KKR & Co. Inc. Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 1, 2025
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Operator

Ladies and gentlemen, thank you for standing by. Welcome to KKR's First Quarter twenty twenty five Earnings Conference Call. During today's presentation, all parties will be in the listen only mode. Following management's prepared remarks, conference will be open for questions. As a reminder, this conference is being recorded.

Operator

I will now hand the call over to Craig Larsen, Partner and Head of Investor Relations for KKR. Craig, please go ahead.

Craig Larson
Partner and Head of Investor Relations at KKR

Thank you, operator. Good morning, everyone. Welcome to our first quarter twenty twenty five earnings call. This morning, as usual, I'm joined by Rob Lewin, our Chief Financial Officer and Scott Nuttall, our Co Chief Executive Officer. We would like to remind everyone that we'll refer to non GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at kkr.com.

Craig Larson
Partner and Head of Investor Relations at KKR

And as a reminder, we report our segment numbers on an adjusted share basis. This call will contain forward looking statements, which do not guarantee future events or performance. Please refer to our earnings release and our SEC filings for cautionary factors about these statements. I'm going to begin this morning by reviewing our results for the quarter before Rob walks through the current environment, its impact on our key business drivers as well as our strategic positioning longer term. Scott will then finish with some closing thoughts.

Craig Larson
Partner and Head of Investor Relations at KKR

So beginning with our headline financial results for the quarter. Fee related earnings per share came in at $0.92 up 22% year over year. Total operating earnings of $1.24 per share are up 16% year over year, and adjusted net income of $1.15 per share is up 19% compared year ago. All of these figures are among the highest we reported as a public company and are reflective of the diversified and global business model built over the last decade plus. Going into our quarterly results in a little more detail.

Craig Larson
Partner and Head of Investor Relations at KKR

Management fees in q one were $917,000,000 up 13% year over year, driven by fundraising and deployment activities. If anything, management fee growth in the quarter feels understated relative to the breadth of the $31,000,000,000 of new capital that we raised in Q1. The largest component of this $31,000,000,000 was capital raised for North America 14, the latest vintage of our flagship North America private equity strategy, had not turned on as of March 31 and therefore did not contribute to management fees in the quarter. Rob's gonna give a a little bit of a more fulsome update on Americas fourteen in a few minutes. Total transaction and monitoring fees were 262,000,000 in the quarter.

Craig Larson
Partner and Head of Investor Relations at KKR

Capital markets transaction fees were 229,000,000, driven primarily by activity in new and existing portfolio companies within both private equity and infrastructure. Fee related performance revenues were 21,000,000 in the quarter. So altogether, fee related revenues came in at 1,200,000,000.0. That's up 22% year over year. Turning to expenses.

Craig Larson
Partner and Head of Investor Relations at KKR

Fee related compensation was right at the midpoint of our guided range at 17.5% of fee related revenues. Other operating expenses were $168,000,000 for the quarter. So in total, fee related earnings were 823,000,000 or the 92¢ per share that I mentioned a moment ago with an FRE margin of 69. Insurance segment operating earnings were $259,000,000 and strategic holdings operating operating earnings were $31,000,000 both of which were in line to modestly ahead of our recent guidance. In terms of our Strategic Holdings segment, we've closed on our purchase of additional stakes in three existing core private equity businesses as we introduced on our call last quarter.

Craig Larson
Partner and Head of Investor Relations at KKR

We continue to feel that our Strategic Holdings business is a real differentiator for us, and these transactions are a further accelerant for this segment. Today, our share of annual revenue and EBITDA across the 18 company portfolio is approximately $18,000,000,000 and 900 and 20,000,000 respectively. Again, that's our share. And since quarter end, we've announced the acquisition of a new core private equity investment, Cairo Healthcare, which will bring our strategic holdings portfolio to 19 companies. So altogether, total operating earnings were a dollar 24¢ per share.

Craig Larson
Partner and Head of Investor Relations at KKR

As a reminder, total operating earnings is comprised of our fee related earnings together with our insurance and strategic holdings operating earnings, which represent the more recurring components of our earnings streams. Over the last twelve months, total operating earnings comprised nearly 80% of total segment earnings. So said differently, nearly 80% of our pretax earnings over the last twelve months were driven by a more recurring earning streams, highlighting the durability of our business, especially during periods of volatility. Turning now to investing earnings within our asset management segment. Realized performance income was 348,000,000, and realized investment income was 218 for total monetization activity of 566,000,000.

Craig Larson
Partner and Head of Investor Relations at KKR

That's up almost 40% year over year. This quarter activity was largely driven by the annual crystallization of carry from core PE as well as other monetization events across traditional PE as well as growth equity. Turning to investment performance and looking at page 10 of our earnings release. The private equity portfolio was up 4% in the quarter and up 11% over the last twelve months.

Craig Larson
Partner and Head of Investor Relations at KKR

This was an this was

Craig Larson
Partner and Head of Investor Relations at KKR

a quarter where investment performance was undoubtedly helped by the geographic diversification of our firm as European and Asian equity indices were both up in the quarter. In real assets, the opportunistic real estate portfolio was up two in the quarter and up five over the LTM. Infrastructure was up four in the quarter and appreciated 13% over the LTM. And in credit, the leverage credit composite was flat in the quarter and up seven over the last twelve months, and the alternative credit composite was up three in the quarter and up 11 over the last twelve months. And finally, consistent with historical practice, we increased our dividend to $0.74 per share on an annualized basis or $0.01 $85 per share per quarter beginning with this quarter.

Craig Larson
Partner and Head of Investor Relations at KKR

This is now the sixth consecutive year we've increased our dividend since we changed our corporate structure, increasing our annualized dividend from $0.50 per share to $0.74 over this period of time. And with that, I'm pleased to turn the call over to Rob.

Robert Lewin
CFO at KKR

Thanks a lot, Craig, and thanks, everyone, for joining our call this morning. We've all experienced some real volatility, particularly since early April. It is in this type of environment that our business model and collaborative culture uniquely positions us, and we are using that to lean in and source attractive investment opportunities around the globe for our clients. As we navigate this volatility, there are a number of themes and questions that we have consistently been hearing from our shareholders and clients. So I thought I would spend my time this morning walking through a number of common areas of focus.

Robert Lewin
CFO at KKR

The first is the impact of tariffs on our existing portfolio. As a starting point, it is important to remember that tariffs and supply chain diversification and resilience have been front of mind topics for our investment, public affairs, and macro teams dating back to the global pandemic. As a result, for five plus years now, this has been a standard topic of conversation. Taking a look at our global private equity portfolio today, this includes traditional, core, and growth. Based on our initial findings, we estimate that 90% of our AUM has limited to no first order impact from the announced tariffs.

Robert Lewin
CFO at KKR

Importantly, this figure does not include identified mitigating measures that we are actively implementing. And specifically, our core private equity portfolio and our strategic holdings segment are not expected to have any material impact from tariffs. Across our infrastructure platform, the vast majority of our companies have either contractual protections that insulate KKR returns or minimal estimated exposure. Looking at our infrastructure deployment over the last five years, approximately 70% has been in Europe and in Asia. And as we look at our credit portfolio, there will be pockets of exposure, but we believe the opportunities, and we really do think this is a credit picker's market, will outweigh the downsides.

