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

All right. Hi, everybody. Welcome to this next session. I'm Ben Budish. I'm Barclays analyst covering the U.S. brokers, asset managers and exchanges. And with us today, we've got Rob Lewin, CFO of KKR. Rob, thanks so much for being here.

Ben, thanks a lot for having us. We appreciate being included. Appreciate it.

Maybe just starting with like a high-level macro question. What are you seeing most recently in terms of realizations, fundraising, the appetites from LPs, deployment opportunities and the like?

Things -- I'm sure everybody in this room, thinks -- feel more constructive than they have. And so across our firm, we're seeing pipelines up, pipelines up on deployment, monetization-related discussions. I think that's fairly consistent across the industry. If those things hold over the next number of months and capital gets returned to our investors and public equity markets hold, so there's a lot of if there. But if those things hold through the remainder of the year, we can be setting ourselves up for a much more constructive 2024 environment both from an activity perspective and fundraising perspective than we've had over the last 18-or-so months.

Great. Let's kind of dive into it. So one of the most popular topics currently is the opportunity in private credit, the asset-backed finance space in the context of the Regional Bank or Frenchmen. So maybe to level set, can you talk a bit about KKR's current exposure and capabilities within private credit, particularly thinking about direct lending, asset-based finance, those kinds of areas?

Sure. Maybe to set the stage a bit for this part of the discussion, KKR today has roughly $200 billion across our credit franchise. And that is split a little bit north of $100 billion across more liquid credit pools of capital, $45 billion across more of our ABF, asset-based franchises, and approximately $35 billion across our direct lending and Private Credit businesses. And specifically to your question around the more illiquid ABF and direct lending spaces, we're highly constructive on both right now. I think you've got some real secular themes playing out that are a little bit different. I think you're earlier in the evolvement of the ABF franchise. I think there from an ABF perspective that we're comparable to where direct lending was 5, 7 years ago. And so we're quite constructive around that -- what that could mean as it relates to investable opportunity across KKR. And also risk-return right now given a lot of the traditional pools of capital in the ABF space are continuing to pull back.

Great. Staying on the kind of ABF topic. I think on the last earnings call, you mentioned that KKR is a solutions provider to the ABF market. But what does that look like exactly? Like how does it work? Or should we see more and more partnerships like the one you announced with PayPal? What does the pipeline look like what it feels like this? And how does the -- what are the addressable and what KKR is doing?

Sure. The ABF space, as we define it, is a $5-plus trillion addressable market. So it's huge. And it's really being able to put capital behind assets for the long term. And much like lots of other parts of the alternative space, if you can match that up with longer-dated liabilities, then you can create an [indiscernible] that's going to attract them for our end investors, our limited partners. And across the ABF space today, we've got 18 platforms where we're invested that create flow for us to be able to invest in the space. In addition to that, you raised the PayPal transaction that we announced a couple of months ago, I think that's a type of transaction that could have been in the past something that the regional bank or other forms of traditional pools of capital might have been able to take advantage of. More recently, we announced the transaction where we bought a prime pool of auto loans from Synovus to Re Bank in the Southeast, providing some additional liquidity for them. And so I think you could take the form many types of investing opportunities. I think from our perspective, huge addressable market is global. We are early to this space, I think, relative to our peers, $45 billion of capital and growing. I mean we're quite excited what that can mean for us over time.

Maybe one follow-up there. You mentioned that it's kind of still early in terms of these kind of relationships that otherwise gone to banks. How long does it take to evolve? Like for the regional bank, are they -- we kind of go through what happened in March. What happens from then to the time that they call KKR and say, hey, why don't we -- we'll originate you by the pay or that sort of thing?

