Q2 2023 KKR & Co Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to Kkr's second quarter 2023 earnings conference call.
During todays presentation, all parties will be in listen only mode.
Following management's prepared remarks, the conference will be opened for questions if.
If anyone should require operator assistance during the call. Please press star zero from your telephone keypad.
I'll now hand, the call over to Craig Larson partner and head of Investor Relations for KKR.
Please go ahead.
Good morning, everyone welcome to our second quarter 2023 earnings call as usual I'm joined by Rob Lewin, Our Chief Financial Officer.
Scott Nuttall, our co Chief Executive Officer.
We'd like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at KKR Com.
And as a reminder, we report our segment numbers on an adjusted share basis.
This call will contain forward looking statements, which do not guarantee future events or performance. Please refer to our earnings release and our SEC filings for cautionary factors about these statements.
Turning now to the quarter, we're pleased to be reporting fee related earnings per share up 67 cents.
After tax distributable earnings of 73 cents per share.
I'm going to begin by walking through the financials.
Management fees in the quarter came in at $749 million.
Net transaction and monitoring fees were $190 million in Q2 with capital markets generating $160 million of revenues.
Capital markets activity was most pronounced in our infrastructure business, which contributed approximately 45% of revenues in the quarter.
And along with core private equity these two strategies generated over 60% of capital markets transaction fees in the quarter, reflecting the continued diversification of the business. So in total.
Related revenues were $967 million.
This was up 7% from last quarter.
And it's up 25% year over year.
So your related compensation was right at the midpoint of our guided range at 22.5% of fee related revenues.
Other operating expenses were $147 million.
Putting this together fee related earnings came in at 602 million or 67 cents per share with an FRE margin of 62% wished.
Which continues to be best in class looking across our industry.
And for the quarter FRE improved 10% from last quarter.
And on a year over year basis. So this is compared to the second quarter of 2022.
<unk> is up 31%.
Moving to realized performance income realization activity as we discussed last quarter was more muted against the slower transaction environment so for the quarter.
We generated 149 million of realized performance income while realized investment income came in at $115 million.
In total our asset management operating earnings were $752 million.
Our insurance segment generated 170 million of pre tax earnings in the quarter as global Atlantic continues to operate at a high level.
As a reminder, we expect pretax Roe to be in that 14% to 15% range. So performance. This quarter was just above the top end of that range.
In aggregate. This resulted in after tax distributable earnings of $653 million or.
Or the 73 per share figure that I mentioned a minute ago.
Next moving to investment performance the traditional private equity portfolio was up 5% in the quarter and over the last 12 months appreciated 2%.
Importantly, here inception to date Irr's for a blended flagship funds.
So that's Americas 12, Europe , five and Asia for.
[noise] remains strong at 22%, which is meaningfully ahead of the corresponding 9% figure for the MSCI World.
In real assets, the real estate portfolio was flat for the quarter and down 11% over the last 12 months.
Our portfolio continues to be heavily weighted towards those assets, it seems where youre seeing strong fundamentals and cash flow growth.
So think of industrial assets Datacenters rental housing student housing and self storage.
However.
As cap rates have increased over the last 12 months that more than offset the underlying NOI growth and that's what's leading to the decline you've seen over the LTM period.
Infrastructure was up 2% in the quarter.
And up 10% over the last 12 months, reflecting the strength of the portfolio really on a global basis.
And with higher interest rates, we strategically leaned into more inflation protected assets.
And then credit.
Leveraged in alternative composite disrupt 3% and 2% respectively for the quarter.
And 12, and 5% respectively over the last 12 months.
Moving next to capital metrics, we raised 13 billion in the quarter foundry.
Fundraising activity was actually quite diverse driven by our middle market private equity strategy.
Our case series suite of products focused on private wealth, which Rob is going to touch further on in a moment.
Our core infrastructure strategy and real estate across all geographies.
And this is in addition to inflows from global Atlantic as well as capital raised for our IV reinsurance Sidecar fund, which held its final close in the quarter.
With that our assets under management increased to $519 billion and fee paying AUM to 420 billion.
And finally, we've continued to deploy capital in the quarter, we invested approximately 10 billion pretty evenly spread across private equity real assets and credit.
Deployment within private equity was largely driven by core P. While real estate deployment was most focused on credit in the U S as long as equity investments in Asia.
And in our credit business deployment was relatively diversified across asset based finance and direct lending.
Now before turning it over to Rob do you want to spend a minute or two on our work to create and protect value through sustainability, which we detailed in our 12 annual sustainability report that we published in June and is also available on our website.
Now one of the areas, where we've shown real leadership.
Work around broad based employee ownership and our portfolio of companies.
And building off of the C H I overhead doors, and Minnesota rubber and Plastics example, as discussed previously we have another case study and RV media.
Our Bee media is one of the largest audio book publishers in the world.
