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

All right. Good morning, everyone. For those of you that don't know me, my name is Patrick Davitt, and I cover the U.S. asset managers here at Autonomous. As a reminder, if you would like to submit a question, you can scan the QR code in your template or on the screen back there, and we'll try to get to those at the end. With that, it's my pleasure to welcome KKR's Co-CEO, Scott Nuttall. KKR is one of the largest alternative asset managers in the world with $479 billion across private equity, real estate, infrastructure and credit as well as a burgeoning Capital Markets business. And correct me if I'm wrong, Scott, but I think you've been at KKR since business school. So a KKR man...

1996.

Yes. So a KKR man through and through, which I think is fitting -- which makes him a fitting representative for today. So thanks for coming, Scott.

Thanks for having me, Patrick.

Awesome. So given that we have most of the alternative managers' CEOs here at the conference over the next couple of days, I'm starting all of these discussions with similar higher-level macro discussions. So given everything that's going on in the world, and your position as one of the largest owners of assets in the world, I think it's best to start there. The Federal Reserve has never been able to tackle inflation without causing recession, and the market is clearly seeing that outcome now. But your guidance on the last earnings call would suggest you're a little bit more optimistic. So through that lens, can you frame what you're seeing specifically in your own portfolio that gives your team that confidence?

Happy to. And then maybe let me separate a little bit what we're seeing in our portfolio versus maybe what's happening with the economy at large. Because obviously one of the great things about our business is we have the ability to invest for the very long term. We also have the ability to construct portfolios that we think will be able to navigate whatever part of the economic cycle we might be in through our holding period. You got to remember, a lot of what we do, we're investing in companies for extended periods of time. And so one of the things to understand, first off, in terms of why we've sounded a bit more optimistic than probably most is, we've been getting ready for this for the last several years. Really back to 2017, our perspective was, at some point, we were going to see more inflation, we were going to see rates rise. And so we were focused on investing in themes that we thought would be durable through that period of time. And so we've been investing in companies that we thought had pricing power, and that's how we've constructed this portfolio. We've invested on themes that we believe will be quite durable through an extended period. So it's kind of, part one, probably why we sound a little bit more calm than most. Part two is, our business has really evolved. And I think all of us in the alternative asset management space are much more diversified than the market probably understands. So as you said, we just closed an acquisition. So we're now approaching $500 billion in assets, diversified across 30 different investment strategies. So over the last 12 months, 50% of our deployment and our capital raising was actually in real assets, real estate and infrastructure. We have a large Private Credit business. And so we've been able to invest in different parts of the economy that we think will benefit. These are inflation-protected assets, floating rate assets on the credit side. So it's probably another reason that we sound a little bit more calm as we've been getting ready for this type of period, which we felt would happen at some point. I'd say to the market itself, look, it's very clear whether we do or do not have a recession in the U.S. , there's a lot of focus on that. We think we're much more likely to have one in Europe, but that's less important than what's going to happen. Inflation is going to be higher, rates are going to be higher, multiples will contract and we are going to have a relative slowdown compared to what we've been living in. And this is normal. There's a normal business cycle because of the GFC and then what happened with COVID and all the money that went into the system, the cycle has been elongated. But actually, a normal business cycle would potentially be healthy. It'd certainly be healthy for the understanding of our business.

For sure. So on that point, if we avoid recession but end up kind of in a more stagflation environment with very high inflation but maybe still low growth, maybe inflation stubborn at 5% plus, how do you think KKR's portfolio is positioned for an environment like that?

Look, if we do have stagflation, it's obviously not going to be a fun operating environment for anybody, including us. But again, feel really well positioned. In that type of environment, you probably have the consumer that has a bit of pain and consumer goods -- consumer retailers would feel it. And we're starting to see a bit of that as people are putting out numbers. The next few quarters will be quite revealing, but overall, we have very little exposure to those types of businesses. Again, very much on purpose. The other thing that you'd have in a stagflation environment, you'd have rates that are probably high as the Fed tries to figure out how to get inflation under control and you have multiples that contract. And what we've been doing in the last many years has been hedging our floating rates to fixed with the perspective, again, they were going to go up, so let's isolate that variable.

