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

Thank you all for joining Bank of America's 34th Annual Financial Services Conference. This is Craig Siegenthaler, North America Head of Diversified Financials. It's my pleasure to introduce Rob Lewin. Rob is the Chief Financial Officer of KKR and serves on the Board of Global Atlantic. Prior to CFO, Rob served as an investor in private equity. He helped launch KKR's Asia business. He co-led the firm's Credit and Capital Markets business. He served as Treasurer and Head of Corporate Development and most recently served as Head of Human Capital and Strategic Talent. I like that list because I think it's the most diverse skill set I've seen.

It's been a fun 22 years, for sure. Well, Craig. Thank you for having me this afternoon. Appreciate it.

And I think everyone here knows KKR. It's the large -- it's one of the largest, one of the oldest and most diversified alt managers in the world with over $700 billion in AUM today. Its business model is also very differentiated, marrying third-party capital with its Capital Markets business, Insurance Company and Strategic Holdings.

First question, first topic, we thought it would be helpful, especially for anyone that's new or not -- doesn't totally understand the KKR model. Rob, if you could spend a minute outlining your 3 businesses and why you organized your firm differently than the peers?

Yes. So I'm glad we're starting with the business model question. I do think our business model really does distinguish us in a few different ways from our peer set. We have very much on purpose built a business model over decades that tries to accentuate our strengths, investing acumen, access to capital, certainly our brand and especially our small and collaborative culture, and I'm going to come back to that. And there's really 3 components to our business model, it's our Asset Management business, our Insurance business and Strategic Holdings. And importantly, all 3 parts of that business work really well together and we think make each other better. And so let me just briefly walk you through each part. Our asset management business, what we're best known for, of course, a little north of $740 billion of AUM, lots of identifiable growth opportunities for us in asset management just by scaling the things that we believe that we are already great at today. Our Insurance business, we own 100% of Global Atlantic, $220 billion of assets. When we first bought Global Atlantic 5.5 years ago, they had $72 billion of assets. So quite a bit of scaling. Lot of synergies exist between our Asset Management business and our Insurance business, of course, originating investments is a big part of that as is third-party capital and access to third-party capital. Synergies with our Capital Markets business and global reach is a big opportunity for us as we expand in insurance. Then finally, the third part of our business is Strategic Holdings. So it's very much about owning great businesses for the long term that could generate compounding cash flow for our shareholders, highly synergistic with our Asset Management business. In fact, we have no people that sit in Strategic Holdings, all of those deals and businesses that we buy are sourced inside of our Asset Management business. We also do that alongside third-party capital that pays us fee and carry. So again, synergistic with what we're building across the firm. If you roll it up together, we believe that we've got the ability to perpetually grow KKR without having to invest in a lot more head count resources and operating complexity. And then back to this point where I started on our collaborative culture, we feel like we've got a business model that really allows us to maintain and optimize for that collaborative culture. And we think that's the most important thing is that's really what creates the alpha across all of our businesses.

So let's go next to Arctos. I think I pronounced it right.

You did, yes.

So we saw an exciting new announcement last week at KKR, a new acquisition, Arctos. Rob, maybe this is a good moment to kind of walk us through details on the transaction and what was also KKR's strategic rationale?

Sure. We're incredibly excited about this acquisition. It fits squarely in our M&A and our strategic M&A framework for what we're looking for. And I'll take you through that in a second. And it has been a top target for us for a very long period of time. Arctos today, $15 billion of AUM, roughly $10 billion of fee-paying AUM. They are the world leader in the sports category of buying team stakes. They're able to do so through creative permanent capital structures. And we think in its own right, the sports asset class is going to be growing at double-digit rates for a long period of time. And we think there's a lot that we can do together with the toolkit that we have at KKR. The second part of the Arctos business is their GP Solutions business is about providing growth, capital and liquidity solutions to other alternative asset managers. They are already a top player in this space. Raising a first-time fund in this fundraising environment is not easy. And I think it shows really the credibility of the Arctos team with their investor base to already be a top player in the space. GP Solutions, we think, has got a lot of room to grow from an addressable market. And then from our standpoint, the third part of this acquisition is really what we can do together on the Secondaries side. If you look at a blank sheet paper or KKR, the one big addressable market that we haven't been present in the alt space has been the Secondaries space. When you look at the Arctos team, their teams got a heritage in the secondary space, a lot of experience, a lot of credibility with investors. And I think when you combine that as well as their ability to recruit talent with KKR's brand, our access to capital, our industry expertise, we think with a blank sheet of paper that we can build a really scaled and exciting Secondaries business over time. So when you combine it together, and we said this when we announced the deal last week, we believe that we're going to be able to build a $100-plus billion AUM business together. And frankly, if we did not think that, we wouldn't have done the transaction.