And in connection with our investment we introduced a broad equity ownership program across the company.
And by partnering with the workforce answer all of their great work wonderful things have happened, including a 22% CAGR in its core publishing business EBITDA over the life of our investment.
So we announced the sale of RV media in late July and this will be a very successful outcome for its employees.
<unk> Rd media colleagues will earn significant cash payouts with non management employees, receiving 100% of annual income on average.
And the most tenured employees receiving two years of their annual income.
This outcome can be a financial game changer for people.
And it's driving real value over these three recent exits we've averaged approximately six X multiple of costs on behalf of our clients.
So at this point, we've introduced broad based employee ownership programs at over 35 companies and we've touched over 60000 employees.
And we expect these numbers to continue to grow from here and hope and expect we'll have more stories like RB media to share with you in the quarters and years ahead.
And with that I'll turn it over to Robyn.
Great. Thanks, a lot Greg.
The operating backdrop has begun to improve.
Greg just ran through our model continues to deliver consistent results.
With that let's shift the focus of the conversation to the future.
Our model growth trajectory and culture are differentiated within our industry.
I thought it would be beneficial to go through three of the foundational building blocks.
And much of our differentiation and all importantly, the key driver of taking our future earnings quality and growth.
We have taken very deliberate steps to build a business that benefits from several different growth engines.
Providing both greater earnings stability and significant long term earnings power.
Number one.
We built a business that is meaningfully increase the durability.
Calling nature of our revenues.
And we expect that trend to continue.
Page four of the earnings release highlights this point very well.
On the left hand side of the page you see that over just the past two and a half years, we have doubled our management fees are most recurring revenue stream from $1 4 billion in 2020.
$2 9 billion over the last 12 months.
And fee related earnings in China have also increased meaningfully from $1 3 billion in 2022, approximately $2 3 billion over the prior 12 months.
Alongside this growth the quality of these earnings has significantly improved as we've become much more diversified by strategy and by geography.
In addition, the form of our capital base has also evolved with our perpetual capital increasing from 22 billion at the end of 2020 to 200 billion today.
Our perpetual capital now accounts for roughly 50% of our fee paying AUM relative to approximately 10% at the end of 2020.
We will continue this focus.
Creasing, both on recurring revenue and profitability as well as diversifying the form of our fundraising and capital base.
The second building block or the multiple identifiable growth avenues that quasi business.
We have discussed a number of these drivers over the last couple of earnings calls, but today I'm going to focus on just two areas that had been more notable in the quarter.
Insurance on private wealth.
Global Atlantic has continued to be a fantastic acquisition for us.
Looking at the past few months, we've been highlight two very important initiatives.
In May <unk> announced the reinsurance agreement with Metlife funded by Ge's balance sheet, our IV platform and co investors.
With this transaction.
We will increase by 13 billion upon closing and the transaction will be beneficial both management fees as well as insurance operating earnings.
And in June <unk>.
G together formed a strategic partnership with Japan post insurance.
This partnership allows us to pursue additional growth opportunities through our collaboration with a key player in the Japanese insurance market.
And as part of this Japan post committed meaningfully IV.
Which as Craig mentioned held its final close in the quarter.
Overall <unk> continues to demonstrate significant momentum with 144 billion.
As of Q2.
This has doubled since we announced the acquisition in 2020.
A further proof point of our acquisition and a demonstration of how the alignment we've created can drive real success.
Any specific area, where GE has really helped accelerate the growth of one of our businesses is private credit.
Today, we manage 78 billion in private credit with $45 billion of that in asset based finance.
We are a leader in the ABS space encompassing both our high grade and higher yielding strategies.
And with recent regional banker, China retrenchment.
Already five plus trillion ABF addressable market has even more structural tailwind for us.
Those seeking capital looked at KKR as a real solutions provider with scale.
The multi year relationship announced in the quarter with Paypal is just one recent example.
And now turning to private wealth.
We've touched on this topic a number of times given the market opportunity alongside the significant investments we have made in order to launch and distribute a number of new products.
In Q2, we started fundraising for two new private wealth strategies focused on private equity and infrastructure.
The launch of these products was a critical step in addressing the massive private wealth and market and.
Introducing on a global scale products that traditionally have not been accessible to non institutional clients.
We're off to a really good start here.
In total including capital that was raised in Q2 and so far in Q3, we've raised $1 9 billion across these two strategies.
While we are still in the very early days. These initial results are ahead of our expectations.
We have also launched in just a handful of platforms. So far and we would expect that to increase over the coming quarters.
In our credit business, we look forward to the launch of a new private BDC later this year.
In addition to direct lending the strategy incorporates a specific allocation to asset based finance, which we think will be viewed as a real differentiator.
So at this point, we have a full suite of private wealth solutions strategically aligned with our four key investment verticals across the firm.
