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

[Audio Gap] disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. The taking photograph and the use of recording devices is also not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative. Good morning, everyone. Thanks for joining us here at the Morgan Stanley Financials Conference. I'm Mike Cyprys, equity analyst covering brokers, asset managers and exchanges from Morgan Stanley Research. And for my next session, our next session here, it's my pleasure to welcome Rob Lewin, the CFO at KKR. As you know, KKR is a global investment firm that offers alternative asset management, capital markets and insurance solutions and today manages nearly $580 billion of assets under management. Rob, thanks so much for joining us.

Mike, thanks for having us here today. We appreciate being a part of your conference.

We're thrilled that you're here.

So let's start off setting the stage with the macro backdrop through the lens of your portfolio companies and assets globally that provide immense insight. What's your view on the state of the global economy? We're increasingly hearing about prospects for higher interest rates for longer. How should we think about sort of the push-pull dynamics that this could have across different areas of your firm and your portfolios?

Yes. One of the real benefits of the KKR platform, big global asset management platform, is that we've got a lot of data coming up across our portfolio, 200-plus companies really around the globe. And almost 1.5 decades ago, we invested in a real macro function inside of KKR to be able to really leverage this information. So we've got a lot of information coming up, and I think really a best-in-class macro function to be able to benefit from it. And so what are we seeing? Maybe let's start on the inflation side. And you would have heard this for some time from us, Mike. We do see inflation staying a bit higher. And the way we've described it internally and externally is really a higher resting heart rate of inflation. We don't think in the near term, the Fed is going to get down to the target level of 2%. At the same time, we see inflation cooling. On the good side, we do see, in some places, even a deflationary environment. But core services, wages, that's been stickier from an inflationary perspective. So what does that mean for interest rates? We don't see any cuts in 2024. We do see some cuts in 2025. And we see the 10-year probably leveling out at plus or minus 4% over the next little bit. And so we'll see interest rates trending down, but not quite to where we were certainly pre-pandemic. That's all been front of mind for us for some time. I think as we evaluate the macro, we feel like coming into this period of time across KKR, we got the macro right. But there's a lot of work that continues to go into this on our part. And of course, we'll be pretty dynamic in how we manage our portfolio going forward. On the economy side, we're seeing strength in the U.S. We expect GDP growth to be a little under 3% for the year, a bit above consensus. We're seeing strong growth from our portfolio companies across the globe and in the U.S. We do see Europe growth a little bit more sluggish coming into 2024. And of course, different pockets of Asia will react differently, but we're seeing real strength in some markets, India, in particular.

And as we think about higher-for-longer push-pull dynamics, what that can mean across the different parts of your business, just any sort of thoughts there?

Yes. One -- again, another benefit of a diversified business model, there's going to be better aspects of our business that, I think, project better financial results and strategic importance at higher rate environments and lower rate environments. So you look at our insurance business as one example or our Private Credit business. I think those businesses are biased to do better in a higher rate environment. Likewise, we've got other parts of our business that probably are biased to do better in a lower rate environment. So as we look going forward, we feel pretty comfortable with the strategic direction of our firm to be able to navigate what could be a volatile interest rate environment from here, but are comfortable also with the diversification and the benefits that, that could provide across the baseline level of earnings in our franchises.

Great. And one of the main tenets at your recent Investor Day was explaining the business model. Maybe you could talk a little bit more about the business model itself and how the model translates to the 2026 and beyond guidance that you've given, especially as you saw Strategic Holdings as a separate segment, if you will, of reporting for the first time in the first quarter.