You obviously [indiscernible]

Exactly. And what we've also been doing is assuming that we're going to get out of investments at lower multiples than where we got in. So we've been trying to position the business for that type of an environment. We don't think we'll necessarily have stagflation, but if it shows up on a relative basis, I think we're going to meaningfully outperform. And I think overall, as you kind of think about where we are with the macro, the next several quarters and a couple of years, I think, is going to be really revealing. The last few years, if you bought levered beta, you did really well in virtually everything. What we're going to see now is who really picked the right themes, who had the investment acumen, who is ready for this type of an environment. And it will be, I think, a really interesting and revealing period. And the other thing you need to remember about our business is we also have long-term committed capital. So this is a great investment environment for us. We have record dry powder. We have $115 billion committed to us. We've never had that much capital, and we can draw that down and invest into this environment. And so in that context, when things get cheaper and people get nervous, we actually get pretty excited about the opportunities ahead. And it tends to be times like this, we make some of our best investments.

So with all that in mind, I think there's still a view in the marketplace and probably there's some people in this room that private equity, and even alternatives more broadly, are among the most negatively exposed vertical to all these things, higher rates, inflation, recession, which I think kind of makes sense right, you're going to higher discount rates, lower multiples, et cetera. So what do you think we're missing? And why do you think the industry -- and you hit on this a little bit, can outperform the view? Yes. Yes.

Yes, I think it's a handful of things. One, it's back to what I said about how diversified we are. There is a tendency to think that everything we do is private equity. Just to put it in context, last year, private equity was 14% of our capital deployment, 1-4. In the first quarter, it was 17%. And so again, highly diversified across real assets, credit, private equity, growth equity, core. So I think the question tends to come from the vantage point of PE, but the businesses are much different now. I think perception lags reality of how our business has evolved and how the industry has evolved. The second thing I'd say is, even within private equity, there's probably a misunderstanding because if you go back, and we've been in that business for 46 years, and you cut the data, our outperformance is the greatest during periods of time where the markets are returning single digit returns or negative. It's the investments that we make during times like this that tend to have the best performance relative to the market overall and on absolute basis, incredibly strong. So again, this period of time, it's contrarian, but we look at it and say, this is fantastic. We just raised over $40 billion for private equity just in and of itself in the last 2 years. And so we were fortunate in terms of the timing of our capital raises, and now we have all that capital put to work in addition to everything we have across real assets and credit. So that's another thing I don't think the market fully understands. And that $115 billion of dry powder, we can draw that down in whatever pace we deem to be appropriate. And right now, we're seeing a lot of very interesting opportunities because companies still need capital. If you're public, you're probably not enjoying it very much right now. And if you're private, you don't want to go public, and they still want to do things. They want to make acquisitions. They've got disposals that they want to get done, and so we're incredibly active. Our pipeline's full.

So the understanding that you're not as exposed to private equities, I think a lot of people think, there's also a view that KKR has probably been one of the more aggressive key managers in leaning into growth investing. So could you frame how that exposure is performing relative to kind of what we've seen in the broader growth valuations here?

Sure, and I think it's important. Growth investing, we tend not to do the negative cash flow businesses that are probably hurting a bit more right now than others. What we have been focused on is some of the thematics that are growth oriented. And so we spent a lot of time across asset classes on digitalization as an example, which you can express across infrastructure in terms of, think, towers, fiber-to-the-home, real estate, in terms of logistics and industrial warehouses and certainly, across private equity as well. So digitalization would be one. And we've also been focused on things like enterprise software. We've made 9 investments in 9 different countries in the enterprise software space. Because one of the things that also, I think, there's that tendency to misunderstand is, we have 21 offices around the world, 17 of the 21 are outside the U.S. So we're incredibly active in Europe and Asia. And some of these growth themes, we can express all around the world. If there's something that we think is interesting, we can take that view in multiple different markets all around the world. Most recent one we did, for example, was in Japan. And so the growth theme is something that we continue to find really interesting, but these are cash flowing businesses, often recurring revenue businesses. They just happen to have really attractive growth prospects.

Makes sense. We spoke about this with Blackstone earlier, but another topic that's more -- that's come up more immediately is the prospect of deglobalization after all the supply chain chaos and the Ukraine war. How do you see this issue playing out? How are you seeing it impact your companies currently? And is this a problem or opportunity for KKR?

Look, I think it's something that we need to navigate. And so one of the things we did many years ago as we created what we call the KKR Global Institute, which is headed by my partner, David Petraeus, and think of them as kind of an advanced team where whenever we invest in different countries all around the world, and based on their good work, for example, we've been fortunate we don't have any investments in Russia nor investors from Russia. So we haven't had to navigate that. Every time that we make an investment in any country, we spend time making sure that the mission of that company is aligned with what the local government is trying to get done and what's important to the local populace. You have to think that way because the vast majority of what we do, we can't change our mind. We're going to live with the decisions we make for an extended period. So I feel like we've got a good understanding every time we make an investment as to those aspects, but there's real opportunity coming out of this. So just think about, for example, security, [indiscernible] security, defense, energy, cyber, data, payments. There's significant opportunity coming out of the fact that we've got a real geopolitical shift that we think is here to stay. And so we're making investments across all of those themes. As we sit here today, we just bought a company called Barracuda Networks, for example, in the cyberspace, but you can get even more granular. We just bought a business that focuses on providing companies with software to manage their supply chain and their logistics. So there's opportunities that come out of it. So the net for us is this is an opportunity, but I think it's partly because looking back, I think we were thoughtful to managing the risks of this potentially happening.