Great. Rob, let's take a step back and talk about the macro environment. So 2026 is looking like a pretty good year. M&A acceleration for the industry, IPO acceleration, a couple of Fed rate cuts potentially. I'm wondering what is the house view at KKR on the macro front? And if you bring it back to KKR, how do you see this impacting the business?

I think if you look back in history, obviously, there's been some moments on the macro side that have been much more complex than what we're talking about now. But when you think about the complexity on the macro side, the complexity as it relates to both domestic public policy here in the U.S. and abroad, some of the geopolitics that we're working through. The combination of all 3 create an overall moment in time that we think is a complicated one to be an investor. At the same time, we look at all 3 of those areas and from a resource perspective at KKR, we've invested heavily in those 3 areas over the past decade and feel like it gives us really differentiated insights to be able to try and think our way through this complex period of time. You pull it together, we do believe that 2026 will be a constructive year in the capital markets. We do expect, in our industry, that we're going to see more deployment. Certainly, we believe more monetization, which I know our industry has been waiting for, for some time. But we'll see how the year plays out, of course, but that is our base case as we move into 2026. And I think a year of increased activity represents for much of what we do, but not all of what we do, an opportunity for us to generate outcomes for our clients and our shareholders.

Rob, I wanted to hone in on 2 businesses, private equity and real estate. So in private equity, I haven't seen a lot of realizations for 4 years. Competition looks a little more intense. Real estate kind of plagued by lower returns. I wanted your update on that business. And if you think about KKR specifically, are you able to take share?

Sure. So maybe I'm going to start at a bit of a higher level, and then I'll drill down to your specific questions, Craig. So today, we've organized ourselves in asset management with 3 business lines. So private equity real assets, which is a combination of infrastructure and real estate and credit. And if you look across KKR today, we generate a little bit over $4 billion of management fees in 2025. Roughly 1/3 came from each 1 of our 3 business lines. And so we're highly diversified, and I think much more so than people probably expect when they look at KKR. So let's start with private equity and your question on private equity. I think the base assumption when people think about KKR and our private equity business is a big business, might think that it's the overwhelming amount of our management fees, which it is not. I might also think it's a low-growth business, which it has not been for us. In fact, in 2025, we grew our fee-paying assets by 26% in private equity. Our private equity business has more than doubled its fee-paying assets in the past 5 years. And we think there's a lot of opportunity there for growth. I think one of the themes that will continue to drive growth for us and I think for some other large players who have done well from a return and return of capital perspective, will be that we do expect more consolidation in the space. And I don't necessarily mean M&A consolidation, but we do think that you're going to have a number of losers that come out of this vintage who just wouldn't have performed as well as they needed to on behalf of their clients. And we can see a world where clients are going to demand doing more things with fewer players. And so I think there was an opportunity for us to compound on some of our historical growth with market share gains. So that's private equity. Moving to real estate. Real estate has been a more challenged asset class for our space in the past few years. We do think values bottomed over the past 12 or 18 months, and we talked about this quite a bit. We had leaned into the opportunity to invest in core real estate on an unlevered basis out of our insurance business about 18 months ago. We saw the ability to achieve very attractive rates of return on an unlevered basis in what we deem to be very low risk in core real estate properties because there just was a dearth of core real estate capital competing for those types of acquisitions. But capital raising remains challenging as an asset class. We don't think it's always going to remain this way. In fact, we know it's not. And our job is to make sure that when we do come out of this moment in time that we are really well positioned to take additional share. And I think we are. Our real estate platform today is roughly $85 billion, split 50-50 between equity and debt. Our returns have been very strong. I think our client relationships are strong as well. We made a very accretive acquisition in Japan, a big growth market for us on the real estate side. And yes, we're -- I think we're cautiously optimistic that capital raising flows will return in the space. And I do think that we are positioned to take additional share when that does come around for our industry, but we're not quite there yet, Craig.

So just a follow-up on that. Margins at KKR are very high today. AUM growth has been good, but how do you expect to translate AUM growth into EPS growth over time? Is there still more operating leverage in the business?

