KKR & Co. Inc.

Good morning, everyone. Welcome to our third 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. So to begin this quarter, we thought we would highlight three things. First, as you would have already seen through our earnings release, we had a strong Q3. Fee-related earnings for the quarter eclipsed $1 billion for the first time. And on a per share basis, the $1.12 of FIRE per share is 32% ahead of the results we reported just last quarter, which was, up until today, a record figure for KKR. An ANI per share of $1.38 is the second highest quarterly figure we've reported in our history. up over 50 percent compared to q3 of last year so impressive growth and delivered in a quarter where the pace of exit activity across our industry is still accelerating second you're seeing tangible signs of momentum across our operating metrics investment performance continues to be a bright spot as we perform on behalf of our clients and reflecting this performance Our gross unrealized carried interest balance increased 11% from just last quarter and has increased 42% compared to one year ago. On the heels of strong investment performance, we've raised $87 billion of new capital year to date. This is more than double the amount we raised over the first nine months of 2023. And we remain at an early stage of our current fundraising super cycle, at the same time that we're seeing continued progress and scaling across our wealth initiatives. And deployment year to date total 61 billion also more than double the investment activity reported over the first nine months of 2023. And third. You're seeing tangible signs of how KKR and our business model, in our view, can deliver differentiated financial results for all of us as shareholders. Total operating earnings. Remember, this is our fee-related earnings together with our insurance segment, as well as the net dividends from strategic holdings. We're $1.47 per share in Q3. These are our more durable businesses. So looking at this differently, total operating earnings, the more durable and recurring pieces of our business, comprised over 80% of our pre-tax earnings as a firm for Q3, as well as on a year-to-date and a trailing 12-month basis. And thinking through the profile and trajectory of total operating earnings, remember that we expect the net dividends from strategic holdings to increase materially over the coming years. We believe strategic holdings will be a truly unique driver of future financial performance for KKR for years to come. And finally, also highlighting our business model and how we work together, the results we reported in the third quarter in our capital markets business are noteworthy, with $424 million of capital markets revenues in the quarter, driven by the increased investment activity that I mentioned a moment ago. So with that as an introduction, let me walk through our statement income statement in more detail. Management fees in the quarter were $893 million, representing an increase of 5% since Q2 and 18% year-over-year. Again, 18% growth in management fees year-over-year. This increase was driven by fees turning on in the quarter for our flagship infrastructure fund, the final close of Ascendant, and fees from Global Climate, as well as continued success within our private wealth vehicles. Total transaction and monitoring fees totaled $467 million. This includes the $424 million of capital markets fees mentioned a moment ago, a record figure for us as a public company. Fee-related performance revenues in the quarter were $57 million. This quarter was the first quarter our onshore K-Series infravehicle earned its annual incentive fee. And as you recall, our offshore vehicle earned its annual incentive fee for the first time last quarter in Q2. So with good performance, we expect this cadence to continue annually for both our onshore and offshore vehicles. In aggregate, fee-related revenues were $1.4 billion. This is up over 50% compared to the third quarter of 2023. Fee-related compensation, as usual, was right at the midpoint of our guided range, which, as a reminder, is 17.5%. Other operating expenses came in at $168 million. As we noted earlier this year, we would expect this line item to increase modestly over time. As an example, we do expect placement fees to increase as fundraising continues to ramp. So putting this all together, FRE was just over $1 billion for the quarter, or $1.12 per share, with an FRE margin of 71%. And FRE per share is up 78% compared to Q3 of 23. Insurance operating earnings were $308 million for the quarter. The run rate here is still at that $250 million level, plus or minus, as we discussed on last quarter's call. As the results this quarter benefited from approximately 50 million of earnings that came primarily from GA's annual actuarial assumption review. Strategic holdings operating earnings were 7 million in Q3 and we expect a similar level in Q4. These figures compared to the 62 million of net dividends reported for the first half of 2024, which were ahead of our expectations. And as we've discussed, the trajectory of these earnings won't be linear in these early days. And more importantly, we continue to see