Q2 2020 KKR & Co Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by welcome to <unk>.
Second quarter 2020 earnings conference call. During today's presentation, all parties will be in a listen only mode.
During management's prepared remarks, the Conversely open for question.
I mean once you require operator, especially starting the conference. Please press star zero on your telephone keypad.
I'll now hand, the call over to Craig Larson head of Investor Relations for KKR Craig's. Please go ahead.
Thank you operator.
Welcome to our second quarter 2020 earnings call as usual I'm joined this morning by Scott not all our co president and co COO.
And by Rob when our CFO.
We would like to remind everyone that 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 Ticky article.
This call will contain forward looking statements, which do not guarantee future events or performance.
Please refer to our FCC filings for cautionary factors related to these statements.
Like previous quarters, we've also posted a supplementary deck on our website, we'll be referring to over the course of the call.
And we hope that you and your families of course are safe and healthy.
To begin as a reminder, in early July Kinky are signed a definitive agreement to acquire global Atlantic Financial group or G.
The acquisition is subject to regulatory approvals and closing conditions and isn't expected to close until early 2021.
So while Scott's going to touch on G. a in a few minutes. The quarterly results were going to discuss on this call exclude the results of global Atlanta.
[laughter] presentation, and transcript from our investor call, but introduces GA and all the opportunities that we see resulting from the acquisition.
Both available on the Investor Center section of our website.
Also of note in the quarter before I turn to the supplement.
On June 26, we were pleased to be added to the Russell index family, including the benchmark Russell 1000 3000 indices.
This is just the most recent step in the evolution of our structure enter shareholder base.
Since we announced our conversion from a partnership to a traditional corporation and they 2018.
We've seen a meaningful increase in our mutual fund and index ownership.
And our stock is up over 70% on a total return basis over this timeframe.
Parents, a negative 7% for the S&P 500 financial index.
Alongside our fundamental performance the changes we've made to our structure and reporting it played an important part of this.
And we continue to meet with new potential investors, who haven't evaluated our sector.
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Let's turn to page to the supplement to go over our key metrics looking at the top after the page you can see a when this quarter grew to 222 billion.
With global equity indices modestly over the last 12 months in high yield and leverage loan indices down over this period or am has increased 8% year over year.
Alongside investment performance in Q2, we just strong fundraising quarter with 16 billion of new capital raised.
Driven by fund raising and capital deployed management fees over the last 12 months were 1.3 billion.
Up 13%.
Looking at the bottom half of the page our book value per share. This quarter came in at $17 in 73 cents per share.
This is up 7% from the 16 52, we reported last quarter and as you can see even amid significant volatility over the last 12 months, our book values remain relatively steady compared to the 17 81 per share reported a year ago.
And finally, our after tax distributable earnings came in at 326 million for the quarter.
Or 39 cents on an adjusted per share basis flat from Q2 last year.
That brings us to 80 cents per share for the first half of the are up 5% compared to the first half of 20 like team.
And over 1.4 billion of after tax D over the last 12 months.
And what additional point when you look at the bottom right hand chart.
The top part of the bars, the lighter shaded portion.
Reflects realize balance sheet gains, which can be more episodic in nature. As we're also going to look to compound value on the balance sheet.
Where we see more consistent growth is reflected in the bottom darker portion of the bars are fees and carried in addition to interest income in dividends.
Turning to our summary financial results. Please look at page three the supplement.
Focusing on our results for the second quarter 2020.
Management fees for 333 million up 10% compared to the second quarter 20 like team.
Our realized performance income totaled 355 million.
Despite all of the volatility it was a good realize carried interest quarter for us with carry generated across the firm.
Over 90% of the carry came from investments outside the U.S. with over half coming from non private equity strategies.
The largest exits in the quarter were accomplished at a blended multiple of approximately three and a half times our cost.
With 90 million of realized investment income our total revenues were 892 million this quarter.
Now looking at our expenses.
Compensation, including equity based comp totaled 357 million with a comp ratio once again this quarter coming in at 40% we.
We noted last quarter that even with market volatility in an uncertain monetization backdrop, we would maintain our expected comp ratio low fortys as a percentage of total revenues for the remainder of 2020.
So this quarter is at the low end of that guidance.
Non compensation expense totaled 86 million in the corner, which is down from the 99 million reported in the second quarter 2019.
Due to prudent cost management.
All of these results lead us to an operating margin of 50% an after tax distributable earnings of 326 million, which again translates to that 39 cents per share singer.
And with that I'd like to turn it over to Rob.
Thanks, a lot Greg and Hello, everyone.
I'm going to begin with some thoughts on our financial performance over the first half the 2020.
And then I'll spend some time on our investment performance before reviewing our fundraising and deployment activities.
Let's start please take a look at the right hand side to page three of the dock.
We've also the experience significant market volatility year to date.