Sure. So we had our Investor Day now several weeks back, and we had outlined a business model and a long-term vision, both strategically and financially with a number of financial guidance metrics. Maybe the one to stick on for this discussion is we had talked through that day of taking our adjusted net income per share, which was $3.40 last year to $15-plus per share over the next 10 years or less. So basically quadrupling that core profitability measure on a per share basis. But I think the most interesting aspect of that financial guidance that we put forward is we don't have to create anything new to be able to achieve that. Our strategy is in place, and it's really about execution from here in order to deliver on that. So if you look at our business model today, we've got our asset management business, $580 billion of assets. We think multiple different ways to be able to achieve $1 trillion-plus of assets over the next 5 years. A lot of momentum in our asset management franchise today. I'm sure we'll get into that through the course of our discussion this morning. Next up is insurance. We own 100% of Global Atlantic today, $175-plus billion life and annuity business. We think a really differentiated platform. Our approach to the insurance markets, both on the individual side and reinsurance, position us to be able to take that business from $175 billion to $350-plus billion over time. And then our third segment, our newest segment, Strategic Holdings. This is an area that's really centered around owning businesses for the long term and critically taking advantage of the things that we are really great out of KKR: investing acumen, building businesses for the long term, leveraging our collaborative culture and capital allocation. We're just getting started in Strategic Holdings. Negligible earnings from this part of our business last year, but we've provided guidance that we think we can take this business from negligible earnings or the segment rather to $1 billion plus by 2030. So very meaningful growth in really the newest part of our business. But it's really those three aspects of KKR's business working synergistically together to deliver higher outcomes than we otherwise could have achieved. And I'll bring you back to where I started. Those pieces of our business model are already in place. And so it's about our management team being able to execute on this vision going forward. And I think that's just very different, especially as you look over the long term relative to many corporates, most corporates that are out there.

So a great backdrop here. A lot to dig into. Maybe first, just turning to Capital Markets. Macro conditions have been more supportive over the last couple of months that activity has been somewhat fairly muted across the sponsor. So I guess what do you think it takes for green shoots to meaningfully materialize here into more meaningful deal activity? What are you seeing in terms of the pipeline build and conversations and conversion time lines here?

The one thing that I always look at as one of the best forward indicators across our space for activity is the health of the leveraged finance markets. And if you look since the beginning of this year really towards the end of 2023 as well, you've had a greater level of sustained strength in the leveraged finance markets than you've had at any point over the past few years. And that's without really the full CLO issuance machine turning back on. And so that gives us some degree of confidence as we look forward because I really do think that's as good a forward indicator out there. Strength of the equity markets are also, of course, helpful. But if you look at the IPO markets, still lagging where they were up year-on-year. Secondary activity is a little bit better. But what that all means from a deployment perspective, we see activity really picking up. And we talked about that on our Q1 call. If you look at our private equity business, we have several announced but not yet closed transactions. In infrastructure, we're busy all over the world: U.S., Europe, lots of different pockets of Asia as well. In real estate, we've gravitated our pipelines more from credit when the dislocation started more towards equity. I think that's a really interesting opportunity today. And if you look across our credit franchises, we've deployed $20-plus billion of capital over the last 12 months. So you're starting to see that pipeline from a deployment activity perspective, a pickup for sure, for us, Mike, but I suspect across the industry as well.

Okay. And you have a leading Capital Markets business. How would you sort of assess the long-term growth potential of your Capital Markets business? What's the sort of cyclical uplift here when activity rebounds versus sort of the secular opportunities that you see as you expand the business, particularly in infrastructure, you have the relationship with GA? Maybe you can help turbocharge the credit aspect of the Capital Markets business. Maybe you can kind of lay this out for us here.

