KKR & Co. Inc.

Ladies and gentlemen, thank you for standing by. Welcome to KKR's second quarter 2025 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following management's prepared remarks, the conference will be open for questions. If anyone should require operator assistance during today's conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I will now hand the call over to Craig Larson, partner and head of investor relations for KKR. Craig, please go ahead.

Thank you, operator. Good morning, everyone. Welcome to our second quarter 2025 earnings call. This morning, as usual, I'm joined by Rob Lewin, our chief financial officer, as well as 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 gap figures in our press release, which is available on the Investor Center section at KQER.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. So please refer to our earnings release as well as our SEC filings for cautionary factors about these statements. So first, beginning with our results, that we've just announced for the second quarter. We're pleased to be reporting fee-related earnings of 98 cents per share, total operating earnings of $1.33 per share, and adjusted net income of $1.18 per share. All of these figures are among the highest we've reported in our history as a public company. Now going into more detail, management fees in the quarter were $996 million. With Americas 14 turning on in Q2, alongside of our broader fundraising initiatives and continued deployment, management fees in total are up 18% on a year-over-year basis. Total transaction and monitoring fees were $234 million in the quarter. Capital markets transaction fees were $200, driven by activity with infrastructure and private equity. with just over half of capital markets fees this quarter coming from our activities in Europe. Fee-related performance revenues in the quarter were $54 million. That figure is up 45% year-over-year, with the growth here driven by the performance allocation from our offshore infrastructure K-series vehicle. Fee-related compensation was, again, right at the midpoint of our guided range, which, as a reminder, is 17.5%. Other operating expenses for the quarter came in at $172 million. So in total, FRE was $887 million, or the $0.98 per share that I mentioned a moment ago, and our FRE margin came in at 69%. Looking at fee-related earnings more broadly for a moment and the results you've seen over the last 12 months, driven by healthy management fee growth, and a strengthening in our capital markets activities. Alongside of operating leverage, FRE per share increased 33% for the 12-month period ended June 30, 25 compared to June 30, 24 with a 360 basis point improvement in our FRE margin. Now back to the quarter. Insurance segment operating earnings came in at $278 million. So modestly ahead of the 250 plus minus level we discussed last quarter, which is where we continue to expect to see insurance operating earnings over the next few quarters. And remember that this line item alone does not capture how our model works in all of our insurance related economics, recognizing the economics that show up within our asset management segment. So when you include the management fees from the approximately $50 billion of AUM from our IV sidecar and co-invest vehicles, capital markets fees also associated with Global Atlantic, as well as the management fees from our investment management agreement with GA, our all-in pre-tax ROE continues to approach that 20% level. Strategic holdings operating earnings were $29 million. So total operating earnings, which again, represents the more recurring components of our earnings streams. We're $1.33 per share. And over the last 12 months, nearly 80% of our segment earnings were driven by our more recurring earnings streams, demonstrating in our view the durability that you're seeing across our business model. Turning to investing earnings. Realized performance income was $419 million and realized investment income was $154 million. These earnings were driven by a combination of public secondary sales and private transactions, as well as K prime's annual crystallization alongside with dividends and interest income. And finally, turning to investment performance and page 10 of our earnings release. Broadly, when you look at the statistics on the page, you're seeing healthy investment performance on behalf of our clients across asset classes during periods of time with uncertainty alongside a real spikes in volatility. Looking at the statistics themselves, the private equity portfolio was up 5% in the quarter and 13% over the last 12 months. Within real assets, the opportunistic real estate portfolio was up 3 in the quarter and 7 over the LTM. Infrastructure, up 3 in the quarter and appreciated 14% over the last 12 months. In credit, the leveraged credit composite was up 2 in the quarter and up 7% over the last 12 months. with the alternative credit composite up 1 and 9% respectively over those same periods. And with that, I'm pleased to turn the call over to Rob.

