Q2 2021 KKR & Co Inc Earnings Call
Okay.
Yes.
Ladies and gentlemen, and thank you for standing by and welcome to KKR second quarter 2021 earnings conference call.
On today's presentation, all parties will be on a listen only mode.
Following management's prepared remarks, the conference will be opened for your questions. If any on triple acquire operator assistance. During the conference. Please press Star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to hand, the call over to Craig Larson.
Head of Investor Relations for KKR CAG Craig. Please go ahead.
Thank you operator.
Everyone and welcome to our second quarter, 2020.1 earnings call I'm joined this morning by Scott Nuttall, Our co President and co C O L and.
And by Rob Lewin, our CFO.
We would like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures and our press release, which is available on the Investor Center section at KKR Dot com.
Our 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 related to these statements.
Turning to our results this quarter. It really was an exceptional quarter with record fundraising deployment and monetization activity alongside continued strong investment performance.
Fee related earnings per share as well as after tax distributable earnings per share were both record quarterly figures for us coming in at 53 and.
And $1.5 respectively.
Management fees increased over 40% year over year, and 480 million and helping drive the 68% increase you see and fee related earnings.
And our monetization activities drove the after tax do you figure, which is 2 and a half times. The number we reported and the second quarter of last year.
Our assets under management, and now 429 billion up over 90% from 1 year ago and up 17% just since last quarter.
This reflects both record fundraising and the quarter as well as strong portfolio appreciation.
And our book value per share, which is mark to market every quarter is now $27 and <unk>.
Net accrued carry on the balance sheet increased 13% since March 31st.
Strong growth, even after all of Q2's realization activity.
And net cash and investments totaled $17 per share compared to $12.1 year ago.
So in terms of today's call I will kick things off with an overview of our fundraising activity before turning things over and Rob to walk through this quarter's results and Scott will provide a few closing remarks before we head into Q&A.
Yeah.
So turning to fund raising we had an exceptionally strong quarter with 59 billion of new capital raised on an organic basis to.
To help with this and a perspective. This compares to $44 billion of new capital raised for all of 'twenty, and 'twenty, which itself was a record year for KKR.
Differentiated investment performance on behalf of our limited partners.
Continued scaling across our businesses.
And creativity and innovation all contributed to the fundraising results youre seeing which exceeded our expectations.
And a few highlights.
First we held initial closes across the next vintages of our North American private equity global infrastructure.
And core private equity strategies, raising over 40 billion and collectively in the quarter.
Let me give a few more details here.
With a $14.3 billion and first close North America 13 is already larger than its predecessor, and together with our Asia and Europe private equity funds.
Total committed capital across our 3 axis P funds on a global basis now exceeds 35 billion.
And then from there.
And just the first close already totaling $14.2 billion infrastructure for is almost twice the size of its predecessor fund.
And together with the success, we've had in Asia, infra and core and for over the last 12 months total AUM across the infrastructure platform now stands at 38 billion.
And that 38 billion compares to 14 and a half million dollars a year ago.
And in terms of core private equity we held the first close on our most recent flagship at $12 billion, including 8 billion of third party capital and.
AUM and core private equity is now 28 billion and that 'twenty, Italy, and compares to $12 billion a year ago.
The second fundraising highlight is the continued progress we've seen and perpetual capital with activity and this quarter across infrastructure real estate as well as credit.
This quarter we were.
Raised an incremental $5 billion and our open ended core infrastructure strategy, bringing AUM here to $7 billion.
We launched crest, a 40 act vehicle vehicle with REIT taxation, that's focused on individual investors.
And credit.
Our 2 publicly traded Bdcs F S K and F. S. K R completed their merger to form 1 of the 2 largest BDC platforms with 16 billion a day U N.
And then July global Atlantic and now it's 2 reinsurance block transactions.
We expect these 2 transactions to add approximately 10, and a half billion of perpetual and the third quarter.
And the pipeline here continues to be strong.
Perpetual capital is now 30% of the U N and inclusive of long dated strategic partnerships and that includes a new multi asset class partnership we closed this quarter that figure is 43%.
And remember, we have 21 billion of cash and investments on our balance sheet.
The third fund raising highlight is our real estate platforms continued scaling.
