Q3 2024 Earnings Summary
- 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.
- 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.
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
GA 14%-15% ROE target | Reiterated this range in Q2 (noted near-term dilution). Q1: Affirmed it remains appropriate long-term. Q4: Cited strong historical performance but cautious on rates. | Management remains confident in the 14%-15% pretax ROE but offers no specific timeline. | Recurring focus; continued bullishness but no timeline |
Wealth management AUM (K-Series) | Q2: ~$75B from individuals, K-Series from $3B to $11B. Q1: Broad-based fundraising growth in private wealth. Q4: ~$75B from individuals, K-Series from $2.4B to $6.5B. | AUM from individuals ~$75B, K-Series grew to $14B from $5B a year ago. | Recurring topic; consistently strong growth |
Infrastructure AUM expansion | Q2: Infrastructure at $73B, strong pipeline. Q1: Not detailed but noted deployment driver. Q4: ~$60B, exceeding targets. | AUM rose to $77B (all organic), noted as a key scale advantage. | Recurring emphasis; bullish trajectory |
Capital Markets revenue | Q2: Strong pipeline, near-record revenue. Q1: Discussion of durability but no direct sustainability link. Q4: $225M in transaction fees, resilient model. | Reached $424M, aided by ~100 deals; not expected to be a new normal run rate. | Recurring driver; sustainability link remains limited |
Private credit growth | Q1: $93B in AUM, 22% YoY increase highlighted. Q2/Q4: Not specifically emphasized as a growth highlight. | No mention in this period. | Mentioned in Q1, absent afterward |
Secondaries business | Q2: “Not front-and-center” for strategy. Q1: “Not a need-to-have.” Q4: Not discussed. | No mention in this period. | Deprioritized; no recent updates |
Flagship fundraising | Q2: No mention of decline; flagged upcoming PE/infrastructure fundraises. Q1/Q4: Discussed optimism for future flagship efforts. | No “significant decline” reported; $85B YTD indicates improving momentum. | Stable to improving outlook |
$300B+ fundraising target | Q2: Referenced the broader $300B+ target for 2024-2026. Q1: Mentioned as a medium-term aim. Q4: No direct mention of Q3 emphasis. | Emphasized surpassed $85B YTD; increased confidence in beating $300B multi-year goal. | New spotlight in Q3; stepping up ambition |
GA near- vs. long-term returns | Q2: Near term below target due to elevated liquidity and investments. Q1: Short-term dilution from block transactions but bullish long-term. Q4: Cautious about rate pressures but sees multiple levers. | Remains confident in eventual 14%-15% pretax, balanced by pacing of growth investments. | Recurring discussion; balancing short and long horizon |
Wealth & insurance channels | Q2: Strong individual channel inflows and record insurance block transactions. Q1: Broad-based fundraising across wealth, GA synergy. Q4: $75B in wealth AUM, GA as a major driver. | Wealth AUM at ~$75B and GA run rate ~$250M in quarterly earnings, with growth expected. | Recurring; viewed as major future growth pillars |
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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.