Sure. And for background, for those in the room, we started our Capital Markets business now almost 20 years ago. And today, we have 70-plus executives across the world focused on delivering best-in-class execution, underwriting distribution across private and public debt and private and public equities. And as you think about that franchise and where it can go, maybe just looking over the past few years, it'd be instructive. In 2021, that business generated just under $850 million of revenue. Now, of course, very buoyant capital market in 2021. But maybe more importantly, if you look at 2022 and '23, when capital markets were largely shut, our Capital Markets franchise generated, on average, right around $600 million per year. And so really proud of the durability of that franchise when markets were mostly shut down over that period of time. Very limited IPO activity. As I mentioned, the leveraged finance market didn't really have sustained periods of strength during '22 and '23. So as we look forward, we certainly look at with more reasonable capital markets activity. 2021 is somewhat of a guide. But we think there's a lot of growth factors in the business. We do not think that, that's the cap for our Capital Markets franchise. We look at KKR's own growth. And as KKR does more across the world, our Capital Markets franchise is biased to benefit. So that's number one. Number two, I think there's a real geographic opportunity for our Capital Markets business to be able to expand what they do. And so in particular, the capital markets mature in areas across Asia, I think our footprint on the ground there is going to really be able to benefit from that type of maturation. Number three, we've got a large and growing third-party Capital Markets business. So this is for non-KKR-related issuers. I think we'll continue to be able to take share there and grow that part of the franchise. And then you mentioned the fourth growth factor, and that's really around what I think we could do in the more private investment-grade side of the business. It is a part of the business that we have largely not been in before, but the 100% now acquisition of Global Atlantic, I think, will allow an entry point for us in this part of the market. And we've got a great road map for what this business we think can become. One of our competitors, Apollo and Athene, have done an excellent job building out that part of their business. As best as we can tell, that probably represent a couple of hundred-plus million dollars of annual revenue. So we think the opportunity there is quite significant. So we're very much bullish around what our Capital Markets franchise can grow to over the next 3 to 5 years, especially as the markets become healthier over time.

Great. Maybe shifting over to deployment. At KKR today, you have about $100 billion of dry powder to be able to put to work. Where do you see some of the best opportunities right now as you look across your businesses as you look across the globe? What's most attractive? And are there any areas in particular that you're avoiding, maybe office, retail? When does that become more interesting? Does it?

Yes. So why don't I start geographically? We continue to view Asia very constructively. Today, we've got $70-ish billion of assets focused on that part of the market. And we think a really dominant market position across alternative providers in Asia Pac, leading private equity franchise, leading infrastructure franchise and really interesting and growing real estate and credit businesses with capital markets professionals circled around all of that. In particular, and I touched on India earlier on, we really do think that's a multi-decade theme to be invested across a highly educated, growing middle class. And while we'll likely have volatility over time, we think that represents even more of an opportunity for us to invest into that. And we've built a very significant platform on the ground through that country. The other area that we're quite constructive on in Asia is Japan. 25-ish years of a deflationary environment, and we're starting to come out of that. We think that poses really interesting investment opportunities for us. And we're approaching that marketplace multiple different angles, including through our insurance business, which we can get to. Moving more towards our asset classes in private equity. I'd say we're really constructive around 2, what I think are specialties of our private equity business, is public to private and corporate carveouts. And I think that because we really do feel like we've got a playbook to drive value creation inside of businesses once we own them. In infrastructure, we're quite busy around all things digital, so that's towers, fiber, data centers, huge investment for us. In real estate, as I mentioned, we were -- much heavier pipelines on the credit side of things through 2023. But as we moved into 2024, we're starting to see a lot more opportunity on the equity side. And in particular, where I'd say we could see some scaled opportunities. If you look at core real estate equity, there's just not a lot of core capital in the world. Most of the very large, if not all of the very large core funds, have big lines of redemptions and very little in the way of new subscriptions coming in. There's not a lot of capital competing. And so as we've looked at modestly taking up our asset allocation to unlevered core real estate for Global Atlantic, we think that represents a really compelling opportunity to drive long-term risk-adjusted return and to do so against long-dated liabilities. So that's an area that we've really positioned our franchise around.

Great. Maybe we could shift gears and talk a little bit about exit side of the portfolio. I guess what portion of the portfolios, as you look at them today, would you say is exit ready and just requires the right sort of deal or environment to come to fruition?

