Q3 2023 KKR & Co Inc Earnings Call
Okay.
Speaker 1: Ladies and gentlemen, thank you for standing by. Welcome to KKR's third quarter 2023 earnings conference call. During today's presentation, all parties will be in listen-only mode. Following
Ladies and gentlemen, thank you for standing by.
Come to Kkr's third 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.
Speaker 1: If anyone should require operator assistance, please press star zero from your telephone keypad. As a reminder, this conference is being recorded.
If anyone should require operator assistance. Please press star zero from your telephone keypad.
As a reminder, this conference is being recorded.
Speaker 1: I'll now turn the call over to Craig Larson, partner and head of investor relations for KKR. Craig, please go ahead.
I'll now turn the call over to Craig Larson partner and head of Investor Relations for KKR Craig. Please go ahead.
Speaker 2: Thank you, operator. Good morning, everyone. Welcome to our third quarter 2023 earnings call.
Thank you operator, good morning, everyone welcome to our third quarter 2023 earnings call.
Speaker 2: This morning, as usual, I'm joined by Rob Lewin, our Chief Financial Officer, and Scott Nuttall, our Chief Financial Officer.
Morning, as usual I'm joined by Rob Lane, our Chief Financial Officer.
And Scott Nuttall, our co Chief Executive Officer.
Speaker 2: 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 KTR.com.
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 I can't see our dot com.
Speaker 2: And as a reminder, we report our segment numbers on an adjusted share based
And as a reminder, we report our segment numbers on an adjusted share basis.
Speaker 2: This call will contain forward-looking statements which do not guarantee future events or performance.
This call will contain forward looking statements, which do not guarantee future events or performance.
Speaker 2: please refer to our earnings release as well as our SEC filings precautionary factors.
Please refer to our earnings release as well as our SEC filings for cautionary factors about these statements.
Speaker 2: So to begin, I'm going to walk through the quarter's financial results before Rob discusses our key operating...
So how do we get.
I'm going to walk through the quarter's financial results before Rob discusses our key operating metrics.
Speaker 2: Turning to our results for the quarter, we're pleased to be reporting fee-related earnings per share of $0.63 and after-tax distributable earnings of $0.88 per share.
Turning to our results for the quarter. We're pleased to be reporting few related earnings per share of <unk> 63 cents and after tax distributable earnings of 88 cents per share.
Speaker 2: Management fees in the quarter came in at $759 million.
Management fees in the quarter came in at $759 million.
Speaker 2: This was up 13% compared to Q3 of 2022, and up 16% over the trailing 12 months.
This was up 13% compared to Q3 of 2022 and up 16% over the trailing 12 months.
Speaker 2: Real assets management fees have been a bright spot for us, increasing 6% compared to last quarter, and 25% over the last 12 months, driven by growth across several infrastructure and real estate strategies.
Alas, it's management fees had been a bright spot for us increasing 6% compared to last quarter and 25% over the last 12 months driven by growth across several infrastructure and real estate strategies.
Speaker 2: Net transaction and monitoring fees were $124 million in the quarter, $100 million of which came from our capital markets business.
And that transaction and monitoring fees were $124 million in the quarter, a 100 million of which came from our capital markets business.
Speaker 2: Fee-related compensation was right at the midpoint of our guided range at 22.5% of fee-related revenues. Other operating expenses.
So your related compensation was right at the midpoint of our guided range at 22.5% of fee related revenues.
Other operating expenses were $142 million.
Speaker 2: This expense figure is actually a little lower compared to both last quarter as well as Q3 at 2022.
This expense figure is actually a little lower compared to both last quarter as well as Q3 of 2022.
Speaker 2: Here, you're really seeing us continue to invest for growth while maintaining our discipline.
So you're you're really seeing us continue to invest for growth, while maintaining our discipline at the same time.
Speaker 2: So putting this together, fee-related earnings came in at $558 million, or the $0.63 per share figure I mentioned a moment ago.
So putting this together fee related earnings came in at $558 million for the 63 cents per share figure I mentioned a moment ago.
Speaker 2: In Q3, a referee margin was 61.7%.
In Q3, our FRE margin was 61, 7%.
Speaker 2: We've talked consistently about our referee margin being in this low 60s areas and we've delivered on that.
We've talked consistently about our FRE margin being in this low sixty's areas and we've delivered on this.
Speaker 2: the 12th consecutive quarter where that margin has been at or above the 60% level.
This is the 12th consecutive quarter, where that margin has been at or above the 60% level and.
Speaker 2: And we continue to feel very good about this margin migrating up from here into the mid-
And we continue to feel very good about this Margaret about this margin excuse me migrating up from here into the mid sixties.
Speaker 2: Realized performance income was $329 million, and realized investment income generated $231 million.
Realized performance income was $329 million.
And realized investment income generated $231 million.
Speaker 2: both realized performance and investment income. Together, we're up over 2x from last quarter as exit activity increased in both our private equity as well as our U.S. real estate.
Well, it's realized performance and investment income together were up over two weeks from last quarter as exit activity increased in both our private equity as well as our U S real estate businesses.
Speaker 2: Realized performance and investment income compensation ratios were again both right at the midpoints in the quarter. So in total, our asset management operating earnings were $869 million.
Realized performance investment income compensation ratios, where again, both right at the mid points in the quarter. So in total our asset management operating earnings were $869 million.
Speaker 2: Global Atlantic again had a very strong quarter with our insurance segment generating $210 million of pre-tax earnings.
Oh, the Atlantic again had a very strong quarter with our insurance segment generating $210 million pre tax earnings.
To spend a moment on G I.
Speaker 2: On the institutional front, GA's block reinsurance transaction with MetLife remains on track to close in Q4 2020.
On the institutional front G H block reinsurance transaction with Metlife remains on track to close in Q4 of 2023.
Speaker 2: We disclosed this transaction on last quarter's call. We expect our AUM to increase by approximately $13 billion upon closing. And looking farther ahead, GA's pipeline and level of dialogue on future block activity remains healthy.
We just closed this transaction on last quarters call. We expect our AUM increased by approximately 13 billion upon closing.
And looking farther ahead G H pipeline and level of dialogue on future block activity remains healthy.
Speaker 2: And in terms of GA's individual business, GA experienced an increase in activity in Q3. So overall business momentum within this channel continues to feel very good.
And in terms of G as individual business G. A experienced an increase in activity in Q3, So overall business business momentum within this channel continues to feel very good as well.
Speaker 2: Global Atlantic AAUM Proforma for the MetLife Block now totals $158 billion. This is up from $72 billion or
Hello, Atlantic AUM pro forma for the Metlife block now totals 158 billion. This.
This is up from 72 billion or over two times since the announcement of our acquisition in July of 2020 in our view this really demonstrates the strength of Gms franchise.
Speaker 2: the announcement of our acquisition in July of 2020. In our view, this really demonstrates the strength of GS. Franchise, the power of the KKRGA partnership, as well as the high level of execution we've seen since the outset.
Howard the Kicky RGA partnership as well as the high level of execution, we've seen since the outset.
Speaker 2: So back to our P&L. In aggregate, after-tax distributable earnings totaled $780 million, or $0.88 per share.
So back to our P&L and aggregate after tax distributable earnings totaled 780 million or <unk> 88 per share.
Speaker 2: Next, just turning to page 7 of our earnings release.
Next just turning to page seven of our earnings earnings release, you see investment performance summarize for the quarter as well as a trailing 12 month periods.
Speaker 2: We see investment performance summarized for the quarter as well as a trailing toll.
Speaker 2: Looking at the figures on the page for the third quarter, our performance metrics broadly compare very favorably relative to public indices which were mixed in the first quarter.
Looking at the figures on the page for the third quarter, our performance metrics broadly compare very favorably relative to public indices, which were mixed in the quarter.
Speaker 2: The traditional private equity portfolio was up five in the quarter and over the 12 months is up 12%.
The traditional private equity portfolio was up five in the quarter and over the 12 months is up 12%.
Speaker 2: and looking at our inception to date blended IRR for our most recent flagship funds, that figure continues to stay strong at 23%.
Looking at our inception to date blended IRR for our most recent flagship funds that figure continues to stay strong at 23%.
Speaker 2: In real assets, the real estate portfolio was up 1% for the quarter and down 9% over the last 12 months.
In real assets, the real estate portfolio was up 1% for the quarter and down 9% over the last 12 months.
Speaker 2: Importantly, underlying NOI growth has remained strong across our portfolios.
Importantly, underlying NOI growth has remained strong across our portfolios.
Speaker 2: So the decline you see over the trailing 12 months reflects the change in interest rates as well as cap rate assumptions.
So the decline you see over the trailing 12 months reflects the change in interest rates as well as cap rate assumptions.
Speaker 2: Infrastructure was up 3% in the quarter and is up 14% over the last 12 months as this asset class has continued to be resilient for us.
