Business Description
KKR is a global investment firm specializing in asset management, capital markets, and insurance services. The company offers a diverse range of financial products and services, including private equity, real assets, credit strategies, and insurance products, catering to both its portfolio companies and third-party clients . KKR's asset management segment is a major revenue driver, with significant earnings from management fees . The firm's capital markets business provides comprehensive capital solutions, while its insurance operations, managed by Global Atlantic, focus on retirement, life, and reinsurance products .
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Asset Management - Manages investments across five business lines, generating revenue through management fees, incentive fees, carried interest, and transaction fees.
- Private Equity - Invests in private companies to drive growth and operational improvements.
- Real Assets - Focuses on investments in infrastructure and real estate.
- Credit and Liquid Strategies - Offers credit investment opportunities and liquid market strategies.
- Capital Markets - Provides capital solutions, including debt and equity financing and securities underwriting.
- Principal Activities - Engages in proprietary investment activities.
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Capital Markets - Provides traditional and non-traditional capital solutions, including arranging debt and equity financing, underwriting securities offerings, and offering capital markets advice to both KKR's portfolio companies and third-party clients.
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Insurance - Operated by Global Atlantic, offers retirement, life, and reinsurance products, earning income through the spread between investment income and policyholder benefits costs.
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Q3 2024 Summary
What went well
- KKR's Asset-Based Finance (ABF) business has shown significant growth, with Assets Under Management (AUM) reaching $66 billion, up 40% over the last 12 months, driven by strong origination and a large market opportunity of $5 trillion on its way to $7 trillion.
- KKR's fundraising momentum is strong, having raised $85 billion year-to-date, tracking ahead of their $300-plus billion target, with confidence bolstered by both flagship funds and wealth management initiatives.
- KKR's Infrastructure business has experienced exceptional growth and performance, increasing AUM from $15 billion five years ago to $77 billion as of September 30, 2024, all organic, contributing significantly to capital market transaction fees and demonstrating scalability advantages.
What went wrong
- Capital Markets revenues in Q3 were boosted by a few sizable fee events and catch-up activity, including the Telecom Italia deal, which may not be sustainable in future quarters. Management noted that Capital Markets is not a business to evaluate quarter-on-quarter and such spikes should be viewed over a longer time frame.
- The realization of embedded gains ($3 billion) on the balance sheet depends heavily on market conditions, and any deterioration in the monetization environment could delay or reduce expected future earnings.
- The timeline for achieving the targeted 14%-15% pre-tax ROE for Global Atlantic (GA) is uncertain, as management stated they do not have a specific timeline and it depends on multiple variables, suggesting potential delays in realizing expected returns from GA.
Q&A Summary
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Fundraising Outlook
Q: Is the $300B fundraising target conservative given momentum?
A: Management feels confident about exceeding the $300+ billion fundraising target, given strong momentum and increased contributions from flagship funds like infrastructure and private equity. -
Accrued Performance Income and Monetization
Q: Any funds flipping into carry; timing of monetizing gains?
A: Accrued carry increased due to broad-based performance, especially in infrastructure funds growing from $1B to $17B. Realizing embedded gains depends on the improving monetization environment. -
Wealth Management Growth and Capital Group Partnership
Q: Update on wealth management traction and Capital Group partnership?
A: Wealth AUM from individuals reached $75 billion, with strong traction in private equity and infrastructure. KKR is expanding products across four verticals and sees significant growth ahead with Capital Group partnerships launching credit vehicles. -
Capital Markets Performance and Outlook
Q: Can strong Capital Markets performance continue?
A: The Capital Markets business had a record quarter, with revenues expected to be up 50% over last year. Management is optimistic about sustained growth due to the diversification and breadth of the business model. -
Infrastructure Business Sustainability
Q: What's driving strong infra returns; sustainability into 2025?
A: The infrastructure business grew AUM from $15B to $77B in five years, all organic. Strong performance and scale advantages are expected to sustain momentum into 2025. -
Monetization Pipeline into 2025
Q: Outlook for monetizations, especially IPOs, into 2025?
A: The monetization environment has recovered, with a positive backlog. KKR expects the IPO market to pick up, having seen recent IPOs trading 50% above issue price on average. -
Real Assets Fundraising Momentum
Q: How is fundraising across real assets beyond infrastructure?
A: Real estate AUM reached $80 billion, split equally between equity and credit. Investment activity increased significantly, with $12 billion deployed year-to-date, reflecting positive investor sentiment. -
Asset-Backed Finance Growth
Q: Details on asset-backed finance growth and sourcing?
