Q3 2024 KKR & Co Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to Kkr's third quarter 2024 earnings conference call.
During todays presentation, all parties will be no listen only mode.
Following management's prepared remarks conference will be opened for questions.
If anyone should require operator assistance. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Speaker Change: Now I'll hand, the call over to Craig Larson partner and head of Investor Relations for KKR Craig. Please go ahead.
Craig Larson: Thank you operator.
Craig Larson: Good morning, everyone welcome to our third quarter 'twenty 'twenty four earnings call. This morning, as usual I'm joined by Rob Lewin, Our Chief Financial Officer.
Speaker Change: Scott Nuttall, our co Chief Executive Officer.
Speaker Change: We would like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at KKR Dot com.
Speaker Change: And as a reminder, we report our segment numbers on an adjusted share basis.
Speaker Change: This call will contain forward looking statements, which do not guarantee future events or performance.
Speaker Change: Please refer to our earnings release, and our SEC filings for cautionary factors about these statements.
Speaker Change: So to begin this quarter, we thought we would highlight three things.
Speaker Change: As you would have already seen through our earnings release, we had a strong Q3.
Speaker Change: Few related earnings for the quarter eclipsed $1 billion for the first time.
Speaker Change: On a per share basis, the $1.12 of FRE per share is 32% ahead of the results we reported just last quarter.
Speaker Change: Which was up until today a record figure for KKR.
Speaker Change: And the Eni per share of one dollar and 38 cents is the second highest quarterly figure we reported in our history.
Speaker Change: Over 50% compared to Q3 of last year.
Speaker Change: So impressive gross and delivered in a quarter, where the pace of exit activity across our industry is still accelerating.
Speaker Change: Second you're seeing tangible signs of momentum across our operating metrics.
Speaker Change: Investment performance continues to be a bright spot as we perform on behalf of our clients and reflecting this performance. Our gross unrealized carried interest balance increased 11% from just last quarter and has increased 42% compared to one year ago.
Speaker Change: On the heels of strong investment performance, we raised $87 billion of new capital year to date. This.
Speaker Change: This is more than double the amount we raised over the first nine months of 2023.
Speaker Change: And we remain at an early stage of our current fundraising Super cycle at the same time that we're seeing continued progress in scaling across our wealth initiatives.
Speaker Change: And deployment year to date total of 61 billion also more than doubled the investment activity reported over the first nine months of 2023.
Speaker Change: And third Youre seeing tangible signs of how catchy or in our business model in our view can deliver differentiated financial results for all of us as shareholders.
Speaker Change: Total operating earnings remember this is our fee related earnings together with our insurance segment as well as the net dividends from strategic holdings.
Speaker Change: Our $1 47 per share in Q3.
Speaker Change: These are a more durable businesses.
Speaker Change: So looking at this differently total operating earnings the more durable and recurring pieces of our business comprised over 80% of our pretax earnings as a firm for Q3 as well as on a year to date and a trailing 12 month basis.
Speaker Change: And thinking through the profile and trajectory of total operating earnings remember the we expect the net dividends from strategic holdings to increase materially over the coming years.
Speaker Change: We believe strategic holdings will be a truly unique driver of future financial performance for <unk> for years to come.
Speaker Change: And finally also highlighting our business model and how we work together the results we reported in the third quarter in our capital markets business are noteworthy with $424 million of capital markets revenues in the quarter driven.
Speaker Change: Driven by the increased investment activity that I mentioned, a moment ago.
Speaker Change: So with that as an introduction, let me walk through our segment income statement in more detail.
Speaker Change: Management fees in the quarter were 893 million, representing an increase of 5% since Q2 and 18% year over year.
Speaker Change: Again, 18% growth in management fees year over year.
Speaker Change: This increase was driven by fees turning on in the quarter for our flagship infrastructure fund.
Speaker Change: Final close of Ascendant and fees from global climate as well as continued success within our private wealth vehicles.
Speaker Change: Total transaction and monitoring fees totaled 467 million. This includes the $424 million of capital markets fees mentioned, a moment ago, a record figure for us as a public company.
Speaker Change: Fee related performance revenues in the quarter were $57 million. This.
Speaker Change: This quarter was the first quarter, our onshore case series in for vehicle earned its annual incentive fee.
Speaker Change: And as you'll recall, our offshore vehicle earned its annual incentive fee for the first time last quarter in Q2.
Speaker Change: So with good performance, we expect this cadence to continue annually for both our onshore and offshore vehicles.
Speaker Change: In aggregate fee related revenues were $1 4 billion. This is up over 50% compared to the third quarter of 2023.
Speaker Change: Do you related compensation as usual was right at the midpoint of our guided range, which as a reminder, 17, 5%.
Speaker Change: Other operating expenses came in at $168 million.
Speaker Change: As we noted earlier this year, we would expect this line item to increase modestly over time.
Speaker Change: As an example, we do expect placement fees to increase his fundraising continues to ramp.
Speaker Change: So putting this altogether FRE was just over $1 billion for the quarter or $1 12 per share with an FRE margin of 71%.
Speaker Change: And FRE per share is up 78% compared to Q3 'twenty three.
Speaker Change: Insurance operating earnings were $308 million for the quarter.
Speaker Change: The run rate here is still at that $250 million level, plus or minus as we discussed on last quarter's call as the results. This quarter benefited from approximately $50 million of earnings that came primarily from <unk> annual actuarial assumption review.
Speaker Change: Strategic Holdings operating earnings were $7 million in Q3, and we expect a similar level in Q4.
These figures compare to the $62 million of net dividends reported for the first half of 2024, which were ahead of our expectations.
Speaker Change: And as we've discussed the trajectory of these earnings wont be linear in these early days.
Speaker Change: And more importantly, we continued to see consistent growth across the underlying businesses and are tracking nicely towards our expected 300 plus million of net dividends by 26, and 600 plus million by 2028.
Speaker Change: And as context for the portfolio as a whole kitschy our share of the 12 months revenue and EBITDA generated by these 18 businesses was $3 6 billion and approximately $900 million respectively.
Speaker Change: And year over year, we saw 14% like for like growth in revenue and 11% growth in EBITDA.
Speaker Change: The portfolio of scales and continues to grow nicely and importantly, again remains on track to deliver meaningful net dividends in the years ahead.
Speaker Change: So in aggregate total operating earnings were $1 47 per share a record quarter.
And 25% ahead of last quarter.
Speaker Change: And represented 81% of segment earnings.
Speaker Change: Moving on to investing earnings within our asset management segment realized performance income was $392 million and realized investment income was $152 million and.
Speaker Change: And we had 88 million of net realized investment income within our strategic holding segment. So in total investing earnings after compensation were $318 million.
Speaker Change: After interest expense and taxes adjusted net income was $1 2 billion or $1 38 per share up 57% on a year over year basis from the third quarter of last year.