Yes. I -- Ben, I'd probably think about it a little bit differently and in that -- really, it's about putting assets across liabilities, the nation is managed. And what we saw in March specifically, you talked about the Rio Genal banks, you had a lot of assets and liabilities that were unmatched. And so from our perspective, I think that kind of a secular shift can take quite a bit of time. I think it's less about individual phone calls around providing liquidity. To me, that could create interesting, near-term deal pipeline for us, but that's not a secular shift that's going to drive enterprise value for KKR's shareholders. What I think really can is the shift from more of the traditional providers of capital to the ABF space to the alternative providers of capital.

Interesting. That's helpful context. Okay. What about on the direct lending side? How do you think about maybe competition between all, KKR in particular, and the traditional bank-syndicated loan market? How much more share can be taken? How do we think about like the back and forth if markets start to open up a little bit more?

Yes. So I think as you think about direct lending, maybe it's -- they help to explain how we approach the marketplace. So I think it's really unique versus our peers. And so we have one origination team that speaks to clients that represents our private credit pools of capital. It also represents our capital markets underwriting distribution capabilities that we have across the firm. And so when we're talking to clients, we're talking to them about holding their capital structures through our private credit funds. We're talking to them about underwriting and distributing their transactions to the market or a hybrid approach of the 2, whatever you ask for the client. And it's that same team that is facing and while crossing our liquid credit pools of capital in case they want to take an anchor order in a broadly distributed. And so we're combining 3 parts of our firm with scale. There's not a lot of providers in the world who have those 3 aspects of the firm, the scale we do. And it's really hard to do that under one roof like we're able to accomplish. And we think it's best for our clients. We think it creates additional flow for us on the private credit side and additional opportunities for us to create capital markets related to these 2. And so it's really one very coordinated approach to the marketplace. Then shifting your question as it relates to private credit direct lending versus the broadly syndicated loan market. That market -- leverage finance market is going to move up and down with cycles. And we're seeing right now, we've been a 12-, 18-month cycle where direct lending has taken a lot of share but on lower volumes. I think what will happen when the broadly syndicated loan market comes back, and it will and you're starting to see that over the pound number of weeks, I think it will take share. But in those types of environments, what you usually see is more I can say. So direct lending to ship, but deal volumes might be similar, if not higher, in an environment where there's more capital inflows. In addition to that, I'm probably stating the obvious, our Capital Markets business really benefits from a broadly syndicated loan market that comes back to. And so in that type of environment, whether that's taking shift Capital Markets opportunity for that business line.

Got it. Very helpful. Maybe one last question on credit. Just kind of how fundamentals -- underlying fundamental has been, how do you think credit risk could evolve over the next 12 to 18 months? It sort of feels like we're -- kind of we've escaped something more drastic or more dire, but what are you guys kind of seeing more real time?

Our teams are watching it really closely. Relative to expectations, I think have been better across the board. Although we're seeing default rates tick up, they're below their 10-year rolling averages. I think part of the reason as you look at this past cycle, and while interest rates have gone up pretty dramatically, you've had a number of businesses that have been over equitized relative to the past. And so the equity into those transactions relative to the debt have been really high as a ratio or a percentage. In addition to that, many of the sponsors that are of these companies have committed pools of capital that they can put in their businesses where they want to elongate their time. And so I think what's more likely to happen in this cycle is you're going to see some level of return transfer from the equity to the debt holders. And I think defaults are going to be below what you might otherwise have expected in this type of cycle where interest rates have risen and where maybe the economy has slowed down a little bit over a number of year period of time.

Got it. Okay. Maybe switching over to fundraising. So you've kind of been in the market this year without any major flagship funds, but there's a couple that are going to start coming back. I think infrastructure, we're sort of expecting later this year and some of the larger private equity funds next year, maybe in '25. So given we've seen some peers sort of struggle to grow their latest vintages versus predecessors as somewhat of a function of the environment, how are you thinking about what these funds could look like? Maybe thinking right now specifically about like the large flagships.

