KKR & Co. Inc. (KKR) Earnings Call Transcript & Summary

Good afternoon, everyone. Let's get started. This is Craig Siegenthaler from Bank of America, and it's my pleasure to introduce Pete Stavros. Pete is a Partner and Co-head of KKR's Americas Private Equity business. And prior to joining KKR in 2005, he was an investor with GTCR. For those of you who are new to KKR, it's one of the largest alternative asset managers in the world. And it's differentiated in how it uses its balance sheet and its capital markets business to source transactions and grow. KKR was a first mover in the private equity business after Henry Kravis and George Roberts founded the firm in 1976. Pete, thank you for joining us today.

Thank you for having me. So we'll kick it off here, if you've got the deck, on Page 3, which is a brief agenda. And the agenda is really to talk about our overall PE franchise. So I'll start with our -- a review of our PE business globally. I'll do a little bit of a deeper dive on our U.S. private equity business, and then I'm going to finish up with some common questions we've received about just the market backdrop and where we think private equity returns are headed relative to the public markets. So on Slide 4 -- what you'll hear during the course of the session is our returns have been exceptional. We're very proud of what we've been able to accomplish, in particular over the past decade. It's really been at the very, very top of our industry. Number two, private equity for us is a growth business across geographies and across strategies. I'll show you that. Number three, our strategy, our success, I should say, is really driven by a clear strategy for value creation, a significant amount of internal resourcing against our private equity business and then a very collaborative culture, which kind of enables an unusual degree of collaborating across geographies and business units. And number four, we're entering into an environment that we think is really tailor-made for private equity and in particular for KKR. So let's jump right into it on Slide 6, and this will be remedial for many of you. But just to give you the background on the firm, we did start out as a U.S.-focused private equity firm. And today, it's really evolved into a global asset manager that's approaching $0.5 trillion of assets. And that's across Private Markets, which incorporates private equity, our traditional flagship business, growth and core and then also real assets, so infrastructure and real estate. Then we also have a Public Markets business, where we've got a variety of credit businesses and a hedge fund business. And then of course, we've got Global Atlantic on the far right, which I know you're familiar with. And then 2 things here on the page that are highlighted that are really critical to our model. And Craig, you mentioned them at the outset. One, our $20 billion balance sheet. So this allows us to invest meaningfully in our own strategies. So when you think about how that's compounding, that's compounding at a pretty snappy rate, given the types of assets we're investing in. Number two, it creates an unusual degree of alignment with our clients. We are routinely 10%, 15% plus of the capital in our own funds. And then third, it allows us to seed new strategies, and I'll give you some examples of that. And then we've got our Capital Markets business, which is a very significant player in the debt and equity and underwriting and syndication markets. And it really is a tool that we use in private equity to make our investors more efficient because they don't have to worry about any of the debt or equity syndication work that needs to be done and makes our investors more effective because these are real experts who do, frankly, a better job than we could do as investors placing debt and equity and syndicating excess equity to the extent there's more equity available on a given deal that we want to put in our fund. On Slide 7, this is just a high-level snapshot of our global PE business. Today, we've got almost $170 billion across our global PE platform. $120 billion of that or about 70% is in traditional private equity, our flagship funds. The balance is in core, growth and CPS. So these are adjacencies that we've expanded into. And what you're going to see is each of these strategies are performing, so the returns have been exceptional, and they're all growing. On the next slide, Slide 8, this page really just highlights those exceptional results. Our performance globally has been really exceptional across each of these key strategies, so traditional PE, core and growth. And at the highest level, the performance of our funds really drives the overall firm's success. I can't overstate the importance of these numbers. And many of you will know this, but I want to highlight again, our core business is really fully integrated with our traditional PE business. So we built -- thanks to our balance sheet being able to seed this strategy, we built a $30 billion business and didn't have to hire one incremental person. On Slide 9, reason we put this slide together is because there's this misconception that over time, as private equity has become more mature, our returns on our funds have just been on a slow downward trajectory. And you can see that's clearly not the case. You can see from the chart, we've consistently outpaced the Public Markets to a meaningful extent. And if you look at the right-hand side of the page, you can see our recent vintages have actually been our highest absolute returns and our highest returns relative to the Public Markets. We've really, really outperformed. In the last decade, in the U.S., for example, we're approaching about 1,000 basis points of excess return net of all fees relative to the Public Markets, which has been hard to do when you look at what the S&P has done. On Slide 10, this is a global view of our PE assets by strategy. And as you can see, this is a high-growth franchise driven not only by excellent performance, but our fundraising team always finding new clients and deepening our relationships with those clients and then also expanding into these adjacencies of core, growth, CPS, et cetera. Now core PE, you can see here, has doubled in the last year alone. And our growth funds are up about 50%. And it's important to note, because it is our biggest business within private equity, that traditional PE business, our flagship funds have been growing at 30% a year since 2018. So it's not just expanding into high-growth adjacencies. Our core traditional PE business is high growth. As we often say, we are in a growth market, and we're taking share. On