So the short answer is yes. We've been quite public. And let me give you a couple of statistics that I think are helpful. Just look at our fee-related earnings margin, it is industry-leading. We've said we can sustainably operate in the mid-60s. I think the last couple of years, we were in the high 60s. But go back to what I said at the beginning of this discussion on our business model, which is that we believe that if we're successful in executing on our vision, our model, we're going to grow our revenue at a pace that far exceeds our head count growth and the operating complexity that's required to run KKR. And so the output of that, and that's not why we have the business model, but the nice output of that is additional operating leverage. And you're starting to see that flow through in our numbers, I think, differentiated from our peers. If you go look over the course of the past 3 years, we've grown our management fees at KKR by just over 50%, and we've grown our operating expenses by less than 25%. If you go look at our 3 closest public peers, they have the inverse of that. They've grown their operating expense at a pace that exceeds their management fee growth. And so you're starting to see that operating leverage come into our business, but we think that this is a 10-plus-year journey for us. And that's just our margins in our Asset Management business. It doesn't account at all for the accretion we think we get on broader margins by growing Strategic Holdings, where again, there's no people that sit in Strategic Holdings today. And so the flow-through of margins incredibly high. Yes. Punchline is, as we grow assets, we think there's a real opportunity to drive margin.

So I want to hit on the strategic priorities. What are your objectives for 2026 across both asset class and client channel?

Yes. It's a really good question and probably quite a long list. But our goal is to continue to invest in areas where we have real competitive advantages in the marketplace. And so you're not going to see us launch a whole number of new strategies at the firm. In fact, we -- it's been quite some time since we've launched a new strategy and really the next one up is what we're planning to do in the secondary space. So from our standpoint, it's very much about what we can build in the areas that we're already in and try and be uniquely great in those on the investing side, and we can go through some of those areas. On the client side of things, our bread and butter for 5 decades now has been the institutional market. We're going to continue to invest there. We've substantially grown our assets with insurance companies. And when we bought Global Atlantic, we had roughly $25 billion of AUM from third-party insurance companies. Today, that number is over $80 billion and growing. That was five years ago, so quite a bit more than tripling of growth there. And then I'm sure we'll get into it more as we talk the rest of this afternoon, Craig, but the opportunity for us to really scale in private wealth is one that is a 10-plus year vision for us that I think is a real opportunity for our industry and for KKR. And clearly, in terms of strategic priorities, making sure we get Arctos integrated in the right way is going to be at the top of that list through 2026.

So let me hit on the guidance. So you have a few targets that you have this year. One is $4.50 plus of FRE. The other is after-tax adjusted net income of $7-plus. How do you feel about them as you're sitting here today in early 2026?

We feel good about both sets of guidance, and let me walk you through maybe some of the building blocks and we can start with FRE, and then we'll work our way to adjusted net income. But as you look at FRE, the biggest driver of FRE is going to be management fees. We've had above industry growth rates from a management fee perspective for quite some time, and we're coming off a year where we had record capital raising of almost $130 billion of capital, which is the best forward indicator for future management fees. I think our Capital Markets business, while it's growing, it hasn't quite reached its potential yet. And so we think there's still quite a bit more room to grow in our Capital Markets business. Fee-related performance revenue as you're building up to FRE, we think as our [indiscernible] suite of products has doubled in the past year on an AUM basis, real opportunity to inflect fee-related performance revenue. And then I just spent time talking about operating leverage in our business. And so we feel really good about meaningfully exceeding the $4.50 target that we put out. I think it's worth noting that when we put out that target, it was a little over 2 years ago, so not that long ago and at the time our LTM FRE per share was $2.55. So we've had quite a bit of growth in a key profitability measure for us. We spent a lot of time, and I'm going to move on to our Insurance business, talk about insurance in earning calls and the like. We feel really good about generating plus or minus $1 billion of operating earnings in our insurance business. We put out a set of guidance for Strategic Holdings that would have us north of $350 million of operating earnings in 2026, another number we feel really good about. So as you look across our 3 segments, the more recurring components of our earnings, quite a bit of momentum, and we feel really great is how we're positioned coming into 2026. Next piece of our earnings is our investing earnings. It's more episodic in nature. This is a combination of our realized performance revenue, largely carried interest and realized investment income off of our balance sheet portfolio. Our budget for the year, as you would expect, is built bottoms-up name by name. And so we know what we need to get done in 2026 in order to achieve $7-plus per share of adjusted net income as it relates to the investing earnings piece of it. So we've got a lot to do for the remainder of 2026. But we know what we need to do, and we come into the year with record embedded gains on our balance sheet to $18.6 billion. That number is up 19% year-on-year. It is those embedded gains that are what's going to drive our investing earnings of the future. I also announced on our Q4 call last week, we come into the year with visibility of $900-plus million of monetization-related revenue. At this time last year, that number was $400 million. So quite a bit of momentum coming into the year relative to where we've been. But we've also said that we require a constructive monetization environment to ensure that we're able to get done what we think we can as we come into the year. Our position is that we will have that type of constructive monetization environment as we talked about in the macro piece of this discussion. But I think it's something that's important. We're not going to force a monetization into a bad market. And we would never -- and I think those who have followed us for a long time would know that we would never sacrifice long-term earnings for the benefit of short-term earnings. But we feel good on both measures. And hopefully, that additional color is helpful as you all think about the achievability of both our FRE target and our ANI target.