Sure. So sometimes it's better to be lucky than good. And our timing as it relates to private equity fundraising was really fortunate. We raised $60 billion of capital from 2020 through 2022. And so as we have this period where as you note, a more challenging run rate, principally across the private equity products, we've been in an environment where we've been investing that capital as opposed to raising in the private equity space. But over the past 18 months, without flagships in the market, without the private equity capital raised, we still raised over $100 million of capital, a big number for us. And as we look forward in 2024, 2025, I think that's more of the timetable where you could expect our bigger flagships to be in the marketplace. And back to the point we were discussing at the outset of this conversation, we're preparing ourselves for any market eventuality. But if you do end up in an environment where some of the positive green shoots that we're seeing across the capital markets, some additional monetizations that are returned to our limited partners, public equity markets hold, you could see a much more constructive fundraising environment over the next couple of years. And so that's a possibility for sure as we think about our next generation of flagship large funds that we intend to raise at KKR. As you noted, the first step for us is probably our next iteration of our global infrastructure platform with a franchise where we've got a lot of momentum across the firm and one that we're quite excited about.

Great. So maybe outside of these largest flagships, you've -- there are many other strategies kind of coming to market. Where are you seeing kind of the most momentum? Where do you have the most confidence? Maybe outside of again, traditional private equity, where are LPs maybe a little bit more hesitant to allocate?

Yes. Ben, one of the numbers I was looking at with our team over the last couple of days, I thought it was really interesting to actually surprised all of us, and so I'll share it. Out of that $105 billion of capital that we've created over the last 18 months, [ 92% ] has come from outside of private equity. That's credit, infrastructure, that's real estate. So for sure, those who are newer to the story, that would probably be a surprise. The other thing that I think is really interesting of that $105 billion of capital, over 60% of it is in strategies that didn't exist KKR 5 or 6 years ago. And so a lot of momentum we have across parts of the infrastructure sector based real estate and credit that has driven a lot of that growth over what's been a really challenging overall fundraising market and I think speaks to the opportunity set.

All right. Well, let's shift into some of your kind of growth initiatives, maybe starting with real assets at kind of appropriate. It's one of the newest strategies. The platform has really kind of grown significantly over the last few years. And there's many that I think you have in what you call the earlier developing stage versus sort of mature or scaled. So maybe can you talk about these strategies at a high level. How much growth over the next, I don't know, 3 to 5 years is coming from younger real asset strategies kind of scaling up versus sort of more product launches?

The 2 largest parts of our real assets platform of KKR's infrastructure and real estate. Our infrastructure business over the last 3-plus years has grown by about 4x. Our real estate business over the past similar time frame has grown by about 6x. So both really big growth engines for us. If you follow for some time, you've heard us say a couple of things. You don't want to be all things to all people. So don't expect a lot of product proliferation from us. And we want to be great as we define a top 3 in absolutely everything that we do. And as we look across real estate and infrastructure and the products that we've already started or strategies that we've already started there. We feel like we've developed a track record. We've got best-in-class teams, and we're on a path to being top 3. We're able to do that. The growth potential from here across both of those asset classes, we think, is enormous.

Great. Maybe put that last point about the enormity of the asset class. Can you expand on that a little bit? I remember, I think the first half you met, I attended your development in, I think, it was last fall. And as I -- investors who are familiar with the company may not know it, really spans a lot more than real estate in bridges. So can you maybe talk a little bit about that, how you think about the asset class as a whole and maybe thinking more specifically about like energy transition, how do you see KKR positioned there?

