deployment on a quarter basis, and is that going to increase and give a higher steady fee flow coming up from that? I'm just curious on how big of a contributor can that get to?

Glenn Schorr:

Thanks, Craig. Appreciate it.

Bill Katz:

Okay. Thank you very much for taking the questions. Look forward to looking through that queue a little bit later on. In terms of maybe going into the new course since the dynamics have changed pre-dramatically first quarter to second quarter, even within the period, can you talk a little bit about where you've seen the opportunity to deploy quarter to date? And then I was wondering if you could speak a little bit to maybe the monetization activity and how the decline in the private equity and the net accrue carries sequentially might impact the opportunity for that realization outlook. Thank you.

Robert Lewin:

Hey, Bill. It's Rob. Let me follow up on your question around returns and monetization. You referenced our Q1 returns in private equity. Just want to put that into context for a bit. We were up 46% in 2021 in PE. And so we gave back about five points in Q1, but over the last 15 months, our PE portfolios still up on 40%. And as you think about that decline, quarter on quarter, the down five points, we actually had a position at 12/31 that was marked at about 24 times multiple of money that traded down about 40% in the quarter, still marked at 14 times multiple of money, still a fantastic investment for us at 3/31 and represented a good chunk of that decline. In terms of the impact around monetization, we feel great about our monetization pipeline, right now, certainly relative to where we are from overall volatility in the markets and so you saw a very healthy Q1 monetization revenue number and as we head into Q2, you're based on transactions that have happened, or that we have line of sight to either through signed deals and LOIs or equivalent, we already have line of sight to $600 plus million of revenue that we feel good about. And I think this represents a couple things. One, just the overall breadth of KKR's portfolio today, global nature, different products, and two, that underlying strength of our portfolio that we've talked about. Now like all quarters, there's definitely some risk in some of these deals happening, but at the same time, given the strength of the pipeline, I referenced there's some upside to these numbers as well. And just in terms of character of revenue, assuming that we're able to achieve these numbers, I'd say about ballpark 75%, that revenue would come from realized performance revenue and then the balance would come from realized investment income. Hopefully that helps provide a bit of color there Bill.

Robert Lewin:

Yeah. Hey Bill, it's Rob. So we talked a bit about this last call. I'd say really no new update from us. What we're focused on with Global Atlantics focused on is continuing to have a really close and transparent relationship with its regulators. We know that the regulatory community continues to gather information and industry feedback, and we want to make sure that Global Atlantic are part of that. Beyond that, there's not a ton that we can comment on other to say that we really don't anticipate many changes to the business model of trying to thoughtfully invest behind the long-term promises that we've made to policy holders. And so, we feel again overall very constructive around the Global Atlantic relationship with its regulators and are focused on continuing that type of transparency in the future.

Brian Mckenna:

Great, thanks. If we annualize the first quarter FRE, you're at a $2.75 run rate for 2022. And as you noted before, back in November, you updated your FRE target to $4 plus in five years or by 2026. So if you're approaching $3 FRE this year, are you willing to move forward this five-year timeline at all?

Scott Nuttall:

Yeah. The only color I'd add Brian is historically, if you look back when we've shared kind of a view as to where we might end up, we've had a tendency to outperform. Our intention is to continue that record.

Scott Nuttall:

Yeah, it's a good question. I'd say it's still very much weighted towards our traditional private equity products, our regional private equity products today, but you are starting to see a climb in our unrealized carried interest in infrastructure real estate in particular. And as we think about mix and as we look forward to what that can become over time, we certainly see a much higher percentage of our realized carried interests coming from areas like infrastructure and real estate and parts of our credit business.

Operator:

Our next question is from the line of Patrick Davitt with Autonomous Research. Please see a few questions.

Scott Nuttall:

Sure. It's Rob. So what we've announced is at current exchange rates, I think close to $14-ish billion of incremental AUM, that's all perpetual capital to managed REITs in the Japan market, we see a lot of opportunity to grow that franchise in Japan. We see a real opportunity to leverage that team and their strength in the Japan markets for the benefit of both our core plus franchise in Japan, as well as our opportunistic franchise in the region. So we believe we should be able to raise more capital from those strategies as a result of this transaction. And lastly, we're setting up our capital markets business to make sure that we're able to support the franchise locally in Japan, as they pursue acquisitions on quite a regular or basis, as well as refinancings. In terms of the economic implications, what we set is that our expectation is on a synergized basis. We should be able to deliver around a $100 million of incremental FRE from that platform in 2023.

Scott Nuttall:

It's been strong and they've done a couple things, I think really well. One, they launched the second REIT, which has had a good market following trading at a really nice level relative to book and their organic flows have been strong as well. So this is a business that was started not all that long ago by me to BC [ph] and UBS together. And so really it's been their entire growth has been organic in nature.

Scott Nuttall:

No, that's a one quarter view based on what we have line of sight on today. So that would be all Q2.

Operator:

Our next questions is coming from the line of Craig Siegenthaler with Bank of America. Please proceed with your question.

