KKR & Co. Inc.

Ladies and gentlemen, thank you for standing by and welcome to KKR's fourth quarter and full year 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. To ask a question during the session, you will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I will now hand the call over to Craig Larson, Head of Investor Relations for KKR. Craig, please go ahead.

Thank you, Crystal. Welcome to our fourth quarter 2019 earnings call. I'm joined this morning by Scott Nuttall, our co-president and co-COO. And for the first time on one of these calls, I'm pleased to be joined by Rob Liu and our CFO. As you know, Rob was named CFO in connection with Bill Janicek's retirement. 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. The call will contain forward-looking statements, which do not guarantee future events or performance, so please refer to our FTC filings for cautionary factors related to these statements. And like previous quarters, we've also posted a supplementary deck on our website that we'll be referring to over the course of the call, and I'm going to begin by referencing pages 2 and 3 of that deck. Focusing first on page 2. Most importantly, the earnings power of the firm continues to grow nicely, as you can see from the charts on the left-hand side of the page. Our AUM is at $218 billion, while book value is $19.24 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 24%. That's one of the largest increases we've seen over any 12-month period as a public company. And over the last three years, we've compounded book value per share 17% each year. And remember, in addition to this compounding, dividends are being paid out alongside. Looking at the right-hand chart of page two, Management fees have been growing steadily, up 15% year-over-year given our asset growth. And after-tax distributable earnings totaled $1.4 billion for the trailing 12 months, down from last year, partly due to realized gains being lower in 2019. Rob and Scott are both going to talk about our visibility here in a few minutes. Page 3 of the supplementary deck provides a snapshot of some of our headline numbers for the quarter as well as for the year. After-tax distributable earnings came in at $375 million for the quarter, or $0.44, on a per-adjusted share basis. Fee-related earnings for the quarter were $271 million, and on a full-year basis were just over $1 billion. Year-over-year, our AUM and fee-paying AUM were up 12% and 14%, and both increased 5% compared to 930%. Looking at organic fundraising activity, we had our most active fundraising quarter of the year in Q4 driven by a number of our younger platforms and strategies in private markets. We held the first close in our Asia infrastructure strategy and had inflows across four real estate strategies. We also raised capital for the second iteration of our next generation technology growth strategy. And with our final close here early in 2020, this second fund is over three times the size of the first. In public markets, we raised an Australian-listed permanent capital vehicle and saw inflows into several credit products, including our leveraged credit and CLO businesses. And also of note during the quarter, we closed on the final 5% of our partnership with Marshall Waste, bringing our total ownership to 40%. Since we announced the first step of our partnership here in September 2015, AUM and Marshall Waste has increased from $22 billion to $45 billion. And from an investing standpoint, Q4 was our most active deployment quarter of 2019, as we invested over $4 billion in both private and public markets. In private markets, investment activity reflects really two things, the global nature of our footprint, as well as the increasing diversification across our strategies. Private equity investment activity was mostly out of Europe and Asia, This was true in the fourth quarter as well as for the year. Investment activity outside of private equity continues to grow in significance. PE represented a little less than half of the $4.5 billion of capital invested in private markets for the quarter and a little more than half of the $14 billion of capital invested over the year. As our core equity, infrastructure, real estate, and growth equity platforms are scaling, you're seeing the impact of this through the deployment figures. Public markets investment activity also exceeded $4 billion in the quarter, with activity here driven by opportunities in our private credit business in the U.S. as well as Europe. And for the year, public markets deployment was $10 billion, an increase of 45%. As with private markets, as our credit platform is scaling, you're seeing the impact of that through these deployment statistics. And with that, I'm pleased to introduce everyone to Rob Lewin. Rob joined KKR 16 years ago, and for the first half of his career, worked in our private equity business as an investment professional both here in the U.S. as well as in Asia. And for the second half of his career, when Rob and his family returned to the U.S., he's held a series of positions across our other businesses, co-heading KKR Credit and Capital Markets, and also serving as our treasurer and head of corporate development. Most recently, Rob was head of human capital and strategic talent for us. Rob? Rob?