Robert Lewin
CFO at KKR

So while we expect there will be individual instances of direct tariff in parts of the portfolio, Based on how we understand tariffs today, we feel well equipped to manage these challenges and on the whole feel very good with how our portfolio is positioned. The second theme that I wanted to cover this morning is the effect on both the deployment and the monetization environment. We find ourselves in the fortunate position of being ready as a firm to play offense on behalf of our clients. Volatility brings opportunity, and we benefit from the global and connected nature of our firm. We've closed or committed to over $30,000,000,000 worth of new investments since the start of the year.

Robert Lewin
CFO at KKR

Within private markets, these investments are diversified across geographies with more than half coming outside The US. Notably, multiple of these investments are in Japan, where we continue to be at the forefront of activity, including the purchases of Fujisoft and Topcon in our private equity strategy. Looking only at investments that we announced over the last month, so when the tariff related volatility began, we committed over 10,000,000,000 of equity. This includes 7,000,000,000 in private markets across global opportunities in traditional PE, core PE, infrastructure and tech growth to name a few, and another 3,000,000,000 in private credit across direct lending, high grade ABF, and junior debt. Moving next to monetizations.

Robert Lewin
CFO at KKR

We think we remain really well positioned here. Our discipline around investment pacing and linear deployment has definitely contributed to the overall strength and maturity of our portfolio. At quarter end, our gross unrealized performance income stands at $8,700,000,000 It's a high point for us and up over 25 year on year. I think this number in particular stands out given our healthy level of monetizations over the past twelve months. As a result of our maturing global portfolio and strong investment performance, we are better positioned than some might expect in terms of realization activity, even in the face of the market volatility.

Robert Lewin
CFO at KKR

To give you a sense, looking at our pending monetizations, so this is based on transactions that are signed but not yet closed, we have direct line of sight to north of $800,000,000 of monetization related revenue, most of which will be performance income. This includes exits of Seiyu in Japan, Keto Crosby in The US, and foreign infrastructure investments to name a few of the key drivers. Of that 800,000,000 plus, we expect at least $250,000,000 to be generated in q two. It's a very healthy figure for us as we stand here in just early May. The third theme that I wanted to hit on is the impact on our capital raising efforts.

Robert Lewin
CFO at KKR

We are actively engaged with our clients. Part of this is making sure they know what is happening with their portfolios, but a lot of it is discussing how to invest into these markets and ways that we can work together. We've heard a range of responses, and they are evolving with the market. While it may be early as we see how this all plays out, today, there are no changes to our targets, and we have continued conviction in our fundraising outlook. Total new capital raised in the quarter was $31,000,000,000 and it's worth spending a minute on our North America private equity strategy.

Robert Lewin
CFO at KKR

In April, we completed the initial close period to North America 14 at $14,000,000,000 It's a great first step for us and reflects, in our view, the strong investment returns we've delivered on behalf of our clients alongside a differentiated return of capital profile. And remember, our approach here stands in contrast relative to many in our industry as we raise traditional PE funds focused across North America, Europe, and Asia compared to the global funds you often see from our competitors. This approach, we think, has allowed us to raise more capital. As of 03/31, we had over $40,000,000,000 of committed capital across our active traditional private equity flagship funds and has also allowed for more diversified carried interest profile at the same time. And this doesn't include committed capital across core private equity, mid market, and our growth strategies.

Robert Lewin
CFO at KKR

Looking at another important piece of capital raising private wealth. Our K Series suite of vehicles continue to maintain traction. Across the four investing verticals, AUM was at $22,000,000,000 including activity that closed 04/01/2025. This compares to $9,000,000,000 a year ago. Our North Star for the K Series suite continues to be focused on building vehicles that we can be proud of ten plus years from now.

Robert Lewin
CFO at KKR

As a result, recognizing that we don't read too much into the month to month sales, we continue to be encouraged by our performance, deployment, and the capital raising activity. And earlier this week, the two public private credit solutions created an exclusive partnership with the Capital Group have launched. We are similarly focused on building these products for long term success. And as we look ahead to the second half of the year, we would expect to give you an update on the private equity and real asset product launches. In addition, work is underway to extend access for individuals interested in private markets through model portfolios and target date funds.

Robert Lewin
CFO at KKR

Turning next to insurance. We are now a year plus into owning a % of Global Atlantic, and we are progressing well on our path to modestly evolving how we source source both liabilities and assets, including raising more third party capital, elongating our liability profile, and sourcing additional alternatives. This addition of longer dated alternatives to the portfolio, where we think that we have a differentiated sourcing advantage, will drive up overall returns while at the same time naturally reducing leverage over time. Financial performance here begins with Insurance segment operating earnings. In Q1, as you would have heard from Craig, we reported $259,000,000 which was in line with our expectations.

Robert Lewin
CFO at KKR

And consistent with our comments last quarter, would expect insurance operating earnings to stay in that $250,000,000 plus or minus level during the next few quarters. This line item alone does not capture though how our model works and the overall impact of our insurance related economics. A lot of it appropriately shows up in our asset management segment. Firstly, management fees from our IV sidecar vehicles as well as strategic partnerships. This capital allows us to grow GA in a very capital efficient way, and there is more to come here.

Robert Lewin
CFO at KKR

As an example, Japan Post Insurance announced in q one their intention to expand our existing strategic partnership and make a new 1,000,000,000 to $2,000,000,000 investment here. Number two, capital markets fees, where we've just begun to scratch the surface. We see the potential to generate several hundred million of additional annual revenues over time. In 02/2024, that number was closer to 50,000,000. And finally, the management fees charged for our investment management agreement with Global Atlantic.

Robert Lewin
CFO at KKR

Critically, even while we are in the process of shifting our strategy to emphasize longer duration and more private market assets, Our all in pretax ROE of our insurance business is approaching 20%, with a clear path to 20 plus percent returns as we get all the elements of the business working well together. The last theme that I want to go through before handing it off to Scott is around the durability of our model, which provides us with a significant amount of both stability and visibility. Over 90% of our capital is perpetual or committed for an average of eight years or more. Today, we have a hundred and 16,000,000,000 of committed but uncalled capital. And if you look at our management fees, they are largely calculated on committed or invested capital and therefore not influenced by marks and corresponding NAVs.

Robert Lewin
CFO at KKR

And finally, we have a record amount of capital on which we're not yet earning fees with 64,000,000,000 committed with a weighted average management fee rate of about a hundred basis points that turns on when the capital is either invested or enters its investment period. Just to put that $64,000,000,000 figure into perspective, it is up almost 50% compared to one year ago. So we benefit from real stability of management fees and increased visibility on how they will grow. And finally, our business is global and diversified. Almost half of our investment professionals sit outside of The US.

Robert Lewin
CFO at KKR

And looking specifically at our management fees, they are well diversified across asset classes. Over the last twelve months, management fees across private equity, real assets, and credit and liquid strategies were each over 1,000,000,000, and in aggregate, have grown at a high teens CAGR over the past three years. We don't think that there are any asset management firms that combine our scale, growth profile, and diversification. Now I'll end where I started. This is an environment where our people and our model really should excel.

Robert Lewin
CFO at KKR

With that, let me hand it off to Scott.

