KKR & Co., Inc. Q3 FY2024 earnings call

• Strong Q3 performance: Fee-related earnings eclipsed $1 billion for the first time, with $1.12 of FRE per share 32% ahead of last quarter, and ANI per share $1.38 the second highest quarterly figure in history.
• Operating metrics momentum: Gross unrealized carried interest balance increased 11% QoQ and 42% YoY; raised $87 billion YTD in new capital, deployed $61 billion YTD.
• Total operating earnings: $1.47 per share in Q3, comprising over 80% of pre-tax earnings.
• Deployment highlights: Infrastructure AUM at $77 billion, credit AUM over $65 billion, Asia AUM nearly $70 billion.
• Monetization: $13 billion gross proceeds YTD from monetization, gross unrealized carried interest $7.9 billion.
• Fundraising: $85 billion YTD, K-Series AUM $14 billion.
• Capital markets: $424 million revenues in Q3, a record for the public company.

Management fees in the quarter were $893 million, representing a 5% increase since Q2 and 18% year-over-year. Transaction and monitoring fees totaled $467 million, including a record $424 million of capital markets fees. Fee-related performance revenues were $57 million. Insurance operating earnings were $308 million for the quarter. Strategic holdings operating earnings were $7 million in Q3. Investment performance: Traditional private equity portfolio appreciated 5% in the quarter and 17% in the last 12 months. Opportunistic real estate was up 2% in the quarter and 3% in the LTM. Infrastructure was up 6% in Q3 and 18% in the LTM. Leveraged credit composite was up 2% in Q3 and 11% in the LTM; alternative credit composite was up 3% in Q3 and 12% in the LTM. Fee-related revenues were $1.4 billion, up over 50% compared to Q3 2023.

• Confidence in fundraising momentum, expecting continued growth in deployed capital and fundraising. - Expecting further acceleration in exit activity if market conditions remain constructive. - Originally targeting over $300 billion in fundraising, tracking ahead with $85 billion YTD, with increased confidence in achieving the target.

• Market volatility: Can impact portfolio valuations and investment performance. - Regulatory changes: Potential effect on operations and fundraising. - Geopolitical factors: Tariffs and trade wars may affect portfolio companies' performance.

Q: Question on infrastructure business performance and sustainability.

A: Infrastructure business has grown organically to $77 billion AUM, with strong performance, and scale advantages, with performance being key driver.

Q: Question on Asset-Based Finance.

A: ABF AUM $65 billion, up 40% YoY, with origination $22 billion YTD, and activity across various platforms.

Q: Question on Real Assets segment fundraising.

A: Real Assets has $80 billion AUM in infra and real estate, with momentum in investment activity and operating trends.

Q: Question on wealth management opportunity.

A: $75 billion AUM from individuals, K-Series suite of products with $14 billion AUM, strong momentum in private equity and infrastructure.

Q: Question on accrued performance income and balance sheet embedded gains.

A: Accrued carry broad-based, from real assets portfolio, balance sheet embedded gains dependent on monetization environment.

Q: Question on fundraising target mark-to-market.

A: Tracking ahead of $300+ billion target, with increased confidence due to fundraising momentum.

Q: Question on election impact on portfolio.

A: Teams focused on scenario planning, watching geopolitical factors closely.

Q: Question on fee rates.

A: Fee rates influenced by new products and portfolio scale, evaluated over longer term.

Q: Question on capital markets outlook.

A: Capital markets business not to be evaluated quarterly, with durability and potential for growth.

Q: Question on climate strategy.

A: Massive capital needs in climate, with $2.5 billion AUM and more to come.

Q: Question on GA ROE target.

A: Expecting 14%-15% pre-tax ROE long-term, dependent on various variables.

Q: Question on core private equity portfolio sale.

A: Focus on portfolio optimization, with sale of FiberCop due to specific circumstances, long-term holds strategy unchanged.

Q: Question on GA contribution to capital markets.

A: GA solid contributor in Q3, with hundreds of millions of dollars opportunity over time.

Q: Question on wealth channel in China.

A: Target date funds key, long-term opportunity for KKR, partnership with Capital Group relevant.

Q: Question on visible realization pipeline.

A: ~$500 million monetization-related revenue in Q4, 60% with lower compensation ratio.

Q: Question on capital markets revenue split.

A: Deployment is largest driver, third-party business historically ~20% of revenue, expecting expansion of FRE margins.