Slide 11, this is really just to double-click for you on the traditional PE business by region. And as you can see, we've got just huge momentum across our flagship funds, the last 3 vintages in each of these regions. And it's important to understand, as is demonstrated here, we do operate regional funds, and this is unique. Most of our competitors, the vast majority, operate global pools of capital. We think our model is a better one. It allows us to raise more capital. So when you look at and you add up our most recent vintages from Asia, Americas and Europe, you get about $38 billion of capital. And that's before we finish our current ongoing Europe fundraise. That would be substantially in excess of any other global pool of capital. So the regional fund model allows us to raise more money. Number two, it allows us to diversify from a vintage perspective any fundraising risks. So these funds are all on different cycles. We're not beholden to any given year or a couple of years to raise all of our money. These are all staggered throughout the course of time. And third, having separate pools of capital allows you to avoid netting between funds. So what I mean by that is, let's say, one region of the world has trouble or it's a difficult economic environment. With our model, that would not drag down other regions and impede carry generation in those regions because we have totally discrete pools of capital. So I'm now going to dig in just a bit more into how we invest at KKR. I'm going to use private equity in the United States as an example, but you'd hear very similar commentary from my partners around the world. So on Slide 13, let's start with where we invest. So we are looking for fundamentally good businesses, so not broken companies or just like massive turnarounds. These are good strong companies, solid market positions, really good customer feedback. They're on theme, on trend. But -- and here's the key, they're not fully optimized. So if a business is just firing on all cylinders, that's probably not for us. That's not what we do. We really -- we like to say we make our own luck. We're taking companies that are good, making them great. And that's generating a lot of our return, and that's a lot of, in our view, alpha generation for our strategy. Now each situation in terms of how we take businesses to the next level is unique, as you'd expect, but we do tend to look in the same places. So operational improvement from supply chain all the way through to sales force effectiveness; unlocking new vectors for growth, that -- those could be geographic, could be product-oriented; repositioning a business strategically, that may be exiting a line of business or a geography while doubling down in another; consolidating markets through M&A; and finally, top-grading talent, bringing the best and the brightest into our companies. And there, as you can imagine, our brand is a huge advantage as is the longevity of our track record. On 14, so why do we think we're so good at this? It starts with the investment team at the center of the page. So we've got exceptional investors as you'd expect us to have. We've got 80 investors in the U.S., very experienced, highly talented, super driven. And they are dedicated to a specific industry. So we were among the first firms to go to a dedicated industry group model. So we are extremely deep on investment themes. We know all the platforms out there, which ones we want to buy. We know all the executive teams, all the deal intermediaries. These are real students up there, industries. But then surrounding our investors, we've got really a unique amount of support. So for every investor, we have about 3 executives in supporting roles helping those investors be more effective and more efficient. So we really see it as going to market not with 80 investors, but 80 investors plus another 250 people supporting them. So really going to market with 330 people. And oftentimes, we're up against competing firms that have 50 to 60 people across everything that they do, including fundraising. So we think this -- just the scale of what we bring to the table is a competitive advantage. Now let me just talk you through a couple of examples here. So KKR Capstone. This is our operating group. So these are former operating executives, former consultants at places like McKinsey, Bain, BCG, who work closely with our companies and our deal teams to take businesses to the next level. Now one question we get sometimes is, okay, but doesn't everybody have an operating team? Why is this different? And it's really different for, I'd say, 3 different reasons. Number one, scale. So we've got 85 operating executives working with our companies, again, doing everything from cost takeout to driving growth. Number two, the quality of the talent. These are really -- you should think about these as CEOs in training. The #1 place we lose Capstone executives to is actually to our portfolio to become CEOs. That's a common career path. It's come to KKR, work for 10 or 15 years in KKR Capstone and then go be a CEO. And then number three is just the level of integration. I'll talk more about this, but the culture of our firm is unique in the type of collaboration that we generate. So this is not like there's an operating team off in the corner, and when there's a problem, hand them the problem. This is one team from the beginning, the due diligence -- idea generation, due diligence, closing the deal and taking it all the way through to exit. And then if I take -- KKR Capital Markets is another example. Again, the scale here jumps out, 65 executives. And they make us more effective and more efficient. They get us the best terms on every financing, whether that's debt or equity. They syndicate excess equity. So let's say we sourced an investment that requires $5 billion of capital, we're not going to want to put $5 billion of capital into our fund. But we'd rather not bring in a competitor and have 2 sets of hands on the steering wheel. We'd rather control the business. So KKR Capital Markets will syndicate all of that excess equity to our LPs and other institutional investors. And then just from an efficiency perspective, removing all of this work from the plates of our investors just allows them to focus on what they need to focus on, which is finding and securing the best risk-reward investment opportunities they can find. And once again, this all works because of our culture and the way KCM operates as a core part of the team. So let's talk a little bit more about this culture on Slide 15 and this one team concept. We talk about it a lot. It's not something that happens overnight. This