KKR & Co. Inc. Aktie

All right. Good morning, everyone. We're going to get started. Welcome back to day 2 of Morgan Stanley Flagship Financials Conference. I'm Mike Cyprys, equity analyst covering brokers, asset managers and exchanges. And for our next session here this morning, we're excited to have with us Raj Agrawal, who's a Partner and Global Head of

Real Assets at KKR. Raj, thanks so much for joining us.

Thank you, Mike, for having me.

And as you know, KKR is a global investment firm that offers alternative asset management, capital markets and insurance solutions and today manages over $750 billion of assets under management. So Raj is going to go ahead and present for maybe 5, 10 minutes, and then we're going to have a fireside chat. Great. Raj, over to you.

Thank you, and thank you all for joining this morning. Good to see you all. Plenty of time to have discussion, but I thought I'd just lay the land a little bit Infrastructure today is a very diverse sector. If you go back 20 years, people thought of infrastructure as being ports and toll roads. That's vastly underestimating what it is. It's incredibly diverse. So think of it as being essentials for modern living. So today and essential for modern living is digital infrastructure, web access, fiber, data centers, towers, cell phone usage, mobility. And people today, vastly in a survey, they would rather not pay their heating bill than their power bill or fiber bill, right? This is an absolute essential.

So like that, you've got power, digital infrastructure, social infrastructure, industrial, of course, transportation as well. When you put that all together, you have an incredibly large market, $100 trillion of need through 2040 and a fast-growing market. 2 of the fastest-growing sectors in the entire economy are absolutely infrastructure, digital infrastructure as well as power and power generation, energy generally. And when you put it all together. Why has this business grown? essential assets, contracted revenues, strong market positions, it's a great defensive sector for sure.

That defensiveness, when you're in an economy in a world where you're worried about high inflation, high interest rates, geopolitical issues, equity volatility or values too high or values going to run given productivity? Is AI going to eat entire sectors? When you have all those concerns, being in the real physical world providing essential things is a pretty interesting place to be from a relative risk return perspective. If you can protect capital but still expose capital to sectors like digital and power that have a lot of growth with them, you have the potential for really exceptional risk return, particularly in this time when you're worried about these things on the left.

And hence, even in the last 7 years, allocations to infrastructure have doubled. So if you look at our -- this is an institutional investor survey. And if you look at what part of their 100% of portfolio are they allocating to private infrastructure, that's gone from 3.3% to 6.4% this year. That's a record high. And 20 years ago, this was near 0. So alts is absolutely a growing sector. This is perhaps the fastest-growing sector within alts, and it's for what infrastructure does, particularly at a time like this. Within the infrastructure space, we have a leadership position. I would tell you our leadership position comes from 2 things.

One is we have protected capital extraordinarily well. When you're worried about everything I talked about on the last page, job #1 is protect capital, don't screw it up. And so we've protected capital incredibly well. So 80% of our investments -- we started our business in the GFC in '08. And so job #1 for us was protect capital. 80% of our investments are underpinned by long-term contracts or regulations. So 10 years or greater, Mike, is how we typically think about long-term contracts. We've made about 120 investments. We've exited roughly half of them. So out of our 60 exits, only 3 have we impaired any capital at all. And in those 3, we got 70% to 90% of our money back in each of the 3.

And so really consistent underwriting around protection of capital. It is in part helped by a low leverage strategy. So typically investment grade or just a notch below investment grade, roughly 45% leverage on an enterprise value basis. So job #1, protect capital well, it's not sufficient. So we protect capital. The second thing we do is try to add value in everything that we do, sourcing, structuring, operational value-add, stakeholder relations, portfolio management, exit, asset allocation. When you put it all together, we've been able to protect capital while delivering largely mid-teens returns in everything that we do. And you can see Fund I is a complete fund. This is in our flagship largest strategy. Fund II is nearly complete. Fund III, very much still in the process of maturing.

Historically, as you can see, as time goes on, we tend to have higher and higher returns as we mature and get exits. Fund IV, that's the -- we're currently investing Fund V. So Fund IV is the last fund where we've completed investing. And to date, at the 3-year mark, it's our highest performing fund ever. And so we -- if anything, our performance has gotten better with time, better with size. And so that putting together a track record of protecting capital plus delivering at or above our targeted returns, that is really what has led to the growth in infrastructure for KKR. And you can see it here. I'll explain the chart, and I'll tell you why I'm really excited by it. Each color bar is a different product or a different strategy that we have.

The one we started with back in 2000 -- goes back to 2008 is the purple global infrastructure. That's where we have our Fund IV was our last one that we finished investing about $17 billion fund, and you can see the AUM over time as it grows. I would say that's really our only mature business in infrastructure. And I would tell you, it's still growing. And here's what I love about it is that as we bring on new funds, we're currently in the market raising Fund V. As we bring on new funds, and let's say, their order of magnitude where Fund IV was in the $17 billion level or greater, the funds that are rolling off are $1 billion, $3 billion, $7 billion funds. And so even if you believe this is mature in terms of size, there's still a lot of running room in terms of AUM growth as you bring on funds that are 2x, 3x, 4x the size of the funds that are rolling off.

So if you think that's our most mature business, I would tell you there's still a lot of running room. And then you look at the other ones here, our Asia business, our core infrastructure business, our climate business, K-Series is really our private wealth product that invests in all of the above. On average, these are 3 or 4 years old. Our purple bar is 15 years old. And so there's a ton of running room even in growing fund sizes in the others. And so really, if we added nothing else to this, I would tell you, I'm excited about the prospects, and that's why this chart excites me. I think the last thing I'll say is I touched upon early, you can protect capital, but still expose yourself to some of the greatest growth dynamics in the industry. I'll just focus on one, the digital and power.

These are 2 sectors that given all the capital and growth in these sectors, these may actually help by inflation in the economy, right? That's how meaningful they are. Digital infrastructure, just to give you a sense, I'll talk about -- when we talk about the slowest growing and the fastest-growing hyperscalers that we meet with, these are largely who we're serving when we do data centers here. The slowest growing hyperscaler, if you take their inception to date capacity that they brought online in data centers, they would tell you that in the next 2 years, they're going to double capacity in the next 2 years, relative to the aggregate capacity they brought online since inception. And the fastest-growing hyperscaler that we've met with would tell you since inception through 2025, in 2026, they will double all their capacity they brought online from 2025 through inception.

And in 2027, they'll double again. And so these are just massive and very fast-growing themes that present a tremendous opportunity to protect capital and do well. So with that, maybe Mike will take it over to questions.

Yes. Great. Well, thank you for that color there and perspective on the business. Why don't we start with the macro. So first half of the year has been characterized by some geopolitical volatility, higher for longer rates, growing questions around AI-related capital spend. I guess what's changed the most, would you say, in your macro perspective and outlook over the last 6 months? And where do you think investors are maybe still misreading the opportunity set as you think about real assets?

Yes. Look, I think the misread tends to be people think of infrastructure either in 1 of 2 extremes. First of all, I'll step back and say, I don't think there's a whole lot of misread, right? And I think that's why you've seen allocations in 2026 being at the highest level ever. I think people are flocking to this sector because of what it can do at a time when there's a tremendous volatility.

I want to protect capital, but I want shmuck insurance. In case markets continue to run in case there's a lot of growth from here, I want to participate. So I think people get the joke and largely understand what it can do. If there are misconceptions and people on the sidelines, I think they're on the sidelines for 2 reasons or 1 of 2 reasons. One is a simplistic understanding of infrastructure that is 20 years old being ports and toll roads and just not exciting. I'd rather participate in an area of the economy where I can generate interesting equity returns, ports and toll roads that [indiscernible]. They're not interesting, not interested. I think the other reason to be on the sidelines that we'll sometimes hear is, geez, a lot of exposure to AI, data centers, risky, not getting paid for it, I'm going to stay on the sidelines.

And I would tell you, if you really spent the time to understand the sector, you would say these are not good reasons to stay on the sidelines, right? I think as we've talked about, infrastructure is much more dynamic today than ports and toll roads and airports. And absolutely, there's unpredictability on what may happen with AI. But from a picks and shovels perspective and frankly, selling the right picks and shovels because I think there's definitely frothiness out there, and so you can make bad decisions even in infrastructure to serve digital infrastructure. But there's a tremendous opportunity. If you can protect capital in that sector, there's a tremendous opportunity to have an exceptional risk return profile. I think that's what's being missed. It's -- if there's an overbuild, if AI doesn't have as much penetration as people expect, yes, there might be meaningful contraction in companies that are targeted towards utilization and software and penetration.

But if you have an underlying 15-year contract with an A-rated hyperscale counterparty, you might be fine just throughout all that. And so that's really what's being missed.

And has anything materially changed in your outlook here, say, versus 6 months ago, anything more attractive or less attractive? You mentioned maybe some areas of overbuild. I guess what do you think is more attractive versus less attractive relative to when you were entering the year?

Yes. I think renewables is probably the biggest area that we think is more attractive or energy power generation generally more attractive than we would have thought and maybe renewables in particular. Renewables tends to be less fashionable today in Lexicon and the importance. I think the popular sentiment is we need power, but we don't need renewable power. We don't need to be green, et cetera, et cetera. And so just to tell you, like 3 years ago, 4 years ago, if we wanted to buy a renewables company, and let's say, the value of that company is $100, probably $50 of that was in the operating assets value and $50 of that value was in the prospect for new growth. Today, I would tell you, if we buy a company for $100, it's probably $90 to $95 of value in the operating assets and you're only paying $5 or $10 for the prospect of new growth.

That's a much better entry point, right? You can protect capital much better. If you're paying $50 for growth, you better grow or you're going to impair capital. And so we did very little in the renewable sector in 2022, 2023. Today, we love it because I can protect capital even if there's not growth. But I will tell you, even though renewables is not fashionable, we believe in growth. right? There is a massive power shortage. If we -- if these hyperscalers get anything close to doubling capacity in the next 2 years, which is the slowest projection, we will need all of the above in terms of capacity. It doesn't matter if being green is not fashionable, we will need a ton of renewables capacity, and we haven't -- and frankly, growth will accelerate. And so I think that's probably the most interesting underappreciated.

And within renewables, are there certain areas that you find more attractive versus less?

I probably would stay away from offshore wind, given what's happened regulatorily. We've been very big in solar from a renewables perspective. We own like 10 renewables platforms globally, including one of the largest in the U.S. And in many places, actually solar is cheaper on an all-in cost basis without any subsidy or contract.

And today, KKR's real asset platform spans infrastructure, energy, real estate, digital infrastructure, including increasingly adjacent asset-backed opportunities. So what do you believe is most differentiated about the platform today relative to peers as you look across the globe? And where does KKR have the strongest right to win?

Right. So our platform collectively is about a $200 billion platform. So that puts us depending on the sector or the cut, #1, #2 or #3 in the business. And so if you're trying to solve large complicated problems that require a lot of capital, there's only a handful of players that you can go to. And this is a sector, if you take infrastructure as one example within real assets, 2/3 of the capital sits in the top 10 players and the top 3 players have most of that. And so large, complicated, this is a really only a handful of us that can compete. And so that's distinctive. I think even amongst the large players, I think culturally, probably the biggest asset we have is a combination of a tool set, right, a team that's focused on operations, a team that's focused on capital markets, team that's focused day in, day out on stakeholder relations, government relations, a team that's compensated globally to help each other out.

Our private equity colleagues, our colleagues from Asia, always sourcing. So a tool set that's tremendous and then a culture, which is we want to win, but we want to win as a team. And the 2 of those together has been tremendous to unlock, to find, unlock and execute on large complicated opportunities. The 120 deals I referenced that we've done, I would tell you we probably could have done 5 of them as an infrastructure team. There's 115 of them where we needed -- we may have had 4 people on an infrastructure team working on it, but we had 20 people as a firm coming together to make it happen. That's something that's hard to replicate. You can't do if you're just an infrastructure firm. And that tends to lead to large size. It tends to lead to complexity, it tends to lead to corporate partnerships, and that's a meaningful barrier to execution. And I think that's what we really lean on across sectors and geographies.

Oftentimes, when there's a big opportunity across industries that attracts others to enter to try and replicate, emulate success of others and to move into opportunities. I guess when you think about your business, what do you think is the hardest thing for others to replicate? And how do you think about the moat surrounding your platform?

Yes. Let's tell you we dive into our Asia infrastructure business as an example. So we have -- today, we have -- our Asia business is the largest by a factor of 2. So the second player is half our size. The third player is probably half the size of the second player. So there's a capital moat right off the start. Our business in Asia, we have offices staffed by locals who have been around for 20 years in each key market. So we've got an India team full of Indian nationals in India, same in Japan, same in Korea, same in Hong Kong, same in Australia, irreplaceable. Most of our peer set is covering all of Asia out of Singapore or out of Hong Kong. If you're trying to do a deal in India and you're just relying on what's the contract say, good luck to you.

You need a contract that's good, but then you need a partner, a corporate partner that actually honors the contract. You don't want to be dragged in the courts. And so who do you trust? You need people on the ground. You need to go to the entrepreneur's daughter's or son's wedding, you need to be very well connected in the market, a huge sourcing advantage, a huge execution advantage, a huge advantage around, okay, where am I going to invest? Where am I not going to invest. We have built out over the last 20 years, an operations team dedicated to our portfolio in Asia. We've built out in the last 20 years, a capital markets team. We built out a stakeholder relations team. And so we are -- we've had a great run in building a good business in Asia, but we are -- like we have an unfair advantage, if you will.

We have to run hard. We have to -- we talk about staying hungry in our group because to your point, everyone is trying to replicate and come in. There's probably 6 firms that have launched efforts or are about to launch efforts. knock on wood, to date, each one of those firms is probably 1/6 to 1/8 of the size that we have. And I think that, that gap will widen, not shrink in the next 3 to 5 years if we can execute. But they're coming, and it won't be this way forever. So I think we need to just run hard to keep building our capabilities. Frankly, there's not a lot of talent in the market, like we are creating the market there. And so if we retain, motivate, excite our talent, that's going to be a big barrier to entry as well. And I would tell you, I think, culture and track record.

If you want to do -- if you're a corporate that wants to JV or sell part of your business in Japan and not be embarrassed and know that it will be executed well, why not go to the leading company that has done that 5, 6, 7 times before. That's a big barrier as well. So just -- I think these kinds of barriers exist everywhere. We can't just rely on these barriers, but they're real, and I think they will be helpful to us.

Now corporate partnerships and carve-outs have historically been a significant source of differentiated deal flow for KKR. Talk about some of the opportunities you're seeing today as corporates are rationalizing assets, balance sheets, what sectors are generating some of the most interesting opportunities, would you say?

Yes. So we're another tool, if I kind of segue for a minute, it used to be the case, right, when we were just a private equity buyout firm that we would knock on corporate stores and say, "Hey, interested in going private. We're interested in selling the company. And if there was something to do, great. If not, we would go away. Our model has evolved. And so we have sector specialties and competencies, but we approach the companies now and say, do you need growth capital? What are you trying to do strategically? Maybe you're for sale, maybe you need some structured capital because the debt markets are closed. There are many, many solutions that we can provide across credit, private equity, infrastructure, high growth, low growth, many, many solutions.

And so we enter discussions really as a strategic partner. What's important to you? What are your constraints? How can we help relieve those constraints. So in that context, I think that if you look at our deal flow, we probably half of what we've done has been corporate partnership in some way, shape or form. And so big source. And when you're doing a corporate partnership, a lot of things matter beyond just price, right? There's an ongoing relationship. And so capabilities, flexibility, relationship, ability to be flexible, change things over time, these all matter. I think the most untapped area of opportunity, specifically in real assets is probably industrial companies. If you look at infrastructure, largely, it's been digital or renewables, energy, transportation.

I think industrial is not very well tapped. If you look at the largest 500 companies in the world or the largest 2,000 companies in the world and you look at the embedded transportation, logistics, processing, storage, feedstock, they don't need to be on balance sheet. If you're a corporate and the highest value-add things you do is branding and research and development, marketing, you don't need to have the basic undifferentiated processing logistics on your balance sheet. And so that's, I think, a meaningful source. We've done a couple of deals like this, but I think we're just getting started. So just as an example, we own in Asia, one of the largest pharmaceutical manufacturing businesses, long-term contracted with global pharmaceutical companies, but the manufacturing is not the highest value add.

So it's a great business for us to own, steady demand regardless of the economy under long-term contracts, but it's a way to get capital back to the pharma companies to put into marketing and R&D and whatnot. So we've just scratched the surface of this. KKR, given our 50-year history in working with corporates should be particularly well positioned to do this, but I think it's probably the next big growth area.

And then I guess maybe more broadly, as your scale has increased, how do you think about the sourcing model and evolving that over the next 5 years as you look forward? What steps might you take over the next couple of years to expand your sourcing funnel?

Yes, leaning more into solutions provider strategic partner as opposed to deal doer. I would tell you, I think 95% of the alts investing market and trying to create investment opportunities is going on and saying, here's my pool of capital, let me go find an opportunity that matches this pool of capital. And I think what really, really good and differentiated looks like is saying, what are your strategic objectives, company? And what can we do to help you along your strategic objectives? And that becomes the motivation. That builds stronger relationships that leads to unique deals that are difficult to replicate.

And one of the biggest themes and you were talking about this before is around the intersection of AI, electrification, power infrastructure. Ultimately, where do you see economic value ultimately accruing within these sort of transactions? And where do you see some of the most attractive risk-adjusted returns as you think about some of the biggest themes? And where do you think the market is sort of overestimating or underestimating today as you think about bottlenecks?

Yes. So I'll share just on the overestimating, underestimating. I'll tell you for a moment, we're trying to not take a view as to how fast this will all grow. We're trying to invest in a way that will be successful if growth outpaces expectations or if there's like an overbuild, right? And I'll come back to how do we do that. But for a moment, if you think about our potential underestimating of how big this could be. So one data point, the average iPhone user today uses about 500x more data than the average BlackBerry user used, okay? That's verifiable. What I would posit to you is that we are so early in how we are using AI as companies. We are so early in how we're using AI as individuals. We're just scratching the surface.

And the brain exercise I want you to go through is imagine not in 20 years, but in 5 or 10 years, as we become more pro at using AI, I think the delta of how we can use AI versus how we're doing it today, I think we're just scratching the surface. And the delta is probably analogous to how do we use BlackBerries versus how we use iPhones. And so one of the hyperscaler CEOs was quoted saying, we think we're going to need 1,000x more power than we do today. I would tell you it's not crazy, right? And so -- and immediately, the constraints become the physical world and power, and we're going to need technological breakthrough to do this. But I just want to say that to open our minds, we may be meaningfully underestimating what the growth potential is here. We're not investing meeting that, but we may be meaningfully underestimating it.

And so I think the highest value add, again, from a real assets perspective, when there's that much growth out there, it's very, very hard, like the key customers that are trying to build this capacity, they don't have the manpower to coordinate land, power, right? There might be 20 people that had, hey, I have this plot of land or 20 companies providing power, 5 or 7 large data center companies. It takes a lot of coordination ability to bring that all together. And so what we are increasingly trying to do in this sector, and we hired someone to help us lead this effort with our investment team, Adam Selipsky, used to be CEO of AWS. What we're increasingly trying to do is to bring the capabilities under one roof. If you can bring together land, data center capability, power capability, fiber connectivity, capital under one roof, you now have a massive advantage.

You can go to the customer and say, not only can I deliver, I can deliver without you're having to dedicate your manpower to bring this all together, hugely valuable. If you can do that, you can win more business, you can win better economics and you can win the better kind of business. And I think that it's in line with the theme of being a solutions provider, a strategic partner as opposed to just a capital provider. And I think therein lies a tremendous opportunity.

Great. I want to pivot to a number of other topics we want to get to, one of which is real estate, which is arguably maybe one of the more interesting cyclical opportunities here within the private market. So a question, where do you think we are in the recovery cycle for real estate today? What gives you confidence we're closer to the beginning of that recovery versus the end? And what parts of the market do you think still require more price discovery?

Yes. So maybe I'll put aside for a moment the kind of the latter part, the price discovery. Let's put aside the office sector and the retail sector. where I think structurally globally, it's a very local market, of course. But structurally, globally, there's still too much capacity. And given how our work habits have evolved and given online shopping, there's too much retail square footage, there's too much office work. There are exceptions in markets. There are exceptions in submarkets. But largely, let's put those aside and say, I'm not ready to go to back up the truck into those sectors right now. But now let's go to the other sectors, multifamily, so living beds, generally, multifamily, student housing, senior living, industrial infrastructure, especially as they're reshoring, hospitality, these are all sectors where there's still very, very healthy demand.

And that healthy demand comes at a time when because of very high interest rates, acquisition prices for assets are low on a historical basis. And in fact, given high interest rates and given inflation, you can buy below replacement cost as inflation has pushed up replacement cost. So healthy demand, I can buy below replacement cost. The outlook for supply, construction activity in these sectors is down about 60%. So the outlook for supply is actually quite muted. And so you can imagine as demand continues to grow or it's healthy, at some point, you need new supply. And at some point, pricing and valuation of these assets have to be strong enough to incentivize new supply. And so you're playing for that recovery.

You're also playing, I'd much rather put capital to work in a 4.5%, 5% 10-year treasury environment than a 2% treasury environment because I have the potential -- the risk return around -- if rates fall and I get multiple expansion, that's some upside potential that you probably didn't have when treasuries were 1% or 2%. And so there's no doubt there's more cyclicality in real estate and in infrastructure. And so they're not perfect substitutes with each other. But if there's some appetite for cyclicality, some odd appetite for volatility, there's a tremendous cyclical opportunity to get into real estate right now.

Great. Let's talk about private wealth, which is top of mind for a lot of investors and clearly a big opportunity for the private markets. KKR's K series has successfully broadened across the private markets. So how important would you say is private wealth as a distribution channel for real assets? And are there certain assets profiles that are better suited for the wealth channel than others as you think about it? And we have seen a little bit of a slowdown in flows in recent months. What's your sense of scope for that to recover in real assets?

Yes. Look, I think it's very important to us because it's another tremendous growth opportunity. You look at that AUM growth, we're just getting started. And so I think it's a great engine for growth. When you look at the wealth market or private -- private wealth market in general, we see penetration still of those who are allocated to infrastructure, alts is maybe 0% to 1% to 5% penetration and infrastructure is typically 0 of the alts. And so if you get anywhere near, let's say, a 30% allocation to alts that we see in the institutional market and a 6% or 7% institutional allocation to infrastructure, it's a huge potential market. And it's a market where today, not in real estate, but in infrastructure, we have the leadership, the leading position.

And that's in part because of the platform that we have and the performance that we've had, we've been able to get the slots and been able to deliver the performance for investors. And so it's a really big part of our growth story. It's not the only part of our growth story, but a really, really important part of the growth story. I think for the same reasons that I talked about institutions and increasing their allocation, it's a very, very compelling sell right now to the individual investor. And so we are seeing -- despite the issues in private credit, we're seeing very strong flows continuing in the infrastructure space in the wealth market.

So not much of a slowdown?

There's ups and downs, but it's hard to -- when you're launching on a platform, new there's a big spike and there's seasonality. So it's hard to -- I would say, structurally, has it been -- I don't see any structural reason for this to slowdown. We're not seeing evidence of that.

Okay. Great. We're almost out of time. So final question. If we look out another 10 years across the Real Assets business, what do you think are the key drivers behind the next doubling of maybe sooner than 10 years probably for you guys?

Yes, I will be sorely disappointed if we only doubled in 10 years.

Yes. All right. So let's change the time frame here, and I'll leave the time frame to be moot. What do you think are the key drivers behind the next doubling of earnings and AUM across the real assets franchise? And what do you think investors most underestimate about your real assets franchise?

Yes. I think there'll be 3 key drivers. So one is the dynamic that we talked about, which is just maturing of what we have in the ground. Even our most mature product, I would say, has substantial growth. And then climate, Asia, core infrastructure, all have a ton of running room. That's number one. Number two, wealth, another massive key driver. And then number three is potential for new product. So for example, the digital infrastructure space, we feel undercapitalized in. If you think about all the capital required, today, our pools of capital we're maybe putting $2.5 billion, $3 billion a year in the digital space.

The opportunity set that we're generating is probably 10x that. And so as we think about whether it's digital or other new product, that will be meaningfully enhancing to the growth potential as well. I think what might be not understood or when you have a healthy market and a leadership position, we're #1, #2 or #3 in everything that we do in infrastructure. We're now in the latest survey #2 overall. And you have a team and culture that's been together for a while, I think there's a tremendous amount that you can do as long as you continue to stay hungry.

Great. I'm afraid we'll have to leave it there. We're out of time. Raj, thank you.

Thank you, Mike. Appreciate it.

Thank you.

Okay. Good afternoon everyone the asset made analyst at Tono's research. -- as a reminder, want to try to ask a question, you can submit it through the Pigeonhole app, and it will show up on my iPad here, and I'll try to work those in. So Scott, thanks for joining us again.

Thanks for having me back, Patrick.

It feels like every winter and spring, we have another crisis to deal with things -- this year, it has been another crazy few months this time dealing with the Iran War, private credit concerns, sticky inflation higher for longer rates, you can pick your poison. I guess, through that lens, do you agree with the concern that this is kind of a tough mix for things like private equity for levered risk assets? And then what is KKR's current thinking on inflation rates in the economy and what do you think KKR siting is through the lens of that mix?

Sure. Well, first off, thank you for having me back again this year. This has become a nice annual event for the 2 of us and thank you for the question. Look, sentiment is a very tricky thing. And there's periods of time in our business, and KKR has been around 50 years, my co-CEO, Joe Bay, and I have been around 30 of the 50 years. And there's periods of time where People are thinking everything is going to be great.

And when they should be asking us card questions about stuff, they don't. And then there's times when things are going really well, and everybody is just negative on everything. And we're definitely in one of those latter periods of time right now. From our seats, it does not at all feel like a tough environment. I mean we just -- last 12 months reported record fee-related earnings record net income.

Our management fees up 23% in the last 12 months. Record visibility and our monetization related revenue was up over 50% in the first quarter and all our operating metrics were up 20-plus percent in the first quarter, but everybody is negative about everything. So we're in there in these periods of time where the anxiety exceeds the reality as it relates to our business day-to-day.

Now we obviously need to make allowances for what people are worried about, to your point. So there's no doubt to your question, inflation, we expect to be a bit higher for longer. Same thing with rates. You cannot paint anything with one brush. You can't paint our industry, you can't paint the economy, you can't paint markets. There's a tendency to want to make things simple, tidy sound bites. -- this environment does not lend itself to that.

So we're finding that there's plenty to do all around the world, lots of investment opportunity for us across all of our asset classes. And so this is a very constructive and productive investment environment for us. If you look at kind of what average rates have been over the 50-year firm history, well above where we are right now. So this feel strange relative to the 2010 to 2020 period, but I would put this more in a normal operating environment, 2010 to '20 would be a little bit more of the odd environment. And if you look through the lens of our entire history as a firm. So we're super upbeat. I never felt better about the firm or the ways we have to grow in front of us.