Our focus here remains very much long term oriented and ensuring that we are a real winner in this space over the next five to 10 plus years.
Our conviction around success is high.
And it's driven by a number of factors, including our brand investment track record.
The expanded distribution and marketing teams and our scale to be able to invest into the opportunity set.
And importantly, each one of our core products across P. E infra real estate and credit have aspects that are unique and a real testament to the innovation capabilities of our team.
Now turning to building block number three.
We continue to achieve substantial growth in our earnings power because of both an increase in our fee paying AUM and capital deployment.
We currently have $10 billion of embedded gains that sit on our balance sheet. That's the fair value of our carry and investment portfolio relative to the underlying cost.
That's up from $3 7 billion, just a few years ago.
This provides a real lens into our ability to create meaningful revenue outcomes in the future.
And over the next few years with continued investment performance.
Further capital deployment that number is biased to increase.
Even as we expect to monetize more as the environment hopefully it becomes more constructive.
A reminder, for how we think about earnings power distributable earnings is largely of cash that check.
In times like these when we sell less due to the monetization environment, we are under earning that intrinsic earnings power.
And embedded gains are only one piece of that equation.
Our expectation here is for a continued scaling of our more recurring revenue businesses as well.
Just looking at management fees alone.
Without raising another dollar.
We currently have $38 billion.
With a weighted average management fee rate of almost 100 basis points that is not yet turned on this.
Capital once activated will directly flow into management fees and be additive to earnings.
It is not reflected today in our FRE or after tax.
We also have a 100 billion of dry powder, 96% of which is carry eligible.
When we invest that capital it creates the potential for more embedded gains and therefore revenue overtime.
Yes.
These are the main reasons why we are so constructive around the potential for further significant and sustainable growth and our earnings per share over time.
We have never been more confident around our model and our prospects.
As one of the reasons that you saw us buy back some stock in the quarter.
Since the end of Q1, we have bought back or canceled approximately 6 million shares at an average price per share of less than $50.
Share repurchases have historically been and will continue to be an important driver of value creation for our shareholders.
As a reminder, since we initiated our buyback program in 2015, we have bought back or canceled approximately 92 million shares at an average price per share of just over $27.
This represents more than 10% of KKR shares outstanding today and.
And almost 15% of our free float.
And with our recent acquisitions, such as K J Aron, our Japanese REIT manager and global Atlantic We have completed almost $5 billion of purchase price M&A with limited share ish, yes.
We remain as a management team the largest owners of stock and are highly aligned with shareholders and our focus on equity value creation.
So to summarize.
Our earnings growth will continue to be supported by a more stable forms of income.
Including our diversified high quality and growing management fee business underpinned by our 200 billion of perpetual capital.
Number two we have several differentiated growth avenues, including insurance and private wealth amongst many others.
And finally.
Our embedded gains and more broadly our earnings power is expected to continue to increase.
These compounding pieces are why we continue to feel more confident than ever in our 2026 targets of four plus dollars of FRE and seven plus dollars of after tax de per share.
With that Scott, Craig and I are happy to take your questions.
Thank you.
We'll now be conducting a question and answer session.
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If you have additional questions you may re queue and time permitting those questions will be addressed.
One moment, please where we poll for questions. Thank you.
Our first question comes from the line of Craig Siegenthaler with Bank of America. Please proceed with your question.
Good morning, everyone and hope you're all doing well my focus is on the next fundraising cycle.
When do you expect to have the first close for our global infrastructure investors five and do you believe this will be our first of the flagship.
Yeah.
Hey, Craig It's Craig why don't I start thanks for the question I think as we look forward, we continue to see a really active.
Amount of funds and strategies that we expect to be in the market with we talked historically about having 30 plus strategies in the market over the coming 12 to 18 months I think if anything that number probably would've increased relative to what we would've talked about six or 12, three or six months ago. So I think the level of activity in a number of strategies remains.
It remains at a high level we.
We don't have any any guidance or specificity as it relates specifically to our infrastructure strategy, but I think when you look at the back of the tables and you look at invested and committed capital relative to the size of the fund I think fair to assume that that's something that is becoming a front of mind topic for us, but nothing too.
Specifically as it relates to individual timings, let alone closings at this point.
Thank you Craig.
Yes.
Our next question is from the line of Alex Blaustein with Goldman Sachs. Please proceed with your question.
Hey, good morning, everybody I'm, Rob I wanted to go back to some of the points you made and then at the end of your prepared remarks around the buyback and just capital management definitely nice to see a little bit of a pickup in repurchase here. Just curious that you know whether we are at a point now where you feel like the balance sheet has enough sort of scale to recycle capital for what you guys need.
And the buybacks could become a bigger part of the story going forward, where you know M&A aside we could actually expect the total share count to start to decline in absolute terms. Thanks, yeah great.