Focusing first on our opportunistic funds, we held a final close and repeat to our second European fund in the quarter.
And at $2.1 billion rupee 2 is 3 times the size of <unk>.
And with continued fundraising and our third Americas Fund Repos 3 is now at 3 billion more than 50% larger than <unk> and.
And we have yet to hold a final close with.
These closes we are now a clear top 5 opportunistic real estate manager when you aggregate our 3 regional funds.
Looking at the real estate platform more broadly, we now have 10 strategies focused across equity and credit.
On a global basis.
And a variety of different fund structures.
Targeting both institutional and retail clients.
Real estate AUM and total is now 32 billion and that 32 billion compares to $11 billion 12 months ago with tremendous room for continued growth.
And finally as you think about your models and future management fees. We now have 42 billion of committed capital with a weighted average management fee rate of just over 100 basis points that becomes payable when the capital is invested or enters its investment period.
Last quarter that amount was a little over $20 billion.
So all in all we had an excellent quarter and importantly, as we look forward over the next 12 months, we continue to have a robust fundraising pipeline across strategies as well as across geographies and so with that let me turn it over to Rob.
Thanks, a lot Greg I'll.
I'll start off with our segment financial results for the quarter.
Management fees came in at $480 million, that's up 9% from Q1 and up over 40% from this time last year.
The investment periods for America's 13, and and for for both commenced in the quarter. So you saw a partial quarter's impact from these funds.
Health care growth too and European real estate were also additive to management fees and a quarter.
Our capital markets business had an excellent quarter with 219 million and fees.
Transaction activity here was really diversified we actually only had 1 fee event that was larger than 20 million and 50% of our revenues came from activity outside of the U S.
It was also a strong quarter for our third party capital markets business with $61 million of revenues, we continue to get really good traction and this part of our business.
Fee related compensation came in at $170 million.
22.5% compensation ratio and.
And our other operating expenses were $115 million modestly elevated with almost 20 million and placement fees recognized this quarter given all of our fundraising activities.
All of this brings us to record fee related earnings of $470 million or 53 per share for the quarter.
And that is up 68% year over year and also represents a 62% margin.
Turning to realizations.
Carried interest came in at just over $600 million, while realized investment income was approximately $370 million.
Bringing total realization activity to just under 1 billion for the quarter.
Realization spend multiple funds products and geographies.
The diversification of our motto really contributes to this broad based performance.
In terms of our expenses.
Realized performance comp was $413 million.
And realized investment comp was $55 million.
And on a year to date basis, our total compensation margin within our asset management segment, including equity based comp is currently 36%.
Moving on to our insurance segment.
This quarter was the first full quarter of operating earnings from global Atlantic, which totaled $128 million larger.
Largely driven by strong core operating performance.
As well as the sale of a strategic equity investment that helped bolster net investment income by $47 million.
ROE for the quarter was 17% on.
Our 14% excluding this variable investment income.
Putting it altogether, our after tax distributable earnings came in at 926 million or $1.5 per share.
On a year to date basis, our after tax day is $1.80 per share.
These results are up 143% and 98% from the same time last year.
Really highlighting the momentum that we are seeing across the firm today.
Our book value per share came in at $27.3 this quarter.
The embedded gains and our balance sheet are currently $6.6 billion as of June 30th.
It was up approximately $1 billion from Q1 and up over $5 billion from the same point last year. Despite.
Despite our high levels of realization activity over the corresponding periods.
And our net cash and investments per share increased 12% from March 31 to $17 per share.
Turning to our investment performance, which continues to be a real differentiator for us.
And we saw strong results again this quarter.
R P portfolio appreciated 9%.
All our mature flagships appreciate at 13%.
Real estate continues to show strength, increasing by 10% for the quarter.
Our infrastructure business was relatively flat for the quarter, but continues to perform well overall up 21% over the last 12 months.
And our credit funds are similarly, performing well leveraged credit and alternative credit were up 2% and 6% and the quarter respectively.
Okay.
Shifting to deployment.
We had an extremely active quarter with total capital invested of approximately $19 billion.
And private markets deployment of its diversified was 7 billion invested quite equally across private equity infrastructure and real estate with the remaining billion and growth and core strategies.
And in public markets, we deployed over 10 billion and across our private credit dislocation and direct lending strategies.
