Q1 2025 KKR & Co Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to Kkr's fourth quarter 2025 earnings conference call.
During todays presentation, all parties would it be in the listen only mode.
Following management's prepared remarks, the conference will be open questions.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Craig Larson: I will now hand, the call over to Craig Larson partner and head of Investor Relations for KKR.
Speaker Change: Greg. Please go ahead.
Craig Larson: Yeah.
Craig Larson: Thank you operator good morning.
Speaker Change: Everyone welcome to our first quarter 2025 earnings call. This morning, as usual I'm joined by Rob Lewin, Our Chief Financial Officer.
Craig Larson: And Scott Nuttall, our co Chief Executive Officer.
Craig Larson: 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.
Craig Larson: And as a reminder, we report our segment numbers on an adjusted share basis.
Craig Larson: This call will contain forward looking statements, which do not guarantee future events or performance. Please.
Craig Larson: Please refer to our earnings release, and our SEC filings for cautionary factors about these statements.
Speaker Change: I'm going to begin this morning by reviewing our results for the quarter.
Speaker Change: Before Rob walked through the current environment its impact on our key business drivers as well as our strategic positioning longer term.
Scott Nuttall: Scott will then finish with some closing thoughts.
Scott Nuttall: So beginning with our headline financial results for the quarter fee related earnings per share came in at 92 cents up 22% year over year.
Scott Nuttall: Total operating earnings of $1 24 per share are up 16% year over year.
Scott Nuttall: And adjusted net income of $1.15 per share is up 19% comparison from a year ago.
Scott Nuttall: All of these figures are among the highest we've reported as a public company.
And are reflective of the diversified and global business model built over the last decade plus.
Scott Nuttall: Going into our quarterly results in a little more detail.
Scott Nuttall: Management fees in Q1 were $917 million up 13% year over year, driven by fundraising and deployment activities.
Scott Nuttall: If anything management fee growth in the quarter feels understated relative to the breadth of the $31 billion of new capital that we raised in Q1.
Scott Nuttall: The largest component of this $31 billion was capital raise for North America 14, the latest vintage of our flagship North American private equity strategy, which had not turned on as of March 31st and therefore did not contribute to management fees in the quarter.
Scott Nuttall: Rob is going to give up a little bit of a more fulsome update on Americas 14 in a few minutes.
Scott Nuttall: Total transaction and monitoring fees for $262 million in the quarter.
Scott Nuttall: Capital markets transaction fees were $229 million, driven primarily by activity in new and existing portfolio companies within both private equity and infrastructure.
Scott Nuttall: Fee related performance revenues were $21 million in the quarter. So altogether fee related revenues came in at $1 2 billion, that's up 22% year over year.
Scott Nuttall: Turning to expenses fee related compensation was right at the midpoint of our guided range at 17, 5% our fee related revenues.
Scott Nuttall: Other operating expenses were 168 million for the quarter.
Scott Nuttall: So in total fee related earnings were $823 million.
Scott Nuttall: Or the 92 cents per share that I mentioned, a moment ago with an FRE margin of 69%.
Scott Nuttall: Insurance segment operating earnings were $259 million and strategic holdings operating operating earnings were $31 million.
Scott Nuttall: Both of which were in line to modestly ahead of our recent guidance.
Scott Nuttall: In terms of our strategic holding segment, we closed on our purchase of additional stakes in three existing core private equity businesses as we introduced on our call last quarter.
Scott Nuttall: We continue to feel that our strategic holdings business is a real differentiator for us and these transactions are a further accelerant for this segment.
Scott Nuttall: Today, our share of annual revenue and EBITDA across the 18th company portfolio is approximately one 8 billion and $920 million, respectively again, that's our share.
Scott Nuttall: And since quarter end, we've announced the acquisition of a new core private equity investment K real health care, which will bring our strategic holdings portfolio to 19 companies.
Scott Nuttall: So altogether total operating earnings were $1 24 per share.
Scott Nuttall: As a reminder, total operating earnings is comprised of our fee related earnings together with our insurance and strategic holdings operating earnings which represent the more recurring components of our earning streams.
Scott Nuttall: Over the last 12 months total operating earnings comprised nearly 80% of total segment earnings.
Scott Nuttall: So said differently nearly 80% of our pretax earnings over the last 12 months were driven by a more recurring earning streams highlighting the durability of our business, especially during periods of volatility.
Scott Nuttall: Turning now to investing earnings within our asset management segment realized performance income was $348 million and realized investment income was 218 for total monetization activity of $566 million.
Scott Nuttall: That's up almost 40% year over year.
Scott Nuttall: This quarter activity was largely driven by the annual crystallization of carry from core P. As.
Scott Nuttall: As well as other monetization events across traditional P as well as growth equity.
Scott Nuttall: Turning to investment performance and looking at page 10 of our earnings release.
Scott Nuttall: The private equity portfolio was up 4% in the quarter and up 11% over the last 12 months.
Scott Nuttall: This was this was a quarter where investment performance was undoubtedly helped by the geographic diversification of our firm as European and Asian equity indices were both up in the quarter.
Scott Nuttall: In real assets, the opportunistic real estate portfolio was up two in the quarter and up five over the LTM infrastructure.
Scott Nuttall: Infrastructure was up four in the quarter and appreciated 13% over the LTM.
Scott Nuttall: And then credit the leveraged credit composite was flat in the quarter and up seven over the last 12 months and the alternative credit composite was up three in the quarter.
Scott Nuttall: And up 11 over the last 12 months.
Scott Nuttall: And finally, consistent with historical practice, we increased our dividend to <unk> 74 per share on an annualized basis, or 18, and a half cents per share per quarter, beginning with this quarter.
Scott Nuttall: This is now the sixth consecutive year, we've increased our dividend since we changed our corporate structure, increasing our annualized dividend from <unk> 50 per share to <unk> 74 cents over this period of time.
Scott Nuttall: And with that I'm pleased to turn the call over to Rob. Thanks, a lot Craig.
Rob Lewin: And thanks to everyone for joining our call. This morning.
Rob Lewin: We've all experienced some real volatility, particularly since early April.
Rob Lewin: It is in this type of environment that our business model and collaborative culture uniquely positions us.
Rob Lewin: And we are using that to lean in and source attractive investment opportunities around the globe for our clients.
Rob Lewin: As we navigate this volatility there are a number of themes and questions that we have consistently been hearing from our shareholders and clients.
Rob Lewin: I thought I would spend my time this morning walking through a number of common areas of focus.
Rob Lewin: The first is the impact of tariffs on our existing portfolio.
Rob Lewin: As a starting point it is important to remember that tariffs and supply chain diversification and resilience have been front of mind topics for our investment public affairs and macro team is gaining back to the global pandemic.
Rob Lewin: As a result for five plus years now this has been a standard topic of conversation.
Rob Lewin: Taking a look at our global private equity portfolio. Today. This includes traditional corn growth base.
Based on our initial findings, we estimate that 90% of our AUM has limited to no first order impact from the announced tariffs.
Rob Lewin: Importantly, this figure does not include identified mitigating measures that we are actively implementing.
Rob Lewin: And specifically, our core private equity portfolio and our strategic clothing segment.
Rob Lewin: Not expected to have any material impact from tariffs.
Rob Lewin: Across our infrastructure platform. The vast majority of our companies have either contractual protections that insulate KKR returns or minimal estimated exposure.
Rob Lewin: Looking at our infrastructure deployment over the last five years, approximately 70% has been in Europe and in Asia.
Rob Lewin: And as we look at our credit portfolio.