A: Asset-backed finance AUM grew 40% to $66 billion, with origination running at a $30 billion annual pace. Growth is driven by 35 platforms and partnerships with major finance brands. -
Climate Strategy Progress
Q: Update on building out the climate strategy?
A: KKR sees massive capital needs of $200 trillion for net zero by 2050. Their climate strategy is a priority, currently at around $2.5 billion in fundraising and continues to grow. -
Fee Rates in Real Assets and PE
Q: What's impacting fee rates in real assets and PE segments?
A: Fee rates in real assets increased due to infra fund fees turning on. PE fee rates decreased slightly due to K-Series products with fee holidays and scaling of core PE at lower fees. -
Global Atlantic ROE Target Update
Q: Is the 14-15% pretax ROE target for 2026 still on track?
A: Management feels great about performance and remains committed to the 14-15% pretax ROE target for Global Atlantic, though exact timing may vary due to growth dynamics. -
Sale of Core PE Portfolio Asset
Q: Why did you sell an asset from core PE portfolio?
A: The sale was part of portfolio optimization, related to a transaction with Telecom Italia. The long-term hold strategy in Strategic Holdings remains unchanged. -
Private Assets in Retirement Channel
Q: Thoughts on private assets in retirement and DC channels?
A: KKR sees logic in introducing alternatives into target-date funds, a massive market with over 60% of new 401(k) dollars. The Capital Group partnership is strategic in this area. -
Capital Markets Contribution from GA
Q: How much did Global Atlantic contribute to Capital Markets?
A: Global Atlantic was a solid contributor but not material within the $420+ million Capital Markets revenue. There's potential for contributions in the hundreds of millions over time. -
Potential Tariff/Trade War Impact
Q: How could tariffs or trade wars impact your portfolio?
A: Management focuses on controllable factors but has scenario planning in place. Portfolio construction already considers such risks to mitigate potential impacts. -
Visible Realization Pipeline Numbers
Q: Can you provide updated realization pipeline numbers?
A: There is visibility into about $500 million of monetization-related revenue for Q4, with approximately 60% enhancing P&L impact due to a lower compensation ratio.
Key Metrics
Revenue by Segment - in Millions of USD | FY 2013 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Asset Management | 1,126.0 | 1,451.344 | - | - | 5,807.3 | 1,956.468 | 1,560.45 | 2,269.09 | ||||||||||||||||||||||||||||||||||||||||||||||
- Fees and Other | 902.1 | 754.447 | 1,134.346 | 173.01 | 2,963.9 | 693.526 | 822.32 | 1,105.666 | ||||||||||||||||||||||||||||||||||||||||||||||
- Capital Allocation-Based Income | 373.5 | 696.897 | 560.462 | 1,212.54 | 2,843.4 | 1,262.942 | 738.13 | 1,163.424 | ||||||||||||||||||||||||||||||||||||||||||||||
- Management Fees | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Transaction and Monitoring Fees, Net | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Fee Related Performance Revenues | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Realized Performance Income | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Realized Investment Income | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Net Investment Income | 1,300.7 | 1,311.055 | 1,412.130 | 1,491.01 | 5,514.9 | 1,519.902 | 1,580.50 | 1,701.826 | ||||||||||||||||||||||||||||||||||||||||||||||
Insurance | 2,001.4 | 2,175.174 | 1,685.673 | 2,829.75 | 8,692.0 | 7,700.270 | 2,611.46 | 2,522.606 | ||||||||||||||||||||||||||||||||||||||||||||||
- Net Premiums | 473.6 | 626.429 | 220.212 | 655.46 | 1,975.7 | 6,036.522 | 935.79 | 621.218 | ||||||||||||||||||||||||||||||||||||||||||||||
- Policy Fees | 313.8 | 315.382 | 314.016 | 317 | 1,260.2 | 328.947 | 333.90 | 375.371 | ||||||||||||||||||||||||||||||||||||||||||||||
- Net Investment-Related Gains (Losses) | (123.8) | (117.550) | (338.230) | - | (235.3) | (241.486) | (302.62) | (235.971) | ||||||||||||||||||||||||||||||||||||||||||||||
- Other Income | 37.2 | 39.858 | 42.341 | 57 | 176.4 | 56.385 | 63.89 | 60.162 | ||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue | 3,127.5 | 3,626.518 | 3,315.481 | 4,429.8 | 14,499.3 | 9,656.738 | 4,171.91 | 4,791.696 | ||||||||||||||||||||||||||||||||||||||||||||||