Scott Nuttall
Co-CEO at KKR

Thanks, Rob, and thanks everybody for joining our call today. Given the recent volatility and uncertainty, I wanna spend a few minutes on how we're navigating this environment and address what else may be on your minds. Before I do that, some context. Today is KKR's forty ninth birthday. We were founded on this day in 1976.

Scott Nuttall
Co-CEO at KKR

You and I have been here nearly twenty nine of those forty nine years. Over this period, the firm has seen a number of cycles and dislocations. In our experience, times like this yield some very attractive investment opportunities. The key is to use our global and diversified business model with significant locked up capital and a hundred and 16,000,000,000 of dry powder to keep investing when others are scared. These periods always end, and we typically look back and wish we had invested more when the world is most uncertain.

Scott Nuttall
Co-CEO at KKR

We are running the firm with those lessons in mind. We did a good job leaning into the COVID dislocation, and we're approaching this environment with the same mindset. As Rob mentioned, we've announced over $10,000,000,000 of investments in the last four weeks since the tariff announcement, and we have significant pipelines across our businesses. So you should expect to continue to see us investing into this environment. No doubt, some sale processes may be delayed if this continues, but it is times like this where we see the benefit of being very global as Asia and Europe are less impacted so far and multi asset class and connected as companies still need capital but may prefer debt over equity if valuations are down.

Scott Nuttall
Co-CEO at KKR

So we are optimistic about deployment and the returns we will see from this vintage. We're also sure you have questions about what this means for monetizations. As Rob mentioned, we have a mature portfolio and benefit from linear and disciplined deployment. As such, we have record embedded gains in our portfolio, and those gains are global and across asset classes. Here again, we have good line of sight and several assets in sale processes.

Scott Nuttall
Co-CEO at KKR

So we remain of the view that we can monetize gains in this environment. And if we do decide to delay some processes, that just means we will likely monetize more next year. And we're sure you also have some questions about fundraising. We want you to have our views and some facts. As an example, China based LPs make up a low single digit percentage of our AUM.

Scott Nuttall
Co-CEO at KKR

Some may delay decisions in this environment, but we don't expect a material impact. We're also watching private wealth flows, which have not been affected to date. These markets are in adoption phase, and we have a long history of outperforming in down markets. So this period could actually accelerate adoption over time, and we think our partnership with Capital Group will accelerate that adoption as well. And remember, a good portion of our fundraising comes through Global Atlantic.

Scott Nuttall
Co-CEO at KKR

We expect annuity demand to be largely unaffected in this environment, and it could be positively impacted as investors focus on safety and quality. In short, given our momentum and the diversity of our global fundraising channels, we remain confident we will continue to raise scaled capital. Stepping back, you're also likely wondering if we have changed our view of what we are capable of achieving as a firm. We have not. Joe and I shared 2026 guidance last year.

Scott Nuttall
Co-CEO at KKR

We still feel good about those numbers across both our fundraising and financial metrics. When you cut through it, we believe that while this dislocation may be different for a variety of reasons, the key is to stay focused on what we control and to not waste the opportunity that affords. We will continue investing, speaking with our clients, finding new themes, and looking for strategic opportunities, some of which are only available in times of distress. Times like this reveal experience, culture, and business model durability, and they give us the opportunity to differentiate ourselves with performance, client engagement, and strategic action so that we emerge stronger as a firm and as investors. That's our focus and intent.

Scott Nuttall
Co-CEO at KKR

With that, we're happy to take your questions.

Operator

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on the telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 if you would like to remove your questions from the queue.

Operator

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To request participants, please limit to one question and one follow-up and rejoin the queue. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from Craig Siegenthaler with Bank of America. Please go ahead.

Craig Siegenthaler
Craig Siegenthaler
Managing Director at Bank of America

Good morning, Scott, Rob. Happy 40 birthday, and hope everyone's doing well. Thanks, Rob. Thank you. Is on your Asia business.

Craig Siegenthaler
Craig Siegenthaler
Managing Director at Bank of America

So we all know that you have the largest private markets business across Asia. So we're curious in your perspective on what the emerging trade war means for your strategy, your ability to fundraise, and also investing effort across the region.

Scott Nuttall
Co-CEO at KKR

Thanks for the question, Craig. No change to our strategy. I mean, one of the things we talked about in the prepared remarks is, you know, that we learned a lot kinda going through Trump one dot o and thinking about tariff implications. Learned a lot during COVID about supply chains as an example. So we have been looking at investments across asset classes with those lessons and the benefit of that time frame in mind.

Scott Nuttall
Co-CEO at KKR

So no change to our strategy. You know, our effort, as you know, is cross asset class and pan Asian. And so we have efforts across private equity, real estate, infra credit, the beginnings of an insurance effort, nine offices across the region approaching 600 people. So we think it is a big opportunity for us as a firm, and we see a lot of growth ahead. On the margin, one of our themes for a while has been intra Asia trade as just an example.

Scott Nuttall
Co-CEO at KKR

We think that's gonna be an even bigger opportunity now on the back of this. And perhaps as investors stay focused on being even more global with their portfolios, you know, I I would say January, February, there's a little bit of a bent toward maybe I should have more in The US on the margin. I think it's gonna be beneficial to Asia flows if people decide to stay more global. And and so it's something that I think will benefit us given our scale in the region.

Craig Larson
Partner and Head of Investor Relations at KKR

And then, Craig, it's Craig. I was just gonna add some numbers to this. I think you're broadly aware of this. I know you spent a healthy amount of time in the region yourself. But at the end of twenty nineteen, we had 21,000,000,000 of AUM, almost 90% was in private equity.

Craig Larson
Partner and Head of Investor Relations at KKR

And looking at q one twenty five, we had about 70,000,000,000 of AUM with traditional PE comprising just below 50% of that. So as Scott noted, meaningful growth with meaningful diversification at the same time.

Craig Siegenthaler
Craig Siegenthaler
Managing Director at Bank of America

Thank you, Craig. Just for my follow-up, I heard your commentary towards the end of the call on the resilience of private wealth, flows and actually the potential for an acceleration coming out of this correction. Do you see the strong relative performance to date, or the very low adoptions as the key drivers? And and was that comment really brought across asset class? Because I know you're you're doing very well in particular in private equity just given CapEx strong recent performance.

Scott Nuttall
Co-CEO at KKR

Yeah. I think it all really is a it's a comment on our ability to perform through a cycle, Craig. And so the comment was more if the public markets pull back, that's when we tend to outperform by even more. So if the private wealth channel, which is newer to the alternative space, has that experience, we think over time that could actually accelerate adoption. So it's more of a forward looking comment.

Scott Nuttall
Co-CEO at KKR

You're right. We haven't really seen impact flows as of yet. Craig will walk through some numbers in a minute. But for us, you know, as I mentioned in the prepared remarks, we've been we've been around a long time. We've seen a lot of cycles, and we're a learning organization.

Scott Nuttall
Co-CEO at KKR

And so we learned a lot of lessons during the financial crisis, and one of those was the importance of linear deployment and portfolio construction. As you know, we've been talking about it for a long time. We've been implementing it for a long time. It's now coming through the results. And so the bigger performance point, you know, I think is gonna start to shine through and show how differentiated we are.

