KKR & Co. Inc.

Thank you, Operator. Good morning, everyone. Welcome to our second quarter 2022 earnings call. This morning, as usual, I'm joined 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. This call will contain forward-looking statements which do not guarantee future events or performance. Please refer to our earnings release and our SEC filings for cautionary factors about these statements. This quarter, we're reporting fee-related earnings per share of 52 cents and after-tax distributable earnings of 95 cents. Looking at the first half of 2022 compared to 2021, we feel very good about our performance. Against the challenging market backdrop, our management fees are up 39%, fee-related earnings increased 28%, and our after-tax DE increased 14%. Now, before we go into more details on our results, we'd like to highlight the changes to our business lines that we posted to our website last week and are also reflected in today's earnings release. We've seen a dramatic increase in the scale of our real assets business, so we've split private markets into two business lines, private equity and real assets. A private equity business line is comprised of our traditional PE, core PE, and growth strategies, while real assets includes real estate, infrastructure, and energy. And at the same time, we're changing the name of our public markets business line to credit and liquid strategies a more descriptive name for the capital that we manage here. The driver of these changes is the growth and increasing significance of our real assets business. KKR today is a meaningfully more diversified firm by strategy and by geography than it was only a few years ago. To give you a sense of the growth we've experienced here, at the end of 2019, so two and a half years ago, real assets AUM was $28 billion. Today, that number is $114 billion. So it's over four times the size today compared to just two and a half years ago. And the drivers of this growth are several. At the end of 2019, infrastructure AUM was $15 billion. Driven by the scaling of our flagship funds together with our expansion into adjacencies like Asia and core infra, AUM today is almost $50 billion. Within real estate, AUM has increased from $9 billion at the end of 2019 to over $60 billion today, and that's pretty evenly split between real estate equity and real estate credit. Our opportunistic equity strategies have been scaling. We now have core plus strategies across the Americas, Europe, and Asia. We acquired the Japanese REIT business earlier this year. And that's all alongside a meaningful increase in the breadth of our real estate credit platform driven by Global Atlantic. And in energy, our strategic positioning has improved through our ownership interest in Crescent Energy, while AUM has increased to almost $4 billion. Page 9 of the earnings release helps profile this increasing significance more visually. So the bars that you see on this page in total reflect to what we previously referred to as private markets. And you see each of the bars broken into their private equity and real assets components. So alongside of the AUM growth we just ran through, you're beginning to see a meaningful increase in real asset management fees and deployment. And at the same time, private equity strategies have been scaling. AUM increased from $92 billion at the end of 2019 to $172 billion today, driven by the continued growth of our flagship private equity funds alongside the scaling of core private equity and our growth strategies. When you look at the private equity figures for June 30, 2022, and compare those to 2019, AUM management fees and capital invested increased have all been growing at a compounded annual growth rate of approximately 30%. Now, turning to the quarter itself and our key operating metrics. Assets under management came in at $491 billion. That's up 14% year over year, while fee-paying AUM increased to $384 billion, up 20% compared to last year. This growth is driven by our continued fundraising momentum with $25 billion of new capital raised in Q2 and $52 billion for the first half of the year. In terms of fundraising for the quarter, we'd highlight four things. First, really building on what we just ran through a few moments ago, is the increasing significance of real assets as fundraising across infrastructure and real estate contributed over 40% of new capital raised in the quarter. On a particular note, we closed on over $4 billion of capital for our Asia infrastructure strategy. Second, we closed on a new $5 billion multi-asset class strategic partnership in the quarter. The broad framework of this partnership is similar to those we've talked about with you before. It's elongated in nature with recycling provisions. And with around $2 billion recently committed, the net impact on new capital raised in Q2 was approximately $3 billion. This helps bring our total strategic and perpetual capital to $232 billion, or 44% of our fee-paying AUM. Third is Global Atlantic. It's been a good environment for organic activity at GA, as new capital raised in the quarter totaled approximately $6 billion. This is seen in both our credit and real assets business lines. And finally, the fourth point is really the breadth of activity that we're seeing across the credit business. In