Recognizing that dynamic I think the resiliency of our business model is best highlighted by our results in the first half of 2020 compared to 2019.
One of the key financial metrics that we utilizes a management team and.
And we know is a critical focus for our investors.
The after tax distributable earnings per share.
We were flooded you too.
The first half the 2020, our after tax deeper shares a 5% relative to the same period last year.
To be up 5% in such an important profitability metric does represent we believe differentiated performance relative to a broad set of comparable.
And speaks to the resilience of our model.
That'd be helpful to spend a minute on this call walking through some of the drivers of our performance.
Let's start with revenues, which totaled 1.8 billion for the first half of the our and our up 4% year over year.
Our revenue contributions have really been broad based.
Our most stable form of revenue management fees are up 12% over the six first six months appear.
Our carried interest has also been a meaningful contributor this year as we have benefited from both strong investment performance and Monetizations in several funds.
Importantly, this across different geographies and products, which has resulted in over 700 million a realized performance revenue year to date that is up 25% relative to last year.
And finally, our balance sheet continues to be a meaningful source of realized revenue.
Contributing 235 million in the first half of 2020.
As it relates to our expense base as Craig mentioned last quarter on the same call we committed to run KKR at a low 40% variable cost margin even through the volatility.
Given our performance year to date, we are accruing total compensation, which includes equity based comp at a 40% margin roughly flat the same period last year.
Moving to our non compensation related expense.
Like many corporates, we have benefited from the reduced operating spend I've, having most of our employees working remotely.
In addition, our management team has been very focused on trying to reduce our costs, but.
Wherever we are able to do so responsibly and without jeopardizing future growth.
Well you can see this reduced operating costs about a year to date basis. It's most pronounced in Q2, where operating expenses are down approximately 13%.
As a result up both revenue and cost performance. Our distributable operating margin has increased by approximately 100 basis points year to date, and it's tracking right around 50%.
All of this result after tax the per share of 80 cents for the first six months of 2020 compared to 77 cents for the same period in 2019.
So our revenues are up our margins have improved and most importantly, our distributable earnings per share up 5%.
In addition to some of the piano metrics fund raising has also meaningfully accelerated through the first half of the year.
Our new capital raised is up almost two times in 2020 relatively the same period in 2019.
Looking at our results in full our model is proving that it can hold up quite well during periods of market uncertainty.
Turning to investment performance. Please take a look at page four of the supplement.
Generally we tend to focus on a trailing 12 months.
But on this page you'll also see we have included performance bakers for the quarter, given how volatile markets have been.
Our private equity flagship funds returned 14% over the trailing 12 months.
That compares the total return for the S&P 500, and M. A C I world indices of 7% at 3%.
Our flagship real estate and infrastructure strategy has returned 13% and 30% respectively over the last 12 months.
The sales Deutsche boss faster close in the quarter, which was a very meaningful monetization for our infra business and has a big driver of our LTM performance.
You credit we had a very positive quarter leveraged credit the largest of our credit businesses by <unk> was up 11% in Q2 and flat over the LTM period.
Alternative credit was up 2% in the quarter and down 10% LTM.
Alternative credit is a combination of our private performing credit strategies, which had good relative performance and our distressed portfolio, which took some marks LTM.
This all compares to the LSTA index over the 12 months, which declined by about 2%.
In terms of our balance sheet, our investment portfolio appreciated acres that this quarter driving the increase in our book value per share to $17.73.
No our net accrued carry balance increased 27% in the quarter.
Turning to fund raising they slipped the page five of the supplement.
As mentioned earlier, we're finding that's a good environment to raise capital.
On this page we show the quarterly capital raised over the past five years, where we have averaged around 7.3 billion per quarter.
This compares to the 16 plus billion, we raised in Q2, which is a record quarter for us as a public company in both private and public markets.
In the bar the far right you can see how the 16 billion breaks down.
The largest component is the capital raise so far for Asia private equity strategy, one of our flagship races.
Including capital from initial closings through July our Asia for find its currently at approximately 11 billion, which is already 20% larger than its previous vintage and the largest Pan Asian private equity fund in the world.
We will provide further updates on the fund raised as it continues to progress.
The second component 4.2 billion encompasses first time funds and adjacent strategies.
As we've talked previously about increasing our management fees by at least 50% over the coming three years flagship funds are definitely important.
Scaling up these newer strategies are also critical to achieving that goal.
You are now starting to see the impact as new capitals raised in areas like Asia Africa, which now totals two and a half billion as well as Asia real estate core plus real estate and our dislocation strategy.
And finally in the quarter, we raise capital within leverage credit, we actually two European sell those enter into our pro rata portion of inflows at Marshall Wace, all of which show up in the additional component.
Turning to page six.
I want to spend a few minutes on one aspect of our business that we believe is very differentiated.
We spoken frequently about the significant growth opportunities we haven't had.
Maybe our biggest is in Asia.