Rob Lewin: I'll be pockets of exposure.
Rob Lewin: But we believe the opportunities and we really do think this is a credit pickers market will outweigh the downsides.
Rob Lewin: So while we expect there will be individual instances of direct tariffs in parts of the portfolio.
Rob Lewin: Based on how we understand tariffs today.
Rob Lewin: We feel well equipped to manage these challenges and on the whole feel very good with how our portfolio is positioned.
Rob Lewin: The second theme that I wanted to cover this morning is the effect on both the deployment and the monetization environment.
We find ourselves in the fortunate position of being ready as a firm to play offense on behalf of our clients.
Rob Lewin: Volatility brings opportunity.
Rob Lewin: And we benefit from the global and connected nature of our firm.
Rob Lewin: We've closed or committed to over $30 billion worth of new investments since the start of the year.
Rob Lewin: Within private markets. These investments are diversified across geographies with more than half coming outside the U S.
Rob Lewin: Notably multiple of these investments are in Japan, where we continue to be at the forefront of activity, including the purchases of Fuji soft and top gun.
Rob Lewin: Private equity strategy.
Rob Lewin: Looking only at investments that we announced over the last month, so when the tariff related volatility began.
Rob Lewin: We committed over $10 billion of equity.
This includes 7 billion in private markets across global opportunities in traditional PE core P infrastructure attack growth to name a few.
Rob Lewin: And another 3 billion in private credit across direct lending high grade ABS and junior debt.
Rob Lewin: Moving next to monetization.
Rob Lewin: We think we remain really well positioned here.
Rob Lewin: Our discipline around investment pacing and linear deployment has definitely contributed to the overall strength and maturity of our portfolio.
Rob Lewin: At quarter end, our gross unrealized performance income stands at $8 7 billion, it's a high point for us and up over 25% year on year.
Rob Lewin: I think this number in particular stands out.
Rob Lewin: Given our healthy level of monetization over the past 12 months.
Rob Lewin: As a result of our maturing global portfolio and strong investment performance, we are better positioned than some might expect in terms of realization activity even in the face of the market volatility.
Rob Lewin: To give you a sense.
Rob Lewin: Looking at our pending Modernizations. So this is based on transactions that are signed but not yet closed.
Rob Lewin: We have direct line of sight to north of 800 million of monetization related revenue most of which will be performance income.
Rob Lewin: This includes exits of say human Japan, Keto Crosby, and the U S and foreign infrastructure investments to name a few of the key drivers.
Rob Lewin: Of that 800 plus million, we expect at least $250 million to be generated in Q2.
Rob Lewin: So very healthy figure for us as we stand here and just early may.
Rob Lewin: The third theme that I wanted to hit on is the impact on our capital raising efforts.
Rob Lewin: We are actively engaged with our clients.
Rob Lewin: Part of this is making sure they know what is happening with their portfolios.
Rob Lewin: But a lot of it is discussing how to invest into these markets and ways that we can work together.
Rob Lewin: We've heard a range of responses and they are evolving with the market.
Rob Lewin: While it may be early as we see how this all plays out today there are no changes to our targets and we have continued conviction in our fundraising outlook.
Rob Lewin: Total new capital raised in the quarter was 31 billion.
Rob Lewin: And it's worth spending a minute on our North America private equity strategy and.
Rob Lewin: In April we completed the initial closed periods in North America 14 at $14 billion. It's a great first step for us and reflects in our view the strong investment returns we have delivered on behalf of our clients alongside of differentiated return of capital profile.
Rob Lewin: And remember our approach here stands in contrast relative to many in our industry as we raise traditional PE funds focused across North America, Europe and Asia.
Rob Lewin: Compared to the global funds, you often see from our competitors.
Rob Lewin: This approach, we think has allowed us to raise more capital as.
Rob Lewin: As of 331, we had over $40 billion of committed capital across our active traditional private equity flagship funds and.
Rob Lewin: And it's also allowed for more diversified carried interest profile at the same time.
Rob Lewin: And this doesn't include committed capital across core private equity mid market and our growth strategies.
Rob Lewin: Looking at another important piece of capital raising private wealth.
Rob Lewin: Our case series suite of vehicles continue to maintain traction.
Rob Lewin: Across the four investing verticals.
Rob Lewin: Was that $22 billion, including activity that closed April one 2025.
Rob Lewin: This compares to $9 billion a year ago.
Rob Lewin: Our north Star for the K series suite continues to be focused on building vehicles that we can be proud of 10 plus years from now.
Rob Lewin: As a result, recognizing that we don't read too much into the month to month sales, we continue to be encouraged by our performance deployment and the capital raising activity.
Rob Lewin: And earlier this week the two public private credit solutions created an exclusive partnership with the capital group have launched.
Rob Lewin: We are similarly focused on building these products for long term success.
Rob Lewin: And as we look ahead to the second half of the year, we would expect to give you an update on the private equity and real asset product launches.
Rob Lewin: In addition work is underway to extend access for individuals interested in private markets through model portfolios and target date funds.
Rob Lewin: Turning next to ensure we are now a year plus into owning 100% of global Atlantic.
Rob Lewin: And we are progressing well on our path to modestly evolving how we source source, both liabilities and assets.
Rob Lewin: Including raising more third party capital utilize gating, our liability profile and sourcing additional alternatives.
Rob Lewin: This addition of longer dated alternatives to the portfolio, where we think that we have a differentiated sourcing advantage.
Rob Lewin: We'll drive up overall returns while at the same time naturally reducing leverage over time.
Craig Larson: Financial performance here begins with insurance segment operating earnings in Q1, as you would've heard from Craig We reported $259 million, which was in line with our expectations.
Craig Larson: And consistent with and consistent with our comments last quarter I would expect insurance operating earnings to stay in that $250 million plus or minus level. During the next few quarters.
Craig Larson: This line item alone does not capture though how our model works and the overall impact of our insurance related economics.
Craig Larson: A lot of it appropriately shows up in our asset management segment.
Craig Larson: Firstly management fees from our IV sidecar vehicles as well as strategic partnerships.
Craig Larson: This capital allows us to grow G. A N a very capital efficient way.
Craig Larson: And there is more to come here.
Craig Larson: As an example, Japan post insurance announced in Q1 their intention to expand our existing strategic partnership and make a new one to 2 billion dollar investment here.
Craig Larson: Number two capital markets fees, where we've just begun to scratch the surface.
Craig Larson: We see the potential to generate several hundred million of additional annual revenues over time in 2024 that number was closer to $50 million.
Craig Larson: And finally, the management fees charged for our investment management agreement with Global Atlantic Chris.
Craig Larson: Critically.
Craig Larson: Even while we are in the process of shifting our strategy to emphasize longer duration and more private market assets.
Craig Larson: Our all in pre tax ROE of our insurance business is approaching 20%.
Craig Larson: With a clear path to 20 plus percent returns as we get all of the elements of the business working well together.
Speaker Change: The last thing that I want to go through before handing it off to Scott is.
Craig Larson: He is around the durability of our model.
Craig Larson: Which provides us with a significant amount of both stability and visibility.
Craig Larson: Over 90% of our capital is perpetual or committed for an average of eight years or more.
Craig Larson: Today, we have 116 billion of committed but uncalled capital.
Craig Larson: And if you look at our management fees. They are largely calculated on committed or invested capital.
Craig Larson: And therefore, not influenced by marks and corresponding NAV is.
Craig Larson: And finally, we have a record amount of capital on which we're not yet earning fees with 64 billion committed with a weighted average management fee rate of about 100 basis points that turns on when the capital is either invested or enters its investment period.