Speaker Change: Now finally, turning to investment performance and page 10 of the earnings release.
Speaker Change: The traditional private equity portfolio appreciated, 5% in the quarter and 17% in the last 12 months.
Speaker Change: Opportunistic real estate was up two in the quarter and up three in the LTM.
Infrastructure continues to perform well up 6% in Q3 and 18% in the LTM.
Speaker Change: And then credit the leveraged credit composite was up too in the alternative credit composite was up three in the third quarter.
Speaker Change: And performance here over the last 12 months was up 11 and 12% respectively.
And with that I'm pleased to turn the call over to Rob.
Rob Lewin: Thanks, a lot Craig and thank you all for joining our call. This morning.
Rob Lewin: Last quarter, we highlighted that we were seeing significantly greater market activity and momentum across the firm.
Rob Lewin: Those trends were clearly seeing the results that Craig just ran through.
Rob Lewin: And a lot of ways. This was a quarter, where the numbers speak for themselves.
Rob Lewin: So I thought that I would focus on a few of the key drivers looking forward.
Rob Lewin: Deployment.
Rob Lewin: Monetization.
Rob Lewin: <unk> racing.
Rob Lewin: As well as our unique business model.
Rob Lewin: Starting first with deployment.
Rob Lewin: We have seen a meaningful acceleration in activity.
Rob Lewin: And if you take a step back we have built scaled global businesses to invest behind many of the Mega themes that are driving global growth.
Rob Lewin: We discussed this at Investor day earlier this year.
I'll highlight three particularly significant areas. This morning.
Rob Lewin: Number one is infrastructure.
Rob Lewin: No that the need for infrastructure investment is massive.
Rob Lewin: And our footprint here positions us incredibly well.
Rob Lewin: Global Infra business is now scaled to 77 billion, although U N.
Rob Lewin: Remember, we were just 13 billion five years ago, and all of that growth has been organic.
We are particularly well positioned across all things digital infrastructure.
Rob Lewin: And we are seeing this theme play out globally.
Rob Lewin: There are really three pillars of activity here.
Rob Lewin: The first is mobile infrastructure, so think of the tower industry.
Rob Lewin: Second is fixed line infrastructure fiber to the home.
Rob Lewin: Third our themes and the cloud AI storage and data center space.
Rob Lewin: Our footprint in data centers is particularly large.
Rob Lewin: To give you a sense. We currently on four platforms operating across the U S Europe and Asia.
Rob Lewin: And looking on a 100% owned basis, because we don't own 100% of all of them.
Rob Lewin: The total enterprise value of those platforms and they're contracted and highly visible pipeline is over $150 billion.
Rob Lewin: The second thing that I wanted to highlight this morning is credit.
Rob Lewin: The credit markets that we participate in is a 40 plus trillion dollar market.
Rob Lewin: And we are seeing the benefits of a scaled global platform with 240 plus billion of AUM.
Rob Lewin: Our asset based finance team as an example.
Rob Lewin: <unk> to be particularly active.
Rob Lewin: In total AUM across our ABF platform exceed 65 billion, that's up 40% versus last year.
Rob Lewin: And we have a real leadership position.
Rob Lewin: The area that has significant market tailwind.
Rob Lewin: And finally <unk>.
Rob Lewin: Asia remains one of the most dynamic parts of the world.
Rob Lewin: We've had a meaningful presence in the region for close to two decades and are by far the leading alternatives platform on the ground today with nearly 70 billion of AUM.
Rob Lewin: We are incredibly well positioned to generate significant scale and value for our enterprise over the next decade plus.
Rob Lewin: And we are particularly excited about the opportunities in Japan across multiple asset classes.
Rob Lewin: <unk> is a market where today, we have real leadership.
Rob Lewin: We opened our first office in the country in 2006, so almost two decades ago.
Rob Lewin: Together with T. J R. M. We have over 200 people in Tokyo, helping us source and originate investment opportunities up and down the capital structure.
Rob Lewin: Global Atlantic is now closed on two reinsurance transactions with the last within the last 12 months and.
Rob Lewin: And in aggregate, we have 25 billion of AUM across all of our strategies in Japan.
Rob Lewin: Taken together, our footprint provides us with a lot of confidence around competing in the local markets and further scaling from here.
Rob Lewin: Turning next to monetization.
Rob Lewin: We've seen an uptick here given readily accessible debt markets, the improved tone across global equity markets and increased M&A volumes.
Rob Lewin: To give you a sense of this the total gross proceeds from monetization activity in our private equity and real assets businesses year to date had been approximately $13 billion.
Rob Lewin: That is up over 60% from the same time last year and as we look ahead presuming the market backdrop remains constructive we expect youll see a further acceleration of activity across the industry.
Rob Lewin: And against this backdrop, we feel very well positioned.
Rob Lewin: One of the areas that we watch closely as a management team is the maturity of our portfolios.
Rob Lewin: Today, we are in a very good position, which reflects our discipline, we think around investment pacing and linear deployment.
Rob Lewin: First.
Rob Lewin: We have a number of public positions with meaningful embedded gains.
Rob Lewin: As of quarter end six of our sizeable positions rich rating between four times and over 30 times cost.
Rob Lewin: Just looking at our private equity portfolio overall over 60% of fair value is marked at one five times cost or greater with approximately 30% marked at two times cost or greater.
In addition, our real assets businesses are currently under earning as our portfolios continue to mature.
In total our gross unrealized carried interest stands at $7 9 billion at quarter end.
Rob Lewin: Is up 40% year on year.
Rob Lewin: And looking more broadly if you include our balance sheet investments. So as a reminder, this does not include core private equity. The total embedded gains are $10 9 billion, which is also up 40% year on year.
Rob Lewin: When you factor in that we have been monetizing at a healthy pace relative to the industry.
Rob Lewin: That really does speak to the strength of our investment performance as well as the health of our global portfolio.
Rob Lewin: And I think all of this really positions us well to generate future investing earnings.
Rob Lewin: Turning next to new capital raised.
Rob Lewin: This totaled 24 billion for the quarter, bringing us to over 85 billion year to date.
Rob Lewin: In the quarter nearly half of this activity was driven by credit <unk>.
Rob Lewin: Our business has grown alongside the capabilities of global Atlantic.
Rob Lewin: Two additional topics of note here.
Rob Lewin: First our K series vehicles saw strong fundraising with over $2 billion of new capital raised in Q3, driven by our private equity and our infrastructure strategies.
Rob Lewin: And looking at case series across all four investing protocols. We are now at 14 billion of AUM.
Rob Lewin: That's up from $5 billion a year ago.
Rob Lewin: We're continuing to launch our products in new platforms and are still ramping on those that we have been added to already.
Rob Lewin: We remain really encouraged by our progress to date with a tremendous amount of opportunity still in front of us.
Rob Lewin: And second over time, we have talked about long dated multi asset class strategic partnerships that have recycling provisions.