Scott Nuttall
Co-CEO at KKR

So just to take one example, America's private equity, over the last eight years, we've returned two times the amount of capital that we've called. And that's in a business that's been growing. And so we think this is gonna allow us to outperform over time in terms of capital access, and we do see it as a go forward advantage across channels. So private wealth is part of that, but we also see the benefit across institutional and everything else we do. Craig, you wanna give an update on private wealth?

Craig Larson
Partner and Head of Investor Relations at KKR

Yeah. We were looking at the stats through April. You know, if you if you look at at q three and q four, we were below that 3,000,000,000 of new capital raised in q three, right at about that in q four. In q one, we'd raised $4,000,000,000 across the case series for the quarter. And when we look at activity at this point through April, so one month period, we're right at about that billion level.

Craig Larson
Partner and Head of Investor Relations at KKR

So it it feels like a healthy, month for us. It's interesting when you look at overall, flows in particular for private equity and infrastructure. In q one, roughly half of those were inside The US, roughly half outside The US. And based again on this preliminary data for the month of April, we're again very diversified with a a pretty equal split both inside and outside The US. So, again, overall, tough to read too much into any four weeks of of data, particularly April of twenty twenty five, but, at this point, things feel okay.

Operator

Thank you. The next question comes from Alex Blostein with Goldman Sachs. Please go ahead.

Alexander Blostein
Alexander Blostein
Managing Director at Goldman Sachs

Hi. Good morning. Thank you for the question. So zooming out a little bit, the comments over the course of your prepared remarks suggested, you know, a much more resilient business, perhaps what's perceived in the market today. You talked about monetization not quite falling off the cliff.

Alexander Blostein
Alexander Blostein
Managing Director at Goldman Sachs

Deployment, dry powder, really healthy. It sounds like you're not really changing the outlook for fundraising either. So so the question obviously is, you know, with the stock doing what it's done over the last few months, why not step up the buyback here? I know it's a dynamic approach. You guys have talked about it in the past, and you're looking to generate the best return on invested capital.

Alexander Blostein
Alexander Blostein
Managing Director at Goldman Sachs

But, if not now, when? And maybe you guys can also hit on, expectations for, putting the $2,000,000,000 plus of convert to work and kinda how you're thinking about use of those proceeds.

Robert Lewin
CFO at KKR

Great. Alex, it's Rob. Why don't I start? So we've been very consistent as it relates to capital allocation for some time, and I really do think the most important thing for any capital allocation process is consistency. And we've got two goals.

Robert Lewin
CFO at KKR

One of which is to make sure that every marginal dollar of free cash flow is going to generate the most amount of long term earnings per share. And the second goal, closely related, is to make sure that we are increasing the quality of those earnings. So more durability, more resilience, more recurring nature of those earnings. And every marginal dollar of free cash flow we look at through that lens, and we've talked about four areas of using our capital base to accomplish those goals. One of which is share buybacks, the other three are core private equity strategic M and A and insurance.

Robert Lewin
CFO at KKR

Share buybacks, as you know, over the past several years have been a really important part of our capital allocation framework and use of capital. And I've got every confidence that as we look forward and as we think about using our capital, share buybacks will continue to be a core part of how we think about capital allocation. But we also don't have a framework that puts a specific amount in any one bucket. To us, it's all about how do we take that marginal dollar of cash flow and drive the most amount of earnings per share across our business over a long period of time with the most amount of durability and resilience to that cash flow. And we're gonna take that same lens.

Robert Lewin
CFO at KKR

And as I said, I would expect that share buybacks as we look forward will continue to be a very important part of that allocation framework. And and maybe the last point, because I think anytime you're talking about capital allocation, it's important to point this out. You know, KKR senior management own roughly 30% of KKR. So any decision that we take around capital structure, around capital allocation, you briefly mentioned the convert we did a couple of months ago, you know, is really through that lens in a way that is highly aligned with our our shareholder base. And that's really the the approach that we've taken.

Robert Lewin
CFO at KKR

And if you look at share buybacks historically, you know, we've used our capital base to retire roughly 10% of our shares outstanding, 15% of our free floats. We've done so at an average price of roughly $28 per share. And so we like our historical body of work, and would expect that it going forward, we're gonna continue to be able to find accretive ways to put that capital work for all of our shareholders.

Operator

Thank you. The next question comes from Bill Katz with TD Cowen. Please go ahead.

Analyst

Hi. Good morning. This is Manu on for Bill. Happy birthday, you guys. Just wanted to say that.

Robert Lewin
CFO at KKR

Thanks.

Analyst

Maybe maybe a question on asset backed finance. Maybe update us on the platform as we go into the balance of 2025. Some color on expanding the sourcing funnel and bank partnerships.

Craig Larson
Partner and Head of Investor Relations at KKR

Hey, Manu. It's Craig. Why don't I start? Glad you asked about. So look first on page 13 of our release.

Craig Larson
Partner and Head of Investor Relations at KKR

This is the page that details our credit and liquid strategies business. We break out the composition of the AUM in that piece. And if you look overall, total credit AUM up 10% year over year, 280 plus billion of AUM. The private credit component is growing at even a a faster rate. So we've got a hundred and 17,000,000,000 of AUM, 26%.

Craig Larson
Partner and Head of Investor Relations at KKR

And within that private credit piece, 74,000,000,000 of that is an asset based finance, and ABF year over year has grown, at a number between thirty five percent and forty percent. So the asset based finesse business, it's a big business for us. Our scale here is probably larger than someone, might expect. And so back to your your question on how we're positioned at this market. Look, it's a lot of the same themes you have heard from us historically.

Craig Larson
Partner and Head of Investor Relations at KKR

Massive end market, 6,000,000,000,000 on its way to 9,000,000,000,000. In our view, you've got really hot barriers to entry. There's a lack of scale capital, which, as you noted, a number of, traditional providers in our view leaving this market and are creating a void. So it's, we're continuing to find attractive risk reward. I think our clients like the diversification away from the corporate credit cycle.

Craig Larson
Partner and Head of Investor Relations at KKR

And in terms of the current environment, we think this is a very good environment for asset based finance. We think companies are still gonna look to be efficient with volatile, with volatile markets as as companies look to finance themselves. We think companies will continue to look for creative ways to finance themselves off balance sheet. Again, as we think about banks, we think our opportunity set will continue to increase. And if you look at overall asset based finance deployment for us, it was a little over $4,000,000,000 in Q1.

Craig Larson
Partner and Head of Investor Relations at KKR

Over the trailing twelve months, we're at about 21,000,000,000 So again, it's a healthy part of deployment for us. Just to give you frame of reference, 2023, that number was at about 8,000,000,000 So you're seeing really significant growth for us in a number of different asset classes. Just feels like there's a lot more for us

Craig Larson
Partner and Head of Investor Relations at KKR

to do.

Operator

Thank you. Our next question comes from Ben Budish with Barclays. Please go ahead.

Benjamin Budish
Benjamin Budish
Director at Barclays

Hi. Good morning, and thanks for taking the question. I wanted to ask maybe a two in one on capital markets fees. I know sometimes you'll kind of give a look into what how Q2 is shaking up. Wondering if you could do that.