addition to GA, we were active in the CLO markets in the US and Europe and the private credit markets. And of note here, in Q2, we held the final closing of our Asia credit fund. And early in Q3, we announced the final close of our asset-based finance fund. Now, alongside of our capital raising, we also continue to find compelling opportunities in which to invest. We deployed $19 billion in the quarter and over $40 billion year-to-date. Again, one of the key drivers of our activity in the quarter was a real assets business with $8 billion of capital invested. Within infrastructure, core infra was most active, deploying across the U.S. and Europe. Real estate credit, including Global Atlantic and KREF, totaled $4 billion. Real estate equity investment was concentrated in the Americas, really on both the opportunistic and core plus fronts. And private equity accounted for $6 billion in the quarter, driven by activity in the U.S. And credit, deployment of $5 billion was driven by GA-related private credit activity. And importantly, at the end of the quarter, we had $115 billion of dry powder ready to deploy into new opportunities. Now, before turning it over to Rob, we want to spend a few minutes on a piece of KTR that permeates everything that we do, and that's ESG. So two things here. First, in June, we published our 11th Annual Sustainability Report. The report this year, titled Scaling Up, outlines how we've been scaling efforts to manage ESG issues across our investment portfolio, as well as our global operations. This year marked a significant expansion of the scope of our ESG reporting, which builds on our history of transparency. We hope you'll take time to go through the report in more detail. And on the back of that, we want to drill down and spend a few minutes on the S in ESG, the social component. This is really important to us. And one spot where we've shown real leadership and we're going to walk through now is our work around broad employee ownership at our portfolio companies. And we plan to share more stories like this with you in the future. Many of you will recall Pete Stavros' presentation on CHI overhead doors at our 2018 Investor Day. We were the fourth private equity owner of the business. It's a garage door manufacturing business and EBITDA margins at that time were already top quartile for a building products company at 21%. Now, one of the things that our team saw was an opportunity to engage with this workforce in a way that hadn't been done before. And so began our seven year journey. We introduced a broad based equity program at the outset of our investment. So all 800 employees, largely hourly workers, received an ownership interest in the company, and we continued to invest in the employee base along the way. And by partnering with the workforce, operational improvements were seen at every level. Injury rates declined meaningfully, employee engagement increased meaningfully, and product quality improved. So in total, revenues more than doubled over our ownership, and EBITDA more than tripled as EBITDA margins increased from 21 to 35%, all organic. So it was a very successful investment for us. It was a 10x multiple of money transaction for our clients. And through the broad-based equity program, it was also a very successful investment for the employees of CHI. On average, the warehouse and factory workers each made $175,000 on the sale, and the most tenured workers made approximately $800,000. so they earn multiples of their annual salary through the sale. And now, just this morning, we're pleased to have announced the sale of Minnesota Rubber and Plastics, or MRP. Like CHI, we introduced a broad-based equity ownership program across all of MRP's employees, including many hourly workers, when we acquired MRP in 2018. Over 1,300 non-management employees across six countries and four states. and the company and its employees it performs. We've seen significant improvements in safety, waste reduction, the speed of new product delivery, and earnings growth as EBTA margins grew from 21 to 25% over our ownership. So again, this will be a strong investment for our fund investors. We expect the sale to be a 3x multiple of our cost in approximately three and a half years. And at the same time, we think it's a great event for MRP's employees. On average, employees will receive 100% of their annual income in equity payouts from the sale, with the more tenured employees receiving 200% of their annual income. And now we want to turn these experiences into a movement. We've implemented broad-based employee ownership programs across many of our traditional PE and impact investments, over 25 to date. We've touched over 50,000 employees, and that number is going to grow meaningfully from here. In addition, we helped found a new nonprofit called Ownership Works to support public and private companies that are transitioning to shared ownership models like the ones we implemented at CHI and MRP. At this time, Ownership Works includes over 60 member firms pursuing this mission. We think part of creating a movement will be storytelling, which is why we walk through the CHI and MRP examples, and we look forward to having many additional stories to review with you in the quarters and years ahead. And with that, I'll turn it over to Rob.