Despite this record level of deployment dry powder now stands at 112 billion, which is up 63% from last quarter.
Yeah.
And before I hand, it off to Scott I wanted to spend just a minute on our fund raising and Q2.
Well Craig mentioned that this was a record quarter for us.
I think just as important is the quality of the capital that we raised to give you a few stats.
98% of the capital we raised in Q2 has a contractual life of over 8 years.
Once turned on the fee paying capital as the blended fee rate of just under 100 basis points.
And finally, 88% of the capital is either carry more and incentive fee eligible.
So what we have accomplished over the last few months is going to have a very meaningful impact on our financial results for several years to come.
And with that let me hand, it off to Scott.
Yes.
Thank you Rob and <unk>.
Thank you everyone for joining our call.
And as Robyn Craig just explained we had an exceptional quarter.
The investment performance and capital raising are at record levels and broad based growth strategies and geographies.
Capital markets had its second best quarter ever with significant activity across KKR and third party business.
On the insurance from the global Atlantic integration is proceeding well and we continue to win new blocks alongside organic growth.
And on top of all of this we continue to launch new efforts and expand our product offerings, including and the retail market.
Providing even greater growth opportunities.
On the road.
This quarter shows and outcomes, what we discussed at our April Investor Day.
We are at an inflection point and a number of our businesses and see multiple ways for the firm to continue to grow a U N.
Revenues and profit.
Let me highlight 2 examples from this quarter.
First we raised $8 billion of third party capital for core P E.
Bringing AUM and that strategy to $28 billion.
And as a reminder, this business was created less than 5 years ago.
Yeah.
And second.
We've raised $7 billion for core infrastructure.
A strategy that was launched less than a year ago.
We are off to a great start here and on our way to being a market leader and this large and growing space.
These are just 2 examples of how we are innovating and creating adjacent strategies to further scale our businesses and our.
Highly efficient fashion.
So there's a lot of good to talk about this quarter.
We think that all the good we are particularly proud of our investment performance.
Our flagship private equity funds are up 86% over the last 12 months.
Real assets are up 21%.
And alternative credit and up 30%.
The combination of this broad based and strong investment performance.
Growing client base across channels and multiple maturing businesses, plus the launching of new strategies and raising more permanent capital.
And global Atlantic and capital market scaling significantly.
He is incredibly powerful.
You saw this power and our Q2 results.
The firm is executing at a high level and we have a lot of road ahead of us.
With that we're happy to take your questions.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.
And if you'd like to ask a question you May press star 1 on your telephone keypad, a confirmation and total indicate your line is and the question queue.
You May press Star 2 if you would like to remove your question from the Q4 participants using speaker equipment and may be necessary to pick up your handset before pressing the star key.
We ask that you limit yourself to 1 question. So we may get to everyone's questions.
Our first question comes from the line of Alex Blow stayed with Goldman Sachs. Please proceed with your question.
Great. Good morning, Thanks, everybody for taking the question, so maybe starting with a bit on and I'll be as some fund raising and a management fee question, you're clearly very impressive start to the fundraising cycle.
As you mentioned was 59 billion and the second quarter and really I guess more than halfway to your 'twenty, 1 'twenty 2 investor day targets. So.
So I was hoping with so much momentum and the business can you give us an update on how much larger you expect the flagship fundraisers to be relative to the first close figure that you mentioned and how should we ultimately think about the $100 billion plus target from here and really maybe trying to break down the plus a little bit more thanks.
Good morning, Alex It's Rob Thanks for the question, we can't get into to fundraising besides doing a private placement rules, but let me just spend a minute on your question as it relates to how we're thinking about fundraising.
Maybe take a step back and as a reminder in February.
This past year, we had introduced FRE per share guidance, we set at the time that we saw a clear path to comfortably exceeding $2 per share of FRE next year.
At our Investor Day, and April have you referenced the 100 plus billion dollar figure and we thought it would be helpful for our investors to understand from the building blocks behind that FRE growth.
So we noted that we expected to raise north of a $100 billion of capital over the next couple of years part of the reason why we decided to give that statistic on board.
2020, and itself was a record fundraising year at 44 billion and so what we wanted to ensure people took away is that we didn't think that that was a peak result for us.
As it relates to this quarter the fundraising that we announced exceeded our expectations on.