Alex and thanks, a lot for the question so taking a step back just more broadly as it relates to capital allocation. The most important thing for us and you've heard me say this in and also the management team tenants before most important thing is to have a consistent approach and ours is one that I think is really maniacally focused on driving our OE and <unk>.
Highest per share earnings that we can with the lowest per unit of risk and we've talked about four strategic areas.
Deployment that we think can accomplish that and so that's quite private equity investing continuing to invest across the insurance space you mentioned strategic M&A and the fourth one is share buybacks.
And we think our railcar competency of our management team is being able to move that marginal dollar of liquidity around to the highest return opportunity and the thing thats going to drive the most earnings per share over time.
And maybe the final point.
Here.
It's we're highly aligned in that decision, making process as you know take care management owns close to 30% of take our stock and so back to your specific question on share buybacks.
As you mentioned I noted on the prepared remarks, we've bought back over 90 million shares that represents almost 15% of our free float since we initiated our buyback program seven eight years ago, and just over $27 per share. So we really like the body of work that's been accomplished over a long period of time.
And so all to say share buyback is going to continue to be a very important part of our go forward capital framework and capital allocation policy, but we're going to continue to look at other ways of driving growth and earnings per share over time as well, including in areas like core private equity insurance and M&A I hope that's helpful.
The only thing I would add Alex if you look at what we've been doing the last several years as you know we've deployed several billion dollars to M&A, that's been quite additive to our fee paying AUM, our FRE or T D.
This point, we look at it Holistically look at the relative trade offs, it's less about needing to invest in the business to start new strategies or new businesses.
More about what's going to give us that highest marginal return on capital as Rob mentioned.
Got it okay I'll make sense. Thanks.
Our next question is from the line of Glenn Schorr with Evercore. Please proceed with your question.
Hi, Thank you.
I'm curious to get a little more color on Capex I know, it's early I know it was on one platform in the short period of time and a slow P background, but you raised a couple of hundred million dollars. So I'm curious what you learned from that one platform that short period of time, maybe the timing of the other platform adds and then sidebar question is this structure able to be included in four.
<unk> Ts, if and when we get there. Thanks so much.
Yeah.
Hey, Glenn it's Craig why don't I start look I think let's.
Let's take a step back for a moment and I know that you.
Oh, no all of this very well, but I think when we look at this opportunity its a real <unk>.
A long term secular opportunity that we had that we have ahead of us. So individual investors have not had an easy way to access access the alt space. Historically I think that is certainly true as it relates to private equity most specifically and so of individual investors have 1% of their assets invested in alts today and that.
It goes to 5% over the next several years, that's 8% to 10 trillion of additional capital that has the potential to flow into alternative products and as it relates to a number of the points that Rob mentioned in terms of the strength of our brands.
Relationships that we have the track record that we bring all the investments we've made in terms of distribution. All of these things are Super positive and then you layer on top of that the product creation and creativity that we think that we've brought to a number of these products. So on our last earnings call. We noted that we had.
<unk> launched our P E vehicle as you as you you'd indicated outside of the USA closed on chest over.
400 million with distribution expected increase in infrastructure also seem to be accepting capital and so 90 days. Later here. We are with 1 billion nine raised across both P E and infrastructure, which is great. So it's it's ahead of our expectations I think in terms of lessons learned.
I guess I would point to three.
One brand again as is super important.
I think.
Number two I'd again, I'd emphasize the product creation point, starting with crest and as you then see that expansion.
And then finally I think that we have the ability to.
Leverage the relationships that we've.
We've earned through crest, as we continued to expand into new distribution channels.
In private equity and infrastructure.
That gives you a sense on that.
Glenn just a quick follow up on the <unk> no no plans in the immediate future as it relates to that I do think it's worth noting now that came back as a structure in a way.
That can be distributed through to the accredited investor not just qualified purchasers. It's one of those points of innovation that I highlighted in our prepared remarks.
[laughter].
So much.
Our next question comes from the line of Ben <unk> with Barclays. Please proceed with your question.
Hey, good morning, and thanks for taking the question.
I wanted to ask you about the performance in the insurance business. It sounds like a lot of things kind of firing well over there, but just when we look at the reported ROE.
We're just still ahead of your target it looks like the decline from Q4 to Q1 to Q2 was a bit steeper than we would've expected. So just curious if there's any other color you can share there in terms of the kind of sequential growth in cost of insurance and G&A versus the investment income and how we should think about those various pieces going forward. Thanks, yeah, great. Thanks, a lot for the question as you noted J continues to perform at a.
A really high level.
And in Q2 was ahead of him.
Our targeted returns for GAA at a 15 plus percent.
Pre tax ROA.
In terms of.
The operating earnings in the quarter and why you saw that quarter on quarter decline that you referenced really a function of a strategic decision at the G&A level too.
<unk> our book in more liquid securities at the beginning of Q2 more cash more.