Makes sense. Private Credit has been a great success story for you and your competitors, but there's still a view, I think, in the marketplace that this asset class is where all the systemic credit risk is hiding. It's hard for you to push back on until it's really tested, but how would you push back on that view?

Well, first of all, I think overall, we all have some form of PTSD from the financial crisis. So there's a little bit of a dynamic of there must be a bubble somewhere that's going to burst and it's going to cause real problems. And we definitely see some excesses in the system. And there's no doubt, in Private Credit, there are going to be more defaults than there have been if we have a real economic cycle. So I don't want to pretend otherwise. But -- and it will get proven over time, to your point, as to how this all plays out. However, part of the reason we shifted our strategy many years ago is to this point. We've been focused on companies that are bigger. So these are not $20 million, $30 million, $50 million EBITDA companies; we're talking about $100 million, $200 million plus, strong management teams, more diversified. You're in the senior part of the capital structure, you have real security, and you have real protection under the documents. And you tend to be about 5x debt-to-EBITDA levered, so you're not significantly leveraged. And if a company does run into issues, then you have the ability to take the keys. And in that context, it shifts to a private equity investment, which we're very comfortable with. And in some of these, though, we can make more money if we did take the keys. But we don't actually see any distress in the portfolio to date. We are very consistent with how we invest. So even though we have 21 offices around the world and a couple thousand people, the themes that I mentioned before, all of those themes we invest in throughout different asset classes. And so in Private Credit, we've been focused on the same themes, companies that will be able to ride through, we think, an economic cycle. So I'm sure as we're sitting here, we're going to have some surprises, but it's not something that we think back and say, well, big systemic risk or anything that we're overly concerned about. This is something else that we're going to need to manage from time to time, but if we got the portfolio construction right on the whole, we feel really good.

So if it's not at KKR or Blackstone or other Private Credit managers, where do you see that excess leverage or any systemic risk, if at all?

Well, we don't see anything. I mean GFC was a completely different beast, right? We had a massive amount of leverage in the system and real liquidity stresses, which caused a lot of the pain. We don't see that today. There are places where there is clearly some excesses. For example, government balance sheets are bigger than they've historically been; they will get smaller. That will be part of this adjustment process that the markets are going to need to work through. So we watch that, and obviously, everybody is watching how the Fed navigates that. We also are watching the retail exposure to public equities. And there's data that's put out on the average retail investor, what percent of their portfolio is invested in equities, and what's the beta of that portfolio. It's elevated right now, both the ownership and the beta relative to the market and so that's something we're watching. And some of what you're seeing, we think, and the tech names is some of that unwinding. That's something to watch. Private tech valuations would be another thing to watch. SPACs were a bubble. But each of those things are reasonably isolated, not systemic, from our perspective, at least not today, nothing that we sit back and say, there's real challenges there. So you need to watch all of this, and there will definitely be more volatility because the market's going to overreact in a lot of different instances. And that's a great opportunity for us. So that volatility, if you're sitting there with $115 billion to put to work, is great news as long as people are still willing to transact, which they are today.

I want to move to a part of your business that's a little bit more idiosyncratic relative to the other alternative managers, and that's the Capital Markets business. I think in the marketplace that's generally viewed as adding more cyclical exposure to your fee model, many equate it to a traditional investment banking type fee. But it's been holding up quite well and deal activity is still pretty strong to your point a minute ago. So with that in mind, could you compare and contrast this fee stream to a more traditional investment banking fee stream? And with that in mind, do you think it could be more resilient than what a lot of us believe?

