KKR & Co. Inc.

Welcome to KKR's first quarter 2024 earnings conference call. During today's presentation, all parties will be in listen-only mode. Following management's prepared remarks, the conference will be open for questions. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to hand the call over to Craig Larson, partner and head of investor relations for KKR. Thank you. You may begin.

Thank you, operator. Good morning, everyone. Welcome to our first quarter 2024 earnings call. This morning, as usual, I'm joined by Rob Lewin, our Chief Financial Officer, and Scott Nuttall, our Co-Chief Executive Officer. We would 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. We know many of you joined us for our 2024 Investor Day just three weeks ago. Thank you for spending the day with us. And for those of you who were unable to participate or are newer to KKR, we would encourage you to watch a replay of the webcast or review the investor day presentation and transcripts that are on the investor relations section of our website. There is a wealth of information, of course, across all of those materials. And as a reminder, before getting to the numbers themselves, starting with this quarter, our financial reporting reflects the previously announced segment and financial metric changes. Of particular note, First, we closed on the remaining interest in Global Atlantic on January 2nd, and we now own 100% of GA. Second, we're now reporting a new segment, strategic holdings. Third, we've introduced a new financial metric, total operating earnings, which consists of fee-related earnings, plus insurance segment and strategic holdings operating earnings. Total operating earnings represents the more recurring and stable portion of our earnings and is a measure we look at to evaluate our performance as it reflects how our business model and how our financial profile has evolved. Our expectation is that total operating earnings should approximate 70% of pre-tax earnings over time. And finally, our Q1 financials reflect our revised compensation ratios, which deliver more FRA to our shareholders and drive even more alignment between our compensation model and the outcomes of our clients. And as a reminder, for additional detail, we posted recast financials in late March. So now turning to Q1 and our headline financial metrics. Fee-related earnings per share for the quarter came in at 75 cents. That's up 22% compared to Q1-23. Total operating earnings were $1.08 per share in the quarter. And adjusted net income per share, which is after tax, was 97 cents. and that's up 20% year-over-year. Looking at our financials in a little further detail, management fees in Q1 were $815 million. That's up 4% sequentially from last quarter. Net transaction and monitoring fees were $152 million, 116 of which were generated from our capital markets business. Our fee-related compensation ratio was 17.5%, which is right at the midpoint of our target range. Other operating expenses were $145 million. You're seeing a continued focus on expense management. This number is down 4% compared to Q1 of 2023. But we expect this line item to increase modestly over the balance of the year driven by continued investments in operations across KKR, alongside an increase in placement fees given our active fundraising pipeline. So in total for the quarter. Fee-related earnings were $669 million, or the $0.75 per share I mentioned a moment ago, and our FRE margin came in at 68%. That margin figure is up 700 basis points compared to Q123, and that's driven both by the change in our compensation framework as well as the strong expense management in the quarter. Insurance operating earnings were $273 million, There are really two things to point out here. First, portfolio yields this quarter reflect elevated cash and more liquid assets in GA, and that's largely due to two sizable recent transactions with a MetLife and Manulife blocks closing in Q4 23 and Q1 24 respectively. So the full cost of those liabilities come onto the GA balance sheet at close, but it does take some time to redeploy those assets into our target portfolios. that delay or that ramp it's expected of course and it's built into our pricing for each of these deals and secondly we're seeing attractive investment opportunities in asset classes like core plus real estate and infrastructure as our origination capabilities are presenting ga with attractive risk-adjusted return opportunities however while these opportunities come with attractive long-term roes near-term yields tend to be more modest And moving to our new segment, strategic holdings and page 18 of the earnings release. Remember the segment today consists of our direct interests in our core private equity portfolio, which is a long duration investment strategy with an expected whole period of 10 to 15 plus years. So 19 businesses that are well diversified and generally have durable defensive financial profiles alongside growing earnings. And looking at KKR share of these businesses, 2023 revenues were approximately 3.6 billion with EBITDA of 900 some odd million. And given the maturing of the portfolio, as well as the stability of operating performance, we anticipate these investments to be more regular dividend payers over time. So operating earnings in the quarter were 21 million driven by dividend activity. As we stated previously, we expect strategic holdings operating earnings to be more modest in 2024. However, we expect that will change in a pretty significant way looking beyond 24 with operating earnings of 300 plus million by 2026, 600 plus by 2028, and one plus billion by 2030. Our visibility and the opportunities we see here are highly differentiated looking across our space. So putting all of that together, total operating earnings were the $1.08 per share. Moving to investing earnings, realized performance income was $272 million, and realized investment income was $135 million. This was primarily driven by secondary sales, strategic exits, and realized carry from the core private equity portfolio. So altogether, adjusted net income totaled $864 million, or $0.97 per share. Turning to investment performance, you can see this on page 10 of the earnings release. The private equity portfolio was up five in the quarter and up 19% in the last 12 months. Opportunistic real estate was up one in the quarter as well as up one in the LTM. The infrastructure portfolio was up five in the quarter and is up 16% over the trailing 12 months. In credit and Q1, the leverage credit composite was up 3% and alternative credit composite was up 4%. And over the last 12 months, performance was plus 14 and plus 13% respectively. And given performance in Q1, our gross unrealized carried interest balance increased to $6.9 billion at 3.31. That's up 16% from the end of 2023 and over 50% from Q1 of 23. And finally, consistent with historical practice and as we announced last quarter, We increased our dividend to 70 cents per share on an annualized basis or 17 and a half cents per share per quarter, beginning with Q1. This is now the fifth consecutive year we've increased our dividends as we change our corporate structure, increasing our annualized dividend from 50 cents per share to 70 cents over this period of time. And with that, I'm pleased to turn the call over to Rob.