Sure. So if you look at the end markets and with real estate, and we have a competitor who obviously has done a great job over the last number of years showing just how large the addressable market there can be. And so we're investing behind that. And we've got a high degree of conviction of a lot of growth and be able to take more than our fair share of that growth over time. If you look at infrastructure, we're part of a small group of firms that's really creating that addressable market. The way we define infrastructure, investing at KKR is really around essential services, the back by hard assets. And if you think about it in that lens, the addressable opportunity is quite significant. You mentioned energy transition. And I said, at the other side, we don't expect to launch a lot of new products to take care, and we really don't. We only expect to launch products where we think the addressable market is quite large and where we have conviction we can be top 3. Investing beyond climate and energy transition is one of those areas. You may have recently seen that we've made senior hires there to leverage our infrastructure track record, our industrial's track record and really be able to invest behind the broader energy transition in climate-related assets. We think this can be a [ $10 billion ] strategy for KKR over time, and it's a different strategy for us that we're excited to get started and to once we've got the leadership team built out. We think we've got the relevant expertise needed and the track record of being able to invest the large sums of capital. We announced our first transaction for that dedicated space, I believe, just last week and it's something that we're really excited about. So back to your original question, Ben, I think the addressable market across both real estate and infrastructure is quite large. Our market share today in both is still very small. So the opportunity for us is one that if we can go out and execute and be top 3 in the things that we have already started, that's where I get to the enormous growth opportunity that we have available.

Great. Well, so one of those other opportunities that you guys have talked about is Asia. And I think at a high level, we sort of understand that Asia is expected to be an outsized contributor to global GDP growth. But also alts tend to be underpenetrated versus North America and Europe. I guess one question is why is that the case? Is it simply a matter of security? And what could that eventually look like? Do you think there's a point of parity at some point? And if so, how long would it take to get there?

Sure. What we've talked about from a point of parity is more that we believe that one day, our Asia business can be as large as our U.S. going and I'll explain why and some of the themes. When we look out 5 to 10 years, from now, more than half of global GDP growth is likely to come from Asia. You mentioned all it's being underpenetrated in the marketplace. Is it ever parity with the U.S.? I don't know, it's probably not. But do I think it takes a lot of share? We do. Today, it's 25% as penetrated alternatives are in Asia Pac as they are in the U.S. This took a similar number if you look at Western Europe as well. And so you've got a growing market from GDP growth, and you've got alts taking share. The combination of those 2 things are pretty interesting from a secular growth perspective. KKR's market position in the Asia region. I think we're clearly viewed as the #1 [indiscernible] APAC. [ A few ] years ago, we had about [ $20 million ] of [ AUM ] today, that number is around [indiscernible] per loan of growth just in the past 3 years. We are the #1 player in private equity. We're now the #1 player in infrastructure, and we've got growing franchises across real estate and credit as well. And so when you add up the market opportunity and our market position in that part of the world, that translates to something that we think is an opportunity for us over the long term that can match the size of our U.S. business today.

Great. And what about in terms of the specific asset class? I think your -- again, your Asia business? Historically, more dominated by traditional private equity, but you're growing faster in infrastructure, real estate. So how do you think about kind of future growth there? And you touched on credit, your Asia tech strategy? Anything else that's sort of interesting that could become much more meaningful?

Sure. And in a lot of ways, we started Asia like we have in other areas, U.S. and parts of Europe. We started with private equity franchise, and we built what we felt is our -- we do feel is the #1 PE franchise in the region and really created real barriers to entry with the teams that we've built out now across 9 offices in Asia. And then on the path of building out those, we think that a country teams, we set up infrastructure, real estate incredibly. In addition to that, we've brought a growing Capital Markets franchise in the region, too. So as the capital markets mature in that part of the world, we expect them to. I think our Capital Markets business can also take share. And then lastly, the other really, we think, interesting opportunity in Asia Pac is our relationship and partnership with Global Atlantic and what they're able to do in that part of the world. When you look at Global Atlantic, while it's got the name Global in it, it is really a U.S. -- predominantly a U.S.-based business. They recently announced a block deal in Hong Kong. We have some business in Singapore. We have been working with our teams at both. And we just announced a large strategic partnership with Pat Post, a leading Japanese insurance business. And so I think the -- maybe underrepresented as we talk about opportunity in Asia is really what I think our franchise on the ground and Global Atlantic's capabilities, when you marry those 2 things together, it could be to a lot of really interesting and in growth opportunities in the insurance base for us in Asia, too.