And what we saw this quarter was more than just a pulling forward I think our fund raising.
And our future quarters across several strategies and we really have exceeded the expectations that we set for ourselves at the beginning of the year.
So I think it is fair to say that we feel a lot better a better outlook for new capital raised over the next couple of years on and that will be you know certainly north of that 100 plus billion dollar number that we put out there a couple of months ago and I also think it's fair to say that we feel even better about achieving or exceeding the half-hardy targets that we put out at the beginning of this year given all the momentum.
We have across our business today.
Our next question comes from the line of Glenn Schorr with Evercore ISI. Please proceed with your question.
Hi, Thanks very much.
And I'm curious with all the growth across both core P E and core and from that that you just noted.
And I Wonder what you could tell us about the <unk>.
L P base and how much overlap there is with your opportunistic funds, meaning on the same clients that volume to the opportunistic funds buying into core P or is this ah and expanding client base.
Hey, Glenn it's Craig why don't I start on that and I think you're right. It is interesting.
On the topic of core and more broadly.
When you look at core P E core and for our core real estate.
Now we have around 37 billion a day AUM across these strategies and we're seeing real interest.
Longer dated lower risk reward profile compared to opportunistic and importantly are those that have a yield attached. So we think the end markets are massive really are for these core strategies huge opportunity for us really pleased with the first steps that you've seen I think in terms of those first steps we have seen.
The bigger investors why I'd say.
Sovereign wealth funds pension plans insurance companies and they've been particularly active is the long dated nature of the investments and the strategies is in line with their long dated liabilities and I think importantly on the last part of your question are they view these strategies as a complement to the regular way.
<unk> opportunistic strategies.
And not in lieu of these strategies and I think in the long term.
Or I should not even say the long term look and you should expect us to explore the best ways for us to package and bring a and.
And these types of products all sorts of the retail market is again the end markets here are are massive.
And the only thing I'd add Glenn It's Scott is and do you look at by dollars and.
And to your question you know, there's not that much overlap between core and our opportunistic vehicle system, but we're finding that these are the strategies are allowing us to expand our investor base.
Yeah.
Our next question comes from the line of William Katz with Citi. Please proceed with your question.
Okay. Thank you very much so I'll try and squeeze a 2 part question and so sorry to cheat the rules a little bit first just sort of tying back to you for rediscovered and you've also sort of laid out that you felt like you could get the $45 a day somewhere between 23 and 'twenty 4 and obviously if you annualize this quarter you're already there. So just a quick question you had to think about that.
From here and then secondly, a broader question for you. It seems like there is a very fast land grab going on and the retail channel you seem to have terrific momentum is there any risk of more opportunity here and where we're scale will win out quicker. So I've said it from a retail distributor are they made.
And we'd be willing to work with 5 or 10 players.
And considering you're including cake yarn and so the branded players and wondering how the dialogues going on that score. Thank you.
Yeah.
Hey, Bill, it's Rob I'll take the first part of the question around the guidance that we put out a couple of months ago. So we don't have any updated guidance.
For this go on and obviously, well, we'll consider providing updated guidance and the future but not for today.
I would say that I think it's very fair.
To acknowledge that we are ahead of where we thought we would be a we are well ahead of expectation across most of our fundraising activity.
On the assets that we manage on behalf of both Atlantic are ahead of expectations.
And our capital markets business.
Good right now and maybe as good as it's ever been.
And we've got a lot of momentum across our performance.
You know has generated a lot of embedded gains that sit across our carried interest and our balance sheet and so we feel really good about the potential to drive meaningful additional revenue growth from here as well as profitability growth.
The 1 other thing I would say bill.
Which is tangential I suppose to your question that we often get is where we are from a monetization perspective and he's right.
We already have really good visibility here into meaningful revenue and monetization activity.
And as of right now we have line of sight of approximately 650 plus million of performance and investment income as.
As a reminder, this is from deals that are already closed or have been signed up and we expect to close and the third quarter in terms of the split which I know is important from a comp ratio perspective, probably around 50% carry right now and 50% weighted towards investment income.
The last thing I'd say here is that I'd underscore that all of these are are really approximations at this stage and that this is our best view right now from all day identified deal activity, we expect to close on the upcoming quarter.