Revenue by Geography - in Millions of USD | FY 2013 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
Total Fees and Other | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Americas | - | - | - | - | 1,500 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Europe/Middle East | - | - | - | - | 400 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Asia-Pacific | - | - | - | - | 900 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Total Capital Allocation-Based Income | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue - Asset Management | - | - | - | - | 5,807.3 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
KPIs - Metric (Unit) | FY 2013 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
Fee Paying AUM (Billion $) | 416 | 420 | 423.624 | 446 | - | 470.6 | 487 | 505.7 | ||||||||||||||||||||||||||||||||||||||||||||||
Uncalled Commitments (Billion $) | 106 | 100.154 | 99 | 99 | - | 97.5 | 107.7 | 107.6 | ||||||||||||||||||||||||||||||||||||||||||||||
Capital Invested (Billion $) | 10 | 10 | 9 | 16 | - | 14 | 23 | 24.1 | ||||||||||||||||||||||||||||||||||||||||||||||
Private Equity AUM (Billion $) | 165.8 | 170.1 | 173.6 | 176.4 | - | 182.8 | 185.3 | 190.2 | ||||||||||||||||||||||||||||||||||||||||||||||
AUM of Real Assets (Billion $) | 120.8 | 121.6 | 124.7 | 130.9 | - | 135.4 | 151.5 | 162.8 | ||||||||||||||||||||||||||||||||||||||||||||||
AUM of Credit and Liquid Strategies (Billion $) | 223.5 | 226.8 | 229.4 | 245.5 | - | 259.5 | 264.5 | 271.4 | ||||||||||||||||||||||||||||||||||||||||||||||
Unfunded Revolver Commitments (Thousand $) | 112,534 | 110,106 | 97,841 | 94,683 | - | 95,004 | 98,327 | 103,926 | ||||||||||||||||||||||||||||||||||||||||||||||
Policy Liabilities (Billion $) | 141.130 | 141.429 | 140.983 | 160.058 | - | 173.599 | 177.833 | 184.050 | ||||||||||||||||||||||||||||||||||||||||||||||
Embedded Derivative - Interest-sensitive Life Products (Million $) | 373.4 | 447.0 | 388.1 | 458.3 | - | 486.2 | 495.3 | 512.5 | ||||||||||||||||||||||||||||||||||||||||||||||
Embedded Derivative - Annuity Products (Million $) | 2,402.427 | 2,815.783 | 2,855.502 | 3,587.371 | - | 4,051.405 | 4,478.104 | 5,244.375 | ||||||||||||||||||||||||||||||||||||||||||||||
Net Amount at Risk (Million $) | 85.681 | 84.498 | 84.208 | 5,706.758 | - | 118.170 | 116.446 | 114.884 | ||||||||||||||||||||||||||||||||||||||||||||||
Net Premiums (Thousand $) | 473,624 | 626,429 | 220,212 | 655,410 | - | 6,036,522 | 935,794 | 621,218 | ||||||||||||||||||||||||||||||||||||||||||||||
Net Investment Income (Thousand $) | 1,271,000 | 1,311,055 | 1,412,130 | 1,491,020 | - | 1,519,902 | 1,580,498 | 1,701,826 | ||||||||||||||||||||||||||||||||||||||||||||||
Realized Performance Income (Thousand $) | 175,398 | 149,334 | 329,000 | 411,391 | - | 271,545 | 482,000 | 391,920 | ||||||||||||||||||||||||||||||||||||||||||||||
Fee Related Performance Revenues (Thousand $) | 21,741 | 28,352 | 20,436 | 23,898 | - | 19,101 | 37,100 | 56,655 | ||||||||||||||||||||||||||||||||||||||||||||||
Gross IRR (%) | 21 | 20 | 20 | 25.5 | - | 18.7 | 22.7 | 25.8 | ||||||||||||||||||||||||||||||||||||||||||||||
Net IRR (%) | 21 | 11.7 | 23 | - | - | 12.4 | 9.1 | 18.5 | ||||||||||||||||||||||||||||||||||||||||||||||
Gross Multiple of Invested Capital | 1.9 | 2.0 | 1.9 | 1.9 | - | 1.9 | 1.9 | 1.9 |
Executive Team
Questions to Ask Management
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Given that you don't expect $400-plus million to be the new quarterly run rate for your Capital Markets business , how do you plan to sustain or grow revenues in that segment, considering its significant contribution this quarter?
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With the potential impacts of tariffs and a trade war on your portfolio companies , what specific measures are you taking to mitigate these risks, especially for sectors that might be negatively affected?
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Regarding your target of 14%-15% pretax ROE for Global Atlantic , given the upfront costs and variability in growth you've mentioned, can you elaborate on the concrete steps you're taking to achieve this target, and whether the 2026 timeline is still realistic?
