KKR & Co. Inc.

I will now hand the call over to Craig Larson, Head of Investor Relations for KKR.

Thank you. Good morning, everybody. Welcome to our third quarter 2020 earnings call. I'm joined this morning by Scott Nuttall, our co-president and co-COL, and also 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. 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 also posted a supplementary deck on our website that we'll be referring to over the course of the call. We've all experienced volatility and disruption in many ways in 2020 across the globe. So we continue to hope that everyone is safe and healthy. But in terms of KKR and our results this quarter, we've continued to see strong performance really across all of our metrics. Turning to page two of our supplement to begin, you can see that our key metrics are performing nicely. Looking at the upper left-hand part of the page, asset center management came in at $234 billion. representing a 12% increase from a year ago. And as fundraising and capital deployment momentum continued, our management fees over the past 12 months, as you can see by the chart in the top right-hand corner, grew by 13% to $1.3 billion. Looking at the bottom left, you can see our book value per share saw a meaningful increase this quarter, listed by strong investment performance. In the third quarter, book value per share grew from $17.73 as of 6-30 to $20.26, up 14%, and more broadly is up 11% from $18.22 per share a year ago. And finally, on the bottom right-hand side, you see our after-tax distributable earnings. First, in terms of this quarter, DE came in at $410 million, or $0.48 on a per-share basis, Both of these figures are up approximately 25% from our results last quarter. And looking over the last 12 months, despite all of the volatility we've endured, we reported $1.5 billion of after-tax DE, which is essentially flat compared to the figure from a year ago. Moving on to our summary financials for the third quarter, please turn to page three of the supplement, and let's walk through the left-hand part of that slide. Management fees increased to 360 million, up 14% to Q3 last year, driven most significantly by Asia IV, which entered its investment period in the quarter. Transaction fees totaled 301 million. We had a strong quarter within capital markets with transaction fees here coming in at 158 million, given the breadth of deployment and monetization activities we saw over the course of the quarter. Realized performance income came in at 234 million, And with $260 million of realized investment income, total revenues were $1.1 billion this quarter, up 11% from the same quarter a year ago. Notable monetization activity in the quarter included the IPO of Hut Group, a British e-commerce firm, the dividend recapitalization of Epicor, which is a software firm in a North America Fund 11, which we subsequently sold, as well as a secondary at Fiserv. And on a blended basis, our exits this quarter were done at over three times cost. Turning to our expenses for the quarter, compensation expenses were $427 million, which brings our total compensation margin, including equity-based comp, to 40%. Non-compensation, excuse me, operating expenses were $90 million. Our operating margin increased to 52%. with after-tax distributable earnings then of the $410 million or $0.48 per share. And with that, I'd like to turn it over to Rob.