And bill on the second part of your question on the retail channel.
But we're really encouraged and we've been investing aggressively in that space and we've doubled the size of the team and the last 12 months and we're continuing to invest and that build out.
And part of the reason, we're encouraged as even as we're doing that build out and the U S. We're also investing to build out Europe and Asia and we're.
Seeing significant engagement across private wealth and retail.
We're already at kind of mid teens percentage of our fundraising and coming from that channel. So as an example, and the second quarter about 14% of the money. We raised was actually from retail and we don't think we're anywhere near our potential yet. So there's a lot of opportunity ahead of us and in terms of the question about land grab we're finding that we havent engaged set.
Our partners as we continue to build out a distribution in this space, we're already on a number of platforms, adding products to those and then developing new relationships all around the world. So we haven't run into any resistance. If anything we're finding a significant and growing interest and all things alternatives and a lot of interest and the registered funds in particular.
Yeah.
Our next question comes from the line of Robert Lee with K B W. Please proceed with your question.
Great. Good morning, Thanks for taking my question I'm, just curious you know with fund raising going so well ahead of target and fund sizes, increasing substantially maybe even more than you. Originally anticipated how is this changing your commitments to the funds I mean are you reducing.
Meaningfully how much you are committing in order to maintain capacity for third party investors and I was just kind of shaping how you think of your own capital commitments.
Yeah.
Others were obviously very meaningful investors and our funds we liked that we like that positioning on our balance sheet, but when you look at our balance sheet capital relative to our fund capital, it's a fairly small percentage and so it really doesn't need and to capacity and it hasn't impacted and material way, how we thought about committing capital to our strategies from.
It's a good question, but that is but that's we do separate out those 2 things.
Our next question comes from the line of Patrick Davitt with Autonomous Research. Please proceed with your question.
Hey, guys good morning.
So you mentioned capital markets didn't really have any of.
And the chunky kind of.
Numbers, where you can see right now and then.
Little over 200 million a quarter. So if we assume you know.
Deal activity remains this I think you do have a couple of those chunky ones coming through and the second half the debt that there's kind of 200 million plus is kind of a pretty good run rate assuming activity levels stay this high.
Hey, Patrick it's Rob.
So that's on.
The way, we think about our capital markets business really isn't a quarter to quarter.
And I've heard from us on quite a bit, especially more recently that we see a lot of growth and that business about secondarily, and then ability for us to be able to take market share and on a global basis, we really think about that from an annual perspective and and over a multiyear period of time, but I think as you look at the first half of 2000 and and <unk>.
And 1 roughly $330 million.
Our fees I think our LTM is about 680, <unk> and our capital markets business with a healthy amount of deal activity around the world. We think those are the types of numbers that hopefully should be achievable for us and off the debt base you know our expectation over the next number of years as we should really be able to scale that business going forward.
Okay.
Our next question comes from the line of Chris Kotowski with Oppenheimer. Please proceed with your question.
Yeah. Good morning, Thanks for taking my question you you flagged the north on the 3 funds North America, 13, global and for 4 and and health care too.
As having been turned on in the quarter and I Wonder if you could talk about how much of an impact that had on base management fees and I guess I'm I'm also a second part of it is a little.
And I'm surprised that you would have turned the funds on so early and the like Americas, 12, and and for 3 boats and still have around like $4 billion of uncalled commitments from them.
I Wonder if you can flesh all of those things up a bit.
Hey, Chris it's Rob and so a couple of things and when you look at our investment vehicle summary, and I guess, you're looking at pages 20, and 21 of <unk> of our earnings release and call.
Commitments there I represent whats on called from the fund what they exclude is the amount of committed capital that we have 2 different strategies out there that has not been called yet as well as reserves and those funds and so as an example, or Americas 12 fund and <unk>.
Adjusted basis be closer to $1.3 billion and so I think that would be much more in line with how you would think about went to turn on that fund.
And as it relates to your the first part of your question on management fees.
And those funds turned on.
I think about 2 thirds of the way the big ones are 3 of the quarter and so we'd expect a little bit of and additional ramp up and.
And Q3, and as those funds and get going and we tried to post investment period on the predecessor funds as they run off I think a well and.