Over the past 15 years, we've created the leading private equity franchise in the region.
In addition for a number of years now we've been hiring local talent and building integrated teams across many non private equity strategies.
As a result, you're starting to see our asset management footprint across Asia really start to scale.
We are the clear leader in private equity and we're benefiting from the direct expansion as some of our non PE strategies with capital raising infrastructure and real estate with more to come over time in areas like alternative credit and growth equity.
As you can see on the page over the past 12 months AIU and has increased from 19 billion to 30 billion with a lot of running them still ahead of us.
Looking at the right hand side of the page you see the current run rate pro forma management fee impact of this new capital raise.
With Asia for now turning on in July the net impact of this collective fund raising has added approximately 100 million a run rate management fees.
Between their continued economic growth in Asia.
Secular tailwinds for the alternative space in the region.
Our differentiated track record as well as best in class local team, we really believe our Asia business can be as big as our North America franchise in the coming years.
Finally, turning to deployment on page seven.
Last quarter, we talked about the global financial crisis, and how this formative for our firm and drove us to meaningfully expand our business in the post crisis years.
We wanted to better position ourselves like offense during periods of dislocation.
And we've done just that haven't really been an upfront, but from a deployment perspective.
As you can see on this page, we've invested or committed approximately 30 billion. So far this year.
This has been pretty evenly split between public and private markets.
Our public markets activity includes X. rated credit as well as our alternative credit deployment.
Mid February through April was an exceptionally active period for this business when the market saw significant dislocation.
Given our recent fund raising we now have over 4 billion of AIU and for our dislocation strategy a.
Approximately 30% of this capital has already been invested or committed.
Focusing on private markets, which includes closed as wells pending investment activity deployment has been across a wide range of strategies and geographies and as reasonably split between U.S. Europe and Asia.
Our global infrastructure team has also been active with approximately 10% of our investment activity coming from this asset class.
And with that let me hand, it over to Scott.
Thank you Rob.
Thank you everyone for not only joining the call today, but also for joining our call on the global Atlantic acquisition in July.
Before I start let me first say that I hope you in your families are all safe and healthy.
And that you are all doing well during this continuing strange times.
To pick up where Rob left off.
Perhaps the best example of US playing offense year to date is our recently announced acquisition of GE.
This transaction is highly strategic for KKR.
As a reminder, concurrent with the closing of the acquisition and pending regulatory approvals, we expect to become GE Ace investment manager.
If you look at slide eight of the deck you.
You can see what this will do for some of our important metrics upon closing.
Taking a look at the top happened before you can see the U.M. impact.
As a result for the deal are 80 rent increases over $70 billion were 33%.
And all of these assets will immediately hit our fee paying anyway, resulting in a 45% increase in that figure from 160 billion to approximately 233 billion.
And the assets, we manage on behalf of insurance companies will increase by more than three and a half times.
Over $100 billion.
On the bottom half the page you'll see the transaction increases our perpetual capital by 4.9 times from 19 billion to $91 billion.
And pro forma for the transaction, we will have a 40% of our U.M., either perpetual or with the multi decade recycling provisions.
And 84% of our capital overall, well have a contractual life of over eight years at infection.
Hi, good transaction will provide more scale and do it in a permanent way.
Meaningfully advancing several important strategic initiatives for us simultaneously.
But it's not just about the numbers and the immediate impact.
This transaction brings us a fantastic management team as a partner that we believe is well positioned to grow g. a materially from here.
And the transaction provides us access to important underlying trends, we booked been looking to gain more exposure to.
And provides an ability to grow faster overall as a fun.
Please turn to slide nine.
One of the critical strategic areas of focus for us has been what's happening in retirement and trends globally.
The retirement end market continues to grow within aging population, creating demographic tailwinds.
And importantly, more retirement wealth is being managed by the individuals themselves.
We had been looking to gain more access to these trends.
Hence our discussions with you over the last few years about our focus on areas like insurance high net worth and retail.
GA cells annuity and life insurance largely the individuals and there are 50 60, managing their own retirement well.
We're managing it with the help of a bank wealth advisor or broker dealer.
So g. I guess, it's in the way of trends, we have been looking for across both insurance and retail.
And he is well positioned to grow from here, both organically and Inorganically.
And then da Gros KKR gross.
So the transaction will have a large immediate impact on us.
But we think the growth from here over time will be even more powerful.
Page 10 showed the financial impact of GA.
Notably, we expect annual net management fees increased by at least $200 million over the next couple of years as we ramp up our work together.
And our current expectation is that this transaction will add north of $500 million a run rate annual after tax distributable earnings.
At the end of our first year of ownership.
That reflects incremental management fees as well as our share of GE is operating earnings.
And overall the transaction will be accretive to all our key financial metrics and increases their quality stability and visibility.
Taking a step back I want to take a minute to reflect on the year thus far.
We have felt for some time that our business model provides us with a lot of ways to win.
