KKR & Co. Inc.

Ladies and gentlemen, thank you for standing by, and welcome to KKR's third quarter 2019 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the management's prepared remarks, the conference will be open for questions. To ask a question, please press star 1 on your telephone keypad. We ask that you limit yourself to one question and one follow-up. Also, the call is being recorded. I would now like to hand the call over to Craig Larson, Head of Investor Relations, for KKR. Craig, please go ahead.

Thanks, Norma. Welcome to our third 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-COL. We'd like to remind everyone that we'll be referring 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. And the 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 also 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 that deck. In summary, we're pleased with our fundamentals and how we're positioned looking forward. Focusing on page two of the deck, most importantly, the earnings power of the firm continues to grow nicely, as can be seen by the charts on the left-hand side of the page. Our AUM is now $208 billion, while book value is $18.22 per adjusted share. As you know, we're big believers in the power of compounding, and we've been seeing that power through our book value. Over the last year, book value per share grew 9%. well ahead of equity and fixed income indices. And over the last three years, we've compounded book value per share 15% each year, all while paying out dividends alongside of this. Looking at the top right-hand chart on page two, management fees have grown steadily up 16% year-over-year on an LCM basis due to asset growth in addition to a modest increase in the blended management fee rate in both private markets and public markets. And after-tax distributable earnings totaled $1.5 billion for the trailing 12 months. It's worth noting that strong investment performance has helped drive a 46% increase in the net unrealized carry figure on our balance sheet year-to-date, despite generating over $800 million in realized carried interest over the nine months. This increase in the net unrealized carry balance should bode well over time in terms of realized carry and, in turn, our distributable earnings. Turning to page three of the deck, you'll see some additional detail on our financial results. And please remember as you look through these that we do include equity-based compensation charges within our operating expenses, as well as within our after-tax distributable earnings as we report our results. After-tax VE came in at $389 million for the quarter, or 46 cents on a per adjusted share basis. Our compensation margin came in right at that 40% level, and our pre-tax, distributable operating earnings margin was a healthy 51%. Fuel-laden earnings for the quarter were $250 million, and on an LCM basis are $1.1 billion. As we evaluate our performance, there are five things we're focused on. We need to generate investment performance, raise capital, find attractive new investments, monetize existing investments, And finally, use our model to capture more economics from everything that we do. I'll update you on our progress on the first two, and Bill will cover the remaining three. Let's start with investment performance. I'll be referencing page four of the deck. So beginning with private equity, the private equity portfolio in its entirety appreciated 12% over the trailing 12 months. This compares favorably to the MSCI world that appreciated 2.4% on a total return basis. Where we saw notable performance was in our flagship private equity funds, as you see on the page. The blended performance across these funds, these are our more recent vintages that have been investing for at least two years, was quite strong, appreciating 26% driven by Asia III. Our flagship real estate and infrastructure funds appreciated 21 and 9% respectively, while the commodity environment pressured our benchmark energy fund. Energy income and growth declined 15% on an LCM basis, but performed well ahead of its benchmark. And credit, our alternative and leveraged credit strategies have both appreciated 4% on a blended basis. Turning to fundraising, capital inflows totaled $5 billion in the quarter and $29 billion over the last four months. We held the first close and the successor to our technology growth strategy and had inflows across our European PE, real estate, credit and impact strategies, as well as a number of credit strategies, including CLOs and leverage credit. Capital inflows of the trailing 12 months have contributed to $57 billion of dry powder at quarter end. Importantly, we also have approximately $20 billion of capital commitments that become fee paying when they are either invested or in their investment period at a weighted average rate of around 110 basis points, providing direct line of sight towards future management fees. 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 invest in new opportunities. Deployment this quarter in public markets was $2 billion, largely coming from our private credit strategies. Year to date, public markets deployment is $6 billion, up over 20% compared to the first nine months of 2018. In private markets, we invested $2.4 billion in the quarter, driven by private equity investments in Europe and the U.S., in addition to $400 million across our real estate strategies. Through the first nine months of 2019, private markets deployment is $10 billion, up 8% year-over-year. Now let's turn to monetization activity in the quarter. As reported in our monetization update in late September, activity this quarter was driven by both strategic transactions and secondary sales. We had just over $500 million of realized carried interest and investment income this quarter. We had our final exits in the quarter in both PRA Health and National Vision at a blended multiple of five times our cost. And we're beginning to see realized carry from public markets with $15 million in Q3 and $10 million last quarter. Finally, the last thing we need to do well is use our model to capture greater economics for our investors and the firm. In capital markets this quarter, transaction fees totaled $84 million. Now periodically, we'll have transactions that can lift capital market fee in a quarter. We had two of those in the third quarter of last year that contributed over $100 million. While we didn't have any transactions of this size this quarter, overall fundamentals remain quite healthy. Fees this quarter were generated across approximately 50 transactions 25% of revenue in the quarter and year-to-date came from third parties. And a little over 40% of revenue this quarter was generated from outside the U.S. And year-to-date, that percentage is 55%. So we're continuing to see diversification across the capital markets platform. Finally, let me give you a little color on monetization activities as we stand here today. Transactions that have closed or have been signed and are expected to close should contribute $925 million in realized carried interest and realized investment income in Q4 2019 or early 2020. Of that $925 million, we expect $375 million to close in Q4, and it's only the end of October. Turning to Phase 5 of the supplement, you'll see a summary of our core fundamentals across the five categories. The power of our model is evident in our results, and we are quite pleased with the momentum we're seeing. And with that, I'll turn it over to Scott.