Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- KKR & Co Inc (KKR, Financial) reported fee-related earnings of $0.84 per share, the highest in its history and 25% above the previous year.
- Adjusted net income of $1.9 per share is up approximately 50% compared to one year ago.
- Management fees increased by 13% year-over-year, driven by strong fundraising activities and deployment.
- The company entered the S&P 500 Index in June, reflecting strong performance and endorsement.
- KKR & Co Inc (KKR) raised $32 billion of capital in the quarter, marking the second most active fundraising quarter in its history.
Negative Points
- Insurance operating earnings came in below the long-term target ROE range of 14% to 15%, due to elevated levels of liquidity and investments favoring long-term returns over short-term gains.
- Operating expenses were $158 million, which could impact overall profitability.
- The company is experiencing elevated levels of liquidity, which may depress near-term investment yields.
- Despite strong performance, the private equity fundraising environment remains challenging, with some investors still cautious.
- Real estate equity fundraising is lagging behind the improving sentiment and valuation recovery in the market.
Q & A Highlights
Q: Good morning, everyone. My question is on GA's net investment income and your comments on long term versus near term ROEs. So given GA's investment portfolio yield that it's currently depressed because you have excess levels liquidity, that have yet to be deployed, how do you expect yields to improve as you fully deploy the excess liquidity and over what time line?
A: Hey, Greg, it's Rob. Thanks for the question. Why don't I start out. And there's a couple of things going on and maybe the shorter part of your answer is going to ultimately depend on what the growth is from here, but maybe let's talk a little bit about what we're seeing in the business. You referenced a lot of growth and just to put some numbers around that, if you look at the past nine months, we've taken $50 billion of additional capital. That compares to $20 billion in the preceding nine months. And we're trying to be very thoughtful as you can imagine around deployment as we're digesting that growth. We're also using new muscles inside of our firm as it relates to linking up our real estate equity team, our infrastructure team, our capital markets team so there's a lot of really good work going on. And as a result, we've been operating at elevated levels of liquidity. And so just again, put some numbers behind that, if you look at the end of the quarter, we had roughly $8 billion of cash. If you look a year ago, that number was closer to $4 billion. And that doesn't even take into account a lot of the high-grade corporates that we have that are being weighted to be rotated into higher yielding assets. And I think the other point that I think is worth talking about as we think about what the medium term net investment income can look like in ROE, it could look like, it's really this point, I was trying to get out in the prepared remarks around us actively making investments today that we believe will generate meaningful long-term ROE, but that's coming at the expense shorter term ROE. It's that core real estate example that I mentioned, where day one, we expect running yields to be roughly 4%. But where we're originating liabilities today, that's north of 5%. And so not only are those investments not accretive to our near-term P&L, they're actually dilutive. But for those who have followed us a while, share been shareholders with us for a long time. I think they'll know that we're always going to make the decision to take some pain and short term P&L for long-term earnings power. And so it's tough to then extrapolate from there exactly what that's going to mean to near term ROEs and returns is a lot of that is a function of the growth that we expect. But as we look forward, we look at Q3 and Q4. Our expectation is we'll have operating earnings that are in and around where we are in Q2. And as we think about how we ramp up into 2025. My expectation is we're probably based on the growth we see in front of us. We're probably operating at a level that's a little bit below our 14% to 15% long-term ROE range. But again, all in service for that long-term growth that we feel across the KKR platform and that we believe pretty strongly will benefit GA's, long-term P&L.
Q: So many questions but in so little time, just in terms of volume so reiterate the $300 billion so you well on your way to that, you launched, -- you got the first closing on global five. And fives Craig and then you mentioned that you saw now in the market for the North America fund. I was wondering if you could just comment about what you're hearing from the LPs on demand across the asset classes and then maybe tie that into Asia when that might start to come into market as well. Thank you.
A: Hey, Bill, it's Scott, thanks for the question. There's a couple of things. One just broader context for you. I know this tends to be a lot of focus on the flagship funds. But if you go back and think about what's been going on with the firm, even go back to beginning of 2022, so call it the last 2.5 years, we raised $214 billion, only $14 billion of the $214 billion was in flagships. So happy to chat about the flagships, but we should also keep in mind the vast majority of the activity that we've been generating has been outside of that. And to your point, we now have the flagships coming back as well. The overall tone in the fundraising market continues to improve. I think it kind of depends on where you are and what you're talking about. So let's just talk about asset classes. Infrastructure and private credit. We continue to see investors very interested on trying to catch up to the allocations that they have made. So it continues to be quite a bit of activity in those asset classes. I would also include real estate credit in that area. It's kind of a similar theme to private corporate credit. Then you kind of move on into a real estate equity where I think the sentiment is shifting a bit right now. There has been more caution. No doubt. Our perspective is that the sentiment has bottomed, right. In the last year valuations have bottomed in the first half of this year. And as you heard in the prepared remarks, we've been quite active deploying into real estate equity. I'd say the fundraising is going to lag that reality a little bit, but we're starting to have more conversations with investors that understand may be perceived as a bit contrarian. This is a really good time to invest in real estate equity. And then in private equity, activity is picking up, as you heard, monetizationâs are up and deployment is up, people are starting to get more money back. So those with more mature programs are starting to see some of that. I think you'll see more of that as we get into the latter half of the year. We have just launched our flagship US private equity fund. So not a lot to report as of yet, I'll let Craig give an update on our [ascendant] strategy, which is a recent data point in a minute, but it feels to us like there's a decent chance the private equity fundraising environment has bottomed as well. And you'll start to see sentiment shift positive. More broadly, as you know, private wealth, big opportunity for us, all upside. Insurance companies we thought might pull back from August a little bit as rates went up, have not seen that, actually are seeing as much activity and momentum as insurance as we've seen in a while. And so we do think there's quite a bit of activity, sorry, for long answer, but hopefully it gives you a sense that there's a variety of different things happening underneath the surface. And on private equity, Craig, why don't you just give a the latest data point we have. It's not a big one, but it's at least indicative.
Craig Larson: Sure. Hey Bill, thanks for the question. So as you heard from Rob in our prepared remarks, we've made what we feel is some great progress on ascendant
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
