Q3 2021 KKR & Co Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Come to Kkr's third quarter 2021 earnings conference call.
During todays presentation, all parties will be in listen only mode.
Following management's prepared remarks, the conference will be open for questions.
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Please note this conference is being recorded.
I will now hand, the call over to Craig Larson head of Investor Relations for KKR.
Greg. Please go ahead.
Thank you operator good morning.
Everyone welcome to our third quarter 2021 earnings call I'm joined this morning by Scott Nuttall, our co CEO.
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 in our press release, which is available on the Investor Center section at KKR Com.
And as a reminder, we report our segment numbers on an adjusted share basis.
This call will contain forward looking statements, which do not guarantee future events or performance. Please refer to our SEC filings and our earnings release for cautionary factors related to these statements.
Now turning to our results we're pleased to be reporting another very strong quarter.
With fee related earnings per share of 60 cents and after tax distributable earnings of $1.05 per share.
Both of these figures are as high as we've ever reported.
Building on the success, we've had in fundraising management fees increased 16% from just last quarter.
The management fees are up over 50% since the third quarter of 2022.
The $559 million.
This growth is the key driver behind the 60% increase in our fee related earnings per share that you see on a year over year basis.
Book value per share for the quarter came in at $28.06 up 38% from one year ago.
And turning to fund raising we continue to have a great deal of momentum.
New capital raised in the quarter totaled 28 billion organically, bringing the year to date figure to 102 billion.
Last year in 2020 for the full year, we raised $44 billion and that was a record year for KKR.
So over the first nine months of 2021 we've raised over two times, what we raised for all of last year and that's with an active pipeline of fundraising initiatives as we look forward.
Focusing on the 28 billion raised in the third quarter, we'd highlight two things first in private markets, 40% of the capital raised in the quarter came from our real estate business. We held the final close of our Americas Real estate fund.
We've got three is more than two times larger than its predecessor, and totally AUM across the real estate platform now totals 36 billion.
And global Atlantic was particularly active with block activity, helping out 14 billion of new capital largely in public markets.
And alongside of all of this fundraising we're finding interesting opportunities to invest we.
We deployed a record 15 billion into private market strategies into the quarter as.
As well as $10 billion in public markets.
This brings our total deployment for the quarter to a record 24 billion.
And on a year to date basis to $50 billion.
What are the key drivers here is the continued scaling of our infrastructure and real estate platforms.
Year to date real assets deployment is a little more than half of total deployment in private markets.
If we look back in 2020 relapsed that's comprised 25% of private markets deployment.
So as real assets deployment is scaling.
Private markets deployment is increasing and it's becoming more diversified.
And the public markets the scale of our credit platform grew meaningfully before the global Atlantic acquisition.
That growth has continued after G E. So similarly, you're seeing a step up in deployment here with the increase driven by both direct corporate origination as well as an asset based finance to give you a sense last year total private opportunistic credit deployment was a little over 10 billion.
The first nine months of 2021 that has increased to $23 billion. So deployment has more than doubled and we're only nine months into the year.
Now I'll turn the call over to Rob to walk you through some additional details Rob.
Thanks, a lot Craig.
Just as we continue to see strength in the fund raising and deployment.
Our funds continue to generate really strong relative investment performance.
Our flagship private equity funds increased by 11% in the quarter and 79% over the LTM period.
While the entire P portfolio appreciated, 9% and 52% respectively.
In real assets, our opportunistic real estate funds increased by 14% in the quarter and 29% over the LTM.
Infrastructure continues to perform really well up for in the quarter and 19% over the last 12 months.
And on the public market side are leveraged and alternative credit funds increased by one 2% in the quarter, respectively with continued performance over the LTM up 11 and 26%.
The combination of strong investment performance as well as the capital raising that Craig just went through has yielded a really robust acceleration of our AUM.
Which now totals 459 billion and our fee paying AUM is 349 billion, that's up 7% and 9% respectively versus just last quarter.
When comparing our AUM and fee paying.
Relative to this time last year, they were both up close to a 100%.
And importantly, much of this a U M is now either perpetual capital and long dated partnerships.
Just nine months ago. This number was 55 billion.
It's now 205 billion out of our almost 460 billion of au at you.
You can see this growth and the transformational change in the composition of our AUM on page 16 of the earnings release.