Rob Lewin: Given the breadth as well as the connectivity across our firm.
Rob Lewin: We are uniquely positioned to create these types of partnerships.
Rob Lewin: This this quarter.
Rob Lewin: Quarter, rather we closed on a $3 billion real asset strategic partnership with a large sovereign wealth fund, which we expect will positively impact both our infrastructure and real estate platforms for two plus decades.
Rob Lewin: Before I conclude I did want to spend a few minutes on a couple of elements of our model that I think are really unique and also operating at a very high level.
Rob Lewin: First on global Atlantic on the last couple of earnings calls, we talked about G. Eight operating with elevated levels of liquidity. After the large block transactions closed at the end of last year as well as early this year.
Rob Lewin: We have seen increased coordination and investment activity across several of our asset classes, including now infrastructure real estate and credit.
Rob Lewin: We remain encouraged by the quality of the deal flow that we were able to match up against some of the very long dated liabilities that we have taken on.
Rob Lewin: And the second area I want to touch on was that you really saw the power of our business model this quarter with our capital markets business producing record revenues of $424 million.
Rob Lewin: This reflected activity across infrastructure traditional private equity in credit as well as existing portfolio company opportunistic financings and third party transactions.
Rob Lewin: While the quarter did benefit from a few sizable fee events as well as timing.
Rob Lewin: Around 100 different transactions contributed to the outcome this quarter.
Rob Lewin: Which demonstrates the breadth and diversification of our business.
Rob Lewin: Now, we don't think 400 plus million dollars is the new quarterly run rate for our capital markets business, but this quarter really illustrates the degree to which our model is built to capture very significant economics.
Rob Lewin: We have built this part of our business very deliberately.
Rob Lewin: And being able to achieve these types of outcomes is not a surprise.
Rob Lewin: Just to close out.
Rob Lewin: Our management team remains incredibly excited about the potential of our firm.
Rob Lewin: And our ability to inflect up in a recovering deal and exit environment.
Rob Lewin: And as we look to the rest of the year.
Rob Lewin: We will continue stayed just as focused on scaling our businesses and taking full advantage of the unique capabilities that our model presents.
Rob Lewin: With that Scott, Craig and I are happy to take your questions.
Rob Lewin: Thank you.
Speaker Change: Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad and the confirmation so to your line is in the question queue.
Speaker Change: Let's start to if you would like to remove your question from the queue.
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Speaker Change: And we also ask that you limit yourselves to only one question and then re queue. If you have a follow up.
Speaker Change: Our first question comes from the line up Craig you're getting older.
Speaker Change: Bank of America. Please proceed.
Speaker Change: Yeah.
Craig Larson: Good morning, Rob Craig I hope everyone's doing well.
Craig Larson: My question is on the infrastructure business. So very strong returns best performing business over the last 12 months and also in the quarter.
Craig Larson: And then for also contributed to about 50% of your capital market transaction fees, which were also at record levels. So these are really big numbers for infer where return targets. The size are both smaller than piece. So.
Speaker Change: Two questions here Big picture, what's driving the outside performance and is it sustainable into 2025 and I know there is at least one large lumpy items in the capital market transaction fee line.
Craig Larson: Craig It's thank you for the comments why don't I start Rob I'll, let you pick up on the capital markets.
Craig Larson: <unk> look on in terms of the franchise as a whole I thought Raj and again, thank you for the.
Craig Larson: Fine introduction I think Raj did a great job reviewing our interim business and the opportunities we see at our Investor day, just a little over three months ago, and I guess, maybe five months ago at this point.
Craig Larson: As we look how the how the business is situated we've got a series of very distinct market segments. We've got the global infer series Asia Infra diversified core we now have the interim vehicles customized for private wealth investors and Thats, even with climate is another strategy this adjacent where theres lots of opportunity and Rob mentioned a couple.
Craig Larson: Statistics that really are super impressive five years ago AUM was $15 billion is at 930 were at $77 million, all organic and so I think what youre seeing here is a business that continues to grow and grow and scale. We do think there are scale advantages as it relates to that.
Craig Larson: The business in the formation and the outlook from here.
Craig Larson: The performance has been one that's very strong youre going to have again puts and takes in any individual quarter, but I think when you look at <unk>. When you look at performance over the trailing 12 month basis, and you look back historically, you've seen this dynamic where you're seeing consistent performance over time and of course performance is really going to be the key driver of outcome.
Craig Larson: Yeah, and I think when you look at our in for one and our effort to fund series those are our very mature.
Craig Larson: <unk> for us you've seen a very consistent.
Craig Larson: Areas of results and I think youre seeing that same pattern of performance as funds three and four than mature and you are seeing just performance progress from the time that those investment carries first again.
Speaker Change: Greg I'll pick up on just the capital markets question real quick obviously, a really strong quarter for us in capital markets. I did mentioned that we had a couple of few chunkier transactions, which is really to be expected in quarters of high levels of deployment in activity, but.
Speaker Change: But I also note that we had over 100 different transactions contribute to the quarter and I really do think it shows the diversification and breadth of the business model.
Speaker Change: And you mentioned that a big quarter as it relates to infrastructure, but obviously, we have lots of other parts of our business that contributed a great deal to our capital markets business.
Speaker Change: Over time, whether that's private equity traditional core private equity aspects credit while rebuilding across global Atlantic our geographic breadth, so lots of different ways for us to positively impact the P&L.
Speaker Change: And the next question comes from the line of Glenn Schorr with Evercore. Please proceed.
Speaker Change: Okay.
Glenn Schorr: Thank you.
Glenn Schorr: Just curious if we could talk a little bit about asset backed finance I know it was a very active quarter. You mentioned, the 45 or so percent growth to 65 billion, but I was looking for a little more color on where does where do those assets sits which which product strategies and then where are you sourcing the assets from <unk>.
Glenn Schorr: What's coming from your direct origination channels, where are you growing platforms versus forming some partnerships just little more behind the scenes would be great. Thanks.
Craig Larson: Hey, Glenn It's Craig why don't I start Scott May have a couple of things to add at the end but.
Craig Larson: You are correct that part of our business has been Super active so as you heard from Rob $66 million up 40% over the last.
Craig Larson: 12 months and the great thing about having a business of that scale.
Craig Larson: We can be relevant and a whole bunch of different levels of.
Craig Larson: Of risk reward so insurance activity when we look at global Atlantic together with our other insurance clients. So this is really investment grade really single a rated credits you look at our origination here. This is both on a funded and committed basis origination was $22 billion year to date.
Craig Larson: So on a run rate basis, we're in a $30 billion annual pace.
Craig Larson: More than double our pace of activity in 2023.
Speaker Change: And on the platforms I'm glad you mentioned the cross KKR as a whole.
Speaker Change: Look we have 35 platforms, including real estate, helping.