Our liquid fixed income if you think back to early part of Q2, we were still in that regional bank crisis timeframe and I think we've made the right decision to reposition the book at that point in time.
Gave up a little bit of ROE in the quarter as you noted, but I think the right decision for the business.
Yeah.
Got it that's very helpful. Thanks, Rob.
Okay.
The next question is from the line of Brian Mckenna with JMP Securities. Please proceed with your question.
Thanks, and good morning, everyone. So a core private equity continues to be a great story fair value now totals over $6 billion was about $3 billion and gains on the balance sheet and it has generated a 20% return and also looks like core private equity a.
Totals $34 billion today, so could you talk about demand for this product for this product specifically from third party and then is there a way to think about the absolute level of third party fundraising for the strategy over time.
Hey, Brian It's Craig why don't I start first thanks for all of the detail and noticing core P. Again, it's one of the reasons, we'd added that page in our press release focused on focused on the asset class and the strategy. So a lot of innovation at our firm happens when you can't find a home for great investments and that's what happens with core private equity.
It's a long duration strategy.
Where we expect to hold investments and compound value for 10 to 15 years, but the risk reward is fundamentally different than our relative to our opportunistic funds.
And so at this point, we put together what we think is a really great portfolio of companies diversified across the world. As you noted the search since inception returns have been very positive.
That 34 billion of AUM was $12 billion three years ago.
That's all organic growth and I think another point just as it relates to this in our model because you're right. We've got the $6 2 billion of fair value relative to the $3 billion of cost so with shareholders who are participating in the economics.
In terms of the management fees and performance fees on the third party piece. The compounding you see on the balance sheet and then on top of that we would expect capital markets revenues to continue.
To continue to grow alongside capital markets revenues in in the quarter were between 25 and $30 million. So we've got a number of ways to win I think from an LP standpoint, the types of Lp's, who find this asset class. Most interesting are those I think probably larger plans.
Plans with with longer dated liabilities and are interested in the matching aspects related to the asset class.
So I think the opportunity for us to continue to grow both the third party piece as well as on the balance sheet is one we're going to be talking about having opportunities you're talking about for a long period of time.
Ryan It's got just a couple of incremental thoughts for you.
One is a younger part of the private equity asset class.
And there is a bit of an education is still happening.
As you noted we do have a significant amount of AUM, we have a lot of dry powder as we sit here today.
But we've been out talking to investors around the world about why we like it so much and how aligned we are and.
And we're having some really good conversations.
In addition to the larger plans that Craig referenced and those may be focused on 10, 15 20 year compounded.
We're also seeing interest from large scale family offices.
I tend to think of it like we do in terms of the power of long term compounding probably a greater appreciation for reinvestment risk.
And as the portfolio continues to mature and we spend the dry powder. We have you know we will be back to market before too long I would be happy to share more color then.
Great. Thank you guys.
Okay.
Next question is from the line of Mike Brown with K B W. Please proceed with your question.
Hey, good morning, everyone.
I just wanted to ask on the capital markets environment clearly, there's been some green shoots recently and just wanted to get your take on how that could translate into a broader recovery in and just get your thoughts on maybe the next six to 12 months and then I know it's early in the quarter, but any quick color on the monetization of that of quarter to date or expectations for the full quarter.
Sure. Thanks, a lot for the question Mike if.
If you look at our capital markets business.
Year to date, we've generated $250 million of revenue and if you look back over the past four quarters we've averaged.
$110 million to $115 million of revenue and so we're really.
We're proud of that performance in an environment, where the capital markets both debt and equity were largely shot for most of that period of time, So I feel like we've built the business model.
Quite durable in a tough operating conditions.
In terms of the back half of the year, you've noted some green shoots and we've certainly seen some signs of life in the leveraged finance market little bit in the IPO market, maybe secondary market follows.
Little early to call that were out of it but we do really think that we're positioned in an environment, where the capital markets come back to generate really outsized outcomes hopefully that environment.
Really persists and we can generate those types of outcomes for our shareholders in 2024 and beyond.
All.
I'll remind you that in 2021, our capital markets business and it really upmarket generated $850 million of revenue. So we feel like we've built this model that protect in the downside.
But really offers the opportunity for outsized outcomes. When the markets are open and I think we are doing much more as a firm today than we did in 2021, So I think the opportunity is.
Is greater.
As we go forward here.
With that business.
Oh, yes. Thank you and then on your question on the monetization side.
Bit of an odd quarter for us.
Got a couple of a pretty meaningful monetization that sit on the bubble between Q3 and Q4.
So instead of providing just a Q3 number in isolation.
What I can let you know is that we have at least $350 million of visibility around monetization related revenue over the second half of the year as usual as we get to the end of this quarter, we'll provide that specific press release, which details our performance through the quarter and so while we're seeing a bit of an uptick here for sure and consistent with what the overall tone.