So that's a little bit of a tricky question to answer, but maybe I'll give you some statistics that we look at as a management team to help inform the answer. So as we look at -- let's take our private equity portfolio. 50-ish percent of that portfolio has a maturation of 4 years or more. So it's a pretty mature portfolio. And then going one level deeper, and I think more importantly, roughly 30% of that portfolio is marked at 2x cost or above and 55% to 60% of that portfolio is marked north of 1.5x cost. Our accrued carried interest line item on our balance sheet is up roughly 50% over the past 12 months. And so I think that all speaks to the maturation of our portfolio, but much more importantly, the health of our portfolio. And our job, of course, is to maximize outcomes for our limited partners, for our clients. They've entrusted us with capital that is largely very long-dated in nature. So we are very rarely forced sellers in anything that we do. And we all go asset by asset, of course, and try and come up with the best monetization plan to be able to maximize outcomes for our clients. But if you look at some of those forward indicators I just went through, it would speak to a more reasonable capital market environments over the next few years, a pretty healthy pipeline to be able to drive additional monetization for the benefit of, of course, our clients and then ultimately will translate to revenue for KKR.

And you mentioned on the deployment side that the pipelines are building. How does that look on the exit side? How would you characterize that?

Yes. As you know, Mike, the exit pipeline has been a little bit behind the deployment side of things. But as we talked about on our Q1 earnings call, our pipelines on the monetization side are better now than they've been at any point over the past 12 to 18 months. And so we're constructive on what that can be through the back half of '24 and into 2025.

Great. Maybe turning over to private credit. You manage about $90 billion in private credit assets today. Where do you see some of the biggest opportunities right now across direct lending, sponsor finance, asset-backed and sort of across geographies as well?

Sure. So if you look at our private credit business today, it's roughly $55 billion in asset-based finance and $40 billion in more direct lending type of strategies. We're incredibly active in asset-based finance right now, I'd say, in particular, in the U.S. and in Europe. That's a leading franchise for us. And we think the long-term secular tailwinds there, both on the demand and the supply side are very favorable. On the direct lending side, maybe I think what would be most helpful is to talk about how we positioned our business model because it really is a function of activity based on what our clients, the issuers that we try to represent on. And so the way we face the market with an origination team is one team that will represent our private credit pools of capital as well as our capital markets execution underwriting and distribution expertise. And so when we go to clients to issuers, we tell them, we can hold your capital structure through our private credit funds. We can distribute your capital structure through our Capital Markets business. Of course, we can do a hybrid of the two. And oh, by the way, to the extent that you're doing a distributed offering, we can [ walk across ] our liquid credit business, which is one of the largest liquid credit businesses in the world, who might take an anchor order in your distributed deal. We just think that model is very tough for our competitors to compete with. We've got 3 large scaled franchises that we can represent with 1 origination team. And so our activity levels, Mike, are really a function of what our clients want. And so that puts our clients first. And then ultimately, we think will lead to better and more deal flow as it relates to direct lending and other private credit pools of capital and also for what we're doing on the Capital Markets side. And you'll see our pipelines ebb and flow based on different criteria. And so when the leveraged finance markets are healthier, probably a little bit more on the Capital Markets activity. When they're less healthy, you're seeing much more activity on the private credit side. So we could go both ways.

Maybe just double-clicking a little bit on the asset-based finance or ABF business. You guys spoke about this at length at Investor Day. But maybe you could just talk a little bit about the progress that you've made in terms of building out this platform, some of the recent deployment opportunities [indiscernible], along with how do you see banks engaging here and the partnerships evolving?

Yes. So today, maybe let's start with the market. It's roughly a $5 trillion market the way we calculate it. We think it's a growing market that over time will be $7-plus trillion. Historically, a lot of that $5 trillion sat on regional bank balance sheets. I think we get reminded every 10 to 12 years, that putting long-dated assets against on-demand deposits is not necessarily the right matching of assets and liabilities. And so I think there's a real secular shift of moving assets towards structures that have much more long-dated liabilities. And alternative providers, obviously, including KKR, benefit from longer-dated liabilities, whether that's in fund format, BDC format, insurance company liabilities and it will be a beneficiary. So you've got a growing market that I believe will be secularly shifting towards alternative providers. In addition to that, when you look at KKR's platform, we think we've got a real leading platform at $55 billion of assets. But then in perspective, 4 years ago, that number was $6 billion of assets. So quite a bit of growth over the past 4 years. And I think we've really positioned ourselves to continue to be a long-term winner. We've got 19 origination platforms across KKR that we own, that source flow for our various funds, including also our insurance company at Global Atlantic. And we're quite constructive on what this business will be inside of KKR over the next decade. And in a lot of ways, we see this secular shift not a lot of ways different than maybe where direct lending would have been 5 or 7 years ago. And you're starting to see many of our clients, many of our limited partners look to make specific allocations across asset-based finance.