And finally as it relates to our capital base. We currently have 38 billion of committed capital that comes online it becomes fee paying at a weighted average rate of over 100 basis points. When the capital is either invested or enters its investment period.
Now turning to our quarterly P&L, our management fees increased over 50% this quarter versus the same time last year.
As we signaled on last quarters call management fee growth was driven by a combination of new capital raised and various newer funds hitting their run rate.
Net transaction and monitoring fees were primarily driven by our capital markets franchise, which saw continued strength this quarter and were up 24% versus the same quarter in 2020.
And over the last 12 months, our capital markets transaction fees totaled $720 million.
Which is 42% higher than the average during the 2018 to 2020 time period.
The growth in the platform is stemming from many of the expansion areas that we touched on at our April Investor Day.
Including our Buildout of real asset core P E and third party coverage, which is all generated meaningful market share gains.
We remain really constructive around the future growth of this business.
This all brings us to fee related earnings of $530 million for the quarter, which is up 63% versus Q3 2020.
On a per share basis, our FRE is $2.02 over the last 12 months.
Moving onto realizations.
Realized performance income came in at 433 million for the quarter driven by exits in bountiful Ingersoll Rand and Academy.
Realized investment income totaled $448 million for the quarter, driven by additional exits and Mr Cooper and flutter.
Even with these very strong monetization figures, we are still seeing healthy gains in both our unrealized carried interest in the embedded gains from our balance sheet investments.
Most unrealized carried interest increased to eight and a half billion, while our embedded gains on investments increased to $7 1 billion.
That's almost 16 billion of embedded revenue, which has grown over 70% since the start of the year and that's all happened, while we've been generating record levels of realizations.
Coming back to our P&L, our asset management operating earnings were a bit north of $1 billion for the quarter, which is up 80% from the same quarter last year.
And our insurance segment operating earnings totaled $115 million.
Driven by strong core operating performance at global Atlantic together with the sale of two strategic investments that help bolster net investment income.
In total our after tax distributable earnings per share came in at $1 five for the quarter and $3.47 for the LTM period, both numbers up a 100% and 79% respectively versus the prior period.
Turning to our balance sheet book value per share came in at $28.06, which is up 38% year over year, driven primarily by strong investment performance.
It's worth noting that our results for this quarter includes an 80 cent increase to our deferred tax liability associated with the corporate reorganization that we announced last month and that we expect to close next year.
In summary.
We are really doing all the things that matter most for our business to perform at a high level and to ensure that we're set up well for the future.
We keep coming back to these five things and really do believe we are optimizing for outcomes across the board.
Number one.
We are sourcing unique investment opportunities in which to put our capital to work our year to date deployment is up two and a half times.
Our investment performance has been exceptionally strong both on an absolute basis and relative to many of our peers.
Because of this performance our monetization opportunities had been abundant and we have delivered substantial distributions to our clients and record levels of monetization for our shareholders.
In these first three points all enable us to have the fund raising successes we have achieved.
100, plus billion of year to date flows is the proof point.
And this sets us up incredibly well for the future.
And finally, we have conviction that our business model allows us to generate greater financial outcomes, but I think you're clearly seeing that flow through our P&L.
We have also talked on these calls and at Investor day is about inflection points.
Our overall business has seen a fundamental shift in inflection point in its operating level.
Beyond our distributable earnings being up approximately two times since this time last year.
All of our forward indicators are in the best shape they've ever been in.
AUM is up two times year to date fundraising is up three times and the embedded gains in our balance sheet have increased by approximately 300% in just the last year.
We really couldn't be any more excited about the future.
And with that let me turn it over to Scott.
Thank you Rob.
And thank you everyone for joining our call today.
Craig and Rob did a nice job walking through our numbers, which were strong again this quarter.
So I'm going to spend my time on a few strategic areas of focus and give you a sense for how we're progressing.
The first is perpetual and long dated strategic capital.
As you know we are big believers in the power of compounding in all aspects of our business, including AUM.
The more capital we can attract that is perpetual or recycles. The faster, we expect our AUM will scale and compound over the long term.
A year ago, perpetual and strategic capital was $49 billion.
21% of our total AUM.
Today that number is $205 billion or 45%.
$49 billion to $205 billion in one year.
So we've seen over a four times increase in 12 months.
And we are nowhere near done.
We have a lot of new ideas and efforts to generate even more perpetual capital going forward.
The second big strategic focus area is insurance.