Management fee number there you know that could be you know and the range of 40 plus million dollars for the third quarter are you know more of on a run rate basis. I think it's something that would be an approximation that I think would be a reasonable 1 at this stage.
As a reminder, it is star 1 to ask a question. Our next question comes from the line of Arnaud <unk> with Exane BNP. Please proceed with your question.
Hey, good morning. Thanks for taking my question I was wondering if you could give us and updates on how you view opportunities to deploy capital and specifically what targets in terms of being discussed with investors have these been oh on all.
And the same targeted returns on that you used to have a lot didn't after being scaled back even given current market levels.
Sure Arnaud, it's Craig why don't I start I'll, let Scott on.
Give an update in terms of overall.
Targeted returns and.
And I'm glad you asked about deployment because honestly, even although we've had to go through today, we probably haven't talked about deployment and as much detail. As we showed I think the main takeaway is we're continuing to deploy actively so in terms of private markets first.
We've continued to invest meaningfully first half deployment was a little over 12 billion LTM deployments and little over 'twenty 'twenty 4 so again that pace has been very healthy and what you're really seeing there is diversification.
So rod mentioned this in our prepared remarks deployment and Q2 was the was between 2.3 and $2.5 billion individually across all of private equity infrastructure and real estate. So we've had a really nice balance.
With the growth strategies, and core making up that incremental piece I think in terms of themes, you're you're seeing investments and really good companies.
With strong growth prospects and I think overall at the moment, there's probably more dislocation and Asia.
Leading to better opportunities for us and in that region.
And in public markets, what you're really seeing is is the growth and the overall footprint of the firm So AUM and our credit business has increased from a little over 100, and a little over 70 billion a year ago to 170 as of June 30, So you're seeing a meaningful increase and deployment in public markets just.
<unk>.
And just the again, the dramatic increase and the footprint.
As a firm so in terms of the 10 billion. This quarter again that was a pretty active we that was actually deployed across a number of strategies direct lending opportunistic credit.
Asset based finance et cetera.
Yeah, and Arnaud and your question around targeted returns and the short answer is that there hasn't really been any change and how do we think about it and we've talked about this a bit on prior calls, but 1 of the things we've been very focused on the last several years is having the phone and get behind some themes that we think will benefit over the next several years and from.
Some of those themes have been accelerated.
And by virtue of what we've all just are going through with Covid, So and private equity. If you look at where our deployment has been as an example, a lot of deployment and digital and technology areas like health and wellness cyber security and testing and series of themes like those infrastructure again fiber and telecom would be a couple of things we've been investing behind and renewables.
And real estate and industrial properties multifamily and credit and asset based finance is the banks and pulled back and housing and then global Atlantic is obviously, a very big investment behind the thematic of.
Savings tax deferral and the.
Aging population and people are looking to manage their own retirement and wealth and so what we're finding is if you get behind these big themes and Theres, a big opportunity to generate outsized returns and.
And Theres a lot of dispersion and the market is going to be some of these areas and themes that we think will be big winners, we're getting behind those and I think part of the reason you've seen our returns be so strong is moving effect and overweight a lot of those sectors that are benefiting and those themes that are working and underweight others. So we think by continuing to pursue that effort.
We've got and opportunity to continue to generate outsized returns and our targets haven't really changed.
Our next question comes from the line of Michael Cyprus with Morgan Stanley. Please proceed with your question.
Hey, good morning, Thanks for taking the question wanted to circle back to core P E and core infrastructure I. Appreciate those are longer dated strategies with lower return targets and I was just hoping you can elaborate a bit on the platform that you've built out there the investment strategy more broadly you know what sort of deals can make sense and maybe you can remind us how the economics.
Worked for KKR and what's your sense on the timeframe for putting all of that capital to work.
So Mike it's Craig why don't I start there.
And infrastructures and interesting place to began so at our Investor day, we walked through infrastructure really is a case studies and in terms of how we look to build.
And investment platform and so that begins with strong performance of flagship strategies and then you can there's a focus on scaling those flagships and innovating and then innovation can happen geographically, so you've seen that with Asia and front and can also come through adjacent strategies and you've seen that through core and so that's really where.
We are today, we've built out infra franchise.
With 3 distinct market segments are global and for Fun series Asia and for fun series and diversified core.