Let's talk about investing. So if you look across the equity markets, 3-year bull market relatively expensive. If you look at the debt markets, credit spreads relatively thin. Is this a good moment to accelerate deployments? Is it a good moment to pull back? Or given KKR's linear deployment model, is it still kind of steady as you go?

That is our goal. And so when we talk about linear deployment, it's really about using the full investment periods of fund. So if we have a 5-year investment period, we really do try to deploy roughly 20% a year. And we're never going to be perfect in that regard. But I think that is really important. I think that has driven a lot of our outperformance relative to the industry on a return basis. It is also what has driven a lot of our outperformance on a DPI basis. We've returned a lot more capital to our investors than our competitors have. So punchline is we're going to be looking to deploy as we come into the year. Now where are we deploying? Again, we're really going to try and play to our strengths. Let me pick a few areas. Our infrastructure business has been an area where we've been able to deploy meaningful capital, we think really interesting risk-adjusted returns for our investors. Put that in perspective, our infrastructure business, 5 years ago, was $18 billion. Today, it's $100 billion, and that's all organic growth. We are the #3 player now in the infrastructure space. We're still quite a ways behind the #1 and 2 players, but we are catching up fast. Another very interesting area for us from the deployment side is in Asia Pacific. We have the leading rather platform in Asia Pac in the alt space, and I can see us continuing to lean into that region and take advantage of our competitive moat there. I would say another big asset class for us where I think we've got some real competitive advantages with our scaled capital and leading position is in the asset-based finance side. I think our industry will continue to take real share here in a large and growing market. And I think we're really well positioned inside of our industry, given our leading position and the scaled capital that we're able to bring to opportunities.

Great. Rob, you just mentioned Asia. You have the #1 private markets business in Asia, #1 in private equity, #1 in infrastructure, top in real estate. But we've gone through an interesting period with sort of the trade war. So I'm wondering, as you talk to investors around the world, especially outside the U.S., especially in Asia, are you seeing any remixing of portfolios away from U.S. assets to potentially Asian assets?

I'll probably -- I'll answer your question a little bit differently, Craig. I think if you look back a couple of years ago, I think there was more hesitation on the part of Western investors to be investing in Asia and they were more cautious on the region. I think there's a greater appreciation today for the amount of growth that's likely to come from that part of the world over the next 10 years. We think it's more than half of global GDP growth. And for the role that alts can play, especially some of the larger players in that part of the world given their competitive positioning and differentiation in different markets. So today, in Asia, we've got 9 offices. We've got close to 1,000 people. We are spending a lot of time in 2 markets on the investing side. We have -- to be clear, we've got 9 offices in the region. But the 2 areas where we're deploying the most capital today are in Japan and India for, of course, very different reasons. The opportunity for us in Japan is really one principally centered around private equity. Real estate, where I mentioned earlier, we made an important strategic acquisition as well as insurance and what we can do in the insurance space. Japan, for us, has become our second largest investment market around the world. India, of course, a different story for us, but we are big believers in the rising middle class over the next number of decades in India and are going to continue to, we believe, meaningfully deploy capital in that part of the world as well. If you look at our Asia deployment in 2025, we were up 70% versus 2024. And so really consistent with that theme of leaning into our core strengths. And I see us really positioned to do that in 2026 as well.

So Rob, we should be getting up an update from the Department of Labor in the next month or two on the potential moving of privates into the 401(k) channel. You happen to have a partnership with a leading 401(k) target date provider with Cap Group. What do you expect to happen here?

Well, I think if you look out in the long term or over the long term, rather, Craig, I think it's hard for us not to see alts playing some role in the retirement channel. If you look across most every sophisticated investor in the world, I think they've spoken that alts is a really important component of asset allocation. And the one area where it's not offered as a solution is really in the retirement channel. And when you think about where alts are most powerful, they're most powerful against the longest-dated liabilities, and those longest-dated liabilities happen to sit in the retirement channel. And so I think we'd be surprised looking out over the long term if you didn't see alts play maybe a small component of an asset allocation framework and at least be offered up to participants as an option for them to be able to save for their retirements, much like really every other sophisticated institutional or large private wealth investor around the world has the option to be able to do. And so I'm not sure what's going to come out from the DOL, but we do have a lot of confidence that we're going to be a meaningful player, as we think about the firms that could be very relevant here in the retirement channel. And we believe we're partnered, really have a best-in-class partner with the Capital Group in a number of respects. Our partnership goes well beyond what we can do in target date funds together, but they do happen to manage one of the fastest-growing target date funds in the U.S., and we think they're a great partner in that regard, for sure.