As you know global Atlantic Advanced this materially in this area.
G. A assets have grown from 75 billion a year ago to 120 billion at the end of Q3.
A 60% increase.
In addition.
We have seen our AUM from third party insurance clients increased from $33 billion, a year ago to $48 billion today, an increase of 45%.
Putting G. A in third party together our insurance AUM has grown from 108 billion pro forma for G. H 267 billion in a year.
Or an increase of 55%.
While we're pleased with the progress keep in mind, we only closed the G. A deal in February of this year.
And see a lot more opportunity for significant growth in insurance.
The third area of focus is private wealth.
As you know individual investors had been 10% to 20% of the capital we've raised the last few years.
We believe that with the investments, we're making combined with our brand and performance.
That number will ramp to 30% to 50% of the capital we raise over the next several years.
We are investing in sales marketing data and digital talent and we are creating more democratized products that are relevant for a wide number of individual investors.
This is a big opportunity for us.
And we think we're incredibly well positioned.
So long story short the Q3 numbers are strong, but they tell only a small part of the story of what's happening at the firm.
These initiatives and others give us confidence we can more than double kick here again over the next five or so years, including our fee related earnings where we see a clear path from the $2 of FRE per share we've achieved over the last 12 months to in excess of $4 over that timeframe.
So while recent growth has been exciting we.
We see a lot more ahead.
And with that we're happy to take your questions.
Thank you.
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Yeah.
Thank you and our first question comes from the line of Alex Blaustein with Goldman Sachs. Please proceed with your question.
Great. Good morning, guys. Thanks, John Thanks for taking the question. So maybe it will pick up Scott on on where you left off with doubling the business again and in growing FRE to north of $4 a share.
As you go through the kind of key initiatives that you outlined whether it's perpetual capital insurance or private wealth can was an N zoned in on private wealth, just maybe a little bit more as you think about the ramp to 30% to 50% of kind of flows from that channel what is sort of the key products and maybe key distribution partnerships that you're considering obviously.
Have you know crashed out there so would be good to get an update on that but how else are you thinking about tackling this part of the market.
Hey, Alex it's Craig Thanks for asking about.
You know taking a step back we think the opportunity within private wealth to introduce tailored democratize products really is massive and we.
I think we're incredibly well positioned.
Now to review, our we have three broad solutions that are on multiple platforms as well as bespoke solutions that are tailored for individual platforms.
And in total we raised about $2 billion year to date. So we're raising a couple of hundred million a month.
So we're pleased with our first steps here, we're just getting started as you know when we're focused on ramping.
So I thought maybe it makes sense to touch on the democratize democratize parts.
Initially.
As it relates broadly just ramping in the women and the momentum that we have Scott Rob do you want add on.
Yeah, just a couple of things I'd add Alex I. Appreciate the question as Craig mentioned today the products that we have we put in this democratized category focus on credit.
Our real estate private equity.
And we have a number of others that we're working on across different asset classes.
In addition to those that I'd put more into kind of a 40 Act fully democratized zone. We also have a number of our funds that we actually sell through private wealth platforms, which is another big contributor in the past as I mentioned, it's been about 10% to 20% of the total money. We've raised has been from that individual investor channel broadly.
Fine.
I think what Craig mentioned is really critical though it is still early we see a lot of upside here. That's why I would guide you that we think that 10% to 20% number will move up to 30% to 50% over time.
And.
It's an area for us that where we see a significant amount of growth ahead in.
In addition to building our own team, which we continue to expand and invest in.
And we are creating partnerships to your point with.
With external managers will have a will have more to share with you on that front over time.
Creating partnerships with wealth platforms around the World. In addition to building our own team.
Great. Thanks, very much thank you.
The next question will come from the line of Bill Katz with Citigroup. Please proceed with your questions.
Okay. Thank you very much for taking the questions and congrats that's kind of promotion.
Just coming back to maybe your your commentary I think you bet. It in part of Alex's question, but could you expand a little bit on a lot more to do like yet on perpetual capital is that just retail or there are other opportunities out there to continue to scale that more new it ties the business opportunity.
Okay.
Have you done and appreciate the kind words.
I think we see it across a number of different aspects of our business. There's the institutional channel I think there's a lot of focus lately for good reason on private wealth, but we're continuing to invest in the build out of our institutional capabilities as well. So we've seen a 40% increase just as an example, there in head count focused on institutional fundraising so I think youre going to see it.
