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    KKR & Co Inc (KKR)

    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 .

    1. 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.

    2. 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.

    3. Insurance - Operated by Global Atlantic, offers retirement, life, and reinsurance products, earning income through the spread between investment income and policyholder benefits costs.

    Q3 2024 Summary

    Initial Price$106.65July 1, 2024
    Final Price$129.87October 1, 2024
    Price Change$23.22
    % Change+21.77%

    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

    1. 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.

    2. 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.

    3. 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.

    4. 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.

    5. 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.

    6. 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.

    7. 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.

    8. 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.

    9. 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.

    10. 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.

    11. 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.

    12. 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.

    13. 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.

    14. 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.

    15. 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.

    16. 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

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Asset Management1,126.01,451.344--5,807.31,956.4681,560.452,269.09
    - Fees and Other902.1754.4471,134.346173.012,963.9693.526822.321,105.666
    - Capital Allocation-Based Income373.5696.897560.4621,212.542,843.41,262.942738.131,163.424
    - Management Fees--------
    - Transaction and Monitoring Fees, Net--------
    - Fee Related Performance Revenues--------
    - Realized Performance Income--------
    - Realized Investment Income--------
    - Net Investment Income1,300.71,311.0551,412.1301,491.015,514.91,519.9021,580.501,701.826
    Insurance2,001.42,175.1741,685.6732,829.758,692.07,700.2702,611.462,522.606
    - Net Premiums473.6626.429220.212655.461,975.76,036.522935.79621.218
    - Policy Fees313.8315.382314.0163171,260.2328.947333.90375.371
    - Net Investment-Related Gains (Losses)(123.8)(117.550)(338.230)-(235.3)(241.486)(302.62)(235.971)
    - Other Income37.239.85842.34157176.456.38563.8960.162
    Total Revenue3,127.53,626.5183,315.4814,429.814,499.39,656.7384,171.914,791.696
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 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 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Fee Paying AUM (Billion $)416420423.624446-470.6487505.7
    Uncalled Commitments (Billion $)106100.1549999-97.5107.7107.6
    Capital Invested (Billion $)1010916-142324.1
    Private Equity AUM (Billion $)165.8170.1173.6176.4-182.8185.3190.2
    AUM of Real Assets (Billion $)120.8121.6124.7130.9-135.4151.5162.8
    AUM of Credit and Liquid Strategies (Billion $)223.5226.8229.4245.5-259.5264.5271.4
    Unfunded Revolver Commitments (Thousand $)112,534110,10697,84194,683-95,00498,327103,926
    Policy Liabilities (Billion $)141.130141.429140.983160.058-173.599177.833184.050
    Embedded Derivative - Interest-sensitive Life Products (Million $)373.4447.0388.1458.3-486.2495.3512.5
    Embedded Derivative - Annuity Products (Million $)2,402.4272,815.7832,855.5023,587.371-4,051.4054,478.1045,244.375
    Net Amount at Risk (Million $)85.68184.49884.2085,706.758-118.170116.446114.884
    Net Premiums (Thousand $)473,624626,429220,212655,410-6,036,522935,794621,218
    Net Investment Income (Thousand $)1,271,0001,311,0551,412,1301,491,020-1,519,9021,580,4981,701,826
    Realized Performance Income (Thousand $)175,398149,334329,000411,391-271,545482,000391,920
    Fee Related Performance Revenues (Thousand $)21,74128,35220,43623,898-19,10137,10056,655
    Gross IRR (%)21202025.5-18.722.725.8
    Net IRR (%)2111.723--12.49.118.5
    Gross Multiple of Invested Capital1.92.01.91.9-1.91.91.9