And is more resilient then people understand.
We also felt they would take some volatility to really prove this out.
Well volatility has been the theme for sometime now and through it all our model has proven to be quite resilient.
If you step back and think about it year to date, we've grown our revenues and TV.
Increased our margins scale their businesses organically raising record amounts of capital.
Invested or committed over $30 billion.
And announced an important strategic acquisition.
Using our balance sheet as a strategic weapon, giving us yet another way to win.
And the last seven month give us even more confidence in our ability to further increase our margins in the near term.
Putting it all together, we didn't increase the scale and earnings power of our firm and the stability and visibility of those earnings.
During this period.
And we see more growth and opportunity ahead.
And with that we're happy to take your questions.
Thank you at this time, we will be conducting question and answer session.
Please limit yourself.
And then for anything additional.
He would like you asked a question. Please press star one on your telephone keypad.
You should indicate that your line is in the question Q.
You May proceed.
Your question from the Q.
Oh participant teaching speaker equipment, and maybe necessary to pick up your hands for pressing the star keys.
Please let me pull for questions.
Thank you. Our first question comes from Alex Blostein with Goldman Sachs. Please proceed with your question.
Great. Thanks. Good morning, Thanks for taking the question. So the first question is around fund raising I'm not that we've been in this job more challenging environment for a couple of months now.
What if somebody Q lessons learned than we can extrapolate from with respect to kick yards ability to raise capital in this backdrop.
How does this inform your prospects a management growth over the next fall.
Great. Thanks for the question, Alex It's Scott I'll I'll take that.
Look I think you know we are we haven't heard a lot. During this period of time I'm you know as I think we mentioned a bit last quarter, we really picked up our dialogue with our investors and prospects during this period. So.
Lots of discussions lot of outreach easily two extra three X what would be no typical and accrete cobot environment and a lot of that's been comparing notes on what we're seeing talking about what we're doing in terms of playing offense.
Little bit on what we've done quite defense.
And so I think one of the big lessons for us that communication and that transparency.
Has really we think been beneficial to enhancing those relationships and we're seeing that come through in the numbers and new Rob took you through some of the fundraising stats, but it's really coming through its institutions. It's kinda worth its retail this insurance.
It's really broad based.
And so I think overall, you know big lesson for us is keep going with communication and transparency.
The other thing I think we're finding in this period of time is that brand is powerful.
And having a global presence is very meaningful and so we've also found that having incumbency in brand I'm, hoping you can have an advantage during a period of time like this so those are couple of things we've taken away and I think in terms of what it means for the growth you know Robin mentioned that we had shared.
A couple of quarters ago that we felt a good that we could grow or management fees, you know 50 plus percent organically over the next three plus years.
That's before the global Atlantic acquisition, and I'd say, well, it's hard to be precise I'd say this period of time, no gives us even more confidence not path.
Thank you. Our next question comes from Glenn Schorr with Evercore. Please proceed with your question.
Hi, Thanks very much.
So you've made some hires on the retail upfront or lately and you're clearly seeing some progress.
Displayed and in a couple of the phone raises that you just mentioned I'm just curious where you think you're at <unk> in the retail build out and which products might be better suited there, meaning do you have everything you need or you still on that innovation and roll out front.
Hey, Brian Scott. Thanks for the question you're right there have been hiring into that team is continuing to build up that effort.
We're by no means dawn I think there's more to do on the hiring front.
We have been continuing to gain traction.
In the retail space in the high net worth we've got a direct team we have a platforms team we have a number of partnerships that we've developed around the world I.
I think there's a lot more for us to do.
So call. It you know maybe second any brought him in the second if you will so we got a long way to go and a lot of opportunity. We think ahead in terms of the products, it's pretty broad based so we've seen it across the.
The retail.
Channel would be very effective in terms of raising capital for us across credit certainly, but also across private equity growth equity.
Infrastructure its been very broad based in terms of different products that we found that the retail channels receptive to particular interest as of late in anything with yield.
And one of the themes were focused on is real assets with yields I think you'll see <unk>, even more in areas like that so that'd be real estate infrastructure in particular, so lots of different ways to grow their everything.
And I think Glenn it's Craig the one stat I'd add on top of that as it relates to the quarter retail again typically represents a teens percentage of new capital raise in in any given quarter and in terms of the 16 billion raise this quarter again it was a high teens percentage. So it was again nice to see it.
That follow through in terms of the results from this quarter as well.
Thank you. Our next question comes from Robert Lee with KBW. Please proceed with your question.
Great. Thanks, So for me is doing well and things like my my question.
You know some maybe just the.
Fund raising being because certainly last quarter understandably, you kind of a little more.
Oh positive, but well you didn't about maybe timing and pace I'm reading Sunday evening.
Given everything excuse me I'm, assuming some ways, we'll know more enthusiastic about it now just.
In terms of maybe I can be laborers pushed out.