We do -- we like the business a lot, and we should -- I'm not sure we got the name right, because it's not really a Capital Markets business. We couldn't figure out what else to call it. It's not making markets. We're not taking significant balance sheet risk. Largely what our Capital Markets business does is it helps source equity and debt capital for our own transactions across different asset classes. And it allows us to actually speak for entire equity checks or debt checks, and we syndicate the excess to our LPs typically. So we call friends and say, do you want to do this together, which helps them understand what we do and makes them want to ideally invest more with us in our next fund. That's a lot of what that business does. We do the same thing for third parties. So we're helping to finance their transactions, and it's really synced up nicely with our Private Credit business. So we actually finance third-party sponsor transactions. So other people's private equity deals or infrastructure deals, we'll actually underwrite the debt. We'll hold some, we'll syndicate the rest. And we also take our own and third-party companies public, and we do secondaries as well for our own portfolio. So that's what the business does. And what we've explained to the market is in a normal operating environment, it's a business that we think will make about $200 million a quarter in revenues. And it doesn't take a lot of people to do it. It's a very high incremental margin business because it's really a lot of what it's doing is monetizing the content already inside the firm. In quarters like this, where the market is experiencing some adjustments, typically what happens is, you may have a couple of deals get delayed. And so our expectation, for example, first half of this year, we'll have Capital Markets revenues approaching 350 instead of that 400 run rate. So there's a couple of things that will probably slip into Q3, but it's still a business that's generating quite a bit of revenue for us. And on the flip side of that, we -- just while I'm on the topic of what this quarter is going to feel like, we also announced on our calls what we expect in terms of our carry and our realized gains off our balance sheet. We tend to do that every quarter, as you know, just to help everyone with their models. On the last call, we said that number was $600 million, give or take. We actually had a couple transactions close a bit earlier than we expected. So now we expect that number to be in excess of $800 million. So there's going to be some puts and takes every quarter, but the Capital Markets business on the whole has been a really nice performer for us.

That's helpful. And I imagine it helps you avoid more club deals relative to what you...

It does. It allows us to have more ball control. So we can actually speak for an entire transaction and then call our LPs, as I said. And it also -- when you're in a boardroom, a CEO with 1 boss is easier than a CEO with 5. And so it's much easier to navigate portfolio management, especially as you go through the cycle.

Makes sense. Moving to insurance. You've taken the "balance sheet heavy" approach in your purchase of Global Atlantic. But the market has taken a view that they prefer a balance sheet light in this model. Why do you think this direction of owning the insurance assets outright is the right model against other large alternatives saying the opposite?

Yes, happy to explain that. And just by way of backdrop, so we've talked about the third-party capital we manage, which is that $500 billion, give or take. And we've talked about our Capital Markets business, which is a bit different than others' models. The balance sheet is another piece we're a bit different. And the balance sheet itself is something that we believe will allow us to compound significant value over a very long term. And so today, it's about $25 billion, give or take. It's been doubling every 4 or 5 years in terms of value. And our perspective is that being able to actually invest our own capital alongside our partners will allow us to create more value over the very long term. Because the way we look at it is we have had somewhere between a $40 billion, $50 billion market cap. So we want to double that, and then we want to do it again, and then we want to do it again. And so to be able to actually create that much incremental value, in our mind, the combination of managing third-party capital and having our own money invested alongside that also compounding at a very attractive rate, allows that -- allows us to do that more quickly. And the balance sheet is just invested in everything that we do with third parties. Now that's our business model. And so it is one that we are very committed to, and we're finding the right group of investors that also like long-term compounder because if you like what we're doing in our funds, and you believe that we can actually create real value there, the balance sheet has got the same exposure. So when we look at the insurance opportunity, we look at it through the same lens, can we create a really attractive compounder on the balance sheet? And Global Atlantic -- and for those of you new to our story, Global Atlantic is a life insurance and annuity company that we own 62% of. They have $120 billion investment portfolio that we manage. We have -- the other 38% is owned by co-investors, third parties. And so when we looked at the Global Atlantic opportunity, we looked at it through that same lens. Like it's a really nice long-term compounder. And keep in mind, we announced this transaction in July of 2020, which I'll come back to. And so we were able to see this company perform through the stress of the early days of COVID, which was great from a diligence standpoint, and we're able to see the management team perform through that period of time. But GA is now $3.5 billion of that $25 billion balance sheet. Simple way to think about it, we believe that can compound mid-teens. When you include the asset management economics we get from managing the portfolio, the fees and the carry, that quickly gets your return on that capital unlevered into the 20-plus percent range. And so we like that as a long-term compounding part of our story, and the balance sheet allowed us to actually make all that happen because we spoke for the $5 billion to buy Global Atlantic in July of 2020, when there wasn't a lot of capital out there for much of anything. And that's one of the ways that we use the balance sheet. It's actually go create fee-related earnings and AUM streams and be able to monetize dislocations in the market because we have the capital to put to work. So we have dry powder on the balance sheet as well. So just same speech I gave on the dry powder for the funds, we look at the balance sheet the same way.