Benjamin Budish
Benjamin Budish
Director at Barclays

But I'm also curious, in your presentation in the slide deck, noted that about two thirds of transaction fees were debt focused in the quarter. Can you talk about what is that historically? Is this sort of a function of a changing environment or part of a more explicit strategy to kind of broaden the type of business you're doing there? Thank you.

Robert Lewin
CFO at KKR

Great. Ben, thanks a lot for the question. Maybe I'll answer the second part of the question first because it's the shorter part of the answer. Roughly, we've been at that two thirds level over time, so no real big change in the quarter. As it relates to our capital markets business fees, listen, q one was a really solid quarter for us, particularly given the backdrop, 230,000,000 of revenue.

Robert Lewin
CFO at KKR

Q one tends to be historically a lighter quarter. And frankly, as we came into the quarter looking at pipelines, I think we thought we'd be a little bit shy of that number. As we look at q two, especially with the backdrop that we have, lower deal flow out there, we've got a very solid pipeline. Does that shape up to be similar revenue numbers q one? Not sure.

Robert Lewin
CFO at KKR

We might be a little bit shy of that, but given the environment, feel really good about that pipeline. Back half of the year, we're gonna need to see. You know, let's see how the environment plays out, how the capital markets shape up. But as we sit here, February, when we look at q one, look at our forward pipeline, feel better about it than we felt February. Now we had a big back half of the year in in 02/2024.

Robert Lewin
CFO at KKR

We'll see how the rest of '25 shakes out, but we feel really good with how our business continues to be able to perform in different market environments. You look at 02/2022 and 02/2023, we generated roughly $600,000,000 of revenue in both of those years, so really protected downside in that business, created more of a floor from a revenue perspective in very choppy capital markets environments. And then you saw a spike to roughly $1,000,000,000 of revenue when the markets opened up in 02/2024. Team's done an awesome job building that business over the last almost two decades, and we think there's a lot of upside from here.

Operator

Thank you. The next question comes from Glenn Schorr with Evercore. Please go ahead.

Glenn Schorr
Senior Managing Director & Senior Research Analyst at Evercore

Hi there. So I wanna circle back to the conversation on private equity. You you you clearly helped us see how, you know, the linear deployment and investment pacing helps your particular situation, especially look at even America's Twelve and the the cap capital you've returned. So the question is broader. It do you expect in in 02/2006 and '8 02/2006, '7, and '8 vintages, that was kind of subpar performance for the industry.

Glenn Schorr
Senior Managing Director & Senior Research Analyst at Evercore

People thought our private equity is dead. We go out and we've raised a lot of money. It doubles and triples. So the question is, is this time any different for the industry? There's more funds.

Glenn Schorr
Senior Managing Director & Senior Research Analyst at Evercore

There's more assets raised. There's subpar performance. Are we going to see a bigger shakeout? Because we didn't see enough of one in in past downturns. So the the real question at the end of all that is, will we see lower allocations to private equity or just a dispersion and consolidation to the better performance?

Scott Nuttall
Co-CEO at KKR

Hey, Glenn. It's Scott. It's a great question. You know, our expectation is that it'll probably be more about where you ended up. It'll be more about dispersion.

Scott Nuttall
Co-CEO at KKR

And I think you're gonna have meaningful dispersion of results across private equity managers. And, you know, that will start to come through maybe in a way that it hasn't, to your point, for a very long time. We're we've already seen a trend for a while of institutional investors in particular globally wanting to do more with fewer. And so they've been consolidating their relationships with people that they think can perform through a cycle and that in a lot of cases are global and multi asset class. Obviously, we've benefited from that.

Scott Nuttall
Co-CEO at KKR

So I think it's gonna be I wouldn't use the term shakeout. I think there'll be more of a concentration of capital with fewer players. And I think we'll now see the benefit of what I mentioned before that, you know, we learned a lot during GFC, during COVID, during Trump one dot o. We've been applying those learnings. You know, volatility creates opportunity, but you need to have the capital to invest and the courage to invest it.

Scott Nuttall
Co-CEO at KKR

And we as a firm and, you know, we talk about culture all the time here. We're incredibly well connected, and if nothing else, we learn. And so I hopefully, that will benefit us and as it comes through results, But I think it's gonna be dispersion as opposed to shakeout.

Operator

Thank you. The next question comes from Steve Chubak with Wolfe Research. Please go ahead.

Steven Chubak
Managing Director at Wolfe Research LLC

Hi. Good morning. Morning. Good morning.

Steven Chubak
Managing Director at Wolfe Research LLC

So recognize that you're planning to give a more fulsome update on the capital partnership in the second half, but was hoping you could just provide some early color on distribution strategy and specifically areas of differentiation versus other competing products and just how these vehicles might evolve over time.

Craig Larson
Partner and Head of Investor Relations at KKR

Hey, Steve. It's Craig. Why don't I start? Look, we're we're obviously at the earliest of days are really excited with being in position to launch the two vehicles. You would have seen in the press release from a couple of days ago that there's more to come with a private equity focused product in addition to real assets yield oriented products.

Craig Larson
Partner and Head of Investor Relations at KKR

And alongside of that, there are initiatives focused on things like model portfolios as well as target date funds. So we're we're just at the, again, at the earliest of days, and we were, you know, preparing for the question of what do we think good looks like. And that is, Steve, a a super tough question, to answer because in many ways, it feels like together, we both are forging a new path, a very exciting path, and we'll keep everybody abreast in terms of, progress as we go forward. But our mindset, as you've heard from us over time, is not on new capital raised in a three, six, or twelve month period. We together are trying to design products that we think five, ten, fifteen years from now, collectively, we're both gonna look back at and feel really proud about the net investment performance that we've delivered on behalf of our clients.

Craig Larson
Partner and Head of Investor Relations at KKR

And if if we are successful in that part of the equation, we're gonna be able to raise just a a fine amount of money. So, again, just there's a lot of excitement within our firm, I think, within Capital Group as well about the opportunity, and it it just feels great at this point to be launched and underway.

Scott Nuttall
Co-CEO at KKR

Hey, Steve. It's Scott. I think, Craig said it well. You know, we've talked about the private wealth opportunity for a while. We do think that it is significant.

Scott Nuttall
Co-CEO at KKR

As you know, a lot of institutions globally are 30 to 50%. In alternatives, individual investors are low single digits depending on what you look at, one or 2%. So the the opportunity for kind of expanding our market is meaningful. But even more importantly for that, it just doesn't make sense that if you're a teacher in Texas and you're retired, you have 40% of your retirement funds invested in alternatives. And if you're a retired dentist, you have zero.

Scott Nuttall
Co-CEO at KKR

You haven't had access to what we do. And so with k series, you know, we have been focused on hitting the accredited investor and up. Let's talk US market for a minute. That's a million of net worth and up. That is about 5%.

Scott Nuttall
Co-CEO at KKR

Anyway, you look at five to 7% of US households. As you know, we've launched there, and we're underway. And those were some of the numbers Craig walked through before. With Capital Group, we're focused on the other 95%. And we have just launched these first two products in credit space.

Scott Nuttall
Co-CEO at KKR

But what's coming? Private equity, real estate, infrastructure, models, and figuring out how to access more efficiently the the broader investor universe and target date. What can we do in April? So there's a lot more coming attractions than there is work done to date, and we think the opportunity is immense. But our focus, to be super clear, is investment performance that we generate for the client.