Institutionally, where we're continuing to talk to our.
Partners about long dated partnerships.
Partnerships with recycling so that's going to be part of the answer to your question part of course will be what we just talked about in terms of private wealth and the individual investor part of it will be growing in insurance, where we see opportunities all around the world.
And then we're working on new new structures, and new designs, where we can actually elongate or the duration of our capital base, even further to a variety of different channels. So a bunch of different opportunities all across the world and you know I think you'll continue to hear US talk about this going forward. So the 49 billion to two O five is great progress.
But we expect to continue to make real progress here going forward.
Okay. Thanks, and just a quick follow up for Rob. So appreciate the so the broad guidance of on pace to sort of double FRE over the next few years, but it seems like your management fees are pacing, even more quickly than maybe the last set of guidance keeps a level set.
Where we are in terms of a pacing to the to the previous goal to me and then how we go against you know ongoing capital raising how that might play through over two two to 2022 excuse me. Thank you.
Yes sure Bill.
Thanks for the question.
I think in.
Retrospect I think it's fair that some of the historical guidance, we gave over the last six to 12 months is on the conservative side.
But at the same time, if you look our business is so much more momentum today than it did even six or 12 months ago and you can look at how we're performing in our different fundraising globally, all or pretty much all well ahead of expectations. The assets, we have some global Atlantic.
Our far ahead of where we expected them today.
The momentum in our capital markets business as good as it's ever been.
And the last piece of it lifetime fees, but I think I'm also really pertinent to the discussion of growth going forward as we now have $16 billion of unrealized revenue were close to that on our balance sheet.
And so if you come back to your question around where growth can go from here I think we should pause on the $100 billion of capital that we've raised year to date.
If you think about it only very small percentage of the revenue and economics that we expect from this capital has hit our P&L. So far in 2021 are the vast majority of it is going to be in 2022 and beyond and the other point on the 100 billion of AUM that we've raised is that 50% of it is conference strategies that we werent, even and five years ago.
So the ability to scale from there on that piece of the capital base, We think is very real as well.
So maybe bringing that back full circle to where you were going and what we expect of ourselves while our earnings base today is at a higher level than we expected you know 612 months ago as Scott mentioned earlier, we still have every actually every expectation that if we execute really well going forward that we can more than double our FRE off at this higher base.
Likewise looking at the full picture of our P&L, even after higher distributable earnings number that $3 50, or so that we've delivered over the LTM period.
I think we've got clear line of sight in that same period of time to strong execution to double that to seven plus dollars and so hopefully that gives you a broader picture for how we're thinking about growth across the platform.
Okay. Thank you both.
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Our next question is from the line of Glenn Schorr with Evercore. Please proceed with your questions.
Hi, Thank you.
One quick one.
You know theres, a transaction or two in the secondary space lately, it's it feels like a strategic need for his greatest you're doing you can do greater curious on.
On what your plans are.
At this point for organic versus inorganic are built in that that area. Thank you.
Thanks for the question Glenn.
Nothing new to report today, we continue to assess whether there is someone that we could partner with or buy all over a meaningful portion of or whether we should build our own.
As we've talked about in the past the secondary and co invest space is adjacent to a lot of what we do and something we think we could be a value added partner with somebody or build something truly distinctive. So it's not a have to do but it is something that we continue to spend time on are.
Nothing new to share with you today, however, but we're continuing to spend time there.
Okay, maybe we can follow up on you teased us in the past with a comment about the Asia franchise at some point being as big as the Americas.
Maybe you could break down a little bit more in terms of retail institutional and which asset classes might be what might we expect to see us have more growth in the next couple of years as opposed to the Sunday. Thanks a lot.
Hi, Glenn it's Rob.
Clearly, we've got a first rate private equity franchise in Asia, a $15 billion fund probably somewhere around close to double the size of our next biggest competitor in the region.
The growth opportunity from here continues to be in private equity we think it is.
Still very much an under addressed private equity alternatives market, but really it's the marriage between the best in class teams, we have across eight offices in Asia.
And what we're doing the private equity side with the global capabilities that we're building up in areas like real estate infrastructure credit growth equity, what we're doing at capital markets. We think the marriage of those two things with our market leading position will create a bunch of growth going forward for us in that part of the world, where we've got a real competitive advantage.
Nope.
Round that business franchise that we felt so far.