Infrastructure was up 3% in the quarter and is up 14% over the last 12 months as this asset classes continued to be resilient for us.
Speaker 2: In credit, the leveraged and alternative composites were both up 3 in the quarter, and 14% and 9% respectively over the last 12 months.
And credit leveraged an alternative conferences for both up three in the quarter and 14% and 9% respectively over the last 12 months.
Speaker 2: And turning for a moment to page 25, our core private equity portfolio has...
And turning for a moment to page 25, our core private equity portfolio has performed.
Speaker 2: Today, we are the largest manager of core PE capital with 35 billion of AUM, which includes third-party capital alongside of our balance sheet.
Today, we are the largest manager of corporate capital with $35 billion of AUM, which includes third party capital alongside of our balance sheet.
Speaker 2: And as you can see on the page, the fair value of investments we've made off the balance sheet at 930 was $6.5 billion.
And as you can see on the page the fair value of investments we've made off the balance sheet at 930 was $6 $5 million as a reminder, corp. He has a long duration investment strategy. We expect to hold these investments for 10 to 15 plus years.
Speaker 2: As a reminder, CORE PE is a long-duration investment strategy. We expect to hold these investments for 10 to 15 plus years.
Speaker 2: These investments generally have lower leverage over their whole periods compared to traditional PE.
These investments generally have lower leverage over their whole periods compared to traditional P and are more cash generative.
Speaker 2: The portfolio at this point is global, spans a wide range of industries, so we've continued to see strong growth in the portfolio that in our view is more stable and less cyclical in nature, which has really helped during periods of dislocation such as the early stages of COVID as well as over the last 12 to 18 months.
The portfolio at this point global spans a wide range of industries. So we've continued to see strong growth in our portfolio that in our view is more stable and less cyclical in nature, which has really helped during periods of dislocation such as the early stages of COVID-19 as well as over the last 12 to 18 months.
Speaker 2: We got into this asset class and it really treated it as a strategic growth avenue for us since we started, because it's an area where we firmly believe that our business model, including our industry depth, geographic breadth, collaborative culture, and ability to drive business building all set us up very well to be the best global player in the asset
We got into this asset class and it really treated it as a strategic growth Avenue for us since we started.
Because it's an area, where we firmly believe that our business model, including our industry gets geographic breadth.
Collaborative culture and ability to drive business billing all set us up very well to be the best global player in the asset class.
Speaker 2: We're big believers in the earnings power this strategy can create, and we continue to think about how to unlock that potential. And with that summary...
We're big believers in the earnings power of this strategy can create and we continue to think about how to unlock that potential.
And with that summary, I will turn the call over to Rob.
Speaker 3: Thanks a lot, Craig. I thought it'd be helpful this morning to go through what we are experiencing across the firm day to day.
Thanks, a lot Greg.
I thought it'd be helpful. This morning to go through what we are experiencing across the firm day to day.
Speaker 3: Despite what has been a dynamic operating environment, we find ourselves with a significant amount of momentum, especially across our key strategic growth areas.
Despite what has been a dynamic operating environment, we find ourselves with a significant amount of momentum, especially across our key strategic growth areas.
Speaker 3: We are seeing a noticeable uptick in our pipelines around fundraising, deployment, and monetization.
We are seeing a noticeable uptick in our pipelines around fundraising deployment and monetization.
Speaker 3: and I'll take you through each today. Turning first to fun rings.
And I'll take you through each today turning.
Turning first to fundraising.
Speaker 3: This quarter, we raised $14 billion, bringing the past 12 months to $54 billion.
This quarter, we raised $14 billion, bringing the past 12 months to 54 billion.
Speaker 3: While the fundraising environment has been tough, we feel as though we're positioned very differently than a number of our peers.
The fund raising environment has been tough we feel as though we're positioned very differently than a number of our peers.
Speaker 3: None of the 54 billion that we have raised over the LTM period has come from our flagship strategies, which are due to begin fundraising in the next year or so.
None of the 54 billion that we have raised over the LTM period has come from our flagship strategies, which are due to begin fundraising in the next year or so.
Speaker 3: Global Atlantic continues to have a lot of success in this rate environment and remains incredibly well positioned.
Global Atlanta continues to have a lot of success in this rate environment and remains incredibly well positioned.
Speaker 3: Across our private wealth strategies, while still early, our momentum is strong.
Across our private wealth strategies, while still early our momentum is strong.
Speaker 3: and our conviction around the size of the addressable market and our ability to take share continue to grow.
And our conviction around the size of the addressable market and our ability to take share continue to grow.
Speaker 3: And in the framework of KKR, this is really all upside for us from here.
And in the framework of KKR. This is really all upside for us from here.
Speaker 3: Finally, many of our younger strategies continue to scale.
Finally, many of our younger strategies continue to scale.
Speaker 3: Looking at the quarter in a bit more detail, first our K-Series suite of product.
Looking at the quarter in a bit more detail first our case series suite of products.
Speaker 3: As a reminder, these primarily serve the private wealth and market globally, providing individuals with access to alternative investments that traditionally have not been accessible to non-institutional clients.
As a reminder, these primarily serve the private wealth and market globally provide.
Providing individuals' with access to alternative investments that are traditionally have not been accessible to non institutional clients.
Speaker 3: We now have vehicles for all four of our major asset classes, private equity, infrastructure, real estate and credit. And we continue to be added to more private wealth platforms as these vehicles ramp.
We now have vehicles for all four of our major asset classes.
But equity infrastructure real estate and credit.
And we continue to be added to more private wealth platforms as these vehicles ramp.
Speaker 3: Two years ago, we were on approximately 10 platforms. And today, that number is closer to 40 across the suite of products that we manage, with more to come.
Two years ago, we were on approximately 10 platforms and today that number is closer to 40 across the suite of products that we manage with more to come.
Speaker 3: looking at our private equity and infra wealth products specifically. They are now raising approximately five hundred million dollars a month.
Looking at our private equity and infra wealth product specifically they are now raising approximately $500 million a month.
Speaker 3: So really strong start for us, especially relative to our expectations.
So really strong start for us, especially relative to our expectations.
Speaker 3: Only reinforcing our confidence in the scale and impact of the long-term opportunity here.
The only reinforcing our confidence in the scale and impact of the long term opportunity here.
Speaker 3: Second, we raised $8 billion of capital in credit and liquid strategies in the quarter, and we were particularly active in private credit.
Second we raised $1 billion of capital credit and liquid strategies in the quarter and we were particularly active in private credit.
Speaker 3: As a reminder, private credit is comprised of our direct lending and our asset-based finance businesses, where AUM has scaled significantly.
As a reminder, our private credit is comprised of our direct lending and our asset based finance businesses, whereas <unk> has scaled significantly.
Speaker 3: Today, in total, private credit AUM is $83 billion.
Today in total private credit AUR is 83 billion.
Speaker 3: That's up roughly three times from 25 billion just three years ago.
It is roughly three times from 25 billion just three years ago.
Speaker 3: in direct lending where we have 36 billion of assets under management. You're seeing us raise capital in a variety of forms.
In direct lending, where we have $36 billion of assets under management, you're seeing guys raised capital on a variety of forms.
Speaker 3: In the quarter, we raised capital for our U.S.-focused strategy in traditional fund format and through evergreen structures in both the U.S. as well as in Europe .
In the quarter, we raised capital for our U S focused strategy and traditional fund format and through evergreen structures in both the U S as well as in Europe.
Speaker 3: We're seeing more interest in these perpetual vehicles as the asset class has become more mature and a more permanent part of institutions' allocations.
We're seeing more interest in these perpetual vehicles as the asset classes become more mature and a more permanent part of institutions allocations.
Speaker 3: And we're at the outset of fundraising for our private BDC and continue to raise capital in our separately managed
And we're at the outset of fund raising for a private BDC and continue to raise capital and our separately managed accounts.
Speaker 3: In asset-based finance, we're continuing to build on our leadership position here.
In asset based finance, we're continuing to build on our leadership position here.
Speaker 3: ABF is now close to $50 billion of AUM as of 9.30.
<unk> is now close to $50 billion of AUR as of 930.
Speaker 3: We are raising capital and variety of forms, including closed-end and open-ended fund structures in both our high-grade and opportunistic ABS strategy.
We are raising capital in a variety of forms including closed end and open ended fund structures and both our high grade and opportunistic ABS strategies.
Speaker 3: There will be more to come here in future quarters, as interest in both direct lending and ABF remains very high.
There'll be more to come here in future quarters as interest in both direct lending in ABF remains very high.
Speaker 3: This all really builds on the back of strong performance within our leverage credit business.
This all really builds on the back of strong performance within our leveraged credit business with.
Speaker 3: with many of our investment strategies ranking at the top of their respective peer categories.
With many of our investment strategies ranking at the top of their respective peer categories.