Scott Nuttall
Co-CEO at KKR

And just like we have been for pension funds, sovereign wealth funds, insurance companies, family offices for nearly fifty years, that remains our focus. And figuring out how to deliver that performance to that new audience with a fantastic partner.

Operator

Thank you. The next question comes from Mike Brown with Wells Fargo. Please go ahead.

Mike Brown
Mike Brown
Managing Director at Wells Fargo Securities

Hi. Good morning, Scott, Rob, and Craig. Morning. I wanted to ask on the flagship fundraising in 2025. So you had the first close on North America buyout.

Mike Brown
Mike Brown
Managing Director at Wells Fargo Securities

Seems like the industry wide fundraising is elongated, so I wanted to ask on what's the right time frame to consider for a final close. And then Beyond North America buyout, where else are you expecting the inflows from the big flagships in 2025? I believe Asia's starting, so can we see some inflows in '25? And then what's the expected timing on the final close for Infra Fund five? Thank you.

Craig Larson
Partner and Head of Investor Relations at KKR

Hi, Mike. It's Craig. Why don't I start? First, on Infra and flagship Infra fundraising at 03:31, we're at a little over 11,000,000,000, 11 point 3 billion, as you can see in the back of the release. I think we feel really good about progress to date.

Craig Larson
Partner and Head of Investor Relations at KKR

I think to your point, if anything, we may be seeing a little bit more of a barbelled approach to fundraising in this environment. So the biggest components of capital coming in either at the initial close to take advantage of first close discounts or the final close. I think that's probably always been the case, but, perhaps feels maybe even a little more so, in the current environment. Again, as it relates to America's private equity, wrapped up the first close at fourteen. As Rob alluded to in the in the, prepared remarks, just feel really great about progress to date and think it's a real credit to the team, as we look at absolute returns and capital return and all the things that we've already talked about.

Craig Larson
Partner and Head of Investor Relations at KKR

Would expect we'll have a couple of closes in America, and we'll launch fundraising for the flagship Asia strategy, on the heels of that. We don't we haven't announced publicly any specific timing as it relates to when we would, launch that fundraising, but I think that is a topic that is certainly becoming, front of mind for us here. And then similarly, we haven't announced a a final close date on In for Five. Our first close, period ended or was in July of twenty four. So we're we're well inside of twelve months at this point, and we'll keep you abreast as as we move forward there.

Craig Larson
Partner and Head of Investor Relations at KKR

But, again, we just haven't announced any of any specific closing date on n four five. I think the broader point just relates to the breadth of activity that you see for us because on the one hand, there's there's always and and we understand it given the size of these vehicles. There's always a big focus on the flagship activity. But, if if you look at that activity for us and if that's been 20,000,000,000 or so in the the in the trailing twelve months, probably a little north of that, that still means you've got 80 to 90,000,000,000 outside of that activity that you're seeing across the breadth of our platform. Lots of activity across the credit business.

Craig Larson
Partner and Head of Investor Relations at KKR

I think similarly, broadly across infrastructure even, we launched fundraising for Asia infrastructure, the various wealth platforms, climate, etcetera. So there's just an underlying, breadth of activity that gives us, that gives us comfort.

Scott Nuttall
Co-CEO at KKR

Yeah. I think the only thing I'd add, Mike, is just to underscore Craig's last point, you know, we talked about the durability and diversity of the model. We've been very focused on this the last ten, fifteen years. So flagships obviously remain very important, but LTM, just over 20% of the capital we've raised. In the last two years, we've raised over 200,000,000,000 of capital just over and it's been about 12% of that 200,000,000,000.

Scott Nuttall
Co-CEO at KKR

So just to give you a sense of the diversity of the fundraising channels that we have and all the different ways we can access capital, meaningfully different than how we looked and felt a decade ago.

Operator

Thank you. The next question comes from Dan Fannon with Jefferies. Please go ahead.

Dan Fannon
Managing Director - Research Analyst at Jefferies & Company Inc

Thanks. I wanted to follow-up on just fundraising and was hoping obviously, momentum is quite strong. I was hoping you could just talk about your conversations you're having with LPs and and generally the health of that client base on the institutional side as you think as in the heels of this kind of volatile market we've been in.

Scott Nuttall
Co-CEO at KKR

Great. Thanks, Dan. Scott, let me take a shot at it. So we have had, as you'd expect, significant engagement with our clients the last several weeks. We tend to lean in even more when the world's uncertain and have even more connectivity.

Scott Nuttall
Co-CEO at KKR

It's hard to paint everybody with one brush, but people are in healthy shape overall. So the characteristics of the dialogue, one, it's super early. So everybody's just processing all of this. What's it mean? How do I think about it?

Scott Nuttall
Co-CEO at KKR

What are we seeing around the world? So we're sharing that with everybody that we work for. And there's confusion on what what this means, what it means in different places, and where we end up. So a lot of the discussions are on macro, you know, policy implications, geopolitics. But the clients overall are liquid, and they're asking us, you know, where should I lean in to take advantage of this for the most part?

Scott Nuttall
Co-CEO at KKR

I think a number of them probably wish they'd invested more aggressively post COVID and post the GSE. So they don't wanna make the same mistake. So we're getting questions about traded and opportunistic credit as an example. So I characterize it on balance. Of course, people some people are more concerned than others, but I'd characterize it as cautious greed and not wanting to look back with regret again.

Scott Nuttall
Co-CEO at KKR

Now I say all this and I mentioned it's changing very quickly. The S and P is now down 1% since April 1, and I haven't looked at where we're trading since our call started, and down five percent. So this is as of last night since the beginning of the year. And credit spreads, which were very tight, had moved back maybe to the averages. We hadn't seen them blow out materially.

Scott Nuttall
Co-CEO at KKR

So paper are liquid, and I think overall are trying to figure out how to take advantage of this. The other question we get is how do I think about where to invest my money? You know, a number of folks, as I mentioned before, had been thinking about if they were 60 to 70% US, should I be even more on the forward? That was January, February. Now it's more kind of retrenching.

Scott Nuttall
Co-CEO at KKR

Maybe I've got it about right. Do I need to rethink it? And people are just trying to figure out what all this means. Then the final analysis, The US is 25% of global GDP and 65 of global market cap. So said another way, US equity market is two times the size of Europe, Japan, and India combined.

Scott Nuttall
Co-CEO at KKR

So as we talk to CIOs, CEOs around the world that are allocating capital, there's a recognition of that fact and the depth and liquidity of this market. And so we haven't seen anybody make any abrupt changes, but it's super early. So I'd say highly constructive discussions and business as usual plus a lot more engagement.

Operator

Thank you. The next question comes from Patrick Davitt with Autonomous Research. Please go ahead.

Patrick Davitt
Partner at Autonomous Research

Hi. Good morning, everyone. My question is on the insurance discussion. I think you said you expect it to stay in the 250,000,000 range for the next few quarters. But with the ongoing portfolio repositioning and now I would think potential for wider new investment spreads, why is there not room for that to

Patrick Davitt
Partner at Autonomous Research

tick up through the year?