And for our competitors to catch up requires a lot of investments. So we feel really good about how we're situated and we continue to believe that over time, our Asia Pac business can be as big as our U S business one day.
Thanks, Rob.
Our next question is from the line of Robert Lee with K B W. Please proceed with your question.
Great. Good morning, Thanks for taking my questions and Scott also congrats on the promotion.
It's really maybe it's a little bit of a riff on glenn's question, but.
As he mentioned, there's a lot of action in the secondaries market a lot of M&A, but you've talked about your C. P. S business as being a replacement for that could you maybe update us on on that initiative and how you see that kind of progressing as a oh.
Is it may be a replacement for a secondaries are fund to funds business.
Sure happy to take a happy to take it and thanks for the congrats.
Yes, so dps and we haven't talked about it in a while but it stands for customized portfolio of solutions. So this is a team and a business that we built on the back of the observation that.
Number.
As usual investors were trying to get exposure to private equity in particular.
But it did not have a big team to get after that and wanted a bit of an outsourced solution and partner.
Try to build a more diversified pool of private equity exposures and so the team has built a business, which has a combination of KKR funds and co invest.
And third party, we think best in class.
Divot equity partners also investing in their funds and looking at their co invest and so the business has continued to perform it really quite nicely. It's now about 6 billion of AUM.
It has been quietly a top quartile performer and will continue to scale that business and we're getting more traction with investors around the world. So it's a it's an opportunity for upside and a real nice performer for us that we think will continue to get bigger over time, and we'll keep you posted.
Great and then maybe as a follow up you know going to the inevitable question I guess on capital management. So you mean, you've got a huge amount of embedded gains on the balance sheet. You know you know from your own investments in our crude carry businesses growing at you know a high rate.
It is there.
Is there or do you think about a call. It a tipping point, where hey, you know we've got enough kind of cash generation that we can more than amply, you know fulfill our capital needs and growth requirements and maybe start shifting towards you know a somewhat greater return of capital whether it's a you know a.
A little bit higher dividend pay out or share buyback or something.
You like that to.
Tipping point may be approaching the next couple of years.
Yeah, I'll start off Robin I'm sure Scotto, John jump in as well.
The most important thing for any capital allocation.
Framework. It is to make sure that you are consistent in our approach to capital allocation has always been very much.
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And so we're always going to start that with what's an appropriate level of capital returned to our shareholders and balancing that with investing back into our growth assuming that it's able to achieve compelling rois. So let's take those in order.
We've said that we will continue to evaluate our dividend policy on an annual basis, we'll do that in Q1 next year, but what we've said is we'd look to grow that consistently over time.
We want to continue to be a buyer of KKR stock, we feel really good about our body of work here over the last five six years, we've repurchased or retired close to 80 million shares almost 10% of our outstanding shares today close to 15% of our free float we'd look to continue to do that going forward.
And we're going to look to invest back into take or for growth and I do think one of the areas of core competency.
We do have is to be able to move capital around to the highest Roe.
Opportunity and if we're not finding that inside of the KKR platform, then we'd certainly evaluate greater returns of capital to shareholders through one of the first two buckets, that's really how we're going to approach it and I think probably the most important point of any here as we do this in a really aligned way.
Take care of employees or as the largest shareholder and KKR.
As we think about how to allocate our capital base. Obviously, that's the mindset there comes from a very alive perspective.
Yeah. The only thing I would add is you know the.
Our balance sheet, if you really step back and look at how do we had allowed us to grow our fee related earnings.
Whether it's seeding new businesses and as a reminder, 10 years ago, we were in six investing businesses an hour and 28.
Balance sheet is clearly accelerated the growth of what we're trying to do in terms of the organic build a capital markets business. As you know we operate in a capital light model, but we've used the balance sheet to be able to scale the growth of capital markets in a meaningful way.
And perhaps even more powerfully M&A.
Do you think about Marshall Wace, and our partnership there you think about global Atlantic we've been able to use the balance sheet to really convert balance sheet earnings into fee related earnings and T. D E and so we view it Rob as a strategic weapon. So you'll continue to see us use it that way you can think of it that way and then to Rob's point will continue.
To reassess the dividend level.
And buybacks and try to get the balance is right we can.
The vantage point of being the largest shareholder.
Great. Thank you so much for taking my questions. Thank you.