really has to do with the types of people we've attracted to the firm over all of these many decades. So we're screening for people who are highly driven, highly intelligent, want to win but want to be a part of a team. And it's not -- that combination is not that easy to find. You can easily end up in a star culture, where you've got lots of very driven, hard-charging people, very competitive. And that's at odds with exactly what we're trying to deliver here and what we think makes us unique in the market. And we hear this all the time from our CEOs who say, "Look, I've worked with other private equity firms. They also have an operating team. They also have a business in Asia. But I've just never seen a firm so seamlessly bring it all together to bring the best thinking to bear on every single situation." So -- and this delivers real outcomes like the one you see -- ones you see here on the page, from Wella, where we had our European PE team working together with our U.S. PE team, together with Capstone to carve this business out, together with our ESG team, our macro team. We often will have upwards of 40 people working on a transaction like this that's -- that is global, complicated at carve-out and has a real operational improvement aspect to what the investment thesis is. OneStream as another example. This is a software business that was actually sourced for our flagship fund by our tech growth fund. So a great example of where teams are outsourcing opportunities without so much focus on well, where is this going to go? Is this in my fund? Should I care? The way we compensate people and the types of people that we attract to the firm are very much focused on the team aspect of what we do. On Slide 16, it's not just that we collaborate well across geographies and business units. Within an individual business unit, you would see -- if you could dive into it, you'd see a really unique form of collaboration. So take U.S. private equity. I just have not seen another firm move human capital resources across industry teams and verticals and cross staff across those different vertical teams to again bring the best thinking to bear at every situation. So just taking this year as an example and just taking technology, these are 3 deals here, Neighborly, Ensono and Therapy Brands, that to win the deals, you had to have not only the software expertise but you needed the vertical market insights. And so by cross-staffing between, for example, on Therapy Brands, the software team and the health care team, we were able to do that. And by the way, it shows incredibly well as CEOs who say, "You're the only ones doing this that are bringing both the technology mindset and the industry knowledge to bear on a situation like this." So -- and once again, it's our culture that makes it work. On Slides 17 and 18, thought I'd try and bring this to life and just share some examples of how our approach really does lead to value creation even when we're buying businesses that have been owned by sophisticated firms. So if I start with The Bountiful Company, which is an operational improvement story. In 2017, we carved this business out of a company called NBTY. These were branded health and wellness nutritional supplements. The brands were undermanaged, underinvested in, and the business was in decline. As a result of that, we were able to get a pretty good deal on the purchase and then we went to work. So we made huge investments in the business. We brought in a whole new management team, really transformed the business operationally from a supply chain perspective, a sales and marketing and a branding perspective. And we were able to simultaneously get the business growing to a pretty meaningful extent and get the margins up. And at the end of it all, we took a business that there was not a lot of interest in and created an asset that was truly strategic. And Nestlé preempted a process with us, and we ended up making over 3x our money in the 36% IRR. Internet Brands is another example. This time, really about how we can take more of a middle-market business and massively scale it with all of our resources. So we bought this business in 2014. At the time, it was kind of a collection of disparate online media and software assets. If you fast forward 7 years, we've done 30 acquisitions, including WebMD, and really turned this into a strategic platform with world-class digital assets. And under our hold period, EBITDA has grown by more than 650%, and we've created more than $3 billion of equity value. On Page 19, one of the things we've been working on for a very long time now, about 11 years, is how can we engage with all employees of the company, not just the leadership team, to drive the business forward. And this is about doing something that's good for employees and good for companies and investors. And the program really has 3 components to it. The first one is making everyone in the whole company an owner, so broad-based ownership. The second one is around using ownership as the foundation on which to build a stronger culture. So how do you drive employee engagement to higher levels? How do you reduce the propensity to quit? And how do you bring the voice of the workers into the business? And then three, the third part is around building the financial resilience of the workforce through, among other things, financial literacy training, which ties in obviously very well to making employees owners. And what we found over doing this for a number of years and dozens of times is employees, their engagement scores go up on a measured basis, the quit rate goes down, their financial outcomes improve, and they're more optimistic about their financial future. And the benefits to the company should be obvious, right? This is clearly a stronger culture. You've got more stable, more engaged employees at the business. And to bring this to life, we wanted to just play a 1-minute video. And this video is of a rollout that we just did last month at one of our core investments called 1-800 Contacts, probably a brand you recognize. And you'll see some of the employees at the business who were made owners. And you'll hear from the CEO about what it meant to the leadership team. So this is not a payout of any equity yet. This is just the implementation of the program. And what you'll see is employees were so moved that they were actually recognized, respected, trusted enough to be brought into the ownership of the business that, that ends up rising up to the leadership team. And now they're so much more motivated and committed to the business. Maybe we can play just a quick 1-minute video. [Presentation]