consistent growth across the underlying businesses and are tracking nicely towards our expected 300-plus million of net dividends by 26 and 600-plus million by 2028. And as context for the portfolio as a whole, KKR's share of the 12-month revenue in EBITDA generated by these 18 businesses was $3.6 billion and approximately $900 million, respectively. And year over year, we saw 14% like-for-like growth in revenue and 11% growth in EBITDA. The portfolio has scaled and continues to grow nicely, and importantly, again, remains on track to deliver meaningful net dividends in the years ahead. So in aggregate, total operating earnings were $1.47 per share, a record quarter, and 25% ahead of last quarter, and represented 81% of segment earnings. Moving on to investing earnings within our asset management segment, realized performance income was $392 million, and realized investment income was $152 million, and we had $88 million of net realized investment income within our strategic holding segment. So in total, investing earnings after compensation were $318 million. After interest expense and taxes, adjusted net income was $1.2 billion, or $1.38 per share, up 57% on a year-over-year basis from the third quarter of last year. Now, finally, turning to investment performance in page 10 of the earnings release, the traditional private equity portfolio appreciated 5% in the quarter and 17% in the last 12 months. Opportunistic real estate was up 2% in the quarter and up 3% in the LTM. infrastructure continues to perform well, up 6% in Q3 and 18% in the LTM. And in credit, the leveraged credit composite was up two and the alternative credit composite was up three in the third quarter. And performance here over the last 12 months was up 11 and up 12% respectively. 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. Last quarter, we highlighted that we were seeing significantly greater market activity and momentum across the firm. Those trends were clearly seen in the results that Craig just ran through. In a lot of ways, this was a quarter where the numbers speak for themselves. So I thought that I would focus on a few of the key drivers looking forward. Deployment, monetization, fundraising, as well as our unique business model. Starting first with deployment, we have seen a meaningful acceleration in activity. And if you take a step back, we have built scaled global businesses to invest behind many of the mega themes that are driving global growth. We discussed this at Investor Day earlier this year, but I will highlight three particularly significant areas this morning. Number one is infrastructure. We know that the need for infrastructure investment is massive. Our footprint here positions us incredibly well. Our global infra business has now scaled to 77 billion of AUM. Remember, we were just 13 billion five years ago. And all of that growth has been organic. We are particularly well positioned across all things digital infrastructure. And we are seeing this theme play out globally. There are really three pillars of activity here. The first is mobile infrastructure. So think of the tower industry. Second is fixed line infrastructure, fiber to the home. And third are themes in the cloud AI storage and data center space. Our footprint in data centers is particularly large. To give you a sense, we currently own four platforms operating across the U.S., Europe, and Asia. And looking on a 100% own basis, because we don't own 100% of all of them, The total enterprise value of those platforms and their contracted and highly visible pipeline is over $150 billion. The second theme that I wanted to highlight this morning is credit. The credit markets that we participate in is a $40-plus trillion market, and we are seeing the benefits of a scaled global platform with 240-plus billion of AUM. Our asset-based finance team, as an example, continues to be particularly active In total, AUM across our ABF platform exceeds $65 billion. That's up 40% versus last year. And we have a real leadership position across an area that a significant market tailwinds. And finally, Asia remains one of the most dynamic parts of the world. We've had a meaningful presence in the region for close to two decades and are by far the leading alternatives platform on the ground today with nearly $70 billion of AUM. We are incredibly well positioned to generate significant scale and value for our enterprise over the next decade plus. And we are particularly excited about the opportunities in Japan across multiple asset classes. Japan is a market where today we have real leadership. We opened our first office in the country in 2006, so almost two decades ago. Together with KJRM, we have over 200 people in Tokyo helping us source and originate investment opportunities up and down the capital structure. Global Atlantic has now closed on two reinsurance transactions within the last 12 months. And in aggregate, we have $25 billion of AUM across all of our strategies in Japan. Taken together, our footprint provides us with a lot of confidence around competing in the local markets and further scaling from here. Turning next to monetizations. We've seen an uptick here given readily