Craig Larson: Just to put that $64 billion figure into perspective.
Craig Larson: It is up almost 50% compared to one year ago.
Craig Larson: So we benefit from real stability of management fees and increased visibility on how they will grow.
And finally, our business is global and diversified.
Craig Larson: Almost half of our investment professionals sit outside of the U S.
Craig Larson: And looking specifically at our management fees.
Craig Larson: We're well diversified across asset classes.
Craig Larson: Over the last 12 months management fees across private equity real assets and credit and liquid strategies were each over 1 billion and in aggregate have grown at a high teens CAGR over the past three years.
Craig Larson: We don't think that there are any asset management firms that combine our scale.
Craig Larson: Gross profile and diversification.
Craig Larson: Yeah, I will end, where I started this is an environment, where our people and our model really should excel.
Scott Nuttall: With that let me hand, it off to Scott.
Scott Nuttall: Thanks, Rob.
Scott Nuttall: Thanks, everybody for joining our call today.
Scott Nuttall: Given the recent volatility and uncertainty I want to spend a few minutes on how we're navigating this environment and address what else may be on your minds.
Scott Nuttall: Before I do that some context.
Scott Nuttall: Today, it's <unk> 49th birthday.
Scott Nuttall: We were founded on this day and $19 76.
Scott Nuttall: When I have been here nearly 29 of those 49 years.
Scott Nuttall: Over this period the firm has seen a number of cycles and dislocations.
Scott Nuttall: In our experience times like this yield some very attractive investment opportunities.
Scott Nuttall: The key is to use our global and diversified business model with significant locked up capital and 116 billion of dry powder.
Scott Nuttall: To keep investing when others are scared.
Scott Nuttall: These periods always end.
Scott Nuttall: And we typically look back and wish we had invested more when the world is most uncertain.
Scott Nuttall: We are running the firm with those lessons in mind.
Scott Nuttall: We did a good job leaning into the Covid dislocation.
Scott Nuttall: And we're approaching this environment with the same mindset.
Scott Nuttall: Yeah.
Speaker Change: As Rob mentioned, we've announced over $10 billion of investments in the last four weeks since the tariff announcement.
Speaker Change: And we have significant pipelines across our businesses.
Speaker Change: So you shouldn't expect to continue to see us investing into this environment.
Speaker Change: No doubt some sale processes may be delayed if this continues.
Speaker Change: It is times like this where we see the benefit of being very global.
Speaker Change: In Europe are less impacted so far.
Speaker Change: And multi asset class and connected.
Speaker Change: As companies still need capital they may prefer debt over equity evaluations are down.
Speaker Change: So we are optimistic about deployment.
Speaker Change: And the returns we will see from this vintage.
Speaker Change: We're also sure you have questions about what this means for monetization.
Speaker Change: As Rob mentioned, we have a mature portfolio and benefit from linear and disciplined deployment.
Speaker Change: As such we have record embedded gains in our portfolio.
Speaker Change: And those gains are global.
Speaker Change: And across asset classes.
Speaker Change: Here again, we have good line of sight and several assets in sale processes.
Speaker Change: So we remain of the view that we can monetize gains in this environment.
Speaker Change: And if we do decide to delay some processes that just means we will likely monetize more next year.
Speaker Change: And we're sure you also have some questions about fundraising.
Speaker Change: We want you to have our views and some facts.
Speaker Change: As an example, China based Lp's make up a low single digit percentage of our AUM.
Speaker Change: Some may delay decisions in this environment.
Speaker Change: But we don't expect a material impact.
Speaker Change: We're also watching private wealth flows.
Speaker Change: Which have not been affected to date.
Speaker Change: These markets aren't adoption phase and.
Speaker Change: We have a long history of outperforming in down markets.
Speaker Change: So this period could actually accelerate adoption over time.
Speaker Change: And we think our partnership with capital group will accelerate that adoption as well.
Speaker Change: And remember a good portion of our fundraising comes through global Atlantic.
Speaker Change: We expect annuity demand to be largely unaffected in this environment.
Speaker Change: And it could be positively impacted as investors focus on safety and quality.
Speaker Change: In short given our momentum.
Speaker Change: And the diversity of our global fundraising channels, we remain confident we will continue to raise scaled capital.
Speaker Change: Stepping back you also likely wondering if we've changed our view of what we are capable of achieving as a firm.
Speaker Change: We have not.
Speaker Change: Joanne I shared 2026 guidance last year.
Speaker Change: We still feel good about those numbers across both our fundraising and financial metrics.
Speaker Change: When you cut through it we believe that while this dislocation may be different for a variety of reasons.
Speaker Change: Key is to stay focused on what we control.
Speaker Change: And to not waste the opportunities it affords.
Speaker Change: We will continue investing speaking with our clients finding new themes and looking for strategic opportunities.
Speaker Change: Some of which are only available in times of distress.
Speaker Change: Times like this reveal experience culture and business model durability.
Speaker Change: And they give us the opportunity to differentiate ourselves with performance.
Speaker Change: Engagement and strategic action.
Speaker Change: So that we reemerged stronger as a firm and as investors.
Speaker Change: That's our focus and intent.
Speaker Change: With that we're happy to take your questions.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now be conducting a question and answer session.
Speaker Change: If you would like to ask a question. Please press star and one on the telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you would like to remove your questions from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: The request participants please limit to one question and one follow up and rejoin the queue.
Speaker Change: Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Operator: The first question comes from Craig Siegenthaler with Bank of America. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Good morning, Scott, Rob Happy 49th birthday, and hope everyone is doing well.
Speaker Change: Our question is on your Asia business. So we all know that you are the largest private markets business across Asia. So we're curious in your perspective on what the emerging trade war means for your strategy your ability to fundraise and also investing effort across the region.
Speaker Change: Thanks for the question Craig.
Speaker Change: No change to our strategy.
Speaker Change: One of the things we talked about in the prepared remarks is.
Speaker Change: We learned a lot kind of going through Trump, one Dino and thinking about tariff implications I learned a lot during COVID-19 about supply chains as an example.
Speaker Change: So we have been looking at investments across asset classes with those lessons and the benefit of that timeframe in mind.
Speaker Change: So no change to our strategy.
Speaker Change: You know our effort as you know is cross asset class and in Asia.
Speaker Change: So we have efforts across private equity real estate in for credit the beginnings of an insurance effort.
Speaker Change: In offices across the region approaching 600 people so.
Speaker Change: So we think it is a big opportunity for us as a firm and we see a lot of growth ahead.
On the margin one of our themes for a while has been intra Asia trade.
Speaker Change: As an example, we think that's going to be an even bigger opportunity now on the back of this and perhaps as investors they focus on being even more global with their portfolios.
Speaker Change: I would say January February there was a little bit of a bent towards maybe I should have more in the U S. On.
Speaker Change: On the margin I think it's going to be beneficial to Asia flows if people decide to stay more global.
Speaker Change: Something that I think will benefit us given our scale in the region.
Speaker Change: And then Craig it's Craig I was just going to add some numbers to this and I think you're probably aware of this I know you've spent healthy amount of time in the region yourself.
Speaker Change: At the end of 2019, we had 21 billion of AUM.
Scott Nuttall: 90% was in private equity and looking at Q1 'twenty five we had about $70 billion of AUM with traditional PE, comprising just below 50% of that so as Scott noted meaningful growth with meaningful diversification at the same time.
Speaker Change: Okay.
Craig Larson: Thank you Craig.
Speaker Change: Just for my follow up I heard your commentary towards the end of the call on the resilience of private wealth flows and actually the potential for an acceleration coming out of this correction.