Speaker 3: As an example, our investment returns in both our opportunistic leverage credit strategy and our multi-asset credit strategy rank in the top 1% tile against their peer universes since their inception in 2008.
As an example, our investment returns in both our opportunistic leverage credit strategy and our multi asset credit strategy ranked in the top one percentile.
Against their peer universes since their inception in 2008.
Speaker 3: And the third area on fundraising I wanted to address were some of the more recent announcements that happened post 930.
And the third area on fundraising I wanted to address for some of the more recent announcements that happened post 930.
Speaker 3: We held a final close in Next Generation Technology 3 at approximately $3 billion. That represents an over 30% increase to its predecessor fund.
We held the final close in next generation technology III at approximately $3 billion that represented over 30% increase to its predecessor fund.
Speaker 3: Global Impact Fund 2, this is our growth equity platform, investing behind proven companies that deliver scalable commercial solutions to global problems.
Global impact fund to this sector.
Growth equity platform investing behind proven companies that deliver scalable commercial solutions to global problems also held its final close post quarter end totaling $2 8 billion, which is over twice the size of its predecessor fund.
Speaker 3: also helped define a close post-quarter end totaling 2.8 billion, which is over twice the size of its predecessor fund.
And Asia infrastructure too.
Speaker 3: We have already raised 6.1 billion of capital here, making it the largest dedicated info fund in the region, and up from the 3.8 billion predecessor fund. And we-
We have already raised $6 1 billion of capital here, making it the largest dedicated infra fund in the region and up from the $3 8 billion predecessor Fund.
And we have not yet held the final close.
Speaker 3: This is another sizable platform that we have added to our infrastructure franchise. And I think further stement our leadership position in Asia are more proper.
This is another sizable platform that we have added to our infrastructure franchise.
Further cement our leadership position in Asia more broadly.
Speaker 3: These three funds in aggregate have increased from $7 billion across their prior vintages to approximately $12 billion of total capital.
These refunds in aggregate have increased from $7 billion across their prior vintages to approximately 12 billion of total capital today.
Speaker 3: This is all very high margin AUM for us and it's strategies that are still relatively young for KKR.
This is all very high margin for us and its strategies that are still relatively young for KKR.
Speaker 3: As we looked at 2024 and 2025, we expect fundraising at KKR will accelerate relative to the last.
As we look to 2024 and 2025, we expect fundraising at KKR will accelerate relative to the last 12 months.
Speaker 3: We have 30-plus strategies and are coming to market, including a number of flagships such as Global Infrastructure, America's Private Equity, and Asia Private Equity, with the opportunity for continued scaling in our private wealth products alongside the traditional fund format. We are also launching
We have 30, plus strategies and are coming to market.
Including a number of flagship such as global infrastructure Americas private equity in Asia private equity with the opportunity for continued scaling in our private wealth products alongside the traditional fund format.
We are also launching a new climate investing strategy.
Speaker 3: we have recruited a really talented and experienced team, which is now fully integrated into our broader infrastructure platform, giving us confidence that we can become a real leader and a scaled player in this space.
We have recruited a really talented and experienced team, which is now fully integrated into a broader infrastructure platform, giving us confidence that we can become a real leader in a scaled player in the space.
Moving next to deployment.
Speaker 3: We continue to be very constructive on risk reward here across a number of our asset class.
We continue to be very constructive on risk reward here across a number of our asset classes.
Speaker 3: We have about 100 billion of dry powder available to the play. And we've seen an uptick and announced investment activity since June .
We have about $100 billion of dry powder available to deploy and we've seen an uptick in announced investment activity since June.
Speaker 3: However, only a small portion of that closed when the 90 days ended September 30th. We do expect an increase in investment activity in Q4 given our pipelines here.
However, only a small portion of that closed in the 90 days ended September 30th.
Would you expect an increase in investment activity in Q4, given our pipelines here.
Speaker 3: This dynamic should help the invested capital figures in addition to our capital markets revenues in Q4.
This dynamic should help the invested capital figures in addition to our capital markets revenues in Q4.
Speaker 3: And finally, our monetization activity has continued to pick up.
And finally, our monetization activity has continued to pick up.
Speaker 3: In the quarter, our realized performance and investment income totaled 560 million.
In the quarter I realized performance and investment income totaled 560 million active.
Speaker 3: Activity in the quarter came from a wide variety of strategies and products.
Activity in the quarter came from a wide variety of strategies and products.
Speaker 3: And as we look into the fourth quarter, standing here today, we currently have visibility on 400 plus million of monetization-related revenue.
And as we look into the fourth quarter standing here today. We currently have visibility on 400 plus million dollars of monetization related revenue.
Speaker 3: One of the realizations in Q4 is from our investment in COCUS High Elections.
One of the realizations in Q4 is from our investment and focus on electric.
Speaker 3: Kokusai is a Japan-based manufacturer of semiconductor production equipment.
<unk> is a Japan based manufacturer of semiconductor production equipment.
Speaker 3: We invested in the business back in December of 2017 through our Asia private equity class.
We invested in the business back in December of 2017 through our Asia private equity platform.
Speaker 3: It is one of the three Carbo transactions where we've collaborated with the Hitachi Group.
It is one of the three carve out transactions, where we've collaborated with the Hitachi group.
Speaker 3: You've heard us talk about Japanese car votes as a key investment theme a number of times on these calls.
You've heard us talk about Japanese carve outs as a key investment team a number of times on these calls.
Speaker 3: Given our operational skills together with our relationships in the region, we feel particularly well positioned to pursue these investments.
Given our operational skills together with our relationships in the region, we feel particularly well positioned to pursue these investments this.
This is just the latest example for us.
Speaker 3: At the end of October , Kokusai was listed on the Tokyo Stock Exchange in the largest IPO in Japan since 2018 and the largest ever private equity-backed IPO.
At the end of October Coca side was listed on the Tokyo stock exchange in the largest IPO in Japan, since 2018, and the largest ever private equity backed IPO.
Speaker 3: The stock has performed well since pricing, trading up approximately 35% and based on last week's closing price, our total investment has now marked it over 15 times multiple money on a gross basis. We continue.
The stock has performed well since pricing trading up approximately 35% and based on last week's closing price. Our total investment is now marked at over 15 times multiple of money on a gross basis.
We continue to own 40% of the company.
Speaker 3: In addition to the positive outcome for our Asia private equity investors, the IPO also helps our branding across everything that we do in Japan.
In addition to the positive outcome for our Asia private equity investors.
IPL also helps our branding across everything that we do in Japan.
Speaker 3: And likely as a result, also creates more opportunity as we distribute K-series products in the future.
And likely as a result also creates more opportunity as we distribute case series products in this market.
Speaker 3: Turning to the firm as a whole, we still have 11 plus billion of embedded games between our investments and carried interest.
Turning to the firm as a whole we still have 11 plus billion of embedded gains between our investments and carried interests.
Speaker 3: So the future round monetization related revenue remains robust.
So the future around monetization related revenue remains robust.
Speaker 3: This is compared to 9 billion of embedded gains at the beginning of the year. So we're up roughly 25% in what has been of all to environment, while at the same time having monetized the healthy amount of that embedded gain since 1231.
This is compared to 9 billion of embedded gains at the beginning of the year. So we're up roughly 25% and what has been a volatile environment. While at the same time, having monetize the healthy amount of that embedded gain since 12 31.
Speaker 3: As you can hear, we continue to be really excited as a management team about our growth and our evolution. We have been executing on our plan of building a very high growth and high margin asset management business.
As you can hear we continue to be really excited as a management team about our growth and our evolution.
We have been executing on our plan of building, a very high growth and high margin asset management business, which benefits from and is accelerated by what we are doing across insurance.
Speaker 3: which benefits from and is accelerated by what we are doing across insurance and core private equity. With that, Scott, Craig, and I are
Private equity.
With that Scott, Craig and I are happy to take your questions.
Speaker 1: Thank you. At this time, we'll be conducting a question and answer session.
Yeah.
Thank you.
At this time, we'll be conducting a question and answer session.
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Speaker 1: So that we may address questions to as many participants as possible, we ask that you please limit yourself to one question.
So that we may address questions, who as many participants as possible. We ask that you. Please limit yourself to one question.
Speaker 1: If you have additional questions you may then re-cue and time permitting those questions will be addressed. One moment.
If you have additional questions. You May then requeue and time permitting those questions will be addressed.
One moment, please we poll for questions.
Speaker 1: Thank you. And the first question has come to the line of Craig Siegenthaler with Bank of America. Please proceed with your question.
Thank you and the first question is kind of the line of Craig Siegenthaler with Bank of America. Please proceed with your question.
Speaker 4: Good morning, Scott, or I hope everyone's doing well. Want to crack?
Hey, good morning, Scott, Rob Hope everyone's doing well.
Greg.
