KKR & Co. Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Insurance Business: Focus on longer-duration liabilities/assets, global expansion, GA investing in KKR's activities, raising third-party capital. Total insurance economics LTM ~$1.8 billion, tracking to scale. Added a new page to earnings release outlining total insurance economics (Page 20), showing management fees, Ivy-related vehicles, and capital markets fees contributing.
• Private Wealth: K-Series AUM over $32 billion (up from $15 billion Y/Y). Strong capital inflows. Strategic partnership with Capital Group progressing, with first public private credit solutions launched in April and public private equity solution filing in July.
• Monetization Environment: Realized carry up over 50% YTD. Unrealized carry balance grew 14% YTD. ~$800 million expected monetizations in next 2 quarters. Asia II PE fund to return cost, taking charge in Q4 (expecting net realized performance income in Q4 to be ~$0.18 lower).
• 2026 Guidance: Confident in achieving $4.50+ FRE per share and $7-8 ANI per share. Monetization environment constructive, but could delay activity if needed, with potential for more earnings in future years.

Segment Performance

• Asset Management:
  • Management fees: $1.1 billion in Q3, up 19% y/y (excluding catch-up fees, +16% y/y). Transaction and monitoring fees: $328 million, with capital markets fees at $276 million. Fee-related performance revenues: $73 million, up nearly 30% y/y.
  • Insurance segment operating earnings: $305 million (run rate ~$250 million plus $41 million benefit from actuarial review). Strategic Holdings operating earnings: $58 million (YTD ahead of prior year; tracking towards $350+ million net dividends in 2026).
  • Total operating earnings: $1.55 per share, a record quarter, 17% ahead of last quarter. Investing earnings: Realized performance and investment income totaled $935 million, net realized investment income in Strategic Holdings was $70 million; net investing earnings after compensation were $306 million in Q3.
• Capital Raising: Raised $43 billion in Q3 (second highest fundraising quarter), with organic new capital in credit platform ~60% of $43 billion. Global Atlantic inflows in credit: $15 billion (up y/y). Private equity and real asset business lines raised $16 billion. K-Series products brought in $4.1 billion in Q3 (20% higher than last quarter, 80% above Y/Y).
• Deployment: Invested $26 billion in Q3, $85 billion LTM (up 12% vs prior LTM). $126 billion dry powder available.

Guidance

• FRE: Confident in exceeding $450 million target for 2026 due to strong fundraising, management fee growth, and capital markets performance. Fundraising target of $300+ billion between 2024-2026 is 70+% achieved.
• ANI: Confident in achieving $7+ per share, driven by monetization activity and portfolio performance, though dependent on monetization environment. Embedded gains across the firm at ~$17 billion (second highest in history), well-positioned for future monetizations.

Risks

• Market Sentiment: Market can be fickle, with potential overreaction to news, leading to misinterpretation of good performance.
• Private Credit and PE Dynamics: Dispersion and bifurcation in performance; some firms may face challenges from overdeployment in prior years, but KKR's portfolio is mature and well-positioned.
• Monetization Uncertainty: Delays in monetization could impact earnings, but may lead to more earnings in future years if activity is deferred.

Question and Answer

Q: Glenn Schorr asks about international perspective, including Asia PE and Japan Post Insurance.

A: Scott Nuttall responds that investor demand for Asia is increasing, KKR has a strong local presence in Asia with over 600 people, $80 billion AUM in Asia, and Asia is expected to grow faster than other regions due to demographic and capital market development.

Q: Bill Katz asks about insurance ROE trajectory and mitigants on expenses.

A: Robert Lewin references Page 20 of earnings release, discussing $1.8 billion LTM insurance economics and tracking to scale. Confident in achieving $7+ ANI in 2026, with alts portfolio maturation and third-party capital as key drivers.

Q: Alex Blostein asks about FRE guidance and building blocks.

A: Robert Lewin states FRE target is on track due to strong fundraising, capital markets performance, and operating leverage. Management fees driven by fundraising, capital markets business well-positioned, and operating costs held below revenue growth.

Q: Steven Chubak asks about all-in ROE potential for insurance.

A: Robert Lewin mentions all-in ROE could go north of 20% over time, with alts portfolio maturation and third-party capital as biggest drivers, plus competitive advantage in accessing third-party capital like a private equity fund.

Q: Brian Bedell asks about Capital Markets expansion from GA.

A: Robert Lewin states Capital Markets business has potential for hundreds of millions in annual opportunity, with GA contributing, and expected to materialize in next few years.

Q: Benjamin Budish asks about fee rate impacts in PE and credit.

A: Robert Lewin notes management fees strong (up 19% y/y, 16% ex catch-up). In PE, blended fee rate stable despite Americas XII fund step-down. In credit, strong capital raising with $43 billion Q3, $55 billion YTD, on track for record year.

Q: Michael Cyprys asks about how KKR is a better partner for insurance clients.

A: Scott Nuttall responds that KKR now owns an insurance company, providing better understanding of client needs, engaging in deal flow discussions, and seeing increased third-party insurance AUM since acquiring Global Atlantic.

Q: John Barnidge asks about life insurance business opportunities.

A: Scott Nuttall and Robert Lewin respond that KKR is expanding relationships with life and P&C insurers globally, accessing more infrastructure and real estate opportunities, with third-party insurance AUM from insurers at ~$290-300 billion.

Q: Patrick Davitt asks about deal dam breaking and exit channel mix.

A: Scott Nuttall and Robert Lewin state KKR's experience differs from headlines, with dispersion and bifurcation, and active dialogues with strategic buyers and financial sponsors. Monetization visibility strong with ~$1 billion expected in next quarters.

Q: Brian Mckenna asks about carried interest AUM multiples and investment timing.

A: Robert Lewin and Craig Larson respond that the portfolio is mature, with ~30% of private equity portfolio marked at 2+ x, and the portfolio benefits from linear deployment and pacing, leading to more embedded gains.

Q: Craig Siegenthaler asks about Capital Markets business baseline and growth.

A: Robert Lewin states Capital Markets business has strong trajectory, with revenue floor established in 2022-2023, and expected to grow alongside KKR's scaling, with differentiated approach to third-party Capital Markets.

Q: Brian Mckenna follows up, and Craig Larson adds on private credit exposure.

A: Craig Larson clarifies KKR has no exposure to private credit names in the news, stating they were turned down for not meeting requirements.

Q: Craig Siegenthaler and Scott Nuttall discuss market sentiment and dispersion.

A: Scott Nuttall notes market loves simple narratives, but KKR sees dispersion and bifurcation, with no uniform excess like GFC, and focus on proactive portfolio and risk management.