Staying on the macro track, KKR has been 1 of the more optimistic on portfolio realizations, which I think is reflective of your portfolio probably being a little bit stronger than the average portfolio. It feels like things have improved since you reported our earnings, but we're still not seeing a ton of strategic activity for sponsor-backed transactions. So curious to get an update on how you see realization opportunities trending this year after the recent volatility?

We feel great about it. I mean look, the background for everybody's benefit is we learned a lot before the financial crisis. We over-deployed in 2006 and the first part of 2007. And -- and that taught us a lot about linear pacing from a deployment standpoint, diversification and portfolio construction. And so we've just been applying those learnings for the last now nearly 20 years. And part of the reason that we're having success with these exits is we have a very mature portfolio that's quite global and quite diversified.

There's a tendency sitting in the U.S. to just think about the U.S., but we have half our investment professionals outside the United States. So just more recently, I'll just rattle off a few things that we've announced, but we sold one stream a software company just closed a couple of months ago for 4.5x our money. We sold the data center equipment company called Cool IT for 15x our money. We did two, 2021 exits. 2021 was a tough vintage year in our space. Atlantic Aviation, a couple of times our money and another 1 in PE the Hyundai Marine in Korea 7x. Kokusai Electric semiconductor equipment company in Japan, 20x our money.

And then we just announced the deal last week for the Aerospace division of CIRCOR, sold it for $2.5 billion, the entire company we bought for $1.6 billion. That's just the last handful of weeks in terms of announcements. And so when I made the point about we have record monetization visibility. We announced that on our earnings call, we feel great about the forward from here. And to your question, if you go through some of those 7 or so exits that I rattled off, Three of those were to financial sponsors -- 2 of those were strategics and 2 were into the public markets. So it's very broad-based, and it's global.

The other Bugaboo this year has been retail and wealth, which is a growing piece of the algorithm for KKR, but not a huge piece of the back book, obviously. Given the noise and the increasing concern around the demand for those products, I guess, firstly, do you have any updated thoughts on how that demand is tracking, how redemption requests are tracking? And more broadly, has it changed the distribution discussion at all with your partner?

It hasn't meaningfully changed. I think the overall -- I think the punchline for everybody understand the opportunity we see from here is exactly what I said a year ago, maybe even better. I think there's some near-term noise. We'll talk about that. But just to size it for everybody, this wealth business, as it's talked about, for us, is roughly 5% of the asset that we manage. That has grown 80% in the last 12 months.

So it's gone from kind of $21 billion to $38 billion over the last year, but it's $38 billion out of $758 billion, just to put it in context. There's a lot of headlines on this topic. We manage 8 different vehicles. 7 of the 8 have had positive inflows in the first quarter. And so -- we kind of work your way through that and the one that had net outflows, it was negative $12 million, and that was converting structure and converting strategy. Facts continue to be that we are growing in this space.

We're a little different than others. 85% of the capital that we manage in this format is in private equity and infrastructure. actually 15% would be credit and real estate. So we're a little bit different in that regard. Our PE and infrastructure vehicles had something like 60 basis points of gross outflows, something like that in the first quarter. So it's -- it's continuing to be a space for us that's growing net. The headlines are the headlines, but for us, as we look to the long term hasn't changed our perspective. Our view is we just got to perform.

If we perform and partner well with advisers and clients and do a great job for them, we'll earn the right for this to be a more meaningful part of the firm over time, but the trajectory is meaningful.

And the backdrop for everybody is, look, if you're a retired teacher and pick your state in the United States, you probably have 30% or 40% of your retirement wealth invested in private markets. If you're a retired dentist, lawyer, fill in the blank that lives next door, it's pretty close to 0. And the vast majority of retirement wealth in this country in most developed countries are actually managed by the individual themselves usually with the help of an adviser.

Our space did not innovate much for a very long time. And now we're innovating and trying to bring what we're doing and make it easier to buy and easier to own for that individual. But we're at the very early innings in that development of our space.

So you have the case suite of products to kind of attack this opportunity. I think you've said that you kind of have all of the asset class and strategy basis for tackling higher net worth clients with that suite. The newer products in conjunction with Capital Group are for a lower net worth individual. So for those that are less familiar with KKR and those products, I think it would be helpful to get a quick overview of how those products are structured.

Sure. You're right. Most of what we're doing in K Series, think of that as accessing households that are largely $1 million and up in net worth, which is a small percentage of U.S. households. So there's something like 90-plus percent that those products do not touch. And so we're very fortunate to have a wonderful partner in capital group that we're working with to get to the other 90% of U.S. households. Simple way to think about it. They're largely structured as interval funds.

And so roughly, think of it as the underlying, 60% of them are going to be -- if the dollars are going to be invested in public markets and Capital Group will manage that sleeve. 40% will be invested in private markets. We'll manage that, sleeve. Capital Group is the distributor given their footprint and the incredible relationships they have across the space. That's the high level.

The uptake has been slow. So is it right to think about kind of the adoption curve for these products to be more dependent on 1- or 3-year performance numbers kind of like what we've seen in mutual fund world.

Yes. I think for us, it's been entirely on track or maybe a bit ahead of what we would have expected. Because we view this is an education element to this that is absolutely critical. There's 300,000 financial advisers in the United States, our partners at Capital Group work with 200,000 of them. Part of the reason we wanted the partner is, obviously, that's an amazing footprint and set of relationships.

But there is work to be done in terms of making sure the advisers and the client community are educated on what this is and what it isn't. So we're in the midst of that. We're working on that together. I'd say that's very much on track. So we started in credit and very recently, we launched a product together in private equity.

So beyond the K series and the new capital products, how are you thinking about building the suite further? Is there a pipeline of new products? Or do you feel like this is the right set.

I think we've got everything built out in terms of the main product areas. ABF, asset-based finance. That's the 1 vehicle I mentioned that is just converting. That's just really starting now. One of the things we're thinking about, we just bought a company called Arc dose. So maybe we could do something in the sports area, perhaps there's something to do in secondaries. There's discussions being -- could you have something that actually has all the aspects of alternatives in 1 wrapper. So there's different product ideas that we're still working our way through.

And it's obviously not just a U.S. opportunity. So where are we in building out this suite to non-U.S. investors.

Yes. So about 40% of the assets that we manage in K Series are outside the United State 60% in the U.S. I would say our distribution footprint in terms of the build outside the U.S. is behind where we are in the U.S. We're probably 80%, 90% of the build done in the U.S., probably more like 50%. Europe and Asia. So we're continuing to hire. We're continuing to build relationships. And then once you get on these platforms, you got to go through the onboarding process, the education process. So this just takes time. We think there's a ton of growth out of.

Last 1 on these. Last year, we talked a bit about the case here, you potentially seeing more institutional demand as well. Has the redemption as changed that trend at all? And if not, what kind of clients are acquiring and you still see that as kind of a new incremental pool of AUM -- or does that existing wrappers.

No, if anything, all the media noise has increased a dialogue with institutions in particular about things like direct lending and private credit. So I think institutions had actually shifted a bit from direct lending to asset-based finance. So our ABF business the last 3 years has gone from $42 billion to $92 million, a very short period of time. And that -- some of that was institutions saying, okay, with all this money going to direct lending, I actually like this ABF idea. .

So I'm going to pull back from direct lending a bit. Now with all the headlines and some of the redemption noise and spreads going out, leverage coming down, institutions are coming back and saying, actually, we think the risk or is coming back our direction. So if anything, it's increased as we've seen how this media and noise tick up.

Since you brought it up, we'll talk about direct lending a bit. I feel like we're talking about a going to cover that. I feel like we're talking about it every year at this point. obviously, the press is kind of hyper focused on this and BDCs, specifically and your public BDC specifically. So I think it would be helpful to get an update on your view of the trends there. maybe unpack the FS KKR issues a bit for people that are less familiar?

Yes, happy to. So let's just kind of step back for a minute and try to size what we're talking about. So if we manage a bit over $750 billion, I'm going to use rounding, makes life easier. There's about $300 million of that that's in credit. About half of that would be in leveraged credit, about half would be in private credit. So it's actually $149 billion is the number is what we manage in private credit. Of that $149 million, $92 million is in asset-based finance. Direct lending is 39, okay? So $39 billion in direct lending. Of the $39 million, you still with me, 39, you got 12 to 13 is in the public BDC FSK. So 1 way to think about it, it's about 1/3 of 5% of our assets. Just to put it in context.

And so what you're reading about in the headlines is the NAV of that 1/3 of the 5% has been written down on the back of some performance issues within that portfolio, in particular, around a couple of deals in 2021. That's what you're reading about. There's very little overlap between that vehicle, which has a broader mandate and our institutional funds. And we actually put a disclosure in the IR deck that's on our website showing all of our institutional fund performance. So you can see all of the data. But that's just to size it for you, that's the math.

You mentioned kind of the institutional demand dynamics, which I think echo what we've heard from other companies. This is sticking on direct lending. It also sounded like coming out of the 1Q calls, the new deployment trends in that asset class could be getting better wider spreads, higher base rates, better docs. Are you still seeing that trend continue through May?

We are. I would say spreads out 50, 75, 100 basis points, something along those lines. Fees are up, leverage down half a turn to a turn -- so -- and to your point, the docs are tighter. So absolutely remains the case. .

You mentioned ABS as well. We've heard some pretty punchy TAMs thrown out there by you and some of your competitors in the tens of trillions dollars. It feels like it might be the more important part of the private credit growth story now? and you have among the broadest origination capabilities there -- so update on how your kind of annual origination machine is tracking that business and how you balance that origination for your insurance affiliate versus third-party client.

A simple way to think about it. So the insurance affiliate is a client -- it's treated like a third-party client in terms of how the waterfalls work. So everybody eats together. It's really relatively straightforward. And so the last 12 months, origination, the high-grade ABF origination about $40 billion, give or take. And as we've been originating for our own insurance company, that's allowed us to continue to scale our third-party insurance AUM. So when we announced Global Atlantic, we managed about $20 billion, $25 billion in third-party insurance AUM. That number is around $85 million now. So it's allowed us to continue to scale third-party capital as well.

So I think you're right. It is the comparison. $92 billion is ABF versus 39 in direct lending. We've seen more growth. We think that's a market with higher barriers to entry -- so we have 19 platforms, 7,500 employees across those platforms out funding opportunities.

And we've heard from a lot of other executives, I think, including yourselves, that the education process for this outside of insurance for traditional institutional clients has been a bit longer than, say, for things like direct lending. Where do you think we are in that client education process and has the noise around fraud issues like first color -- first brands Tricolor change that client conversation at all?

It has not changed the conversation. I'd say we're probably third inning. -- which is a pleasing place to be. It's probably at least a $6 trillion market, on its way to 9. Direct lending is probably $1.2 trillion. So it's a much larger, deeper market. But it's pleasing to be at over $90 billion of AUM and still feel like it's relatively early in the development. .

Great. I think that dovetails nicely to a more recent concern I'm hearing that the new administration plans for bank deregulation could derail this broader kind of ABF private credit opportunity. What is your updated thinking on the bank disintermediation opportunity? And does the shift from the government kind of change that outlook at all?

We haven't seen a material shift in behavior. We're partnering with the banks across a lot of these vehicles, and they're actually financing several of the vehicles, almost all of them. So it's been a good partnership for us, but it hasn't really shifted things. I think to think about it, these are long-dated assets. And so you want to have long-dated funding against it. .

You pointed out to KKR's higher exposure to non-U.S. business as adding ballast or offsetting ballast to any kind of indigestion as some people call it in the U.S. Are you seeing any noticeable gapping in non-U.S. versus U.S. trends? And any significant change in client geographic allocations from the U.S. in that?

No. I mean, look, I think -- and I've said this before, I do think the industry is shifting a bit, and we're moving to much more of a K-shaped industry. And the 2010 through 2020 period where rates were low, inflation was low, multiples were up performance was relatively uniform across our space. People were performing well. And if you bought levered assets during that period of time, you tended to have pretty good results and that's where we told the firm do not confuse a bull market with brains. -- you got to be able to do this through cycles to prove that you're good at it.

We have not had a normal recession in the United States for 16 or 17 years. This is a very strange period of time, right? The last 5 or 6 years, if you think about it, COVID or rates up, inflation up, tariffs, more war right? So what's starting to show up in the U.S. context. First, is we're starting to see some people have developments in their portfolio that are tougher on the back of all this stuff starting to flow through. And so that's what you're talking about.

So with the media is picking up, in particular, the tougher stories, of course, as you'd expect. Part of the reason we're raising record-sized private equity funds is we're turning a lot of cash, and we've had really strong performance. Management fees in private equity are up 21% last 12 months. So we've seen a significant amount of growth. On top of all of that in the U.S., we think we're taking share on the back of performance. To your point, we have a significant global footprint.

Majority offices outside the U.S., half the investment professionals outside the United States. I'd say investors want to continue to diversify their portfolios globally as well. And we've been fortunate enough to partner with many of them. So if anything, we're seeing more interest in Asia for an example, right now, a lot happening in Japan and Korea, in particular, continued activity in India, no doubt. plenty to do all across the European continent. So if anything, and that's across asset classes, that's PE, intra credit, real estate insurance you name it.

On the PE dry powder issue, there's obviously -- you have a lot of dry powder. The industry has a lot of dry powder. It feels like particularly direct lenders have been kind of talking about that coming out for years at this point. What is the key impediment to seeing -- I know you're more of a steady deployer, but why do you think that dry powder is getting so stale and we haven't seen that big surge -- and do think kind of a resetting of exit value expectations for that to really pick up?

I think there's going to be some resetting. I don't think what you're seeing right now in terms of this monetization delay is necessarily because there's not an exit market. As I said with us, we have plenty of things that we're selling right now at big multiples of our cost. This is more about when did you create your portfolio, so if you deployed a lot in 2021 and the first half of 2022, which means you probably price the deal before Ukraine, right? You may have some chance you may have overpaid for some assets, right? So you're going to end up owning those assets longer.

And I say this with a lot of humility, we did the same thing before the GFC -- so what it does, it elongates your hold period because you need to increase your earnings for a longer period of time to overcome the fact that you may have paid too high a multiple okay? So that is part of the reason you see these monetization delays. That's why linear pacing as simple as it sounds, is very powerful. Because in years like 2020 when human nature says don't deploy, if you say, you know what, I'm going to deploy 20% of a 5-year fund in 2020, then it pushes everybody to kind of deploy and get money out the door.

And then '21, where deployment in our industry went up 60% to 70%. Our deployment was flat because you stay on that linear line, right? It sounds very simple and very straightforward. But in our experience, it's incredibly powerful. And then you need to be diversified from a portfolio construction standpoint, so I think it's more of that's what's going on -- when did you create your portfolio. Have you created real value in that portfolio? And do you have profits that you can monetize for the people that you work for? If you don't, then you just want to elongate your hold period to basically take your -- have your option to extend out further so you can create that value.

That dovetails into a question that I have on the pad from the audience -- that's clearly from someone that's cynical about private equity. What do you see as the value proposition for private equity specifically in the next 5 to 10 years? And is the asset class on the decline with opportunities becoming more scarce in markets, companies more efficient.

That's a really good question. The short answer is we do not see that. You'll be shocked to know that's my answer. Look, I don't think how we conduct private equity is that well understood. So when I got to KKR, we would -- we had 15 investment professionals when Joe Bay and I joined. And so you would go buy a company with 2 or 3 people. You try to find the best company with the best margins with the best management team. and you put on a sense of capital structure.

Now if you find that company, there is not enough value to be created. You cannot buy that company anymore, right? The markets are too efficient. So what you have to be able to do is to show up and buy a good company or a good asset and make it great. So you need to show up as a strategic buyer. You need to have a strategic mindset. So we'll sometimes have 30, 40 people on deal teams now because you need operations professionals and capital markets and macro and asset allocation and geopolitics.

You need the ability to actually look at these companies from all angles and then materially improve their profitability, employee ownership is something that we have used to really good effect. We give all employees shares in our companies now. And so that's how we do it. So through that lens, if you can show up and try to make a good company, great, there's a ton to do. If you're just doing financial engineering and you think that there's going to be value to be created on a systematic basis, that's a very difficult business. So if you're trying to do that, I think the answer to your question is no. If you have the ability to make businesses and assets better, it can -- there's a lot to do all around the world.

And I imagine, to your point on these kind of stale portfolios that are out there, we could see some consolidation around the more mediocre portfolio is kind of getting phased out as people consolidate with the largest players.

I think there could be a lot of change in the industry over time. .

Let's pivot to insurance, where earnings have been more range bound the last couple of years. Could you expand on the moving parts that's restraining that earnings growth -- and when do you expect to see more meaningful progress on the targets you've laid out there?

Sure. Just -- so background. So in insurance, we make money in multiple different ways. We have the insurance earnings themselves and then we manage assets for the insurance company. There's also capital markets opportunities that come from that. We have a sidecar third-party asset management business called the IV that sits alongside our insurance balance sheet. And so everybody's benefit that don't know us as well, we're a bit different. So we report in 3 segments.

We've got asset management, insurance and then something we call strategic holdings, which I'm sure we'll come back to. And so we have about $6 billion of third-party capital now that sits alongside that insurance balance sheet capital. That $6 billion of dry powder probably results in $60 billion to $75 billion of AUM simple way to think about it. And so we manage what all that capital will turn into. And so you mentioned the range bound. The comment is probably around the IOE, the insurance operating earnings themselves. If the combined earnings just the last 12 months are up 14% year-over-year.

However, that still understates it because there's a couple of things going on. with our business. One is we are rotating the company we own called Global Atlantic. We're rotating Global Atlantic's portfolio in 2 ways: one, to longer duration liabilities. So think more 7 year and on the margin less 3-year product. And we're starting to invest more in private markets, underlying assets. It's a bit ironic, but that GA did not really invest in what KKR does in the more private equity infra end of the spectrum. We're now starting to do that in a modest way. We decided to report our results from that effort differently. Other people reported on a mark-to-market basis.

We decided because we report KKR largely on a cash basis, we were just going to report on a cash basis. And so what flows through our earnings virtually has 0 coming from that alternatives portfolio that we're building. So what will happen over the course of the next couple of few years, which is probably the time frame and the answer to your questions, 2 things will occur. One, those -- that alternatives book will start to have exits. So we'll turn into cash earnings, where it's virtually none today.

And two, that third-party IV dry powder will actually start to get invested. And fee and carry will start to get generated. So the way I would think about it is less runoff because longer duration liabilities and more earnings coming from the investment portfolio plus the third-party capital along side. All of that, we think, increases earnings power and the ROE.

There's a -- I think there's a perception in the marketplace that like competition --

The Global Atlantic transaction in July 2020, it's a bit of a question, how would the market process it. And as you know, it was received reasonably well. That's good news and bad news. The bad news part of it is that more competition showed up. So we've kind of gone from a handful of players with this type of partnership to something like 25% to 30%. So there is more competition. Having said that, we think it's harder to necessarily be able to replicate the investment origination capabilities.

And we have something a little bit different in that we have a retail business and an institutional business. Over half of the business is actually institutional -- and so we shall see. But part of the reason we bought back more stock in the first quarter is on a relative basis, we saw better returns in Q1, buying back our own stock. Then probably saw on the margin on incremental annuity retail pricing.

Okay. We talked about kind of higher for longer and steeper yield curves, things of that nature, potentially being a headwind parts of the business. But you could argue those are good things for an insurance balance sheet. Is that something that we should be thinking about given the current...

I wouldn't. I think it's a nice balance to the business.

So summing up kind of all of the big growth drivers we've talked about, you're still talking about 20% plus fee-related earnings growth this year. So for those that might not be as familiar with the sorry, could you kind of quickly unpack the key building blocks to maintaining that strong growth outlook despite what continues to be a volatile world.

Sure. Back to point, just ask everybody to kind of ignore the sentiment and the noise you're having for a minute. But it is absolutely the case. We are seeing continued organic management fee growth in the low 20s percent, 23% last 12 months. first quarter metrics. All of our operating metrics were kind of 20-plus percent year-over-year growth. If you look at the makeup of the management fees, to your question on fee-related earnings, it's about 1/3, 1/3, 1/3. Private equity, real assets, credit. It's a very balanced business, and it's global as we talked about before. So that's kind of part 1.

Part 2 is we think the capital markets business will continue to grow as the firm grows. And there's more to do with our capital markets business alongside our insurance business, as we talked about before, which fees will also kick in IV and otherwise. So there's plenty to do there. And then the other thing doesn't get as much attention as it might is just take a look at the last 3 years, right? So our management fees have grown 50%.

Our operating expenses have grown less than 20% we have a different type of business model. Part of the reason we have the 3 segments I mentioned is it allows us to create more earnings growth with fewer people. And an investment firm, keeping your culture intact is absolutely paramount. It also tends to lead to higher margins. So we already have the highest margins in the industry. We think they can increase. If you look at most people in our space, they would have the inverse. Their OpEx is growing faster than their management fees. That's not the case for us. We think we can continue to put up those kinds of numbers. And we feel really optimistic about the forward based on all the conversations we're having with investors a and, frankly, the investment performance we've been generating.

So as you look across all the drivers and some of the newer products you have in the market can you point to areas where you think your view might be overly conservative and/or specific products that you think have the potential to suddenly start growing much faster than the current.

I think we've been surprised the last several years, infrastructure continues to probably be our fastest-growing business across the firm. I'd say Infra and the asset-based finance would definitely be up there. Asia, we managed $85 billion in the Asia Day, $85 billion out of $758 million. So if you go back to 2019, like 90% of the $21 billion we manage then was in private equity. Now roughly 40% of the $85 billion we manage today is in private equity. So Asia will continue to grow at a really rapid clip across all different asset categories. And we think that, that's likely going to be the fastest-growing region we have globally.

Okay. You mentioned infrastructure, and there's been obviously a lot of reporting on AI and to what extent all of the CapEx that's being spent as needed. How are you -- when you kind of develop your investment portfolio and AI specifically protecting yourself from the obsolescence risk, the idea that there's pretty much being spent in the revenue opportunity.

Well, I think look at it through a few lenses. One is the investment opportunity itself, which everybody is interesting, depending on where you are in the world, either AI is a good thing or about it. In the U.S., people usually ask it as a bad thing. But let's look at it from an investment opportunity first, right? We've deployed $40 billion, $45 billion across digitalization, data centers, fiber-to-the-home towers all around the world. right? So there's plenty of interesting things to do in that space, and we think that $40 billion, $45 billion is going to go up quite a bit, then power on top of that.

We have deployed an additional $25 billion to $30 billion so far in power, there's a ton to do. And there's a lot on the equipment side as well, back to CoOlITCokasi, which is the semiconductor equipment company mentioned in Japan, Part of the reason we made 20x our money is on the back of the AI demand opportunity. So there's a lot of positives that come out of this. Then we have meaningful equity interest in 220 companies. 150 of them are running AI labs and sharing with each other what they're doing to increase productivity and find ways to run the businesses better.

There's a lot of good things coming out of that as well. To the negative side because disruption risk is real. But if you're talking about it now, you're too late, right? So we started with this work kind of 4, 5 years ago and we went through everything we owned because you knew this was coming. It was just a matter of when and said, well, is AI net an opportunity, a threat or a question mark. If it was a threat or a question mark -- we saw it. Because you can't get out of the way of the train if you're still standing in front of it when it's this closed.

As we've as we've seen this year.

So we sold some assets several years ago where we had a little bit of doubt in terms of that net answer. And so we've got a lot of great things that we're doing with AI in the firm and in the portfolio. But at the highest level, I think that's probably what's most relevant.

On that last point you made, though, where does -- where do you and KKR stand on the broader software debate, the idea that the industry has been painted with one brush, and there actually are a lot of companies that will win through all this.

Clearly, it's been painted with 1 brush. But that's what tends to happen when people have anxiety. And that tends to lead to some really interesting investment opportunities in our experience. And that's really nice for.

Software still.

It depends. I mean I think it depends on the asset, depends on the moat around the business. It depends on the management team, ability to use AI to actually run themselves better in a differentiated fashion. It depends on the multiple -- some of these businesses are amazing businesses at 15x, but not at 25%.

Right. Makes sense. So the other angle to AI and technology more broadly is obviously what you can do that internally -- so what is your current investment in internal technology, AI infrastructure? What specific processes have you already integrated and materially automated or augmented through the use of AI and technology.

So the way we're doing -- and this is very early. So I'm not sure we're going to have anything all that differentiated to most other folks you'd have on the stage. But we've got an applied AI group that sits in the middle of the firm. We don't think it should be separate from the businesses. We actually have all of the businesses putting in place their own process using AI. And we're basically using KKR and running at different labs all across our firm. everything, how do we source better and faster, how do we actually handle client requests differently?

How do we analyze our investment portfolios that are more in the traded side and come up with new trade ideas. There's a variety of different use cases, and we get a list every weekend to kind of fund the read of all the different ways the teams around the firm are using AI to do their jobs better, different, faster and do a better job for everybody counting us.

So the other angle is obviously your portfolio. I think you have over 100 portfolio companies across multiple sectors. So how is AI being used to drive operational improvements at the portfolio company level is that now a formal part of the value creation.

It is. It's part of the diligence process upfront. So we actually go through every single new investment through an AI lens. -- and let's say, 19-point checklist and all the sorts of things that we're working through. We have a Capstone operations team sits in the middle of the firm that is helping to make sure that work is uniform. It's part of the value creation plans of every new investment that we make and then we can monitor it and share ideas across the different companies.

And then my last question on this is kind of your information moats. -- does kind of AI-driven quantitative strategy is becoming more accessible, create a democratization risk for your kind of private equity alpha. Can it better identify and price middle-market buyout opportunities? Or does your information advantage kind of create a moat around that risk?

I think it -- I would go back to what I said before about what we need to do to make these businesses better.

You can't replace the judgment element and that kind of pattern recognition. You can't replace the fact that in our business, you need to build like and trust with management teams because it's private equity and infrastructure.

These are kind of relatively intimate transactions where you work together for a very, very long period of time. And so I think AI can help us do more thoughtful job around screening opportunities or kicking out ideas or things that maybe the teams hadn't generated on their own. But the job on the ground hasn't really changed.

Before I get to my last question, I have a few from the audience that I think are good. Would you consider putting private credit loans on exchange for price discovery through the lens of what Apollo has been talking about what are the benefits and drawbacks of providing more liquidity in the private credit world?

Well, I think the benefits are probably clear. It probably attract more capital over time. I think more transparency tends to be a good thing. What you worry about today, for example, I think part of the reason you create the excess spread is because you're getting paid an illiquidity premium. So if the private credit market just then turns into the traded credit market, you probably won't get paid the same liquidity premium, I would guess, over time. .

What do you think about like where do you stand on the debate.

I think that it's likely to happen over time for some types of private credit loan. I don't know about the ABF space. Some of these areas, I'm not so sure maybe direct lending could lend itself to it, but it's early. .

I'm not sure you'll answer this one, but I'll try. You've announced and you pointed to these earlier, you've announced a few large realizations since the earnings call. Do you have an updated signed and/or closed realization pipeline?

I don't, I don't -- it's more -- it's more.