And in terms of core and and the focus on those investments corn for us is really targeting more mature cash generative assets.
And with a focus on long term predictable cash flows. So we're looking for simplicity and low execution risk all and that open ended perpetual vehicle.
So our focus here is we want to buy simplicity and hold simplicity.
That's really the focus in terms of core private equity.
That's really an example of innovation, where we can't find a home for great investment opportunities.
And so this again is a long duration strategy, where we expect to hold investments and compound value for 10 to 15 years.
But as you noted again that the risk reward is different than our opportunistic p/e funds, we're looking for and mid teens IRR businesses with less disruption risk.
Good cash flows often consolidation opportunities and fragmented sectors.
And again, we'd been at this business longer at this point, we have what we think is a really incredible portfolio of companies.
The gross IRR ear to date since inception is 27%.
And I think there's a final point as it relates to core and the business model.
Because given the participation on our balance sheet Corp, and he has really contributed to the compounding of our book value. So when you look at the core line on page 14 of our press release.
And you see $4.2 billion at fair value as part of the 17 and a half day investments.
That $4.2 billion has just under 2 billion of cost associated with it. So we have over $2 billion of embedded gains on our balance sheet. So we share holders were participating in the economics from the third party capital management fees and carry with performance over time, but in addition that compounding aspect is and additional powerful way that we also.
And can participate and the success here.
Hey, Michael and Scott just a couple of things I'd add 1 point.
And I understand this is deal flow, we're already seeing so to greg's point lower risk longer duration opportunities that we really like the risk reward, but did not fit into opportunistic vehicles, but were investments we like Nonetheless, we now have homes for those investments, we didnt have before and because of the fact that this was deal for where we were.
Already seeing he was being sourced by our existing teams we have not had to build new teams to actually prosecute these strategies. So the existing teams are actually just force and these investments if they don't fit and the opportunistic fund and then they can be considered.
And so it's been a highly profitable incremental.
Source of AUM and fees for us and it's something that we're really monetizing deal flow that was already here and in terms of the deployment period.
And we have been very actively deploying that I think our expectation is for core P. E that would probably get deployed over a 3 to 5 year period and for core infrastructure with this first pool of capital where we're operating at a current run rate that would be faster than that and we will continue to add capital that that strategy as well overtime, Rob why don't you pick up on.
And economics, yes, Mike So the management fees and on both of these products I get paid when the capitals invested and so this cap is largely and AUM right now and over time and will gravitate towards fee paying AUM and the capital across both these strategies, our salary and incentive fee eligible and so we think it will be a contributor to performance revenue on.
Over the long term.
And Mike as Craig 1 final point as kind of an interesting statistic and this actually ties into.
Glen's question earlier, but it's interesting when you look at core in front of the 7 billion of capital that's been raised over 40% of the commitments. So come from Lps that are new to KKR.
So in terms of how these strategies are helping us really brought and the LP base again, it's an interesting it's an interesting statistic.
Our next question comes from the line of Robert Lee with K VW. Please proceed with your question.
Thanks for taking my follow up.
I guess just on the global Atlantic because it's possible to just get a.
Number 1 and a sense of what their kind of regular flow is you know like and if we think about it outside of reinsurance transactions, what you're seeing is kind of quarter to quarter regular flow. If they don't do a transaction and then maybe just update us on the amount of capital that they've got available once they get through the 10 billion of D.
And those closing this quarter.
Great, Rob I'll take that Scott and <unk>.
Terms of the way to think about it and organic away from away from a block activity couple of things I'd point, you want and remember they have a significant distribution presence and they're raising money and the individual sector and so.
If you want to think about that is $8 million to $10 million of annual flow give or take.
And that's kind of a good starting number to work with but on the institutional side I know the block activities and stuff and it gets the press release and it gets more and more.
Focus and attention. There's also a number of other things that we do there and we have flow reinsurance arrangements.
With a number of different counterparties and there's a pension risk transfer activity, which is incredibly active and it's getting more active especially this year. We're also active and the funding agreement markets. So there's a lot of ways to grow on the institutional side as well.
That is a significant and those are also a billion dollar plus opportunities.
And individually and so we see that as another way to grow so in terms of the answer. The question. You can think 8 to 10 plus several billion on top of that from more of a kind of flow related institutional business away from blocks and in terms of the capital available question. As a reminder, when we actually closed the transaction earlier this year we.