So two weeks ago. The press is reporting that at KKR entered into a relationship with two of the Mega online brokers.
Speaker 4: the press is reporting that KKR entered into a relationship with two of the mega online brokers.
Sell some of your retail vehicles now this approach is different than the wire houses, which are mainly selling your products like kras.
Speaker 4: Now this approach is different than the wirehouses, which are mainly selling your product like...
High net worth investors.
Speaker 4: And, you know, so I believe this is merely for...
And.
So I believe this is mainly focused on the mass affluent. So I was wondering if you could provide an update on this strategy and what you're looking to accomplish.
Speaker 4: And so I was wondering if you could provide an update on this strategy.
Okay.
Speaker 2: You want to kick off? Sure, hey Craig, what are I starting? I think the main...
Greg you want to kick off sure Hey, Craig why don't I start and I think the main.
Speaker 2: uh... takeaway from what you're mentioning is the focus we have on broadening the funnel at the top and and we're going to be focused
Hi, takeaway from what you're mentioning is the focus we have.
On broadening the funnel at the top end and we're gonna be focused.
Speaker 2: On the wirehouses here in the U.S., we're going to be focused on independent broker-dealers.
On the wire houses here in the U S. We're going to be focused on independent broker dealers.
Speaker 2: We're going to be focused on broad private wealth internationally. And the products that we've created are ones that are going to be designed and tailored for those markets, different markets geographically. Again, with a focus on broadening the funnel as much as we can. You know, one of the topics we've been
We're going to be focus on broad private wealth internationally.
And the products that we've created are ones that are going to be designed and tailored.
For those markets different markets geographically and again with a focus on broadening the funnel.
As much as we can you know one of the topics we've been particularly focused on was making sure that we could.
Speaker 2: particularly focused on was making sure that we could appeal not only to the Qualified purchaser market, but the accredited investor market again, accredited investor market is eight or nine times the size of the qualified purchaser market. So again, that's that's just one Example of a focus for us is again, just wanting to broaden that funnel at the top end as much as
Appeal not only to the <unk>.
Mollified purchaser market, but the accredited investor market again, a credit investor market is eight or nine times the size of a qualified purchaser market. So again. That's just one example of a focus for US is again, just wanting to broaden that funnel at the top end as much as we can yeah. The only thing I'd add Greg and I think it's just part of the strat.
Speaker 1: yeah the only thing i'd had crack it is part of the strategy you know our approach is really quite broad based it's global it's multi-channel all around the world so what got picked up with just one element of that in the u.s
Our approach is really quite broad based it's global it's multichannel all around the world. So what kind of picked up with just one element of that in the U S.
Yeah.
Thank you. Our next question comes from the line of Glenn Schorr with Evercore. Please proceed with your question.
Speaker 1: Our next question comes from the line of Glenn Shore with Evercore. Please proceed with your question.
Hi, Thanks very much.
Speaker 5: Let's focus on, I guess, GA a little bit. I heard your comments about potential for more blocks ahead. In quarter, the cost of insurance went up a little bit more than the net investment income. I'm curious on your thoughts on how a hire for longer environment, A, plays into that dynamic and B, plays into your distribution mix.
Let's just focus on I guess, Jay a little bit I heard I heard your comments about potential for more blocks ahead.
At quarter, the cost of insurance went up a little bit more than the net investment income I'm curious on your thoughts on how a higher for longer environment, a plays into that dynamic and in and be plays into your distribution mix.
Speaker 5: and whether or not you saw much impact from the DOL rules that have been floated.
And whether or not you you you saw much impact from the Dol rules that have been floated out there.
Thanks, very much yeah, Glenn Thanks, a lot for the question.
Speaker 3: Yeah, Glenn, thanks a lot for the question. I take a step back, and we're seeing a lot of momentum across really all aspects of GA right now. Year over year basis, our operating income's up close to 30% in the business.
Oh.
You step back and we're seeing a lot of momentum across really all aspects of GAA right now year over year basis, our operating incomes up close to 30% in the business.
Speaker 3: were seeing success distributing through the individual channel through the institutional channel. While of course you've seen cost of insurance take up over the past.
We're seeing success distributing through the individual channel.
Through the institutional channel a wall of course, you've seen cost of insurance tick up over the past 12 months, given where crediting rates on our products I think you've also seen a commensurate.
Speaker 3: 12 months given where crediting rates are on products. I think you've also seen a commensurate step up in net investment income as well. And if you look quarter over quarter, our net investment income margin ticked up a little bit north of where cost of insurance was. And so net net, we came in about 15 basis points higher on a return on half.
Step up in net investment income as well.
And if you look quarter over quarter, our net investment income.
Margin ticked up a little bit north of where.
Cost of insurance was and so net net we came in about 15 basis points higher on a return on asset.
Speaker 3: basis in GA. So we're feeling like the team's executing across all aspects of that business right now.
And so we're feeling like the team is executing across all aspects of that business right. Now you you mentioned the D O L rules I'm.
Speaker 3: You mentioned the DOL rules. I'm glad you brought that up. A punchline from our perspective is based on the draft regs that we have seen. We don't expect this to have a material impact on our business going forward.
I'm glad you brought that up a punch line from my perspective. It is based on the draft regs that we have seen we don't expect this to have a material impact on our business going forward.
Speaker 3: In many ways, the draft regs are similar to...
In many ways. The draft regs are are similar to what came out in 2016. So I think the industry is well prepared for that <unk> is well prepared for that 90 plus percent of our distribution today is through the bank and broker dealer channel. We felt this channel that is most prepared to be able to deal with whatever the regulations come out.
Speaker 3: What came out in 2016, so I think the industry.
Speaker 3: well prepared for that GA, as well prepared for that. 90 plus percent of our distribution today is through the Bank and Broker dealer channel. We feel it's this channel that's most prepared to be able to deal with wherever the regulations come out.
Speaker 3: But I think it's important to know that fundamentally we support what the regulator here is trying to accomplish. They want to make sure that consumers get the value they're paying for when they buy an investment product. And I think that's good for everybody in the space. So punchline-known material issues, and we continue to work very closely with the GA team to continue the momentum there.
But I think it's important to note that fundamentally we support with the regulator here is trying to accomplish they want to make sure that consumers get the value they're paying for when they buy an investment product and I think that's good for everybody in the space. So punchline no material issues and we continue to work very closely with the team to continue the momentum there.
Speaker 1: Next question comes from Stephen Chewback with Wolf Research.
Our next question comes from Steven <unk> with Wolfe Research. Please proceed with your question.
Speaker 6: Hi, good morning, Scott. Good morning, Rob. Good morning. Good morning. So, why did this start off with a question on the capital markets where activity continues to be subdued? But as we think about what the business could generate in a more normalized environment.
Hi, Good morning, Scott Good morning, Rob.
Good morning, So wanted to start off with a question on the capital markets, where activity continues to be subdued, but as we think about what the business could generate in a more normalized environment. The growth in your PE real estate AUM versus the average.
Speaker 6: The growth in your PE real asset AUM versus the average level in 19, so pre-COVID baseline suggests normalized capital markets fees could be about 160% higher than 2019 levels, so closer to about a 1.2 billion fee bogey. And I was hoping you could frame what your view is on normalized capital market activity, what that might look like, and is the increase in AUM, the right lens, for assessing the potential upside there.
Average level in 19, so pre COVID-19 baseline suggests normalized capital markets fees could be about 160% higher than 2019 levels. So closer to about a $1 2 billion bogey and I was hoping you could frame what your view is on normalized capital markets activity, what that might look like and is the increase in.
AUM the right lens for assessing the potential upside here.
Great. Thanks, a lot for the question.
Speaker 3: So, I'll give you a couple things on our cap of markets business and maybe I'll just start with this year and then frame how we think about the go forward.
So a couple of things on our capital markets business and maybe I'll just start with this year.
And then frame how we think about the go forward.
Speaker 3: So as you look at really 2022 and 2023, we've been a really tough operating environment for much of that period of time. IPO markets have been largely shut. Secondary markets.
So as you look at really 2022, and 2023, we've been a really tough operating environment for much of that period of time.
Markets have been largely shot secondary markets.
Speaker 3: have been close to shut the leverage finance market has been up and down But certainly more down than off and we're really proud of how that business has protected revenue In that down market If you look we were mid five hundreds terms of revenue last year
<unk> has been close to shut the leveraged finance market has been up and down.
Are they more down than up and we're really proud of how that business has protected revenue.
In that down market.
If you look we were mid five hundreds in terms of revenue last year.
Speaker 3: While year to date we're averaging about 110, 120, a quarter in that range, we do feel good about where our pipeline suggests our revenue should be in Q4. And so feel like the team's done a great job being able to protect revenue in a down market. Now, if you raised an important question around more normalized environment, if you look at 2021, we generated 840 million of revenue in a capital market business.