Craig Larson: Do you see the strong relative performance to date.
Craig Larson: Or the very low adoption as the key drivers and was that comment really brought across asset class because I know youre doing very well in particular in private equity just given capex strong recent performance.
Craig Larson: Yes, I think it all really the comment on our ability to perform through a cycle, Greg and so the comment was more if the public markets pull back that's when we tend to outperform by even more so if the private wealth channel, which is newer to the alternative space has that experience, we think overtime that could actually accelerate adopt.
Speaker Change: So it was more of a forward looking comment you're right. We haven't really seen it impact flows as of yet Craig will walk through some numbers in a minute but for us as.
Craig Larson: As I mentioned in the prepared remarks, we've been we've been around a long time.
Craig Larson: <unk> seen a lot of cycles, and we're a learning organization.
Craig Larson: So we learned a lot of lessons during the financial crisis and one of those was the importance of linear deployment and portfolio construction.
Craig Larson: We've been talking about it for a long time, we've been implementing it for a long time is now coming through the results and so the bigger performance point.
Craig Larson: He is going to start to shine through and show how differentiated we are so just to take one example, Americas private equity over the last eight years. We've returned two times the amount of capital that we've called.
Craig Larson: And that's been a business that's been growing.
Craig Larson: And so we think this is going to allow us to outperform over time in terms of capital access and we do see it as a go forward advantage across channels. So private wealth is part of that but we also see the benefit across institutional and everything else. We do Greg do you want to give an update on private wealth. Yeah. We were looking at the stacks through April.
Craig Larson: If you look at.
Craig Larson: At Q3, and Q4, we were below that $3 billion of new capital raised.
Craig Larson: In Q3 right at about that in Q4, and Q1, we'd raised $4 billion across the case series for the quarter and when we look at activity at this point through April. So one month period were right at about that $1 billion level.
Craig Larson: So it feels like a healthy.
Craig Larson: For us.
Craig Larson: It's interesting when you look at overall.
Craig Larson: Flows in particular for private equity and infrastructure in.
Craig Larson: In Q1, roughly half of those were inside the U S roughly half outside the U S.
Craig Larson: Based again on this preliminary data for the month of April were again, very diversified with a pretty equal split both inside and outside the U S. So again overall, a tough to read too much into it.
Craig Larson: Any four weeks of data, particularly April of 2025, but at.
Craig Larson: At this point thanks for you okay.
Craig Larson: Okay.
Craig Larson: Thank you.
Speaker Change: The next question comes from Alex Blaustein with Goldman Sachs. Please go ahead.
Alex Blaustein: Hi, Good morning, Thank you for the question.
Alex Blaustein: Zooming out a little bit the comments over the course of your prepared remarks suggested a you know a much more resilient business, perhaps what's perceived in the market today, you talked about monetization not quite falling off the cliff deployment dry powder really healthy it sounds like you're not really changing the outlook for fundraising either so the question obviously as you know with the stock.
Alex Blaustein: And what it's done over the last few months why not step up the buyback here I know, it's a dynamic approach you guys have talked about in the past and you're looking to generate the best return on invested capital, but if not now when and maybe you guys can also hit on expectations for putting the $2 billion plus of convert to work and kind of how you're thinking about use of those proceeds.
Alex Blaustein: Great Alex.
Rob Lewin: Rob why don't I start.
Rob Lewin: So we've been very consistent as it relates to capital allocation for some time and I really do think the most important thing for any capital allocation processes consistency and we've got to golf.
Rob Lewin: One of which is to make sure that every marginal dollar of free cash flow is going to generate the most amount of long term earnings per share.
Rob Lewin: And the second goal closely related is to make sure that we are increasing the quality of those earnings some more durability more resilience more recurring nature of those earnings.
Rob Lewin: And every marginal dollar of free cash flow, we look at through that lens and we've talked about four areas.
Rob Lewin: Using our capital base to accomplish those goals one of which is share buybacks. The other three are core private equity strategic M&A and insurance.
Rob Lewin: Share buybacks as you know over the past several years have been a really important part of our capital allocation framework and use of capital and I've got every confidence that as we look forward and as we think about using our capital share buybacks will continue to be a core part of how we think about capital allocation.
Rob Lewin: We also don't have a framework that puts a specific amount in any one bucket to us. It's all about how do we take that marginal dollar of cash flow and drive the most amount of earnings per share across our business over a long period of time.
Rob Lewin: With the most amount of durability and resilience to that cash flow and we're going to take that same lens and as I said I would expect that share buybacks. As we look forward, we'll continue to be a very important part of that allocation framework and maybe the last point because I think anytime you are talking about capital allocation, it's important to point this out.
Rob Lewin: KKR senior management own roughly 30% of KKR. So any decision that we take around capital structure around capital allocation. You briefly mentioned the convert we did a couple of months ago.
Rob Lewin: You know it was really through that lens in a way that is highly aligned with our shareholder base.
Rob Lewin: And and that's really the.
Rob Lewin: Approach that we've taken.
Rob Lewin: And if you look at share buybacks historically, we've used our capital base to retire roughly 10% of our shares outstanding 15% of our free float we have done so at an average price of roughly $28 per share and so we like our historical body of work.
Rob Lewin: And we'd expect that going forward, we're going to continue to be able to find accretive ways to put that capital work for all of our shareholders.
Rob Lewin: Thank you.
Speaker Change: The next question comes from Bill Katz with TD Cowen. Please go ahead.
Speaker Change: Hi, Good morning. This is <unk> on for Bill Happy birthday, you guys are just wanted to say that.
Speaker Change: Maybe.
Speaker Change: Maybe a question on <unk>.
Speaker Change: Is it bad.
Speaker Change: Finance.
Speaker Change: Maybe update us on the platform as we go into the balance of 2025.
Speaker Change: Some color on expanding the sourcing funnel and bank partnerships.
Craig Larson: Hey, My name is Craig why don't I start I'm glad you asked about so.
Speaker Change: Well look first on page 13 of our releases is the page the details are.
Speaker Change: Credit and liquid strategies business, we break out the composition of AUM in that piece.
Speaker Change: And if you look overall.
Speaker Change: Total credit AUM up 10% year over year 280 plus billion of AUM.
Speaker Change: The private credit component.
Speaker Change: It's growing at even a faster rate. So we've got a 117 billion of AUM up 26%.
Speaker Change: And within that private credit piece $74 billion of that is an asset based finance.
Speaker Change: NAV year over year has grown.
Speaker Change: At a number between 35 and 40%.
Speaker Change: The asset based upon that business, it's a big business for us our scale here is probably larger than someone.
Speaker Change: Might expect and so back to your question on how we're positioned at this market look it's a lot of the same themes you would have heard from us historically massive end market six trillion on its way to nine in our view, you've got really high barriers to entry.
Speaker Change: There is a lack of scale capital with as you noted a number of traditional providers and RV, leaving this market and are creating avoid so it's we're continuing to find attractive risk reward I think our clients like the diversification away from the corporate credit cycle and in terms of the current environment. We think this is a very good.
Speaker Change: <unk> for asset based finance, we think companies are still going to look to be efficient with volatile.
Speaker Change: With volatile markets as companies look to finance themselves. We think companies will continue to look for creative ways to finance themselves off balance sheet again, as we think about banks, we think our opportunity set will continue to increase.
Speaker Change: And if you look at overall asset based finance deployment for us.
Speaker Change: It was a little over $4 billion in Q1 over the trailing 12 months. We're at about 21. So again, it's a healthy part of deployment for US just to give you a frame of reference 2023 that number was at about $8 billion. So youre seeing really significant growth for us and a number of different asset classes just.