Great. Maybe turning over to fundraising. You've laid out some ambitious targets at Investor Day, $300 billion, you expect to raise over the next 3 years. Clearly, you're going to have some flagships in the market that are going to be coming back. Maybe you could help break down some of the largest contributors to the $300 billion. And what sort of fund scaling are you sort of assuming in that?

So maybe I'll look at the past couple of years of history as a little bit of a guide to answering the go-forward question. If you look since the beginning of 2022 through Q1 of '24, so just over 2 years, KKR has raised about $180 billion of capital. That's a very healthy number for us from our size, I'd say, it also took place during a period that was overall a pretty challenged fundraising environment for the alternative space. But also really interestingly, if you look at that $180 billion of capital, only 3% or $6 billion came from our flagship fundraises. So as we look to the next 3 years and that $300-plus billion fundraising target that we've laid out, we've got our 3 largest strategies coming back to the market. That's global infrastructure, Americas private equity as well as Asia private equity. We also have a lot of momentum across the rest of our asset management platform. We've talked often about the fact that 50-plus percent of our AUM is not yet scaled. Global Atlantic continues to really perform and grow, offering additional capital-raising opportunities. And in a lot of ways, we're just getting going on the private wealth side of distribution, all of which give us confidence in our ability to have fundraising outcomes over the next 3 years that are in line and hopefully above what we've laid out for our investors a few weeks back, Mike. And we don't require a more constructive fundraising environment to be able to achieve that, we don't believe. We are seeing a little bit of easing in that fundraising pressure that we've done in the past couple of years. So things have gotten, we think, a little bit better. But I think we'll have a much better sense of where the fundraising market is as we get towards the end of 2024 and early '25 as many of these flagships come back to the market.

And have you broken out like how much fund scaling you have embedded for the flagships? Is that something you guys have...

No, we haven't broken out that specifically.

Okay. Maybe just double-clicking on the private wealth opportunity set. You've -- we've got multiple angles here. We've got the Global Atlantic. You have the retail and annuities with that. You have the K-Series, retail-oriented products on the asset management side. Can you just talk about some of the recent trends here just around raising in the private wealth space, where you're most excited, and what's yet to come here?

Sure. So it is, we think, today a massive market and one that can continue to grow at a really robust rate for the alternative space. So today, we think the individual investor has roughly 2% allocation to alternatives. Over time, we believe and many of the industry pieces believe that, that can rise to 6%. That's the case that represents right around $10 trillion of additional addressable market for the alternative space. And we really believe that we are very well positioned to be a long-term winner. And that is our focus, to build really best-in-class, great client experiences with compelling investment return across each of the asset classes where we have products in private equity, infrastructure, real estate and credit. And today, we have roughly $70 billion from the individual investor out of our $580 billion. But I would say that is mostly ultra-high-net-worth and family offices who have invested in our traditional fund products. One of the areas I know you're referring to, Mike, is over the past 12 to 18 months, we've leaned into what we're calling the K-Series of products. And so these are specifically developed products that are perpetual in nature for the individual investor. And it is early days. We've got roughly $9 billion of AUM today. Twelve months ago, that number was $2 billion. And so a lot yet for us to prove out, but coming back to our confidence level in terms of what this will mean for KKR. Historically, we've raised 10% to 20% of our capital from the individual investor. We would expect that number over time to be 30% to 50% of our capital raise. And so we're quite optimistic about what this channel can represent. And again, it's not about where flows are in the next quarter or the next year, it's really about building products that we're proud of 10-plus years from now. And if we're able to do that, we're confident that the AUM will follow.