Yes. Makes sense. With that in mind, I think people look at how Athene traded during the COVID period as kind of a corollary to how these insurance balance sheets would trade as a part of KKR [indiscernible] Athene. What are we missing there? And what is the risk like in that portfolio?

We feel really good about the risk [ as there's ] stress testing because it was a great time to do the diligence. But the GA portfolio is very senior because they take financial leverage through the business model, right, because it's a levered balance sheet itself. So the amount of risk they're taking on the asset side is minimal. And so a very senior in the capital structures. They're not -- we're not investing in private equity off the Global Atlantic balance sheet. This tends to be more senior tranches, asset-based finance, would be a big area, direct lending, senior in the capital structure. All things, Private Credit are good examples of what they do on the asset side, it's very well hedged. So we run a matched book and the liabilities are really simple. The vast majority of it is fixed annuities. So you've got a fixed liability cost and then you can create an asset portfolio that's matched to that. And that's how they've built the business. And so it's very straightforward to understand. So we feel good about the risk.

Makes sense. On that point, what have you built on that kind of asset origination capability front to "feed the beast" relative to your competitor?

Yes. So just by way of background, when we signed the deal in the summer of '20, Global Atlantic managed about $70 billion. We now manage over $120 billion. And so there's been a significant amount of growth. And having our balance sheet investment has allowed us to move very quickly to go and attack opportunities and help GA get that growth faster. I think we did the first 3.5 years of growth in the first 12 months. So we knew when we announced the transaction, we were going to have to build more origination. So 2 big parts of the firm where that happened; one, real estate credit, which was probably originating $3 billion a year, give or take, before Global Atlantic, last year it was $15 billion and continues to grow. The other area would be asset-based finance, where we already had a business and we had multiple platforms, but we had done $5 billion of asset-based finance investment before GA. We did $15 billion last year, and then we just did $5 billion in the first quarter. So it was a combination of things. We now have 15 platforms that we're -- we've created that are out originating assets, everything from railcars to airplane leases to mortgages to auto loans, you name it. We have a number of different platforms that allow us to see all this origination. A lot of that can go to Global Atlantic.

Got it. And then I assume you're also building a third-party side...

Yes. No, we have a third-party business alongside that as well. That's part of the reason. We manage about $70 billion on Private Credit today broadly defined.

Yes. On that point, and I get this question a lot from investors, I think a key component of this insurance opportunity, right, is the idea of fixed income replacement rate. This need to replace kind of traditional fixed income portfolios with assets like you can originate. So what's the risk if that demand changes or even dries up with rates in those kind of more liquid or traditional securities being much higher?

I don't see it -- don't see a big risk because also the private markets will adjust, too, if the public markets adjust. But if you actually talk to the CIOs, the screen price -- let's say you want to invest in high yield, you just can't get that much volume. And so we'll see -- and a lot of people are not yet waiting into that. We do see continued interest in all things that we're doing across Private Credit, including asset-based finance. And also, companies still need to help because the other thing that happens is, if the liquid markets are not that hospitable, the banks won't underwrite, and companies still need capital. And so if anything, we're seeing more opportunity as a result of what's happening right now.

Got it. Let move to the investment environment. You mentioned the dry powder you have. Competitors have a lot of dry powder. And to your point, it sounds like deal activity is holding up, I think, a lot better than people would have expected given what's happened in the markets. How do you navigate the crowded market given the amount of dry powder and what are the big themes that are guiding your investment process right now?

Yes, we're just leaning into the thematics even more right now. So I mentioned getting along pricing power. And it's easy to talk at the macro level. A lot of what we do is at the 5-foot level, not the 50,000-foot level. So we're investing in veterinary care center businesses and dentist office chains. We just bought a business that is focused on helping companies do their taxes and do accounting. We own 1-800 Contacts. I mean, so you think about businesses at that granular level that have real pricing power and that are less exposed to the economic cycle. So that's one thing that we've definitely leaned into. We're continuing to spend a lot of time on collateral-based cash flows. So a significant amount of effort in infrastructure. And back to my point, half our deployment infrastructure and real estate last 12 months, that's continuing to be the case. And we're also seeing a lot of interest from investors in those asset classes because there's an inflation hedge and there's yield. And they're moving more of their portfolios in that direction and away from growth and a couple of other things. So that opportunity, we think, will continue to be there. And there's a significant amount -- even in the real estate space, we mentioned logistics, but also Sunbelt multifamily has been a big investment opportunity for us the last several years is just one example. I mentioned digitization and all things digital, that will continue to be a big opportunity. And then the security theme is something that we're also focused on, on a global basis.