Last 1 from the audience. There's been a lot of concern that Middle Eastern investors could pull back on alternative allocations given local CapEx needs after the ran or I guess, firstly, can you remind us how much AUM comes from that constituency. And how are discussions with those clients evolving?

It's a single digit, more or less percentage of our capital. We haven't seen a shift. If anything, it's been business as usual to date with our partners in the Middle East. Okay. So no change . .

Last 1 for me is on capital. It felt like -- there was a little bit of a pivot towards leaning into more share repurchases in the stock draw down. So is that a fair takeaway? And should we expect the share count to actually decline now?

I think the way we look at it, and look, as a reminder for everybody, people KKR are the largest shareholders of KKR. So we own roughly 30% of the stock. So the way that we look at it is you all would, which is what is the highest return on incremental dollar of capital we're investing. And so that's how we do the math. Is it insurance? Is it strategic holding -- is it buybacks? Is it M&A? And that's the screen through which we tend to look at everything. And we look at it relative to what we think a erosion the firm is. .

To your point, given we seem to be in the have-not bucket right now, along with software and a couple of other things. We have taken the view that the market is mispricing KKR stock, and we bought some back in the first quarter. You also saw my co-CEO and I bought some and multiple members of our Board bought some expressing the same view. So if that continues to be the case, you'll continue to see us buy back stock. If there's other uses of capital and we're really fortunate because all of these numbers that I'm talking about, when you look at what the return on capital are quite high. If those other uses of capital start to be more competitive, then we'll put the money there.

And that's kind of how we run the firm and we allocate the capital to the firm. But it's really across those areas, insurance, strategic holdings, acquisitions and buybacks. And so that's where we've been spending the time. And part of the reason we bought Arc Dose is because that was a very attractive use of incremental capital and gives us another way to grow the firm that we didn't have before.

Strategic Holdings is obviously a part of the capital framework. So I think it's less understood by the market compared to other parts of your business. So maybe walk us through what that is, your thinking around that business and what the path to the kind of $350 million of operating earnings you've been talking about there.

Sure. Let me just give everybody the background on what this is because I know this is a bit of a different part of our business model. So there's a couple of different things for you to understand. One, when my partner, Joe and I got to KKR Berkshire Hathaway's market cap was $41 billion. It's now $1.1 trillion. So that's just 12%, 13% for 20 and 30 years. But there's not many companies that have been able to compound their market cap for decades and actually added into the hundreds of billions of dollars. okay?

So part of what we think about as we think about growing the firm is how are we going to continue to scale the market value of KKR, not just for the next few years. but for the next 10, 20, 30 years and beyond, okay? So the job is different when your market cap is $80 million or $90 billion then when it was $10 billion because if you're operating the same way you did when it was 10, you're not doing your job properly. That's kind of mindset part #1, okay? Background part number two is we were noticing that when we were looking at some investments that we really liked, but think big market share, branded companies, more recession resistant. These are lower risk opportunities.

And they probably you'd be pleased to get a mid-teens return. You don't need 20-plus percent to own those types of businesses. So of course, if you show up with 20% cost of capital, you're going to lose every time because the owner is too smart to sell you that business at a 20% cost of capital. So we were sourcing all these companies that we really like. We didn't have any way to actually be relevant and 1 day we stopped and we said, "This is dumb. These are companies we might want to own for 10 or 20 years and longer.

And then we step back and looked at our industry. And so there's trillions of dollars that wakes up every day trying to find a 20% change in control equity return but there really wasn't any money waking up to try to mid-kind of mid-teens lower risk change in control return. That's more of the space for mezz distressed in our business. So that's odd. So we said, why don't we just have ability to say yes. And by the way, we really like the idea of investing our own capital in these types of franchises.

And so that's what we started to do, roughly 8 or 9 years ago. quietly off the balance sheet. We invited a couple of partners to come along with us. One of those is Chubb. So for those of you that are invested in Chubb, they'll talk about strategic holdings. They're one of our partners in this. And we have a third who's a sovereign. So that's what we've been up to. We've now created this portfolio. It's kind of 18 or so companies. They are maturing. We've been doing this for the last many years. So we've seen them perform through COVID through rising rates, rising inflation and through all the different dynamics that we talked about prior.

And they've just been taken along. So just our own share. Forget the fee and the carry that we get on the third-party capital, that shows up in the asset management business. Just our share of the dividends these companies are now paying out, that's what shows up as earnings in our Strategic Holdings segment. So think of these as the companies themselves pay taxes, then they're paying dividends because they've delevered we take our share of those dividends. That's the $350 million you're talking about this year. Going to 2028, you said 700 plus. In 2030, we said $1.1 billion plus. We have a lot of visibility on the growth coming out of this.

And the very simple way of thinking about it, a couple of things. One is if you like fee-related earnings and the recurring nature of those earnings contracted nature, we think you should like strategic holdings dividends, at least as much as you like fee-related earnings. Okay? A ton of visibility, great franchise. We own 1800 contacts. We own Arnet, which is like the Oreo cookie of Australia. There's a bunch of really nice long-term branded businesses in there. that are just trucking along.

Our share alone of the revenues of those now is $4.5 billion, and our share of the EBITDA is $1.1 billion even today. But we're not reporting that. We're just showing -- we're just reporting the dividends that we get. And what's critical we didn't hire a single person at KKR to create this business, which now has roughly $40 billion of AUM and is creating these earnings because these are deals that we were already looking at and discarding.

So it's the same origination teams, same value creation teams. We didn't have to hire anybody. Back to the point about trying to work to increase our operating margins and keep our culture. That's what strategic holdings is. So as we continue to execute on that, you'll see both FRE and strategic holdings grow at very fast rates with insurance growing quickly as well.

I think it dovetails nicely into a good high-level question I just got in from the audience. And you hit on this a few times this idea that the market is clearly truing your stock or lumping your stock in with the SaaS an AI concerns. So when you look at everything that's written and how the stock is reacting, what are the 1 or 2 kind of big disconnects you'd point out or address here? Maybe it's more than one.

Let's just go back to where we started. If you weren't looking at the media right now, and I walked in and I said, look, we've got record fee-related earnings record net income growth. Our management fees are up 23% organically in the last 12 months. We announced record visibility on monetizations. We raised $127 billion in the last 12 months. Our record, by the way, is $129 million. So within $2 billion of our all-time record in fundraising. We've had record deployment and we feel more optimistic about the than we've ever felt with a lot of growth avenues all around the world, and a lot of wind at our back and the mega trends on our side -- then that's how you should feel.

And then you can go look at what everybody says, if you'd like, but that's kind of how we -- it feels to us. The thing that's different this time, and I'll wrap up here. There's always been a perception cycle as it relates to our space. as kind of a genius idiot perception cycle. 2006, we can do no wrong. 2008, we can do no right. 2021, we can do no wrong. 2026, We can do no right. That's how the perception moves in our space, okay? The difference now is last time we had this perception cycle, the space was probably $2 trillion or less. If you take out hedge funds, it's now $15 million. So it's a more relevant part of the space, so it's getting more attention. But I would resist the temptation to paint everybody with the same brush because you're going to see people that perform extraordinarily well through this period of time, and you're going to be some -- you're going to see some that struggle to a greater extent and have the opportunity to learn some lessons. We think that we're going to be on the right side of that.

That's a great. Thank you.

Ladies and gentlemen, thank you for standing by. Welcome to KKR's First Quarter 2026 Earnings Conference Call. [Operator Instructions]

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

Thank you, operator. Good morning, everyone. Welcome to our first quarter 2026 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. 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 as well as our SEC filings for cautionary factors about these statements.

So first, beginning with our results for the quarter. Fee-related earnings per share came in at $1.13. That's up 23% year-over-year. Total operating earnings of $1.47 are up 18% year-over-year and adjusted net income of $1.39 per share is up 20% compared to 1 year ago. All of these figures are among the highest we've reported in our firm's history.

Now going into a little more detail. Management fees in the quarter were $1.2 billion. That's up 30% on a year-over-year basis. driven both by continued fundraising momentum alongside deployment activity really across the platform. Excluding catch-up fees in both periods, management fee growth was strong at a touch north of 20%. And as we've highlighted previously, our fee base continues to be diversified with private equity, real assets and credit each contributing approximately 1/3 of total fees over the trailing 12 months.

Total transaction and monitoring fees were $253 million in the quarter. Capital markets fees were in line with last quarter at $224 million, driven by activity across PE, infrastructure and credit. And fee-related performance revenues in the quarter were $24 million.

Turning to expenses. Q1 fee-related compensation was again right at the midpoint of our guided range or 17.5% and other operating expenses were $195 million. So in total, fee-related earnings were over $1 billion or the $1.13 per share figure that I mentioned a few moments ago, up 23% year-over-year. And our FRE margin increased slightly quarter-over-quarter to approximately 69% at March 31.

Insurance segment operating earnings were $260 million. Now as a reminder, we report the insurance investment portfolio largely based on cash outcomes. So to give you a sense of the embedded profitability as we've done in the last couple of quarters. Our insurance operating earnings would have been slightly north of $300 million in Q1 if we included the impact of marks on investments where a significant portion of the return relates to appreciation rather than cash yield. And as a reminder, Insurance segment operating earnings alone do not capture the full economics of GA to KKR.

Page 22 of our earnings release details the management fees under our investment management agreement, fees from IV-related vehicles, where we have over $60 billion of AUM that wouldn't exist without GA. Alongside GA related capital markets fees. When you take all of that together, total insurance economics over the LTM were $1.9 billion. That's net of compensation, up 14% versus the prior period.

Strategic Holdings operating earnings were $48 million in the quarter, and we continue to track nicely towards our expected $350-plus million of operating for 2026 with earnings here expected to be more back-end weighted over the course of the year.

So altogether, total operating earnings, which, as a reminder, represents the more recurring components of our earnings streams, were $1.47 per share, up nearly 20%. And over the last 12 months, 85% of total pretax segment earnings were driven by these more recurring earnings streams demonstrating in our view, the durability that you're seeing across our business model.

Moving to investing earnings within the Asset Management segment. realized performance income was over $750 million and realized investment income was approximately $120 million, bringing total monetization activity to around $880 million, up over 50% versus Q1 of 2025. This activity was driven by a combination of public secondary sales and strategic transactions alongside of dividends and interest income. After interest expense and taxes, adjusted net income was $1.2 billion for the quarter, or $1.39 per share.

Turning to investment performance. Page 10 of the earnings release details performance we're seeing across asset classes, both this quarter and over the last 12 months. Broadly, you're seeing healthy investment performance on behalf of our clients across asset classes, including through this recent period of heightened volatility. And given investment performance, importantly, total embedded gains that's comprised of gross carry together with the gains that sit on our balance sheet across asset management and strategic holdings were $18.3 billion at $331 billion. That's up 11% compared to 1 year ago and remains elevated even as we've been generating healthy monetization activity.

Now as you can imagine, we've been filling a lot of questions on direct lending, so we've added a couple of pages to our earnings release. First, just to level set, if you turn to Page 20, you see the size of our direct lending platform. In total, direct lending is $39 billion or 5% of our AUM. It's an important business for us, but in the framework of KKR, it's of modest size. And with a lot of focus on redemption activity in the wealth space, we note the size of our private BDC footprint in the second bar from the right. It's even smaller, around $3 billion of AUM or 0.4% of our AUM in total.

In terms of our public BDC, FSK is a little less than 2% of our AUM. FSK reports its Q1 earnings next week. We're not going to get ahead of that. It's important, though, not to conflate FSK's portfolio with other pools of capital. So looking at Page 21, you see investment performance across our institutional strategies as well as our private BDC, all vintages since 2017. You see very consistent outperformance versus benchmark. We thought the more granular framing of investment performance here across the direct lending platform would be helpful context for everyone.

And then finally, consistent with historical practice, we increased our dividend to $0.78 per share on an annualized basis beginning with this quarter. This is now the seventh consecutive year we've increased our dividend since we changed our corporate structure increasing our annualized dividend over this time frame from $0.50 per share to $0.78.

And with that, I'm pleased to turn the call over to Rob.

Thanks a lot, Craig, and thank you, everyone, for joining our call this morning. I'm going to cover 4 topics today. First, our continued momentum around capital raising; second, our monetization activity, which has been increasing at a healthy pace in spite of the recent market volatility. Third, we have been making some important decisions around capital allocation. And finally, I'm going to go through how we think about the earnings power of our business.

So let me start with capital raising. We raised $28 billion of new capital in the quarter with demand really widespread across asset classes and geographies. A real bright spot for us this quarter was in credit where we raised $15 billion across our platform. That momentum was driven by our asset-based finance business, which represents over $90 billion of AUM today.

Given the current sentiment around private credit, it may be surprising that when you look at new capital raised, so this is excluding GA, this was one of our larger credit fundraising quarters. Inflows here more than doubled quarter-over-quarter, and our capital raising pipelines remain strong. Most recently, over the last few weeks, we've received meaningful inbound interest from institutions around our direct lending business with several viewing the current dislocation as an interesting entry point, given the redemption activity that exists today in the private BDC space.

Another milestone for us this quarter was the final closing of our North America 14 fund at $23 billion, eclipsing the prior $19 billion fund. Across the most recent vintages of KKR's flagship regional funds, so that's Americas, plus Europe, plus Asia, we have $46 billion of total capital to invest across this vintage. We are the clear market leader in private equity. And finally, in wealth, across all of our asset classes, our K-Series suite brought in $4 billion of capital in Q1. Redemptions totaled around $250 million and AUM now stands at over $38 billion.

Our performance, deployment and capital raising continue to be in line or ahead of our expectations. Given all the market noise, we were candidly surprised by the strength of flows in Q1. But we also do expect a slowdown in Q2, consistent with what we saw after the tariff announcements last year. We're still operating off of a relatively low base of AUM. And we continue to believe that this channel will be a long-term source of meaningful growth for our industry and us.

Turning now to monetizations. As we have explained on prior calls, we are very pleased with the performance of our portfolio, and we are seeing the benefits of our focus on linear deployment and portfolio construction. You can see our continued monetization activity in our financial results. As Craig noted, we generated around $880 million of monetization revenue in the quarter. Realized carried interest was $720 million. That is up 120% year-on-year, and we have a healthy pipeline of realizations across strategies and regions.

Over the past month or so, we have announced several encouraging transactions including the closing of the sale of OneStream Software for 4.5x our cost and the sale of CoolIT Systems, a global leader in liquid data center cooling for almost 15x our cost. We have also agreed to sell 2 of our 2021 investments despite the more challenging vintage year, 1 in infrastructure, which would generate approximately 2x multiple of money and 1 in traditional private equity at nearly 3x our cost. And most recently, we completed a secondary of our remaining shares in Hyundai Marine Solution in Korea, resulting in a 7-plus x multiple of capital for the full life of that investment.

I'd like to next shift to capital allocation. It is an area of critical importance to our long-term performance and we have been making some important and deliberate decisions. As a reminder, we have focused on 4 key tools available to us to allocate our cash flow. Strategic M&A, insurance, share buybacks and strategic holdings. Each of these tools takes full advantage of the KKR ecosystem, and as a result, have the potential for high ROEs. Importantly, we do not have a framework that assigns a specific amount of capital spend into any one of these areas.

Our approach here is all about how we take our marginal dollar of cash flows and drive the most amount of recurring durable and growing earnings on a per share basis. That is the mindset we have consistently taken to capital allocation, and it is one that is highly aligned with our shareholders given employees here own roughly 30% of our stock. We believe that we have delivered a lot of value to our shareholders through strategic capital allocation, and we are very confident in our ability to continue to do so in the future.

So starting here with strategic M&A. This morning, we announced the closing of our acquisition of Arctos. As a reminder, Arctos is the leading investor in professional sports franchise stakes and a leader in GP solutions with approximately $16 billion of AUM and $10 billion of fee-paying AUM. If we are able to achieve our objectives in partnership with the Arctos management team, and we are confident that we will, it is hard to find a better allocation of capital.

Next, in insurance. In the first quarter, we continued to see increased levels of competition here, particularly in the retail channel. Given that backdrop, alongside tight spreads on the asset side, we were disciplined around pricing and a lot more selective in that channel. That said, as spreads have widened a bit more recently, we are starting to see a more attractive entry point.

On the other hand, an area where we leaned in this quarter was share repurchases where we saw attractive risk-adjusted returns given the volatility across our sector. We repurchased or retired $317 million of stock this year through May 1 at an average price of approximately $91. And our Board recently authorized an increase to our share repurchase program by an additional $500 million.

Taking a step back, there is clearly a lot of noise in some of the markets where we operate. But from our seats, there is a big disconnect between perception and our long-term prospects across our diversified business model. That's why we have been leaning into buying back our stock. And you would have also seen our co-CEOs and a number of our directors buying stock personally in the quarter. Whether it's our performance in Q1 or the long-term earnings power of our franchise, our positioning stands in contrast to some of that market noise.

Looking at Q1 in particular, we've grown our headline profitability metrics FRE, total operating earnings and ANI, all on a per share basis, each around 20% year-on-year. It's actually the second highest quarter we have reported in our history for FRE and OE and the third highest for ANI. And we continue to feel great about the durability of our model and the earnings power that we continue to create, which provides us with significant visibility into future earnings growth.

Over 90% of our capital is perpetual or committed for 8 years or more. Today, we have $125 billion of committed but uncalled capital, nearly as much as we've had at any point in our history. Looking at our management fees and fee-related earnings over the LTM, we've grown at a high teens CAGR over the last 3 years. Alongside this growth, the quality of these fees has significantly improved as we've diversified by strategy, and geography.

And finally, our embedded gains, which Craig mentioned, stand at over $18 billion, one of the highest levels in our history, and they provide a lens into the strength of our portfolio, and our ability to create meaningful outcomes in the future. So we benefit from real stability and durability of our earnings and increased visibility on how they will grow.

Finally, before I'm going to hand it over to Scott, I did want to provide an update on our 2026 guidance. First, based on the underlying momentum that we are seeing across the business, we continue to feel very confident in our ability to exceed our targets for fundraising, strategic holdings operating earnings and FRE on a per share basis.

Turning to ANI. As we said last quarter, following our bottoms-up budgeting process, we entered the year expecting 2026 ANI to reach $7-plus per share, assuming a constructive and more normalized monetization environment. At that level, earnings growth would be approximately 45% year-over-year. So it's clearly an ambitious target, but one that we did have line of sight to achieving. That said, the operating environment 4 months into the year has, of course, bit more challenging than what was embedded in our plan.

Importantly, we are still seeing healthy monetization activity. Gross monetization revenues in Q1 were up more than 50% year-on-year. And when we look at exit since March 31 as well as signed transactions expected to close in the coming quarters, that represents over $1.2 billion of gross monetization revenue for KKR. Notably, that is the largest forward monetization figure we've discussed on a call in our history. So while we continue to generate very strong outcomes, we do have modestly less visibility today than what our budget would have suggested at this point in the year.

As a result, if you were handicapping our ability to reach $7 per share, we do think it is more likely that we land below that level. Importantly, if that were to happen, any delayed monetizations that impact 2026 would not be lost as we would expect them to shift to 2027 and beyond. And stepping back, the broader portfolio remains in very good shape. Embedded gains are at or near record levels. The earnings power of the firm continues to grow at an attractive rate, and we feel extremely well positioned for the future.

With that, I'm going to hand the call off to Scott.

Thank you, Rob, and thank you, everybody, for joining our call today. The first thing I want to do is welcome the Arctos team to KKR. Our new partners highly creative and entrepreneurial, and we could not be more excited to work together to build a $100 billion-plus AUM business.

KKR had its 50th birthday last Friday. We are very proud of this milestone. As a firm, we are not very good at celebrating. We are, however, good at gratitude. So it was nice to be able to thank all our clients for their partnership and trust and all our people for their dedication and hard work. We would also like to thank you, our shareholders, for your partnership. We have been a public company for about 1/3 of our 50 years, a period of time that has seen significant evolution and growth in our firm, all of which happened with your support. Thank you for helping us get to where we are.

So let's talk about how we see things. We asked our team to pull together some slides recently to help frame the current volatility in our stock relative to our results. simple. Just multiple years of AUM, fee paying AUM, FRE, total operating earnings and ANI on 5 pages. All of which metrics are steadily up and to the right with growth rates generally between 10% and 25% per year for the last several years.

We then overlaid our stock price on those same charts, picture worth a thousand words approach. What do you see when you do that? Our operating metrics are very steady with consistent growth over a long period of time. The fact is perception of the volatility of our business and industry, is disconnected from the lived experience. And that's okay. We are focused on what we can control and executing our plan. And as we do that, we'll continue to prove out the durability of our business model, and we're confident that the volatility in our stock will come down over time.

If you step back, the first quarter was no exception to our long-term trend. All of our key metrics grew about 20% in the quarter relative to Q1 last year. We raised a lot of capital, deployed a lot of capital and monetized multiple investments. And as you heard, the volatility in our stock gave us an opportunity to adjust our capital allocation priorities and buy our shares back at what we believe is a significant discount to intrinsic value which is why Joe and I had bought more stock as did multiple members of our Board.

So our suggestion is don't trust the headlines. Stay focused on the fundamentals and how we are executing. That's what ultimately matters and how we are spending our time. This approach has served us well for the last 50 years, and we expect will continue to for the next 50.

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

[Operator Instructions] Our first question today will come from Craig Siegenthaler with Bank of America.

My question is on General Atlantic. So one of the big public annuity competitors pulled back in that business in 1Q and actually cited increased competition. And we know the [ alt ] models, including GA, have gained a lot of share versus the legacy players in the U.S. fixed index and fixed indexed annuity markets. So I was curious if you could update us on competition, underlying ROE potential and how we should think about the growth trajectory, especially with the institutional funding market potentially a little softer near term?

Craig, it's Rob. Thanks a lot for the question. We are seeing that competition. Competition on the liability side is very high. And we know on the asset side, spreads are as tight as they've been in a very long time. And so the combination of those 2 things is putting some increased competitive pressure on ROEs. That's why you saw us also pull back on the origination front in Q1 as well.

Now with that said, we think it's best to look at insurance businesses through the cycle. And where we're spending a ton of time at both Global Atlantic and KKR is making sure when there is increased levels of volatility.

And by the way, when that happens, 2 things will happen simultaneously. We believe liabilities will become cheaper. And definitionally, you're going to see spreads come out on the asset side and so the ROE potential is outsized. And so what we're spending our time is how do we make sure we are best positioned for that environment.

And one of the real competitive advantages that we have on our platform relative to the broader insurance space is the fact that we sit on $6 billion of dry powder equity that we can draw down to invest into that dislocation, much like you would in a private equity fund. And as a reminder, that $6 billion of equity, we think translates into $60-plus billion of buying power on the liability side.

So a lot of effort here making sure we're ready to go when that volatility does come. But today, we are seeing those increased levels of competition. We also know that that's not going to last forever.

Yes. The only thing -- Craig, it's Scott. Hope you are well. The only thing I would add, I think that the narrative is exactly right in the U.S., call it, retail market, where there has been significant competition I think the recent move we've seen in spreads and kind of some of the volatility is maybe dissipating some of that a bit. So opportunities are looking a bit more interesting, as Rob mentioned in the prepared remarks.

But two things I'd mention. Remember, our business has a good balance to it. We have a retail business and an institutional business. This block does flow some PRT. Not all of those markets are seeing that same level of competition that we're seeing in the retail side. So it's nice to have that diversification across the platform. And then the other thing we've talked about in prior calls, one thing that makes us a bit different is by virtue of being able to marry our origination franchise with the -- on the investment side with the origination franchise and liabilities we are emphasizing a more longer duration liabilities. And I think it's harder for other people necessarily to be able to generate the returns we think we can with those longer-duration liabilities matched with assets that we can originate. So I wouldn't pay everything with the same brush, but I think your overall comment is well placed.

Yes. I'm going to jump in with one last point on the -- on gating our liabilities because I think it's an important one to get across. If you look at our Q1 originations across the franchise, approximately 80% of those originations had 7 years of duration or more. Just to contrast that relative to full year 2024. So that's the year where we made the pivot around elongating our liabilities for that full year, we were 37% 7-plus year duration. So we've almost doubled or we have doubled rather our exposure to those longer duration liabilities.

And next, we'll move to Glenn Schorr with Evercore.

So I'm curious that the -- you've had better DPI and better monetization than most. You mentioned the over $18 billion of embedded gains in the markets at all-time highs. So I'm curious on the attribution of what changed and what holds back the timing and the ability to get to the ANI targets now. Is it as simple as there's a war there and it delayed things? I don't know if you can give us any attribution of parts of the portfolio that despite having these huge embedded gains, the market is just not ready to accept.

Yes. Thanks, Glenn. It's Rob. I think it's all a matter of degree is the reality. And so there's a lot of really good things going on across our business today as we went through on the prepared remarks. Our monetization guidance of $1.2-plus billion is higher than it's ever been at any point in our history.

But at the same time, 3 months ago, we were on this call, we said we would be very transparent on our quarterly calls around where we stood on the $7. And if we were handicapping it now, and when you look at some of the volatility that we have experienced over the first 4 months of the year, we tell you on balance that we're going to be on the other side of $7, and we wanted to share that as we noted we would and keep you all updated on our progress.

Glenn, it's Scott. The only thing I'd add, overall, as you heard, the portfolio is in great shape. I think we're seeing real benefits of our focus on portfolio construction and linear deployment diversification, all the things we've talked about on this call for the last several years. And that discipline is really coming through in the results. And so the value is there.

To your point about the embedded carrying in gains, this is really a question of when do you want to monetize it. And so the IPO market feels good. We've got several companies in the pipeline. But obviously, an IPO isn't necessarily an exit per se. It can be a partial exit in the beginning of one. But another way that we exit is obviously through strategic sales. And so the one thing to your comment if you've got an asset that you've built value in for 5, 7 years. And if the backdrop in terms of war energy prices, et cetera, is a bit uncertain or uncomfortable I'm not sure you'd want to necessarily sell that wonderful asset into that environment if it's a strategic buyer and give them a little bit more time for the world to write itself.

And so that's really what's happening on the margin. You heard from Rob, it didn't really impact anything in the first quarter. This is more of an expectation that if things go on for a longer period of time, there may be some things that we delay the launch of a sales process because we want that clarity in the market for the buyer on the other side. That's all we're talking about. But this is just timing. This is in magnitude.

Our next question, we'll hear it from Alex Blostein with Goldman Sachs.

So really nice momentum on fundraising, obviously, despite what's been a tough backdrop and management fee growth north of 20% normalizing for catch-up fees is all good. As you think on the forward, it might be helpful just to get a mark-to-market on your expectations for fundraising for the rest of the year given the bulk of the larger flagships are now in the run rate. particular how you're thinking about Asia, I think that one is about to start. But I guess, more broadly, your confidence in maintaining this type of fundraising outlook for the rest of the year, which I think is what embedded in your FRE growth assumptions.