Our next question is from the line of Brian Bedell with Deutsche Bank. Please proceed with your questions.
Great. Thanks, Good morning folks and they also congrats Scott.
Just maybe just go back to the fund raising obviously you know way ahead of schedule here compared with your Investor Day, and I'm just wanted to get a sense of for 2022 as we move into that you're is it even possible for that to be as successful in our fund raising.
<unk> versus 'twenty, one if we if we ignore insurance blocks and what would be some of the drivers given you've raised your flag up you know a couple of your flagships already.
Brian It's Craig why don't I start thanks for the question.
We don't have any updated fund raising guidance for 2022, but let me try and help frame things I think really what youre seeing in this quarter is kind of interesting in this way is what youre seeing the continued scaling of businesses.
And the increase diversification across the firm.
Seven or eight years ago, if we reported one of the strongest fundraising quarters in our history. It would have meant that we had a big fundraising event in private equity.
And so today, we're reporting an excellent new capital raised vigor new capital raised in Q3 is the second highest quarterly figure we've reported in our history and over 90% of that is coming from strategies outside of traditional private equity. So in private markets halfway catheter was raised and in infrastructure and real estate.
As we talked about it.
We have all these new initiatives as Rob had mentioned, 50% of the capital year to date being raised from areas that didn't even exist within the framework of the firm five years ago angle of a lag because you mentioned again meaningfully above where we would have ever expected the winter than at the time of announcement and when do you think.
Huge addressable market opportunities like we've touched on.
Democratize products, that's all on the come.
So we don't have a an updated figure for next year, but it just continues to feel like there's real momentum and we're really well positioned which is exciting.
The only thing I'd add Brian is as Greg said, we got lots of ways to win the other firms really scaling and diversifying.
Last time I counted up what we have coming to market.
The next 12 to 18 months something like 27 different line items.
So there's lots of different products in the market and that's away from global of them.
No. That's it's incredibly powerful but maybe as we think about that march towards a $4 of FRE.
If you could comment on a couple areas. In addition to your do your your traditional ones and that being the AR on the retail side that moved into 30% to 50% do you see that as an incrementally positive growth driver to that F F or we took it over and over and above where you know your traditional plan is in the institutional.
Channels, and then I guess sort of same question on the capital markets business. I mean, that's had moves up and down of course, but it's had some pretty good secular growth in it.
Is that Oh, if there was a substantial component to that $4.
No I don't think it's any more substantial than it would be today on the second question is on the on the first question.
Look I think the opportunities we see in private wealth.
It gives us that much more confidence you know that it's in excess of $4 five or so years.
And you know where I think the in excess of its something you should focus on and we will.
But I think retail.
Private wealth opportunity gives us more confidence we have an opportunity to continue to outperform expectations.
Great. Thank you. Thank you.
Our next question is from the line of Gerry O'hara with Jefferies. Please proceed with your question.
Great. Thanks.
Seeing obviously, the three block transactions in the quarters is encouraging, but perhaps you could give us just a little bit of sense on what the kind of competitive dynamics are within that.
Our insurance and annuity business from from yearend.
Thanks, Jerry Scott.
Look it is a competitive environment and we see we have competition across everything that we do we have a lot of smart competitors.
I tend to be responsible smart competitors and so we've been able to pick our spots and lean in on opportunities, where we think we have a clear competitive advantage.
And we've been really pleased with the progress we've been able to make them as I mentioned in the past you know one of the key reasons that we wanted to create a partnership with global Atlantic is the strength of the management team and they have really built really nice relationships all around the world.
With different Counterparties.
And that's allowed us to lean into these blocks.
And so.
Yeah, Theres been a significant flow of block activity. We expect it will continue we expect it'll be competitive and we expect will continue to win our share.
Fair enough and perhaps one for for Rob.
I know, we're still kind of early days here in the fourth quarter, but if you might be able to give us any sort of update or line of sight into <unk> monetization activity that would as always we appreciate it. Thank you.
Yep.
No problem, Jerry you're right. We were early in the quarter, but we already have really good visibility into Q4, and it's at record levels I think of modernization activity in global turn into revenue. So as of now that figure is north of $1 billion. So that's collectively across both our performance and investment income.
As a reminder, this is going to be from deals that are either already closed today or have been signed up and we expect to close in Q4.
I'd also note that for this quarter for Q4. This figure also includes revenue from incentive fees that have already been booked through our hedge fund partnerships.
