KKR & Co. Inc.

Ladies and gentlemen, thank you for standing by. Welcome to KKR's second quarter 2019 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following management's prepared remarks, the conference will be open for questions. If anyone should require assistance, please press star then zero to reach an operator. This call is being recorded. I will now hand the call over to Craig Larson, Head of Investor Relations for KKR. Craig? Craig? Please go ahead.

Thanks, Michelle. Welcome to our second quarter 2019 earnings call. Thanks for joining us. As usual, I'm joined by Bill Janicek, our CFO, and Scott Nuttall, our co-president and co-COO. We'd 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.com. This call will contain forward-looking statements which do not guarantee future events or performance, so please refer to our SEC filings for cautionary factors related to these statements. And like previous quarters, we've posted a supplementary presentation on our website that we'll be referring to over the course of the call, and I'm going to begin by referencing pages two and three of the deck. So, page two shows a summary of our four key metrics. The strength of our underlying fundamentals are evident in the trends that you see on the page. Perhaps most importantly, the earnings power of the firm continues to grow nicely, as can be seen by the charts on the left-hand side. Our AUM is now at $206 billion, and book value per share is $17.81. Spending a minute on book value, we've seen attractive returns really across asset classes in this performance, combined with the power of compounding has driven the 14% year-over-year increase in our book value per share. This 14% figure compares favorably to broad market indices like the MSCI World, which is up 7% over this timeframe, as well as fixed income indices like the LSTA that's up about 4% over the last 12 months. Highlighting the strong performance we've seen, unrealized carried interest, one of the key components of our book, is up 21 percent since last quarter, and it's increased 45 percent since the beginning of the year. Looking at the right-hand side of the page, alongside of this, management fees have grown steadily, and distributable earnings on an LTM basis have increased 12 percent. Turning to page three, you'll see some additional details. We reported after-tax distributable earnings of $327 million for the quarter, or 39 cents on a per adjusted share basis. And as a reminder, as you look at these figures, we do report our distributed earnings after taking into account equity-based charges. Management fees for the quarter came in at $303 million, up 16% compared to Q2 2018, and 17% comparing the year-over-year LTM periods. Fee-related earnings for the quarter are $287 million, and on an LTM basis are $1.1 billion. This is a record fee-related earnings figure for us on a trailing 12-month basis of 28% compared to the LTM figure as of a year ago. Now, as we've reviewed historically, there are five things we need to do well as we evaluate our performance. We need to generate investment performance. We need to raise capital, find attractive new investments, monetize existing investments, and use our model to capture more economics from everything that we do. I'm going to update you on the progress on the first two, and Bill's going to cover the remaining three. In terms of our investment performance, please take a look at page four of the deck, which shows the trailing 12-month performance across our flagship funds. In private equity, our three flagship funds appreciated 12 percent on a blended basis, and the private equity portfolio as a whole appreciated 15%. Both of these figures compare favorably to the 7% total return of the MSCI world mentioned a minute ago. Our real asset strategies are performing as well with our more mature real estate and infrastructure flagship funds up 7% and 13%. While our flagship energy fund is flat over the last 12 months, compared to a 36 percent decline in S&P's oil and gas E&P select index. And in credit, our composite performance compares favorably relative to the LSTA and the HFRX special assist indices, which are plus 4 and minus 8.7 percent, respectively, over the last 12 months. In terms of fundraising, we raised $6.5 billion of new capital in the quarter. We held an initial close in our new Asia real estate strategy. We priced new CLOs in the U.S. and Europe and had inflows into leveraged credit SMAs as well as various alternative credit products. Additionally, we progressed in our goal of raising long-duration capital. As of quarter end, we now have $43 billion in permanent and strategic capital that has either recycling or a very long expected life of 15-plus years or more at inception. In total, inflows in the quarter contributed to $56 billion of dry powder quarter end, and included in this is $18 billion of capital commitments that become fee-paying on an as-invested basis at a weighted average rate of just over 100 basis points. And with that, I'll turn it over to Bill.

Thanks, Craig. I'll start with the third thing we need to do well, which is find new investment opportunities. We invested $5.8 billion across businesses and geographies in the second quarter. Public market deployment was $1.8 billion, coming primarily from our private credit and direct lending strategies. On the private market side, we invested $4 billion. The largest contributors were our newest core investment coming out of Europe and a Middle Eastern midstream investment from our infrastructure fund. Other notable investments were a handful of Asia private equity investments and a European private equity investment. Shifting to modernization activity, we completed a number of secondaries, including our final exit from hire. We also completed multiple strategic sales that positively impacted both our fund and the balance sheet. On a blended basis, the PE exits were done at four times our cost. For the quarter, it was $358 million of gross total realized carried interest and total realized investment income. This compares to $600 million that, as we stand here today, has closed or has been signed and is expected to close in 2019 or 2020, of which, at this point, we expect $250 million to close in Q3. And it's only the end of July. And finally, the last thing we need to do well is use our model of AUM, capital markets, and balance sheet to capture greater economics for our investors and the firm from all of our activities. Focusing first on capital markets, KCM had a strong quarter with 158 million of transaction fees. The market environment in Q2 certainly improved compared to Q1 of this year. Performance in this quarter highlighted the geographic breadth of the business as capital markets revenues out of Asia and Europe both outpaced revenues in North America. And if you turn to page five of this supplement, I'm going to spend a minute on our core investing strategy as we've seen core begin to impact our balance sheet investment performance and our book value compounding. We introduced the core strategy on this call two years ago with a focus on investments that have a lower target return profile than private equity but are solid businesses and we want to own for 10 plus years. We chose to commit significant balance sheet capital alongside a handful of partners. We currently have $10.5 billion of AOM focused on this strategy, including $3.5 billion we've committed of our own capital. Now, two years in, looking at LP capital together with balance sheet capital, we've invested a total of $4 billion through transactions across the U.S., Europe, and Asia, with a gross IRR of 21%. And in terms of the investment line on the segment balance sheet, CORE has a fair value of $1.9 billion as of quarter end. Keep in mind, the 21% IR has not run through our total distributor earnings yet. That is all unrealized gain. However, CORE has contributed approximately $425 million of balance sheet value since we began investing in the strategy. We feel we're off to a good start, and we'll keep you posted along the way. There are two other points I'd like to make in relation to the balance sheet. The first thing I want to point out is you'll see Bridge Bio, a Bio Farmer investment, is now our third-largest balance sheet holding. Following its Q2 IPO and strong trading post-IPO, fair value as of June 30th was $395 million, and it's marked at five times our costs. Given its significance, we wanted to provide that additional color. The second thing I'd like to call out relates to our debt obligations. We recently priced two bond offerings, a Euro-denominated offering and a U.S. dollar-denominated refinancing of the 2020 maturity, both at attractive rates. Putting aside any premium associated with taking out the 2020 notes, we will have added approximately $725 million in liquidity to the balance sheet with effectively no increase in interest expense. And with that, I'll turn it over to Scott.