Alex, it's Craig. Why don't I start on that. And thanks for the question. I think it's probably worth beginning on the breadth and diversification of fundraising. So if you look over the last 12 months, as Rob noted, we raised $127 billion in total. So $35 billion of that roughly is from GA within our credit platform, around $35 billion in real assets, around $35 billion is the non-GA portion within credit and the balance of $20 billion, a little over that in private equity. So you're seeing a very healthy balance and diversified result in terms of our fundraising. Rob talked about that in terms of our management fee growth, where, again, you're seeing real breadth and diversification in management fees as a result of that.

And I think the other point that kind of highlights this relates to flagships. So flagships were around 15% of new capital raised in the quarter, 12% over the trailing 12 months. Again, that number was very different at KKR 5-plus years ago, as I know you'll remember. And then I think on the go-forward, look, there's lots of opportunities for our fundraising team across strategies, across geographies. I think if we look in the strategies where we expect to be active in the next 12 to 18 months.

In private equity, that includes Asia private equity, our private equity, tech growth, health care growth. We've got our K-Series. And then we have Capital Group as well. Within Real Assets, Global and for core infra, we have a climate strategy, Asia Infra as well as K-Series infrastructure, opportunistic real estate credit. Again, just big -- a wide group of opportunities in real assets, credit, across direct lending, leverage credit, asset-based finance.

Again, you heard Rob note in our prepared remarks some of the momentum that we're feeling and seeing last quarter as it relates to high-grade ABF in particular, Asia private credit, Asia leverage credit, crack capital solutions, CLOs, K-Series as well. And then insurance, again, reinsurance co-investment opportunity.

So I think that breadth of opportunity that we have is what you're hearing in the confidence when we talk about the go forward from a fundraising standpoint, what that then can mean in terms of management figure out. And again, what ultimately that can mean in terms of FRE growth.

Alex, it's Scott. I would say -- I mean, if you can't tell from Craig's list there, the fundraising feels really good. I'd say we had a lot of momentum on a number of fronts. It's global including the Middle East, which I would very much put in the business as usual category, pensions, sovereign wealth funds, insurance companies, high net worth, wealth. So it all feels really strong right now. And some of the things we've talked about on prior calls, for example, this consolidation theme that we see more and more clients wanting to do more with fewer partners is absolutely playing out, especially as they see more dispersion of results.

We're heading towards more of a K-shaped industry. And so we think there's opportunity for us to continue to take share and we think the addition of Arctos to the family only adds to that as another set of asset classes, which are able to generate differentiated kind of returns. So bigger relationships and partnerships would be another theme I would point to on the back of that consolidation. But hopefully, that gives you a bit of color.

And next, I'll move on to Bart Dziarski with RBC Capital Markets.

Congrats on the CoolIT realization. And I noticed you implemented a employee ownership program at acquisition. So could you maybe speak to how that program contributed to the successful outcome of that deal? And then maybe more broadly on KKR's ownership program at the portfolio company level?

Bart, it's Rob. Thanks for bringing that one up. CoolIT was obviously an awesome outcome for our investors. It is not often that we exit a business at almost a 15x multiple of money. And as you noted, CoolIT is one of 85 KKR portfolio companies globally now that are part of our broad-based employee ownership programs where every employee, so it's not just senior management our equity owners. And in the case of CoolIT, most tenured employees there are going to receive roughly 8x their annual base salary at exit.

So a really meaningful outcome. And deservingly given the progress and the returns that we were able to generate at CoolIT. So more broadly, if you look at those 85 businesses that I referenced, we now have approximately 200,000 nonmanagement equity owners in those businesses. And we're really proud of this initiative. We know for sure that it drives better outcomes at our portfolio companies. We see it in the numbers. You've got higher engagement scores. You've got higher retention rates, working capital efficiency is up, margins are up, and ultimately, profitability is up. And so we have developed this program in a way where we've got the full employee base at these companies feeling like owners in the business, and they're delivering better results. And because of that, they're able to share in those results.

So we think it's great, and we're really proud of that across our firm. And then maybe finally, while we're on this point, I do think it's worth mentioning that we are also a founding member of ownership works. This is a nonprofit that our partner, Pete Stavros, who co-runs our global Private Equity business founded a number of years ago. And we now have greater than 100 partners alongside of us in this effort. And that's really what it's all about. We want this to become a movement beyond what we're doing at KKR. And so a big focus of what we're doing across the portfolio. And then one that we're excited to be able to hopefully share results like this with you all in the future.

And next, we'll move on to Steven Chubak with Wolfe Research.

So wanted to ask on strategic holdings and AI risk more broadly. Certainly encouraging to hear the operating earnings target for strategic holdings get reaffirmed. Digging into the sector exposures, about 1/3 of the last 12-month EBITDA is concentrated in the business services sector. It's an area that's viewed as being more at risk of AI disintermediation. I was hoping you could speak to just how you've underwritten AI risk in the strategic holdings portfolio and even across the border universe of KKR portfolio companies? And is there any KPIs you can speak to, to help folks better handicap that risk?

Steve, it's Craig, why don't I start? So just look to level set, software represents around 7% of our AUM. In private equity, it's a higher percentage. It's around 15% across our credit platform in total, it's 5%. And in Global Atlantic, that number is about 2.5% of our AUM. Now I think first, why don't we -- and in terms of that percentage of EBITDA in strategic holdings, that percentage is about the same. It's -- you're correct. It's a low double-digit percentage of EBITDA in the quarter.

And then why don't I first talk about Mark's and then from the one we talk about AI and from both an underwriting standpoint and then opportunities for us. But I think in terms of the quarter, probably 2 things to note. First, software companies broadly are performing. So looking at revenue and EBITDA growth, we're still seeing healthy year-over-year revenue EBITDA growth, I think high single digits. But at the same time, obviously, in the quarter, we saw weakness across equity markets in the software space. So given the way that our valuations work, this dynamic from a public market standpoint, had a negative impact on the markets, right? So when you put those 2 pieces together, really, despite the operating and financial performance marks across the software names largely declined in the quarter.

Now in terms of AI and how we're approaching AI as a firm, I think from a couple of things. One, look, the implications won't be a surprise to anybody on this call from AI are really far reaching, right? Like the barriers to adoption are low gains are real. AI can be very helpful at parts of workflows. And there will be businesses where the fundamental strategic positioning is either materially enhanced or in some cases, on the flip side could be replaced. Now from an investing standpoint, AI, we look at both from a diligence lens as well as from a value creation perspective.

So from an underwriting standpoint, kind of the part of the question that you focused on. Look, we're focused on AI, how it affects margins, pricing power, workflow relevance and cash flow resilience. And so the focus is not just on AI exposure, it's really on the durability of unit and business economics, and that's through trailing lines as well as on the go forward. And how does AI impact those dynamics for us.

And then I think perhaps even more importantly, in terms of value creation, look, we think we're really well positioned. Like AI at this point is deployed across 150-plus companies to automate workflows, enhanced products, drive new growth. And I'm sure we have multiple AI initiatives across every one of those companies. And so as a firm, how we're focused on this is ensuring that our operational team at Capstone, we talk about Capstone a lot is helping ensure that lessons travel across our teams and our companies. What works, what doesn't work? What's easy, what's hard.

And again, as I know you know, we work in a very collaborative firm. So it's very much within the framework of our culture to help each other. I don't think that's necessarily to the same degree at every firm because a really siloed firm is not going to benefit in the same way. And then on the flip side of all of this relates to the opportunity on the investment front. So digital infrastructure remains a massive theme for us.

We've deployed over $40 billion of capital KKR plus our partners across a variety of digital infrastructure themes have over a 20% gross IRR return to date in terms of that activity for us. And again, obviously, we already touched on the CoolIT example. Again, an example of an investment that, again, when everything comes together, kind of shows you the art of the possible. So hopefully, that's helpful.

And next, we'll hear from Bill Katz with TD Cowen.

Thank you very much for two things, the extra disclosure and Finding Your Own Data report earnings. Very helpful. Just coming back to insurance for a moment. So doing the back-of-the-envelope math, if I take your slide, you are slightly north of $300 million sort of pro forma first quarter you get just below 11% ROE for the business, if I did the math right, a, let me know if that's right. So as you think forward, just given all the puts and takes of the business, I think you mentioned spreads widening out a little bit into 2Q. What do you think is a normalized level of ROE and maybe the time line to get to that?

Yes. Bill, it's Rob. Why don't I start and maybe 3 or 4 points. as it relates to profitability and ROE of the insurance business. Point one, you hit on it was the mark-to-market benefit relative to the accrued income that's a little north of $300 million. But in the quarter, given some of the volatility we actually didn't hit our targeted return from a market perspective. So our target return is low double digits. If we had achieved that targeted return in the quarter, our run rate was probably closer to $330 million, just to give you a sense of the magnitude.

Point three, I hit on this a little bit but it is a competitive market today as it relates to the asset and liability side, and we know for certain that it won't always be this way. And so how do we make sure that we really capitalize on that environment where there is volatility. And we talked earlier on how we think we're incredibly well positioned to do that. And honestly, it's a big reason why we bought 100% of GA because last time this happened, we felt like we missed it.

And then finally, I would point you, as always, to Page 22 of our press release of our earnings release where you could see the all-in ROE figures that we have, but I think always instructive to take a look at that page as you're thinking about the performance of our broad-based insurance business.

Next, we'll move to Mike Brown with UBS.

So I wanted to ask on Arctos. So $10 billion of fee paying AUM, can you just talk about the current fee rate profile there? And then any fundraising expectations over the, call it, next 12 to 24 months? And then strategically, how do you view the long-term opportunity in the wealth channel with Arctos. Is that something that could kind of feed origination into [ PayPac ]? Or over time, do you think you could even have like a dedicated sports fund or a dedicated secondaries product?

Great. Thanks for the question. Let me start, and I know Craig and Scott might jump in. But just as it relates to the financials, we're not planning to disclose given the size of the Arcus business relative to KKR specific Arctos' related financial information. I think we can tell you that the profile of the business is generally pretty consistent with the profile of KKR's business.

You've got, we think, best-in-class teams raising third-party capital they've done in a pretty lean way on the employee front. And with fee terms that generally look like fee terms that you would expect to see across some of the private closed-end funds here at KKR.

As Arctos and what we're building in broader solutions business gets bigger, it becomes a much more material part of the firm, I can certainly see a world in the future where we're disclosing that solution-specific P&L information. But for the foreseeable future, I suspect you'll see it embedded in our private equity business line in coming quarters.

And Mike, it's Craig. Just on the fundraising piece. First, thanks for asking about Arctos. Scott Rob and I had a head fun this morning in our internal firm call welcoming the Arctos team to the family post-close, obviously. And look, on fundraising, it's a really exciting opportunity for us.

And I think our fundraising team we know is excited both to support the distribution of existing Arctos strategies. And I think in particular, if you think of the footprint that we have and the boots on the ground that we have on a global basis, we think there's the opportunity for us to be really helpful right out of the gates.

And then secondly, to your question on wealth, nothing to announce specifically this morning, but certainly lots of ideas, and we're excited to develop and think through potential new wealth solutions together with the Arctos team. This could include things like an evergreen vehicle that would include sports as well as some type of secondary/GP solutions vehicles as well. So more to come over time, but just a really exciting long-term opportunity for us. We're excited to get after it.

And next, we'll move on to Michael Cyprus with Morgan Stanley.

Just wanted to ask about AI deployment across portfolio companies. Curious where specifically you're seeing AI-driven revenue uplift versus AI-driven cost savings in the portfolio? And how might you quantify that so far? And curious any expectations as you look out from here, and I was also hoping you can elaborate a little bit to your earlier point on what's been easy so far? What's been hard and any sort of lessons learned from adoption?

Mike, it's Craig. Why don't I start? Look, we're very early in broadly what we think the opportunity set is, I think we're seeing broad adoption of AI and the next step of that is really understanding the execution and bringing the power of AI to life, both from a revenue standpoint as well as an EBITDA standpoint. I'm sure there'll be points in time or a point in time when it will make sense for us to both talk about specific progress as well as guideposts for us. To be clear, we are seeing an EBITDA uplift broadly across the portfolio. And we think there's a lot more to do.

It has been interesting to see the evolution of AI to date and how it's almost started in ways that are interesting, like I think on various language applications. It's just interesting to see really begin to disrupt that part of the landscape most broadly first. But as we think about things like broad efficiencies whether that's sales force or operating efficiencies across the platforms and workers. And there's going to be even broad businesses and opportunities in things like robotics or you think of what AI can do in terms of in terms of the health care space.

There's just really long-term broad opportunities for us across the spectrum of the business, and there will be more to come from us over time.

And we'll move on to our next question from Brian McKenna with Citizens.

So within our private equity business, what's the typical markup on an investment when it's realized versus the prior unrealized mark? And then is there a way to think about the incremental carry that's created in this markup. And I'm just trying to figure out at the $2.6 billion of net unrealized performance income is understated in any meaningful way.

Brian, it's Craig. Why don't I start. Look, in our experience, when you look at the final mark of those private equity investments that we monetize, you see a healthy markup relative to the prior quarter. And that's been our experience over time. I think it does speak to the rigor of the valuation process. Again, this is an exercise that has been very similar for us for well over a decade at this point in time. We work with third-party firms as part of all of this exercise. And so I think it speaks to the rigor and if anything, mild conservative that we have as it relates to marks as we go through this process.

Yes. I think that covers most of it. I think really the only things from my seat to add on here is we've been doing these types of valuations really close to 20 years now with the advent of our vehicle that was listed on the Euronext back in 2006. There is a high degree of rigor. We feel really good with how we value Level 3s across the firm, not just in private equity, but everywhere. The vast majority of our holdings, anything of any size and scale is going to be either validated or the valuation will be created and performed by a third-party valuation agent.

And then as it relates to whether our accrued carry numbers understated. I wouldn't say that. I mean we feel like our valuations are very appropriate at quarter end, given all of the information that we know.

And our next question, we'll hear from Brennan Hawken with BMO Capital Markets.

Wanted to follow up on Glenn Schorr's question. So -- couldn't resist, [indiscernible] sorry. So look, the struggle with the $7 is, I think, probably not that surprising, like the environment, given where it is, you can look at consensus and saw the basically it was anticipated. But the one part that I'm sort of curious about is on the realizations and the timing. I know you guys have been a lot stronger on DPI. But how is the potential for further delays in monetization and realizations going across with the LP community. This has been an ongoing delay across the industry. And so is that leading to some frustrations and how are you managing that?

Yes, sure, Brennan. I mean there's obviously a lot of nuance in that question. And -- but what I'd tell you is as we entered the year, and we talked about this last quarter, we have put together really a bottoms-up budget for how we thought the year would play out based on normalized and constructive monetization environment. And as we're 4 months into the year, I think it's fair to say that through that 4-month period of time, it's been anything but a normalized environment.

And so as we thought about what needed to get sold in order to achieve our target for the year and our budget for the year, we -- today, as we're mark-to-marketing it, some things have potentially been delayed. And that's all we're trying to convey because we did really want to be transparent for how we're tracking at this point of the year.

That said, I think it's also important to really understand that our DPIs remain, we think, industry-leading, certainly relative to our larger competitors. And if anything, that's accelerating. You look at our realized carry in Q1, it was up 120%. I think most importantly is our forward monetization guide of $1.4 billion plus as it relates to monetization related revenue, that is the highest we've ever had in our history. And so things feel really good on that side of the ledger.

But at the same time, we're also cognizant of the environment. What that can mean as Scott noted in processes. What that could mean maybe as it relates to delayed deployment and pushing back some processes that could happen and the impact across our platform. And we're trying to give you a mark-to-market balance view on where we are at May 5 of '26.

Brandon, it's Scott. Just to add a couple of things, one, thanks for the question. I wouldn't confuse the message around we may delay some strategic exits with kind of what we're hearing from the LPs. We have, I think, in the deck, the IR deck on the website, a slide somewhere that talks about how we've given cash back from our private equity fund in the U.S. or that business, we've given more back than we called 9 out of the last 10 years.

So what we're hearing from the LPs is we're like best-in-class in terms of DPI and cash back, and they know that there's more coming. So the LPs are happy with us. That's why you see a record fundraise in private equity, the $23 billion that Rob mentioned, which is just the U.S. component of our private equity business. But overall, fundraising is up, and we're finding investors want to do even more with us. And I mentioned this dispersion we're seeing across our sector. There is extreme bifurcation, and we're getting a lot of very positive feedback on how we're performing and sending so much cash back relative to others. So I wouldn't confuse the 2 topics. This is helping us grow the firm faster by virtue of the performance.

And next, we'll hear from Dan Fannon with Jefferies.

I was hoping you could discuss the broader kind of private wealth backdrop given the challenges in certain private credit vehicles. How do you see that impacting the lineup for the rest of your retail or private wealth products or even the road map with your partnership with Capital Group going forward?

It's Craig. Why don't I start? We thought we'd get a question on this topic. We think it's important just to begin to level set, and I touched on this earlier, but really the size and breadth of fundraising, right? So over the trailing 12 months, we've raised $127 billion, in K-Series it was 12% of that. So it is an important piece, certainly, but we benefit from all the strategies and geographies where we're raising capital. We're wonderfully diversified from a fundraising standpoint.

And then we think it's important to take a step back and think about K-Series and the growth in that platform. So AUM across K- series at 3/31 was $38 billion. A year ago, that was $21 billion. So think of all the volatility that we've all experienced over the last 12 months, Liberation Day, all that's unfolded with the ramp. And K-Series AUM is up 80% year-over-year, actually a little north of that. It's pretty good.

So I think as we look about the backdrop for wealth and what that means for us, no change in our view of the path we're on, the long-term opportunities that we see and just feel, a, very excited about how we're positioned against this opportunity. And again, recognizing that this is just one of the pieces of the puzzle that we have given the breadth and the diversification we have across the firm.

Yes. The only thing I'd add, Dan, is this is a multi-decade build for us, and it is all about performance. If we can generate performance and keep earning the trust of the advisers and the clients, we think this can be a meaningful part of the firm. And as you know, it's early products are relatively early in the development. And I think people are learning as we go here.

But in terms of your question on the other -- impact on other things we're doing, I think Rob mentioned it, we were surprised by how strong and resilient flows were in the first quarter. If history is any guide, all of the media attention will likely slow things down for a bit. I don't know what a bit is yet because it's so early. But to Craig's point, this is a relatively small percentage of how we're accessing capital today. and we're working hard to earn the right for it to be a larger and more meaningful part of the firm.

In terms of your question about Capital Group, also even earlier there with respect to our partnership, which is developed extraordinarily well. And overall in terms of kind of how we think about it ahead of our expectations, but we're still very much in the product development mode and just starting to deploy different products across credit and private equity, as we've discussed before.

And our next question will hear from Arnaud Giblat with BNP.

Yes I've got a question on data centers. You mentioned earlier that you're investing actively there. I was just wondering if you could flesh out a bit more. In particular, I think you've signed a $50 billion JV with Energy Capital Partners. So how far down the pipeline of investments are you? what you -- how far process coming on board. I understand there's quite a bit of capital in the space. So I'm just wondering what the prospective returns are shaping up to look like in this space.

Sure. Why don't I begin. Look, it remains a massive theme for us. And I think, one, there remains a lot of interest and focus on data center, no question. And look, this focus is for good reason. Like the CapEx we're seeing out of the hyperscalers continues to be massive, if anything, it feels like it continues to accelerate. And all of that builds on what's already a pretty powerful backdrop given tailwinds in cloud. So the digital impa opportunity is massive, but it's more than just data centers, as I mentioned, because again, you're going to need massive investment alongside of data centers and alongside of all of these aspects.

From data standpoint, in terms of fixed line opportunities, mobile infrastructure, at the same time, again, to support the growth in data in all the consumption. And I think when we look at our firm and how we're positioned for the past 15-plus years, we've been incredibly active across all of these themes. So we've invested over $40 billion across the digital infrastructure space broadly on data center, specifically, we've got 6 global data center platforms.

In terms of your question on frothiness, look, we're going to be thoughtful in how we invest. And I think you've seen lots of capital put against this opportunity. And so you should expect to continue to see us be very disciplined as we look at opportunities. We're going to care about who our counterparties are. We're going to care about location. We're going to look to continue to be thoughtful around terms.

And then I think finally, part of this also gets back to one of the reasons we think we're well positioned gets back to connectivity and culture because we do invest across these themes across a number of pools across KKR depending on geography and risk return. So that would encompass global infrastructure, Asia infrastructure, our diversified core infrastructure strategy, real estate, core private equity, wealth as well as within global landing. So we've got a number of different pools, different risk return across geographies. So lots of progress and exciting for us more to come.

And our next question will hear from Crispin Love with Piper Sandler.

The elevated redemptions wells have been highly publicized, but curious if you can detail further what you're seeing from institutions given the noise in wealth. Rob, your comments seem positive there. So I'm curious if you can dig in that a little bit deeper, how aggressively are institutions leaning into direct lending today in other areas like ABF? And then how has that evolved in recent months, just given the sentiment shifts? Was there a pause and then started to dip in further? Just curious on that trajectory and thought process from the institutions.

Great. Thanks for the question, Crispin. Very different dialogue with institutions. If anything, I would say, 12, 24 months ago, as it pertains to direct lending institutions, we're frankly spending less time. little bit of a question of the retail flows a bit ahead of deal flow. Are spreads compressing and turns a bit less attractive. And a number of them, I think, pivoted a bit to asset-based finance as another component of private credit. And as you heard from Craig and Rob, that part of our credit business is more than 2x the size of our direct lending effort. And so we definitely saw that movement.

The shift we're seeing in the last several weeks has been the institution is kind of coming back to direct lending a bit and saying, okay, I see all these headlines about wealth, that should mean that risk/reward is getting better. on new deals. And therefore, I'm going to take a fresh look at it again. So we continue to have all the ABF dialogues we've been having and the pipeline is really robust there. But the shift has been the institution is actually coming back a bit to direct lending and thinking about, well, spreads are up. Fees are up, terms are better and leverage is down. And that's what we've seen in terms of our pipeline in the last several weeks. And so on the back of that, they are more intrigued.

So very, very different dialogue relative to all these headlines that you're reading about in the wealth space, which are very small dollars in the grand scheme of things.

And next, we'll hear from Patrick Davitt with Autonomous Research.

Follow-up to Steven's question, been a lot of focus on software actually, but we are starting to get more incoming around the potential for AI to be a problem for Indian positions in both private equity and real assets. I think India has been a big part of your Asian investment strategy. So could you update us on the exposure there? And more specifically, have you done a scrub to identify how exposed those positions are to potential AI disintermediation of things like India outsourcing?

Patrick, it's Craig. I'll start. Look, I think when we go through the exercise and look across the portfolios, like again, that's obviously done on a global basis. That's both with a focus on whether that's revenue or EBITDA growth, whether that's AI exposure, whether that is the investment teams and the approach to AI from a defensive and an offensive standpoint.

So I don't think of that differently based on geography. We haven't disclosed any specific portions of India. I would note that I think as we think about Asia and our footprint broadly, I think we think of Asia split broadly between the developed part and then the growing part. So India is certainly an important part of our franchise as we think about our positioning going forward.

Yes. I think -- Patrick, it's Scott. The answer to your question is yes, we have scrubbed our India portfolio. No don't have any elevated level of concern there. you're right. One thing you watch is what does this mean for employment in India, given the amount of that economy that historically has been driven by what's happened with outsourcing to that part of the world, and we have seen hiring across that part of the Indian business sector come down meaningfully, dramatically.

We are not exposed to that. If anything, I think right now as we sit here today, given our focus on infrastructure, electricity grids and otherwise in India. We've been getting ready for what we see as AI deployment and the opportunity set across digitalization in that market, where as you know, we have a lot of history and expertise.

There are no further questions at this time. I would like to turn the floor back to Craig Larson for closing remarks.

Rachel, just thank you for your help this morning, and thank you, everybody, for your interest in KKR. We look forward to following up in 90 days or in the interim, if you have any questions, of course, please feel free to reach out directly to the IR team. Thanks so much.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.

Thanks for joining us today. Really excited to be hosting Rob Lewin, CFO of KKR. KKR is one of the world's largest alternative asset managers. They've got about $744 billion of AUM as of December 31, 2025. And that's spread across private equity, real estate, infrastructure, private credit and liquid strategies. So Rob, welcome.

Bart, thanks for having us this morning. And thanks, everyone in the audience for your interest today.

Super. Maybe we can start just with an intro in terms of providing a high-level overview of KKR and maybe more importantly, like what are your strategic priorities as you're focused on in 2026?

Sure. So our business model and strategy is largely set today. Our Asset Management business plus our Insurance business plus Strategic Holdings, we think, is the winning business model. And so as we look to 2026, 2026 is very much an execution year for us.

And so, Bart, you asked about our priorities. Always at the top of the list is going to be generating exceptional investment performance on behalf of our clients and our policyholders. Private wealth remains a really big strategic priority for us, and prudently building our private wealth platforms with vehicles and products that we feel we can be really proud of 10-plus years from now. We -- and I'm sure we'll discuss this as part of this discussion -- we recently announced the acquisition of Arctos. Big priority is making sure that, that gets integrated well into our firm. And that we're benefiting day 1 from our respective ecosystems, we thought there's a lot of synergy there.

On the Insurance side of our business, it's really about marrying our competitive advantage in sourcing and origination with our competitive advantage in raising third-party capital. Those two things, we think, in combination with GA's platform will continue to allow us to build a really differentiated Insurance business over the course of the next decade. And then Strategic Holdings, again, leveraging our global sourcing and origination platform on the private equity side to add to a part of our business that is in addition to everything we're doing in Asset Management and Insurance.

And then the final priority is the most important one, Bart, and that's continuing to invest in our people and our platform. KKR will celebrate its 50-year anniversary on May 1. And in a lot of ways, I think our culture is similar today to when Henry, George and Jerry Kohlberg set up KKR in 1976. And our job is really to continue to protect and grow that culture over the next 50 years. And we take that responsibility really seriously.

Thanks for that overview. Very helpful. And it's actually a good segue into what I want to touch on in terms of that culture. You've been with the firm now for 20 years. You mentioned you're celebrating -- KKR is celebrating its 50th anniversary this year. So walk us through what differentiates KKR's culture and what makes it unique.

Yes. So I've had a really fortunate run at KKR over the past couple of decades. I've gotten to work in different businesses, different geographies. I've gotten to oversee some different functions at KKR, inclusive of being CFO for the last 6 years. So I do have, I think, a pretty interesting purview around this question.

I think if you looked at KKR's senior leadership team, many of them are going to look like me in the sense that they've been at KKR for a long period of time and they've also worked across different businesses and geographies. And I think the commonality amongst all of us and the reason why we've decided to make our careers with KKR is because we really like winning together as part of a team. We trust each other, we root for each other. And I can't speak for other organizations, but it's a big reason why we've all decided to make our careers at the firm.

More tangibly, as it relates to what is unique about KKR, we still operate KKR with 1 P&L across the firm. And what that means is that everybody gets paid off of compensation P&L. Anybody who gets carried interest at the firm shares in global carried interest. So if you work in our Asia credit business, you're going to have carry in our U.S. private equity business and vice versa. We think all of that really incents collaboration, incents teamwork, makes mobility across the firm much easier, and at the end of the day, we think is a big contributor to generating alpha on behalf of our clients. So when you think about KKR, we believe of lessons learned travel, best ideas travel in a way that is really unique and in a way that drives differentiated investment performance, and I think you've been able to see that in our results over the last number of years.