So what's the special sauce then when you know you -- to the point on the amount of dry powder that's kind of, I guess, theoretically going after all of these deals, how do we get comfortable that you can still generate the level of IRR you have historically? And you have so much dry powder out there presumably attacking the same deals.

Well, I want to -- I think we should be careful not to overstate our relevance. I mean just take the asset-based finance market as an example. It's a $4.5 trillion market. The amount of capital formed against that is tiny on a relative basis. When you think about the real estate markets, the global credit markets, even private equity as a percentage of global M&A tends to be in the 10% to 20% range. And there's an interesting chart we did years ago that I haven't seen anybody update, which is kind of what is the purchasing power of the dry powder even in just the private equity part of what we do, which is mid-teens percent of the deployment. And actually, the purchasing power of the dry powder of private equity has gone down because leverage has gone down over the last 30 years. Market caps have gone up. So [ if ] what percent of the S&P could private equity buy, it's a diminishing number. And also it's become a global business, right? So Europe and Asia are now very large markets for all things alternatives. That was not the case 20, 30 years ago. So we've gone up and down the capital structure across asset classes and around the world. And so as a percentage of the overall opportunity, alternative asset management is not that big. So yes, there's a good amount of dry powder relative to what we used to have. But relative to the opportunity set, we are still short capital and long opportunity. That's why we have the Capital Markets business. So if it's a $3 billion equity check, and we can only hold $1.5 billion, we'll speak for the whole thing, and then we'll call others and say, do you want to do this together. And that's part of the reason that business exists is because we're short capital. So even though we have a $115 billion dry powder, I wish we had a lot more.

Well said. So that's a good segue to the fundraising and fee earnings growth outlook. I think KKR has probably been one of the fastest-growing large alternative asset managers [indiscernible]. And you have a very detailed outlook. So I think we have a more [ general ] audience here, it might be helpful to kind of update us on what that guidance is, what the key drivers of your fundraising outlook are over the next year and maybe the longer term? Yes.

Sure. And just by way of context, so we've more or less doubled our AUM in the last 2 years, both organically and inorganically. And we've been very clear with the market that we believe that we have a lot of ways to grow from here. And one of the things that's bit different about us is a number of our businesses, I mentioned the 30 investing strategies, over 20 of those were started in the last 10 years. So in our business, it takes time for these businesses to scale. And so for example, our Infrastructure business, Fund I was $1 billion, Fund II was $3 billion, Fund III was $7 billion, and we just raised $17 billion. And that's over a 12-year period. So $1 billion per fund cycle to $17 billion per fund cycle. We have multiple businesses that are going through that evolution process right now, and that's part of the reason we've had such growth, especially in the real asset space, which will continue to compound at a really attractive rate. And so as we look to the future, we continue to believe that organic growth opportunity is huge across everything that we've recently started and everything started a lot earlier before that, Global Atlantic, is a big opportunity for growth. We think we can get that 120 to 250 over the course of the next 5 years. And so as we look out, Patrick, we've been, I think, a little bit careful about wanting to make sure that we overdeliver when we share guidance and share perspective on where we can go. And we gave some information last April which we, I'd say, beat much faster than we expected to. And so what we did after the Q3, on the Q3 call last year is, we basically reiterated our perspective and kind of updated that perspective that we believe we can double fee-related earnings per share and distributable earnings per share, which is basically our net income from that period. And at that time, I think we had something like $2 of trailing FRE and something like $3.50 of trailing TDE. And so in effect saying, over the next 5 years, we can get to $4 and $7. And our expectation is that we can do better than that.

Fair enough. Why not raise the guidance since you keep kind of outperforming it?

Well, in a way, we just did after Q3 of last year. We'll keep you posted. And how about this, we expect to continue to surprise you to the upside.

I'll take that.

So you keep asking [ us that ] question.

I'll take that. Of kind of the 3 or 4 main stools of the growth pie, which do you think probably has the most runway to outperform expectations?

I think our -- a couple of things come to mind. One would be the real assets businesses, just given the size of those end markets and the momentum that we have, plus combine that with the environment we are in right now, which people want to put even more money into inflation-protected assets. So that would be one. And the other thing I'd call out is Asia. We have 8 of our 21 offices in Asia. We have a very large presence. We've been there since '05, and that business started with private equity, and we have the biggest fund in the region. But now we're bringing real estate, infrastructure, credit and tech to Asia. And so the rest of the firm in effect is going to that part of the world, and that's going to be a big growth opportunity. When you look at it, it's half -- more than half of global GDP growth and alternatives and capital markets are much younger. And so that would be the other space I would call out. But we're -- just to step back, we're in a hugely fortunate position, right? We're in a space that's been growing double digits itself, and the larger players have been taking market share. So when you look at financial services broadly defined, there's not a lot of places where you can say those 2 things, and so we're very fortunate. So all of our businesses we think can grow. And we have this kind of constant mantra, let's at least double again over the next 5 years across everything that we're doing. And within that, we see opportunities virtually in all of our businesses today.