Thanks a lot, Craig, and thanks to everyone for joining our call this morning. As Craig just walked through, our model continues to deliver consistent results. I'd like to begin by highlighting our deployment and monetization activity, which demonstrates the strength of our global and diversified platform. KKR has been around now for 49 years and has navigated a range of macroeconomic backdrops over those five decades. We understand that volatility and uncertainty create opportunity and have positioned our firm to ensure that we are maximizing that opportunity on behalf of our clients. We build portfolios for the very long term and when you invest in companies and assets for five to ten plus year horizons, you need to be thoughtful about the excuse me, you need to be thoughtful about how the world is going to evolve. And we have found it less important to try and time the market. It is why we are so disciplined in linear deployment and creating outperformance through our approach to value creation at the asset level. Since the start of the year, we've deployed nearly 37 billion of capital, with around half of that deployed in the second quarter. Within private markets, Nearly 50% of our year-to-date activity has been outside of the U.S., and we've been balanced in deploying capital across traditional private equity, growth equity, infrastructure, and real estate. In credit, we've deployed 18 billion of alternative capital since January, diversified largely across direct lending and asset-based finance. ABF in particular is an area where we continue to see a lot of growth opportunity. which I'll touch on in a bit more detail in a few minutes. Importantly, there remains a healthy pipeline for deployment in the second half of 2025, and we feel well positioned with $115 billion of uncalled capital. As a result of this consistent approach to investing, we also have a mature portfolio that we can monetize opportunistically. Over the last 12 months, realized performance and investment income totaled $2.6 billion. That number is up over 20% from the same period a year ago. Even with that healthy momentum on monetizations, our unrealized carried interest across our global portfolio today stands at a record $9.2 billion. And that number is up roughly 30% from $7.1 billion just 12 months ago. Looking at our private equity portfolio specifically, approximately 60% is marked at over one and a half times our cost. And on average, our public names are marked at over five times our cost. So our portfolio is in very good shape. And ultimately, that is the most important indicator of future monetizations. I would say that it is really our global footprint that is a large driver of the continued deployment and monetization activity that we are seeing across the firm. As an example, we've seen robust activity out of Asia recently, where we have nine offices, nearly 600 executives, and manage over $75 billion of assets. Over the past 20 years, we've built a very large, localized business, and we've grown and diversified, Today, traditional private equity comprises less than half of our Asia AUM. That's compared to approximately 90% in 2019. Just to give you a sense of our activity here, we recently signed a definitive agreement to exit an investment in a pharmaceutical company in India, closed on our previously announced exits of a telecom tower company in the Philippines and a grocery store chain in Japan, invested in a leading agricultural infrastructure business in Australia and a new financial services platform in Singapore, and established a battery energy storage joint venture in Korea. As you can hear, we've got a lot going on across Asia and really continue to be at the forefront of activity in the region. To close out my remarks this morning on monetizations, If you take a look at our pending monetizations as we head into the second half of 2025, so transactions that are signed but not yet closed, we have direct line of sight to north of $800 million of monetization-related revenue, the vast majority of which will be performance income. This is a healthy figure for us and consistent with the overall health of our portfolio. Now turning to the fundraising environment and a few other notable items for the quarter. In Q2, we raised $28 billion of capital and continue to see meaningful progress across asset classes. We held a final close in the second vintage of our asset-based finance drawdown fund and parallel separately managed accounts with a total of $6.5 billion in commitments. This is more than triple the $2.1 billion predecessor pool of capital. The composition of investors in the fund is encouraging. with approximately 50% of limited partners new to the KKR credit platform, and commitments are roughly evenly split across clients from the US, Europe, and Asia. More broadly, our ABF business continues to see meaningful growth, with AUM increasing over 20% from this time last year to $75 billion. We see ABF as a $6 trillion addressable market today, increasing to over $9 trillion over the next four years. The alternative credit ecosystem overall, including not only ABF, but also direct lending and capital solutions, is now larger than the traditional high yield and leveraged loan markets combined. So ABF is a growing