KKR & Co Inc Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Craig Siegenthaler - BofA Global Research - Analyst : Hope everyone is doing well. My question is on the infrastructure business. So very strong returns, best performing business over the last 12 months and also in the quarter, and infra also contributed to about 50% of your capital market transaction fees, which were also at record levels. So these are really big numbers for infra where return targets and size are both smaller than P. So two questions here. Big picture, what's driving the outside performance and is it sustainable into 2025? And I know there was at least one large lumpy item in the capital market transaction fee line, too.

Question: Glenn Schorr - Evercore ISI - Analyst : Curious if we could talk a little bit about asset-backed finance. I know it was a very active quarter. You mentioned the 45%-or-so growth to $65 billion, but I was looking for a little more color of where do those assets sit? Which product strategies? And then where are you sourcing the assets from? What's coming from your direct origination channels? Where are you growing platforms versus forming some partnerships? Just a little more behind the scenes would be great.

Question: Alexander Blostein - Goldman Sachs - Analyst : I wanted to ask a question on real asset segment but maybe a little bit more broadly, really strong fundraising momentum there, and I know there's been a lot of focus on Global Infra. But this quarter, it seemed to be pretty broad-based. You talked about climate and real estate in the prepared remarks, in the press release. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 2:00PM, KKR.N - Q3 2024 KKR & Co Inc Earnings Call How are you thinking about sizing these other flagships, so Climate North America real estate? And it also looks like you're pretty far along in European and Asia real estate, APAC infra. So maybe a little bit more holistically, how are you thinking about fundraising outside of the mega flagship infra fund there? And then specifically within real estate, what are you hearing from clients on the ground as far as demand for that product goes?

Question: Bill Katz - TD Cowen - Analyst : Maybe just to look at the wealth management opportunity a little bit, which is scaling very nicely, and I appreciate you gave a little bit of snippets in the prepared commentary. I was wondering if you could unpack that a little bit further. And maybe just talk about where you're seeing the best traction, which vertical. You mentioned that you're getting on to more platforms, a few new ones yet coming. Wonder if you could talk a little bit about like where you are in the arc of those, if you will. And then I was wondering now with three months closer, if you could update us a little bit on any early-stage opportunities or fund design with Capital Group.

Question: Brian McKenna - JMP Securities - Analyst : So it was great to see the nice step-up in accrued performance income during the quarter. I'm assuming a lot of this was driven by strong investment performance. But were there any funds that flipped into carry during the quarter? Or any newer strategies that are starting to contribute more meaningfully to the accrual? And then with respect to the [$3 billion] of asset management, embedded gains on the balance sheet, how should we think about just the timing of monetizing this over time?

Question: Brian McKenna - JMP Securities - Analyst : Got it. Congrats on another great quarter.

Question: Steven Chubak - Wolfe Research - Analyst : I wanted to ask a follow-up question just on the fundraising outlook. If we benchmark fundraising trends year to date versus the target $300 billion that you outlined at Investor Day, you've already fundraised $85 billion, tracking ahead of goal despite a limited contribution from flagships. And just given the constructive tone on this call improving momentum, both institutional and retail, just was hoping to get a bit of a mark to market on whether that target feels conservative, given some of the tailwinds that you're seeing. I recognize it's supposed to be a multiyear target. But any perspective you can offer, just given some of the strength in the recent fundraising momentum would be helpful.

Question: Patrick Davitt - Autonomous Research - Analyst : I'm going to be a Debbie Downer and ask an election question. We usually take the view that elections don't matter much either way, but one looming big change that could come this time is clearly tariffs on markets appear to be pricing that in to some extent. So aside from inflation and rate impacts, do you have any initial thoughts on how the existing portfolio could be negatively or even positively impacted by tariffs and/or a trade war?

Question: Michael Brown - Wells Fargo Securities, LLC - Analyst : I wanted to ask on the fee rates, I guess, specifically on the real asset and private equity segments. So in real assets, it looks like the fee rate ticked up and it sounds like that was probably driven by a turn-on of fees from the Global Infra fund. Could you just maybe quantify that impact or maybe help us understand the right run rate for the go forward? And then in private equity, it looks like the fee rate came down a little bit. Anything to point to there? And then can you remind us, are those K-Series products, are they on fee holiday? And if so, when does that end?