Our assessment.
At this point.
Hey, Rob Thanks for the question hope you're doing well to.
Yeah, I think you know last quarter I would say, we you're right. We did share that you know that three year.
I'm kind of perspective in terms of our ability to grow our management fee line again by 50%. We mentioned last quarter that best we can tell at that moment, you know we might push that out a few quarters.
Good morning that pizza coated.
At the time.
But I do think we do feel a bit more optimistic today.
Be candid, it's hard to be entirely precise given the dynamism of the environment.
But you know I do feel like we're a bit more optimistic today with a quarter like when you just had behind us and the deployment that we've seen across a number of our different strategies globally. So some of the some of the fund raises that we expected might be kind of 24 to 36 months from now.
Some of those are looking like they could be more like 12 to 24 months from now.
And so we're seeing some of those pulled in a bit so we're not going to get precise in terms of which quarter precisely, but you're right I think were a bit more optimistic.
Today, and I'd say overall, our confidence in being able to grow 50, plus percent is higher and to be than it was last quarter. It within that timeframe just by virtue of what we're seeing I'd also say that as a reminder, all of that is before the global Atlantic.
Acquisition. So do you think about what we've said today, we're expecting 200 million plus or a run rate management fees a year a couple of years out that's on top of that 50% growth, which would obviously bring us that something more like 60 or 70% growth. If you combine the two.
Thank you. Our next question comes from Bill Katz with Citi. Please proceed with your question.
Okay. Thank you very much good morning, thanks for taking the questions I'm just going back to margins for a moment just wanted to so understand how much is just sort of taxable versus structural you mentioned on one hand that you feel like you have opportune to move the margins higher so it sounds like that both in the scaling of the business as well as a transaction.
We've also alluded to sort of running at the low fortys for the comp a ratio and yet you're accruing at a 40% rate. So is the 40% rate the right baseline to be thinking about the legacy company and will that improve subsequent to the GE transaction.
Hey, it's its Rob thanks for the question [noise].
So let's start with with G.I. I think that you just piece and then we can build up we expect the revenue that's associated with transaction to flow through at a very high level, so, but let's say kind of two buckets. The first is G. Eight distributable earnings they're going to flow into KKR distributable earnings and just for clarity, we're not expecting any additional cop load on those.
[music].
And then while our expectation as good asset managers that will need to add some additional resources. We do have most of our team is well built out and so the incremental management fees and carry over time, we think should flow through to our piano at a very high up.
And then Scott mentioned earlier some of our more organic I scaling that we think we have across the firm and we think we should be able to drive real margin expansion, there as well and so while we don't have any specific guidance on this call I think there's a lot of things I point to a positive direction in terms of our margins over the next couple of years.
Thank you. Our next question comes from my carrier with Bank.
Please proceed with your question.
Good morning, and thanks for taking my question.
Well I Didnt hear you know if you gave like an update on you know just kind of realization activity or the pipeline. It. Sometimes you guys you guys do and its fair if you Didnt I'm, just given the environment, but.
Any update on that front and even from just the portfolio like how are you guys feeling.
On a sort of <unk> the realization of the performance, but sitting on the private side at some of the company's and not necessary for the quarter, but just over the next 12 18 months. Thanks.
Great. Thanks, a lot like for the question that's a good one as it relates to our Q3 revenue we do have some forward looking guidance there.
We expect 250 million of carrying balance sheet gains that are from deals that are already closed.
I've been signed up and that we're back to close and so we're only a month into the quarter and we've got a couple of months ago. So hopefully we can take that 250 million number up at that but that's what we have locked in today from those two buckets for the remainder of Q3.
And then Mike I'll I'll pick up on the second part of the question in terms of the the portfolio.
I think the first thing to understand his portfolio construction really matters and especially if it's something like this and so our portfolio has been performing pretty well and I think it's due to a few different things. One is you know we have just been underway.
The hardest hit parts of the global economy. So.
You know direct energy is about 2% [noise].
Of our a U.M., who tells a major 2%.
Retail about 3% to be aggregate all three of those you get to about 7% of our a U M.
So we just been underweight those sectors on the flip side. We are we have our largest exposure in technology.
And so you know 25% of our portfolio overall give or take is in TMT and so our investments in data in E. Commerce are doing particularly well as an example, and then on top of that we have a heavier weighting toward either.
About 30% of our private equity portfolio and Asia is kind of further along in the recovery. So when you put all that together [noise].
Yeah, we've actually been quite encouraged by the data were Z and we've seen a snap back in numbers since the last time, we talked.
Agents coming back [noise].
Europe's coming back and you know a number of different sectors in the U.S., we've seen the numbers bounce as well, but I think overall lot of that's driven by how weve constructed the portfolios.
Thank you. Our next question comes from the line of Patrick.
Research. Please proceed with your question.
Hey, good morning, guys. Thanks.
