KKR & Co. Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the KKR Q1 2020 conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star and zero. I would now like to hand the conference over to your speaker today, to Mr. Craig Larson, Head of Investor Relations for KKR. Thank you. Please go ahead, sir.

Thank you, Operator. Welcome to our first quarter 2020 earnings call. As usual, I'm joined this morning by Scott Nuttall, our co-president and co-COO, and by Rob Lewin, our CFO. 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 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. Before we get into the results, we want to start by recognizing the extremely challenging times that we're all experiencing, and we hope that everyone on the call are safe and healthy. And our thoughts, of course, are with those most affected by COVID-19, particularly those on the front line. As a firm, our priority during the pandemic has been the health and safety of our employees, while at the same time continuing to provide best-in-class investment services. Like many of you, we've largely been working remotely over the last several weeks. Yet thanks to the tremendous efforts of our technology and operations teams, it's felt like connectivity across the firm has actually increased. And similarly, the dialogue we've been having across our LP base has also increased as we've looked, if anything, to over-communicate given volatility. And in terms of helping those in need during the pandemic, We established KKR's Global Relief Fund, and we're also incredibly proud of all that our portfolio companies are doing in support of COVID-19. Now, turning to our results, we're going to begin on page two of our supplement. AUM for the quarter came in at 207 billion, compared to 218 as of 12-31, and 200 billion one year ago. New capital raised in Q1 totaled 7 billion, driven by fundraising in our real estate and Asia infrastructure strategies, as well as within private equity. And driven by asset growth, management fees for the quarter, as well as the trailing 12 months, are up 14%. We reported after-tax distributable earnings of $355 million for the first quarter, or $0.42 on a per-adjusted share basis. And looking on a trailing LTM basis, we generated after-tax DE of approximately $1.4 billion. Book value per share, which is mark-to-market every quarter, came in at $16.52. As Rob will talk about in a few minutes, investment performance over the past 12 months has been nicely ahead of both equity and fixed income indices, so our book value is down only modestly over the trailing 12 months. And finally, touching on a topic we introduced last quarter, inclusion in Russell's benchmark indices continues to be a priority for us. We've been meaningfully engaged with FTSE Russell over the last couple of months, and while any decision on something like index inclusion is obviously FTSE Russell's and not ours, we believe we meet Russell's requirements. And with that, I'm pleased to turn things over to Rob.

Thanks a lot, Ray, and hello, everyone. Really glad to be speaking with all of you today and hope that you and your families are safe and healthy. Beginning with the quarter's financial performance, we've reported solid results, especially when you consider how challenged the operating and monetization environment was from mid-February on. Looking at our distributable earnings P&L on page three of the supplement and starting with our operating revenue, total fees came in at $426 million for the quarter, Of those fees, approximately 75% are management fees, which are up 14% versus last year. Our management fees are largely driven by commitments to our funds and the invested costs of our assets, as opposed to the NAVs of our funds, which is a real financial benefit that our industry affords during periods of market dislocation. Our realized performance income came in at just over $370 million for the quarter, driven by the sale of Pure Group and, in South Korea, the sale of KCF Technologies. In total, carry generating exits in Q1 on a blended basis were done at three and a half times our investment costs. And finally, realized investment income for the quarter totaled $145 million. In aggregate, our revenues grew by 11% this quarter compared to a year ago. Moving to expenses. Compensation and benefits totaled $377 million, while non-compensation expenses totaled $94 million. One thing to note here. Our total compensation ratio, including equity-based comp, came in at 40% for the quarter. As you think about your go-forward models, you should continue to expect our total compensation ratio to remain variable and the low 40% range for the remainder of 2020. And finally, our operating margin came in at 50% for the quarter, with an increase in our after-tax distributable earnings per share of 11%. Looking forward, we actually have reasonably good line of sight on future carried interest and total realized investment income from transactions that have closed since 331 or have been signed and are expected to close. As of today, that number is in excess of $400 million. While a small number of those transactions still rely on various regulatory approvals to close, so there is some uncertainty around achieving 100% of that figure, it is definitely helpful