Question: Brian Bedell - Deutsche Bank - Analyst : Just going back to Capital Markets. Obviously, a very strong improvement. Obviously, Telecom Italia helped with that. But as we look into the fourth quarter, I'm not sure to what extent you can give any color on the potential and whether that could be another strong quarter, [not for '24] not the run rate, but could it rival the next, next quarter, which was $320 million in ['21.] And if Discover something that could potentially close in 4Q and give you fees. And I think also just North America, I think, was more than half or around half of the fees this time, so over $200 million. I think it was up from about $130 million. So was there anything especially lumpy in North America that was contributing to the third quarter?

Question: Michael Cyprys - Morgan Stanley - Analyst : I was hoping you could update us on your progress building out the climate strategy. Maybe you could talk about some of the steps you're taking to build that out, types of investments you're making in the portfolio, what return targets you're looking at. And how do you envision expanding this strategy over the next several years? Seems like there could be opportunities across asset classes and clearly across the globe. Just curious, your thoughts there.

Question: Kyle Voigt - Keefe, Bruyette & Woods North America - Analyst : Maybe just a question on GA. Just given some of the recent shift in the macro environment and given timing dynamics with deploying the significant capital you've taken in over the past few quarters, I was wondering if you could provide an update on the glide path to getting back to the 14% to 15% pre-tax ROE target and if 2026 is still the right timing for that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 2:00PM, KKR.N - Q3 2024 KKR & Co Inc Earnings Call

Question: Benjamin Budish - Barclays - Analyst : I was wondering if you could talk about the sale out of the core private equity portfolio. In the past, you've indicated that those were really businesses you wanted to own for a very long time and let their earnings compound. So could you talk about the circumstances that led to that sale? To what extent might that be something that recurs? And then on the other hand, I think the comments for your longer-term dividend income expectation was predicated on -- I think in the near term, it's predicated on the existing portfolio, but longer term, you assume more additions. So I guess both sides, the circumstances of the recent sale and how you think about monetizing other assets and then how you think about deploying capital and adding assets to that portfolio.

Question: Daniel Fannon - Jefferies - Analyst : I wanted to follow up on both the capital markets and the GA opportunity. Just curious, given the strength you just posted in the third quarter, how much GA contributed or a percentage of that activity and how much is obviously still on the come as you build and integrate that business more?

Question: Michael Brown - Wells Fargo Securities, LLC - Analyst : I wanted to follow up on the wealth channel discussion earlier in the call. I guess getting more focused is the potential opportunity for private assets in the retirement or DC channel and maybe perhaps the more near-term opportunity to actually model portfolios. But I guess understanding that's all largely unknown today, but I'm interested to hear about what's that long-term opportunity for KKR? How important is it to be a first mover into 401(k)s? And is partnership integral for success here? I'm just curious if the partnership you have with Capital Group could actually give you a bit of a leg up here.

Question: Patrick Davitt - Autonomous Research - Analyst : A quick housekeeping item. Could you give the updated visible realization pipeline numbers, please?

Question: Bill Katz - TD Cowen - Analyst : Just thinking through your commentary on the Capital Markets opportunity. Can you remind me just the split between how much of the revenues come from deployment as you continue to scale geographically across the segments versus exit activity? And given the 70%-plus FRE margin, should we presume that, that related revenue effectively drops to the bottom line?

Question: Brian Bedell - Deutsche Bank - Analyst : Just a quick one on the monetization pipeline coming into 2025. We had an exchange this morning that was also saying the pipeline is very strong, but they did expect 1Q to be slow seasonally. So just wondering if you're seeing that same situation for IPOs coming into '25 because I think you were talking about obviously the deployment momentum picking up. And then I guess maybe just the potential mix of the IPO market versus sales to other companies for monetizations.

Question: Brian Bedell - Deutsche Bank - Analyst : Yes, that's what I anticipated. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 2:00PM, KKR.N - Q3 2024 KKR & Co Inc Earnings Call