It looks like you have a ton chunky or new investments in the pipeline in terms of putting money to work.
So through that lens do you have a view that that could translate into a more constructive <unk> capital markets outlook than you had a in previous calls.
Yeah, Hey, [laughter], it's Rob good question.
The short answer is we do and when we look at the first half of 2020, we've actually been quite pleased with the performance of our capital markets business generating 130 million of revenue and what is a pretty challenging overall market, especially the leverage finance markets, where we spend a lot of our time, but as we look at at the second half of the or our pipeline a lot healthier.
And you know our expectation is that roll out, we'll certainly improve on that first half number in the second half.
Thank you. Our next question comes from the line up Devin Ryan with JMP Securities. Please proceed with your question.
Great. Good morning, everyone. Just one follow up on yeah. Some of the retail opportunity commentary and maybe just talk a little bit more about the connection with global Atlantic's footprint and.
Our retail brokerage network, it's really just trying to get a little bit better sense on framing be opportunity you know in terms of how important it will be an accelerating beautiful effort or other new products will make sense to launch year once that.
Close isn't just whether you know leveraging this network is really an initial focus once the deal closes or more of a warm term kind of ancillary benefit really just trying to get a framing of the opportunity in size.
Oh, Thanks for the question Devon look I think there you've hit on a couple of important things you're right.
As a reminder for everybody global Atlantic has particular strength in their distribution through banks and broker dealers over 200 relationships about type.
In today, they're kind of distributing annuities and life insurance through those types of relationships.
We do think there is a potential opportunity for us to work together with the GE 80 to distribute care product through that channel to be clear, that's an upside lever it's not the embedded in any of the numbers that we've shared with you today around last month call, but it's something that we've talked about from time to time as an.
Opportunity for us to pursue together, either and just outright take care product form or to your point no, creating new products together with Google Atlantic that kinda marries their capabilities in terms of risk, taking and investment management frankly, because they have a very talented team on the investment side in their own right.
With our capabilities around investment management as well, so we have talked about creating new products together.
For those channels and using their distribution to distribute them. So again neither of those opportunities whether its kick care product or new products, we can create together or in any of these numbers, but it is something that we thought about as an upside lever overtime.
Thank you. Our next question comes from Gerry O'hara with Jefferies. Please proceed with your question.
Great. Thanks for taking my question this morning.
As it looks you noted the in the deck that deal takes perpetual capital of two I think roughly 40% of totally Lam Scott, perhaps you can give us some thoughts on sort of how you see that long dated in perpetual capital as a percent of total ramping.
As you kind of grow the business moving forward either either through you know.
Yes, yes, as you note or damage inorganic insurance deals or perhaps just you know other types of longer dated capital that you might be looking around thank you.
Great. Thanks for the question Gerry So you're right and just to clarify so the bottom right of page eight of the a supplemental deck.
What we're saying there is going to be a perpetual capital technically is 31% of our am pro forma and then the way you get from the 31 to the 40% that you referenced is we're also including our strategic investor partnerships and those are the relationships that we have.
With big institutions around the World, where we are recycling capital plus the percentage of profits for an extended period of time and so most of those haven't told life of somewhere between 20 and 30 years. So that it's at some of the two that gets you to the 40 minutes third one in nine and so to your to your question to be clear we.
Who needs to continue to grow both.
You know just as a reminder, G.A. and its own right.
Okay care as a partner had you about 17 billion of total assets in May of 2013 and is now in terms of total GAAP assets you know over 90 billion. So they've been able to grow organically themselves and inorganically without a partner like KKR. So we think that's gonna be part one.
We continue to grow our perpetual capital is just working with great team at GA and figure out how to continue and hopefully enhance that growth trajectory organically.
There are also going to be inorganic opportunities, we think working global Atlantic whether it be blocks Ah things. We can do together in terms of you just the flow, they're seeing which is significant right now or a additional acquisitions.
We can make together that would expand you the 72 billion or so of invested assets, we would pick up upon closing so there's the organic and inorganic through G.A., we'd be kind of the first part of the answer your question.
And then the second part.
Would be these strategic investor partnerships that we haven't talked about in awhile, but we continue to find that we're getting good traction and think of these is really as I mentioned multi decade, but they're quite customized a they tend to be large scale and the multiple billions of dollars each and they compound by virtue of their terms. So we.
There's opportunities to grow all of what I just talked about on top of maybe thinking about other things that we can do organically for KKR in the space and Inorganically, we have our BDC platform. We have our re platform. We have a number of different vehicles that we've been building away from GE, a and strategic partnerships that we can continue to scale.
And we're looking to create new ones and so long way of saying that we expect that 91 billion of perpetual capital beginning to grow and that 40% figure. We think can continue to grow overtime as well.
Thank you. Our next question comes from Brian.
What's your bank. Please proceed with your question.
Thanks, Good morning for taking my question.