In terms of how that breaks down from a split perspective. So you can think about flow through to profitability I would say its probably slightly weighted towards carried interest right now relative to both investment income as well as the performance income that comes from our hedge fund partnerships. If you recall on the ladder has the same 10% to 20% comp load as higher investment income.
So hopefully that gives you a flavor of what you had in Q4.
Again, another strong monetization quarter for us.
Great. Thanks for taking my questions.
The next question is coming from the line of Devin Ryan with JMP Securities. Please proceed with your question.
Hi, Thanks. This is Brian Mckenna for Devin So just a follow up on realization activity. So you have about $5 billion of net unrealized carried interest in $7 billion of embedded gains on the balance sheet. So assuming the capital markets remain open and business trends continue to be healthy.
How quickly do you think you can work through this pipeline of realizations over time.
Yeah.
Yeah, Hi.
Hi, Brian It's a good question obviously.
We're going to be balanced in what you've seen so far in 2021 as well we've had record levels year to date I believe our monetization on our revenue for monetization is better than any year, we've had for a full year and even through that period of time, we've still grown our embedded gains and unrealized gains in our balance sheet I think that.
Comes from investment performance. So if we can continue to generate strong investment performance in the future, which we feel good about especially given the portfolio construction that we have in place.
We will continue to be able to generate healthy levels of monetization and keep the pipeline for future years in place but.
Obviously, a lot comes down to execution and it's really hard to forecast from here, but I think if you look back at our 2000, and then really 2020, even a volatile period of time in 2021, you have seen a consistent level of monetization, even as our unrealized gains and embedded gains in our balance sheet of ground.
The only thing I would add Brian as you heard Rob referenced before that in addition to kind of having confidence we can at least double fee related earnings next five or so years. We think we can do the same.
Distributable earnings per share.
Having a line of sight that we do in terms of embedded value in both carry and balance sheet gains as part of the reason we have that confidence but to Rob's point, we will continue to monetize and hopefully will continue to replenish with other unrealized gains and other investments before them.
Great. Thanks, and then just on the FRE margin that stepped up nicely in the corner do about 65% from 62% in the first half of 2021. So how should we how should we think about the FRE margin moving forward is that 65% a good place to be.
Brian what we've talked about historically is is probably a low sixties FRE margin and we were 61% last year year to date, even with a solid Q3 were about 63% so kind of aligned where we thought we'd be but we've also flagged as we intend to continue to invest.
Cross technology distribution and marketing and so you can see our Opex line ticking up a bit but the goal going forward over the next number of years is to eat a place where we're sustainably generating mid sixties types of FRE margins, but I think the guidance going forward, we will continue to be in that low 68% range.
Hopefully there'll be periods of time, where where that can go up and down and ultimately be in a place where we're.
We're more sustainably generating those types of margins that are in the mid sixties.
Got it thanks, Rob.
Thank you.
Thank you.
Next question comes from the line of Mark Cyphers from Morgan Stanley. Please proceed with your question.
Hey, its Mike Cyprus mortality. Thanks for taking the question just wanted to follow up on the private wealth opportunity I was just hoping you could elaborate a little bit on the investments you're making in sales marketing distribution digital distribution. If you could just elaborate a little bit on that how large is the sales team today, where do you think that can be over the next couple of years and how do you think.
About buy versus build versus rent.
Thanks, Michael Scott I'll take that.
In terms of the investments that we're making first the investment we're making is in head count.
So the team you know kind of a by 18 plus months ago. It was probably around 10 people is now pushing 40.
I would expect that number will likely triple or so again from here.
Over the relatively near term so we'll continue to build.
The focus private wealth team out including marketing.
And that's kind of investment one investment to will be in all things tech and operations around making sure.
We're able to service the private wealth client and a best in class way. So we're continuing to make investments there you heard Rob referenced some investments we're going to continue to make in technology. Some of that will be around this space.
But those are the two predominant in addition to what I talked about before which is product development.
In terms of buy versus build versus rent.
We are clearly building and we're doing some renting as we sit here today and we are as part of our corporate development efforts assessing whether there's anything that could make sense to buy but right now it is a build and rent and create partnerships.
And we will we'll let you know if we find anything that we think are interesting enough to move into the bike category.
