KKR & Co. Inc.

Good morning, everyone. Welcome to our fourth quarter 2021 earnings call. As usual, I'm joined this morning by Rob Lewin, our CFO, and Scott Nuttall, our co-chief executive officer. 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. And as a reminder, we report our segment numbers on an adjusted share basis. Our call will contain forward-looking statements which do not guarantee future events or performance. Please refer to our earnings release and SEC filings for cautionary factors about these statements. Now, before we jump into our results for the quarter, we'd like to take a step back and talk about KKR in full. As we look at our business, we see four things. First, we see scaling. Organically, over the last 12 months, AUM at KKR increased 48%. For an asset management business of our size, that alone is a pretty remarkable statistic. And including the Global Atlantic acquisition, AUM increased 87% year over year. Second, you're seeing the impact of this scaling across many of the numbers that we're reporting today. You see it in our financials. Management fees for the year increased 44%. Fee-related earnings increased 54%, while distributable earnings more than doubled. All of these figures are at a record level for us. And you also see it in our operating statistics. Investment activity, for example, is at a new level. In 2020, we invested $30 billion across the firm. In 2021, that increased to over $70 billion. A new capital raised of $121 billion for the year reflects breadth and diversification. Approximately one-third of that capital was raised from the broad private equity franchise, so including our growth strategies and core PE. Another one-third came from our real assets businesses, with the remaining one-third coming from public markets. So fundraising was truly diversified across the firms. And the other neat point about that $121 billion is that 45% of it came from strategies that didn't exist at KKR five years ago. We think that says a lot about our culture and our focus on innovation. Third, looking forward, we remain very constructive on the opportunities we have ahead of us with multiple identifiable growth avenues on a global basis. Rob's going to touch on our fundraising pipeline and our areas of focus in a few minutes. And finally, remember, we feel advantaged during periods of dislocation. There are very few long-dated pools of capital as large as ours that can take advantage of dislocations. And we have a unique business model and a unique culture that we think can lead to differentiated outcomes during these periods, and that's all alongside of $112 billion of dry powder. Suffice to say, there's plenty to focus on, and a lot of compelling opportunities in the uncertain world in which we all find ourselves. Now, turning to our results. The fourth quarter was another very strong quarter for us. Fee-related earnings per share of 69 cents, and after-tax distributable earnings of $1.59 per share are record quarterly figures for us, and full-year FRE of $2.23 per share An after-tax DE of $4.44 per share are record annual figures for us. Looking at the quarter's operating metrics, new capital raised total $19 billion, driven by several strategies across private equity, infrastructure, real estate, and credit. Notably, healthcare strategic growth too held its final close, bringing the fund to almost $4 billion, or approximately three times larger than its predecessor. This brings new capital raise for 2021 to $121 billion. And this record fundraising and the addition of $98 billion from the Global Atlantic acquisition in February significantly increased our asset base. AUM now totals $471 billion, up 87% year over year. The strength of this year's fundraising is importantly quite diverse, as I mentioned a minute ago, with about $70 billion from non-flagship strategies. Our younger strategies are scaling as they enter their second or third fund life, and we continue to innovate and expand into adjacencies across strategies and across geographies. And GA grew by $25 billion through block activity alongside of organic inflows in the year. We deployed $23 billion in the quarter. Capital invested in both traditional private equity and core private equity was strong. Our real estate platform continues to see robust deployment with real estate credit, particularly operating a high run rate, and that's been amplified by Global Atlantic. Similarly, on the public market side, GA has added to the rate of private credit deployment in the quarter, most meaningfully in asset-based finance, with additional deployment in direct lending and opportunistic strategies. Q4's activity brings capital invested for 2021 to $73 billion, up two and a half X year over year. We've seen a step function type change in the level of deployment driven by the size and diversity of our capital base, while at the same time remaining judicious and choosing our spots. Now, just as we continue to see strength on the fundraising and deployment front, our funds and strategies continue to perform at a very high level. You can see this on page seven of the earnings release. where we detail investment performance for the quarter and the year across investment strategies. And finally, I want to touch on capital return before Rob walks through our earnings profile. As you can see at the bottom of page two of the release, consistent with historical practice, we're pleased to announce an increase in our annual dividend from 58 cents to 62 cents per share. This is the third consecutive year we've increased our dividends since we changed our corporate structure. and the change will go into effect beginning with any dividends to be announced for the first quarter of 2022. And since our third quarter earnings call in November through last week, we repurchased $363 million of our stock in the open market, with the majority of that coming in 2022 in the midst of all of this volatility. And with that, I'll turn the call over to Rob.