Thanks a lot, Craig, and good morning, everyone. Similar to last quarter, I want to start off by focusing on our year-to-date performance. We've clearly experienced some market volatility in 2020, and we believe our results over the past nine months highlight both the resilience of our business model and the high level of execution by our global teams. I'm going to start with the right-hand side of page three, focusing initially on three major drivers of our revenue. First, our management fees are up 13% this year. Our ability to realize carry through different market environments also remains strong, bringing our realized performance fees to just under $1 billion year-to-date. And finally, our balance sheet has continued to perform, with realized investment income up 8%, continuing to demonstrate the important contribution of this revenue stream towards our overall financial performance. In aggregate, our revenues are up 7% through the first nine months of the year. Moving to our expenses, compensation margin has remained at 40% through the year. In terms of non-compensation related expenses, we have been deliberately prudent with expense management in 2020 and have obviously benefited from the limited amount of travel and office-related expenses this year. Year-to-date, our other operating expenses, together with occupancy, are down 4% compared to this period last year, despite making some very meaningful investments across our platform. As a result, our distributable operating margins are up 100 basis points, while our total operating earnings are up 9%. In addition, our after-tax DE per share of $1.28 for the nine months ended September 2020 compares favorably to $1.23 for the same period in 2019. It is important to note here that we have completed our financing related to Global Atlantic in Q3, which has already started to burden our after-tax DE per share in advance of generating the revenue associated with the acquisition. Switching to capital raising. On a year-to-date basis, we have raised 80% more capital than we raised in the same period in 2019. which really does set us up nicely for future growth. Moving to investment performance on page four, which has largely been a real strength for us this year. Our flagship private equity funds returned 27% over the past 12 months, and our real estate and infrastructure strategies returned 10% and 7%, respectively, over that same period. In credit, we had a very positive quarter. Leveraged credit, which is the largest of our credit businesses by AUM, was up 5% in Q3 and is up 3% over the LTM period. Alternative credit was up 6% in the quarter and down 7% LTM. Our alternative credit numbers are a combination of our private performing credit strategies, which had solid performance, and our distressed portfolio, which has taken some marks LTM. Turning to page five, we thought it was worth spending a minute specifically discussing our benchmark PE performance. As you can see, really across all geographies, our flagship private equity funds are meaningfully outperforming their benchmark indices on a since inception basis. This performance is in part generated by our portfolio construction, especially in the bifurcated market like the one we have seen in 2020. We are underweight some of the harder hit sectors, while also importantly choosing to have a large exposure to technology with a focus on investments in data, e-commerce, and digitalization. Our relative weighting to Asia has also benefited our performance. Page 6 provides some additional detail on our balance sheet. Consistent with the performance across the firm, our book value per share increased to $20.26, representing a 14% increase from June 30th. Our balance sheet investment portfolio returned 11% in the quarter, and our net accrued carry balance increased 44% from Q2, providing additional visibility for future carry. Also, as it relates to our balance sheet, it's worth highlighting our buyback activity this year. Since January, we've used $324 million under our buyback program. The majority of this activity occurred in the first four months of the year as we leaned into the volatility and repurchased stock at a weighted average price of just over $24 per share. In total now, since we announced our first buyback program at the end of 2015, we've used $1.4 billion to retire shares at an average price of just under $19 per share. With our book value today in excess of $20 and the stock price where it is, we feel good about our activity levels here. Turning to fundraising. New capital raised totaled 8.7 billion in the quarter, driven by fundraisers across private markets in our U.S. real estate strategy, as well as across three strategies in Asia, real estate, infrastructure, and private equity. Additionally, we raised capital related to leverage and private credit. New capital raised from a fee-paying AUM standpoint was a record $19 billion this quarter, with $12 billion of that attributed to Asia IV as it entered its investment period in July. We now have over $13 billion of capital in Asia IV, and we'll provide further updates on the fundraise as it continues to progress. The $32 billion of capital raised year-to-date importantly sets us up with $67 billion of dry powder. which is a high point for us. As we have discussed on prior calls, we really did lean in when the market was dislocated, so this dry powder is particularly noteworthy given the level of capital investment we have made year to date. Now focusing on this deployment more specifically, our private markets business had a record investing quarter with $6.2 billion deployed, which was largely in transactions that were entered into during the more heightened market dislocation in the spring and early summer. In Europe, two previously announced core PE investments closed. Our infrastructure team continued to fund compelling opportunities across various sectors in Europe and in Asia, and a number of Asia PE investments closed, including our investment in GEO. And finally, an update on a couple of items related to Global Atlantic. We completed two financings in the quarter, the proceeds of which will be used to fund the acquisition. In August, we issued $1.15 billion of mandatory convertible preferred stock. You will see in our earnings release on a distributable earnings basis that this offering is reported on an as-if converted basis. And subsequent to the mandatory convertible offering, we also issued $750 million of 30-year senior notes with a 3.5% coupon. Behind the scenes, the GA team has been hard at work ahead of closing. Following KKR's announcement of the acquisition in July, GA completed two block reinsurance transactions, adding an incremental $8 billion of assets. Notably, GA's pipeline for similar transactions is quite active, and we have confidence in the team's ability to execute. We continue to see really strong opportunities here for both organic and inorganic growth. And with that, let me hand it over to Scott.