    Executive Team

    NamePositionStart DateShort Bio
    Henry R. KravisCo-Executive ChairmanOctober 2021Henry R. Kravis is the Co-Executive Chairman of KKR, a position he has held since October 2021. He co-founded KKR in 1976 and previously served as Co-Chief Executive Officer. Mr. Kravis is actively involved in managing the firm and serves on each of the regional Private Equity Investment Committees .
    George R. RobertsCo-Executive ChairmanOctober 2021George R. Roberts is the Co-Executive Chairman of KKR. He co-founded KKR in 1976 and previously served as Co-Chief Executive Officer until October 2021. Mr. Roberts is actively involved in managing the firm and serves on each of the regional Private Equity Investment Committees .
    Joseph Y. BaeCo-Chief Executive Officer2021Joseph Y. Bae is the Co-Chief Executive Officer of KKR & Co. Inc. He joined KKR in 1996 and has been a member of the Board of Directors since July 2017. Before becoming Co-CEO, he served as Co-President and Co-Chief Operating Officer from 2017 to 2021 .
    Scott C. NuttallCo-Chief Executive Officer2021Scott C. Nuttall is the Co-Chief Executive Officer of KKR. He joined the firm in 1996 and has held numerous leadership roles, including serving as Co-President and Co-Chief Operating Officer from 2017 to 2021 .
    Robert H. LewinChief Financial OfficerN/ARobert H. Lewin is the Chief Financial Officer at KKR. He joined the firm in 2004 and has held various positions, including roles as an investor in private equity and co-leading the firm's credit and capital markets businesses .
    Dane E. HolmesChief Administrative OfficerDecember 2023Dane E. Holmes is the Chief Administrative Officer at KKR, a position he assumed in December 2023. Before this role, he was a member of KKR's Board of Directors from March 2021 to December 2023 .
    Ryan D. StorkChief Operating Officer2022Ryan D. Stork is the Chief Operating Officer at KKR, having joined the firm in 2022. Before joining KKR, he spent over 20 years at BlackRock Inc., where he held several leadership roles, including Deputy Chief Operating Officer from 2019 to 2021 .
    Kathryn K. SudolChief Legal Officer and General Counsel2022Kathryn K. Sudol is the Chief Legal Officer and General Counsel at KKR. She joined KKR in 2022 and initially served as General Counsel from September 2022 through March 2023 and as Secretary from September 2022 through June 2023 .

    Questions to Ask Management

    1. 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?

    2. 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?

    3. 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?

    4. 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?

    5. 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?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateNot specified
    End Date/DurationNo expiration date
    Total Additional Amount$500 million
    Remaining Authorization$69 million
    DetailsThe program automatically adds an additional $500 million when the remaining available amount becomes $50 million or less. It can be suspended, extended, modified, or discontinued at any time.

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024, FY 2026, FY 2028, FY 2030
    • Guidance:
      1. Operating Earnings: $300-plus million by 2026, $600-plus million by 2028, and $1 billion-plus by 2030 .
      2. Insurance Operating Earnings: Run rate expected to remain at approximately $250 million .
      3. Fee-Related Earnings (FRE) Margin: Aim to sustain a mid-60% FRE margin .
      4. Capital Markets Revenue: Q3 2024 revenue of $424 million was a record; variability expected but strong performance anticipated .
      5. Global Atlantic ROE Target: Long-term pretax ROE target of 14% to 15% .
      6. 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:
      1. New Capital Raised: Over $300 billion from 2024 through 2026 .
      2. Fee-Related Earnings (FRE): $4.50-plus per share by 2026 .
      3. Total Operating Earnings: $7-plus per share by 2026 .
      4. Adjusted Net Income: Between $7 and $8 per share by 2026 .
      5. Annual Growth Rate: 20% annual growth rate across key financial metrics .
      6. Strategic Holdings: Over $1 billion of operating earnings by 2030 .
      7. 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:
      1. Capital Raising: $300-plus billion from 2024 through 2026 .
      2. Fee-Related Earnings (FRE) per Share: $4.50-plus by 2026 .
      3. Total Operating Earnings per Share: $7-plus by 2026 .
      4. Adjusted Net Income per Share: $7 to $8 by 2026, $15-plus in the next 10 years .
      5. Cash Generation: $25-plus billion over the next 5 years .
      6. Assets Under Management (AUM): Surpass $1 trillion over the next 5 years .
      7. Insurance Growth: Double Global Atlantic from its current size .
      8. 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:
      1. Fee-Related Earnings (FRE) Per Share: $4.50-plus by 2026 .
      2. Dividend: Increase from $0.66 to $0.70 per share .
      3. FRE Margin: Sustainably operate in the mid-60% range .
      4. Insurance Segment: 14% to 15% pretax ROE .
      5. Capital Markets Business: Optimism about growth .
      6. 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 .