Thanks a lot, Craig. Now to walk you through our quarterly P&L. Our management fees increased by 49% this quarter versus Q4 of 2020. Management fee growth was driven by closes across a number of active funds in the quarter. These closes, alongside our investment activity, bring fee-paying AUM to $357 billion. The fundraising success experienced over the past few quarters is really starting to flow through this line, with another $38 billion of committed capital not yet paying fees. Our net transaction and monitoring fees were primarily driven by our capital markets franchise this quarter, which earned $320 million. This is a high point for us. This revenue figure also encompasses a record number of transactions in a single quarter. And we only had one fee event that was greater than $20 million. For the year, capital markets totaled $847 million, with revenues diversified by type. Approximately a quarter of our revenues related to each of private equity infrastructure, as well as third-party clients, with the remaining quarter diversified across multiple different asset classes. Moving to our expenses, fee-related compensation came in right at that 22.5% mark, the midpoint of the range we've discussed previously, while our other operating expenses came in at $140 million. The increase here was driven by higher placement fees as well as professional fees, given high activity levels across the firm. We are also all back in the office across most of our locations, leading to an uptick in operating costs versus this time last year. In total, this brings our fee-related earnings to $606 million for the quarter, which is up 45% versus Q4 of 2020. The quarterly and yearly FRE margin both came in at 63%. And on a per share basis, FRE is $2.23 for the year. Now moving on to realizations. Realized carried interest totaled $568 million in the quarter. Our realized incentive fees totaled $351 million in the quarter, largely due to Marshall Waste's strong investment performance. And realized investment income totaled $336 million. Together, these earnings streams resulted in $1.4 billion of asset management operating earnings. Our insurance segment also experienced an incredibly strong quarter, with $347 million of operating earnings. In Q4, Global Atlantic sold its interest in Origis Energy, a solar renewable energy developer, at 12 times cost, resulting in a $200-plus million benefit to segment operating earnings. This was really an amazing result for Global Atlantic and all of its shareholders, while still recognizing that 12-time gains are not representative of our go-forward expectations here. Excluding all variable investment income for the year at GA, ROE would have still been a bit above 14%. This return represents a strong core operating level and modestly above our 12% to 13% expected range. Most importantly, a year into our partnership with GA, we couldn't feel any better about our collective progress, including the performance of management, the profitability of our stake, scaling of the AUM, and the integration of our teams. In total, our after-tax distributable earnings were $1.4 billion for the quarter, or $1.59 per share. Comparing 2021 to 2020, D per share is up over two times. Alongside an increase in earnings, we are also seeing continued compounding in our book value per share, which now totals $28.77. As a component of this, our 61% economic interest in Global Atlantic's book value now totals $3.4 billion, up 15% since the first quarter of our ownership. In summary, our business continues to perform at an exceptionally high level, and this is clearly evident in both our Q4 as well as our 2021 results. Now, there are two additional topics I would like to go through in a bit more detail. The first is our potential. In 2021, we generated almost $5 billion of distributable operating income, really a step function increase from the $2.3 billion that we generated in 2020. And to be clear, we don't believe these results yet reflect even our run rate profitability, let alone our potential. There are a number of reasons why we have room to run. Let's start with management fees. At 1231, we have $38 billion of committed capital that isn't yet running through our management fee line. A year ago, that number was $20 billion. And as that $38 billion, which has a weighted average management fee north of 100 basis points, is either invested or enters its investment period, it will drive management fees in a meaningful way. And we'll come to our future fundraising potential from here in just a minute. Next are our embedded gains. Gross unrealized carry at year end totals $8.6 billion compared to $4.7 billion a year ago. So even after a record realization year, gross unrealized carry increased over 80%, positioning us really well for future realized performance income. And embedded balance sheet gains in 1231 were 6.7 billion, up from 4.4 billion a year ago. So similarly, while