[Audio Gap] making that investment a success, now that everyone is going to participate in the upside, not just the senior leadership team. And you can imagine what it means to all the employees, as I said, just to be recognized to be a part of the ownership team. And when this is done well, and I now have to move on so I don't take up too much time on this, but when this is done well and the leadership team really engages with all employees in terms of information sharing, opening up the business plan, soliciting input through engagement surveys, not just getting the input but acting on it, I mean, you can see dramatic things happen. And for the Public Markets investors who have seen what we've done at Ingersoll Rand with the leadership team there, where our engagement scores went from the 17th percentile to the almost 80th percentile, as measured by Gallup, and the quit rate went from into the 20s to 2%. So -- and just think about the value there to the business. So moving on -- I could talk about that all day. And if people have interest in that as a topic, I do love talking about this, happy to follow up. On Slide 20. One of the things we love about our jobs is we get to talk to really smart people: all of you guys, our public company investors, our LPs. And you all push our thinking, and what we thought we would do is just share some of the questions we've been getting in recent months because there has been some consistency in the types of questions we've been getting. So we thought we'd share them and have a little bit of a dialogue around those questions. So the first question is really about PE performance and where we think private equity returns are headed relative to Public Markets. So on Slide 22, the left side of this page, I'd say, is the environment we've been in. Public Markets have been up and to the right. The S&P has averaged 15% annual returns for a decade now. And in that type of environment, what you can see on the page is when the S&P has been up 10%, 15% or more, the private equity industry has struggled to outperform to any meaningful extent. And when the S&P is really up like 15% plus, it doesn't outperform. And that's really been the environment in the past decade. It's been hard to outperform the Public Markets. Now in the U.S. business, we've outperformed Public Markets during the last 10 years, that period of time where it's been so hard, by 900 basis points net of fees. So I could not be more proud of the performance that we've delivered. Now we think we're moving into some choppier water, where the easy money in the Public Markets has been made and Fed's pulling back stimulus. We now got this inflation print this morning. Rates could be going up, and it's just going to be harder. It's going to be a more volatile environment. That's the right side of the page. When the Public Markets eke out more meager returns, private equity has really excelled. And I would tell you, at KKR, in particular, that's when we've done all of our best work, when we can take advantage and capitalize on that market turbulence and that volatility. And it's also when our operational improvement efforts can really shine because it's not an environment where there's just a tide lifting all boats. So we can stand out a little bit -- even a little bit easier than we have over the last 10 years. So in 23, just to underscore this point of making our own luck, in addition to the 2 case studies I walked you through earlier, these are the 6 most mature industrials investments we've made. This is where we started our strategy of employee engagement and broad-based ownership. And this is really where I built my career at the firm before taking over leadership of private equity together with my partner, Nate. And as you can see, we routinely get 500 basis points of margin improvement. So just to put that into context, that means we're often getting 25%, 30% earnings growth just by fixing the operations. That's before we drive organic growth or drive M&A or any of the other things that we do. Another question you've asked us is how we think about all the dry powder in our industry. Certainly, the press has written a ton about this. If you look at Slide 25, on the left side of the page, these are just the absolute numbers in terms of dry powder. And you'll see over the past decade, dry powder has roughly doubled from about $400 billion to a little over $800 billion today. On the right side of the page, though, if you scale it by market cap, because don't forget, Public Markets are up a lot as well. So as a percentage of public market cap, we're really in line with the long-term average as you look at dry powder. And that is very much consistent with what we experienced on just a practical day-to-day basis. Things are very much as they always were. So we've not seen some kind of like step-function change in competitive activity. We've managed to continue to find great things to invest in. In the U.S. alone, we've invested over $5 billion this year across 7 transactions and all things that we think we're going to do great with and are super excited about. And finally, you've asked us how we make sense of valuations and how we are navigating this valuation environment. So on Slide 27, a slide here that's going to be extremely obvious for the folks on this call, but as rates have grown lower and lower and lower, multiples had pushed higher and higher and higher. And there's no question. Today, valuations, if you look at it exclusively on a traditional kind of multiples-based basis, we're in the 90th-plus percentile. So valuations look high. But if you adjust for the rate environment we're in, valuations do look more reasonable. As an example, if you look at the free cash flow yield and the earnings yield relative to the 10-year, we're more in like the 50th to 60th percentile. So the question for us is -- and the risk is where rates are going to go. I mean you can really only make sense of things in the context of lower rates. And so that begs the question of where inflation is going, and we all saw the news today on the inflation print. And so look, if rates do have to go up faster and higher than people think, obviously, Public Markets are going to be dislocated. But don't forget what I just showed you on that page of what that means for private equity. That's good for our industry and that's when we've done our best work. So it's not something we fear. It's something we're watching closely, but not something we're necessarily afraid of. On Slide 28, one thing you'd expect us to be paying close attention to is what we're getting for the multiples everyone is paying today. So take a look at the S&P. S&P trades at 17x EBITDA, and you get low single-digit growth for that, not very exciting. What we've been able to do is find situations where we're paying, with the exception of software, inside of a market multiple, it is still typically a teens multiple but more like low to mid-teens, except for software where you do have to pay more of a market multiple. And we've been able to find ways to massively outgrow the market, which is the trick, right? If you're paying inside of a market multiple on average and your mass will be outgrowing it, you're going to outperform the public indices by a lot. And it's really striking when you look at the relative EBITDA growth of the businesses we've been able to buy. And that's due to asset selection, operational improvement, top-grading management, et cetera. And on 29, one -- kind of one last important thing related to the valuation environment is just to make sure you're not taking undue vintage risk. This has gotten a lot of private equity funds in trouble over time. Quickly running out, deploying the fund, going back to market, you're exposing your investors to a lot of vintage risk. And if things go wrong for those vintages, the whole fund is in trouble, and you can imperil the franchise. So you can see here, we're really playing the long game. We evenly deploy our funds over 5-year periods of time. We're trying to remove vintage from the equation and really outperform through what we're good at. Again, asset selection, driving operations, bringing in better leaders into those businesses, that's what we're good at. We're not good at calling now the market is overpriced, now the market is cheap. That's not really what we do. We buy good businesses and make them great. And we -- by the way, we spend a lot of time on portfolio construction beyond just pacing. We have a whole macroeconomic team, 25 people. You would have seen that on the slide earlier. And we're working with them on correlations between assets and a fund. So we understand how the entirety of the fund is going to behave under different macro environments, making sure we're positioning or sizing positions right, what sector exposures we're taking on and so forth. So on Slide 30, in summary, before we open up to questions, I just want to reiterate, our global PE franchise is delivering exceptional results. This really is a growth business for us across geographies and strategies. I've outlined for you what really drives our success. Yes, we've got a great investment team, but we're surrounded by a ton of just amazing resources. And it's what -- it's the culture that really makes that work. Lots of people have resources, but pulling it together is the magic, and that's what our culture enables. And lastly, again, we think we're going into a pretty interesting environment that's tailor-made for PE and in particular, where we really shine. So maybe I'll leave it there, Craig, and happy to expound on anything you'd like me to or take any questions that folks have.