Thanks a lot, Craig. And thank you all for joining our call this morning. and for the many of you that spent time with us at our investor day a few weeks back. I thought I would start this morning by going through some of our key operating metrics. During the quarter, we raised $31 billion of capital. That's almost $90 billion over the last 12 months. In just this quarter alone, we had attractive outcomes across each of our businesses. Our private equity and real asset businesses together raised $9 billion of capital across a number of strategies. And that's before any meaningful closes from our upcoming flagship raises. And our momentum in credit has really continued, with new capital raised totaling $21 billion, with most of the capital coming from our direct lending, asset-based finance, and leveraged credit strategies. And looking more specifically at our K-series vehicles, we raised almost $3 billion year-to-date through April 1, primarily in private equity and infrastructure. We also launched our private BDC in the quarter and are starting to see some real inflows here as well. Turning to capital invested, we deployed $14 billion in the quarter. Deployment within private markets was largely driven by infrastructure as well as real estate equity. And over half of the capital invested in the quarter came from credit, primarily across asset-based finance and direct lending. We are seeing a significant ramp in credit deployment, reflecting the overall growth of our credit platform. Now, looking forward to Q2, we expect there to be a healthy pipeline of new deployment, given the activities we are seeing broadly across the firm. And over the course of the year, we do expect deployment to pick up meaningfully. Before wrapping up this morning, I did want to spend a couple of minutes summarizing the key takeaways from our investor day a few weeks back. Scott and Joe led off our investor day with a very simple message. While we have experienced a lot of growth, it feels like we are just getting started. In terms of the key takeaways from the day, first, we provided medium-term guidance. Over the next 12 to 18 months, we expect to be raising capital for over 30 strategies, including a number of our flagships. We expect to raise $300 plus billion of capital over the course of 2024 through 2026. In terms of our financial metrics, by 2026, we expect $4.50 plus cents per share of FRE, implying a CAGR of approximately 20%, $7 plus of total operating earnings per share, and $7 to $8 per share of adjusted net income, implying a CAGR of roughly 30%. Second, looking ahead, we feel quite confident in our longer-term trajectory. We expect $15 plus of adjusted net income per share in the next 10 years or less. with approximately 70% of these earnings to be more recurring in nature. Over the next five years, we also expect 25 plus billion of cash generation. We anticipate that this cash will get deployed across four key areas, core private equity, share buyback, strategic M&A, and insurance. Our model really gives us the confidence across all of these avenues of deployment. In each case, we have a strong track record of being able to deploy capital against high ROE opportunities that also generate recurring and growth-oriented earnings per share. And number three, looking at our key themes, we made sure to highlight our diversified and purpose-built business model. Asset management plus insurance plus strategic holdings, all working synergistically together to generate sustainable and significant P&L outcomes. And we have a lot of confidence in each of our three growth engines. In asset management, we have multiple paths to surpass a trillion of AUM over the next five years. In insurance, we have strong conviction that we could double Global Atlantic from here. And finally, strategic holdings, which is really an unconstrained market opportunity for us and where we have a real right to win. We expect to have a billion plus of annual operating earnings by 2030. Our business model is built to drive compounding earnings over a very long period of time. And while the opportunity in front of us is a massive one, we do believe that we can achieve our outlined targets without having to build anything new. And we have a team and culture, as you would have heard from over 15 of our business leaders on April 10th, that both facilitates and accelerates our ability to achieve our strategic ambitions. So when you combine our business model, Together with our team and our culture, this is what distinctly differentiates KKR. And with that, Scott Craig and I are happy to take any questions.