Thanks a lot, Craig, and thank you, everyone, for joining our call this morning. First, to go through our quarterly P&L. Our management fees came in at $655 million. That's up 36%. compared to the second quarter of 2021. To put that into context, Q2 of 2021 already reflected a full quarter of global Atlantic management fees. So the 35-plus percent growth really reflects the organic momentum that we have across the firm today. Net transaction and monitoring fees were $107 million for the quarter. The decrease here was driven by our capital markets business, which I will spend a bit of time on shortly. As it relates to our expenses, our fee-related comp margin, consistent with prior quarters, was 22.5%. Operating expenses totaled $137 million. This increase was driven by a few things, including a heightened level of activity in corporate travel and office operations, as well as continued investments in both our technology build-out and marketing organization. This is all critical investment that we feel is setting us up for future growth. and is very consistent with our plans for the year. Bringing it all together, our fee-related earnings totaled $461 million, or $0.52 per share, this quarter. Moving to our realization-related revenue, which was very positive for us this quarter, and in aggregate represented one of our highest in the firm's history. Realized performance income came in at $731 million. Our carried interest was driven by monetization of internet brands, a number of public market exits, and the sales of opportunistic real estate assets. Realized investment income totaled $277 million, driven by these same transactions. In total, our asset management operating earnings were just over $950 million. Our insurance segment also had a very strong quarter, generating $137 million of operating earnings. These earning streams result in after-tax DE of $840 million, or $0.95 per share. Year to date, our after-tax DE was over $1.8 billion, up 14% year-on-year, which I think highlights the continued strength of our business model. Taking a step back from the quarterly numbers, the momentum across the firm continues to be exceptionally strong. And there's high confidence that we're doing the things that we need to do really across the board to set ourselves up for the future. We have had continued fundraising success with 52 billion of new capital raised year to date. We are on our way to reaching our goal of being top three in everything that we do. And with 65% of that new capital coming into our real assets and credit businesses, we're becoming a meaningfully more diversified asset management firm. Management fees, in turn, are up 39% for the first half of 2022. And with $44 billion of AUM that will become fee-paying when it enters its investment period, we have a good line of sight on future management fee growth. The quality of our investment portfolio is evidenced by our relative investment performance, as well as our ability to monetize these investments through the cycle. Realized gains for KK are up in the first half of 2022 compared to the same period last year. Though we had a lighter quarter in capital markets, fees for the first half of 2022 are approximately $340 million. Very solid against what has clearly been a challenge market backdrop since the beginning of the year. We remain really excited about the potential for our capital markets business. We have a unique business model and an ability to recruit and retain best-in-class talent. Additionally, we have $25 billion of total cash and investments on our balance sheet. Last quarter on this call, we spent a lot of time detailing the strength of both our investment portfolio as well as the unique nature of our long-dated and fixed liabilities. We have no doubt that our position here represents a real competitive advantage, especially in a more volatile market environment. And it will allow for us to emerge from this period in an even stronger position. Turning to our investment performance. The traditional private equity business was down 7% in the quarter, compared to broad indices that were down over 16%. And over the last 12 months, the portfolio was up four, while the MSCI world was down 14%. Importantly, inception to date IRRs for the key flagship returns across geographies remain strong. at 32%, 19%, and 38% across our Americas, Europe, and Asia portfolio companies. Similarly, opportunistic real estate was up 1% in the quarter and over the last 12 months up 23%, with infrastructure down 1% and up 8% over the last 12 months. On the leveraged credit side, the portfolio was down 6% for the quarter and down 5% for the last 12 months. Our alternative credit portfolio was down one in Q2 and up 6% in the LTM. Next, to go through our balance sheet. Investment performance was down 5% in the quarter and up 1% over the last 12 months. We spent time last quarter reviewing the core private equity portfolio. Core PE remains the largest allocation on our balance sheet today. Over 30% of our investments are in the strategy. For Q2, This portfolio was down 2.5%, but up 16% over the last 12 months. The underlying fundamentals of the core PE portfolio remain resilient, with organic revenue and EBITDA up approximately 12% and 10%, respectively, through the first half of 2022. Turning a minute to focus on our Asia franchise. With the closing of our acquisition of the Japanese REIT manager, KJRM, the growth in our Asia infrastructure strategy, and our first Asia private credit fund, we continue to feel that we have a really differentiated position in a critical geography. Our Asia-focused capital has increased threefold since the end of 2019, now reaching $59 billion. Most recently, we have raised over $4 billion of capital so far for our Asia infrastructure strategy, making the capital raised already larger than its predecessor which at $3.8 billion was previously the largest infra fund in the region. We now clearly have the number one franchise in a space that is a tremendous addressable market and real secular tailwinds. As a result of all this activity, the moat that we have created around our Asia business continues to expand. Finally, I want to take a minute just to review our long-term financial goals. As we have stated on the last few calls, we expect our FRE to be $4 plus per share and our after-tax distributable earnings to be over $7 per share by 2026. These goals have not changed. And we continue to have a great deal of confidence in our ability to meet or exceed our targets. Relative to what we are all reading right now in many corporate headlines, KKR is in a really unique position. where we have both the P&L and the business momentum to be able to continue investing back into our business for growth. It's one of the many reasons that we are all so excited about the long-term potential. And with that, let me hand it off to Scott.

Thank you, Rob. And thank you everybody for joining our call this morning. A few weeks ago, we hosted a conference for our global private equity and real asset clients. People from around the world came and spent three days with us at our first in-person event like this since 2019.