And what about the near-term risks in the region? There's obviously been headlines about LP sort of wanting less exposure to Greater China. We've been seeing other headlines regarding slowdown to GDP growth, other kind of growing geopolitical tension. So how material could that be for KKR? How diversified is the business there? Where are the exposures?

Yes. Again, 9 offices across Asia Pac and how we've got leading businesses through North China -- excuse me, North Asia, China, Korea, Southeast Asia, Australia, India, so across the board. Japan has a big -- our largest market across Asia. And so if you look at KKR as a whole, got a little bit north of $500 million of AUM. About 1% of that is exposed to China today and mostly in the set across domestic consumption-related data. So that's the first point. Second point is a broader geopolitical point that you're raising. And understanding geopolitics and the complexities of being a global investor is as important today maybe as it's ever been. And we've invested quite a bit in that capability at KKR over the last number of years. As you think about our competitive advantage that we do have as a global investors, really understand your geopolitics and where we should be leaning in and getting out of these opportunities, that is one that we think provides us a over a number of our competitors. We just haven't invested in that date or haven't had the scale or the ability to invest in that set of assessment of where to be in again and doing it.

Well, you mentioned Global Atlantic. Maybe let's jump over there. Maybe just starting out, can you talk about some recent trends you're seeing in the retail annuity space? It's pretty clear that inflows have been quite strong over the past year across the industry. How sustainable is that? Have we seen a pull-forward in demand? Or do higher rates more people want to invest in this kind of product?

When we purchased Global Atlantic a few years back, one of the major reasons why we were excited about it, certainly the synergy between asset management instrument is one we're a big believer in. But the other thing we're really excited about is we think we're in decades-long boom market as it relates to retirement. And so I'm not surprised to see annuity -- industry-wide annuity flows increase. Obviously, on the back I've done a broader retirement team, it's just easier to sell 5% annuity than it was a 2% annuity. So higher interest rates have helped that business as well. But we don't see a broader theme of an increase in industry volumes abating for some time now.

And what about Global Atlantic's just general positioning in the market? Can you talk a bit about distribution, the value prop, how do you think your products stand up against the competition?

You're talking on the individual side of -- as a business?

Yes, yes.

So Global Atlantic today has longstanding relationships and distributes through approximately 200 banks and broker-dealers. That's the vast majority of where we distribute our individual annuity-based business. These are, as I mentioned, relationships that go back, in many cases, 10-plus years, really entrenched as part of those distribution networks. But we're not in all big banks and broker-dealers. And so we think that's an opportunity over time as we continue to grow and be able to take on more volumes is to penetrate some additional larger bank and broker-dealer platforms on individual side of our business. The other thing I'd note is the independent channel sells quite a bit of annuities as well. As that consolidates, I think that's an opportunity for Global Atlantic. And then finally, and I think this is a real advantage of ours and one of the benefits of the GA and KKR partnership, is KKR has relationships with many of those same bank and broker-dealers, and it goes both ways. And so the breadth of what we do across KKR and GA has now gone up on a combined basis with these clients. And it's easier to interact with them and to find partnerships that are mutually beneficial when you're doing multiple different things across the organization. And we've made sure our teams are very linked up in that regard.

Got it. So Rob, on the institutional side, you announced that MetLife, a large transaction earlier this year. The messaging has kind of been fewer but larger blocks. Can you maybe talk about this dynamic a little bit. Is there anything in the market that's sort of causing this to be the case? And just kind of general pipeline, what you're seeing out there?