we saw a meaningful step up in balance sheet realizations in 2021, our embedded gains increased over 50%. And finally, as the overall footprint of the firm continues to grow, leading to increased deployment and more relationships. This in turn continues to expand the opportunities we expect to have in our capital markets business. So really strong performance in 2021, but with a really meaningful potential still yet in front of us. That leads into the second topic I'd like to touch on, fundraising and our pipeline. As we look forward, we expect to be fundraising across 30 plus strategies in 2022. So we have a lot of runway and opportunity in front of us. In terms of areas of focus, I'd highlight four. The first area is private wealth. We now manage a little over 50 billion in private wealth assets, and we've been investing meaningfully into this channel. Historically, private wealth has contributed about 10 to 20% of the money that we raise annually. With the investments we're making in people, technology, and new product innovation, alongside the strength of our brand and our track record, we believe over time that it should be 30% to 50% of the money that we raise. The second area would be Asia. More than half of global GDP growth is expected to come from Asia. And as a reminder, eight of our 21 offices are in the region. We were early to Asia, and we've seen significant scaling as AUM across our Asia dedicated strategies has gone from $20 billion to $42 billion over the last two years, with private equity being the biggest driver of that growth. In 2022, we expect to be fundraising for five Asia-focused strategies outside of PE across our infrastructure, real estate, credit, and growth businesses. We have a leading footprint in Asia today, and building on our presence is a priority and a big opportunity for us. The third area would be our broader core franchises, These are all adjacent strategies to what we're doing in private equity, real estate, as well as infrastructure. So think longer term capital, a lot of which can be raised on a continuous basis for strategies that are leveraging resources and deal flow that are already resident within the firm today. A year ago, we were at $17 billion of AUM across core, and today that figure is north of $40 billion. In 2022, we look to continue the momentum and expect to be fundraising across five distinct strategies in private equity, real estate, and infrastructure. And the fourth area is what we're doing across our real estate franchise. A year ago, AUM across real estate was $15 billion. Today, that figure is $41 billion. In 2022, we expect to fundraise across 10 distinct real estate strategies, including the next generation of our opportunistic real estate strategies across all three geographies. And with that, let me turn it over to Scott.

Thank you, Rob. And thank you, everyone, for joining our call today. As Craig and Rob reviewed, 2021 was a very strong year with record AUM, FRE, and earnings. The hard work of the last 10 to 15 years of business building began to show up in bigger ways last year, and we're ahead of where we thought we would be at this point. And with a record $112 billion of dry powder, we are well capitalized to invest in opportunities presented by more volatile markets and an evolving macro picture. In summary, we feel incredibly well positioned. While we're together today, I also wanted to give you a little color on our annual planning meetings. Last week, we gathered 35 of our partners for two full days to review where we are, where we're going, and what we need to get right to capture the opportunity in front of us. It was an extremely energizing discussion. As we discussed at our investor day last April, we have significant runway in all of our businesses and see the opportunity to meaningfully scale across multiple platforms and markets simultaneously, including Asia, real estate, infrastructure, our core suite of products, private wealth, growth, impact in ESG, insurance, credit, and private equity, amongst others. What we discussed last week is that our progress makes us even more confident in the opportunity ahead and what these businesses can become. Said another way, we believe we can get to the destination faster than we thought a year ago, and the quantum of the growth opportunity is greater than we anticipated. So while 2021 was a great year for the firm, what's particularly exciting is how the progress we made last year positions us for more growth in the years ahead. And critically, Joe and I have never had more confidence in our team. We have a focused and highly motivated group driving our businesses and functions and responsible for each of our growth initiatives. So we entered 2022 with significant conviction in our growth prospects, our model, and our people. and look forward to keeping you updated throughout the year. And with that, we're happy to take your questions.