And what we're all feeling a bit more of a constructive environment.
I'd still say that we're in the part of the cycle, where we are under earning our intrinsic earnings power. So hopefully more to come here, but but a little bit of upside relative to where we thought.
Hey, Mike It's Scott just maybe a little bit more color for me and away from just the capital market specificity of your question I'll just speak to overall firm activity.
Rob said, it's far too early to declare a return to normalcy.
But there's no doubt that over the last several weeks.
It feels like the markets are slowing a bit.
The new deal pipeline and activity is up.
So monetization discussions are up.
If that continues.
And if the public markets continue to perform.
Then we'd expect a carry through to the fundraising environment over the next few quarters.
But all that could reverse again with bad news, we've seen a couple of head fakes from this market, but overall, there's no doubt that activity is up.
And the tunes improved it'll.
It'll be interesting to see if this carries through post labor day.
Great color. Thank you.
Thank you.
Our next question is from the line of Ahmad with BNP. Please proceed with your question.
Yes. Good morning, I was just wondering one thing to come back on on your development itself.
You will strategies I was wondering if you could focus in a bit more on the development of your retail strategy globally have you had any meaningful conversations with new distributions.
In Europe and in Asia.
One thing to get a bit more kind of that thank you.
Thanks for the question I think the answer is yes distribution continues.
<unk> continues to expand you know if you think of this as a funnel I think from our standpoint, the funnel continues to grow at the very top end.
And and that's global so as we talked about for instance, private equity and infrastructure those are vehicles, where we specifically had created.
Vehicles focused on individual markets.
In the U S and outside of.
The U S that opportunity again is one that's global and we're pursuing along those lines.
Specific in terms of number of platforms today versus a year ago or anything along those lines, but I think the broader point again is just when we look at the opportunity we have ahead of us.
Trillions of opportunity of $1 that could move over into the alts and we think we're really well positioned to take a healthy piece of that.
Scott I'm, just a little bit.
Call. It from my standpoint, as Joe and I have been traveling around the world.
Definitely spending time with other distribution partners.
As a reminder, 18 of our 23 offices at KKR outside the United States and maybe behind your question. We agree with the sentiment that this is not just a U S opportunity in private wealth, we very much look at it as a global one.
<unk> teams in Europe , and Asia and are developing partnerships in both places in addition to the U S.
Great. Thank you.
Yeah.
Our next question is from the line of Brian but dealt with Deutsche Bank. Please proceed with your question.
Great. Thanks, Good morning, guys.
Hope you're doing well.
The quick question beyond.
The deployment versus monetization backdrop to.
The monetization, we're actually running a little bit more ahead of our forecast than the deployment has been the last couple of quarters.
Just wanted to get your sense of if if we are in a better market environment.
You say soft landing or no lending.
Does that create more monetization opportunities over the next few quarters relative to deployment or.
Are you still seeing the deployment backdrop is as is attractive here and then maybe if you can comment on a couple of areas within that particular infrastructure.
And then I guess even within credit.
Hey, Brian It's Craig why don't I start and then Rob will pick up as it relates to the monetization piece I think specifically so a couple of observations.
Okay, and do you think and let's start with private equity.
And real assets and then as you know it will switch to credit, but I think over the last 18 months a lot of the primary markets.
Have effectively been shot you know the IPO market has been pretty much shut over this period of time the syndicated debt markets have been dislocated for the majority of that period and capital has been quite precious Theres. No question no. Those from a deployment standpoint. Those are all things that are good for us and so that's why I think on a number of these calls you've heard us.
Actually be quite constructive on risk reward I think as it relates to private equity and real assets, where value focus were looking for those opportunities, where we can bring our operational resources.
To bear and where those can really move the needle we love corporate corporate carve outs.
We've also been very active.
On pursuing publics privates at this point, we've announced or closed on 14 take private transactions.
Since the beginning of 'twenty two.
The most recent of those you probably would've seen some articles. This morning, So I think that's.
It's been an area for us where we've been as active as anybody.
I think as it relates to credit.
Again, this is a big business for us.
Detailed in our press release, you see it on page 11.
The composition of that overall amount of.
227 billion of that we have $80 billion in private credit really broken into those two pieces asset based finance a real secular drivers as Rob had mentioned in his prepared remarks, and I think indirect lending we remain very constructive on the risk reward, but you've seen overall transaction.
Volumes be pretty modest with indirect lending. So I would think of that asset class is one that.
Has been taking greater share, but have a smaller piece of the pie, but on overall risk reward we remain very constructive on regular way direct lending at the same time.
Yeah. Thanks for the question, Brian I think you could separate a little bit of deployment and monetization.
This is Craig went through there is a lot going on on the deployment side and we've done our best as a firm.
Really be focused on linear deployment of the dry powder in our strategies of course, when the capital markets are open it makes deployment a little bit easier.