Sure. So the -- so really, there's 2 principal parts of the Global Atlantic business. We just talked about the individual, and this is the institutional, which is largely a reinsurance-based business. So when you think about reinsurance, who your partner is -- because in many cases, these reinsurance relationships could be 10, 15, 20-plus years in duration. So who your partner is, is critically important, not just the individuals. Have they been at the company a long time? Are they the same people you're going to be dealing with over a long period of time? But what's the creditworthiness of your franchise? Because you're effectively providing credit to your partners here for a long period of time. And so these are all areas that we think Global Atlantic is really well positioned in. It's a reason why we've been able to get some large block deals done. You referenced MetLife that we announced a little bit earlier this year, the largest block that GA has been able to get done in their history. We remain really constructive on what the opportunity set here is over both the near and the long term in the institutional side of this business. And we think we'll continue to be a leading provider of reinsurance to a number of relationships and clients across the GA franchise, which could in turn add assets to GA, which in turn creates additional assets for KKR to manage on GA's behalf.

So maybe one last question on GA. Your performance here has been pretty well in excess of your longer-term ROE target of 14% to 15%. It stepped down a little bit in Q2. But can you kind of remind us, what happened in the quarter? I think it was sort of a onetime impact. And then how sustainable do you think this outperformance is? It feels like since you've been giving that guidance, you've been exceeding it. So is that sort of what we should expect? Or is there a period of normalization at some point?

Yes. Listen, we continue to believe the right level to model that business is sort of in that 14% to 15% pretax ROE. Even in Q2, you had mentioned a little bit of a step-down in earnings. And we were still in line with that target, maybe even a bit above that target and...

A step-down from the upper [indiscernible].

That's right. What happened -- and really Q2 was really about moving -- you think back to the beginning of Q2, you were in the regional bank crisis. And so that was at the time when we were increasing liquidity or holding a little bit more cash, moving up the capital structure a little bit as well so we were able to generate returns at the capital structure. And so we sacrifice in the quarter a little bit of ROE at the -- for the benefit of having some additional liquidity to be able to invest or to be able to withstand a period of higher-volatility trade, that I think we all felt really comfortable making at the time. And GA, even with that step-down sequentially of earnings, still achieved or modestly outperformed the target that we've set and that we've communicated that we think that they can achieve through a cycle.

Great. Let's pivot over to the retail channel. So on the private wealth side, maybe can you start with a bit of an overview of your current product set with sort of the latest launches of your private markets and infrastructure funds. You've got a new private BDC. I think you expected to launch later this year. It seems like it's fairly full. Do you see any pulls there? Or is there anything you're missing?

No, there's nothing we're missing now. And I said it in another context, but we don't want to be all things to all people here either. But we now have big investment products tailored to the private wealth space or 4 big investing verticals: private equity, infrastructure, real estate and credit. And we're excited at the long-term opportunity is in the private wealth space. We've been really encouraged by some of the success that we've had over the past number of months since launching our private equity and our infrastructure products. But to us, we really continue to be very much focused on the long term. And while I'd expect over time, we might add some products here or there, I think we've largely built out our large products. We want to be great in a small number of things. And we've got this product signed up across those big 4 investment verticals, and so we want to perform there on behalf of our new investors, be great for them and then ultimately be able to raise a really scaled platforms that should benefit our shareholders as well.

And what about on the distribution side, could you kind of walk us through how these products get to market? What channels are you currently in? Where is the greatest opportunity to sort of more deeply penetrating existing partners? Is it expanding relationships to more wires, more RIAs, international expansion? What are the opportunities there?

It's all of that, Ben, really. And we've talked about this in the past. This has been a major area of investment for us over the past few years. It's 3-plus years ago, I want to say we had approximately 100 people focused on distribution at KKR. Today, that number is closer to 300 with much of those adds coming around the private wealth space. We started to spend marketing dollars here as well. And so we're really investing into the channel, really with the mindset that over the next 5 to 10 years, you're likely to see trillions of dollars of additional flows go from the individual investor, the all investor into the alternative space. And we think we're incredibly well positioned to be able to more than take our fair share of that addressable market. And I think when you take a step back and you look at KKR's brand, which has resonated really well in this space to date, I think, has exceeded our expectations. We look at our 45-plus-year track record, you look at our scale and our ability to invest into this channel and the relationships that we have with any of these intermediaries and partners on the distribution side and then our ability to product innovate and you add that all together, that's what gives us the confidence of really being able to achieve a lot of growth here over the next several years.