Speaker Change: Feels like there's a lot more for us.
Speaker Change: Sure.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Ben <unk> with Barclays. Please go ahead.
Ben: Hi, good morning, and thanks for taking the question.
Speaker Change: I wanted to ask maybe maybe a two and one on capital markets fees.
Speaker Change: I know, sometimes you kind of give a look into what how Q2 is shaping up. So wondering if you could do that but I'm also curious and you presented in the slide deck. You noted that about two thirds of transaction fees, where that focus in the quarter can you talk about what is that historically.
Speaker Change: Is this sort of a function of a changing environment or part of a more explicit strategy to kind of broaden the type of business you're doing there. Thank you.
Speaker Change: Great.
Speaker Change: Thanks, a lot for the question, maybe I'll answer the second part of the question.
Speaker Change: First because it's the shorter part of the answer.
Speaker Change: <unk>, we've been at that two thirds level over time, so no real big change in.
Speaker Change: In the quarter.
Speaker Change: As it relates to our capital markets business. The fees listen Q1 was a really solid quarter for us, particularly given the backdrop $230 million of revenue Q1 tends to be historically, a lighter quarter and frankly as we came into the quarter looking at pipelines I think we thought we'd be a little bit shy of that number as we look at Q2.
Speaker Change: Especially with the backdrop that we have a lower deal flow out there we've got a very solid pipeline.
Speaker Change: Does that shape up to be similar revenue numbers Q1, not sure we might be a little bit shy of that but given the environment feel really good about that pipeline.
Speaker Change: Back half of the year, we're going to need to see let's see how the environment plays out how the capital markets shape up.
Speaker Change: But as we sit here in May 1st of 2025, when we look at Q1 look at our forward pipeline feel better about it than we felt may 1st of 2024 now we had a big back half of the year end 2024, we'll see how the rest of twenty-five shakes out, but we feel really good with how our business continues to be able to.
Speaker Change: Form and different market environments, you look at 2022 and 2023, we generated roughly 600 million of revenue in both of those years. So really protected downside in that business created more of a floor from a revenue perspective, and very choppy capital markets environment, and then you saw a spike to roughly $1 billion of revs.
Speaker Change: When the markets opened up in 2024.
Speaker Change: The team has done an awesome job building that business over the last almost two decades, and we think theres a lot of upside from here.
Speaker Change: Thank you.
Speaker Change: The next question comes from Glenn Schorr with Evercore. Please go ahead.
Speaker Change: Hello.
Speaker Change: So I wanted to circle back to the conversation on private equity you you're clearly.
Speaker Change: Helped us see how are the linear deployment and investment pacing helps your particular situation, especially look at even Americas 12 in the capital you've returned so.
Speaker Change: The question is broader.
Speaker Change: Do you expect.
Speaker Change: In 2006 and eight.
Six seven and eight vintages that was kind of subpar performance with the industry people saw it private equity is dead. We go out and we've raised a lot of money that doubles and triples. So the question is is this time any different for the industry. There's more funds theres more assets raised their sub par performance are we going to see a bigger shake out because we didn't see any.
Speaker Change: Alpha one and in past downturns and so the real question at the end of all that is will we see lower allocations to private equity or just a dispersion in consolidation to the better performance.
Scott Nuttall: Hey, Glenn it's Scott.
Speaker Change: Great question.
Speaker Change: Our expectation.
Speaker Change: Is that it'll probably more about where you ended up it'll be more about dispersion.
Speaker Change: And I think youre going to have meaningful dispersion of results.
Speaker Change: Across private equity managers.
Speaker Change: And you know that we will start to come through maybe in a way that it hasnt to your point for a very long time.
Speaker Change: We've already seen a trend for a while are institutional investors in particular globally wanting to do more with fewer.
Speaker Change: And so they've been consolidating their relationships.
Speaker Change: With people that they can perform through a cycle and there's a lot of cases are global and multi asset class.
Speaker Change: Obviously, we've benefited from that so I think it's going to be I wouldn't use the term shake out I think there'll be more of a concentration of capital.
Speaker Change: With fewer players and I think we will now see the benefit of.
Speaker Change: What I mentioned before.
Speaker Change: We've learned a lot during dfc during COVID-19.
Speaker Change: One donohoe.
Speaker Change: We've been applying those learnings.
Speaker Change: Volatility creates opportunity.
Speaker Change: But you need to have the capital to invest and the courage to invest it.
Speaker Change: And we as a firm and you know we talked about culture, all the time here.
Speaker Change: We're incredibly well connected.
Speaker Change: And if nothing else we learn.
Speaker Change: So hopefully that will benefit us and as it comes through results.
Speaker Change: But I think it's gonna be dispersion as opposed to shake out.
Speaker Change: Thank you.
Steve: The next question comes from Steve <unk> with Wolfe Research. Please go ahead.
Speaker Change: Okay.
Speaker Change: Hi, good morning.
Speaker Change: Good morning.
Speaker Change: Recognize that you're planning to give a more fulsome update on the capital partnership in the second half, but I was hoping you could just provide some early color on the distribution strategy and specifically areas of differentiation versus other competing products and just how these vehicles might evolve over time.
Craig Larson: Hey, Steve It's Craig why don't I start look we're.
Speaker Change: Obviously at the earliest days.
Speaker Change: Really excited with being in position to launch the two vehicles you would've seen in the press release from a couple of days ago.
Speaker Change: There's more to come with a private equity focused product in addition to.
Speaker Change: Real assets yield oriented products.
Speaker Change: And alongside of that there are initiatives focused on things like model portfolios as well as target date funds.
Speaker Change: So we're just at the again at the earliest of days and we were preparing for the question of what do we think that looks like.
Speaker Change: Steve that's a super tough question.
Speaker Change: To answer because in many ways. It feels like together, we both are forging a new path a very exciting path.
Speaker Change: And we will keep everybody abreast in terms of Prague.
Speaker Change: Progress as we go forward.
Speaker Change: But our mindset as you've heard from us over time is not on new capital raised in a $3 six or 12 month period.
Speaker Change: We together are trying to design products that we think 510 15 years from now collectively were both kind of look back at and feel really proud about the net investment performance that we've delivered on behalf of our clients and if we are successful in that part of the equation, we're gonna be able to raise just a fine amount of money.
Speaker Change: So.
Speaker Change: Again, there's a lot of excitement within our firm I think within capital group as well about the opportunity and it just feels great at this point to be launched and underway.
Speaker Change: Hey, Steve It's Scott I think.
Speaker Change: <unk> said it well we've talked about the private wealth opportunity for awhile, we do think that it is significant as you know a lot of institutions globally are 30% to 50%.
Speaker Change: And alternatives individual investors are low single digits, depending on what you look at 1% or 2%.
Speaker Change: So the opportunity for kind of expanding our market is meaningful but even more importantly for that it just doesn't make sense that if you are a teacher in Texas and you retired you have 30% 40% of your.
Speaker Change: Retirement funds invested in alternatives and if you're a retired dentist you have zero you haven't had access to what we do and so with case series.
Speaker Change: Have been focused on hitting the accredited investor and let's talk to U S market for a minute, that's a $1 billion of net worth and up.
Speaker Change: That is about 5% anyway, you look at 5% to 7% of U S households.
And as you know we've launched there and we are underway and those with some of the numbers Craig walked through before.
Speaker Change: With capital group, we're focused on the other 95%.
Speaker Change: And we have just launched these first two.