Just one maybe I'm just kind of if we could just dive into Asia, a little bit more I'm looking at slide five and Andone your points on scaling that business up at that 30 billion level level right now maybe if you could just give us a little bit more color on the GE a geographic does.
Distribution within Asia, which which areas you're focused on in whichever is you see geographically or you know a longer term growth opportunities and then you mentioned this could eventually become as big as as to the North American franchise, when you're saying that say over the next two or three years, but what kind of a U.M. are you.
Envisioning I guess for both.
I think for the question, Brian I'll take a stab and maybe Rob can jump in with anything I missed but in the first instance, you're right. We do have just to be clear we have a pan Asian approach. So just as a reminder, eight of our offices a at KKR actually in Asia.
So we have a presence throughout the region and Weve a very local model. So we tend to be a country teams Oh, we do local sourcing and we have those teams working initially across P.E., but now as Rob mentioned, we've been expanding and bring really the rest of KKR to Asia. So when you look at that slide.
Fixing the deck, where you see is you've got the growth of Asian private equity, but also these other bars starting to show up infrastructure real estate. We're also working on private credit in Asia and growth pack in Asia as well. So we're bringing if you will the rest of the KKR products we.
To that part of the world and leveraging this footprint that we've already built in adding a specific talent in each market as well to be able to execute on office and I think what rob's getting out is that we're just starting to see the benefits of that growth trajectory and you can see how powerful it is on on slide six just with respect to what we.
I've seen over the course in the last 12 months or so and they said a lot of this is aging infrastructure you getting raise your real estate starting to get raised and you can see how powerful that is just that plus the next easy to find adds 100 million of management fees and so our focus is quite broad, it's northeast Asia, South Asia developed Asia and.
Emerging Asia, and we've been active in all markets and increasingly a across real assets private equity growth equity and now in credit as well and so you know if a retail we're in this second inning I'd say the expansion of Asia.
He is probably a bit or even earlier than that and we see a lot of opportunity ahead.
We're not going to give you a forecast in terms of then what that means for management fees, but suffice. It to say you would add just added we think 100 million run rate with just what we've started to do and this is just the beginning so we do see a significant amount of growth opportunity had come here.
And the investing that we're doing in Asia is consistent with a bunch of the investment gains that we've been focused on around the world and so when you think on lot of what we've done has been in some of the themes around Digitization telecom.
Cloud, there's a lot of out of what we're doing across the region in that whole tech space.
In addition to a number of other areas around health care wellness and a variety of other investment themes that we're excited about.
I think that that's a really good summary, Scott there the only thing that I'd add on we have a lot of tailwinds that our Bakken in that part of the world clearly if you're going to look out over the next decade, but trying to global growth.
You bet on that part of the World I continue to grow at a higher level and then when more western market.
I think alternative as a percentage of high are going to continue to to clearly grow and in Asia really through all markets in Asia Pacific and then most importantly, we've got a best in class brand in the region and I think really unique access to our brand on great local talent and that's what we've been able to do.
Especially as we built a private equity over the years and we started to really scale, our efforts and some non private equity strategies, we've been able to bring in what we think as is the best talent in the region not to be able to do that.
Thank you know as a reminder, ladies and gentlemen, if he would like you asked a question at this time. Please press star one on your telephone keypad.
Our next question comes from the line as Chris Harris with Wells Fargo. Please proceed with your question.
Thanks, guys.
So we're seeing sales of annuity products across the industry drop pretty much it really and the culprit seems to be ultra low interest rate.
Can you guys talk a bit about why you don't necessarily think this has got to be Oh, you know meeting full headway into the organic growth at a global Atlanta.
Hey, Thanks for the questions. Chris you look I'd say Oh, yeah, we've seen the same as well I think it's a little bit hard to separate especially over the course of last handful of months how much of what we see the terms of decline Seattle's is low rates versus just a little bit of a dynamic of.
The pandemic and perhaps it's been harder for some advisors to get to their clients or perhaps it hasn't been top of mind for some of the clients to focus on how they're managing their wealth as they get through this period, but time will tell but our view is that if anything this low rate environment is going to.
Drive demand for savings products that have tax deferral.
And really that's what you know ingenuity product is and we believed by working with the global Atlantic team and leveraging their distribution.
And our ability to invest well together, we can create a very competitive product in terms of what they've already done but also then hopefully creates new products as we talked about that can really.
As far the appetite that people are gonna have for yield and tax deferral in this environment. So we don't know we're not of the view that the last few months is a long term trend our views that it's no bid in a moment in time and you know we believe it will continue to see organic growth.
By virtue of that that need for yield and I'd say on top of that the inorganic opportunity is probably even more exciting by virtue of the fact that we're seeing a number of life companies and annuity companies that are looking to.
Sell blocks of business and use proceeds to do things like share buy backs and so we're particularly active with the GE a team looking at their pipeline of new opportunities, but he is having put out its numbers yet so it's probably as much as we should stay on the topic, but that's a little bit of back and forth.