to go into the next couple of quarters with a solid base of additional revenue. As a point of reference, a year ago on this call, that same number was a little over $200 million. So in a quarter with tremendous volatility, all three forms of our revenue increased, our margins were maintained, our distributable earnings per share increased by 11%, and our visibility into our near-term earnings has meaningfully improved relative to a year ago. However, this quarter clearly did bring its share of adverse impacts to our financial profile as well. You can see that most clearly in our book value per share, where all of our investments are marked to market every quarter, as that came in at $16.52 at March 31st. Specific to our balance sheet, investment performance for the quarter was down 14% compared to down 20% for the S&P 500. And for the trailing 12 months, balance sheet investment performance was down 2% compared to down 7% for the S&P 500. While our book value per share decreased 14% since the end of December, it is still relatively close to flat from this time last year. Turning more specifically to our broad investment performance for the quarter, please go to page 4 of the supplemental presentation. While you can see that many of the asset classes where we invest have been affected by the market downturn this quarter, our performance remains positive over the last 12 months. Our most recent flagship private equity funds were down 6% in the quarter, and our entire PE portfolio is down 12%, compared to down 21% for the MSCI World Index. Our performance was driven both by our modest exposure to areas directly impacted by the pandemic. As an example, direct energy is less than 2% of the private equity portfolio, alongside greater exposure to a number of technology and online-oriented investments that performs quite well. Turning to real assets, our flagship real estate funds depreciated 1% over the quarter, while our infrastructure flagship fund appreciated by 18% in the quarter, which was driven by a significant exit that was at a valuation well in excess of its carrying value. While our energy returns are not shown in the supplement this quarter because we have an AUM threshold for what appears on this page, we know it's a front-of-mind topic right now. Our direct energy funds in aggregate were down 33% in the quarter, But as a reminder, this is only 1% of our total AUM. On the public market side, alternative credit and leveraged credit depreciated by 16% and 13% respectively. This compares to the LSTA and the high-yield bond indices that were both down around 13% in the quarter. We do believe that the combination of our continued strong relative investment performance, especially in our flagship funds, as well as a 44-year history of operating through market cycles, will hold us in good stead with our clients. While undoubtedly some investing clients have slowed down their pace of new commitments, we are also finding that there are others looking for ways to invest into the dislocation. As an example, in the two-month window from March 1st through May 1st, we have closed on or are in legal documentation on over $10 billion of new commitments across our fund platform. In terms of what this all means for our fundraising outlook, it's a little too early to say. We've grown our management fees over the last three years by approximately 50%, and we've shared in the last couple of quarters that given the funds we have coming to the market, that we felt we could do that again from 2019 through 2022. We are still confident in our trajectory, but our best judgment sitting here today is that the three-year path can now take us a few additional quarters to achieve. So the destination is very much the same. It may just take us a little longer to get there. This is obviously a dynamic environment, so we'll keep you updated to the extent our views change. Two final points before I hand it off to Scott. The first relates to liquidity. During the first quarter, we opportunistically raised $500 million of 30-year senior notes priced at $3.58 million. We knew at the time that was valuable capital to raise, but it certainly feels quite differentiated in this environment. And in April, we thought it made sense to take advantage of an opening in the investment-grade markets for an additional $250 million from of 3.75% senior notes that mature in 2029. Taken together, we have $2.5 billion of cash in short-term investments in addition to our undrawn revolver capacity, providing significant liquidity and financial flexibility. The weighted average maturity of our debt portfolio today is over 15 years. The second point relates to our share buyback activity. Since the last earnings call, we have retired 11 million shares at an average price of just over $23 per share. Looking at our buyback program since inception, in total we've used over $1.3 billion to retire shares at a weighted average cost of just under $19 per share. We are confident that the shares we repurchased in Q1 will be a very good use of capital as we look forward over the next several years. As you would have seen in our press release, we have increased our share repurchase authorization back up to $500 million. And with that, I would like to turn it over to Scott.