And that 10% to 20% going to 30% to 50%, do you envision that mostly coming from the existing products that you've already brought to the marketplace? Or do you think you have to launch a lot new and more products to hit that?

Yes. So I'm going to break it down into two for you. I think as you look at what we're doing in K-Series, we've got now, we think, big products up and running across our main 4 investing verticals, in private equity, infrastructure, real estate and credit. I would not expect for KKR to have 15 or 20 products on the shelf. Very consistent with how we're trying to build KKR across the firm, we do not want to be all things to all people. We want to do a really excellent job in the things that we have already started. And so I am sure we will add over time. But the core part of our strategy is being great at the things that we are already doing today. In terms of what's next potentially, and that can really add to the addressable market, some of you might have seen that a couple of weeks ago, we announced a partnership with Capital Group to provide hybrid products to the marketplace. We think this is additive to what we're doing in K-Series today. I'm sure most, of course, if not all, are aware of the Capital Group and their success, really a preeminent brand and actively managed mutual funds. We think second to none distribution in the space. And so we're really excited about what this can mean for the firm and for the Capital Group. But the earliest of days, we're not going to have products up and running until Q1 of 2025. But at the same time, Capital Group had choices on who they chose as an alternative partner for sure. And we would expect that a number of our peers would probably want to be in the position that we're in here because this is a hard thing to go out and build organically. And so from our perspective, partnering in this part of the market, we think, is the best approach. And we think we've got the best partner, and really excited about that.

In fact, that was my next question. But maybe just sticking with that theme, [indiscernible] product design. You mentioned it's a public-private investment solution. Like how do you sort of envision the design of the product? And maybe you could talk a little bit about the distribution strategy and sort of how do you see this evolving.

Yes. If it's okay, Mike, I think we'd rather wait until we get into the phase where we've introduced those products to get into some of the details of exactly what they look like. But suffice it to say, we're going to take advantage of Capital Group's excellent brand and track record on the public side and then our brand and track record on the private side. And we think the combination of those two can be a really interesting product for the mass affluent.

Fair enough. Why don't we shift over to insurance? You now own 100% of GA. Does that change how you see the long-term growth potential for that part of the business? And where do you see the biggest opportunity right now with GA?

So for background for everybody in the room, 3.5 years ago, we bought a 63% interest in Global Atlantic. And I think it was definitely the right sequence for us to two-step this. But it quickly became very apparent to us that owning 100% of GA would unlock a lot of value for GA's policyholders and for KKR shareholders as well. And so in January of this year, we bought the 37% stake that we did not already own. And yes, Mike, absolutely, we think that by virtue of owning 100%, there's a lot more that we can do together that can really accelerate growth. A lot more has already happened on the investment collaboration side. I've talked about the things we're doing around core real estate on an unlevered basis, really attractive asset for Global Atlantic. We're doing more on the infrastructure side, core infrastructure side of our business as well. The other areas that I think can really drive value for us going forward, our geographic reach as a firm. You look at the Japan marketplace, second largest insurance market in the world, we think in need of more reinsurance capital. You marry up Global Atlantic's capabilities and presence on the reinsurance side of their business with our platform on the ground in Japan, which is multiples the size of our nearest competitor. And we think that marriage can create a lot of really interesting opportunity. It's not just our presence on the ground, it's also, we think, our ability to be able to originate local denomination assets to match against local denomination liabilities. And that, to us, is where the real competitive advantage lies. And it's not just in Japan, those types of conversations are having across Southeast Asia, aspects of Europe as well. And so that would be another area where I think the combination really makes a lot of sense. And then lastly, and maybe the third area that we're really leaning into. I talked already about the Capital Markets opportunity but is on distribution. One of the real avenues to drive growth at Global Atlantic is to continue to leverage their IV funds, which is third-party capital that pays Global Atlantic fee and carry and invest alongside their reinsurance business. And so as we look at that opportunity, we're going to continue to really leverage KKR's sales force. So of course, sells a lot of long-dated, locked-up drawdown capital with fee and carry. And we think that combination can really accelerate the growth of our IV franchise, and we're going to lean into that.