Speaker Change: Helping generate differentiated origination for us.
Speaker Change: 7000 people waking up every day looking to help source.
Speaker Change: Proprietary origination it's a real advantage for us and then on top of that activity you've got flow you've got partnership you've got big corporate deals.
Speaker Change: So I think you've seen a number of transactions involving our team with a lot of really big brands and financed Paypal discover would be examples that come to mind. So it just feels like there is.
Speaker Change: A lot of momentum behind the business and honestly a lot more for us to do at the same time.
Scott: Hey, Glenn it's Scott. Thanks for the question in terms of where it sits that part of your question variety of places that we have funds separate accounts.
Speaker Change: Obviously global Atlantic.
Speaker Change: These are great assets for the balance sheet and third party insurers and we've also been able to create structures that allow us to deliver this on an investment grade basis, and a non investment grade basis, depending on what the other underlying client.
Speaker Change: And I think Craig you did a great job summarizing the only other thing I would point out. This is a very large market. So call. It five trillion on its way to 700 million. So a significant opportunity for growth ahead. So $65 billion is just the start.
Speaker Change: Okay.
Speaker Change: Thank you for all that.
Speaker Change: Yes.
Yeah.
Speaker Change: And the next question comes from the line of Alex.
Speaker Change: <unk> with Goldman Sachs. Please proceed.
Speaker Change: Hey, everybody good morning.
Alex: I wanted to ask a question on real asset segment, but maybe a little bit more broadly really strong fund raising momentum there and I know, there's been a lot of focus and global infra.
Alex: But this quarter it seemed to be pretty broad base, you've talked about climate in real estate in the prepared remarks in the press release.
Alex: How are you thinking about sizing. These other flagship so climate in North America real estate and it also looks like you're pretty far along in European and Asian Real estate APAC and first so maybe a little bit more holistically, how you're thinking about fund raising outside of the Mega kind of flagship and first one there and then specifically within real estate what are you hearing.
Alex: From clients on the ground as far as demand for that product. Thanks.
Alex: Okay.
Speaker Change: Alex why don't I start it's been really great within real assets as we spent split out that business line.
Speaker Change: A couple of years ago to see the development of both of those businesses in for at this point is approaching $80 billion real estate at $80 billion.
Speaker Change: I'm pretty equally split between real estate equity.
Speaker Change: In real estate credit and in terms of the opportunities for us to continue to grow building scale honestly, it's one of the things there.
Speaker Change: We love talking about how we think about how we're situated.
Speaker Change: If you go back again to some of the things you've heard us talk about over time over 80% of our strategies in our view are yet at scale.
Speaker Change: So if you think of real estate in particular, we've got over a dozen independent vehicles that are growing building scaling and just creates a tremendous amount.
Speaker Change: Of opportunity and I think on the investment side and dialogue from from Lps I think one of the most encouraging signs if anything relates to operating trends over the course of this year. It does feel as though you would've heard this in the market, but it does feel like like valuations knock on wood bottoms.
Speaker Change: A year ago or so.
Speaker Change: You've seen us.
Speaker Change: Vote with our wallets, if you will like investment activity over the last 12 months in real estate has increased significantly for us.
Speaker Change: Give you a stat within real estate year to date total deployment is approaching $12 billion.
Speaker Change: The first nine months of 'twenty, three where we were at about five.
Speaker Change: When we think of that investment activity.
Speaker Change: And the progress we've seen operationally, we feel really good about that decision to lean in.
Speaker Change: Okay.
Speaker Change: So lots of momentum lots of opportunities for us looking forward.
Scott: It's Scott.
Scott: Just on your question so.
Scott: I would say just higher level.
Scott: The infrastructure and real estate credit along with private credit in areas like ABF.
Scott: We've continued to see a lot of activity and interest from a fundraising standpoint.
Scott: Allocations have been created commitments are being made I would put climate in that category, It's a younger strategy.
Scott: Put it in that same category. So don't have a target to give you today, but obviously the investment needed significant can.
Scott: And we think that can be a really large scale business for us over time.
Scott: Real estate equity as we talked about last quarter. The prospective has been evolving in the markets our views at the real estate market has bottomed in the last half of last year part of the reason that we've leaned in so much this year and you heard from Craig.
Scott: It is our view that the bottom was behind us.
Scott: And I think that perspective is starting to be shared by others. So we are hearing sentiment shift on real estate equity I think with rates starting to come down you're going to hear more of that so we've been leaning in and I think there's beginning to be a perspective.
Scott: This is a good time to invest in over time Youll see that show up in our Americas, Europe and Asia funds, we believe.
Scott: But sentiment is definitely turning and it may take a little bit of time for the capital to start to show up but we feel like we're in a good spot today and we have those those strategies in the market.
Speaker Change: Alright, thanks, so much.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: The next question comes from the line of Bill Katz with Citi. Cowen. Please proceed thank.
Speaker Change: Thank you very much good morning, everybody I appreciate you taking the question maybe.
Bill Katz: Maybe just to look at the wealth management opportunity a little bit which is scaling very nicely and I. Appreciate you gave a little bit of slippage.
Bill Katz: Commentary I Wonder if you could unpack that a little bit further and maybe just talk about.
Bill Katz: What are you seeing the best traction which vertical.
Bill Katz: Mentioned that you're sort of getting onto more platforms, a few new ones yet coming when you could talk a little about like where you are in sort of the arc of those if you will and then I was wondering now with three months closer if you could update us a little bit on any sort of early stage.
Bill Katz: Opportunities or fund design with capital group. Thank you.
Bill Katz: Okay.
Craig Larson: Hey, Bill, it's Craig why don't I start.
Craig Larson: First just stepping back for a moment for everybody so as of.
Craig Larson: September 30, we have around $75 billion.
Craig Larson: From individuals and that does not include policyholders at GAA. So if anything that $75 billion is probably understated. When you think about the breadth of our presence in the activity that we have.
Craig Larson: And the majority of that has been capital from high net worth Ultra high net worth individuals over time, we've been investing in our funds and over time that capital from individuals has been a low double digit percentage of new capital raised for US and then most recently as you noted we've introduced our case series suite of products.
Craig Larson: We've got.
Craig Larson: Products currently being marketed across before investing verticals for us private equity infrastructure real estate and credit and they're all in different stages of their evolution.
Craig Larson: $14 billion today $5 billion a year ago.
Craig Larson: It continues to feel like we've got.
Craig Larson: Lots of great momentum, we think.
Craig Larson: We look at the market share statistics in terms of capital raised year to date feel great about our position, albeit with a lot of wood to chop from here I think recognizing.
Craig Larson: I think in particular, we felt real strength in private equity as well as infrastructure and I'd say that is both.
Craig Larson: With those asset classes and that is international as well as domestic so when you look within those two vehicles.
Craig Larson: AUM is probably a 60 40 split between.