And I do want to tie in, just quickly, Bart, that point with our business model. That is the reason why we have the business model that we do. It is so that we can grow KKR without feeling like we need to add very significant additional headcount, resources or operating complexity. We want to keep our collaborative culture intact, and we want to keep the place small. That's why we've chosen the business model that we have.

Thanks for unpacking that. I think it's very powerful. And one item I want to just dive into a little bit more on that front is you've got an employee ownership program that you created within portfolio companies, and it's a differentiator. Maybe walk us through that and how it's leading to an advantage for the business.

Yes. Maybe I'll start with some background for those in the audience who aren't familiar, what we've done. But about 15 years ago, a partner of mine, Pete Stavros, he currently co-heads our global private equity business. At the time, he ran our U.S. industrials platform. He started experimenting in industrials businesses. So big employee base that are nonmanagement-oriented and providing broad-based equity ownership in those businesses. And it wasn't just about providing equity, but it's really about creating an ownership mentality. And what you saw from a results perspective was quite staggering. You saw engagement scores go way up. Importantly, quit rates went way down in these industrial businesses, safety incidents went way down, working capital efficiency up. And ultimately, you saw big flow-through to margin expansion in those businesses.

So fast forward today, we've started to roll this out broadly across our portfolio, and today, have 85 businesses across the world that have a broad-based ownership program in place. And of those 85 businesses or if you look at those 85 businesses, we have given out billions of dollars of equity to almost 200,000 nonmanagement employees. And in terms of the ones that we've exited and how they've performed, just to give a few stats here, 13 of those 85 businesses have had an exit. And we have, as part of those exits, distributed $1.7 billion of equity value to 30,000 nonmanagement employees. And so I really do feel like we've created a win-win where we've created a structure that as a fiduciary to our clients is driving more equity value to them in spite of increased dilution. And it is also providing an upside equity opportunity to a population of an employee base that generally has not been able to participate in that equity.

And of those 13 businesses, I think these stats are really interesting. If you look relative to similar vintage exits across all of KKR, we've generated a 50% better return in those 13 exits. And of those 13 exits, they have roughly doubled their EBITDA over our whole period. So it's something we believe really strongly and across our platform. We think it is a differentiator for us. It, in part, explains why we've generated the investment performance we have for our clients. And it's something as part of our culture, we're really proud of, too.

Great. Thanks for unpacking that for us. Maybe we can zoom out a little bit now and talk about macro and lots of volatility, geopolitical, AI software-related concerns. How do you think about the macro and that dynamic impacting capital deployment and monetizations? And you've got a globally diversified business model. How does that help mitigate some potential impacts?

Yes. So if -- obviously, we're at a moment in time on the geopolitics side that's quite turbulent. We've had some volatility on the public policy side, tariffs over the past 11 months. So far, those things have not materially bled into the macro. Capital markets continue to remain fairly robust across the world, but we're watching it closely. And so we have not seen a material slowdown across those core operating metrics that you mentioned.

The monetization side, we have a couple of examples already in the year of some very healthy exits. In early January, we announced the sale of a great software business called OneStream for 4.5x our money. Just last week, we did a secondary offering in a health care business in our U.S. private equity portfolio at approximately 5x our money. We had some peers last week do a very big exit as well. So the monetization environment today largely feels okay.

On the capital deployed side, again, we're seeing opportunities across the world. I think we're advantaged in the sense that we do have a really global footprint. Over half of our investment professionals sit outside of the U.S. How that's translating to our Capital Markets business, as an example. I'd expect our revenue in Q1 -- and again, still coming together, we're not through the quarter -- but to be largely in line with what we did last quarter, be largely in line with where we were in Q1 of 2025 in that $200 million to $225 million range. And so I'd say the capital markets are holding in there.

But undoubtedly, volatility is up. And if we do spill over into the macro, we talk a lot about how are we positioned as a firm to be able to come out of that in a place that is much stronger. So if we do go through a very volatile time in the macro, can that impact near-term earnings? Yes, but our job is to make sure that our medium and longer-term earnings are better as a result. We have almost $120 billion of dry powder to be able to invest into that dislocation. That's almost a record number for us.

I think a lot about how we're positioned in our insurance franchise. When you think about that type of an environment, spreads are going to likely blow out. So the left-hand side of the balance sheet in our Insurance business becomes cheaper. At the same time, you probably have less competition on the right-hand side of your balance sheet for liabilities. And so our job is to make sure that we can really benefit from that type of environment on behalf of our policyholders and shareholders.

And I think third-party capital is a big part of that story. So of $120 billion of dry powder, $6.5 billion of dry powder sits against our Insurance business that we can draw down just like a private equity fund to be able to invest into dislocation. Fully deployed, we think that $6.5 billion translates to over $65 billion of fee-paying assets under management. I just want to put that number in perspective relative to the $744 billion of total AUM that we have as a firm today.

That's great, and lots of buffers there and resilience. And maybe we can dive into one other topic in terms of private credit, lots of headlines out there. Could you maybe unpack the private credit AUM within KKR and the risks or opportunities you're seeing in the portfolio?

Yes. Obviously, a lot of headlines on private credit. And so I will do my best to be very fact-based as we go through this. But I think it's important to start with context. The global credit space today is roughly $45 trillion. And the headlines around private credit largely relate to direct lending. Direct lending market is $1.7 trillion, so only 4% of the global addressable credit market.

Inside of KKR, as we define private credit, it is roughly $135 billion of AUM. But importantly, $85 billion of that $135 billion comes from our fast-growing and differentiated platform and asset-based finance. Approximately $40 billion of our $135 billion is direct lending, the aspect of the credit markets that's getting a lot of headlines. And as you break down that $40 billion either -- even further, most of that direct lending capital sits in institutional funds that we have, SMAs that we have, all performing, we think, really well and ahead of industry benchmarks.

The minority of our capital, roughly $17 billion of direct lending sits in BDC format, again, where a lot of the headlines are. $14 billion of the $17 billion sits in a public BDC. That public BDC has had pressure on returns over the near term, largely from some subordinated exposure. And we have $3 billion of capital in private perpetual BDCs, think private wealth BDCs, that's where a lot of the headlines are. So in fact, we don't have much capital in that private BDC space, and we think can be a real opportunity for us here where a lot of our peers have a lot more concentration in the private BDC space that can come under pressure for us to be able to come out of this period of time potentially taking share.

And so we spend, I think, a lot of time at the headline level, but in the reality as you unpack it and you look at our private credit business, we think our asset-based finance business is a leader in the space. There's a lot of tailwinds secularly with asset-based finance that we think we will benefit from, given our leadership position. Direct lending today for us is a relatively small part of our business versus our peers. But we think it remains a real opportunity for us. And our job in what is, I would say, a turbulent time is to really take share coming out of this.

Great. Thanks for that detail. And just on software, you had mentioned on the call, it's about 7% of AUM. Earlier in our discussion, you talked about an exit portfolio company on a good mark. What are you seeing there within the software portfolio? Are you seeing any weakness otherwise? Could you just unpack that a bit?

Yes. I think it's important to note is as we think about our software exposure across KKR and the 7% number we quoted, we really tried to be expansive in how we thought about that definition. So it's not an SIC code-based approach. As we look at, as an example, a private equity deal that would sit in our health care vertical, if the underlying is software, we've included that in the software definition.

One area -- question that we've received and is not out there in the public domain, so I wanted to provide it in this session, is if you look at Global Atlantic, our software exposure there is roughly 2.5%. So not all that material. But I did want to put that 2.5% in context. The largest concentration that we have at Global Atlantic, of course, is across investment-grade fixed income. As part of that investment-grade fixed income portfolio, we own some Microsoft bonds. Those Microsoft bonds will be incorporated in that 2.5% figure. So I don't think when people talk about concerns around software, they're really talking about that.

More broadly, on the software side, Bart -- we do have -- this is not something that we've been focused on for a few weeks across the headlines. This has been an effort across our firm for a few years now. And we do have some humility in our approach here. I don't think anybody really knows what the end game is, but we are taking very thoughtful and educated views with the best people across the firm and outside resources to help us do that. We don't believe all software is equal. We think across our portfolio, you're going to have real winners that will benefit from AI, and you're going to have some businesses that will likely underperform and that may get disintermediated over time.

But one of the things we spend time thinking about and looking at is -- we just look at ourselves. We are a big user of technology across all of KKR and I think in a pretty sophisticated way. And we look at our long-term tech road map at KKR. And our perspective, our forecast is we're going to continue over the long term, being big users of software, especially enterprise-wide software that is really embedded across our platform. And I hope I'm wrong on this statement, although I'm probably not, given how embedded it is in our platform, probably at a higher price point over time, too. And so I -- as I said, I think we're spending a lot of time here watching it carefully. It is evolving real time, but our most considered view right now is that we're going to have more winners than losers in our portfolio as a result of the shifting dynamic that's going on in the world right now.

Awesome. Thanks for unpacking that for us. Maybe we can move to fundraising. You're coming off a record fundraising year, and I view KKR as going through sort of a fundraising supercycle, if you will, through the next 2 years. So what's the latest update on fundraising? Maybe you could touch on institutional wealth as well, but help us understand that a bit better.

Yes. So maybe I'll touch on institutional, insurance and wealth in those 3 buckets. Fundraising has been a real bright spot for us. In 2025, we raised a record $129 billion of capital. The institutional market has felt very strong, continues to feel strong for us. Of course, we're watching the volatility that's in the market. But to date, it remains a strong channel at KKR, and we believe our peers as well.

If you put that $129 billion into context for a second -- and you referenced our flagship fundraises -- in actuality, only 14% of our capital raised in 2025 came from flagships, and we had our 2 largest flagships in the market in Americas Private Equity and Global Infrastructure. So we've become a much more diversified firm over even the last 5 years. 5 years ago, that ratio would have been substantially different. And I think that's an important point. So that's the institutional side.

On the insurance side, we've become a much better partner to insurance companies by virtue of owning Global Atlantic. Our AUM from insurance companies outside of Global Atlantic has more than tripled since we bought the business. And we have consolidated under 1 team, our broader insurance relationships. So we're able to go talk to insurance companies with 1 team around potentially being a reinsurance provider for them, either on the flow side or block side, how we can partner with them on the asset management side and how we might be able to distribute to them through our Capital Markets business. So I think it's a pretty powerful way of approaching that industry remains a strong point for us.

And then I touched on private wealth at the outset of this discussion. A lot of headlines on private wealth. I wanted to provide some facts on -- some new facts as part of this discussion as well. We mentioned on our Q4 earnings call that in January, so Feb 1 closes, we had raised $1.3 billion of C-suite capital as our private wealth vehicles. That was up 20% year-on-year, I think, differentiated from the space. A new number that we wanted to provide this morning was that in February, so for March 1 closes, we've raised $1.4 billion of capital. And so again, past performance doesn't indicate future performance, but it is a healthy data point for us, especially when we look across our industry and see different numbers coming from our peers and I think speaks to the diversification of our platform.

But again, the long-term vision in private wealth to us is not about month-to-month capital raising, it's really about building products and vehicles that were proud of 10-plus years from now that starts with creating a great client experience, with delivering exceptional investment performance. And if we do that, we're confident over the long term that the adoption of the private wealth investor to alternatives will follow. And we'll have products that are very scaled, and it can be quite generative on behalf of our shareholders.

It's great color, and thanks for sharing that additional data point. Super appreciate it. One point I want to touch on a bit further is from an operational perspective, how do you manage -- I think you've got about 30 strategies in the market, so very diversified across asset classes. How do you guys manage that fundraising pipeline, if you will, internally?

Yes. It's interesting. We've had a large number of products out there now for a number of years. The 30 products isn't new for us. I think importantly, though, I want to take you back to our strategy. We do not want to be all things to all people in asset management. We want to be great at the things that we are already doing. And so I don't think you're going to see -- certainly not going to see a lot of strategy proliferation for us at all. And I don't think that you're going to see as much product proliferation for us relative to our peers. Because it's not about the next asset management product and the next asset management product after that. That is not how we define our strategy.

And so when -- it's really about trying to be great at the things that you're already doing, it makes managing that portfolio of capital raising a lot easier to digest. Of course, you layer on top of that, a substantial sales force across the globe and global relationships that extend across, of course, the institutional insurance and wealth side, I think, position us to be able to handle that number of products that are in the market. But I don't think, Bart, you're going to see us over the next couple of years go from 30 products to 60-plus products.

Okay. Got it. Got it. Rob, you mentioned earlier in our discussion, the Arctos acquisition. I want to spend a couple of minutes there in terms of -- walk us through the strategic rationale for that deal. And then you've put out a target -- a longer-term target of $100 billion in that segment, and so the building blocks as you think about that scaling over time.

We're incredibly excited about this acquisition. It's something, in a lot of ways, we wanted to get done for a long period of time. The Arctos business today has two parts of the business. In a lot of ways, they really created the asset class around sports, team and league investing across the globe. They are the clear leader in that space. We think the broader sports ecosystem has got a lot of tailwinds behind it. It will be a real addressable market that grows over the next decade at really attractive rates, and we are very well positioned to be the leader in that broader space over that period of time. A lot of growth in front of us in sports.

Second part of the business is GP Solutions. This is a large and growing addressable market in its own right. Arctos on its first-time fund is already a top player in the space. It's really about being a liquidity provider to other alternative asset managers. Think growth capital, dealing with succession issues, potentially buying out retired partners from -- or institutional investors. We think there's a lot of tailwinds, especially in an environment in the alternative asset management space that can see some consolidation over time.

And then the third part of the business doesn't exist today, but in some respects, might be the biggest over time. You look at KKR on a blank sheet of paper, and the biggest area or addressable market that we're not present in today -- I get asked about this all the time -- is the secondary space. And we've always said that it is not a need to do for KKR. We can achieve our long-term financial ambitions without it. But if we ever found the right partner that we felt like we can build a top player globally with, we would be all in.

And we feel like we felt -- we found that, rather, with the Arctos team. The legacy of the leadership team comes from the secondary space. We think their credibility in that asset class, their ability to recruit talent, combined with our brand, our access to capital, our industry expertise can allow us on a blank sheet of paper to build a business over a long period of time that we think is quite scaled and meaningful to KKR.

And Bart, you talked about in combination, being able to build to a $100-plus billion platform. To be clear, if we did not think we can do that, we would not have done this deal. And likewise, I think if Ian Charles or Dr. O'Connor, the two founders of Arctos were up here, they would say the same thing. They would not have been interested in doing this deal if they didn't think that the combination of our two platforms can build something that's really special over time. So we're, as I mentioned, really excited about what this platform can do for KKR over a long period of time.

Great. Thanks for that. And I wanted to touch on next, Strategic Holdings. It's a differentiator for KKR as well. How are the operating companies performing in today's environment? And you've got a longer-term $1.1 billion operating earnings target. Like is that reliant on a few portfolio companies? Or is it the broader portfolio kind of hitting sync and stride?

Yes. Maybe let me be clear on what Strategic Holdings is today. Strategic Holdings is really about buying businesses and owning them for the long term and generating compounding cash flow for the benefit of our shareholders. This is in addition to everything that we're doing in Asset Management and Insurance, and it is very culturally friendly in that we have no employees that sit in Strategic Holdings today. We think it is really, in a lot of ways, an unconstrained addressable market and an area where we think institutionally, given our global private equity footprint, that we've got a real right to win as an organization.

And so we've got approximately 20 businesses that sit in Strategic Holdings today. It is a big and diversified portfolio. We have outlined plans to take operating earnings in Strategic Holdings from $350-plus million in 2026 to $1.1-plus billion by 2030. We're well on our way to being able to do that with the portfolio that we have.

Your question, is it reliant on a small number of companies or really the portfolio? As I think about building towards 2030, very much that portfolio effect. Is it possible we can have some underperformance as part of the 20? Of course, but we're also well on track with a number of those 20 businesses that are well exceeding the investment cases that we've underwritten. So based on the diversified and global nature of that portfolio, we feel really good about being able to achieve the targets that we've outlined.

And as I mentioned, this is on top of everything we're doing in Asset Management and Insurance. I want to bring us back to where I started. We think we've got the winning business model for the next decade, and Strategic Holdings is a really big piece of that.

It's a great diversifier. Look, we're coming up on time, Rob. I want to make sure I give you the floor in terms of any final comments or thoughts as we wrap it up.

Yes. Well, again, Bart, thank you for having KKR at the RBC conference today, and thank you all for your interest. There's a lot of volatility out there and a lot of headlines. But in terms of the things that we can control at KKR, our business model and the execution against that business model, we have never felt as well positioned as we do today. We feel like we've got the right team in place globally and a team that, in a lot of ways, is really locked on in being able to execute on a unique vision that we have for where we can take KKR. So thanks again for spending the time with us this morning. And Bart, thank you for having us.

Thank you, Rob, and thank you, everyone, for spending time.

Thank you all for joining Bank of America's 34th Annual Financial Services Conference. This is Craig Siegenthaler, North America Head of Diversified Financials. It's my pleasure to introduce Rob Lewin. Rob is the Chief Financial Officer of KKR and serves on the Board of Global Atlantic. Prior to CFO, Rob served as an investor in private equity. He helped launch KKR's Asia business. He co-led the firm's Credit and Capital Markets business. He served as Treasurer and Head of Corporate Development and most recently served as Head of Human Capital and Strategic Talent. I like that list because I think it's the most diverse skill set I've seen.

It's been a fun 22 years, for sure. Well, Craig. Thank you for having me this afternoon. Appreciate it.

And I think everyone here knows KKR. It's the large -- it's one of the largest, one of the oldest and most diversified alt managers in the world with over $700 billion in AUM today. Its business model is also very differentiated, marrying third-party capital with its Capital Markets business, Insurance Company and Strategic Holdings.

First question, first topic, we thought it would be helpful, especially for anyone that's new or not -- doesn't totally understand the KKR model. Rob, if you could spend a minute outlining your 3 businesses and why you organized your firm differently than the peers?

Yes. So I'm glad we're starting with the business model question. I do think our business model really does distinguish us in a few different ways from our peer set. We have very much on purpose built a business model over decades that tries to accentuate our strengths, investing acumen, access to capital, certainly our brand and especially our small and collaborative culture, and I'm going to come back to that. And there's really 3 components to our business model, it's our Asset Management business, our Insurance business and Strategic Holdings. And importantly, all 3 parts of that business work really well together and we think make each other better.

And so let me just briefly walk you through each part. Our asset management business, what we're best known for, of course, a little north of $740 billion of AUM, lots of identifiable growth opportunities for us in asset management just by scaling the things that we believe that we are already great at today.

Our Insurance business, we own 100% of Global Atlantic, $220 billion of assets. When we first bought Global Atlantic 5.5 years ago, they had $72 billion of assets. So quite a bit of scaling. Lot of synergies exist between our Asset Management business and our Insurance business, of course, originating investments is a big part of that as is third-party capital and access to third-party capital. Synergies with our Capital Markets business and global reach is a big opportunity for us as we expand in insurance.

Then finally, the third part of our business is Strategic Holdings. So it's very much about owning great businesses for the long term that could generate compounding cash flow for our shareholders, highly synergistic with our Asset Management business. In fact, we have no people that sit in Strategic Holdings, all of those deals and businesses that we buy are sourced inside of our Asset Management business. We also do that alongside third-party capital that pays us fee and carry. So again, synergistic with what we're building across the firm.

If you roll it up together, we believe that we've got the ability to perpetually grow KKR without having to invest in a lot more head count resources and operating complexity. And then back to this point where I started on our collaborative culture, we feel like we've got a business model that really allows us to maintain and optimize for that collaborative culture. And we think that's the most important thing is that's really what creates the alpha across all of our businesses.

So let's go next to Arctos. I think I pronounced it right.

You did, yes.

So we saw an exciting new announcement last week at KKR, a new acquisition, Arctos. Rob, maybe this is a good moment to kind of walk us through details on the transaction and what was also KKR's strategic rationale?

Sure. We're incredibly excited about this acquisition. It fits squarely in our M&A and our strategic M&A framework for what we're looking for. And I'll take you through that in a second. And it has been a top target for us for a very long period of time. Arctos today, $15 billion of AUM, roughly $10 billion of fee-paying AUM. They are the world leader in the sports category of buying team stakes. They're able to do so through creative permanent capital structures. And we think in its own right, the sports asset class is going to be growing at double-digit rates for a long period of time. And we think there's a lot that we can do together with the toolkit that we have at KKR.

The second part of the Arctos business is their GP Solutions business is about providing growth, capital and liquidity solutions to other alternative asset managers. They are already a top player in this space. Raising a first-time fund in this fundraising environment is not easy. And I think it shows really the credibility of the Arctos team with their investor base to already be a top player in the space. GP Solutions, we think, has got a lot of room to grow from an addressable market.

And then from our standpoint, the third part of this acquisition is really what we can do together on the Secondaries side. If you look at a blank sheet paper or KKR, the one big addressable market that we haven't been present in the alt space has been the Secondaries space. When you look at the Arctos team, their teams got a heritage in the secondary space, a lot of experience, a lot of credibility with investors. And I think when you combine that as well as their ability to recruit talent with KKR's brand, our access to capital, our industry expertise, we think with a blank sheet of paper that we can build a really scaled and exciting Secondaries business over time.

So when you combine it together, and we said this when we announced the deal last week, we believe that we're going to be able to build a $100-plus billion AUM business together. And frankly, if we did not think that, we wouldn't have done the transaction.

Great. Rob, let's take a step back and talk about the macro environment. So 2026 is looking like a pretty good year. M&A acceleration for the industry, IPO acceleration, a couple of Fed rate cuts potentially. I'm wondering what is the house view at KKR on the macro front? And if you bring it back to KKR, how do you see this impacting the business?

I think if you look back in history, obviously, there's been some moments on the macro side that have been much more complex than what we're talking about now. But when you think about the complexity on the macro side, the complexity as it relates to both domestic public policy here in the U.S. and abroad, some of the geopolitics that we're working through. The combination of all 3 create an overall moment in time that we think is a complicated one to be an investor.

At the same time, we look at all 3 of those areas and from a resource perspective at KKR, we've invested heavily in those 3 areas over the past decade and feel like it gives us really differentiated insights to be able to try and think our way through this complex period of time. You pull it together, we do believe that 2026 will be a constructive year in the capital markets. We do expect, in our industry, that we're going to see more deployment. Certainly, we believe more monetization, which I know our industry has been waiting for, for some time. But we'll see how the year plays out, of course, but that is our base case as we move into 2026.

And I think a year of increased activity represents for much of what we do, but not all of what we do, an opportunity for us to generate outcomes for our clients and our shareholders.

Rob, I wanted to hone in on 2 businesses, private equity and real estate. So in private equity, I haven't seen a lot of realizations for 4 years. Competition looks a little more intense. Real estate kind of plagued by lower returns. I wanted your update on that business. And if you think about KKR specifically, are you able to take share?

Sure. So maybe I'm going to start at a bit of a higher level, and then I'll drill down to your specific questions, Craig. So today, we've organized ourselves in asset management with 3 business lines. So private equity real assets, which is a combination of infrastructure and real estate and credit. And if you look across KKR today, we generate a little bit over $4 billion of management fees in 2025. Roughly 1/3 came from each 1 of our 3 business lines. And so we're highly diversified, and I think much more so than people probably expect when they look at KKR.

So let's start with private equity and your question on private equity. I think the base assumption when people think about KKR and our private equity business is a big business, might think that it's the overwhelming amount of our management fees, which it is not. I might also think it's a low-growth business, which it has not been for us. In fact, in 2025, we grew our fee-paying assets by 26% in private equity. Our private equity business has more than doubled its fee-paying assets in the past 5 years. And we think there's a lot of opportunity there for growth.

I think one of the themes that will continue to drive growth for us and I think for some other large players who have done well from a return and return of capital perspective, will be that we do expect more consolidation in the space. And I don't necessarily mean M&A consolidation, but we do think that you're going to have a number of losers that come out of this vintage who just wouldn't have performed as well as they needed to on behalf of their clients. And we can see a world where clients are going to demand doing more things with fewer players. And so I think there was an opportunity for us to compound on some of our historical growth with market share gains. So that's private equity.

Moving to real estate. Real estate has been a more challenged asset class for our space in the past few years. We do think values bottomed over the past 12 or 18 months, and we talked about this quite a bit. We had leaned into the opportunity to invest in core real estate on an unlevered basis out of our insurance business about 18 months ago. We saw the ability to achieve very attractive rates of return on an unlevered basis in what we deem to be very low risk in core real estate properties because there just was a dearth of core real estate capital competing for those types of acquisitions. But capital raising remains challenging as an asset class.

We don't think it's always going to remain this way. In fact, we know it's not. And our job is to make sure that when we do come out of this moment in time that we are really well positioned to take additional share. And I think we are. Our real estate platform today is roughly $85 billion, split 50-50 between equity and debt. Our returns have been very strong. I think our client relationships are strong as well. We made a very accretive acquisition in Japan, a big growth market for us on the real estate side.

And yes, we're -- I think we're cautiously optimistic that capital raising flows will return in the space. And I do think that we are positioned to take additional share when that does come around for our industry, but we're not quite there yet, Craig.

So just a follow-up on that. Margins at KKR are very high today. AUM growth has been good, but how do you expect to translate AUM growth into EPS growth over time? Is there still more operating leverage in the business?

So the short answer is yes. We've been quite public. And let me give you a couple of statistics that I think are helpful. Just look at our fee-related earnings margin, it is industry-leading. We've said we can sustainably operate in the mid-60s. I think the last couple of years, we were in the high 60s. But go back to what I said at the beginning of this discussion on our business model, which is that we believe that if we're successful in executing on our vision, our model, we're going to grow our revenue at a pace that far exceeds our head count growth and the operating complexity that's required to run KKR. And so the output of that, and that's not why we have the business model, but the nice output of that is additional operating leverage. And you're starting to see that flow through in our numbers, I think, differentiated from our peers.

If you go look over the course of the past 3 years, we've grown our management fees at KKR by just over 50%, and we've grown our operating expenses by less than 25%. If you go look at our 3 closest public peers, they have the inverse of that. They've grown their operating expense at a pace that exceeds their management fee growth. And so you're starting to see that operating leverage come into our business, but we think that this is a 10-plus-year journey for us. And that's just our margins in our Asset Management business. It doesn't account at all for the accretion we think we get on broader margins by growing Strategic Holdings, where again, there's no people that sit in Strategic Holdings today. And so the flow-through of margins incredibly high. Yes. Punchline is, as we grow assets, we think there's a real opportunity to drive margin.

So I want to hit on the strategic priorities. What are your objectives for 2026 across both asset class and client channel?

Yes. It's a really good question and probably quite a long list. But our goal is to continue to invest in areas where we have real competitive advantages in the marketplace. And so you're not going to see us launch a whole number of new strategies at the firm. In fact, we -- it's been quite some time since we've launched a new strategy and really the next one up is what we're planning to do in the secondary space. So from our standpoint, it's very much about what we can build in the areas that we're already in and try and be uniquely great in those on the investing side, and we can go through some of those areas.