Agree. If the other side of the equation, right, is the ability of your clients and LPs to give you money, and there's a specific concern in the market that it's becoming harder to raise money simply because the calendars are too full or pension funds in particular have a denominator issue, to what extent do you see this issue? And is it an issue for your ability to kind of hit the targets you've outlined?

We are hearing it. I mean investors are people, too, right? So they're worried about the market. They're worried about their portfolios. It's a natural human emotion. But where we've seen that to the greatest extent is in private equity. And just did a bit of a world tour; the basic sentiment you pick up is that private equity, institutional investors, pension funds, sovereign wealth, they're seeing that the funds that they work with are coming back faster than they expected. In some cases, twice as fast. And so what they're saying to those GPs, if you come back twice as fast and you haven't given me capital back from my last commitment, best case outcome you're probably going to get half of what you had last time. So there's a bit of that, and that's specific to PE. We are really fortunate, as I mentioned, we just raised money for our flagship PE funds over the last 2 years, that $40-plus billion. So that is behind us. And so what we're able to do is sit in those meetings, have the conversation and we start talking about real assets, we start talking about private credit, we start talking about asset-based finance. But there's definitely some discussion there, but it's much more localized to PE so far.

Got it. I'm going to transition to the capital philosophy and the potential for KKR to evolve the balance sheet strategy maybe in the much longer run after everything you said on that point. I think it's pretty safe to say, this pivot to capital retention balance sheet compounding has been a success. It helped you supercharge growth away from private equity. But to the point I made earlier, it feels like the market is discounting the more balance sheet heavy asset managers. If that's the way the market treats your business indefinitely, how flexible would you say you are around this strategy, particularly now that you've built out a lot of the things you were targeting to build out?

Yes. You have to understand, we've been a public company since '09. And at that time, as you know, there was no coverage. No one showed up at meetings like this. There's nobody who woke up to cover alternative asset managers, and we are explaining what it is that we do. And we also made it harder for ourselves. We are publicly traded partnerships, so we made the stocks harder to own and harder to buy, and we probably overshared in terms of information. And so we've been learning as a public company. This space has now evolved. It's great that it's become a space. It's great that people actually have it as part of their coverage universe. And we became C-corps, and we streamlined reporting and hopefully, we made it a lot easier to understand what it is that we do. But having said that, not all of these firms are the same and not all the models are the same. We picked our model for the reason I mentioned that it's very consistent with who we are and what we're good at. It actually goes back in 2001, the firm might have been around 25 years at the time. And we built the model and said, well, what if we just kept the profits of the firm in the firm and reinvested in everything that we did. And it was an extraordinarily upsetting piece of analysis because the power of long-term large dollar compounding is like the 8th wonder of the world. And that piece of analysis and that realization that we can create more value if we're also investing our capital -- remember, we're the largest shareholder. So the executives of KKR own 25% to 30% of the firm. And so we are incredibly well aligned with all of you, very much on purpose. And so we look at the firm and the balance sheet through that lens and say, okay, how are we going to be able to create the most per share value over time? Having the balance sheet every time we do the analysis means that we can create more value over the next 5, 10, 20 years. Now we use it in different ways, to your point. So we'll use it to buy back stock. We bought back 10% of our shares at an average price in the mid-20s, which is below our current book value. So when the market decides to put the stock on sale, we have that as an option. We also use it to see new businesses and scale new businesses faster because when you show up and say, we're going to put up $300 million, would you like to put up $50 million? It's okay, if you don't. It's a different fundraising meeting than if you put up 50, I'll put up on 1, which is the traditional model. So it's allowed us to scale, to your point, much more quickly. But the other thing, and I don't think the market really understands this is it's allowed us to scale our fee-related earnings and our AUM a lot faster, not just the organic part. There's no way we could have bought Global Atlantic without having the balance sheet. There's no way the Franklin Square transaction would have been able to happen without the balance sheet. Marshall Wace, which is a hedge fund we own 40% of, that transaction was facilitated by the balance sheet. And a lot of the capital markets activities are facilitated by the balance sheet. So it's allowed us to actually scale our FRE and AUM much more quickly, and we'll use the balance sheet for that purpose as well. So what I've been doing is spending time with investors. And one investor actually stopped a meeting not long ago, and it was in the midst of all this market volatility, and he said, why are you so calm? Because his book was not having a good day, and we basically had a good discussion. It feels like we're in the same business because we all invest. But we're actually in quite a different business from the traditional liquid equity market investor because the capital is locked up, we have liquidity on our balance sheet, and we have an ability to think for a 5-, 10- and 20-year increment. And that is a different type of investment style, and I think the markets are still figuring out what does that mean, especially as these businesses have diversified. And that's kind of back to the point, I do think if the market saw how these firms, ours and others, perform through some kind of a normal cycle, it probably would allay a lot of fears because we really haven't had that since it's been a public space. And so not that you wish for a recession, but if we have a normal one, I think it will be really revealing in terms of who's made the best decisions over the last 5 to 10 years and then who gets it right for the next cycle.