Craig Larson: The U S and outside the U S that feels like a really healthy balance to us. So I think when we look at that opportunity, it's multiple asset classes and its global I think the other just the other point to highlight we had launched those vehicles.
Craig Larson: Head of the fund raising that we've launched for our private BDC. So I think when you look at the industry you've seen a lot of capital that has been raised in the private credit opportunity in private Bdcs that is one of the pieces that I think we're going to in particular see lots of our growth and momentum and opportunity for us as we continue to see.
Craig Larson: Across a number of platforms a handful of larger ones, which are in the very near term.
Speaker Change: And then Scott I don't know if you have anything to add on capital group.
Speaker Change: First off on the wealth management topic, I think there's a lot of different parts of our firm Bill.
Speaker Change: And we've got a lot of growth ahead.
Speaker Change: The potential is far greater than what's showing up in the numbers.
Scott: I think Greg covered it well, but we are getting on to a number of different platforms every quarter. We've now launched in all four product areas.
Scott: But the full run rate is not in the numbers yet.
Scott: So we think youre going to continue to see gaining momentum across everything we're doing in wealth.
Scott: You're also seeing this across a bunch of different parts of the firm, including the real asset space, we've talked about capital raising and infrastructure.
Scott: But these businesses in terms of what's showing up in the P&L. The carry the investment earnings they are not showing up yet, but theyre going to show up and so I think we've got a lot of different parts of the firm.
Scott: You see embedded growth there is latent earnings that we will continue to show up in.
Scott: AUM and will continue to show up as we continue to scale here.
Scott: On capital group.
Scott: We shared earlier this year that we're gonna start with two credit vehicles together that's very.
Scott: A much on track.
Scott: Also spending time on product design across the other product verticals and alternatives and so you'll hear more about that in future quarters.
Speaker Change: And the next question comes from the line of Brian Mckenna with citizens JMP. Please proceed.
Brian McKenna: Thanks, Good morning, everyone. So it was great to see the nice step up in accrued performance income during the quarter I'm, assuming a lot of this was driven by strong investment performance, but were there any funds that flipped into carry during the quarter or any newer strategies that are starting to contribute more meaningfully to the accrual and.
Speaker Change: Then with respect to the $3 billion of asset management embedded gains on the balance sheet. How should we think about just the timing of monetizing this overtime.
Rob Lewin: Hey, Brian it's Rob Thanks for the question.
Rob Lewin: What you saw in the quarter and the $7 nine of accrued carry I'd say that that is much more broad based performance.
Rob Lewin: Are you really starting to see us inflect up.
Rob Lewin: Comes from our real assets portfolio in particular infrastructure of course, if you look at our flagship infrastructure funds. We went from one to 3% to 7% to 17 plus.
And so as we scaled and performed Youre going to see that accrued carry build and then importantly, now youre starting to see that realized carry start to flow through the P&L as well as it relates to.
Rob Lewin: The balance sheet embedded gains.
Rob Lewin: That's going to be a function of the monetization environment and when youre going to see that flow through the P&L right. Now we are seeing more opportunities to be able to create access for our portfolio companies, which is we're largely most of that embedded gain on the balance sheet sets.
Rob Lewin: And so if the I would say if the environment remains constructive over the course of 2025, we would expect to be able to generate some more material balance sheet related realizations through the next 12 months.
Speaker Change: The only thing I might add Brian and thanks for the question from a higher altitude comment standpoint.
Rob Lewin: We've talked about in the past, including at the Investor Day. It takes about 10 to 15 years.
Rob Lewin: Gail AUM in our business you got to get the fund III Fund four.
Rob Lewin: As you know we used to have five or six strategies that I was looking at our fund raising sheet last week, we had 57 line items this year.
Rob Lewin: To give you a sense.
Rob Lewin: 10 to 15 years to get to scale.
Rob Lewin: And then it's oftentimes five years to 10 years. After you get the scale that you start to see carry on investing earnings show up at scale.
Rob Lewin: And remember we went from that six line items to 57 since the end of the financial crisis.
Rob Lewin: So as you think about the momentum we have behind us to Rob's point and just what's coming.
Rob Lewin: The one to 3% to 7% to $17 billion as an example in infrastructure that's not really in our earnings yet from a carry standpoint.
Rob Lewin: We have that happening in a lot of different places across the firm, which is part of the reason you hear us such confidence in our voices.
Speaker Change: Got it thanks, guys and congrats on another great quarter.
Speaker Change: Thanks, Brian.
Speaker Change: Yes.
Speaker Change: And our next question comes from the line of Steven Chu Buck with Wolfe Research. Please proceed.
Speaker Change: Hi, good morning.
So wanted to ask a follow up question just on the fund raising outlook, if we benchmark fund raising trends year to date versus the target 300 billion that you outlined at Investor day.
Speaker Change: You've already fund raised 85 billion.
Tracking ahead of goal despite a limited contribution from flagships and just given the constructive tone on this call improving momentum both institutional and retail just was hoping to get a bit of a mark to market on whether that target feels conservative given some of the tailwind that you're seeing I recognize it's suppose.
Speaker Change: It would be a multi year target, but any perspective, you can offer just given some of the strength in the <unk>.
Speaker Change: Our recent fundraising momentum would be helpful.
Speaker Change: Yes, Stephen why don't I start and.
Speaker Change: Got it Rob I'm sure May have another couple of thoughts I think first in terms of the 300 class I think Youre correct look we feel great about.
Speaker Change: The momentum that we have and the execution you're seeing today, we don't have a new number for you today, but I think if anything our confidence level on the 300, plus just given everything that we've done and if anything just would've increased no I think in terms of some of the statistics because you're right. It is worth spending a moment just on the implications from a flagship store.
Speaker Change: Endpoint because we.
Speaker Change: We've in the last couple of years that activity has been pretty modest so just for a little bit of background. When we refer to our flagships. These are really our largest fund complexes across KKR, So think Americas PE Asia European core private equity global infra.
Speaker Change: And over 2020 in 2021 over $60 billion of New capital raised came from our flagships was almost 40% of our fundraising.
Speaker Change: And those numbers more recently been quite modest so in 2022 and 2023.
Speaker Change: Raised 150 billion, but only six came from the flagships again six versus <unk> 60.
Speaker Change: And so now over the LTM youre starting to see some progress $118 billion in total 11 coming from the flagships.
Speaker Change: I start, but as we think about the balance of 24% and 25, just given continued activity across infra as well as our Americas and Asia PE strategies. We just think that activity has the opportunity to be meaningful and incremental to what you've seen from us and so when you think about us as a whole we've got flagship opportunities we've got <unk>.
Speaker Change: <unk> scaling and an institutional fund raising as you would have heard.
Speaker Change: Again back to 80% of our strategy is not yet at scale.