<unk> raised an incremental $250 million and primary capital and there is runoff and this business as well so we're generating new capital by virtue of earnings we're freeing up capital and with some of the run off and we're replacing that with all of the aforementioned plus all the block activity and if the company needs more capital, we're highly confident we'll be able to access it.
Our next question comes from the line of Alex Blaustein with Goldman Sachs. Please proceed with your question.
Hey, guys. Thanks for taking the follow up question here.
And I had another question.
Question around retail and specifically related to crest.
It looks like and there is approaching about $700 million not.
Not huge in the context, obviously of KKR as a whole, but it's an important driver potentially as you think about the so the affluent and the mass affluent part of the retail market.
Joe can you maybe walk us through your sort of distributions for crown specifically.
How many platforms and sort of the type of platforms that are contributing to flows here just thinking through kind of warehouses independent broker dealers et cetera.
And really trying to understand any distinct advantages of having something like this and a 40 act wrapper on that sort.
And I really resonates with distribution partners.
And I guess lastly, here I think Greg you mentioned that there might be other opportunities to bring additional retail product to market, maybe and core securities would get some some early kind of thoughts on that thanks.
I was wondering I began suggest a for those of you less familiar.
Chris is an acronym for KKR real estate select trust. It's a continuously offered registered closed end fund with REIT taxation.
And that was created for individual investors and it does it features daily pricing and subscriptions.
Take care.
So we're at the very beginning of crest evolution.
And <unk>, which is exciting for US we began raising capital on 2 platforms are only in June and over time, we do expect to see and expansion.
Across many platforms globally. So Alex we don't have a whole ton of details on I think the main takeaways for you on really 3 fold 1.
And the size of the end markets here and massive.
2 it's it's a big opportunity for us and 3 we're really pleased with our first steps.
And we'll keep you abreast as as we move forward from here.
Both as it relates to this in addition to as other products and strategies are launched.
And again through those products tailored towards the debt.
Towards the retail market.
Yes.
Our next question comes from the line of William Katz with Citi. Please proceed with your question.
Thanks also for taking the extra questions. So the 2 part again.
And maybe 1 for Rob as you think about the FRE margin.
62% this quarter and it was weighed down a little bit by placement fees and obviously turning on some of the bigger funds, where do we go from here and then maybe stepping back given what seems to be a step function of earnings power.
Any thoughts on dividend policy. Thank you.
Yes sure.
Yep.
Thanks for the question and.
And so we've signaled in the past that and we expect to continue and make some near term investments here across distribution and technology.
And you know, but even with those investments if we do see a medium opportunity to drive scale efficiencies and our operating expenses and we think that's going to yield margin expansion over time, we've been operating generally and the low sixties would you see a pathway and overtime to take that up to the mid sixties.
And I've worked through some of that additional investment you know over the near term that we flagged that we think is going to pay dividends for us and and the long term.
And then on your question as it relates to <unk>.
To dividend policy and nothing's changed as it relates to how we think about returning capital to shareholders, our policy and and how we think about that and that's been consistent for a number of years now and we would expect it to continue to be consistent just to say well evaluated annually and we'll do that at the beginning of the year, but like we have done and and passengers and our expectation as we have done and it.
Yours is that you know, we're gonna look to modestly increase our dividend on an annual basis, so that should be the expectation going forward.
Okay.
Our next question comes from the line of Michael Cyprus with Morgan Stanley. Please proceed with your question.
Thanks for taking the follow up here are more of a follow up question I guess for Rob. If you could just maybe help us out with the deployment and realizations off the balance sheet and the quarter. Please.
Sure the deployment was $800 million off the balance sheet and the quarter and the realizations were just above that at $900 million.
And on a LTM basis, those numbers, Mike or a 3.1 deployment and 2.6 of realizations.
This concludes our question and answer session I'd like to hand, it back to Mr. Larson for closing remarks.
Thank you everybody for your time. This morning, we look forward to chatting with you again after next quarter's results anything and the interim please of course feel free to reach out directly. Thank you once again.
Ladies and gentlemen, you may disconnect. Your lines at this time. The conference has concluded. Thank you for your participation and enjoy the rest of your day.