Speaker Change: Products and credit space, but what's coming private equity real estate infrastructure.
Speaker Change: Models and figuring out how to access more efficiently the broader industrial universe and target. The what can we do in 401K. So there's a lot more coming attractions and there is.
Speaker Change: Work done to date and.
Speaker Change: And we think the opportunity is immense but our focus to be Super clear is investment performance that we generated for the client.
Speaker Change: And just like we have been for pension funds sovereign wealth funds insurance companies family offices for nearly 50 years that remains our focus and figuring out how to deliver that performance to that new audience with a fantastic partner.
Speaker Change: Thank you.
Speaker Change: The next question comes from Mike Brown with Wells Fargo. Please go ahead.
Speaker Change: Okay.
Speaker Change: Hi, Good morning, Scott Robin Craig Good morning.
Speaker Change: I wanted to ask on the flagship fundraising in 2025. So you had the first close on North America buyout seems like the industry like fund raising is elongated so I wanted to ask what's the right timeframe to consider for final close and then beyond North America buyout, where else are you expecting the inflow.
Speaker Change: From the Big Flagships in 2025, I believe Asia, starting so can we see some inflows in 'twenty five and then what's the expected timing on the final close for <unk> five thank you.
Speaker Change: Hi, Mike its Greg why don't I start.
Speaker Change: First on infra and flagship Infra fund raising of $3 31 word.
Speaker Change: A little over 11 billion 11, 3 billion as you can see in the back of the release.
Speaker Change: We feel really good about progress to date I think to your point if anything we may be seeing a little bit more of a bar belled approach to fundraising in this environment. So the biggest components of capital coming in either at the initial close to take advantage of first close of discounts or the final close I think thats probably always.
Speaker Change: As been the case, but perhaps feels maybe even a little more so.
Speaker Change: In the current environment again as it relates to the Americas private equity.
Speaker Change: Wrapped up the first close of 2014.
Rob Lewin: As Rob alluded to in them.
Speaker Change: Prepared remarks, just feel really great about progress to date.
Rob Lewin: I think it's a real credit to the team.
Rob Lewin: As we look at absolute returns and capital return and all the things that we've already talked about.
Rob Lewin: I would expect we'll have a.
Rob Lewin: A couple of closes in a in.
Rob Lewin: America and will launch fundraising for the flagship.
Rob Lewin: This strategy.
Rob Lewin: On the heels of that we don't we haven't announced publically any specific timing as it relates to when we would.
Rob Lewin: Launched that fundraising, but I think that is a topic that is certainly becoming front of mind for us here and then similarly, we haven't announced a.
Rob Lewin: A final close date on in for five our first close.
Rob Lewin: Period ended or was in July of 'twenty four.
Rob Lewin: We're well inside of 12 months at this point.
Rob Lewin: And we'll keep you abreast as as we move forward there, but again, we just haven't announced it.
Speaker Change: Any of any specific.
Rob Lewin: Closing date on in for five.
Rob Lewin: The broader point just relates to the breadth of activity that you see for us because on the one hand, theres always and we understand that given the size of these vehicles, there's always a big focus on the flagship activity but.
Rob Lewin: If you look at that activity for us.
Rob Lewin: And if that's been 20 billion or so.
Rob Lewin: In the in the trailing 12 months.
Rob Lewin: Little north of that still means you've got $80 billion to $90 billion outside of that activity.
Rob Lewin: That youre seeing across the breadth of our platform.
Rob Lewin: Lots of activity.
Rob Lewin: Across the credit business.
Rob Lewin: I think similarly broadly across infrastructure, even we launched fundraising for Asia infrastructure.
Rob Lewin: Various wealth platforms climate et cetera. So.
Rob Lewin: There is just an underlying.
Speaker Change: <unk> breadth of activity that gives us that gives us comfort yeah, I think the only thing I would add Mike is just to underscore Craig's last point, we talked about the durability and diversity of the model. We've been very focused on this the last 10 15 years. So flagships, obviously remained very important but LTM just over 20% of the capital we've raised in the last two years, we've really.
Speaker Change: He has over 200 billion of capital just over and it's been about 12%.
Speaker Change: Of that 200 billion. So just to give you a sense of the diversity of the fundraising channels that we have in all the different ways. We can access capital meaningfully different than how we looked and felt a decade ago.
Speaker Change: Thank you.
Speaker Change: The next question comes from Dan Fannon with Jefferies. Please go ahead.
Dan Fannon: Hi, Thanks, I wanted to follow up on just fund raising and I was hoping obviously momentum is quite strong I was hoping you could just talk about your conversations youre, having with Lps and generally the health of that client base on the institutional side as you think as in the heels of this kind of volatile market we've been in.
Alright, Thanks, Dan Scott, Let me take a shot at it. So we have had as you would expect significant engagement with our clients the last several weeks.
Dan Fannon: We tend to lean in even more when the world is uncertain and have even more connectivity, it's hard to paint everybody with one brush, but people are in healthy shape overall so.
The characteristics of the dialogue one it's super early so everybody just processing all of this what does it mean how.
Dan Fannon: How do I think about it what are we seeing around the world. So we're sharing that with everybody that we work for and this confusion.
Dan Fannon: What this means what it means in different places and where we end up so a lot of the discussions are on macro.
Dan Fannon: Policy implications geopolitics.
Dan Fannon: The client's overall.
Our liquid.
Dan Fannon: And they're asking us where.
Dan Fannon: Should I lean in to take advantage of this.
Dan Fannon: For the most part I think a number of them probably wish they'd invested more aggressively post COVID-19 and post the GSC.
Dan Fannon: So they wanted to make the same mistake. So we're getting questions about trade it in opportunistic credit as an example, so I'd characterize it on balance of course people. Some people are more concerned than others, but I would characterize it as cautious greed.
Dan Fannon: And not wanting to look back with regret again.
Dan Fannon: All of this and I mentioned it.
Dan Fannon: <unk> very quickly.
Dan Fannon: <unk> is now down 1% since April one.
Dan Fannon: And I haven't looked at where we're trading since our call started.
Dan Fannon: Down 5%. So this is as of last night since the beginning of the year.
Dan Fannon: And credit spreads, which were very tight had moved back maybe to the averages we hadn't seen them blow out materially. So people are liquid and I think overall, they're trying to figure out how to take advantage of this the.
Dan Fannon: The other question, we get is how do I think about where to invest my money.
Dan Fannon: A number of folks as I mentioned before had been thinking about if they were 60% to 70% U S should be even more on the forward that was January February now its more kind of retrenching, maybe I've got it about right do I need to rethink it and.
Dan Fannon: And people are just trying to figure out what all this means in the final analysis. The U S is 25% of global GDP.
Dan Fannon: And 65% of global market cap.
Dan Fannon: So said another way.
Dan Fannon: U S equity market is two times the size.
Dan Fannon: Europe, Japan, and India combined.
Dan Fannon: So as we talk to a CIO Ceos around the world that are allocating capital. There is a recognition of that fact and the depth and the liquidity of this market.
Dan Fannon: So we haven't seen anybody make any abrupt changes, but it's super early.
Dan Fannon: So I would say highly constructive discussions and business as usual plus a lot more engagement.
Dan Fannon: Yeah.
Dan Fannon: Thank you.
Speaker Change: The next question comes from Patrick Davitt with Autonomous Research. Please go ahead.
Dan Fannon: Yes.
Patrick Davitt: Hi, good morning, everyone.
Speaker Change: My question is on the Stearns discussion I think you said you expect it to stay in the $250 million range for the next few quarters, but with the ongoing an ongoing portfolio repositioning and now I would think potential for wider new investment spreads why is there not room for that to tick up through the year. Thanks.