And it seems like the momentum is really picking up. I think investors were quite surprised, in a positive way, to hear how much you'd raise between, I think, the private markets and infrastructure funds on your last earnings call. So do you think -- I mean it felt like there was such a rapid growth in real estate. The market's kind of turned, rates rose, there was a lull. Are we sort of at the beginning of the next -- I think long term, investors tend to agree with your thesis that there's just kind of a monster opportunity out there. But does it feel like that momentum is continuing and we're sort of at the cusp of a new -- a big rise in fundraising from that channel?

Well, I've talked about the long term and the conviction on the long term. But I'd say about what we were able to do over the last few months, it exceeded our expectations. And a private equity product and an infrastructure product in this market, it's new. And so we have a lot of conviction that we were going to be able to educate those markets around what the opportunity was in private equity and infrastructure over the next several years. But to have that type of demand out of the gate, that was a nice surprise for us. I don't think it necessarily speaks to what that means to flows over any given period of time over the next number of quarters, but it's certainly encouraging to us, and it speaks to both our brand and the way that those types of products have been adopted in the marketplace and if anything, gives us that much more conviction about what the long-term opportunity set here could be in the near term. So we're excited about that.

Great. Let's talk about one of your -- one more of your kind of growth drivers for private equity. It continues to be a bright spot in the business. I think you talked about a lot of recent deployment in private equity has been coming, in particular from core PE. So maybe to level set again for investors who may be less familiar, how is that different from your traditional private equity business in terms of deployment? What's attractive for core private equity right now versus the traditional side?

Sure. The core private equity business for our industry and for us is really defined by long-dated investments. So when we enter into these investments, we expect to hold them for 10 to 15-plus years, a little bit lower down on the risk-return spectrum. And a lot of ways for those more familiar in the real estate world, there are some parallels between opportunistic and for value-add real estate and core plus real estate and similar parallels maybe between traditional private equity investing and core private equity investing. So we entered the core private equity space about 6 years ago now. And we entered it because we felt that combination of our investment teams, our geographic reach, our industry breadth, our collaborative culture as a firm. We thought when you added that all together that we should be the best in the world and investing in core private equity. And from a standing start 6 years ago, today, we've got $34 billion of AUM. We're the clear leader in the alternative space in core private equity. It's synergistic across most things that we do at KKR. We're an asset manager to clients. We're a capital markets provider to a portfolio of 20-plus companies, and we have a $6-plus billion portfolio on our balance sheet today that we're really excited about. And so when you think about what KKR will look like 5, 10 years from now, our expectation is it something where you can invest a significant amount of capital. The addressable market is huge. And we we've got distinct competitive advantages. This could be a really large part -- much larger part of our firm than what exists today.

How do you think about monetizing those assets? Clearly, the time horizon is much longer and you're holding a lot more of it on your balance sheet than your other strategies. What's the end goal? Do you sort of become like really nice cash flow generator that dividends back up to KKR? Do you monetize them at some point? How do you think about the kind of options as you get later in the life of those investments?

Sure. And so I think we'll [ own ] our economics as a firm in multiple ways. Obviously, management shows -- management fees show up annually. We crystallize our carry annually in this strategy as well. Our Capital Markets business is very active across the portfolio. They are often debt and/or equity issuers in the marketplace where we're very much agreeing, all of which will generate annual economics. In terms of the investment portfolio, you're right. We've got $3-plus billion of embedded gains that sit in our balance sheet today, so the fair value relative to the cost of our core private equity portfolio. But those gains will come through over time on monetizations, which takes some time. Now that said, something that I think we probably haven't done a great job describing to our investor base is on that $6 billion portfolio, now that it's matured and it's delevered, we'd expect it over the next couple of years to be a really -- a regular contributor to our earnings due to dividends that it pays. And we think that could be a really stable and growing part of our P&L as that portfolio continues to mature and as we add new names to that portfolio over time. It's not something that we've talked a lot about. You mentioned it briefly, I think, as you were talking about core private equity. But that's, I think, an exciting part of being able to translate our investor portfolio there, which is $6 billion, that today, generates very negligible after-tax distributable earnings to something that over time can generate a stable and growing contributor to an after-tax DE. Again, not something we spend a ton of time talking about. But as we look at how that portfolio has evolved, something that as a management team, we're pretty excited about.