Just one quick thing to add on as we think about head count growth in that space, So really across the firm and it is important to note that we would expect to be able to operate within our stated comp range on fees in the 20% to 25% range and so even with increased heads I wouldn't expect that to impact our margins.
Great. Thanks for that and just a follow up if I could just around capital deployment are clearly a very strong quarter are 8 billion deployed across infrastructure real estate and in particular I thought stood out that's 24 billion or so annualized pace. There just can you talk a little bit about the actions that you're taking to increase deployment capacity with them.
The real assets business in terms of the actions you've taken to get to this level and as you look out over the next couple of years, where would you like to see that deployment pace in capacity be in say three or five years and what are the actions you need to take in order for that to be materially higher from where it is today.
Hey, Mike It's Craig why don't I start just give you some facts around deployment.
Thanks, Scott will add on as it relates to investments for tomorrow.
And I'm glad you asked about it honestly, we probably haven't talked about the climate in as much detail as we should.
As you know we've continued to be really active.
Year to date or in the quarter $15 billion year to date, we're at we're approaching $30 billion.
So when you look at that deployment figure through nine months.
That's already meaningfully above.
Where we were in 2020 and that was a record year for us so deployments been really healthy.
A couple of thoughts on that first relates back to that thought of diversification and as you noted again the strength we've seen in real assets.
With that amount in the quarter being pretty equally split between our real estate business and infrastructure and if you can if you contrast that with 2019 and 2020.
Again this quarter those businesses were about 60% of deployment in private markets.
Combined they were about 25% in 2019 and 2020, so as those businesses have scales.
As we've entered new asset classes like core and again, it's interesting when you think of core real estate core infrastructure. Those end markets are larger in size than opportunistic.
So again that that addressable market for us.
Has it been increasing you're seeing that in deployment.
Core P E had it's actually most active deployment quarter for us in the year. So while these businesses are growing and scaling you're seeing that in in terms of deployment I think one other point, that's just interesting as it relates to private equity we are being disciplined so.
The level of activity is exceptionally high there's a ton of flow.
But really what you've seen in the numbers is is we're being disciplined and we're drawing lines in.
And really looking to pick our spots so despite the overall healthy amount of deployment.
Year to date private equity deployment is actually on pace to be below that.
In 2020.
And in public markets again, the credit platform is growing materially before G. A continues to scale post G. E. So that's driving a real step up in deployment.
Both in terms of corporate origination.
As well as an asset based finance.
Yeah, No. It's a great question Mike.
We do see a real opportunity to meaningfully expand these real estate and infrastructure platforms. As you know both of those were more or less created over the course of the last 10 to 12 years. These are very large end markets and if theres a significant amount of client interest.
And all things real assets, if you have yield and inflation protection.
These asset classes do you've got a real significant investor appetite right now, it's probably five things I'd point to.
One is we're just regular way scaling of the more opportunistic strategies. So if you think about it wasn't that long ago. We were in infrastructure. One you know how that platform is scaled materially from $1 billion to in the teens per fund so big opportunity as we continue to scale. The opportunistic platform at the same thing is true in real estate.
You can see repo one to reap a three but we also have a European real estate opportunistic strategy that same thing in Asia, So real opportunity to just keep scaling those platforms regular way on the back of performance.
Second would be what we're doing in core.
We have raised meaningful capital this year for core infrastructure and for core plus real estate again, very large end markets. Those are performing well in scaling third is going global.
A lot of what we've done started in the U S. We're now expanding to Europe and Asia, So youre going to see us have a Europe and Asia core plus real estate strategy.
That's something that we'll continue to add to our suite of products as we continue to take these efforts are global in real assets fourth would be selling to individuals we talked about crest a lot but there's.
Various other products that we're in the process of creating and other versions of real assets democratize for the individual investor and then to Craig's. Good point. It's not just equity is also a big opportunity to continue to scale what were doing in real estate credit Global Atlantic has allowed us to meaningfully expand that business and we see more opportunities around the world including in Euro.
We're going to start building a real estate credit platform. There so long way of saying we agree with you there's a lot of growth opportunity.
Great. Thanks, so much thank you.
Thank you at this time, we've reached the end of the question and answer session I'll turn the call back to management for closing remarks.
Rob. Thank you for your help and everybody. Thank you for joining US. Please follow up with us directly with any follow ups otherwise we look forward to speaking with you next quarter.
Again.
This will conclude today's conference you may disconnect your lines at this time and we thank you for your participation.