Yeah. Thanks, a lot for the question Patrick Let me.
Speaker Change: There's a few different things going on so let me let me just start with how we look at things and then I'll work towards your specific question.
And we really do focus on that all in a row concept today, we are approaching that 20% level, so pretty attractive in its own right.
Speaker Change: And we've got a clear path to sustainably, beating that level to generate 20 plus percent all that ROE is especially if we get all elements of the business model working together.
Speaker Change: And I'd point out that we're achieving that return level, while we're going through this evolution of our business model at G. Eight, which we know is going to put some near term pressure on insurance segment operating earnings for a bit of time, all with the benefit of the longer term economic profile.
Speaker Change: We think we can achieve.
Speaker Change: We know for us that that is unquestionably the right path to take.
Speaker Change: You followed us for some time others on the call have I'm sure as well you know that we're always going to make the decision to decide for long term economics, even at the expense of short term P&L.
Speaker Change: Now going into a little bit more of the detail that will answer your question more specifically we are working on a few different initiatives simultaneously like all with good momentum. So let me give you a few different data points.
Speaker Change: This all starts how we evolve the business model modestly here all starts with Elon gating, our liabilities and if you look at Q1 of this year.
Speaker Change: In the retail channel 90% of the.
Speaker Change: The annuities that we went out and sold in the liabilities that'd be raised had a duration of five plus years attached to them.
Speaker Change: At this time last year that number was 65% so really good progress on that important front.
Speaker Change: Number two we've talked about taking our exposure to alternatives up industry average tends to be 5% to 8% exposure to alternatives Global Atlantic. We mentioned at the end of last quarter was 1% in the quarter, we added roughly $1 billion of alternatives exposure, so making progress there too and then importantly third party capital.
Speaker Change: It was a very significant part of our strategy going forward I referenced in the prepared remarks.
Speaker Change: Some of the momentum that we have there the Japan post strategic partnership without raising IV three right now and so there's a lot going on as it relates to third party capital as well so good progress across these three very important initiatives.
Speaker Change: But to answer your question specifically this is all going to take a little bit of time to impact the P&L.
Speaker Change: Especially the part around the alternatives book and the growing alternatives book remember much of that doesn't come through and yield.
Speaker Change: In addition to that as we grow our third party capital base Big part of our go forward strategy those fees only turned on when the capital is invested again will take a bit of time.
Speaker Change: So we think where this all lens is a very attractive run rate return inside the insurance business I think importantly, with lower leverage over time.
Speaker Change: And then with significant asset management economics, alongside that takes that all in ROE to that sustainable at 20 plus percent level that I referenced earlier.
Speaker Change: Hope that's helpful color.
Speaker Change: Thank you.
Speaker Change: The next question comes from not <unk> with BNP. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Yes. Good morning, So we've seen a lot of.
Speaker Change: Number.
Speaker Change: The number of large deals that would have been flat as opposed syndicated loan market.
Speaker Change: Full private Thats in April I think.
Speaker Change: <unk> is an example here so I was wondering how the availability of bank debt is currently evolving as we seeing spreads tightened once again.
Speaker Change: I'm asking the question from two angles.
Speaker Change: Number one is what is the availability to do deals.
Speaker Change: Availability of debt and how that is evolving in April given given the.
Speaker Change: The spread has tightened once again and second also looking through the lens of yours as a provider of private debt is there an opportunity to take back market share from the banks here. Thanks.
Speaker Change: Great. Thanks, It's Rob why don't why don't I start and listen I think when you saw it very early April you saw a brief dislocation where it was for a small period of time.
Speaker Change: Hard to go secure bank financing.
Speaker Change: Think we talk a lot about our capital markets business as a fee generator for KKR and our profitability generate on and of course, it has been but the whole reason that business started.
Speaker Change: Was to really be able to support our portfolio companies in a differentiated way and we saw that a carrier, where we went out and arrange to our own financing.
Speaker Change: As it relates to where we sit today, we see bank availability of capital the leveraged finance market is open, albeit I think its in order to access it spreads are a little bit higher for sure today than where they were but its open and available for new deals sitting here in early may.
Speaker Change: The private credit opportunity remains a robust one as well.
Speaker Change: And given the backup in spreads in the leverage finance market, a little bit slower activity of course in the CLO formation market.
Speaker Change: We think that the spread opportunity in our private credit and direct lending business is.
Speaker Change: Is one thats attractive as we headed into Q2 here as well.
Speaker Change: Scott.
Speaker Change: <unk> is available to do deals.
Speaker Change: Depending on the transaction.
Speaker Change: Say the more straightforward stories that.
High line of sight to syndicate ability those are going to leverage credit background.
Speaker Change: Those with maybe more of a story attached can go to the private credit route that capital is available the key for US is those markets exist in function side by side.
Speaker Change: Presents an option for us as we think about the best way to go depending on the transaction.
Speaker Change: And the private credit space that capital tends to be locked up and it's readily available.
Speaker Change: So it's more about the cost as Rob said and what's the best path based on the story in the underlying.
Speaker Change: I do think youre going to continue to see as banks periodically pullback if volatility increases.
Speaker Change: And you'll see private credit taking more share from leveraged credit or the syndicated market and then cut back. The other way. This is an environment, where we've got a little bit of both coming on.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Brian Bedell with Deutsche Bank. Please go ahead.
Speaker Change: Great. Thanks. Thanks. Good morning, Thanks for taking my question most have been asked and answered, but maybe one on FRE margin.
Speaker Change: It continues to be impressive.
Speaker Change: Growth in the FRE margin. So just a question for Rob.
Speaker Change: Yes.
Speaker Change: Asked this before on prior calls, but just to ask it again and do you see any kind of ceiling in that.
Speaker Change: Yeah. It was basically the view of the investing more I guess, if it's to see revenue growth improves and then should we be thinking about higher expenses around distribution costs.
Speaker Change: For your for your capital partnership.
Speaker Change: As that evolves as maybe being a potential headwind on margin.
Speaker Change: Great. Thanks, a lot Bryan so a few different things as I try and address your question maybe just start on the expense side, we have talked about continuing to want to invest back into our business for growth.
Speaker Change: As an example, we've talked about our placement fees and distribution costs and from my seat.
Speaker Change: Is the best cost we have because it's got the clearest our ROI attached to it now.
Speaker Change: Now even with that said.
Speaker Change: What I've also talked about it in the past as it relates to margin. So I think we can operate in a sustainable way at that mid 60% FRE margin.
Speaker Change: But in the past number of quarters as you know we've been closer to the high 60% level.
And I don't think either as a cat for us.
Speaker Change: I know, it's not a cat for us because if you go back to our business strategy from our perspective. This all about scaling things that we have already started.
Speaker Change: And if we're successful at executing on that business strategy and as a leadership team. We've got a lot of confidence that we're going to be.
Speaker Change: Then we're going to grow our revenue at a pace that meaningfully exceeds our head count growth and the operating complexity across the firm.
Speaker Change: And so while FRE margin expansion or overall margin expansion isn't an input to our business strategy.
Speaker Change: It is a really nice output to our strategy, if we get it right and we think we will.
Speaker Change: Thank you.
Speaker Change: The next question comes from Michael Cyprus with Morgan Stanley. Please go ahead.
Michael Cyprus: Hey, good morning, Thanks for squeezing me in here just a question on tariffs I think you had referenced about 10% of your AUM that has some sort of first order impact it sounds like thats, mostly in credit is that CRE can you just elaborate a bit on how you see a restrictive trade policy impacting the portfolio. I think you also mentioned you're taking some mitigation steps.