On the client side of things, our bread and butter for 5 decades now has been the institutional market. We're going to continue to invest there. We've substantially grown our assets with insurance companies. And when we bought Global Atlantic, we had roughly $25 billion of AUM from third-party insurance companies. Today, that number is over $80 billion and growing. That was five years ago, so quite a bit more than tripling of growth there.

And then I'm sure we'll get into it more as we talk the rest of this afternoon, Craig, but the opportunity for us to really scale in private wealth is one that is a 10-plus year vision for us that I think is a real opportunity for our industry and for KKR. And clearly, in terms of strategic priorities, making sure we get Arctos integrated in the right way is going to be at the top of that list through 2026.

So let me hit on the guidance. So you have a few targets that you have this year. One is $4.50 plus of FRE. The other is after-tax adjusted net income of $7-plus. How do you feel about them as you're sitting here today in early 2026?

We feel good about both sets of guidance, and let me walk you through maybe some of the building blocks and we can start with FRE, and then we'll work our way to adjusted net income. But as you look at FRE, the biggest driver of FRE is going to be management fees. We've had above industry growth rates from a management fee perspective for quite some time, and we're coming off a year where we had record capital raising of almost $130 billion of capital, which is the best forward indicator for future management fees.

I think our Capital Markets business, while it's growing, it hasn't quite reached its potential yet. And so we think there's still quite a bit more room to grow in our Capital Markets business. Fee-related performance revenue as you're building up to FRE, we think as our [indiscernible] suite of products has doubled in the past year on an AUM basis, real opportunity to inflect fee-related performance revenue. And then I just spent time talking about operating leverage in our business. And so we feel really good about meaningfully exceeding the $4.50 target that we put out.

I think it's worth noting that when we put out that target, it was a little over 2 years ago, so not that long ago and at the time our LTM FRE per share was $2.55. So we've had quite a bit of growth in a key profitability measure for us. We spent a lot of time, and I'm going to move on to our Insurance business, talk about insurance in earning calls and the like. We feel really good about generating plus or minus $1 billion of operating earnings in our insurance business. We put out a set of guidance for Strategic Holdings that would have us north of $350 million of operating earnings in 2026, another number we feel really good about.

So as you look across our 3 segments, the more recurring components of our earnings, quite a bit of momentum, and we feel really great is how we're positioned coming into 2026. Next piece of our earnings is our investing earnings. It's more episodic in nature. This is a combination of our realized performance revenue, largely carried interest and realized investment income off of our balance sheet portfolio.

Our budget for the year, as you would expect, is built bottoms-up name by name. And so we know what we need to get done in 2026 in order to achieve $7-plus per share of adjusted net income as it relates to the investing earnings piece of it. So we've got a lot to do for the remainder of 2026. But we know what we need to do, and we come into the year with record embedded gains on our balance sheet to $18.6 billion. That number is up 19% year-on-year. It is those embedded gains that are what's going to drive our investing earnings of the future.

I also announced on our Q4 call last week, we come into the year with visibility of $900-plus million of monetization-related revenue. At this time last year, that number was $400 million. So quite a bit of momentum coming into the year relative to where we've been. But we've also said that we require a constructive monetization environment to ensure that we're able to get done what we think we can as we come into the year.

Our position is that we will have that type of constructive monetization environment as we talked about in the macro piece of this discussion. But I think it's something that's important. We're not going to force a monetization into a bad market. And we would never -- and I think those who have followed us for a long time would know that we would never sacrifice long-term earnings for the benefit of short-term earnings. But we feel good on both measures. And hopefully, that additional color is helpful as you all think about the achievability of both our FRE target and our ANI target.

Let's talk about investing. So if you look across the equity markets, 3-year bull market relatively expensive. If you look at the debt markets, credit spreads relatively thin. Is this a good moment to accelerate deployments? Is it a good moment to pull back? Or given KKR's linear deployment model, is it still kind of steady as you go?

That is our goal. And so when we talk about linear deployment, it's really about using the full investment periods of fund. So if we have a 5-year investment period, we really do try to deploy roughly 20% a year. And we're never going to be perfect in that regard. But I think that is really important. I think that has driven a lot of our outperformance relative to the industry on a return basis. It is also what has driven a lot of our outperformance on a DPI basis. We've returned a lot more capital to our investors than our competitors have.

So punchline is we're going to be looking to deploy as we come into the year. Now where are we deploying? Again, we're really going to try and play to our strengths. Let me pick a few areas. Our infrastructure business has been an area where we've been able to deploy meaningful capital, we think really interesting risk-adjusted returns for our investors. Put that in perspective, our infrastructure business, 5 years ago, was $18 billion. Today, it's $100 billion, and that's all organic growth. We are the #3 player now in the infrastructure space. We're still quite a ways behind the #1 and 2 players, but we are catching up fast.

Another very interesting area for us from the deployment side is in Asia Pacific. We have the leading rather platform in Asia Pac in the alt space, and I can see us continuing to lean into that region and take advantage of our competitive moat there. I would say another big asset class for us where I think we've got some real competitive advantages with our scaled capital and leading position is in the asset-based finance side.

I think our industry will continue to take real share here in a large and growing market. And I think we're really well positioned inside of our industry, given our leading position and the scaled capital that we're able to bring to opportunities.

Great. Rob, you just mentioned Asia. You have the #1 private markets business in Asia, #1 in private equity, #1 in infrastructure, top in real estate. But we've gone through an interesting period with sort of the trade war. So I'm wondering, as you talk to investors around the world, especially outside the U.S., especially in Asia, are you seeing any remixing of portfolios away from U.S. assets to potentially Asian assets?

I'll probably -- I'll answer your question a little bit differently, Craig. I think if you look back a couple of years ago, I think there was more hesitation on the part of Western investors to be investing in Asia and they were more cautious on the region. I think there's a greater appreciation today for the amount of growth that's likely to come from that part of the world over the next 10 years. We think it's more than half of global GDP growth. And for the role that alts can play, especially some of the larger players in that part of the world given their competitive positioning and differentiation in different markets.

So today, in Asia, we've got 9 offices. We've got close to 1,000 people. We are spending a lot of time in 2 markets on the investing side. We have -- to be clear, we've got 9 offices in the region. But the 2 areas where we're deploying the most capital today are in Japan and India for, of course, very different reasons. The opportunity for us in Japan is really one principally centered around private equity. Real estate, where I mentioned earlier, we made an important strategic acquisition as well as insurance and what we can do in the insurance space. Japan, for us, has become our second largest investment market around the world.

India, of course, a different story for us, but we are big believers in the rising middle class over the next number of decades in India and are going to continue to, we believe, meaningfully deploy capital in that part of the world as well. If you look at our Asia deployment in 2025, we were up 70% versus 2024. And so really consistent with that theme of leaning into our core strengths. And I see us really positioned to do that in 2026 as well.

So Rob, we should be getting up an update from the Department of Labor in the next month or two on the potential moving of privates into the 401(k) channel. You happen to have a partnership with a leading 401(k) target date provider with Cap Group. What do you expect to happen here?

Well, I think if you look out in the long term or over the long term, rather, Craig, I think it's hard for us not to see alts playing some role in the retirement channel. If you look across most every sophisticated investor in the world, I think they've spoken that alts is a really important component of asset allocation. And the one area where it's not offered as a solution is really in the retirement channel. And when you think about where alts are most powerful, they're most powerful against the longest-dated liabilities, and those longest-dated liabilities happen to sit in the retirement channel.

And so I think we'd be surprised looking out over the long term if you didn't see alts play maybe a small component of an asset allocation framework and at least be offered up to participants as an option for them to be able to save for their retirements, much like really every other sophisticated institutional or large private wealth investor around the world has the option to be able to do. And so I'm not sure what's going to come out from the DOL, but we do have a lot of confidence that we're going to be a meaningful player, as we think about the firms that could be very relevant here in the retirement channel. And we believe we're partnered, really have a best-in-class partner with the Capital Group in a number of respects. Our partnership goes well beyond what we can do in target date funds together, but they do happen to manage one of the fastest-growing target date funds in the U.S., and we think they're a great partner in that regard, for sure.

So this won't be the first meeting where this topic doesn't come up, but let's cover software. So with Anthropic's launch of Claude, it has had a big reaction in the public markets, which the alt managers weren't immune. So as you guys look out at the world from your private market lens, what's your perspective of what's transpiring in the public markets? And also, if you can maybe help us size your business and tell us how you think about your own software exposure?

So why don't I start with the second part of your question quickly. Our -- if you look across KKR's $740 billion of AUM, we have roughly 7% exposure to software. If you look at our private equity business, we've got roughly 15% exposure to software. Importantly, if you look versus our direct comparables, we think we've got quite a bit less exposure. We did not really participate in a lot of the [ heavy ] transactions that got done in 2021 and early 2022 where businesses were valued at 8 to 10x or more on a revenue basis that is not where we played importantly.

If you look at Strategic Holdings, roughly 12% of our EBITDA is exposed to software of the $1.1 billion or so of EBITDA across our ownership and Strategic Holdings names. Listen, we tell our people at KKR all the time to focus on things that they can control and short-term movements in our share price is definitely not one of those things. Our job is to go execute on behalf of our clients and our policyholders. We believe we've done that.

We continue to believe that we've got portfolios that we'll be able to do that. We have not gone and re-underwritten our software exposure and its impact on the portfolio in the last week because we've been doing that consistently for a long period of time in terms of how we think about the big variable, and frankly, an unknown variable of AI in both its impact to the portfolio on a negative side, and there certainly could be some losers across our portfolio in that regard. But I think what's very much lost in the discussion is we think we've got more opportunities across our portfolio and the software names we have to get the benefit of AI, where we can make these businesses better and improve margin.

And so I think there's this gross-to-net component that I think has been lost a little bit in how the public markets are viewing it. That's without getting into the amount of digital infrastructure investment that we've made across our infrastructure and real estate businesses. And if we believe that AI is going to take as much share as it has, then we should, in theory, feel a lot better about those investments we've made in another part of our firm.

So hard for us to guess why the public markets have reacted the way they have. Our job is -- we delivered record earnings across our 3 core profitability measures last year, record capital raising and we've told our shareholders that we're going to have meaningful growth across all 3 of our profitability measures in 2026. We go achieve that. We continue to build portfolios that deliver compelling returns to our investors. I believe our share price will follow. So I hope that's helpful color. I know it's been a very topical part of the discussions that have taken place over the conference the last couple of days.

Rob, that was very comprehensive. If it's okay with you, we can see if there's any questions in the audience.

Excellent.

So please raise your hand. We got one in the front row here.

So I knew Ian Charles when he was at Landmark and I think very highly of his capabilities. But you say you're going to start a secondaries business. Isn't KKR too big to start one from scratch? I mean are you planning to buy one and build it or start it from 0?

Yes. And so a gentleman here referencing Charles. Ian is one of the co-founders of Arctos and Ian will be running the new investing unit that we've talked about creating in KKR Solutions. In a lot of ways, honestly, we like the idea of building a secondaries business from a blank sheet of paper. We think that there's a lot of innovation that can happen in the secondaries space from a product creation standpoint. We're in the earliest of days of thinking through what a business model will look like. But, yes, I think we really do look at the attributes that the Arctos team brings to the table and what KKR brings to the table. And we think over time, we all have a real right to win. And yes, we really do like the idea of doing it from a blank sheet of paper in a lot of ways.

And I've said this early, Ian Charles and the team he has and the people he would be able to recruit. I mean, he's as creative of mind as we've come across in that space. So we're not putting a timetable across it. We think very long term at KKR in one sense, in the other sense, we want to be great pretty quickly. So we haven't put a timetable against it. They've got a leading sports business that we're excited to be partnered with and to grow and to see how we can work across between Arctos and KKR and make our respective businesses better.

We're really excited about the GP Solutions business. And when you think about the GP Solutions business, we've got inside of our Credit and Capital Markets sponsor coverage of 250 sponsors. So the opportunity for us to be in close coordination there and to be more relevant for our sponsor clients goes up as a result. And what we can build in secondaries will happen over time, but we're going to get going on that pretty quickly.

Great. Well, with that, we're out of time. But Rob, on behalf of all us and BofA, we want to thank you for joining us.

Great. Thank you all.

All right. Thanks, everyone, for joining us. I'm Mike Brown, the U.S. broker and asset managers analyst here at UBS. I'm pleased to welcome Rob Lewin, the CFO of KKR. KKR is one of the world's largest asset managers, overseeing roughly $744 billion in AUM as of year-end 2025 with a global diversified platform spanning private equity, credit, infrastructure, real assets and insurance. Rob, thank you for joining us.

Mike, thanks for having us.

Right. So let's start on the macro front. How are you thinking about rates, inflation, the broader economic outlook and what are you seeing lately in realizations and transaction activity? Will activity continue to accelerate in 2026?

Yes. It's probably as nuanced a moment we've had the broader macro space in a long, long time. If you think about what's going on, from a macro perspective, you layer on to that geopolitics, both domestically in the U.S., abroad as well, fiscal deficits, public policy. As you think about this moment in time, we're quite fortunate that we have leaned in on the resourcing side across all 3 of those areas, that I think really puts us in a relatively good position as we try and navigate what is said quite a nuanced moment in time.

As it relates to how I think it's going to impact the go forward, we continue to believe that there will be a greater amount of activity in 2026. We do see deal flow picking up. We've talked about monetizations across our industry picking up. Our pipeline is definitely a lot better going into 2026 than it was going into 2025. So we are encouraged by the early signs, of course, watching some of the volatility that we saw in the markets last week, but overall, we feel pretty encouraged by the signals we're seeing.

Great. Okay. So in your view, what's the case for KKR over the next 3 years that the market is just not pricing in correctly at this moment?

Yes. So in a lot of ways, maybe a difficult question for us to answer, but let me throw out a couple of things for you that we were looking at over the past number of days. Number one, if you look -- we bottomed out last week in the high 90s, low 100s. If you look when we -- where we were roughly 2 years ago, it was right at that similar level. And look at what's happened at KKR for the last 2 years, our management fees are up 35%. Our fee-related earnings are up north of 50%. Our adjusted net income is up in the mid-40s. Our capital raising in the past 12 months was up 90% from the 12 months preceding that point in time, all at the same time that broader markets are up 40-plus percent.

And so if I asked you at the time to put a price target on KKR with that facts in mind, I think, you would be obviously a lot north of where we are today. Now maybe the market got very wrong 2 years ago, more than likely it's somewhere in between.

In terms of the piece that I think maybe the market is missing, and you can start across our asset class around the resiliency of the business models as we've gone through moments of volatility, like what we've seen in our share prices over the past 3 or 4 months. I think it's the broader diversification of the business models. And I do think the business model that we've created at KKR is the most diverse in the alternative asset manager space. You look at our asset management strategy, what we're doing in insurance and strategic holdings, but even if you just looked at our asset management business and the diversification of our asset management business. $4.1 billion of management fees last year, roughly 1/3 came from each of our 3 business lines, private equity, real assets and credit and liquid strategies.

So that type of diversification you don't see definitely not on that scale across our peers. You layer on to that, that we are also the most global alternative asset manager. More than half of our investment professionals sit outside of the United States. We have a big presence in Asia Pacific, an area where we believe that more than half of global GDP growth will come from over the next 10 years. And so if you're going to ask what is the market missing? I think it's the diversification of the business models in the space. And I think in particular, I think if you look at what we have built over the past number of decades and what that looks like today, it is even vastly different from what it was a couple of years ago when our share price was at roughly the same place as it is today.

Right, right. Yes. The diversification at KKR is it definitely seems to be underappreciated by the market. Kind of leads in well to my next question, which was an exciting announcement last week with the acquisition of Arctos. Can you maybe just walk through the strategic rationale there? And that -- how does that kind of fit into the broader KKR M&A framework?

Sure. We're incredibly excited about the Arctos transaction. This has been at the top of our priority list for some time. And I don't just mean the asset classes that we're entering, I mean, partnering with Arctos specifically. It is very consistent with the M&A framework that we've laid out for our investors over the last number of years.

Importantly, of course, we need to be in really large addressable markets, and we want to make sure that through strategic M&A that we could be world class at what we're doing. And if you look at Arctos today, it's really 3 separate asset classes. Number one, sports. This has become an asset class in its own right and growing at double-digit rates, Arctos is a clear global leader.

What they're building in GP Solutions, also a very large addressable market. Arctos is on their first fund, already a top player in a tough fundraising environment, I think, shows the credibility that they have across the investor community.

And then three, probably the largest addressable market, an area where we get asked about all the time is the secondary space. And when you look at the team at Arctos, their track record, their experience, their credibility in the marketplace, and you combine that with KKR's industry expertise, global reach and access to capital, we really do think we've got -- we will create a right to win in that space. And when you pull it all together, we think we can build a $100-plus billion business.

I got a couple more areas to go through, Mike, if you got a minute for this. I think it's important. We focus a lot on duration of capital and strategic M&A. I think, it's very easy to make M&A in the asset manager space accretive over a 3- to 5-year period, it's really hard to do over a 10-plus year period.

And if you look at the most recent transactions we've done going back to our partnership, with Franklin Square, Global Atlantic, KJRM, the REIT manager in Japan, HCR last year and now Arctos, the commonality, if you look across all of those acquisitions is in aggregate, it is as close to permanent capital as it gets in our space and gives us a lot more confidence in how we think about that 10-year vision in terms of the duration of that capital and the ability for it to stick around.

Three, of course, we've got to make sure we can make each other better. A big opportunity here is around origination in the areas that Arctos traffic is in. And I would highlight, in particular, I think, could be really accretive to our insurance capital, which in turn gives Arctos more tools out in the marketplace as they're traffic in both with GPs as well as with sports teams globally. And then lastly and most importantly is the cultural piece. We don't just expect the Arctos team to fit into our culture. We expect them to add to our culture.

Importantly, here, we have known this team for a very long time. First met their principal, Ian Charles, 10-plus years ago and worked on a deal together. And I think you learn a lot about people when you work on transactions together. So we couldn't be any more excited for this acquisition.

Great. Great. So you achieved significant fundraising in 2024 and 2025. So how would you characterize the fundraising environment today, maybe split it out by channel, institutional insurance in wealth. And then how could '26 and even '27 compared to those recent years?

Yes. So in 2025, we raised about $130 billion of capital. I mentioned that number is up approximately 90% from 2 years ago. We had outlined a goal of raising $300 billion of capital between 2024 and 2026. We're already 80-plus percent of the way through to that target, which we should meaningfully exceed. If you break down the fundraising channels into 3 channels, you can obviously go much deeper than that, but start with institutional. The institutional markets in the past few years have been the slowest. In a lot of ways, they're opening up, you look at two of our larger institutional-based products that are in the market and are in our Americas Private Equity Fund, our 14th fund.

We've already raised $19 billion of capital. That's larger than the predecessor fund. We're less than a year from the first close. So a lot of momentum there in our largest institutional product. Our next largest global infrastructure product, we're north of $16 billion of capital and well on our way to exceed our predecessor fundraise there.

So in both cases, an attractive outcome so far, and one we forecast to be really strong. And I think it does speak to the strength of the institutional market to the extent that you've got returns that you can rely on.

Two would be the insurance channel, which is continuing to allocate to alternatives. We manage today $80-plus billion of capital for third-party insurance clients. That number is up north of 3x from when we first acquired Global Atlantic 5 years ago. So I think a validator to the fact that we have become a better partner to insurance companies globally by virtue of owning an insurance company ourselves. And then finally, on the private wealth side, I'm sure Mike will spend more time on the topic of private wealth as we go through this discussion, but a huge addressable market that is still very underallocated to alternatives. Today, we're managing through our suite of products north of $35 billion of capital, and it's an area that over the next 5 to 10 years, we would continue to expect pretty robust growth. Just to put that $35 billion of capital that we manage today in perspective, 12 months ago, that number was $18 billion. So a lot of momentum in that channel for us as well.

Right. Okay. So the momentum is just definitely clear there. You touched on 1 thing in your answer there, which is performance, which is really vital for your long-term growth. So how do you think about the capacity and fund sizing? So how do you avoid the AUM growth really diluting your returns and your franchise value?

Yes. I'm glad you asked that question because we talk about it a lot. And let me walk you through a few things that we talk about at KKR. Number one, we focus a lot on linear deployment, and so we largely use our investment periods in funds. I think that could be different from a lot of market participants that may overcommit their funds in a -- in one particular vintage. And so when we learned this lesson the hard way at KKR. We raised a lot of capital in 2006 and 2007, and then we spent most of it before the financial crisis hit. In a lot of ways, we got outcompeted through the financial crisis by our competitors. So we focus a lot on linear deployment.

Number two, we still feel very much capital constraints. If you look in the past 2 years, we syndicated $25 billion of capital. And of that $25 billion that we syndicated 25% of that capital, we syndicated to non-limited partners at KKR. So this capital -- think about that capital that we needed to go out in the market and syndicate and to non-partners of the firm.

And then I think the last thing -- and this really goes to business model and really fundamentally our long-term business model is -- and there's a lot of reasons why we have the business model we do, but one of them is that we -- so we don't need to be all things to all people and asset management. That's why we have an insurance business.

It's why we have strategic holdings. And in a world where you don't have those avenues for growth, you always need to be chasing that incremental dollar of AUM to grow. And we don't feel that pressure at KKR given the model that we've chosen. And don't get me wrong, we see plenty of opportunities to grow our asset base at being great at the things we're doing. We think the Arctos acquisition and the beginning of the KKR Solutions investing unit as a result, gives us another avenue for growth, but as we think very much long term, no, we don't want to be all things to all people in asset management. And I think that allows us to focus on the things we're doing today, really be great at them, which includes delivering exceptional investment performance. And as I said, there's lots of reasons why we have the business model we do. That's a big one.

Great. Okay. Maybe if we shift gears a little bit here. A common investor question that we receive is really about the bridge to the 7 plus of ANI, the target for 2026. So while there's broad confidence in the FRE component, the insurance performance fee, investment income pieces, they're a little less clear, right? So that's kind of driven some skepticism in the market about hitting that target. So we're 1 month in through 2026. Can you maybe walk us through what needs to happen over the next 11 months for that $7-plus target to be achieved?

Sure. And thanks for asking that particular question. We obviously get it quite a bit. So -- and for background, back in 2021, we put out a target of $7-plus per share of adjusted net income in 2026, validated that again at our Investor Day a couple of years ago, continues to be a metric that we believe that we'll achieve through the course of 2026. And I think -- and I'll walk you through the building blocks of that, but keep in mind, we're going through the process of finalizing our budget, which is very much a bottoms-up budget. So as we think about that $7, we know what we need to achieve over the course of the next 11 months in order to be able to hit it. So let's start with fee-related earnings.

And as you do your building blocks on fee-related earnings, the biggest driver is clearly management fees. I think we've demonstrated an ability to grow our management fees at a rate that exceeds our industry average, comfortably exceeds our industry average. We've got a lot of momentum there coming off the back of raising $130 billion of capital in 2025. Our capital markets business, lots of ways that we could win there. We've got the leading capital markets business across our space. It's been a big investment for us over the course of the past decade plus. We think that remains a large growth opportunity.

Fee-related performance revenue, largely coming from our K-suite vehicles with the growth in K-suites got the ability to inflect in 2026. And then finally, and this is the piece that isn't talked about a lot, but is a big part of where we're going, which is operating leverage. And I talked about this a little bit on our earnings call last week. But if you look since 2022, so over the course of the last 3 years, we've grown our management fees by over 50%, but our operating expenses have grown by 23%.

Now contrast that to our industry. If you look at our 3 largest public peers, at least those that we get compared to the most, each one of them has grown their operating expenses at a pace that exceeds their management fee growth. Again, we're 2x in the other direction. And so we already have industry-leading FRE margins, but our business model, we think, allows for more operating leverage over time.

Our insurance business, we talked about that business being plus or minus $1 billion of operating income in 2026. Strategic Holdings, we believe year-on-year will grow at a pace of north of 100% and deliver operating earnings that exceed $350 million this year. So a lot of momentum if you look across our more recurring earnings. So then you get to our investing earnings, both our realized performance revenue as well as our realized investment income. And we enter 2026 with $18.6 billion of embedded gains on our balance sheet today when you look at both carried interests and our investment portfolio. That number is up roughly 20% from a year ago.

In addition to that, I guided on our earnings call last week, that we've got visibility of generating $900-plus million of monetization-related revenue from things that have already happened or been signed up. This time last year, that number was $400 million.

And so there's obviously a lot that will take place over the course of the next 11 months. We've got quite a bit to get done, but if we're able to get the things done that we think we can, we're going to scale our realized carry in the year. We think we can materially scale our realized investment income, which has got a high flow-through to adjusted net income. And we're confident that we can achieve the $7-plus as a result.

Now in order to achieve the investing earnings component, we do need a conducive market environment to achieve it back to where we started this conversation, we do expect that in 2026, but at the same time, we're not going to force anything into the market. We would never sacrifice future growth for the near term, but we've got a bottoms-up plan. And as I said, with the conducive market environment, we think we'll be able to achieve it.

Great. Okay. Maybe just to double-click a little on the insurance side of the equation there. So -- can you just maybe walk us through the internal ROE bridge, spread versus capital efficiency versus health allocation expenses? What's going to be the biggest unlock to get you to your end goal on the ROE?

Yes. I would say since we bought 100% of Global Atlantic, there's some -- there's been some noise from a, let's call it, more of an accounting perspective as we are pursuing our strategy, which is a strategy that is for the next decade plus. When we bought 100% of Global Atlantic, it had a de minimis exposure to alternatives, 0 exposure to private equity as an example, which you wouldn't have expected when you think that many of the largest mutuals in the world are investors in KKR's private equity product, Global Atlantic was not.

In order to do that, we need to elongate our liabilities, take leverage down to pursue that strategy. We're well on our way of doing that. You look at the liabilities we originated in 2025, 95%, plus or minus, we're 5-plus years in duration; 75%, we're 7-plus years in duration. I think some of the noise that we created on the accounting side is as we're migrating the book into alts, we've made the decision, which we think is the right decision for us not to cash account -- excuse me, not to mark-to-market those alternatives in the P&L, but rather to cash account for them. That is different than a lot of industry peers do it. And I would say there's no right or wrong answer. It's just the convention that we've chosen. So as we're ramping into that alts portfolio, we're putting P&L pressure within our insurance business on the basis of not getting the benefit of mark-to-market, but yet not being through the J curve where we're starting to get the cash income.

We think that cash income starts materializing in our P&L in 2027 and 2028. But as we look at 2026, I mentioned earlier, we expect roughly $1 billion of operating earnings at Global Atlantic. At the same time, we expect mark-to-market of roughly $350 million through the year if our assets perform. So it's a pretty big delta. The last piece of the strategy, that in a lot of ways might be the most important and most differentiated versus the vast majority of insurance company is around scaling our third-party capital. And we talked about on our earnings call last week, having $6.5 billion of dry powder of equity to be able to invest up and down the assets and liabilities of Global Atlantic.