Robert Lewin
CFO at KKR

Yeah. Thanks a lot for the question, Patrick. Let me there's a few different things going on. So let me let me just start with how we look at things, and then then I'll work towards your your specific question.

Robert Lewin
CFO at KKR

And we really do focus on that all in ROE concept today. We are approaching that 20% level, so pretty attractive in its own right. And we've got a clear path to sustainably beating that level to generate 20 plus percent all in ROEs, especially we get all elements of the business model working together. And I'd point out that we're achieving that return level while we're going through this evolution of our business model at GA, which we know is going to put some near term pressure on Insurance segment operating earnings for a bit of time, all with the benefit of the longer term economic profile that we think we can achieve. We know for us that that's unquestionably the right path to take.

Robert Lewin
CFO at KKR

And I think you've followed us for some time, others on the call have, I'm sure as well, you know that we're always going to make the decision to decide for long term economics even at the expense of short term p and l. Now going into a little bit more of the detail that will answer your your question more specifically, we are working on a few different initiatives simultaneously, like all with good momentum. So let me give you a few different data points. This all starts how we evolve the business model modestly here, all starts with elongating our liabilities. And if you look at Q1 of this year, in the retail channel, 90% of the annuities that we went out and and sold and and the liabilities that we raised had a duration of five plus years attached to them.

Robert Lewin
CFO at KKR

If you go look at this time last year, that number was 65%. So really good progress on that important front. Number two, we've talked about taking our exposure to alternatives up. Industry average tends to be 5% to 8% exposure to alternatives. Global Atlantic, we mentioned at the end of last quarter was 1%.

Robert Lewin
CFO at KKR

In the quarter, we added roughly $1,000,000,000 of alternatives exposure, so making progress there too. And then importantly, third party capital is a very significant part of our strategy going forward. I referenced in the prepared remarks, some of the momentum that we have there, the Japan Post strategic partnership, we're out raising IB3 right now. And so there's a lot going on as it relates to third party capital as well. So good progress across these three very important initiatives.

Robert Lewin
CFO at KKR

But to answer your question specifically, this is all gonna take a little bit of time to impact the p and l, especially the part around the alternatives book and the growing alternatives book. Remember, much of that doesn't come through in yield. In addition to that, as we grow our third party capital base, big part of our go forward strategy, those fees only turn on when the capital is invested. Again, will take a bit of time. So we think where this all lands is a very attractive run rate return inside the insurance business, I think importantly, with lower leverage over time.

Robert Lewin
CFO at KKR

And then with significant asset management economics alongside that takes that all in ROE to that sustainable 20 plus percent level that I referenced earlier. Hope that's helpful color.

Operator

Thank you. The next question comes from Arnaud Giblet with BNP. Please go ahead.

Arnaud Giblat
Research Analyst at BNP Paribas

Yeah. Good morning. So we've seen a large number or some a certain number of large deals that would have been financed through the broad syndicated loan market for private debt in April. I think Cairo is an example here. So I was wondering how the availability of bank debt is currently evolving as we're spreads tighten once again.

Arnaud Giblat
Research Analyst at BNP Paribas

I'm asking the question from two angles really. So number one is what is the availability to do deals, the availability of debt and how that is evolving in April given the spread's tightening once again? And second, also looking through the lens of KKR as a provider of private debt, is there an opportunity to take back market share from the banks here? Thanks.

Robert Lewin
CFO at KKR

Great. Thanks, Sonal. It's Rob, why don't I start? Listen, I think when you saw very early April, you saw a brief dislocation where it was, for a small period of time, hard to go secure bank financing. I think we talk a lot about our capital markets business as a fee generator for KKR and profitability generator, and of course, it has been.

Robert Lewin
CFO at KKR

But the whole reason that business started was to really be able to support our portfolio companies in a differentiated way and we saw that in Caro where we went out and arranged our own financing. As it relates to where we sit today, we see bank availability of capital. The leverage finance market is open, albeit I think it's, you know, in order to access it, spreads are a little bit higher for sure today than where they were, but it's open and available for new deals sitting here in early May. Private credit opportunity remains a robust one as well. And given the backup and spreads in the leveraged finance market, little bit slower activity, of course, in the CLO formation, market.

Robert Lewin
CFO at KKR

We think that the spread opportunity in our private credit and direct lending business, is one that's attractive as we head into q two here as well.

Scott Nuttall
Co-CEO at KKR

Yeah. No. It's Scott. I think the capital is available to do deals. Depending on the transaction, I'd say the more straightforward stories that, you know, high line of sight to syndicatability, those are going the leverage credit bank route.

Scott Nuttall
Co-CEO at KKR

Those with maybe more of a story attached can go to private credit route. That capital is available. The key for us is those markets exist and function side by side. So it presents an option for us as we think about the best way to go depending on the transaction. Because, you know, in the private credit space, that capital tends to be locked up and it's readily available.

Scott Nuttall
Co-CEO at KKR

So it's more about the cost, as Rob said, and what's the best path based on the story and the underlying. I do think you're gonna continue to see as banks periodically pull back, if volatility increases, then you'll see private credit take more share from leveraged credit or the syndicated market, and it'll cut back the other way. This is an environment where we've got a little bit of both going on.

Operator

Thank you. The next question comes from the line of Brian Bedell with Deutsche Bank. Please go ahead.

Brian Bedell
Director at Deutsche Bank Securities

Thanks. Thanks. Good morning. Thanks for taking my question. Most have been asked and answered, but one maybe one on FRE margin.

Brian Bedell
Director at Deutsche Bank Securities

Continues to be impressive growth in the FRE margin. So just a question for Rob. I've asked this before in prior calls, but just to ask it again, do you see any kind of ceiling in that with basically the view of investing more, I guess, if the fee revenue growth improves? And then should we be thinking about higher expenses around distribution costs for your capital partnership as that evolves as maybe being a potential headwind on margin?

Robert Lewin
CFO at KKR

Great. Thanks a lot, Brian. So a few different things as I try and address question. Maybe just start on the expense side. We have talked about continuing to want to invest back into our business for growth.

Robert Lewin
CFO at KKR

As an example, we've talked about placement fees and distribution costs. And from my seat, you know, that is the best cost we have because it's got the clearest ROI attached to it. Now even with that said, what I've also talked about in the past as it relates to margin, so I think we can operate in a sustainable way at that mid 60% FRE margin. But the past number of quarters, as you know, we've been close to the high 60% level. And I don't think either is a cap for us.

Robert Lewin
CFO at KKR

I know it's not a cap for us. Because if you go back to our business strategy, from our perspective, this is all about scaling things that we have already started. And if we're successful at executing on that business strategy and as a leadership team, we've got a lot of confidence that we're going to be, then then we're going to grow our revenue at a pace that meaningfully exceeds our headcount growth and the operating complexity across the firm. And so while FRE margin expansion or overall margin expansion isn't an input to our business strategy, It is a really nice output to our strategy if we get it right, and we think we will.

Operator

Thank you. The next question comes from Michael Cyprys with Morgan Stanley. Please go ahead.

Michael Cyprys
Michael Cyprys
Managing Director at Morgan Stanley

Hey. Good morning. Thanks for squeezing me in here. Just a question on tariffs. I think you had referenced about 10 of your AUM that has some sort of first order impact.