But there is no doubt when the capital markets are open and the overall level of volatility comes down for some.
Period of time that it is kind of open up.
The real drivers to be able to generate monetization related revenue I mentioned on the call. We've got $10 billion on our balance sheet today of effective embedded gains between carried interest and our balance sheet investments. So are very well positioned to be able to take advantage of the market opening and we hope that some of the green shoots we've.
Seeing her persist post labor day and that presents some.
Really good opportunities for us to deliver outsized outcomes in 2024 and beyond Hey, Brian It's Scott I'd say I would expect that both deployment and monetization to increase.
If the capital markets open up.
As a reminder, we had 100 billion of dry powder.
That's great news from a deployment standpoint.
When markets are shot.
It's harder to get deals done.
We've been more active, especially recently, but there's no doubt if the capital markets open there'll be more.
Overall, M&A activity, which will accrue to our benefit and you'll also see more monetization and that would run across asset classes, including to your question infrastructure.
Yeah, that's great that's great color. Thank you so much.
Yes.
Our next question is from the line of Finian O'shea with Wells Fargo proceed with your question.
Hi, everyone. Good morning, another question on wealth for the non traded BDC you mentioned.
Are you going accredited only or does the Peter structure solve for that.
And Relatedly, what do you think that means for the potential for eventual monthly flows compared to what your peers are doing thank you.
They finished Craig why don't I start and again I think the.
The product creation partners is an important component as it relates to that.
So across all four as it relates to real estate private equity infrastructure as well as the private BDC, we're focused on having the opportunity.
To launch those vehicles and fundraise across both of those markets. So the entire case we.
Is again, allowing us to.
Look to raise capital both through accredited investors and not just through qualified purchasers and that's meaningful and argue like I think the accredited investor market is multiples the size of the qualified purchase purchasers market.
So again that that pie or the top of that funnel.
Is one that is in our view a very broad and helps just increase that long term opportunity that we see.
Thank you.
Our next question comes from the line of Michael Cyprus with Morgan Stanley . Please proceed with your question.
Hey, good morning, I was hoping you could spend a moment just on infrastructure, which is a real differentiator for <unk>. So just how are you thinking about driving the next leg of growth for infrastructure, what sort of steps might you take over the next couple of years and how are you expanding your capacity to deploy capital into infrastructure and then just a housekeeping question for Rob just on how much.
<unk> was invested into played off the balance sheet in the corner.
Okay.
Hey, Mike It's Craig why don't I start on on <unk>. So again, thank you for asking about so two and a half years ago.
And our 21 Investor day. It was April of 'twenty, one we walked through in <unk> as a case study for US is really how we look to build platforms over the long term and it begins with strong performance of our flagship strategy and then that really is what allows you to earn the right to both scale those flagships and innovate into new Adjacencies and so today.
Our infrastructure platform is built out with four distinct segments, we have our global Infra Fund series Asia Infra diversified core and then most recently the infrastructure vehicles customized for private wealth investors and so to give you a sense of how thats grown AUM at that Investor day was $17 billion at.
June 30, we were at 54, so that's 17% to 54 billion.
All organic the.
The growth in innovation Hasnt.
It Hasnt stopped again I think we're in the earliest days as it relates to infrastructure and private wealth. It's an asset class that we think lends itself very nicely in this marketplace.
So look the renewables space is an area, where we also think we can do more so more to come here.
Overtime and as it relates to the appointment logically as you have seen the increase in our footprint you've seen a step function increase in an overall deployment stats for us. So in for deployment in 2019 was a little over two was little over $2 billion was $2 1 billion 2020 is $2 2 billion.
Over the last 12 months, we've invested $12 million in the asset class, So and again as you would've seen in as Robert touched on capital markets through our flow through opportunities for us at the same point in time, so more to come but it continues to feel like we are.
We're wonderfully well positioned.
And then Mike very quickly.
Your second part of your question in the quarter, we deployed approximately $850 million off the balance sheet a good chunk of that most of it is it a core private equity and then our realizations were a little under $250 million in the quarter.
Great. Thanks.
Okay.
The next question is from the line of Rupert <unk> with BMO capital markets. Please proceed with your question.
Yes.
Hey, good morning, Thanks, very much maybe if you could spend a minute, giving an update on your Asia business now on the K J R M business.
Over a year.
Great to hear more about how that acquisition is performing and whether you see any more opportunities to consolidate your position in the region Inorganically.
And also what the near term outlook is for fundraising thanks very much.
Great. Thanks.
Thanks, a lot for the question Asia.
<unk> is a core part of our growth story at KKR and we've talked about this in the past for a number of reasons.
We feel really good that our Asia business, one day will be as big as our U S business. So we've got a great competitive position in the marketplace across private equity infrastructure, both of which are the largest in the region in terms of fund sizes.
Got a real growing businesses across the real estate.