Speaker Change: And then on top of that we've got the continued scaling and the opportunities we have in wealth, both through case series and capital group and Thats, a long time and that's alongside the opportunity to have a global Atlantic and global Atlantic side cars for that matter. So there's just there's a lot for us to do it feels like we have a lot of momentum and again thanks for the question.
Speaker Change: Yes, the only thing I'd add Stephen is we do feel quite positive we really like our setup.
Speaker Change: Not surprisingly you're really good at math.
Speaker Change: So I would just I would lean even more into the plus.
Speaker Change: Well set up.
Speaker Change: Okay.
Speaker Change: And the next question comes from the line of Patrick Davitt with auto.
Speaker Change: Thomas Research. Please proceed.
Speaker Change: Hey, good morning, everyone.
Patrick Davitt: Good morning, I'm going to be Debbie Downer and ask an election question. We you know we usually take the view that elections don't matter much either way, but one looming big change that could come at this time is clearly tariffs on markets appear to be pricing that and to some extent so aside from inflation and rate impacts do you have any initial thoughts on how the existing port.
Patrick Davitt: Folio could be negatively or even possibly impacted by tariffs or trade war. Thank you.
Speaker Change: Yes, Patrick.
Patrick Davitt: Sorry.
Speaker Change: I'm going to surprise you we spend most of our time here focusing on things that we can control.
Speaker Change: That's not one of them, but at the same time. We also do have a team here thats focused on scenario planning across multiple different areas, whether thats the existing portfolio new portfolio. As you said I think theres going to be some pluses and minuses, depending on the geography of our portfolio companies the sectors there in what their car.
Speaker Change: Cost base are made there's all kinds of different inputs and so we're watching it closely I.
Speaker Change: I think it's fair to say that our teams are ready to react and we're also ready to react to the extent that we.
Speaker Change: We ended up in an environment with a little bit more volatility, we've got a lot of dry powder to be able to invest into that.
Speaker Change: The only thing I'd add is this isn't a new effort here we've been focused on this for the last several years. So as we have been constructing portfolios we've been doing it with a mindset that this could happen over time.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: And then I am sorry question comes question.
Speaker Change: And our next question comes from the line of Mike Brown with Wells Fargo. Please proceed.
Speaker Change: Okay.
Mike Brown: Hi, Good morning, Scott Robin Craig.
Speaker Change: Morning.
Mike Brown: I wanted to ask on the fee rates I guess, specifically on the real asset and private equity segments. So in real assets looks like the fee rate ticked up and it sounds like that was probably driven by a turn on fees from the global Infra Fund could you just maybe quantify that impact or maybe help us understand the right.
Mike Brown: Runway run rate for the go forward and then in.
Mike Brown: Private equity looks like the fee rate came down a little bit.
Mike Brown: The thing to point to there and then can you remind us are those case series products are they on fee holiday and if so when does that end.
Speaker Change: Yeah, So I'll try.
Speaker Change: Try and take that piece and maybe start with the last piece some of our K series products do have a bit of a fee holiday that's baked in depending on the product and so that's a little bit of what youre seeing.
Speaker Change: In private equity, but I think the private equity fee rates come down a couple of basis points over the past three quarters the other.
Speaker Change: Thank you factor in as our core private equity strategy at that scale. So that's going to come in.
And a little bit of a lower fee rate as well our real assets.
Speaker Change: What youre seeing.
Speaker Change: In particular is the turning on of and for five in the third quarter, which would have contributed but I would say more importantly, Mike the right way to evaluate.
Speaker Change: These types of trends over a longer period of time, because there is a lot that can happen intra quarter.
Speaker Change: And overall, we feel really good about our aggregate fee rates and.
Speaker Change: And how they've stood up even with the introduction of a number of new products.
Speaker Change: That come and naturally at a little bit of a lower fee rate.
Okay.
Speaker Change: Okay, great. Thank you for the color.
Speaker Change: Thanks, a lot Mike.
Speaker Change: Okay.
Speaker Change: The next question comes from the line of Brian Bedell with Deutsche Bank. Please proceed.
Brian Bedell: Great. Thanks, Thanks for taking my question.
Brian Bedell: Just going back to capital markets.
Speaker Change: We have very strong improvement, obviously telecom Italia helped with that but as we look into the fourth quarter I'm not sure to what extent you can give.
Speaker Change: Do you have any color on the potential and whether that could be another strong quarter. No. Net 424 is that the run rate, but could rival the next best quarter, which was $320 million in 'twenty one.
Speaker Change: And.
Speaker Change: <unk> discover.
Speaker Change: Something that could potentially close in <unk> and give you a piece and I think also just North America I think it was more than <unk>.
Speaker Change: More than half or around half of the fees This times over $200 million.
Speaker Change: From about $130 million, so was there anything, especially lumpy in North America that was contributing to the third quarter.
Speaker Change: Yeah sure Brian Thanks for the question, obviously, a really great quarter for us.
Speaker Change: Theres a lot of reasons for us to feel really positive about our capital markets business.
Speaker Change: You would've heard to say this in the past. This is not the type of business that has great to evaluate on a quarterly basis.
Speaker Change: Certainly as a senior leadership team as we evaluate performance it's much more on an annual basis.
Speaker Change: Maybe as.
Speaker Change: As we talked about the future of destructive a little bit to go back in history a bit on on this business. If you look at our capital markets business in 2021, we generated roughly $850 million of revenue now obviously the.
Speaker Change: The capital markets were buoyant through that 12 month period of time, but it was a record fee number for our business now if you look at 2022 and 2023.
Speaker Change: When capital markets were largely shot across that 24 month period of time, our capital markets business still generated $600 million of revenue plus or minus in each of those two years that were actually more proud of that performance because I really do think it shows the durability of the franchise.
Speaker Change: And as you look at 2020 for the year start off a little bit slower you had some catch up on activity. It's in part. The reason why you saw a spike that happened through the third quarter, but as we look at the year in aggregate our expectation is that we're going to be up.
Speaker Change: 50 ish percent plus or minus relative to 2022 and 2023, so should be a new record year for us on the capital market side assuming.
Speaker Change: No deals we expect to close in Q4 don't end up getting pushed but we're really constructive around that four year trajectory in journey and it really helps inform our views of the future both around the durability of the franchise in down markets, but really our ability to inflect up continue to grow as KKR does more continue to.
Speaker Change: Geographically, we've talked about the very big opportunity that we see existing between <unk> and our capital market structure finance teams working in partnership together and I really do think our third party capital markets business.
Speaker Change: Our unique model and very.
Speaker Change: Differentiated approach to the market that will continue to take market share over time. So we're.
Speaker Change: As you can tell really constructive on the business, but it's not really the type of business that I think is great to evaluate quarter in quarter out.
Speaker Change: Fair enough. Thank you.
Speaker Change: Thank you.
Speaker Change: And our next question comes from the line of Michael Cyprus with Morgan Stanley. Please proceed.