And your body language clearly says you feel like you'll perform...

We feel great. That's the point. If you had cash on your balance sheet and you had $115 billion to put to work and everything got cheaper, you'd feel good, too.

For sure. On the deployment point, you definitely -- you made the target to build all of these businesses out away from private equity. You used M&A to do that to some extent. Where does M&A sit in the stack now, particularly given where the stock price is? And what kind of targets would you be looking at, given the size of your balance sheet?

We're definitely spending time looking at inorganic opportunities, and to your point, you'd prefer not to issue stock at these levels, but that's also why we run with the cash balance. So we have liquidity to put to work on the balance sheet. But we're spending time. We've talked in the past, you and I have talked about the secondary space is something that we spend time on. We're looking at the other opportunities around real assets broadly defined. And we're looking at opportunities in distribution. Are there ways to scale what we're building there, particularly in private wealth. One thing we haven't hit on is the individual investor opportunity, which is massive for us and others. And so we're looking at potential acquisition opportunities there, too.

On the distribution side, I mean more than anything? Got it. Maybe update us, since you brought it up, on kind of what you're doing in the wealth space where you're at, what products you have in the market, the kind of traction you're getting?

Sure. Well, there's 2 things going on. One is, we're building product because you got to make sure that you build a product that's democratized and the individual investor can invest in because our traditional fund format is not going to be appropriate for a lot of the market and a lot of the individual investor universe. So we're building out products across all of our main investing strategies, and then we're building distribution at the same time. And so we've launched the real estate product, as you know, and that's been over $1 billion and continuing to scale. And then we're building these other products that will likely come to market over the course of the next handful of quarters. And so that will all happen at the same time as we're building out the distribution channel. So significant opportunity, both U.S., Europe and in Asia as well. So we're building it in all 3 regions.

Great. I have one on the portal here about your share structure and vote structure relative to Index inclusion. I think all the changes you've made kind of happened 2 or 3 years ago, 2 years [indiscernible] to the current state, right? And you're still not in the S&P 500. So what is the willingness to maybe accelerate? I know you've kind of indicated what you want to do in 5 years and you can update us on that. And if you see some of the other 1-for-1 share count or share firms get in, would you maybe accelerate that process?

We've laid out a path to the kind of 1 share, 1 vote in 5 years, and that's kind of the path that we're committed to as of now. And we're in the Russell; we didn't use to be in the Russell. We'll see -- there's not a lot of clarity on that process. You'd have to ask the S&P committee. Maybe they'll share with you...

[indiscernible].

They won't share with us, but it is something that we're watching. And look, we're -- as I said, we're the biggest shareholder. If there's something that is very compelling, of course, we're going to look at it.

Great. Maybe to end, we talked about a lot here. I think you're probably disappointed with the stock price performance this year. What's the bull pitch here to get people more comfortable with the story from 30,000 feet?

Well, if you look at kind of the multiple where we're trading today, and you think about what we talked about in terms of the growth assets, revenues, bottom line, there's a big disconnect. So we trade at a discount to broader market. I think every aspect that we've talked about to all investors is a market plus story. So over time, that will change as we find more investors that appreciate the model and appreciate what we do. But back to the bigger point, we are outgrowing a fast-growing industry, we have a number of businesses with top quartile investment performance that are still attracting capital, and we have a balance sheet that's compounding at mid-teens plus alongside all of that. And as we navigate the next several years, I think the market is going to have a greater appreciation for the power of these models through a cycle. And as that happens, the whole space will rerate. And just like we've seen in prior cycles, it will rerate higher, and then they will stay within a higher band is our general expectation.

Yes, I agree. Thank you. Thank you. Great.

Thanks for the time.

Thank you.