We think once that capital is put to work, it will through operating leverage of an insurance -- reinsurance business translate to north of $65 billion of additional fee-paying assets for KKR. So quite meaningful in the context of managing a little bit north of $700 billion of AUM across the firm and a little bit north of $600 billion of fee-paying assets across the firm. And I think that piece of the strategy there's not a lot of insurance companies, probably only one that have the ability to raise that kind of scale third-party capital. And we think that's got a number of advantages associated with it.

ROE is definitely one as we scale into it. The other importantly, as you think about when insurance companies have the ability to drive the best ROEs, it's in moments of dislocation, because there's less competition on the liability side at the same moment that spreads on the asset are a lot higher. And we think having the ability to draw down third-party capital, much in the same way that we would draw down private equity capital or infrastructure capital to invest in dislocation provides a real competitive advantage in a dislocated market.

Okay. Great. Let's change gears to the wealth platform. You did talk a little bit about the K-Series products earlier. But maybe just kind of higher level, what are the most important KPIs that you track? And what do you see as the biggest bottlenecks to continuing to scale in wealth?

Yes. The #1, 2 and 3 KPIs that we track is really around client experience, which includes delivering exceptional investment performance. It is not about capital raising. We've got a management team that really does think 10-plus years out into the future. And given the size of the addressable market that we're talking about, the fact that the individual investor still is low single digits allocated to alternatives, and if that scales to mid-single digits, you're talking about trillions of dollars of addressable market. We know that if we deliver an awesome client experience with our brand attached to it with the products that we've created in the market that the AUM will follow.

Now we've had a lot of momentum on the capital raising side, including really solid capital raising month in January, where I think our industry saw a lot of volatility. We were up roughly 20% versus January of 2025, but for us, that number said 1, 2 and 3 KPI is about what we can build in the future, which is going to be a function of delivering an awesome client experience.

Some investor concerns out there about the wealth channel broadly. A lot of the focus and the challenges that you mentioned recently have been much more focused on the nontraded BDC private credit side of the space. Your exposure is relatively smaller than some of your peers. Do you have any concerns about some spillover effect to the broader wealth channel if folks start to go more risk off and kind of sit on their hands near term?

Yes. Mike, maybe the first thing I'd say is it's interesting if we were sitting here 3 or 6 months ago, you'd probably say how come your private credit business of scale relative to your peers. Now it's an advantage. Listen, one of the things we did, and it's a longer story, we probably don't have time for -- in this discussion, but I'll try and summarize. We learned a lot of lessons given some of the liquidity crunch in the private wealth space in our industry that were happening 3 years ago is right before we launched our private equity infrastructure K-suite vehicles.

We paused those vehicles, and we said, "How do we make sure that we create the most durable vehicles as possible?" And we made a number of changes to the vehicles before we launched them. In fact, like we were ready to go. We had a whole sales team ready to start selling these products January 1, 2023. And we really pushed that out to the middle of the year. And one of the big changes we made was we introduced a 2-year soft lock on those vehicles, which is different than the marketplace.

And of course, that's going to have an impact on capital raising. But the reason why we did that is that we wanted people -- financial advisers who are recommending our product and individuals who are investing in our product to be doing so in order to save for their retirement.

If they were looking to go buy a house in the next couple of years, we weren't at the right place for them to be investing. And we do think introducing that soft lock and there's a 5-point penalty to be clear, that penalty doesn't go to us, it goes to the vehicle. We think that, that, I'm sure, creates some headwinds and pressure as it relates to near-term capital raising, but creates much more durability of these vehicles, makes them harder to back lever, again, impacts capital raising to a degree, but makes these vehicles more durable. There's other things we've done on the product creation side that I think are really important.

Our private wealth vehicles, invest Pari Passu in the waterfall with our institutional vehicles because we want to make sure that the individual investor has a similar investing experience to our institutional investor. Most of our peers have not done that. They rely on white space or larger co-investments. And so you could be in a scenario where your institutional investor and your private wealth investor have vastly different exposures. We didn't want that.

Okay. Great. So on the call, Scott, you referred to 10 periods since the IPO that the stock fell 20% in 1 month. Help us maybe benchmark this current period of uncertainty related to AI and software to historical periods, maybe compared to events like the commercial real estate crisis, COVID, GFC, maybe take us through how you assess and address risk in your portfolios and then maybe talk through the actual performance or loss rates that you experienced and maybe how this situation could differ?

Yes. Mike, I mentioned this at the outset. I think this scenario is different in a couple of ways. Number one, what the market got very nervous about in the past 10 or so days was not something that was new for us as we thought about portfolio construction, what we're buying, what we're -- importantly, what we're selling.

The other thing that I think is very different and frankly, was more surprising to me, and I would say, let's say us, I know Craig Larson, who runs Investor Relations for us is here in the room today, too, would say the same thing, goes to where we started this conversation around both the durability of the business model and then importantly, the diversification of the business model.

I was with somebody this week and he said to me, which I hadn't appreciated that the alternatives last week, the alternative asset managers were actually down greater than the software index was down last week, which again does not tie together in any way to, again, the durability and importantly, diversification of all the alternative asset managers that are out there before you even get to our model, which we talked about earlier today. So I think, obviously, tough to like compare loss rates one time over the other. I could tell you, we feel really good about our aggregate exposures across the portfolio. We mentioned roughly 7% of our AUM across the firm, exposed to software, 15% in our private equity business exposed to software. We've tried to be pretty expansive about how we define software, as an example, we might have something that sits in our health care industry vertical, but as a software-oriented company.

We, of course, included that in the software exposure on the denominator side. But that's not to say we don't see a risk that exists in the market from the adoption of AI. We've sold businesses over the past few years for sure that we were worried about that even though we saw a near-term risk. And I would also say and this goes back to the diversification of the business model point.

We sit on roughly $120 billion of dry powder to be able to invest into the dislocation and a significant amount of our capital investing over the past number of years has gone to support the adoption of AI through a number of our investments in digital infrastructure and data centers. So as you think about our net exposure here to AI that's very different to the gross exposure you're talking about in software businesses.

Right. So we touched on the nontraded BDC side of credit. But if we take a step back and talk about maybe credit as kind of the broader asset class, it's been a major driver of your inflows. There are some growing questions about the golden age of private credit. So maybe just touch on your strategic asset mix, how you think about how credit AUM can continue to compound in 2026. And can you continue to grow at that rate even if spreads stay tight and base rates continue to come down?

Yes. So when you -- private credit gets painted with one brush. I'll tell you how we look at it at KKR and how we segment it. We've got roughly $135 billion of capital in private credit, $85 billion of that is in asset-based finance, $50 billion of that is in direct lending. We continue to believe that asset-based finance will grow at a faster space, both secularly and for us than direct lending. We feel good about the credit fundamentals of both today. And I know there's a lot of headlines, and there's a lot of noise. We talk a lot internally and a little bit externally about separating the signals from the noise a lot.

We feel good about the fundamentals that we're seeing today in the market and risk return, and we can talk about some areas where we're leaning in, maybe some areas where we're leaning out to. And so we feel good on the fundamentals. And honestly, our clients do too. If you look at 2025, we had a record capital raising year in our credit business, largely on the back of what we're doing in private credit.

Yes, why don't we double-click a little bit deeper there? Where do you see the best opportunities in ABF today? And where are you kind of leaning away from?

In ABF, there's a real theme -- number one, the market today is huge at $6 trillion. We think that's grown to $9 trillion. We think historically, much of that exposure has been on regional bank balance sheets. And 1 of the things our industry does very well, which is very differentiated from a regional bank is we can aggregate very long-duration liabilities to match to the long-duration assets.

Areas of opportunity to us thematically businesses moving from capital-heavy to capital-light. Our partnerships with Harley-Davidson, with Sallie Mae with PayPal, are examples of that. There are very few companies out there that can bring the scale of capital that we can to an ABF opportunity. A lot of private investment grade that's being created in the marketplace today, we think is really attractive on the risk return side. And the area where we're really trying to lean out organizationally is more around the stress consumer.

And so as you go to lower FICO scores in the U.S., that's an area that sort of regardless on how it's modeling today, we're largely staying away from.

Great. And just a reminder for those in the room, if you want to submit a question, you can do so through the app. Okay. So, Rob, maybe if we switch gears to real assets. So KKR has one of the largest and fastest-growing infrastructure platforms. How do you think about the durability of that growth? And what will be kind of the key drivers post the flagship fundraise? And then specifically on the real estate side, where are you seeing more concrete signs of the real estate recovery?

Yes. So let me take them in turn. Our infrastructure business today is about $100 billion of AUM. I want to put that in context. Five years ago, that number was $18 billion, and all of that growth has been organic. We are now solidly a top 3 global infrastructure player, still quite a bit of room between the top 2 in the market and us, but we are catching up to them.

There was a couple of things here, I would say thematically that are in our favor to continue to achieving really robust growth in infrastructure. Number one, just global demands for infrastructure spending, and we all know what's going on in the digital infrastructure side, but even away from that, the needs for infrastructure spend over the next decade. -- especially in parts of the market like Asia where we've got real leadership position are immense.

Our clients are still looking to catch up on their allocations to infrastructure, including our private wealth clients, importantly. And we think over the years, we've really developed and created a best-in-class team. We approach the market through a number of different strategies that have all have scale in their own right. I mentioned our global infrastructure business earlier. $16 billion of capital raise for our fifth fund, and we're not finished yet. We have the largest Asia infrastructure platform, our last fund was a little over $6 billion. We've said we think our next fund could be north of that as we're out in the market and have already achieved an anchor close.

We've got a core real estate strategy that's become a top 3 player very quickly. We've got a climate transition strategy. So a lot of different ways that we think we can pursue scaled growth in the infrastructure space.

Real estate different, clearly, in a couple of different ways. But just to put in context, we manage about $85 billion of capital in real estate roughly 50% on the equity side of our business and 50% on the credit side. We do think it probably happened 12, 18 months ago, real estate values bottomed, but it has still been a challenging place to raise capital, both on the institutional side, also on the wealth side of things. We do know at some point, the market will turn. And our job as a management team is to make sure that we put ourselves in as good a position as possible. I think we have done that to be able to take real share when the market turns, but it hasn't yet even in spite of our belief that values have bottomed.

Maybe just a quick follow-up, Rob, on the real estate side. When do you think we could start to see more monetization, more transactions actually happen there?

Yes. You are seeing a much more liquid real estate credit market than you had even 12 months ago. And clearly, you need very healthy and functioning capital markets to see transaction volumes come back, and we're seeing that. So I don't want to predict when you're going to start to see meaningful flow come back in part that's going to be predicated on capital raising, too, and that hasn't come back across the industry. But I think the most important piece is the capital markets, and those are pretty liquid today. certainly relative to how they were over the past couple of years.

Maybe just transition to the capital markets fees, right? That's a business that can certainly be lumpy, but we -- as we think about '26 and the years coming, have we seen the full potential of this platform yet? And what is maybe the right way to think about the normalized contribution from that business?

Sure. Punchline is we don't think we've reached our potential in that business. We think it's a growth-oriented business for us. But before I get there, maybe just to go through, you did mention it was lumpy, but I think it's probably a lot less lumpy than people perceive. If you look at 2022 and 2023, you want to go back to those times, the capital markets were largely shut very little happening in leveraged finance, almost no IPOs to speak of.

Our capital markets business still generated $600-plus million of revenue. So we really have taken the floor off in that business quite a bit. Fast forward to '24 and '25, the market's much more open and conducive to transactions, we average between those years roughly $950 million of revenue. Growth areas for us are going to come as KKR does more around the world. We're well-staffed-up in our capital markets business to follow that opportunity. And as you think about something like Arctos, we believe that will create more opportunities for us.

Number two, we've talked about the opportunity to build out a really robust capital markets efforts alongside our insurance business. You look at our closest public peer business model-wise on the insurance side is Apollo and Athene, and they provided a really good road map for what is achievable there. We've talked about this being a hundreds of millions of dollar annual opportunity for us.

In 2025, we generated just $60 million of revenue from that opportunity. And then finally, you still haven't really seen mid-market deal flow come back, but we've got a really robust third-party capital markets effort that historically has been north of 20% of our fee base. Last year, it was about 15% of our fee base. And so we believe that remains an opportunity that you haven't really seen flow through our P&L over the past couple of years. So we -- a longer answer to your question on whether we've reached our potential, but the short answer is no, we have not.

Great. Okay. Well, we have reached the end of our time. So thank you, Rob, so much. Thanks for being with us.

Yes, Mike, thank you. Thank you, everyone.

Ladies and gentlemen, thank you for standing by. Welcome to KKR's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Following management's prepared remarks, the conference will be open for questions. [Operator Instructions] As a reminder, this conference is being recorded.

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

Thank you, operator. Good morning, everyone. Welcome to our fourth quarter 2025 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 will 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.

And as a reminder, we report our segment numbers on an adjusted share basis. We will refer to forward-looking statements on the call, which do not guarantee future events or performance. So please refer to our earnings release and our SEC filings for cautionary factors about these statements.

So beginning first with our headline financial metrics. This quarter, we're pleased to be reporting $1.08 of fee related earnings per share, $1.42 of total operating earnings per share and $1.12 of adjusted net income per share. The $1.12 figure includes the carried interest repayment obligation we reviewed on our last earnings call. And excluding this, ANI per share for Q4 was $1.30. Management fees in the quarter were $1.1 billion, that's up 24% on a year-over-year basis, and that's driven really by all of our fundraising initiatives as well as the continued deployment across the firm.

Excluding catch-up fees in both periods, management fees grew by 22%. And as KKR has grown, our management fee profile has become meaningfully more diversified. Looking at full year 2025, management fees were $4.1 billion with private equity, real assets and credit each contributing approximately 1/3 of total fees. Total transaction and monitoring fees were $269 million in the order. Capital markets fees came in at $225 million, driven by activity across private equity, credit and infrastructure, and fee-related performance revenues in the quarter were $34 million.

Turning to expenses. Fee-related compensation was again at the midpoint of our guided range or 17.5%. And other operating expenses for the quarter came in at $205 million. So in total, fee-related earnings were $972 million, which is up 15% year-over-year, and our FRE margin, a healthy 68% for the quarter and just over 69% for the full year 2025.

Insurance segment operating earnings in Q4 were $268 million. As a reminder, we report the insurance investment portfolio largely based on cash outcomes. So to give you a sense of the embedded profitability here, our insurance operating earnings would have been approximately $100 million higher in Q4 if we included the impact of marks on our investments, where a significant portion of the return relates to appreciation and not just cash yields with around $50 million of that $100 million coming from a portfolio that was purchased in the quarter that was subsequently marked up.

So said another way, if you included what we think of as a more recurring performance in the portfolio, insurance operating earnings would have been approximately $320 million in Q4. And one more point on Global Atlantic I'd like to turn your attention to Page 20 in our earnings release. We introduced and walk through the supplemental page on our last earnings call. As a reminder here, Insurance segment operating earnings alone do not capture the impact of Global Atlantic recognizing the economics that show up in our Asset Management segment.

So on this page, on the right-hand side, we detail the management fees we receive under our investment management agreement, fees from IV-related vehicles where we have over $50 billion of AUM that wouldn't exist without GA as well as GA related capital markets fees. Taken together, as you see on the page, total insurance economics in 2025 were $1.9 billion net of compensation, and that figure is up 15% for the year.

Strategic Holdings operating earnings were $44 million in Q4 and on a full year basis, they more than doubled compared of 2024. And perhaps more importantly, we continue to track nicely towards our expected $350-plus million of operating earnings looking forward to 2026. So putting that all together, total operating earnings came in at $1.42 per share. And these more durable and recurring earnings drove 85% of our total pretax segment earnings again, looking at the last 12 months.

Now moving on to investing earnings within our Asset Management segment. Realized performance income was $528 million, that excludes impact of carried interest repayment obligation and realized investment income was 27%, bringing total monetization activity to north of $550 million. This activity was driven by a combination of public secondary sales and strategic transactions, dividends and interest income as well as the annual performance fee for [ Marshall Wace ]. After interest expense and taxes, adjusted net income was just over $1 billion for Q4 or the $1.12 per share figure I mentioned a few minutes ago.

Turning to investment performance. Page 10 of the earnings release details the continued performance we're seeing across asset classes, both in Q4 as well as over 2025. And given our investment performance really over a long period of time, in turn, you're seeing record embedded gains across the firm. Now this is an important point for us. Total embedded gains, so that's gross carry together with the gains that sit on our balance sheet across asset management and strategic holdings were $19 billion at 12/31. That's a record figure for us. And even with the gains that we've been realizing, total embedded gains have continued to scale at a healthy rate. That $19 billion number is up 19% compared to 1 year ago, and it's up over 50% compared to 2 years ago.

Now let's turn to fundraising, which has continued to be a real bright spot for us. We raised $28 billion of new capital in the quarter, bringing full year capital raise to $129 million, that's the highest fundraising year in our 50-year history and almost double where we were as a firm 2 years ago. And we're seeing continued demand really across the full breadth of asset classes and regions. Momentum continues to be strong in credit with a record $68 billion raised across the platform in 2025 driven by our asset-based finance business as well as our insurance business more broadly.

And spending a minute on Global Atlantic third-party capital fundraising, we held the final close of our IV 3 sidecar vehicle in the quarter, bringing total capital raised here to $4.5 billion. And when you combine this with a $2 billion commitment from Japan Post insurance that we discussed last quarter, we now have approximately $6.5 billion of third-party capital capacity. And for some context, [ Ivy 2 ] raised a total of $2.7 billion of third-party capital in 2023. So you've seen a meaningful increase in scale reinforcing our view that client demand for insurance-related strategies just continues to deepen.

And as a reminder here, the Ivy sidecar vehicles pay fee and carry similar to a drawdown credit or private equity fund and also allow us to grow GA in a capital-efficient way. And once this $6.5 billion of capital is fully deployed, we would expect it to translate into more than $65 billion of fee-paying AUM over time.

Now turning to activity in private equity and real assets. Our North America private equity fund now has over $19 billion of committed capital, and we're less than 1 year since its first close, already eclipsing the prior fund. And our global infrastructure flagship fund now has nearly $16 billion of commitments, also on track to be larger than its predecessor. In our view, the momentum and success we've seen despite a more challenging fundraising environment is a real testament to our differentiated investment performance, our focus on linear pacing as well as the ability to return capital to our investors.

And notably, flagships represented only 14% of our total 2025 fundraising, which speaks also to the breadth and diversity of our business across our fundraising activity. More broadly in infrastructure, we've already raised nearly $4 billion of capital for the latest vintage of our Asia infrastructure fund, and we expect this to be larger than its $6 million [indiscernible].

And looking at another important piece of our capital raising efforts, private wealth. Our K-Series suite of products brought in $4.5 billion in Q4 and over $16 billion in full year 2025, which is nearly 2x the amount raised in '24. AUM across our K-Series vehicles is now over $35 billion. That's including activity that closed January 1, and that compares to $18 billion a year ago. And also in December, we completed the conversion of an existing vehicle to kick our asset-based finance fund or ABF Today, the ABF market is larger than the direct lending, syndicated lending and high-yield bond markets combined. And the shift in our investment approach here now offers individual investors the opportunity to access this high-growth and, in our view, really differentiated asset class.

We also continue to feel really excited about our strategic partnership with Capital Group. The 2 credit products we launched last April are getting on more platforms. We filed in equity products and we're making progress on a target date fund solution as well as public-private model portfolios. So putting all of our capital and raising together, we've already raised over $240 billion or over 80% of the $300-plus billion fundraising target that we outlined for the '24 through '26 period at our Investor Day in April of 2024.

And then finally, consistent with our historical practice, we intend to increase our annual dividend from $0.74 to $0.78 per share, which will go into effect alongside of first quarter '26 earnings. This will now be the seventh consecutive year that we increased our dividends since C-Corp conversion.

And with that, I'm pleased to turn things over to Rob.

Thanks a lot, Craig, and thank you, everyone, for joining our call this morning. We had a strong 2025 and our fourth quarter results, especially our key forward indicators, give us continued confidence as we head into the new year. 2026 is a special year at KKR as we will be celebrating our 50th anniversary on May 1. And while we have been in this business for 5 decades, we still feel like a very young firm. With our 3 growth engines, asset management, insurance and strategic holdings, positioning us extremely well over the long term.

A critical element of our success is our highly collaborative culture. which allows us to maximize the impact of our business model and to attract and retain best-in-class talent across everything that we do. Our business model and our culture, which both reinforce and perpetuate each other, are what gives us our confidence not only as we look to 2026, but over the next 5 to 10 years and beyond.

I'm going to begin today by reviewing some key operating metrics from the quarter. and very tangible signs of momentum that we are seeing across our businesses. Craig already walked you through our strong capital raising. So I will start with monetizations. We remain very pleased with our overall performance and continue to see the benefits of our focus on linear deployment and disciplined portfolio construction. In 2025, we generated $2.7 billion of gross monetization activity. That is excluding the carried interest repayment obligation that we discussed on our last call.

Gross realized carried interest increased approximately 30% year-on-year, and that growth came on top of what was already a very solid level of monetization for us in 2024. I -- even with our healthy momentum on monetizations, our embedded gains currently stand at $18.6 billion, as Craig noted just a moment ago. That is up from $15.6 billion a year ago or 19%. Our portfolio is in very good shape, and ultimately, that is the most important indicator for future monetizations.

Turning to deployment. We invested $32 billion of capital in the quarter and $95 billion over the course of 2025. That is up 13% compared to 2024. Our deployment was driven by a number of our key focus areas, including Asia, infrastructure and asset-based finance. With $118 billion of dry powder, we are incredibly well positioned to build our portfolio for the future, and if anything, we feel capital constrained by the opportunities that we are seeing across the world today.

Asia continues to be one of the most dynamic regions globally for us. Our full year investment activity in the region was up more than 70% versus 2024 and span traditional private equity, growth equity, infrastructure and real estate. This reflects both the scale of our local teams and the breadth of opportunity that we are seeing in that part of the world.

As a reminder, we have 9 offices and approximately 1,000 people in Asia. with over 200 employees in Japan, which remains one of our most active investment markets globally. We also invested nearly $15 billion into infrastructure in 2025. That's a record figure for us. With over half of that activity occurring outside of the United States. The need for infrastructure investment remains massive, and this is one of the biggest growth vectors that we have as a firm. We've recently invested in a high-quality logistics facility in Korea, a European build-to-suit data center platform and our first structured alternative transaction for our insurance business out of Europe in the renewables space.

We've also continued to lean into the opportunity within credit, deploying $44 billion in total over 2025, that's up 14% compared to 2024. Our ABF business which today represents $85 billion of AUM, invested $19 billion of capital last year. And finally, I did want to touch on our strategic acquisition of Arctos, which we announced earlier this morning. You would have seen a press release earlier today on Arctos as well as a presentation on the transaction and all of the opportunities that we see together.

I'm not going to page flip through that presentation. I would encourage everyone to review that deck as it does a great job highlighting the quality of the business we are acquiring and the opportunities that we see together. Arctos is the leading investor in professional sports franchise stakes and a leader in GP solutions with approximately $15 billion of assets under management. We are extremely excited to partner with the Arctos management team and believe that we can build on their leading franchises and create meaningful value together by combining the strengths of our respective organizations.

The transaction is valued at $1.4 billion in equity and cash, with much of the equity subject to long-term vesting. In addition, there is the potential for up to $550 million of additional long-term vesting equity that is subject to KKR share price and Arctos operating performance targets. We do expect that this transaction will be accretive per share across our key financial metrics immediately post closing. Critically, we've known Arctos' Co-founder, Ian Charles for over a decade. He has been one of the leading and most creative minds in the secondary space. And we have direct experience working together on one of the industry's first structured secondaries transactions, which helped launch our health care and technology growth franchises businesses that today manage over $17 billion of capital.

Upon closing, the acquisition immediately puts us in a leadership position in sports. Arctos is the largest institutional investor in professional sports franchise stakes and is the only firm that is approved for multi-team ownership across all 5 major U.S. leagues. In addition, Arctos is a top player in GP solutions, a rapidly growing asset class focused on providing liquidity to alternative asset managers, which we expect will continue to expand.

We've been asked quite a bit about the secondary space, including a few times over the years on these calls. I think it's fair to say that we have evaluated most of the secondary asset managers that have traded over the last decade. For a variety of reasons, we did not pursue any of those opportunities. However, we knew that when we found that right partner, the partner who could give us conviction that we could build a leading secondaries and solutions franchise that we would be all in.

And we are confident that we have found that in Arctos. Ian Charles and his partner, Doc O'Connor, have been leaders in the sports and solutions industries for over 2 decades. And the combination of the existing Arctos team and the reputation in the market, make us incredibly excited about the business that we can build together over the course of the next decade plus. In connection with the acquisition, we will be creating a new investing vertical called KKR Solutions, which will include sports, GP solutions and future secondary strategies.

Over time, we do expect this business to reach $100-plus billion of AUM and be a very meaningful contributor to our P&L. Importantly, as you think about this acquisition, it is highly consistent with the strategic M&A framework that we have previously laid out for our investors and analysts, that includes 5 things of note. Number one, access to leadership positions in large addressable markets that would be difficult to build organically. Number two is long-dated capital. The vast majority of Arctos' $15 billion of AUM is long duration in nature with no fixed end date. It is really as close to permanent capital as it gets in the asset manager space.

Number three, highly complementary capabilities with a differentiated origination and sourcing engine that we believe can be valuable across the full KKR ecosystem, in particular, our insurance business. Number four would be the synergy that exists around distribution across both wealth and institutional channels. And number five, most importantly, strong cultural alignment between our 2 firms. We are thrilled to be welcoming the Arctos team to KKR and are confident in the opportunities ahead.

Before handing things over to Scott, I'd like to reiterate the strong momentum that we are seeing across the firm so far in 2026. At our Investor Day in April of 2024, we introduced 2026 guidance across our key metrics. We are highly confident in our ability to meaningfully exceed our fundraising and FRE per share targets. And as we explained last quarter, presuming a constructive monetization environment, we also continue to feel confident that we can achieve $7-plus per share of adjusted net income.

However, if the environment does deteriorate, we may delay some of our monetization activity. And if that were to happen, we'd be earning less in 2026, but again, that would be in service of more earnings in 2027 and beyond. With record unrealized gains, we continue to feel incredibly well positioned for the future. And the good news here is that we will be communicating frequently on monetization through these quarterly calls and also our intraquarterly monetization press releases, so that we can track our progress together, and no one will be surprised as we work through the year.

And with that, let me turn the call over to Scott.

Thanks, Rob. And thank you, everybody, for joining our call today. I want to begin with Arctos because it's a good illustration of how we think about building KKR. We have known this team for many years. We've done deals together. We have seen how they source, how they underwrite and how they build durable franchises. What attracted us was not just the asset classes, sports, GP solutions and secondaries. But it's some people, the culture and the long-term opportunity to create something exceptional inside KKR working together. Ian Charles is one of the most experienced investors in the solutions and secondary space. His cofounder, DacO'Connor, is a pioneer in sports management and investing.