While year to date, we're averaging about 110 120, a quarter in that range. We do feel good about where our pipeline suggests a revenue should be in Q4.
And so feel like the team has done a great job being able to protect revenue and a down market now I think you raised an important question around more normalized environment. If you look at 2021, we generated $840 million of revenue in our capital markets business and as you.
Speaker 3: And as you suggest, we're doing more things today as a firm than we did in 2021. And I think we've got an opportunity to take greater share with a third party.
Yes, we are doing more things today as a firm than we did in 2021.
And I think we've got an opportunity to take greater share with a third party component of our capital markets franchise. So we looked at at a more normalized environment, we feel like that plus or minus $200 million a quarter is very achievable, but to us that's not the top and we're building out a platform that we think over time could have real growth off that number.
Speaker 3: of our capital markets franchise. So if we look at a more normalized environment, we feel like that plus or minus $200 million a quarter is very achievable. But to us, that's not the top end. We're building out a platform that we think over time can have real growth off that number.
Terms of forward looking indicators.
Speaker 3: AUM could be one but I think it's really the scale and breadth of what we're doing across the firmer maybe more the breadth of what we're doing across the firm
AUM could be one, but I think it's really the scale and breadth of what we're doing across the firm or maybe more of the breadth of what we're doing across the firm as opposed to necessarily to scale. It.
Speaker 3: as opposed to necessarily the scale. It's our ability to take share.
Our ability to take share in the third party part of our business, where we think we've got some real competitive differentiators versus the marketplace I think those are more.
Speaker 3: In the third party part of our business where we think we've got some real competitive differentiators versus the marketplace. I think those are more what the indicators are to us for growth and necessarily what the AUM is for the firm. But thanks for the question. I'm part of our business that we feel really good about right now on the experience of the past 21 months.
What the indicators are to us for growth than necessarily what the O&M for the firm, but thanks for the question Ive. So part of our business that we feel really good about right now on the experience of the past 21 months relative to what it could have been or what it would have been in past cycles. I think it really speaks to the to what our team has built over the past 10 plus years.
Speaker 3: relative to what it could have been or what it would have been in past cycles, I think really speaks to what our team has built over the past 10 plus years.
Speaker 7: Yeah, thanks for the question, Stephen. There's no doubt the baseline for the capital markets business has gone up materially over the last few years. I think AUM is one metric you could look to.
Yes, Thanks for the question, Steve and there's no there's no doubt the baseline for the capital markets business has gone up materially over the last few years.
I think AUM is one metric you can look to.
You can also look to deployment and frankly, you could also to some extent look to monetization.
Speaker 7: And frankly, you could also, to some extent, look to monetizations as the capital markets business often participate.
As the capital markets business, often participates in particularly our public market exits. So I'd probably look at those few things.
Speaker 7: particularly our public market exits. So I'd probably look at those few things. As Rob said in the prepared remarks, we're seeing activity pick up in the fourth quarter across those areas. So I would expect that to flow through to the capital markets business.
As Rob said in the prepared remarks, we're seeing activity pick up in the fourth quarter across those areas. So I would expect that to flow through to the capital markets business as well.
Okay.
Our next question is from the line of Alex <unk> with Goldman Sachs. Please proceed with your question.
Speaker 8: Hey, good morning, everybody. Thanks for the question as well. I was hoping we could talk for a couple of minutes around the interplay between your deployment comments in the coming quarter and the quarters ahead and the flagship fundraising cycle, especially as it relates to some of the bigger funds like the Global Infra and North American Asia. So the North American Asia in particular still seems to have lots of dry powder. So maybe help us frame what kind of deployment outlook you're seeing for those strategies and how that informs your view on when you can come back to market.
Hey, good morning, everybody. Thanks for the question as well.
I was hoping we could talk for a couple of minutes.
Around the interplay between your deployment comments.
Coming quarter and the quarters ahead.
Flagship fundraising cycle, especially as it relates to some of the bigger.
Like the global Enterprise, North American and Asia. So.
The North American Asian, particular, Goldstein lots of dry powder, so maybe help us frame, what kind of deployment outlook youre seeing for those strategies and how that informs your view on when you can come back to the market with an excellent.
Speaker 2: Hey Alex, it's Craig. Thanks for the question. So a couple of thoughts here. First, when you look at the fun table in the back of our press release.
Yes.
Hey, Alex it's Craig Thanks for the question.
So a couple of thoughts here first when you look at the fund table in the back of our press release.
Speaker 2: The numbers you see on an invested basis will, if anything, be understated.
The numbers you see on an invested basis, well if anything be understated.
Speaker 2: as if we have dollars that are committed to an investment. Those dollars actually won't show up in that table until those dollars are actually called an investment. So I think as you look at where we are in terms of the status of those funds from an invested and committed basis.
As if we have dollars that are committed to.
And investment those dollars actually won't show up until in that table until those dollars are are actually called and invested so I think as you look at where we are in terms of the status of those funds fraud and invested and committed basis, we're actually farther along than you might think just by looking at those at that table on a face value.
Speaker 2: were actually farther along than you might think, just by looking at those, at that table on a face value.
Speaker 2: And in terms of broad timing, you know, nothing to announce specifically here, but we do expect over 24 and 25 that we'll be active in both of those, and that activity will supplement infrastructure for us, which is a front-burner topic, as well as climate.
And in terms of broad timing.
Nothing to announce specifically here, but we do expect over $24 25, there will be active.
In both of those in and that activity will supplement our it infrastructure for us which is a front burner topic.
As well as climate and on those last two we expect we will be able to give some updates on those in the first half of next year. So again it just feels like our fundraising team is going to continue to be very active.
Speaker 2: last two we expect we'll be able to give some updates on those in the first half of next year. Again, it just feels like our fundraising team is going to continue to be very active.
Speaker 1: Our next question comes from the line of Patrick Navit with Autonomous Research. Please proceed with your question.
Our next question comes from the line of Patrick Davitt with Autonomous Research. Please proceed with your question.
Speaker 9: Well, hey, good morning, everyone. So I appreciate the strong trends at Global Atlantic, you highlighted. But the May deck they put out suggested some fairly significant offsetting outflows there. So understanding you have 13 billion coming in in 4Q, but could you also give a little more specifics on how the regular way retail flows versus lapses and other outflow items have been tracking at Global Atlantic? Thank you.
Hey, good morning, everyone.
So I appreciate the strong trends that global Atlantic you highlighted.
I made that they put out suggested some fairly significant offsetting outflows theres. So understanding you have $13 billion coming in in <unk>, but could you also give a little more specifics on how the regular way retail flows versus lapses. Another outflow items have been tracking a global Atlantic. Thank you.
Speaker 3: Yes, Patrick, thanks a lot for the question. As we look forward in our business really, the way I think about it is in regular way organic part of our business and in the individual side as we look to 24, I think being that 10 to 15.
Yes, Patrick Thanks.
Thanks, a lot for the question.
Look forward in our business really the way I think about it is in regular way organic part of our business and in the individual side and as we look to 'twenty four.
It could be in that 10 to 15.
Speaker 3: billion dollar range of organic flows, the institutional part of our business, again more on that organic flow, basis probably in that plus or minus 10 billion dollar range.
Dollar range of organic flows the institutional part of our business again more on that organic flow basis, probably in that plus or minus $10 billion range.
Speaker 3: and the outflows called in the mid teens. And so on a net basis, organically, we feel like GAs should have.
And the outflows.
Call it in the mid teens.
So on a net basis organically, we feel like <unk> should have.
Speaker 3: call it five to ten billion dollars of organic growth next year. Now you layer on top of that block activity as an example, the MetLife block, which is all incremental and upside to that.
Call it $5 to $10 billion of organic growth next year and now you've layered on top of that block activity. As an example, the Metlife block, which is all incremental and upside to that as we look at our pipeline on the block side. It feels as good today as it has since we started our ownership the global Atlantic we're seeing some.
Speaker 3: As we look at our pipeline on the block side, it feels as good today as it has since we started our ownership of global landings.
Speaker 3: We're seeing some very specific deals out there where we can really partner with close relationships and be able to come up with win-win solutions for both us and our clients and partners in that space. And so that's really how I would think about Global Atlantic and its ability to grow over the coming 12 months, both organically and then on the block side. We continue to see real momentum there, offset, of course, as you noted, by regular way withdrawals.
Very specific.
Deals out there, where we can really partner with close relationships and be able to come up with win win solutions for both us and our clients and partners.
In that space and so that's really how I would think about global Atlantic and its ability to grow over the coming 12 months, both organically and then on the block side.
Continue to see real momentum there.
Offset of course as you noted by regular way withdrawals, yes, the only thing I would add Patrick because I wouldn't get too focused on any shorter period of time.
Speaker 7: Yeah, the only thing I would add Patrick is I wouldn't get too focused on any shorter period of time since the deal was announced in
Since the deal was announced in 2020.