Michael Cyprus: Hi, Good morning, Thanks for taking the question I was hoping you could update us on your progress building out the climate strategy, maybe you could talk about some of the steps youre taking to build that out types of investments you're making in the portfolio what sort of return targets, you're looking at and how do you sort of envision expanding this strategy over the next several years it seems like there could be opportunities.
Michael Cyprus: Unity is across asset classes and clearly across the globe. So just curious your thoughts there. Thank you.
Craig Larson: Hey, Mike It's Craig why don't I start thanks for asking about it look there is a massive need for.
Craig Larson: For capital here.
And so as the physical economy.
Craig Larson: Excuse me is going to align with a net zero pathway by 2050.
Craig Larson: The capital needs are massive 200 trillion, so think about that.
Craig Larson: Seven trillion annually of required investment for the next 25 plus years and it's renewables certainly, but it extends far beyond that it's energy transportation is building its agriculture.
Craig Larson: And in our view when you look at the capital that's been formed to date it almost feels barbell. So on the one hand, you have lots of climate strategies that are dedicated to core power and renewables. So very mature part of that framework for climate technology is a very early stage and so in our view there is a real sweet spot between these two.
Craig Larson: Streams and at the same point in time, it lends itself very well with our experience and the things that we've been doing as a firm in infrastructure in particular for 15 years now so it's become a front burner topic for us.
Craig Larson: We're at $2 5 billion round numbers, we're continuing to fundraise, it's a very front burner topic for our team so.
Craig Larson: More to come here over time, but we think this does have an opportunity. So yes become an opportunity for us that can move the needle in the long term in the framework of our firm.
Speaker Change: Great. Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Carl Boyd with VW. Please proceed.
Speaker Change: Okay.
Carl Boyd: Hi, Good morning, maybe just a question on Ta just given some of the recent shifts in the macro environment and given timing dynamics with deploying the significant capital you've taken over the past few quarters.
Carl Boyd: Just wondering if you could provide an update on the glide path to getting back to the 14% to 15% pretax ROE target and is 2026, so the right timing for that.
Speaker Change: Hey, Kyle Thanks, a lot for the question.
Speaker Change: At the most important level, which is how we're performing.
Speaker Change: Across the enterprise, how we're going out and sourcing low cost simple liabilities at scale, how we're taking those liabilities and then putting them to work and we feel like we're operating at a really high level and so as we think about our ability to generate meaningful Roe.
Speaker Change: And ultimately operating earnings for our shareholders I would note that we continue to be on a really great path.
Speaker Change: The question as to how we operate and at what level of ROE is going to depend on a whole number of factors.
Speaker Change: We're watching which including how quickly we grow and then what kind of way that we grow let's take our institutional business as an example.
Speaker Change: You talked about the block business, we've been really active have found some really exciting opportunities as you know Q4 and Q1 of this past year.
Speaker Change: To put to work a material amount of capital now in those transactions. We underwrite IRR is 12 to 18 months redeployment period, so you're taking on the full cost of those liabilities.
Speaker Change: But not yet generating the full asset return for some period of time priced into the IRR as which we think are really attractive, but not going to come through operating earnings. Initially so I think there's multiple different things that will impact your question, but.
Speaker Change: You followed us now for some time I think you know that as a management team, we're always going to lean in and around upfront investment for longer term gain and so as we think about the long term ROE for this business undoubtedly we continue to feel like 14% to 15% pretax rate level.
Speaker Change: Two to.
Speaker Change: To model going forward, but at the same time, we don't have a specific timeline is going to depend on these variables that we went through but we do feel really great. How our teams are working together and no doubt it's been elevated since we bought 100% earlier this year.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Ben <unk> with.
Speaker Change: Barclays. Please proceed.
Speaker Change: Hi, good morning, and thanks for taking my question I was wondering if you could talk about the sale out of the core private equity portfolio in the past you've indicated that those were really businesses you wanted to own for a very long time and let the earnings compounds. So could you talk about the circumstances that led to that sale to what extent what might that be something that recurs and then on the other hand I think the comment.
Speaker Change: For your longer term.
Speaker Change: Dividend income expectation with predicated on I think in the near term, it's predicated on the existing portfolio, but longer term you see.
Kind of more additions, so I guess kind of both sides.
Income taxes of the recent sale and how you think about monetizing other assets and then how you think about kind of deploying capital and adding assets to that portfolio. Thank you yes.
Speaker Change: Yeah, great. Thanks, a lot for the question. So we're always going to be focused on portfolio optimization. So it's possible that you could see some names come in and out of the portfolio over time, but the overall plan of long term holds within our strategic holdings segment is unchanged as it relates to <unk>. Specifically this was a portfolio company that we actually owned.
Speaker Change: In partnership with Telecom Italia, and so when we closed on a much broader transat.
Speaker Change: Transaction with Telecom Italia in July.
Speaker Change: We ended up cleaning up the capital structure and the legacy holdings ended up getting cash out. So that's why you see the monetization flowed through.
Speaker Change: In Q3 of this year as it relates to our guidance. The 300 plus million dollars of operating earnings by 26, 600 plus million by 28, and a 1 billion plus by 2030, if anything our conviction level as a management team and our ability to achieve those numbers has only gone up since we initially provided that guidance first last night.
Speaker Change: Amber and then updated at an Investor day in April.
Speaker Change: Okay got it thank you very much.
Speaker Change: Thank you.
Speaker Change: And the next question comes from the line of Dan Fannon with Jefferies. Please proceed.
Thanks, Good morning, I wanted to follow up on both the capital markets and the GI opportunity just curious given the strength you just posted in the third quarter, how much <unk> contributed or a percentage of that.
Speaker Change: Activity and how much is obviously still on the come as you build and integrate that business more.
Speaker Change: I think the very short answer Dan is it was a solid contributor in the quarter, but not all of that material in the context of 420 plus million of revenue that said, we've talked about believing that the opportunity in that line of business for us is in the hundreds of millions of dollars over time.
Speaker Change: That perspective is unchanged.
Dan Fannon: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: And our next question will come again from the line of Mike Brown with Wells Fargo. Please proceed.
Mike Brown: Great. Thank you for taking my follow up.
Mike Brown: I wanted to follow up on the wealth channel discussion earlier in the call I guess thats getting more focus is the potential opportunity for private assets and the retirement or do you see channel and maybe perhaps some more near term opportunity that can be model portfolios.
Mike Brown: I guess understanding that's kind of all largely unknown today, but I'm interested to hear about what's that long term opportunity for KKR. How important is it to be a first mover into 401K's and.
Mike Brown: His partnership integral for success here and just kind of curious if.
The partnership you have with capital group could actually give you a bit of a leg up here. Thank you.
Craig Larson: Hey, Mike It's Craig Thanks for asking about it look.
Craig Larson: So the majority of new dollars going into 401, K plans are going through target date funds I believe that percentage is north of 60% and we've talked to some participants you've indicated that percentage is actually well north of 60%.