Great. Maybe switching gears again. I think you mentioned earlier when we were talking about direct lending that a return of all things is good for your Capital Markets business. Capital markets, you have one of the largest platforms in the space. And I think you've kind of indicated in the past when markets are healthy, you generate around $200 million a quarter. As the business continues to kind of grow and scale, how do you think about broader growth over time beyond a return to normal just as overall, KKR gets bigger and bigger?

Yes. Thanks for the question. And so maybe to frame it a bit, in 2021, our Capital Markets business generated around $850 million of revenue. So a -- quite a big contributor to our fee bases as well as to our profitability. As we think about the growth in that franchise from here, it's really going to come in 3 ways. One is KKR does more and does bigger things. We're going to make sure we've got the right Capital Markets team to support that growth. And so that should translate the growth into our Capital Markets team. Regional growth. I talked about Asia, but I think that's just a really big opportunity for us in that part of the world. And then number three, at the outset of this discussion, I talked about how we approach the marketplace and our competitive advantages on the Capital Markets side. We've got real ability to compete for talent in that space. And when you combine our business model that I think is unique and our talent, which I think is differentiated, we think taking share with third-party clients, non-KKR-related issuers, big growth opportunity for us in that part of our business. And so that's why we're excited about what the growth can look like over time. As it relates to today and the green shoots that we're seeing, I'd say a couple of things. We had a good quarter last year -- excuse me, last quarter. Before that, we were probably averaging, give or take, $100 million a quarter, plus or minus. I suspect as we're looking at pipelines in Q3, we're probably a little bit on the low end of that as we're looking at those medium-term pipeline to think that I think is going to drive whether it's Q4 or 2024. Those have picked up in a really material way. And no guarantee that those will come to fruition. But the deal pipeline, the monetization pipeline, the fact that the IPO market is starting to open up, secondary markets starting to open up, that we think can lend itself to hopefully return to normalcy where we'll get to that $200 or-so-million run rate per quarter that we think we can achieve in that business. And that will continue to be able to take share that will allow us to have growth on top of that.

Great. Rob, that kind of positive sentiment is a good lead into my last question. So since I've been following the story, I've heard you kind of -- or your coworkers kind of repeatedly say that your confidence in your 2026 targets continues to go higher. I think on the Q2 call, the comment was more confident than ever. At what point do you consider revising the targets upward, kind of in the momentum you're showing in the business? Or are you happy to kind of let the macro be what it's going to be? Just put out the confidence on and keep surprising, keep beating?

So we're not going to introduce new guidance in this discussion, Ben. So...

Can't blame you for that.

But as I say, we introduced our 5-year guidance less than 2 years ago. And all that's happened in that 18- to 21-month period of time is we've been in a really challenged market environments in our space. Fundraising has been really tough. And in spite of that, what we've said is that we've got more confidence than ever today at being able to achieve our 5-year goals. And so I'll repeat that today. And so we introduced that guidance in November of 2021. And that's, for benefit of those who don't know, $4-plus of FRE per share and $7-plus of TDE per share, really a doubling of our firm over the 5-year period of time through 2026. And we remain highly confident as a management team in being able to achieve those numbers. And as we said on the last call, more confident than ever. And that's coming off a really tough macro environment for our space.

Great. Well, we're just out of time there. But Rob, let me just say thank you so much. What a pleasure to have you here. at.

Well, thanks, everybody, for joining, and thanks for having us.