Well, thank you for the commentary, Pete. And I really like this Slide 14 because you kind of forget all the resources you have around the investment team like [indiscernible] team and the Capstone team. So I really appreciate that. I have a few questions here, but I also want to let the audience know that if you want to ask questions, there's a box below the video. So please feel free to ask questions. I can sort of emcee them here if you guys have anything. But Pete, starting off, I want to start with the core private equity business because you've been raising capital for your Americas private equity fund and your core private equity fund in parallel. So I'm thinking like how do limited partners do decide which one to allocate to? Are many allocating to both? Or is the investor base somewhat different between the 2 funds?

So core PE is an asset class and a strategy for us that's taking off, and market adoption is, I'd say, is still pretty early. The concept behind it, for those who may not be familiar, is that we're buying extremely high-quality franchises. These are not big operational improvement lifts. These are businesses that you can buy and really compound for many, many years. So we use less leverage. We're looking at 10-, 12-, 15-year return profiles. And these are just outstanding franchises that are going to be priced to lower returns. So it is a lower-risk, lower-return business that we're going to hold for longer periods of time. So it's pretty different from our PE business. We have found investors want exposure to both. I would say there are some categories of investors that are, in particular, drawn to core. So think of folks with very long-dated liabilities, sovereign wealth funds, pension funds, insurance companies. And they view that as this core product is a real nice complement to private equity. But I would say, in general, I think the majority of our investor base is going to want access to both.