Craig Larson: And at the same time, you probably won't be surprised to hear that we think theres a lot of industrial logic to introducing alternative strategies into target date strategies as individuals' invest behind their continued retirement. So we expect that's where youll see alternative strategies first introduced.
Craig Larson: It's a massive market its one that we do view as being a really interesting long term opportunity for KKR in the industry and you are correct remember we've got our partnership with capital Group, We've got a big target date fund business.
Craig Larson: And don't forget about GE here annuities. We think are also going to be very relevant within the framework of these pools over time as well. So look it's a topic that has mind share at our firm Theres No question about that but it's going to it's going to take some time. So I don't think you need to adjust your Q4 'twenty for fund raising numbers for us but.
Craig Larson: Yes over time, we do think this is a driver that will feel very tangible in the framework of our firm as well as our industry.
Craig Larson: Sure.
Craig Larson: Thank you Craig.
Craig Larson: Okay.
Speaker Change: And the next question will come from again from the line of Patrick Davitt with Autonomous Research. Please proceed.
Patrick Davitt: Thanks for the follow up a quick house keeping item did you give the updated visible our realization pipeline numbers. Please.
Speaker Change: Yeah of course, Patrick So we've got a pretty good amount of visibility into Q4, right now so call it plus or minus $500 million of monetization related revenue again that consistent revenue that has already happened by revenue that are signed up and we feel really confident we'll end up closing.
Speaker Change: Importantly, and this is a little bit different in Q4 of 24 as you look at that $500 million approximately 60% of that will come through our P&L at the lower 10% to 20% compensation ratio.
Speaker Change: So the flow through to our P&L I will be more significant in Q4 as a result of that dynamic. Obviously, we're also only a month into the quarter and so hopefully the markets.
Speaker Change: Maintain the constructive posture.
Speaker Change: We're able to generate some additional monetization related revenue through the remainder of 'twenty four.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: And the next question will come from the line again come again from the line of Bill Katz with TD Cowen. Please proceed great.
Bill Katz: Great. Thanks, so much for the extra question as well just thinking through your commentary on the capital markets opportunity can you remind me just the split between how much of the revenues coming from deployment as you continue to scale geographically across the segments versus exit activity and given the 70% plus.
Bill Katz: FRE margin can we presume that that related revenue effectively drops to the bottom line. Thank you.
Bill Katz: Bill Thanks for the question.
Bill Katz: Put some.
Bill Katz: Charts out there in some past presentations around the correlation between deployment.
And our capital markets revenue, that's going to be the largest driver of our business I would think about the regional expansion of capital markets, particularly in Asia as upside.
Bill Katz: For what we can create over time as well historically the third party part of our business has been roughly 20% of our revenue in 2024, it's a little bit less than that really the result.
Bill Katz: The mid market sponsor community being a little bit more quiet on the deployment side, but we do expect that to come back and again feel really good about our market share.
Bill Katz: On the topic of margins is important one for us clearly.
Bill Katz: What I've said historically is that we feel we could sustainably operate in that mid 60% FRE margin range, which is industry, leading about what I've. Also said is that is not a cap for us and if we're able to go out and execute on our business plan, which you have got a lot of confidence that we're going to be able to do it is really all about scaling things that we've already started.
Bill Katz: And so we believe that we're going to be able to grow our revenue at a materially higher pace than our head count or the operating complexity that's required to operate KKR.
Bill Katz: So the output of that I should be if if if we're successful here additional operating leverage and an expansion of what is already industry, leading FRE margins and as you saw the spike in revenue in Q3, you would've seen that flow through.
Speaker Change: Thank you again.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: And the last question will come again from the line of Brian Bedell with Deutsche Bank. Please proceed.
Brian Bedell: Great. Thanks for taking my follow up just a quick one on the.
Brian Bedell: On the on the monetization pipeline coming into 2025 years.
This morning that was was also saying.
Brian Bedell: The pipeline is very strong, but the did expect <unk> to be slow.
Brian Bedell: Seasonally so just wondering if youre seeing that.
Brian Bedell: That same situation for for Ipos.
Brian Bedell: Coming into 'twenty five because I think you were talking about obviously the deployment momentum picking up and then I guess, maybe just the potential mix of the IPO market versus.
Brian Bedell: Versus sales to other companies for monetization.
Speaker Change: Sure maybe.
Speaker Change: Maybe let's just talk broadly about the monetization environment, which we feel.
Speaker Change: Has really recovered through 2024 and the backdrop here is pretty positive.
Speaker Change: I had a period of really sustained strength in the leveraged finance market, which is.
Speaker Change: To us as being a leading indicator as there is obviously fixed income spreads have come way in <unk>.
Speaker Change: Equity markets are as strong as they have been the one area of the capital markets that has been a little bit more sluggish as the IPO market, but we do expect that to change over the coming quarters. I think just looking at our own portfolio. If you look back over the past 12 months, we've had four ipos of size.
Speaker Change: And they include businesses in different sectors in different geographies, our growth oriented business. Some mature businesses that are slower growth.
Speaker Change: And it's just a very small data point, obviously, but all of those ipos are trading well above issue price and on average they're trading close to 50% above their issue price and Thats one of the probably largest equity issuers in the marketplace. That's while small data point I think a helpful. One as we think about what the IPO market could look like.
Speaker Change: Through 2025.
Speaker Change: Only thing I would add Brian is we did see.
Speaker Change: Deal market rebound in the first half took probably the first six months to gain momentum start to come back. So we're seeing there's a lot of discussion about the IPO market, which I think is highly relevant.
Speaker Change: But we're seeing that momentum continue.
Speaker Change: Just ipos, but a strategic M&A as well.
Speaker Change: But there's nothing that we're looking at today, we don't look at this by quarter per se.
That would cause us to think there is an air pocket coming.
Speaker Change: As the guys referenced the portfolios mature, it's been performing well if anything because a bunch of our industry did not sell things last year.
Speaker Change: Pent up supply of exits coming.
Yes.
Speaker Change: Yeah, that's right that's right.
Speaker Change: Anticipated.
Speaker Change: Thank you so much.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: This concludes the question and answer session I'll turn the call back to Craig Larson for closing remarks.
Craig Larson: I just would like to thank everybody for your continued interest in KKR. Please follow up with US directly of course, if you have any questions.
Craig Larson: Otherwise, we look forward to chatting with everybody again in 90 days or so thanks, so much.
Speaker Change: This concludes today's conference you may now disconnect your lines.
Craig Larson: The rest of your debt.
Craig Larson: Okay.
Craig Larson: Okay.
Craig Larson: Hum.
Craig Larson: Yeah.
Craig Larson: [music].
Craig Larson: Hum.
Craig Larson: [music].
Craig Larson: Hmm.
Craig Larson: Mhm.