Great. You recently introduced the Strategic Holdings as a stand-alone segment, you alluded to earlier. Maybe you could just talk a little bit about the vision that you have for holding Strategic Holdings, how it's similar or different from the core private equity business? And how should we be sort of assessing the quality and growth potential of that over time?

When you look at Strategic Holdings for us, and I referenced earlier, this is really about owning businesses for the long term and taking advantage of the things we do really well at KKR. And so when we started our core private equity business, it was close to a decade ago now, we got into this business because we firmly believed that we could be the best global player at this asset class. When you look at our geographic reach, our industry depth, importantly, our collaborative culture, our ability to build businesses for the long term, we really believe that. And so far, our clients have validated that our core private equity business is roughly twice the size, I think, of our next closest competitor. And so today, we've got a portfolio of 19 businesses, of which we, at KKR with our own capital, own roughly a 20% stake. Those 19 businesses on a look-through basis to our own capital, generate roughly $900 million of EBITDA. And these businesses have started to get to the point of their maturation and deleveraging profile where they're starting to pay out cash dividends. And so what we have outlined for our investors is, we would expect this segment, Strategic Holdings, which had negligible operating earnings last year to grow to $300-plus million of operating earnings by 2026, $600-plus million by 2028 and $1 billion plus by 2030. And we get asked a lot since we introduced Strategic Holdings as a segment back in November, how to think about valuation for Strategic Holdings. And maybe if I could take a step back and think about the guidance that we've provided, we've provided 7-year guidance, around taking a segment from negligible earnings to $1 billion plus. And Mike, you've followed us for a very long time. I think you know that we're not going to put out that type of guidance unless we've got real visibility that we think we can achieve it. And so what does it take to give a 7-year guidance? I think it takes cash flow that is predictable, is durable, is very high quality and is very growth oriented. And so when you then think about what the appropriate multiple is to apply to that cash flow, I think it goes to all of those things. How durable is that cash flow? How growth oriented is it? And so I think if we continue to prove out our ability to achieve the numbers that we've laid out, I think this part of our business is going to achieve a healthy multiple as it should for the quality of cash flow that we think it can deliver to our investors.

Great. We're almost up on time. Final question, AI, getting a lot of attention across many different industries. Just maybe you could talk a little bit about how KKR is approaching it. And where do you see some of the best use cases across the firm?

Yes. So I don't know we're short on time, but maybe a couple of things that we're focused on. We introduced a few years back what is now a 200-plus person innovation hub in Downtown Manhattan. Many AI engineers sit in that location. And we're really focused on two areas. First and foremost and most importantly is on the investment side of our business. What we're doing from a due diligence perspective and embedding AI into that, how we're thinking, of course, around value creation and making sure that we've got those resources embedded in our operational executives in KKR Capstone. Importantly, what we might want to monetize sooner versus later, all of that is transpiring inside of, we'll call it, our portfolio. The second area where we're spending a lot of time but not quite as much time really as the first for good reason, is around how we can run KKR better. And when you think about what is most important to us from an operations perspective inside of KKR is, how do we deliver really best-in-class client experience. And we have no doubt that AI is going to -- it already is, but going to continue to be an increasingly big part of that. But we also don't want to rush it, right, because we don't want to get anything wrong on that either. And so our #1 objective, best-in-class client experience. And we're going to be really prudent for how we think about rolling out AI in order to achieve that and to not have any [ stumbling blocks ] early on in the interest of trying to drive more efficiency quicker.

Great. Well, great. We'll have to leave it there. Rob, thank you so much for joining us.

Great. Thank you for having us, Mike.