accessible debt markets, the improved tone across global equity markets, and increased M&A volumes. To give you a sense of this, the total gross proceeds from monetization activity in our private equity and real assets businesses year to date have been approximately $13 billion. That is up over 60% from the same time last year. And as we look ahead, presuming the market backdrop remains constructive, we expect you'll see a further acceleration of activity across the industry. And against this backdrop, we feel very well positioned. One of the areas that we watch closely as a management team is the maturity of our portfolios. Today, we are in a very good position, which reflects our discipline, we think, around investment pacing and linear deployment. First, we have a number of public positions with meaningful embedded gains. As of quarter end, Six of our sizable positions were trading between four times and over 30 times cost. Just looking at our private equity portfolio overall, over 60% of fair value is marked at one and a half times cost or greater with approximately 30% marked at two times cost or greater. In addition, our real assets businesses are currently under-earning as our portfolios continue to mature. In total, Our gross unrealized carried interest stands at $7.9 billion at quarter end. That's up 40% year on year. And looking more broadly, if you include our balance sheet investments, so as a reminder, this does not include core private equity, the total embedded gains are $10.9 billion, which is also up 40% year on year. When you factor in that we have been monetizing at a healthy pace relative to the industry, This stat really does speak to the strength of our investment performance, as well as the health of our global portfolio. And I think all of this really positions us well to generate future investing earnings. Turning next to new capital raised, this totaled $24 billion for the quarter, bringing us to over $85 billion year-to-date. In the quarter, nearly half of this activity was driven by credit, as our business has grown alongside the capabilities of Global Atlantic. Two additional topics of note here. First, our K-Series vehicle saw strong fundraising, with over $2 billion of new capital raised in Q3, driven by our private equity and our infrastructure strategies. And looking at K-Series across all four investing verticals, we are now at $14 billion of AUM. That's up from $5 billion a year ago. We're continuing to launch our products and new platforms and are still ramping on those that we've been added to already. We remain really encouraged by our progress to date with a tremendous amount of opportunity still in front of us. And second, over time we have talked about long-dated multi-asset class strategic partnerships that have recycling provisions. Given the breadth as well as the connectivity across our firm, we are uniquely positioned to create these types of partnerships. This quarter, we closed on a $3 billion real asset strategic partnership with a large sovereign wealth fund, which we expect will positively impact both our infrastructure and real estate platforms for two-plus decades. Before I conclude, I did want to spend a few minutes on a couple of elements of our model that I think are really unique and also operating at a very high level. First, on Global Atlantic. On the last couple of earnings calls, we talked about GA operating with elevated levels of liquidity after the large block transactions closed at the end of last year, as well as early this year. We have seen increased coordination and investment activity across several of our asset classes, including now infrastructure, real estate, and credit. We remain encouraged by the quality of the deal flow that we were able to match up against some of the very long-dated liabilities that we have taken on. And the second area I wanted to touch on was that you really saw the power of our business model this quarter with our capital markets business producing record revenues of $424 million. This reflected activity across infrastructure, traditional private equity and credit, as well as existing portfolio company opportunistic financings and third-party transactions. While the quarter did benefit from a few sizable fee events as well as timing, around 100 different transactions contributed to the outcome this quarter. which demonstrates the breadth and diversification of our business. Now, we don't think 400 plus million is the new quarterly run rate for our capital markets business, but this quarter really illustrates the degree to which our model is built to capture very significant economics. We have built this part of our business very deliberately, and being able to achieve these types of outcomes is not a surprise. Just to close out, Our management team remains incredibly excited about the potential of our firm and our ability to inflect up in a recovering deal and exit environment. And as we look to the rest of the year, we will continue to stay just as focused on scaling our businesses and taking full advantage of the unique capabilities that our model presents. With that, Scott Craig and I are happy to take your questions.

Thank you.