Thank you. Our next question comes from Michael Stein with Morgan Stanley. Please proceed with your question.
Hey, good morning, Thanks for taking the question I'm, just hoping you could talk a little bit about your approach to product and strategy level profitability. How do you approached that and think about that it given the number of strategies that you're likely to raise in the next couple of years, which strategies do you think will make the most progress in terms of improving there.
Profitability, and which ones. We do you think would probably have to wait out a little bit further to maybe another fund rates down three plus by the five years down the road.
Hey, Michael It's Scott Thanks for the questions really good one you know we Oh, we do have as you know a number of businesses that we've been you know kind of scaling over the course the last decade, I think it's something like 18 of our 24 investing strategies are less than 10 years old.
And I would say if you'd asked that question five to seven years ago. My answer would have been quite different than it is today can five to seven years ago. We had a number of businesses that next frankly majority or businesses that were kind of in that fund one fund to just starting to earn their way to run rate margins.
You know kind of level, but now as we sit here today, we have a majority of our activity actually getting it to that inflection part of the curve, we're starting to see real scale.
When we talk a little bit about on page six what that means just for in Asia for PE Fund as an example, but if you think about what's going on across infrastructure with us we're getting into closer to our third.
Round the funds for some of our real estate strategies. So that those two areas you kind of that whole real assets area. The firm I think we're gonna really begin to see significant upside opportunity in terms of scaling and well share slides like side sticks with you over time as we continue to see that but those would be couple areas that I would point to.
I do think we also have a variety of other areas like our growth strategy, which we don't talk about a lot, but health care growth Tech growth and now you know Asia Pac growth as I mentioned, you know, we're continuing to expand and the growth area and we're starting to get into fun to infantry. So the the weight of the overall activity.
Is now getting to that kind of fun, three four or five whereas before it was 123 and so the it's really that's a lot of but behind our statement, both Rob's and mine that we see opportunities for more margin expansion and that's a way from GE, it's because we're seeing the scaling of all these different.
Types of strategies that Weve started and we are creating new ones.
Like impact, but relative to the quantum of capital that is getting to that scale.
Oh level, it's a relatively small percentage, whereas five years ago, plus it would've been a much bigger percentage and it's really that shifting of the weight of the activity that gives us even more confidence in our ability to increase or margins.
Michael It's Rob just typically add on it as we do iron out to retail business by business, even at the very micro level, there really isn't a lot in a business today, where we're looking at things that need to scale in order to try to profitability and even some of our newer products.
That we are launching that are on fund one are they are really leveraging a lot of the existing team in infrastructure that we advocate here today and so they're adding.
Effectively additional scale in revenue I to a cost basis, largely built that so there Scott said, there's really not a lot there where we need to wait for that that scaling to achieve profitability.
The Best example, Michael is probably core which as you know its strategy, where we managed 10 plus billion dollars now.
And it's really just leveraging deal flow in work that was already inside the firm, we literally did not higher single person to raise that window.
It was just monetizing it's already here.
Thank you. Our next question comes from the line of Chris Kotowski with Oppenheimer. Please proceed with your question.
Good morning, and thank you.
Excuse me a couple of questions around.
Asia three and four one is just to confirm you said that Asia for turned on for fees in July and the reason why I'm wondering is I mean, you still have roughly like 4.2 billion or 47% of a committed capital left in Asia three.
So I was wondering like has a lot of that been spoken for already or are you going to just had a lot of or are the coupons gonna be investing concurrently.
And then I guess, you know given given that you've raised Asia for was almost half of Oh.
Of Asia, three still uncut committed.
America's 12 as roughly at the same kind of level. So should should we expect are also kind of <unk> has put the follow on for the next America's flagship fund.
Hey, Chris.
I'll take that and so it's really good question and that they chart, you're looking at in our press release.
Our capital deployed or our investment vehicle summary on page 13, I'm sure that operates on deployed capital and not on committed capital and so when you don't see flowing through there is ideal where that capitals already spoken for and committed and so we'll have a normal type reserved for our Asia refund I bet over the coming.
Quarters, you'll see that deployed number for Asia, three naturally tick tick up based on me I transactions that have already been committed to.
And you're right Asia for I turned on in July and so you'll see that slipped from a U.N. into fee paying a U.N. and our Q3 number.
Then as it relates to our Americas, 12, and you're right the capital deployed.
In that bond has been strong and you don't want I'm sure we'll have more news around potential I raises for that strategy over the coming quarter.
Thank you. It appears we have no further questions at this time, so I'd like to pass the floor back over to Mr.
No concluding comments.
I just see thanks for your health and everybody on the call. Thank you of course for your continued support please follow up with US directly if you have any questions further on the quarter otherwise, we'll speak to 90 days.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation and you may disconnect your lines at this time.
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