Scott Nuttall:

Thanks Craig. Maybe I'll start and Craig will chip in here along the way. In terms of just state of the union to our AsiaPac business, we've talked about this in prior calls. We have every expectation that over time, our AsiaPac business will be as big as our US business and we're investing behind that deal and I think the acquisition of the Japanese REIT manager is very much consistent with that overall theme. Just to put some numbers around it. I think at the end of 2019, we had about $20 billion of AUM in AsiaPac. Two plus years forward proforma for the acquisition, we're close to $55 billion. So almost a tripling of our AUM in a short period of time. I think we've got a lot of competitive advantages in the region and we've got a real opportunity to take advantage of that head start, we have the access, we have to talent really across the region to be able to drive further growth. In terms of the strategic merits of the acquisition, honestly, that piece of it was a really short conversation. We want to be able to double down on our lead in Asia. We've got ambitions to really be able to scale a real estate business, both in AsiaPac and in Japan, the second largest real estate market in the world and globally. We want access to more perpetual capital at the firm, as well as different avenues to be able to reach private wealth investors. And so this acquisition, really was something from a strategic perspective, made a ton of sense as we were evaluating it. Craig, you want to hit on…

Craig Siegenthaler:

Craig, Rob. That was perfect. Thank you.

Brian Bedell:

Great. Thanks. Good morning folks. That was my question on Asia as well. So that's -- I think that was a good detail. Can you hear me?

Brian Bedell:

Great. Okay, so then I'll just do one as well. Going back to Craig, I think what you said in the prepared remarks on enhancing a few related earnings with other creative ideas like KKR, but maybe if you can just talk about what you view as maybe the pipeline for doing more acquisitions to enhance to -- grow the FRE inorganically and how important is private wealth management within that thought process?

Craig Larson:

Yeah. The only thing I would add Brian, is I think the point we're trying to get across as well, we'll continue to remain active looking at inorganic opportunities and that's something we'll keep you updated on, but if you just look back, I think what we're trying to say is that the balance sheet has allowed us to pursue those with minimal equity issuance while also buying back 10% of our outstanding shares since 2015. And if you think about it, Marshall Waste, Franklin Square, Global Atlantic, what we talked about with core, not the J-REIT that's over $200 billion of AUM that was bought with minimal equity dilution and using the balance sheet as that strategic weapon. And a lot of the things that we've done that I listed have been done during periods of time where there's some dislocation or some volatility.

Craig Larson:

Thank you.

UnidentifiedAnalyst:

Oh yeah. Good morning. Thanks for taking the question. Just a quick follow up on the on the M&A question. I'm just wondering if you could comment a bit more generally about corporate M&A in the market in general, given what you're saying about certain pockets of the market being more congested on the fundraising side, and also maybe a more challenging market for GP IPOs. Generally, are you seeing a bigger pipeline of potential deals at the industry level?

Scott Nuttall:

Yeah. Arnold, this is Scott. The only thing I would add, if it's corporate M&A from a third party capital investing for our funds standpoint, as Craig mentioned that deployment's been active, the pipelines are busy and there are public private dialogues happening. So it's not as much fun to be a public company right now and so that's part of the, the pipeline that we're seeing build up. In terms of, for the firm itself, dialogue continues, it's been active and I think in an environment like this probably makes people think it, maybe it's not such a bad idea that to be part of a larger firm that has a lot of different ways to win and raise capital and invest. So we're active on both fronts.

Operator:

Thank you. The next question is from the line of Rufus Hone with BMO Capital Markets. Please proceed with your question.

Craig Larson:

Yeah Rufus. Thanks for the question. I think the first thing to consider as you think about our balance sheet strategy is that it's very much an aligned strategy. KKR employees are the largest group of shareholders in the firm on an almost 30% of KKR. So we start from a very aligned perspective and as we sit here today, we see more opportunities to leverage the broader platform and ecosystem of KKR to drive ROE with that capital inside of KKR. And so long as that continues and we're able to drive additional ROE on that capital base for the benefit of all shareholders, then, you're going to see a consistency strategy. To the extent that that changes over time, where we're not seeing that attractive level of return, then obviously we might have a different strategy, but certainly as we sit here today, we are highly convicted in the way that we're operating the opportunities we see and the long-term accretion that we're able to create for all shareholders by virtue of the capital base that we have.

Rufus Hone:

Understood. And as a quick follow up, any thoughts around shifting the compensation mix between FRE and carry rates to a greater extent? Thank you.

Operator:

Thank you. Our next question is from the line of Chris Kotowski with Oppenheimer. Please proceed with your question.

Craig Larson:

Sure. Chris, great question. Why don't I start, it's Craig. So look at a high level, we're committed to investing in the energy transition and the shift to clean energy. So reflecting this, we invest in a diverse range of energy sources. So let's touch first on renewables. So think, global clean energy developers and operators, we've been increasingly active in this space and you've seen that across really a number of strategies, including areas for us like infrastructure well, as our impact business. Now alongside of that is conventional energy interactivity here is really being done through a permanent capital vehicle that we own a teen's percentage of that's called Crescent Energy. And we think Crescent can become a real leader in developing best in class ESG programs in addition to creating significant equity value. We receive management fees that increase over time as Crescent scales its business. It can send a fee eligible based on the total return of the equity and from a business standpoint, Crescent has low leverage. It's free cash flow positive, has an excellent team in place. And it is operating in an area that we think there's real M&A opportunities. So, that's our overall approach. Hopefully that gives you a better sense.