Speaker 7: GA's assets have gone from $72 billion to now pro forma.
D as assets have gone from 72 billion to now pro forma.
Speaker 7: for Matt Life $158 billion. So we've meaningfully exceeded all of our expectations in terms of net growth.
For met life of 158 billion.
So we've.
Meaning flea exceeded all of our expectations in terms of net growth and we expect to see very consistent trends going forward.
Speaker 7: and we expect to see a very consistent trend going.
Speaker 1: Our next question is from the line of Brian McKenna with JMP Securities.
Our next question is from the line of Ryan Mckenna with JMP Securities. Please proceed with your question.
Speaker 10: Great, thanks. So you've recently announced a partnership with a life sciences investment firm, so could you talk about this investment a little bit, what the broader opportunity is within life sciences, how this partnership accelerates growth in this part of the market, and then how it plays into the longer term healthcare strategy?
Great. Thanks, So you've recently announced a partnership with a life Sciences investment firm. So could you talk about the investment a little bit what the broader opportunity is within life Science is how this partnership accelerates growth in this part of the market and then how it plays into the longer term health care strategy at KKR, Yeah. Thanks for the question Brian.
Speaker 3: Yeah, thanks for the question, Brian . I'll start. And so I think, as you know, we've got a $4-plus billion health care growth strategy at the firm. We've got a big private equity focus on the health care space. And our investment into Catalia, which is really a leading.
Start and so I think as you know we've got a four plus billion dollar health care growth strategy at the firm we've got a big private equity focused on the health care space and our investment in <unk> Italia, which is really a leading.
Speaker 3: Life Science Investment Forum at the...
Life Science.
Investment firm at the.
Speaker 3: more earlier stage, is a real partnership that we think can help make their business better and then also make our business better from an origination perspective. And we think we'll get a very nice return on our capital based on their business growth and the ability to help originate flow for both our health care growth strategy as well as potentially our private equity strategy, maybe strategies across our credit business, a big reason why we did that transaction.
More earlier stage.
Partnership that we think can help make their business better.
And then also make our business better from an origination perspective, and we think we will get a.
A very nice return on our capital based on their business growth and the ability to help originate flow for both our health care growth strategy as well as potentially a private equity strategy, maybe strategies across our credit business a big reason why we did that transaction.
Speaker 7: The only thing I would add, Brian , is we started our health care growth strategy a handful of years ago. That has exceeded our expectations to date. There's really two areas where we've been focused on leaning in from the standpoint of just newer business creation more recently. One is climate, which the guys mentioned.
Yeah. The only thing I would add Brian is as you know we started our healthcare growth strategy handful of years ago that has exceeded our expectations to date, there's really two areas, where we've been focused on leaning in from the standpoint of just newer business creation more recently, one is climate, which the guys mentioned and the other is this life sciences space, where we think there could be a meaningful opportunity for us over time.
Speaker 7: of being meaningful opportunity for us over time. Catalio and that partnership is just part of that.
<unk> <unk> and that partnership is just part of that effort.
Speaker 1: Our next question is from the line of Ben British with Barclays.
Our next question is from the line of Ben British with Barclays. Please proceed with your question.
Speaker 11: Hi, good morning and thanks for taking the question. I want to ask about global Atlantic. There was some press earlier, I think last month, about the possibility that KKR might have to buy back to ownership stakes from some of the old Goldman Sachs, asset management clients. So I don't know if you could speak to that. Is there any truth to it? And if not, could you at least remind us of how that arrangement works and what we should, think about or expect going forward? Thank you.
Hi, good morning, and thanks for taking the question I wanted to ask about global Atlantic. There was some press earlier I think last month about the possibility that kinky or might have to buyback to ownership stakes from some of the old Goldman Sachs asset management clients. I was wondering if you could speak to that is there any truth to it and if not could you at least remind us of how that arrangement works and what we should think about or expect going.
Forward. Thank you, yes, thanks for asking that question I'm glad you asked it because I know one that article came out Craig and his team got a lot of inbounds and questions and since the shareholder agreement.
Speaker 3: Thanks for asking that question, I'm glad you asked it because I know when that article came out, Craig Lyce and his team got a lot of inbounds and questions and since the shareholder agreement
Speaker 3: is not public, there is only so much color that the HEMNIST team were able to provide. To be very clear, take care of that no contractual obligation to buy up a minority shareholder.
It's not public there was only so much color that him and his team are able to provide to be very clear take care Scott no contractual obligation to buy out the minority shareholders at global Atlantic well, we do have is an obligation in the future to the extent that they want to seek liquidity to help them in that process, which of course, we would be happy to do.
Speaker 3: at Global Atlantic. What we do have is an obligation in the future to the extent that they want to seek liquidity to help them in that process, which of course we'd be happy to do. So no obligation on our part in any way, but of course that option remains open to us in the future as well.
So no obligation on our part in any way, but of course that option remains open to us in the future as well.
Speaker 1: Our next question comes from the line of Brian Bedell with Deutsche Bank.
The next question comes from the line of Brian Bedell with Deutsche Bank. Please proceed with your question.
Speaker 12: Great, thanks, good morning folks. Thanks for taking my questions. Maybe just to focus on the FR-Emergent Coma, I think Greg, you started off with that and you're preparing remarks, the migration up to the mid-60s from the low 60s. Can you just talk a little bit about the timing around that and is it mostly a scale-based?
Great. Thanks, Good morning folks thanks for taking my questions.
Maybe just to focus on the FRE margin comment I think Craig you you started off with that in your prepared remarks, the migration up to the mid sixty's from the low sixties.
Can you just talk a little bit about the timing.
Around that and is it mostly a scale based.
Speaker 12: Improvement and so therefore does that require the flagship fundraising cycle to come in? And then I guess just strategically how you think about that in terms of versus investing in growth initiatives and I think the big one I'm thinking about is the wealth distribution particularly if you're having Good traction there. Is that something that you're sort of happy to To to grow that and maybe delay the improvement to the mid-60s? Yeah, Brian . Thanks for the question. I'll
Improvement in so therefore does that require that.
Flagship fundraising cycles would come in.
And then I guess just strategically.
Strategically how you think about that in terms of versus investing in growth initiatives and I think the big one I'm thinking about is the wealth distribution, particularly if you're having good traction there or was that something that you're sort of happy to spend into two to grow that and maybe delay the improvements in the mid sixties yep.
Yes, Brian Thanks for the question I'll start.
Speaker 3: so i think we can do both is is the short answer i think we can invest into the firm for growth like we've been doing and expand our march
So I think we can do both is the short answer I think we can invest into the firm for growth like we've been doing and expand our margins.
Speaker 3: No timetable as at least today to when we think we can achieve that mid-60s sustainable FRE margin, but I can tell you standing here today I have more confidence.
No timetable as at least today to when we think we can achieve that mid <unk> sustainable FRE margin, but I can tell you sitting here today I have more confidence than I ever have in our ability to be able to achieve that over time I also would say I don't think thats the cap for us as we look at the business that we're building across our asset management plan.
Speaker 3: that I ever have in our ability to be able to achieve that over time. I also would say, I don't think that's the cap for us. As we look at the business that we're building across our asset management platform, I think there's opportunity over the long term to expand margins north to that mid-60% level. But one step at a time, we've got, again, a lot of conviction that we're going to be able to achieve that a more sustainable basis and we'll give you updates, of course, on our progress.
For them I think there is opportunity over the long term to expand margins north of that mid 60% level, but one step at a time, we've got again a lot of conviction that we're going to be able to achieve that a more sustainable basis.
And we'll give you updates of course on our progress.
Speaker 1: Our next question is from the line of Mike Brown with KBW. Please proceed with your question.
Our next question is from the line of Mike Brown with <unk>. Please proceed with your question.
Speaker 6: Great, I want to ask you on the 2026 targets. Clearly the growth from your next flagship runner is in campaign and the margin comments you just made Rob, we'll put you on a visible path to that 2026 FOR target. But maybe it helped me unpack the key drivers to the doubling of DE. So I assume.
Greg wanted to ask on the 2026 targets clearly the growth from your next flagship fund raising campaign and the margin comments you just made Ralph I'll put you on a visible path to that 2026 FRE target.
Can you give maybe help me unpack the key drivers to the doubling of GE, So I assume.
Speaker 6: If I assume GA can maybe grow at like a low teens growth rate and maybe correct me if I'm wrong, but if I use that assumption and then I assume.
<unk> can you maybe grow it like a low teens growth rate and maybe correct me if I'm wrong, but if I, if I use that assumption and then I assume.
Speaker 6: seems to imply I guess a meaningful ramp in the performance fees. Is that the right way to think about the building blocks and then what kind of gives you confidence that you'll get to
It seems to imply I guess, a meaningful ramp in the performance fees is that the right way to think about the building blocks and then what kind of gives you confidence that you'll get to that that performance fee contribution piece since that's somewhat out of your control. Thank you.