Got it. And now you also have a growth fund in addition to the core and the bio fund. And I'm thinking, like, we were talking about growth and core with you guys 5, 10 years ago. Are there other adjacencies out there that you can expand into that we're not even thinking about yet in the private equity fund?

So the short answer is yes. There are definitely going to be additional adjacencies. There's things we're working on. Not ready to announce anything yet. But there'll be one adjacency we launched in the business Nate and I oversee next year. And there's more we're thinking about and working on across the firm. I mean there's so much opportunity for us in alternatives in Private Markets. It's going to be a long time before we run out of ideas. Having said that, we do -- we don't want to lose sight of the fact that we still see an -- a huge opportunity to scale what we've got. So if you look at next-generation technology, our second fund was 3x the size of the first fund. So you're going to see that across lots of our newer strategies. Second, 4 existing strategies or adjacencies we've already gone into, there's an opportunity to expand geographically. So I know Joe mentioned this at our Investor Day in April, but he talked about Asia growth as an example of how we can expand our Asia footprint further. Then we've got our SPAC, KKR Acquisition Holdings, which is $1.2 billion. That's another example of an adjacency. But anyway, short answer to your question, as I said, is yes, there's definitely more things coming. We've got a ton of ideas, and there's no shortage of opportunity.

Got it. And we -- Pete, we got 2 questions from investors out there. The first one may be a little more geared towards Scott or Rob, but I'm going to ask it. If you want, just please pass it. But could you talk about the retail opportunity at KKR and how KKR is taking advantage of rising demand out there? I know some of your products that KKR is pushing and successful at are kind of outside your PE vertical. But maybe if you have anything to add there, that would be helpful.