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Your asset-backed finance business has grown over 40% to $66 billion in AUM , can you provide more details on the credit quality and risk management practices in place, especially considering the rapid expansion in this area?
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In light of the challenges in the real estate market and evolving investor sentiment , how confident are you in scaling your real estate equity platforms, and what strategies are you implementing to address potential headwinds in fundraising and deployment?
Past Guidance
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: Q4 2024, FY 2026, FY 2028, FY 2030
- Guidance:
- Operating Earnings: $300-plus million by 2026, $600-plus million by 2028, and $1 billion-plus by 2030 .
- Insurance Operating Earnings: Run rate expected to remain at approximately $250 million .
- Fee-Related Earnings (FRE) Margin: Aim to sustain a mid-60% FRE margin .
- Capital Markets Revenue: Q3 2024 revenue of $424 million was a record; variability expected but strong performance anticipated .
- Global Atlantic ROE Target: Long-term pretax ROE target of 14% to 15% .
- Monetization Pipeline: Visibility into approximately $500 million of monetization-related revenue for Q4 2024 .
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: FY 2026
- Guidance:
- New Capital Raised: Over $300 billion from 2024 through 2026 .
- Fee-Related Earnings (FRE): $4.50-plus per share by 2026 .
- Total Operating Earnings: $7-plus per share by 2026 .
- Adjusted Net Income: Between $7 and $8 per share by 2026 .
- Annual Growth Rate: 20% annual growth rate across key financial metrics .
- Strategic Holdings: Over $1 billion of operating earnings by 2030 .
- Insurance: Long-term target for pretax ROEs is 14% to 15% .
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: FY 2024 through FY 2026, next 10 years
- Guidance:
- Capital Raising: $300-plus billion from 2024 through 2026 .
- Fee-Related Earnings (FRE) per Share: $4.50-plus by 2026 .
- Total Operating Earnings per Share: $7-plus by 2026 .
- Adjusted Net Income per Share: $7 to $8 by 2026, $15-plus in the next 10 years .
- Cash Generation: $25-plus billion over the next 5 years .
- Assets Under Management (AUM): Surpass $1 trillion over the next 5 years .
- Insurance Growth: Double Global Atlantic from its current size .
- Strategic Holdings: $1 billion-plus of annual operating earnings by 2030 .
Q4 2023 Earnings Call
- Issued Period: Q4 2023
- Guided Period: Q1 2024, FY 2026
- Guidance:
- Fee-Related Earnings (FRE) Per Share: $4.50-plus by 2026 .
- Dividend: Increase from $0.66 to $0.70 per share .
- FRE Margin: Sustainably operate in the mid-60% range .
- Insurance Segment: 14% to 15% pretax ROE .
- Capital Markets Business: Optimism about growth .
- Asset-Based Finance (ABF): Significant growth potential .
Competitors
Competitors mentioned in the company's latest 10K filing.
- Sponsors of public and private investment funds: Compete for both fund investors and investment opportunities .
- Real estate development companies: Compete for investment opportunities .
- Business development companies (BDCs): Compete for investment opportunities .
- Investment banks: Compete for investment opportunities .
- Commercial finance companies: Compete for investment opportunities .
- Operating companies acting as strategic buyers: Compete for investment opportunities .
- Insurance companies: Compete in the insurance market .
- Reinsurance companies: Compete in the insurance market .
- Other financial institutions offering investment products: Compete in the insurance market .
- Local and regional firms, financial institutions, and sovereign wealth funds: Compete in various countries where KKR invests .
- High net worth individuals, family offices, and state-sponsored entities: Represent new types of fund investors .
- Competitors with greater financial, technical, marketing, and other resources: Pose competitive risks .
- Competitors with longer operating histories, more established relationships, or greater expertise: Pose competitive risks .
- Competitors with higher financial strength, claims-paying, or credit ratings: Compete in the insurance business .
- Competitors using technological advancements and innovation: Compete in distribution, underwriting, recordkeeping, advisory, claims, and operations .
- Competitors with lower management fees, greater fee sharing, or higher performance hurdles: Compete for fund investors .
- Competitors with lower cost of capital and access to funding sources: Compete for investment opportunities .
- Competitors with higher risk tolerances, different risk assessments, or lower return thresholds: Compete for investment opportunities .
- Competitors subject to less regulation or less regulatory scrutiny: Compete with more flexibility .
- New entrants into the investment management business: Increase competition .
- Competitors offering more attractive insurance products or higher commission rates: Compete in the insurance business .