Speaker 6: that performance be contribution piece since that's somewhat out of your control.
Speaker 3: Great, thanks for the question Mike. So I think it's really multiple different factors.
Great. Thanks for the question Mike So.
I think its really a multiple different factors.
Speaker 3: I think it's FR E-GROF as you stated and we can unpack that a little bit. We definitely see further opportunities to grow and expand what we're doing with global Atlantic to increase our earnings contribution from there. And then it's our $11 billion plus dollars of embedded gains that sit on our balance sheet today. And that gives us a great deal of comfort in terms of our forward-looking earnings power. So it's a combination of those three things working together that ultimately gives us confidence.
I think it's FRE growth as you stated and we can unpack that a little bit and we definitely see further opportunities to grow and expand with them with global Atlantic to increase our earnings contribution from there and then it's our 11 billion plus dollars of embedded gains that sit on our balance sheet today and that gives us a great deal of comfort in terms of our forward looking earnings.
Power. So it's a combination of those three things working together that ultimately gives us confidence in our numbers and we said it last call and I'll reiterate this call we feel more comfortable today than we did when we initiated that guidance I think two years ago, now and our ability to achieve our numbers and I think thats, saying.
Speaker 3: our numbers. And we said at last call, and I'll reiterate this call, you know, we feel more comfortable today than we did when we initiated that guidance.
Speaker 3: I think two years ago now, in our ability to achieve our numbers, and I think that saying
Speaker 7: uh... quite a bit because if you think about what happened at least in our space since we initiated that guidance two years ago we've had very tough overall operating conditions tough fundraising market uh... tough uh... overall monetization volatile marks across the board but we're sitting here now telling you two years in that we feel even in spite of that more confident than ever in our ability to achieve our targets yeah let me pick up mike and appreciate you asking the question about twenty six
Quite a bit because if you think about what's happened at least in our space. Since we initiate that guidance two years ago, we've had very tough overall operating conditions top fundraising market.
Tough overall monetization volatile marks across the board, but we're sitting here now telling you two years in that we feel even in spite of that more confident than ever in our ability to achieve our targets. Yes, let me pick up Mike and I. Appreciate you asking the question about 26.
Inside the firm it just feels really optimistic candidly.
Speaker 7: You know, we've got a lot of different ways to grow. As Rob and Craig mentioned, we've been raising a lot of capital, but our flagship fundraisers have not been in those numbers.
We've got a lot of different ways to grow.
As Rob and Craig mentioned, we've been raising a lot of capital, but our flagship fundraisers have not been in those numbers.
Speaker 7: We're coming. We have a lot of younger and scaling strategies, and I'm not sure it's fully appreciated just how young the firm is. But if you look at the last 12 months, nearly 80% of the money we've raised has been from strategies less than five years.
And those are coming.
Have a lot of younger and scaling strategies and I'm not sure. It's fully appreciated just how young the firm is but if you look at the last 12 months nearly 80% of the money. We've raised has been from strategy is less than five years old.
Speaker 7: If you look at the next 12 to 18 months, there's roughly 30 different strategies we'll be in the market with. 22 of those are fund 1, 2, or 3, or equivalent.
If you look at the next 12 to 18 months is roughly 30 different strategies will be in the market with 22 of those are fun, one two or three or equivalent.
Speaker 7: So we're quite young and we've been able to scale through this cycle and as we gain more traction and find our way at that inflection part of the curve, we see a lot of upside as these businesses start to get closer to top three and everything we're doing. Private wealth is newer for us so we have a lot of upside ahead of us. hey so.
So we're quite young and where it's been able to scale through this cycle and as we gain.
More traction and find our way at that inflection part of the curve.
We see a lot of upside as these businesses start to get closer to the top three in everything we're doing private wealth is newer for us so.
So we have a lot of upside ahead of US Jay we talked about Asia has significant growth opportunities as well. So the reason you're hearing the optimism is probably five to 10 years ago. We were talking about all of these businesses that we started that.
Speaker 7: So the reason you're hearing the optimism is probably five to ten years ago, we were talking about all these businesses that we started.
Speaker 7: that would take 10 plus years to get to scale. And a lot of that is just starting to happen in this period of time, which is why, despite the operating environment, we're still quite optimistic.
That would take 10 plus years to get the scale and a lot of that is just starting to happen in this period of time, which is why despite the operating environment, we're still quite optimistic.
Speaker 1: Our next question is from the line of Michael Pfeiffer with Morgan Stanley .
Our next question is from the line of Michael Cyprus with Morgan Stanley. Please proceed with your question.
Speaker 10: Thank you for kicking the question. Just wanted to ask on private credit with the new bank capital rules. Just curious how you see that opportunities that potentially unfolding any particular areas you view as most attractive coming at his bank's versus less attractive for KKR and other any steps. You guys need to take at this point in order to capture that, any gaps you need to fill in. And then just housekeeping question for Rob to thumb to appointment and realization off the balance sheet in the quarter.
Good morning, Thanks for taking the question just wanted to ask on private credit with the New Bank capital rules. Just curious how you see that opportunities that potentially unfolding any particular areas you view as most attractive coming out as banks versus less attractive brickyard are there any steps you guys need to take at this point in order to capture that any gaps you need to fill in and then just a housekeeping.
Question for Rob just on deployment of realizations off the balance sheet in the quarter.
Speaker 3: Why don't I start with the deployment and realization and Craig will pick up when some of the private credit related questions. So like this quarter, we're roughly 300 million of deployment and 300 monetization off our balance sheet. Say on the deployment side, it's pretty broad base to cross our platform on the monetization side, maybe a little bit heavier waiting towards real assets.
Why don't I start with the deployment and realization that Craig will pick up in some of the private credit related question. So like this quarter were roughly $300 million of deployment of 300 monetization off our balance sheet say on the deployment side, it's pretty broad based across our platform on the monetization side, maybe a little bit heavier weighting towards real assets.
Speaker 2: And Mike is correct just in terms of on the bank topic. Look, I think...
And Mike It's Craig just in terms of on the bank topic look I think.
Speaker 2: Our team remains very active as it relates to finding opportunities with the bank. So you would have seen a press release in Q3 focus on the acquisition of a portfolio from a regional bank through our AVF platform and that activity will continue. But when you take a step back and look at our platform, excuse me.
Our team remains very active.
As it relates to finding opportunities with the banks you would have seen our press release in Q3 focus on the acquisition of a portfolio from a regional bank through our ABF platform in that activity.
We will continue.
But when you take a step back and look at our platform excuse me.
Yeah.
Speaker 2: You know, we're over 80 billion of private credit AUM 47 and asset-based finance.
We're over $80 billion of private credit AUM, 47% and asset based financing 36 indirect lending and if you think of asset based finance for a moment lets say <unk> five trillion market opportunity.
Speaker 2: indirect lending. And if you think of asset based finance for a moment, you know, it's a $5 trillion market opportunity.
Speaker 2: and there are real secular tailwinds at play here. And in our view against this really enormous opportunity, you've got to lack a scale capital. At the same time, as you know, many traditional providers.
And there are real secular tailwind at play here and in our view against this really enormous opportunity you've got a lack of scale capital at the same time as you know many traditional providers are even further.
Speaker 2: are even further retrenching. So it's an area that I think we would highlight as one that we just think we're really well positioned to continue to draw.
Retrenching. So it's an area that I think we would highlight is one that we just think we're really well positioned to continue to drive real long term growth here, yes, Mike.
Speaker 7: Yeah, Mike, you asked if there's any gaps. There's nothing that I would point to in terms of a gap. We've got a big organic build.
Mike you asked if there's any gaps theres nothing that I would point to in terms of a gap, we've got a big organic build opportunity here.
Speaker 1: Our next question comes from the line of Chris Katowski with Oppenheimer. Pleased to see you with your question.
Our next question comes from the line of Chris Kotowski with Oppenheimer. Please proceed with your question.
Speaker 7: yeah good morning i guess i wonder if you could spend the minute or two talking about uh... your approach to uh... the real estate businesses uh... both in the united states in globally i mean your your latest flagship fund in the united states has been
Yes, good morning.
I guess I wonder if you could spend a minute or two talking about.
Our approach to.
The real estate businesses, both in the United States and globally I mean, your latest flagship fund in the United States has been mostly invested already and.
Speaker 7: mostly invested already and you know on the one hand i guess it it just doesn't feel like we're anywhere near the and to the cycle in office or and you know their concerns about the impact of rising rates but on the other hand you know every every commercial bank in the world if trying to reduce their exposure to real estate so this is usually the kind of
On the one hand, I guess it just doesn't feel like we're anywhere near the end of the cycle in office or in their concerns about the impact of rising rates, but on the other hand, you know every every commercial bank in the world.