Yes. I would say -- and Scott certainly could go into a lot more depth on this, but we do see a huge opportunity in retail. It's an area from a fundraising and distribution perspective we've been underweight, and it's something we're going to invest in. So I mean, fundraising and distribution in general, I would say we've been -- we've probably been I don't want to say conservative, but we wanted to make sure the dollars were there before we have invested. And I'd say we're open to spending a little bit more money ahead of maybe all of the dollars coming back in. And so yes, retail, for sure, is very high up on our firm's agenda as it relates to distribution.

And then the second question from a different investor is, which sectors do you see the most opportunity in today? And I believe this is from an investing standpoint given today's backdrop.

Honestly, everywhere. I mean we -- and just like we don't try and call the market in terms of now it's time to sell, now it's time to buy. The landscape is littered with firms having tried to do that. I mean there are some very, very bright people who in 2014 were saying, "Sell everything that's not nailed down to the floor and look what you would have missed out on." So just like we don't try and call the market, we really don't try and call sectors. We've got 7. We organized our 80 investors across 7 verticals. They are all constantly digging up unique opportunities. And then we're just racking and stacking them based on relative risk reward, but we are not -- maybe someday we'll do this. Right now, we are not saying, "Okay, now is the time to do." So I could certainly make an argument, software has played out, right? I mean look at the prices people are paying. At some point, that music is going to stop. You can't pay 50x EBITDA for software and have it work. But right now, we're sticking to the program, which is linear deployment, sector diversification, prudent position sizing and then take all that off the table and say, "Now the way we're going to outperform is we're going to take better assets, and we're going to run them better." I mean that's really -- that's what we're best at.

Great. And Pete, one more for me. We've always heard about the advantages of having the balance sheet and the Capital Markets business side-by-side with your investing efforts. But you're the guy that's investing kind of in the middle. So I wanted to hear from you, how much of the differentiator are those 2 elements of KKR? And I know on Slide 14, you did cover Capital Markets, but not, I think, as much the balance sheet. So it would be helpful to hear that perspective from you.

Yes. Sure. On the balance sheet, there's no question, it's a huge advantage. I mean the balance sheet, by the way, enables our Capital Markets business to state the obvious, including not just issuing debt and equity for our own portfolio and for third parties but also all the equity syndication work, which I would say is critical and an ability for us to maintain control over an investment and syndicate equity to LPs and not have to bring in other firms. That's super valuable. The balance sheet also enables us to see new strategies. I mean look at core. That's a business, as you said, 5 years ago, we weren't really talking about. It's got $30 billion of AUM with, again, no incremental head count. Our balance sheet really enabled that. Health care growth would be another example. When BridgeBio came along, we didn't have a place to put that. We put it on the balance sheet. We've got $40 million of cost in it and $560 million of fair market value. But for the balance sheet, we wouldn't have had that and then we wouldn't have led that into a whole strategy for us. So yes, the balance sheet is a massive, massive competitive weapon. Not to mention the fact that it's compounding at a super interesting rate, given the types of things we're doing with the balance sheet. And then on Capital Markets, there again, I'd say, huge competitive advantage for all the reasons I've talked about. Maybe just to bring it to life, I'll tell you a quick story, which is when we were raising all the debt for HCA, that was one of the things I led as a part of that deal. This is now 16 years ago, and I didn't do a very good job. We -- if you go back and look at the -- where those bonds price, they priced on the brake at like [ 1 0 6 ] on a huge bondage, I don't remember how big it was, maybe $10 billion. So that's a lot of money, to lose $600 million on a bond issuance. And that type of stuff doesn't happen anymore because we have like true experts. We don't have investors moonlighting as debt capital markets experts. We've got absolute pros who get us the best terms, working collaboratively with the banking community, but right alongside them has an underwriter to make sure we get the absolute best execution, not just on the initial debt issuance, but on refinancings, debt repricings, IPOs, secondaries, block trades. There's a lot that they just do a better job with than we could as investors because we're just not pros at that.

Great. Well, Pete, with that, I'm out of questions. And we're also out of time. So on behalf of everyone here at Bank of America, I just wanted to thank you for participating today.

My pleasure. Thanks for having me, Craig.

Have a nice day, Pete. Thank you.

Take care.