market with secular tailwinds for our industry, and we believe that we are already a leader in this space today. In real assets, we've begun raising capital for our Asia infrastructure strategy. And as we think about demand, we feel encouraged by our historical success in this asset class and the differentiated investment returns that we've been able to achieve, as well as the depth of our Pan-Asian presence and breadth of our global connectivity. Turning to wealth, K-Series AUM was $25 billion across private equity infrastructure, real estate and credit as of June 30th. That figure compares to $11 billion just a year ago. We've been really pleased here to see inflows continue to track at or ahead of our expectations, despite the market volatility that we've experienced year to date. As you know, in April, we launched two public-private solutions through our strategic partnership with Capital Group, making the KKR platform available to an even broader universe of clients. Our continued momentum is earmarked most recently with the filing of a registration statement with the SEC for a public private equity product, which on the private side will be investing in a case series private equity vehicle as well as PE co-invest opportunities. And looking ahead, we continue to work on a real asset product. We feel great about our partnership with Capital Group and believe that there is more to do together as partners. Next, I'd like to give a brief update on our insurance business. First, with a focus on elongating and further diversifying our liabilities. Over the last four months, we've successfully issued approximately $2.5 billion of funding agreements with a weighted average duration of eight years through separate transactions in the US, Europe, Japan, and Canada. We believe the local currency liability funding will also help support asset origination outside of the US. And you should expect us to continue to be active here with a real focus on the longer duration parts of the FABN market. Alongside of this, we continue to make very good progress on the addition of alternatives to the portfolio, where we believe that we have a differentiated sourcing advantage as a firm. We expect these changes will ultimately drive up overall returns, while at the same time naturally reducing our leverage profile. And second, an update on third-party capital, which is a critical component of our strategy at Global Atlantic. Earlier this week, Japan Post Insurance announced that it would invest $2 billion through a new vehicle managed by Global Atlantic, expanding our existing strategic partnership. As we have talked about since our initial purchase of Global Atlantic, our ability to marry third-party capital alongside the GA balance sheet is a real differentiator for us. Our IV sidecar vehicles, which pay fee and carry similar to a drawdown credit or PE fund, allow us to grow GA in a very capital efficient way. More specific to the Japan Post commitment, this is another milestone in that effort. And when you aggregate the JPI commitment and where we stand on our IV strategy capital raise, we currently have approximately $6 billion of third-party capital capacity versus IV2, which was at $2.7 billion. Once this new capital is put to work, we expect it will translate to over $60 billion of additional fee-paying AUM. So we are seeing significant momentum in an important part of our strategy and are pleased by the receptivity of our client base to insurance as a new and compelling asset class. The last item I wanted to touch on is more of a strategic update. Yesterday, we announced an expansion of our life sciences footprint through the acquisition of a majority stake in Healthcare Royalty Partners, or HCR, a leader in biopharma royalty investing. The company's total AUM of approximately $3 billion is largely perpetual in nature. As part of this transaction, HCR's approximately 30 employees We'll continue to focus on royalties and credit investing opportunities, and we'll collaborate closely with KKR's existing teams. HGR builds on KKR's longstanding experience in healthcare investing across traditional private equity and middle market funds, our dedicated healthcare strategic growth strategy, as well as our existing strategic investment in Catalio Capital. This acquisition is also very consistent with our framework for evaluating strategic asset manager M&A. HCR brings us long duration, unique, and largely perpetual capital, access to large addressable markets where HCR is already a top three player, and importantly, we believe that HCR will bring additional origination capacity to our overall platform, primarily across Global Atlantic and our credit pools of capital. Thank you all for joining our call this morning. Our team remains very excited around the business momentum that we are seeing across the firm and importantly, how that will translate into further P&L outcomes. And to be clear, given all of this momentum, we continue to feel confident in our ability to achieve the 2026 guidance that we shared last year across both our fundraising and our core financial metrics. which include FRE for Share, TOE for Share, and of course, ANI for Share. And now before we move on to questions, I'd like to briefly hand it off to Scott.