• Fee-related earnings per share: $0.75, up 22% year-over-year.

• Total operating earnings per share: $1.08 for the quarter.

• Adjusted net income per share: $0.97, up 20% year-over-year.

• Management fees: $815 million, up 4% sequentially from last quarter.

• Net transaction and monitoring fees: $152 million.

• Fee-related compensation ratio: 17.5%, within target range.

• Other operating expenses: $145 million, down 4% year-over-year.

• Fee-related earnings: $669 million.

• FRE margin: 68%, up 700 basis points year-over-year.

• Insurance operating earnings: $273 million.

• Strategic Holdings operating earnings: $21 million for the quarter.

• Realized performance income: $272 million.

• Realized investment income: $135 million.

• Adjusted net income: $864 million.

• Private equity portfolio performance: up 5% for the quarter, 19% year-over-year.

• Dividend: Increased to $0.70 per share on an annualized basis.

• Warning! GuruFocus has detected 12 Warning Signs with KKR.

Release Date: May 01, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Fee-related earnings per share increased by 22% year-over-year, indicating strong revenue growth.

• Total operating earnings were up, with a significant contribution from the insurance operating segment.

• KKR's private equity portfolio showed robust performance, with a 5% increase in the quarter and 19% over the last 12 months.

• Strategic Holdings segment is expected to generate significant operating earnings growth, projecting over $1 billion by 2030.

• KKR successfully raised $31 billion of capital during the quarter, demonstrating strong market trust and investment appeal.

Negative Points

• Other operating expenses, although managed well, are expected to increase due to ongoing investments and operational expansions.

• The insurance operating earnings were impacted by elevated cash and liquid assets, which are expected to yield lower returns in the short term.

• Realized performance income and investment income are highly dependent on market conditions, which can introduce volatility in earnings.

• The redeployment of assets in the insurance segment into higher-yielding investments is expected to take 12-18 months, potentially affecting short-term returns.

• While strategic holdings are projected to grow, the current operating earnings from this segment are modest, with expectations set for more significant contributions in the future.

Q & A Highlights

Q: Can you provide comments on the expected investment activity levels in just your private equity business over the coming quarters? A: (Craig Larson - KKR & Co. Inc. - Partner and Head of IR) We have a healthy backlog of announced transactions. The largest deployment this quarter was in our Japanese REIT business. We are also focusing on corporate carve-outs and infrastructure, with significant investments in a UK-listed smart metering business and other global opportunities. The main takeaway is a very healthy pipeline and continuing opportunities to deploy capital.

Q: Could you comment on the mix and priorities within the four buckets of capital allocation mentioned earlier? A: (Robert Howard Lewin - KKR & Co. Inc. - CFO) Our capital allocation framework is consistent, aiming to use excess free cash flow to drive durable and growth-oriented earnings per share at high ROEs. The mix across core private equity, share buybacks, insurance, and strategic M&A is not fixed, allowing flexibility to pursue the highest return opportunities. Strategic Holdings is expected to contribute increasingly to operating earnings, potentially exceeding $1 billion annually by 2030.

Q: What are the current trends and expectations for credit portfolio growth, particularly in direct lending and asset-based finance? A: (Craig Larson - KKR & Co. Inc. - Partner and Head of IR) Investor interest in private credit remains strong. Despite tighter spreads in direct lending, yields are still attractive. We're seeing significant growth in asset-based finance, driven by macro tailwinds and our strong origination capabilities. Our credit platform has grown significantly, reflecting broad-based momentum across various strategies and geographies.

Q: Could you provide more details on the expected growth and operational strategy for Global Atlantic, especially in light of recent large block transactions? A: (Robert Howard Lewin - KKR & Co. Inc. - CFO) The recent large block transactions are part of a strategic plan, expecting a 12- to 18-month period for asset redeployment into higher-yielding investments. We're also exploring opportunities in core plus real estate, which offers attractive long-term ROEs despite modest near-term yields. Our long-term ROE target for Global Atlantic remains around 14-15%.

Q: How do you view the opportunities and growth potential in the asset-based finance market over the next few years? A: (Scott C. Nuttall - KKR & Co. Inc. - Co-CEO & Director) The asset-based finance market is large and growing, offering significant opportunities across various asset classes. Our scale and established platforms provide a strong foundation for further growth. We anticipate continued capital formation as institutional investors increase their allocations to this space, recognizing its potential for attractive returns.

Q: What is the current state of the capital markets business, and what are the expectations for its trajectory? A: (Robert Howard Lewin - KKR & Co. Inc. - CFO) Our Capital Markets business is showing signs of improvement with better pipelines compared to last year. The reopening of equity and leverage finance markets is contributing to a more favorable environment. We are optimistic about the future growth of this business, leveraging our increased market share and the synergies with Global Atlantic.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.