Michael Cyprys
Michael Cyprys
Managing Director at Morgan Stanley

Sounds like that's mostly in credit. Is that fair? Can you just elaborate a bit on how you see restrictive trade policy impacting the portfolio? I think you also mentioned you're taking some mitigation steps. Maybe you can elaborate on the mitigation action steps you guys are taking.

Michael Cyprys
Michael Cyprys
Managing Director at Morgan Stanley

And then could you also speak to any sort of second or third order impacts that you're thinking about? How are you going about assessing that? Thank you.

Robert Lewin
CFO at KKR

Yep. Thanks a lot, Mike. Let let me start. When I referenced the 90% number, that was a private equity number across our portfolio where we're looking across our global PE business, and feel like in 90%, of the outcomes on an AUM basis that there's no material exposure. As you think about that other 10, that doesn't include any mitigation strategies that are of course already well underway.

Robert Lewin
CFO at KKR

And so we feel really well positioned. Infrastructure, we feel equally well positioned. When we look at that portfolio, much of what we do as contractual protections that insulate KKR returns or just no exposure at all. And then on the credit side of our business, actually, we understand the tariffs today, we think there might be even less exposure than what we're seeing in our private equity portfolio today. And so we feel as we look across, you know, our 600 plus billion dollars of AUM, really well situated.

Robert Lewin
CFO at KKR

It's not to say we're not gonna have our issues. And as you think about potential second or third order impacts and potential impacts across the economy, whether that's GDP or inflation or interest rates, of course, we're very attuned to that. We believe we're in a very fortunate position to have invested meaningfully behind a macro function, a geopolitics function, public policy. All of those teams deeply embedded across our investment teams globally and really synced up in a way that we're trying to anticipate what could happen next and be in a position where we can really, you know, react to things either proactively or very quickly if if things change from our base case. So there's a lot going on in the macro side.

Robert Lewin
CFO at KKR

Again, we feel very well competitively well positioned given our resources and the connectivity across our firm.

Scott Nuttall
Co-CEO at KKR

Yeah. Mike, it's Scott. I'd say, this is obviously not an accident. I mentioned before we learned a lot during COVID and And so we've been focused on acquiring assets and companies that have, I guess, more more durable demand drivers.

Scott Nuttall
Co-CEO at KKR

So one of the things that we've been looking at is do we think companies can hold margins in a high cost or higher inflation environment? And we frankly been leaning into those parts of the global economy and away from those that the answer is not as good. And so as Rob said, I'm sure we're gonna get surprised by some things. But as we look at it today, really, where we are today and what Rob just walked through is a result of the last five plus years of investing through that prism. Look, if we have a broader consumer letter session in United States or there's some other larger dislocation, then I'm sure you're gonna have other work to be done.

Scott Nuttall
Co-CEO at KKR

We also think we have management teams that are well equipped. And, having gone through COVID with a lot of large part of this portfolio, we've already had good practice as to how to get ready for a more dislocated environment. So we think we're well tested, but time will tell.

Operator

Thank you. The next question is from Kyle Woke with KBW. Please go ahead.

Kyle Voigt
Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)

Hi. Good morning, everyone. Maybe just a blended follow-up question on insurance and capital markets. Rob, just to clarify your earlier comments, should investors move away from thinking about insurance earnings being at the 14 to 15% pretax ROE range over the long run and instead simply think about an all in type 20% plus, target instead? And secondly, in the prepared remarks, you reiterated the opportunity to substantially grow the capital markets fees that are tied to insurance versus the $50,000,000 level in 2024.

Kyle Voigt
Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)

Can you just give us an update on the road map to get to the several hundred million level you noted and how you're thinking about a time frame to achieve that?

Robert Lewin
CFO at KKR

Great. Thanks a lot, Kyle. Short answer is, is no as it relates to the insurance operating earnings and and moving away from that. And and, of course, how we go maximize profitability inside our insurance business and how we go operate on behalf of our annuity holders is a very important consideration. I think as we're trying to frame the insurance business at KKR, I think it's important to look holistically, which is really how we as a management team think about it.

Robert Lewin
CFO at KKR

And so that's insurance operating earnings. It is importantly the third party capital fees from Ivy, our capital markets business, in addition to, of course our investment management agreement that exists between our asset management and our insurance business. And so I think both are very important, but holistically as a management team, we do look at that all in ROE and we thought it was important to share on this call because to be generating a high teens approaching 20% all in ROE, at the same time we are evolving our business model and really intentionally under earning in the near term inside of the four walls of insurance, I think speaks to the opportunity that we have once we've got all elements of our business model working really well together. As it relates to your second part of your question on the opportunity for capital markets fees, we've got a peer firm that's awesome job building that part of the business into something that contributes a significant amount of revenue as we look at how our capital markets business is situated. The investments that we've made in structured products, in private investment grade, the resources that we have on the ground in distribution, we feel really great about continuing to build out that business and to achieve very substantial revenue outcomes for our shareholders.

Robert Lewin
CFO at KKR

If you look across all of 2024, we were roughly $50,000,000 of fees in that part of our business. In Q1 of this year, that number was about 20,000,000 And so like most things here, Kyle, we're we're not in a rush. We're very conscious of doing it in the right way and in a way that maximizes the long term opportunity, and we continue to believe that generating hundreds of millions of revenue on the back of this type of opportunity is certainly well within, achievability from our perspective.

Operator

Thank you. Our next question is a follow-up from Ben Budish from Barclays. Please go ahead.

Benjamin Budish
Benjamin Budish
Director at Barclays

Hi. Thank you for taking my follow-up. I wanted to ask about one more kind of forward looking commentary item provided last quarter on in terms of management fee growth. Rob, last quarter, suggested that we should see some, excuse me, some acceleration from the 14% growth in 2024. So just curious if that's still the case.

Benjamin Budish
Benjamin Budish
Director at Barclays

Maybe as part of that, I know perhaps you can't say when the Americas Fund might activate, but could you remind us what are the sort of constraints? Is it just dependent on making the first investment or the pace of deployment of the predecessor? What should we be looking for there? Thank you.

Robert Lewin
CFO at KKR

Yep. Thanks for the question, Ben. We continue to believe that management fees will accelerate from here off of this level. You know, keep in mind that, you know, much of the 31,000,000,000 of capital that we raised isn't showing up in management fees. We've got $64,000,000,000 of AUM that where the fees have not yet turned on with a weighted average management fee of roughly a hundred basis points, so a lot of visibility around where our future growth is gonna come from.

Robert Lewin
CFO at KKR

I can tell you that, NAX four will be activated, in February, so in this current quarter we're in right now. And so it will be, a partial benefit to the q two quarter. And we've got a lot of other, I think, momentum across our capital raising channels that we've touched on through this discussion. So we continue to believe management fees will accelerate from here.

Operator

Thank you. As there are no further questions, I would now like to hand the conference over to Craig Larsen for closing comments.

Craig Larson
Partner and Head of Investor Relations at KKR

Ziko, thank you for your help this morning, and thank you, everybody, for your attention. I know this has been a longer call during a very volatile environment. We appreciate your interest, and we look forward to getting giving everybody another broad update, in ninety days. Thank you so much.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Analysts
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Earnings Conference Call
KKR & Co. Inc. Q1 2025
00:00 / 00:00

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