As well as credit as well in terms of the KJ RM acquisition, that's off to a great start and from a strategic standpoint really doing what we wanted it to accomplish which is to generate very consistent.
Returns for their existing Investor base, which translates.
Into a very predictable management fees for us at KKR, but much more importantly in terms of what it does for the rest of our opportunistic strategy or core plus strategy in the Japan market just markedly changed our approach to what we're able to do in Japan and really in terms of one of our big.
Growth engines within Asia as the Japanese market.
And our competitive position there is in particular really strong and KJ I am really helps them at that.
Hey, Rob It's Scott I'd say to your question on would we do more M&A in the region and consolidate in that way we'd be open to it.
Always looking.
We are definitely open minded.
The thing I would add is global Atlantic is also now growing with partnerships in Asia.
I'm, saying that we've been able to do now that we're together.
<unk> block with Axa in Hong Kong, We of course announced the Japan Post partnership this past quarter, we've announced some flow partnerships in Singapore is just one more example.
And there's other discussions along those lines some are between organic and inorganic, but we do see opportunities to expand our insurer's efforts in Asia as well.
Thank you.
Thank you.
As a reminder to ask a question today you May press star one from your telephone keypad and we ask you. Please limit yourself to one question and return to you for any additional questions.
The next question is from the line of Alex Blaustein with Goldman Sachs. Please proceed with your question.
Hi, Thank you guys for taking the follow up appreciate it I.
Wanted to touch on your credit business, specifically asset backed finance, it's a place where you spend a little bit more time, just communicating to the street of sort of how big it's gotten over the years and you've got a number of origination platforms that are supporting it. So as you think about raising capital for those type of strategies outside of global Atlantic So whether it's <unk>.
Third party insurance companies or maybe other institutional piece, what does that look like over the next couple of years and maybe just remind us what the fee rates are I'm, assuming it's a generally a lower fee rate like separate account type of business, but curious to get more thanks.
Why don't I start Alex.
First glad that you asked about again back to the detail we provided on page 11.
We've got 227 billion of AUM in credit and liquid strategies, a key component of that is of $80 billion in private credit two big pieces here. The 45 billion in asset based finance alongside of that $33 billion of direct lending. These are big businesses for us and so back to your question ABF has a massive end market five plus.
<unk> trillion.
Have high barriers to entry in our view a lack of scale capital against this end market and we have and we continue to see many traditional providers, leaving the market and in our view.
Trading avoid and so we're finding attractive risk reward would say that's true in terms of the high grade ABS strategy.
Which today has been lead really in partnership.
With everything in the global Atlantic is doing and that's going to increase opportunities for us to continue to be more relevant to the broad insurance landscape as well as within our traditional asset based finance strategy, we're wary of.
Where we have funds and separately managed accounts.
Focused on a mid teens gross IRR opportunity those would be the strategies for instance that had pursued the Paypal transaction and so deployment has been healthy I think over the trailing 12 months. It's been about 11 billion for us. So it's been a it's been a place where we've been active and in addition to the Paypal partnership that we announced.
In June the <unk>.
<unk> does continue to be active on the regional bank front I think our most recent portfolio acquisition here.
Close to about two weeks ago.
And in terms of fee rates, we haven't really gone into detail in terms of the.
The separation between the high grade and the asset based finance strategy, but fair to say that that commensurate with that risk return that you are correct.
Hi, Greg would be would be in a different area as it relates to blended fee rate relative to the asset based finance fund itself.
Alex its Scott did that maybe a little bit more color on the types of capital raising this is going to be a bunch of different formats. So youre not going to see a large flagship funds would be my guess, but we do have an ABF fund.
We have our Bdcs, we haven't leveraged separate accounts, we have on leverage separate accounts, we have a high grade ABS strategy, which also tends to be in separate account format.
One of the things that we're working on so we'd all aggregates up to the 45 billion or so that Greg mentioned.
I'd say youre right. The initial interest over the last several years has been from a number of different places, but if theres a thematic concerns.
Roughly $200 billion.
Insurance companies 140, 150 give or take from the rest from third parties and we have a 150 insurance companies that invest with us in the third party basis.
Increasingly we're seeing interest from institutions.
Assay class reminds me a little bit of infrastructure 10, plus years ago, There's a lot of education in the early days.
Growing market not a lot of people understood. What it was we are finding that there is increased interest in it.
The focus on private credit.
We need to broaden and go global so we're optimistic.
Perfect. Thanks for all that thank you.
Thank you at this time, if we see end of our question and answer session I'll hand, the call back to Craig Larson for closing remarks.
Rob. Thank you for your help and thank you everybody for your continued interest in KKR.
Please feel free of course to follow up with me or the IR team post this call otherwise we look forward to speaking everybody.
In 90 days or so thank you so much.
This concludes today's conference. Thank you for your participation you may now disconnect your lines at this time.