So this won't be the first meeting where this topic doesn't come up, but let's cover software. So with Anthropic's launch of Claude, it has had a big reaction in the public markets, which the alt managers weren't immune. So as you guys look out at the world from your private market lens, what's your perspective of what's transpiring in the public markets? And also, if you can maybe help us size your business and tell us how you think about your own software exposure?

So why don't I start with the second part of your question quickly. Our -- if you look across KKR's $740 billion of AUM, we have roughly 7% exposure to software. If you look at our private equity business, we've got roughly 15% exposure to software. Importantly, if you look versus our direct comparables, we think we've got quite a bit less exposure. We did not really participate in a lot of the [ heavy ] transactions that got done in 2021 and early 2022 where businesses were valued at 8 to 10x or more on a revenue basis that is not where we played importantly. If you look at Strategic Holdings, roughly 12% of our EBITDA is exposed to software of the $1.1 billion or so of EBITDA across our ownership and Strategic Holdings names. Listen, we tell our people at KKR all the time to focus on things that they can control and short-term movements in our share price is definitely not one of those things. Our job is to go execute on behalf of our clients and our policyholders. We believe we've done that. We continue to believe that we've got portfolios that we'll be able to do that. We have not gone and re-underwritten our software exposure and its impact on the portfolio in the last week because we've been doing that consistently for a long period of time in terms of how we think about the big variable, and frankly, an unknown variable of AI in both its impact to the portfolio on a negative side, and there certainly could be some losers across our portfolio in that regard. But I think what's very much lost in the discussion is we think we've got more opportunities across our portfolio and the software names we have to get the benefit of AI, where we can make these businesses better and improve margin. And so I think there's this gross-to-net component that I think has been lost a little bit in how the public markets are viewing it. That's without getting into the amount of digital infrastructure investment that we've made across our infrastructure and real estate businesses. And if we believe that AI is going to take as much share as it has, then we should, in theory, feel a lot better about those investments we've made in another part of our firm. So hard for us to guess why the public markets have reacted the way they have. Our job is -- we delivered record earnings across our 3 core profitability measures last year, record capital raising and we've told our shareholders that we're going to have meaningful growth across all 3 of our profitability measures in 2026. We go achieve that. We continue to build portfolios that deliver compelling returns to our investors. I believe our share price will follow. So I hope that's helpful color. I know it's been a very topical part of the discussions that have taken place over the conference the last couple of days.

Rob, that was very comprehensive. If it's okay with you, we can see if there's any questions in the audience.

Excellent.

So please raise your hand. We got one in the front row here.

So I knew Ian Charles when he was at Landmark and I think very highly of his capabilities. But you say you're going to start a secondaries business. Isn't KKR too big to start one from scratch? I mean are you planning to buy one and build it or start it from 0?

Yes. And so a gentleman here referencing Charles. Ian is one of the co-founders of Arctos and Ian will be running the new investing unit that we've talked about creating in KKR Solutions. In a lot of ways, honestly, we like the idea of building a secondaries business from a blank sheet of paper. We think that there's a lot of innovation that can happen in the secondaries space from a product creation standpoint. We're in the earliest of days of thinking through what a business model will look like. But, yes, I think we really do look at the attributes that the Arctos team brings to the table and what KKR brings to the table. And we think over time, we all have a real right to win. And yes, we really do like the idea of doing it from a blank sheet of paper in a lot of ways. And I've said this early, Ian Charles and the team he has and the people he would be able to recruit. I mean, he's as creative of mind as we've come across in that space. So we're not putting a timetable across it. We think very long term at KKR in one sense, in the other sense, we want to be great pretty quickly. So we haven't put a timetable against it. They've got a leading sports business that we're excited to be partnered with and to grow and to see how we can work across between Arctos and KKR and make our respective businesses better. We're really excited about the GP Solutions business. And when you think about the GP Solutions business, we've got inside of our Credit and Capital Markets sponsor coverage of 250 sponsors. So the opportunity for us to be in close coordination there and to be more relevant for our sponsor clients goes up as a result. And what we can build in secondaries will happen over time, but we're going to get going on that pretty quickly.

Great. Well, with that, we're out of time. But Rob, on behalf of all us and BofA, we want to thank you for joining us.

Great. Thank you all.