Thanks a lot, Craig, and hello, everyone. It's a pleasure to be on the call this morning, and I hope to have the opportunity to meet and get to know many of you over the months and quarters ahead. I'd also like to thank Bill for his leadership of KPR's finance function over the last 20 years. Our finance team has a tradition of operational excellence and first-rate controls. I have every intention of continuing that focus and tradition. Turning to our financials for the quarter. Management fees, as Craig noted, continued to trend very well, up 13% compared to the fourth quarter of 2018 and up 15% for the year. In capital markets, transaction fees for the quarter totaled $107 million and $410 million for the full year. These are very dull results for us, but both numbers are down from our record results in Q4 2018 and full year 2018. I will circle back to our capital markets business in a moment. Turning to monetization activity in the quarter, we had 245 million of realized performance income and 226 million of total realized investment income. CAUI generating exit activity this quarter was driven by a number of European and Asian investments. These exits were accomplished at a blended multiple of approximately 2.8 times our costs. Moving to our expenses. Compensation and benefits, which includes equity-based comp, came in at 358 million for the quarter, or 37% of our total revenue. For the year, total compensation was 39% of revenue. Both figures are below our low 40s compensation ratio target. Occupancy, taken together with other operating expenses, came in at 122 million. Other operating expenses were more elevated in the fourth quarter, primarily due to $20 million of non-recurring expense related to the Australian-listed permanent capital vehicle that Craig mentioned earlier on the call. Putting this all together, including a 12% tax rate for the quarter, after-tax distributable earnings were $375 million, or $0.44 per share. I thought I would pause here and spend a minute on our capital markets business. We have worked very hard over the last decade to diversify this business from a small U.S.-based team that was focused primarily on KKR private equity deals. Today, our capital markets business has meaningful breadth across asset class, product, and . That diversification resulted in over 60% of our capital markets revenue coming from outside the U.S. in 2019 and around a quarter of our revenue coming from non-KKR clients. As a result of this increased threat, we now have the business to a point where baseline quarterly revenue should be in the $50 to $70 million range. This is driven by ordinary course financing and refinancing activities, assuming reasonable capital market conditions. In addition to that baseline revenue, we have also positioned ourselves to be a meaningful participant in several large transactions a year, which is why the business has exceeded $100 million of revenue in six of the last eight quarters, and also averaged almost $500 million of revenue over the last three years. In short, our business now has a more baseline revenue component, which we think we can grow over time, together with upside from larger deal activity. As we look forward to Q1 2020, we don't have any of those large transactions in the pipeline. So the expectation from here is that our capital markets revenue in Q1 is more likely in that $50 to $70 million range. which is consistent with Q1 of 2019. Now, most important, as we think about the growth of our distributable earnings over the next several years, really all of the core fundamentals in our business are at record levels. Our fee-paying assets under management, they're up 14% this year and currently stand at $161 billion. That's the highest it has ever been. and that is in advance of some of our larger strategies that are set to raise funds over the next 12 to 18 months. Our net on real-life carried interest is up 62% year-over-year. This is driven by both robust performance across our various strategies and the significant increase in our carry-eligible AUM that is above its respective hurdle. You can see this on page four of the supplemental deck. Two years ago, around half of our carry eligible AUM was in a position to pay carry, as over $55 billion was seasoning and still working its way through preferred returns. Fast forward two years, the amount of capital in a position to pay carry has now increased 60% to $93 billion. And finally, our balance sheet is stronger today than it has ever been. Over the last several years, our balance sheet has been accruing significant gains. which you're clearly seeing come through in book value compounding. But we're not yet realizing those gains through distributable earnings. If you look at the last three years, our balance sheet investments have averaged a 15% return, but our realized performance has averaged 7%. In 2019, this difference was even more extreme, as we generated a 25% return, but our realized performance was just 6%. This has generated a record $2 billion of embedded gains on our balance sheet, which creates significant visibility for us around our long-term distributable earnings trajectory. Let me now pivot from the numbers themselves and spend some time on our investment performance. We saw very strong performance across our major investing platforms in 2019. Looking at page five of the supplemental presentation, our recent private equity flagship funds appreciated by 29% this year, and the PE portfolio in its entirety appreciated by 27%. Our flagship real estate and infrastructure funds appreciated 24% and 13% respectively. Energy income and growth did decline for the year, given the volatility in the asset class, but this is a relatively small strategy for us today, at about 1% of our assets under management. Our credit business had solid performance, with our alternative and leveraged credit strategies returning 8% and 9% on a blended basis. And finally, as you've likely seen in the press release, we've announced an increase in our dividend. We set our current annual dividend to 50 cents per share when we converted to a corporation in the middle of 2018. For 2020, we have increased our dividend to 54 cents for the year, an 8% increase. This is consistent with our stated intention to grow the dividend over time while still retaining most of our earnings to invest back into the firm and also to support our share buyback activities. Focusing on buybacks, since we initiated our share repurchase program, in total we've used over $1 billion to retire shares at a weighted average cost of just under $18 per share. That's $1.30 below our current book value per share. And with that, let me turn it over to Scott.