Is trying to reduce their exposure to real estate. So this is usually the kind of.
Speaker 13: environment where you know private equity sponsors can thrive so the what what's what's your general view on uh... on on real estate is it's a lot of time to be cautious and defensive or is the time to lean in you
Environment, where.
Private equity sponsors can thrive so.
What's what's what's your general view on on real estate as it still time to be cautious and defensive or is this the time to lean in.
Yeah, why don't I start with that.
Speaker 2: The platform overall and the unsure Scott will add on as it relates to opportunities in the tone of the team and the environment. Just the level said, we're 65 billion of AEM today with a very good balance between real estate, equity and real estate.
The platform overall, and then I'm sure Scott will will.
We will add on as it relates to opportunities in the tone of the team and the environment.
Just to level set where 65 billion of.
AUM today with a very good balance between real estate equity and real estate credit.
Speaker 2: We have round numbers, $30 billion in equity, $35 billion in credit. We have opportunistic strategies across the U.S., Europe , Asia. In the U.S., we have a Core Plus vehicle that's now expanded into Europe and Asia. We have a half-dozen or so credit vehicles.
We have round numbers 30 billion in equity $35 billion in credit.
We have.
Opportunistic strategies across the U S Europe Asia, and the U S. We have a core plus vehicle.
That's now expanded into Europe, and Asia, we had a half dozen or so credit vehicles. So it's a it's a global business across multiple strategies fully integrated that can create solutions up and down the capital structure across equity and debt in the U S Europe and Asia and that's how we're situated.
Speaker 2: So it's a global business across multiple strategies.
Speaker 2: And that's how we're situated against the opportunity.
Against the opportunity now your point on the current environment is one that's really interesting because we think in the go forward looking over the coming.
Speaker 2: Now your point on the current environment is one that's really interesting, because we think in the go forward looking over the coming 1224 months we're very constructive.
12 to 24 months, we're very constructive on on those opportunities I think as it relates to.
Speaker 2: on those opportunities. I think is it relates to a couple of those. I think first, look, there's a wave of maturities and capital needs that are coming. And this is not.
A couple of those I think first look there was a wave of maturities and capital needs that are coming and this is not U S office.
Speaker 2: These are assets that are in very strong performing sectors. So I think excellent assets.
These are assets that are in very strong performing sectors, I think excellent assets, but excellent assets with very levered capital structures and this is going to take some time to work through but this is an example of an opportunity that we're very actively talking about with our.
Speaker 2: but excellent assets with very levered capital structures. And this is going to take some time to work through, but this is an example of an opportunity that we're very actively talking about with our limited partners as we see and think through opportunities ahead in terms of our opportunistic pools of capital. And the second I'd mention again, would be real estate credit.
Limited partners as we see and think through opportunities ahead in terms of our opportunistic pools of capital in the second I had mentioned again would be real estate credit. So the dislocations that in our view are creating really interesting opportunities.
Speaker 2: So the dislocations that in our view are creating really interesting opportunities.
Speaker 2: You have high base rates, you know, spreads have widened meaningfully for new credit originations, terms have tightened.
You have high base rates spreads have widened meaningfully.
For new credit originations terms of Titans.
Speaker 2: And so today's CRE loans have lower LTVs, better interest coverage, higher interest rates with more lender-friendly covenants and structures.
So today's CRE loans have lower ltvs better interest coverage.
Higher interest rates with more lender friendly covenants and structures. So if you were to look back two plus years ago.
Speaker 2: So if you were to look back two plus years ago, at those subordinated tranches, pricing would have moved up from the load of single mid digits two years ago to load double digits today. And again, in our view, taking less...
Those subordinated tranche is.
Pricing would have moved up from the low to single mid digits two years ago into low double digits today and again in our view taking less risk.
Speaker 7: with lower LTVs and better terms. So I think as we think of how we're situated, we're very constructive and think we're in a position to be forward leaning. I'll let you pick it up from there. Sure, thanks for the question, Chris. Look, we started our real estate platform probably 10 to 12 years ago, somewhere in there, call it 2011, 12, Chris. And we were in building that business over a period of time where obviously rates were dropping.
With lower Ltvs and better terms. So I think as we think of how we're situated we're very constructive and think where we're in a position to be forward leaning.
I'll, let you pick it up from there sure. Thanks for the question, Chris look we start with our real estate platform.
10 to 12 years ago somewhere in that call. It 2011 12, Chris.
And we've been building that business over a period of time, where obviously rates were dropping.
Speaker 7: We were seeing a significant move in cap rates in one direction. I think our team has been incredibly thoughtful about how they built the business. It's been very thematically focused, perhaps our most thematic investing business across.
We were seeing a significant move in cap rates in one direction I think our team has been incredibly.
Thoughtful about how they built the business, it's been very thematic Lee focus, perhaps our most thematic investing business across the firm.
Speaker 7: As a result, very careful about where they were deploying capital. As a result, we don't really have much U.S. office exposure.
As a result.
Very careful about where they were deploying capital as a result, we don't really have much U S office exposure is just one example.
Speaker 7: But we've been building across opportunistic equity, to your point about the fund table, core plus real estate, and we have a very large real estate credit.
But we've been building across opportunistic equity to your point about the fund table.
Core plus real estate and we have a very large real estate credit business.
Speaker 7: So in terms of kind of where we stand, we're continuing to raise capital. I think that the real estate credit opportunity is showing up to Craig's point before the equity opportunity gets really interesting. But we think that will be even more interesting with time. And so we're continuing to raise capital deploying selectively all around the world.
So in terms of kind of where we stand we're continuing to raise capital I think the real estate credit opportunity is showing up to Craig's point before the equity opportunity gets really interesting, but we think that will be even more interesting with time and so we are continuing to raise capital deploying selectively all around the world.
Speaker 7: And, you know, getting ready for things to get even more attractive as we head into the next several quarters. And one of the ways we've been able to grow this business is through Global Atlantic, which we expect to continue to be.
And getting ready for things to get even more attractive as we head into the next several quarters and one of their ways. We've been able to grow this business is through global Atlantic, which we expect to continue to be the case.
Speaker 7: So we're really optimistic about what this business can be and I think you're right. It's periods of time like this where you can grow significantly, especially if we continue to see valuations under pressure.
So we're really optimistic about what this business can be and I think youre right. Its periods of time like this where you can grow significantly, especially if we continue to see valuations under pressure.
Yeah.
Speaker 1: Thank you. As a reminder, to ask a question, you may press star 1 at this time. And we ask you please zoom yourself to one question.
Thank you so as a reminder to ask a question you May press Star one at this time and we ask you. Please limit yourself to one question.
Speaker 1: The next question comes from the line of Brian McKenna with JMP Security.
The next question comes from the line of Brian Mckenna with JMP Securities. Please proceed with your question.
Speaker 10: Thanks for the follow up. So just two quick items for Rob, the interesting come and dividends line, kicked up in the quarter. What drove this and is the $120 million quarterly run rate level, a good starting point moving forward, and then out of 400 million plus of monetization slated for the fourth quarter. How much of that is tied to March?
Thanks for the follow up so just two quick items for Rob the interest income and dividends line ticked up in the quarter. What drove this and is the $120 million quarterly run rate level, a good starting point moving forward and then the 400 million plus of monetization slated for the fourth quarter, how much of that how much of that is tied to Marshall wace.
Speaker 3: Yep, great. Thanks for the question. Some of the interest and dividends as just an honestly a function of rates going up and we're beneficiary that on our cash balances and some of our floating grade exposure on the balance sheet. As it relates to the 400 plus million, I'd say call it 80% of that is more carried interest than 20% of that would be balance sheet income and our incentive fee for Marshall Ways.
Okay, great. Thanks for the question.
Some of the interest and dividends just honestly a function of rates going up and we're a beneficiary of that on our cash balances and some of our floating rate exposure on the balance sheet as it relates to the 400 plus million.
I'd say.
Call. It 80% of that is more carried interest and 20% of that would be balance sheet didn't come in and our incentive fee from Marshall wace in the quarter.
Thank you.
Speaker 1: At this time we've reached the end of a question answer session and I'll turn the floor back to Craig Larson for closing remarks.
At this time, we've reached the end of a question and answer session and I'll turn the floor back to Craig Larson for closing remarks.
Speaker 2: Rob, first thank you for your help and thank you everybody for your interest in KKR. We know this is a very busy earnings period for everybody. If you have any additional questions, please follow up with us directly. Otherwise, we'll speak with everybody in 90 days.
Rob first thank you for your help and thank you everybody for your interest in KKR. We know this is a very busy earnings period for everybody. If you have any additional questions. Please follow up with us directly otherwise, we'll speak with everybody in 90 days. Thanks, so much.
Speaker 1: Thank you, everyone. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Thank you everyone. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.