Michael Cyprus: If you can elaborate on the mitigation action steps you guys are taking and then could you also speak to any sort of second or third order impacts that you're thinking about how are you going about assessing that thank you yep. Thanks, a lot Mike.
Michael Cyprus: Let me start.
Michael Cyprus: When I had referenced the 90% number that was a private equity number across our portfolio, where we're looking across our global business.
Michael Cyprus: And feel like and 90%.
Michael Cyprus: The outcomes on an AUM basis that there's no material exposure and as you think about that other 10% that doesn't include any mitigation strategies that are of course already well underway.
Michael Cyprus: So we feel really well positioned infrastructure.
Michael Cyprus: We feel.
Michael Cyprus: Equally well positioned when we look at that portfolio much of what we do is contractual protections that insulate KKR returns or just no exposure at all and then on the credit side of our business actually it is as we understand the terrorists today, we think there might be even less exposure than what we're seeing in our private equity portfolio today and so we feel.
Michael Cyprus: As we look across our 600 plus billion dollars of a U N.
Michael Cyprus: Really well situated it's not to say, we're not going to have our issues and as you think about potential second or third order impacts and potential impacts across the economy, whether that's J D play our inflation our interest rates of.
Michael Cyprus: Of course, we're very attuned to that.
Michael Cyprus: We're in a very fortunate position.
Michael Cyprus: To have invested meaningfully behind a macro function geopolitics function public policy.
Michael Cyprus: All of those teams deeply embedded across our investment teams globally.
Michael Cyprus: And really.
Michael Cyprus: Synced up in a way that we're trying to anticipate what could happen next and be in a position, where we can really react to things either proactively or very quickly if if things changed from our base case. So there's a lot going on in the macro side again, we feel very well competitively well positioned given our resources and the <unk>.
Michael Cyprus: Connectivity across our firm.
Scott Nuttall: Yeah, Mike, It's Scott I'd say.
Scott Nuttall: Not an accident I mentioned before we learned a lot during COVID-19 and one dot O Crump.
Scott Nuttall: And so we've been focused on.
Scott Nuttall: Wiring assets and companies that have more durable demand drivers. So one of the things that we've been looking at is do we think companies can hold margins.
In a higher cost or higher inflation environment.
Scott Nuttall: And we've frankly been leaning into those parts of the global economy and away from those that the answer is not as good and so as Rob said I'm sure we're going to get surprised by some things, but as we look at it today really where we are today and what Rob just walked through is a result of the last five plus years of investing through that prism.
Scott Nuttall: We have a broader consumer led recession, United States or is there some other larger dislocation that I'm sure you're going to have other work to be done, but we also think we have management teams that are well equipped and again, having gone through COVID-19 with large part of this portfolio. We've already had good practice as to how to get ready for a more dislocated environment. So we think we're well.
Scott Nuttall: Tested but time will tell.
Scott Nuttall: Thank you.
Speaker Change: The next question is from Kyle <unk> with <unk>. Please go ahead.
Hi, Good morning, everyone, maybe just a blended follow up question on insurance and capital markets.
Speaker Change: Rob just to clarify your earlier comments should investors move away from thinking about insurance earnings being at 14% to 15% pre tax ROE range over the long run and instead simply think about an all in type of 20% plus target instead.
Speaker Change: <unk> in the prepared remarks, you reiterated the opportunity to substantially grow the capital markets fees that are tied to insurance versus the $50 million level. In 2024 can you just give us an update on the roadmap to get to the several hundred million dollars level, you'd noted and how youre thinking about the timeframe to achieve that.
Speaker Change: Great. Thanks, a lot Carl.
Speaker Change: Short answer is is no as it relates to insurance operating earnings and move away from that and of course, how we go maximize profitability inside our insurance business and how we go operate on behalf of our annuity holders.
Speaker Change: It is a very important consideration as we're trying to frame the insurance business at KKR I think it's important to look holistically, which is really how we as a management team think about it and so thats insurance operating earnings. It is importantly, the third party capital fees from IV, our capital markets business.
Speaker Change: In addition to of course, our investment management.
Speaker Change: Agreement that exists between our asset management in our insurance business and so I think both are very important but holistically as a management team. We do look at that all in a row and we thought it was important to share on this call because to be generating a high teens approaching 20% all in ROE at the same time, we are evolving our business.
Speaker Change: Model and really intentionally under earning in the near term inside of the four walls of insurance I think speaks to the opportunity that we have once we've got all elements of our business model working really well together.
Speaker Change: As it relates to your second part of your question on the opportunity for capital markets fees, We've got.
Speaker Change: Our PR firm that has done a really awesome job building that part of the business.
Speaker Change: Into something that contributes a significant amount of revenue as we look at how our capital markets business is situated the investments that we've made.
Speaker Change: In structured products in private investment grade the resources that we have on the ground in distribution, we feel really great about continuing to build out that business and to achieve very substantial revenue outcomes for our shareholders. If you look across all of 2024.
Speaker Change: The $50 million.
Speaker Change: Fees in that part of our business in Q1 of this year that number was about $20 million and so like most things here.
Speaker Change: We're not in a rush, where I'm very conscious of doing it in the right way and in a way that maximizes the long term opportunity and we continue to believe that generating hundreds of millions of revenue on the back of this type of opportunity is certainly well within.
Speaker Change: <unk> ability from our perspective.
Speaker Change: Thank you.
Speaker Change: Our next question is a follow up from Ben <unk> from Barclays. Please go ahead.
Ben: Hi, Thank you for taking my follow up I wanted to ask about one more kind of a forward looking commentary I haven't provided last quarter.
Speaker Change: As a management fee growth Rob last quarter, you suggested that we should see some.
Speaker Change: Give me some acceleration from the 14% growth in 2024. So I'm just curious curious if that's still the case and maybe as part of that I know, perhaps you can't say when the Americas fund might activate but could you remind us what are the sort of constraints is it just dependent on making the first investment or the pace of deployment that the predecessor, what should we be looking for there. Thank you.
Speaker Change: Yeah. Thanks for the question Ben we continue to believe that management fees will accelerate from here. After this level.
Speaker Change: Keep in mind that.
Much of the $31 billion of capital that we raised isn't showing up in management fees.
Speaker Change: We've got $64 billion.
Speaker Change: And that where the fees are not yet turned on with a weighted average management fee of roughly 100 basis points. So a lot of visibility around where our future growth is going to come from I can tell you that I'm not.
Speaker Change: <unk> four will be activated.
Speaker Change: In Q2 of 2025, so in this current quarter, we're in right now and so it will be a partial benefit to the Q2 quarter.
Speaker Change: And we've got a lot of other I think momentum across our capital raising.
Speaker Change: Channels that we've touched on through this discussion. So we continue to believe management fees will accelerate from here.
Speaker Change: Thank you.
Speaker Change: As there are no further questions I would now like to hand, the conference over to Craig Larson for closing comments.
Craig Larson: Thank you for your help this morning, and thank you everybody for your attention I know this has been a longer call Jim.
Speaker Change: A very volatile environment. We appreciate your interest and we look forward to giving everybody an other brought update.
Craig Larson: In 90 days. Thank you so much.
Craig Larson: Thank you. This concludes today's steady conference you may disconnect your lines at this time.
Craig Larson: You for your participation.
Craig Larson: Yeah.
Craig Larson: [music].
Craig Larson: Hum.
Craig Larson: Yeah.
Craig Larson: [music].