Together, they have built a team with strong origination capabilities and a clear understanding of how to scale a business without compromising performance. Just as importantly, there is strong cultural alignment. That matters enormously to us when we consider strategic M&A. We have been very intentional over the years about where and how we expand the firm. We only want to be in businesses where we believe we can be a top-tier player over time.

With Arctos, we have conviction that we have a clear right to win and the opportunity to build a $100 billion AUM solutions franchise that will be a meaningful contributor to KKR's long-term earnings profile. If you step back, and look at our history of strategic acquisitions, Global Atlantic, Marshall Waste, FSK, KJRM and Healthcare Royalty Partners. You'll see a consistent pattern. These businesses diversify our earnings, extend the duration of our capital and increase the quality and visibility of our cash flows. Arctos fits squarely within that framework.

Now let me zoom out for a moment and talk about the broader environment because there's been no shortage of generalizations about markets and private capital. The period from 2010 to 2020 was characterized by low rates, low inflation and relatively little volatility. The last 5 years, however, have been very different. Interest rates have risen. Inflation has reemerged, geopolitical risk has increased and dispersion has returned.

In our business, today's outcomes are the result of decisions made years ago around portfolio construction, deployment pacing and just overall discipline. We are seeing much greater bifurcation across our industry. It is becoming harder to generalize about asset classes and easier to distinguish between firms that are well positioned and those that are not.

Let me give you a few concrete examples of what we're seeing. Let's start with fundraising. Despite the headlines, 2025 was a record fundraising year for us. We raised $129 billion, nearly double what we raised 2 years ago, and that strength was broad-based. In credit, we raised a record [indiscernible] $68 billion. In infrastructure, our AUM has grown from approximately $17 billion 5 years ago. Pension plans are working to close gaps in infrastructure and private credit. Private wealth remains in the early stages of adoption.

Across all of these channels, investors are consolidating relationships around a smaller number of partners they trust to perform across cycles. That trend has been underway for some time, and we believe it is accelerating and continues to work in our favor. This is showing up in our management fees, which grew 18% last year, accelerating relative to the last 3-year annual growth rate of 16%.

Now let's talk about monetizations. There's also been a lot of more market focus on how difficult exits have been in our industry. That has not been the case for us. Our portfolio is mature, global and well constructed. We've been disciplined around pacing and diversification for a long time. And that is showing up in record embedded gains and a healthy pipeline of realizations across strategies and regions.

We are not forced sellers. If markets are constructive, we will monetize. If conditions are less favorable, we can afford to be patient. Either way, the value is there. And finally, stepping back, KKR has been through many cycles in our 50 years. We have learned sometimes the hard way that long-term performance is not about chasing favorable conditions. It's about building a firm and portfolios that can perform and compound through different environments.

We feel very good about how KKR is positioned today across asset management, insurance and strategic holdings. And we feel even better about where the firm is headed over the next several years. And with that, we're happy to take your questions.

[Operator Instructions] Our first question comes from the line of Glenn Schorr with Evercore.

I definitely agree with a lot of your big picture outlook stuff. I want to get to the elephant in the room and talk about -- so how does someone like you -- this is a question for everybody, but how have you re-underwritten your private portfolios, your balance sheet, even in your monetization pipeline for tariffs and AI. What actions have you taken what actions can you take to derisk like everyone is trying to get at the same thing of what don't we know? What's in there, why can't the monetization pipeline get back get out in a strong banking environment. So sorry, I know there's a lot in there, but it's like the thing.

No, I really appreciate the question, Glenn. And let me give you a couple of thoughts and maybe Rob can add on. That's about 2 things in there. One was tariffs and 1 was a I think on the tariff front, it's pretty straightforward. I think we shared some of this data, it hasn't changed. We got a little bit fortunate candidly during the first Trump administration. We got a little bit of a look see as to what could be coming and so that allowed us to really rethink supply chains and be thoughtful about making sure we have the right exposures.

And then COVID obviously gave us a reinforcement of that focus. So we have a single-digit percentage of our portfolio, and a lot of our business is low single-digit percentage of our portfolio that we've got any anxiety about tariffs. So we feel very comfortable and relax on that front.

On the AI front and some of the recent volatility that we're seeing, maybe just a couple of thoughts for you. First, as you know, when we invest, especially in the private markets, we're thinking about what the world looks like 5 to 15 years out. And what we own today is the result of decisions we've made over the last several years. So I would say the recent volatility speaks to new anxiety for the market around potential disruption risks, but it is not new anxiety for us. So we've been focused on AI-driven competition and disruption risks for the last several years. We've also been focused, as we've talked about on all the opportunities that come out of what's developing in that space.

But having been through many cycles, a lot of the answer to your question is you can't pivot on and [indiscernible]. So we have been focused on building portfolios that have the exposures that we want. And so that focus on portfolio construction, I think, is a very important thing for everybody to understand. So as you know, we talked about this quite a bit. We've been focused on linear pacing for the last many years. So a lot of what happened in our space was over deployment in 2021, including in tech and software names. We do not have that issue at all.

We've been investing behind opportunities across industries and globally with really strong risk reward. And we took an inventory of our portfolio over the last few years. And part of the answer to your question is we have been selling businesses, when we did that inventory and said, okay, is AI an opportunity, a threat or a question mark. Where it was a threat or a question mark, we started selling assets several years ago. And as a result of that, we have the exposures that we want today. Not to say there won't be surprises, but our level of anxiety is pretty low because we've been thinking through this for the last several years and built portfolios informed by those concerns.

To give you a sense of the number because I'm sure people are wondering, software is about 7% of our AUM. And that is what, I would say, a highly inclusive definition of software. And so our concentration is well below our industry well below broad equity and credit indices. And the market right now, and as you know, this happens when there's this much in motion, all at once is painting everything with one brush. We would just caution that not all software investments are the same.

For example, a great investment in a company called OneStream, has a lot of growth ahead. We announced the sale of that business a month ago at a 30% premium, 4.5x multiple of invested capital for our clients. So it's not all the same.

And so the other thing I would just add before handing it over to Rob is just don't forget the business we're in, right? We have $118 billion of dry powder. Our dry powder is multiples of any exposure we have that we have AI-related anxiety about several multiples. So this type of dislocation creates really strong return opportunities for us. And so volatility always creates opportunity in our business. Our focus is making sure we don't waste it.

We just had a firm call this morning where that's part of what we talked about. We got 100 -- better part of $120 billion. How do we make sure we invest it well and take an advantage of what's on offer. And that's really the focus around here because as we look back at moments like this when the market gets anxious, these tend to be amazing vintage years for investments as long as you stay focused on what you can control.

Rob, anything to add?

Yes. Glenn, just on your point as it relates to monetization activity. I think the biggest driver of the limited monetization across the industry is what Scott talked about in the overconcentration in the 2021 vintage. As you know, we didn't have that, and that's as big a reason as any on why we have meaningfully outperformed on monetizations over the past couple of years. And that momentum has continued for us.

If we look at where we sit today, we've got roughly a little over $900 million visibility from signed deals or deals that have already happened to monetization-related revenue coming. And that's probably a first half number for us. It's hard to distinguish in some of these deals where they're going to close in March or April. And I would just contrast that to where we were at this time last year on this call where that number was approximately $400 million. So our momentum on the monetization front continues to really accelerate.

Our next question comes from the line of Craig Siegenthaler with Bank of America.

I hope you're doing well. Our question is on the record investment result and your linear deployment model across the cycle. Was the strong 2025 result a level that you expect to build off of, just really given your linear approach to deployments? And then also, what do you view as the key themes and factors for record deployment, just given that public equities were higher and also credit spreads were generally tighter than the prior 2 years?

Craig, it's Craig. Why don't I start? Thanks for the question. Look, in terms of activity in the quarter, you're right. I think we had a very broad-based deployment in the quarter really across strategies, across geographies. If you add real assets and private equity together invested around $16 billion, just over $8 in PE and just under $8 billion in real assets. and then $15 billion in credit. So I think you're seeing diversification and breadth.

In terms of themes, I think it's worth mentioning the take private activity you've seen broadly as well as over the last handful of years. In '25, you see an activity here. It's on a global basis. We executed take privates in Japan, in Germany, in the U.K., in India as well as in Sweden. And if you look back at this activity since 2022, we've invested almost behind 30 take privates globally. And we think over this period of time, we've been as active as anybody in our industry.

Rob mentioned Asia for us is just an area where you're seeing a healthy amount of activity, again, a big driver of global growth. I think you saw a transaction this week announced in the digital infrastructure space. Again, it's probably the most recent example, and it does feel like our positioning in the market, I'd say Asia broadly as well as Asia infrastructure, more specifically is something that's being recognized.

Do you think there are 2 specific transactions that are just kind of interesting. One in on December 24, actually, so it would have been an investment that probably would have been easy to miss. We announced in Japan the carve-out of the real estate assets from Sapporo, one of the largest announced real estate investments in Asia in 2025, really a great example of how we can collaborate across businesses. It leveraged the relationship as well as the carve-out expertise of our real estate team, our private equity team, the activity with [ KGRM ] and their ability on financing as well as our capital markets team from a syndication standpoint.

And then a handful of weeks ago, we announced an alt transaction for Global Atlantic in Europe in the renewable space. I think we've talked a lot about these calls on how we're looking to use all of our sourcing to originate differentiated opportunities for GA. I think it's a great example, again, of the connectivity. And in terms of the go forward, and what this means in the level that we're at, just a couple of stats that are interesting in this more broadly.

So look, the firm has grown a great deal. And if you look at deployment, as an example, in private equity and real assets. And if you look at that as a percentage of our private markets AUM, like those statistics are not going to be perfectly linear, but I think it's kind of an interesting statistic. If you look 3, 4 and 5 years ago, deployment was 13%, 15% and 16.5% of that AUM and '25 it was 12%. So again, I think the deployment numbers, you're right, in aggregate, are up on an absolute basis, no question. I think as you think about the opportunity for us going forward, it's also important to think of the footprint that we have, that scaling in asset classes as well as across regions.

Craig, thanks for the question. It's Scott. I do think you're right. Last year was a record deployment year for us and answer your question, we expect to deploy more this year. I would note last year, was a record despite some of the market hiccups around the tariff dislocation in the spring. But as Craig said, you got to remember just how global we are. So last year was a record year for European deployment for us is just 1 example.

As we look around the world, intra-Asia trade power digitalization, companies moving from capital-heavy to capital light, which feeds our ABF and insurance businesses, Japan as a market holistically across asset classes, life sciences, infra, ABF you name it, and that's all global. We see a lot of opportunity out there. And as I said, with the dry powder we have and a little bit more volatility, we always think this means what's going on right now is the investment opportunities will be more interesting, and our earnings will be higher 3 to 5 years from now as a result.

Our next question comes from the line of Alex Blostein with Goldman Sachs.

Just a follow-up on Glenn's question and Scott, your answer. Obviously, lots of anxiety in the market, it obviously continues today. So when you think about the more durable part of the business, and Rob, I heard you talk about sort of confidence around exceeding the FRE target you set out for 2026, I think it was 450 plus. Can you talk maybe through the building blocks, your confidence levels in those building blocks? And then specifically, with respect to management fees, would you expect that growth to look like in '26?

Thanks a lot for the question, Alex. So let me walk you through where we stand as it relates to fee-related earnings and I'll go component by component. We've got a lot of momentum on the management fee side of things. and have been for some time, been growing at above industry level growth rates. And the best forward indicator that we have for management fees is, of course, capital raising. We come off a year where we had record capital raising almost $130 billion and we're on our way to meaningfully exceed our $300-plus billion fundraising target that we set out from 2024 to 2026. So I feel really good about the trajectory on management fees.

Our Capital Markets business continues to generate really significant outcomes and I think is incredibly well positioned environment where deployment across our space continues to increase. I think, but all the things that we're doing across KKR, now inclusive of the Arctos business, the opportunity to do more in insurance. Last year, we generated roughly $60 million of capital markets-related fees on the insurance side. We think that business can be in the hundreds of millions annually for us. And as deal flow return to the mid-market sponsor community, I think we are very well positioned on the third-party capital market side of our business. Fee-related performance revenue is starting to scale, and I think can really inflect upward over the course of the next 1, 2, 3 years.

And then at this point, I think it's a really important point as you talked about FRE, and that's really a margin point. And I think we have really demonstrated an ability to hold our operating costs below our revenue from a growth perspective, even as we've pursued substantial scaling across our business. And I'm going to give you a stat, and we were looking at this as part of our recent budgeting process, but I think it's a helpful one.

If you look from the end of 2022, so really post COVID, through to, and I'm going to give you LTM 930 numbers from a comparable perspective. We have grown our management fees by 46% relative to our operating expenses by 21%. Now compare that to our 3 closest peers, and it is pretty much the inverse. They've all grown their operating expense at a pace that exceeds their management fees and in 2 of the 3 by a pretty substantial margin. And so overall, when you put that all together, the different opportunities we have to scale are on the fee side, plus the ability to get further operating leverage as we continue to invest back in the firm makes us feel good about that FRE target.

And then the last point because I think it's also helpful in context of thinking about our ability to achieve that 450-plus target or meaningfully exceed it is when we gave that target, that was a little over 2 years ago. And at the time, our LTM FRE per share was $2.55 and so because of the momentum we have across all of those line items and our ability to get operating leverage is why you've seen the really substantial growth we've had in FRE over a short period of time.

Our next question comes from the line of Mike Brown with UBS.

So Rob, thanks for the comments on $7 ANI target. You commented on the performance fees and an earlier question, but I wanted to ask on the investment income specifically, 2021 was a record year at over $1.3 billion. 2022 came in strong at nearly $1 billion. There were some -- certainly some unique drivers back then. But looking ahead here, what's the potential for this line? Should we expect some balance sheet exits that could move it higher?

Yes. Thanks for the question. It's a good one. So the punch line is, as we think about budgeting for the year and of course, where bottoms up, we do expect an increase in our realized investment income through the course of the year. And as we look out over the next couple of years, we do expect that line item to have an upward trajectory to it. And in some cases, I think can have a meaningful upward trajectory.

However, I think it's important to understand our realized investment line item in context of the broader firm, right? What we've been doing with our balance sheet over the last several years on the asset management side of our balance sheet, is taking every dollar of finite capital that we have available or marginal free cash flow and reinvesting it back into our firm for growth, either in strategic M&A like you saw this morning with Arctos, insurance strategic holdings, share buybacks, all with the goal of increasing our recurring earnings per share.

And so over time, while I do expect you're going to see some increases in realized investment income, that line item over the long term on a relative basis should be decreasing to our more recurring earnings as that's very central to our strategy on how we're allocating capital today.

Our next question comes from the line of Benjamin Budish with Barclays.

I wonder if you could talk a little bit about the recent trends at Global Atlantic. It looks like you are a little bit above the kind of $250 per quarter target you've talked about, but shifting to the pieces. It's a little bit hard to tell. I think we're waiting for some data from the Q when it comes out, but it looks like perhaps the net investment spread may have narrowed a little bit. The G&A came in quite a bit lower than the last couple of quarters, so a good earnings outcome. But just curious if you could parse through the moving pieces and maybe talk a little bit about what's embedded in your expectations for '26? Is it still sort of plus or minus 250 -- or should we see more upside?

Yes. I'll take that one. It's Rob then. All good questions. So let me work through them in pieces. We continue to think that the right level to model the business is in that 250 plus range per quarter over the next 4 quarters. But keep in mind, and we talked a lot about this last quarter is in our transition to move our book to more of an industry average on alternatives exposure, we are taking on assets that have no yield or limited yields, and we are choosing to not have that show up in our P&L by cash accounting for those outcomes that is different than many of our industry peers. And just Q4 alone, that number was in the mid-90s of accrued income that's not showing up in our P&L.

And as I think about our run rate today, of accrued income is closer to $250 million. And as you think about 2026, as we -- as we're modeling that business, we think that accrued income number can be $300 million to $350 million. Now over time, if we do our jobs right, that accrued income that builds and compounds will show up in cash earnings. And we expect in 2027 and 2028, you're going to start to see that.

The other thing, of course, I would point you to is that whenever we're talking about insurance operating earnings, we should also think about the broader economic picture of our insurance business, we've included again on Page 20 of our earnings release, how we think about total economics and insurance where you see we continue to have strong growth that's even without the mark-to-market income coming through the P&L. And across all these line items as we look over the next few years, feel really great about our ability to continue to drive a differentiated insurance business that's got multiple different ways to be able to win in the market, inclusive of our ability to drive real outcomes with third-party capital, and we're just going to go in there.

Our next question comes from the line of Bill Katz with TD Cowen.

So a very big picture question that's been coming up in our conversation with investors, I'd be curious your thoughts. I don't think the stock price moves are really just about software today. I think it's more about the prospects for the industry on a go-forward basis given the uncertainty that AI seems to be putting it to the broad economy. So my question is twofold. One is, how do you sort of see the evolution of the flows in the wealth management, which have been driven heavily by private credit over the last couple of years? And secondly, as you think about deployment across your private equity and our credit portfolios, our historical returns still the right assumptions to be presuming?

Craig, why don't you start with wealth and giving some specifics and then I'll...

Yes, sure. And Bill, this is not directly related to your question, but one of the questions we've been getting a lot actually, just on the wealth front side it would be helpful for people just relates to what we're seeing as we begin the year in 2026 because it's interesting for us. And look, just I know you understand this, but as a reminder, look, our North Star here is investment performance. And I think we have a view that if we are able to continue to deliver attractive net returns on behalf of our clients that these vehicles are going to have an opportunity to continue to scale at a really attractive rate. And so again, you heard it in our prepared remarks, how K-Series is scaled, et cetera.

Now back to the January point, like I think as a point of reference, in Q4, we raised about $4.5 billion, so $1.5 billion run rate. And then if you think of Q4, again, that's a quarter that had a lot of noise. That number was up 8% compared to Q3 of '25. So again, an environment with a lot of noise of Q3. And then in terms of January, it looks as we stand here, like that number is going to be about $1.3 billion. So again, given all of the volatility that feels to us like a pretty good outcome on the wealth front, and that number is up around 20% from January of last year.

So I think in all the volatility, both in the second half and what we've seen in January, it hasn't changed our point of view of what the long-term opportunity is for us in the framework of wealth and what those opportunities are. I think you should continue to see us really focus on these big, large asset classes. And again, brand is incredibly important. Resources are incredibly important. But I think the long-term opportunity, no change in our view.

Yes. And just to pick up, and thanks for the question, Bill, Scott. Look, no change in our expectations from a deployment standpoint. As I said, we expect deployment to be up again this year. No change and our return expectations across asset classes. The only thing I would add just -- as just a broader observation, and you and others on the call have lived with us for a long time. We've been public 16, 17 years. Every time the market gets anxious about virtually anything, our space and our stock trade off. So we went back and looked. So we've been public 16, 17 years. This is the tenth time we've seen our stock down more than 20% in a month. So this happens. And you can look back, it's a European debt crisis. It's COVID, you name it, happy to share.

But looking back and where we have 2 years of data post that event to look at just a couple of observations for you. One, it tends to be a great entry point for our stock. There's an overreaction to the down, right? So the 1- to 2-year average returns if you invest in that period of time have been really strong. And a lot of our larger shareholders have bought our stock and done incredibly well when this kind of thing happens. So the market overreacts a vitally to anxiety as it relates to our sector. It's just been happening as long as we've been public, and it's been a great buying opportunity.

Second observation, and I shared a little bit of this before, if we look back at those vintage years for us as a firm where we've deployed capital into those environments, really strong returns. So if anything, if this kind of volatility persists, I would say the return opportunity on the Ford is actually greater than our average. We haven't changed our pricing deals than our experience, the returns from vintage years if this keeps going, this is going to be a really strong one. I hope that helps.

Our next question comes from the line of Brennan Hawken with BMO.

Appreciate that you reiterated the $358 million expectation for this year in Strategic Holdings and also recognizing that the earnings doubled this year -- more than doubled. But could you help us understand what will drive that? And talking with investors, there's a little bit of a view that it's black box. There's not a ton of disclosure. So any enhanced color around what's going to drive that substantial ramp? And then there's a TMT bucket that's in there. Maybe could you provide a little color around what's in that bucket given some of the anxiety and nudge of it that's out there?

Yes. Great. Thanks a lot for the question, Brennan. So strategic holdings today is still a relatively small part of our business, of course, we're focused on exceeding $350 million of operating earnings in 2026. But much more importantly, we've talked about generating north of $1.1 billion of operating earnings by 2030, and that continues to be where our team's focus is, and we feel more confident today than we did a year ago in our ability to be able to exceed that number. So I feel really good with the results.

In terms of disclosure, I think as it becomes a larger part and percentage of our business, you're likely to see greater disclosure over time a more specific disclosure. So that will be on the come, and we talk about that quite a bit and how do we make sure we're balancing that based on the size of the business today and where it's going. But the punch line is we feel really good.

Now what is driving it? What's driving it is we've got approximately 20 businesses now that hit in strategic holdings. All generating different levels of growth and free cash flow. Many of those investments were originated 5, 6, 7, 8 years ago with bigger capital structures at the time and a big part of our thesis is as they delever, which they are deleveraging, they're going to be generating more free cash flow for dividends. And that is what's driving our confidence both in 2026, but especially as we look forward through 2030 and beyond.

Our next question comes from the line of Michael Cyprus with Morgan Stanley.

Just coming back to some of these AI concerns in the marketplace, one of the things I think maybe doesn't get as much attention is the opportunities that you and KKR can harness from AI. So to that end, can you just update us on how you're deploying AI across the firm today as well as within your portfolio companies. And if you could talk about how that's evolving, what sort of opportunities and benefits have you harnessed from that? And how you've also optimized your portfolio construction around investing around the AI infrastructure layer and the benefits there?

Mike, it's Craig. Why don't I start? Scott may have a couple of thoughts. I think when you look at what we've done as a firm, I think it's important to remember, we have over 400 engineers in the firm within our tech area. So I think these topics back to Scott's opening these topics aren't new. They've been front of mind for us, et cetera. I think as a firm, has had 2 cross-functional teams, if you will. One team is focused on our portfolio companies. Again, we're a control investor in over 200 companies globally. And so that team is focused on sharing best practices, what works, what doesn't work, what's easy, what's hard.

And I think our culture is one that really helps us in this as we're a very collaborative culture. And so lessons travel. They travel through to our investment teams. They travel through to our investment committees at the same time because we want to make sure that we're leveraging all of these lessons good and bad on a global basis. And I think the second theme is one that's focused on KKR. So what are the things that we as a firm can be doing a lot more efficiently at the same time. And then just as it relates to opportunity, again, Scott mentioned the dry powder that we have at the firm and the opportunities that we have to continue to invest behind growth and where AI can be an important driver of growth. Scott mentioned 1 stream, like that's an example of a firm that was successfully able to use AI in a way to help accelerate that growth and ultimately resulted in a great outcome for our investors.

Michael, it's Scott. Just a couple of quick things to add. We've got over 200 meaningful equity investments in companies. So we're working across all of those. And you can think of it as like 200 different labs, where we can think about how AI can help improve efficiencies, drive growth, and it's giving us a big opportunity to learn from across the world and across different industries. And we can apply that, I think inherent in your question to the firm. And so that is happening day in, day out. We've got teams, as Craig mentioned, focused and dedicated to that. And so we're pleased with the early results.

And we're seeing an uplift in the EBITDA of the underlying companies. I think sometimes that gets lost a bit. And so we're actually seeing incremental value creation and revenue and EBITDA growth as a result of some of these findings. And we're -- as Rob said, we're applying them here. And I think you're going to see more of that. So part of the reason you hear so much optimism in our voice around continued improving operating leverage at KKR is on the back of this.

And then the other thing, and I know it's talked about a lot, but I don't want it to get lost is your point about the investment opportunity that comes out of all this. I don't know half the market flipped this became a really interesting and exciting thing to now everybody is scared. From our standpoint, nothing has changed. So data centers, power, adjacencies, cooling of data centers, we've been investing around this team for the last many, many years. Those investments are performing very nicely. We announced another large data center transaction in Asia just earlier this week. So this continues to be a big and important theme for us.

Our next question comes from the line of Patrick Davitt with Autonomous Research.

I have a question on Arctos. It sounds like the path to $100 billion is probably mostly solutions and secondaries. So sorry if I missed this in the deck, what is the mix currently between Sports and Solutions in that $15 billion? And if they already had such a strong secondaries team, why haven't they raised more AUM there? And if it's just distribution, I assume plugging them into KKR could make it quite easy to quite quickly raise more of a mega fund there like some -- the other secondaries managers at [indiscernible]?

Yes. Patrick, it's Rob. Why don't I start and maybe just take a step back and describe the Arctos business. And it was founded in 2019 and really started initially in the sports space. That is the majority of their AUM to date. They've raised 2 funds out raising a third, including a big sidecar fund in addition to that. And so that is the bulk of their AUM today. That AUM, as we mentioned, in our information has no fixed end date. And so in a lot of ways, it's close to permanent levels that come. They are the clear leader there. And as we think about the growth of sports, which is it's own asset class in its own right, and that's growing at double-digit rates, where we're the clear global leader. We think there's a lot of room for growth in that asset class alone.

Second part of their business that they started more recently is the GP solutions part of their business. And they're raising capital in the first strategy there -- they're having a very successful first-time fund that will be -- that will make it already one of the largest players in GP solutions. That, again, is a big asset class with a lot of growth, a lot of levers on either side of the GP, broader GP solutions business that we think, again, can be a real growth.

As you think about the third leg of it in secondaries, this is not a business we're in today. Again, the firm has only been around for 6 years, 7 years. However, when we think about the experience of the team and where they've come from, when we think about their credibility in the marketplace, and with investors is really high. And you combine that with our industry expertise, our access to capital, as you noted, we think that gives us a real right to win.

And importantly, we really like the idea of building a secondaries platform with a blank sheet of paper. We look at the second industry. And again, we've looked at this space for much of the last decade we've [indiscernible] on these calls multiple times -- and we're really glad we've waited. We think that the ability to innovate here potentially disintermediate that space is really a compelling one. And we're really excited to be partnered with the Arctos team to be able to go after that together.

And so it's not just 1 part of the business. We really think there's scale to all 3 parts of this business. and under Ian's leadership and alongside his cofounder Doc O'Connor and the rest of the team, we're partnered here with a best-in-class platform.

Our next question comes from the line of Brian Bedell with Deutsche Bank.

Great -- most of my questions has been asked answer, but maybe just to follow up on a couple the operating earnings goal of $7 plus is the combination of FRE, strategic holdings and insurance. Just wanted to get your confidence on that if I back in to that given the sort of the guide for insurance and strategic holdings that would imply FRE maybe a little less than $5.50 a share, which, of course, meaningfully exceeds the $450 million. So I just want to get your confidence on that $7 between those components? And then a couple of cleanups just on catch-up fees in the fourth quarter and timing for the Arctos close.

Yes. So why don't I just the last 2 questions you see to answer. So timing on Arctos close, we think Q2. Catch-up fees in the quarter were $26 million. split roughly 50-50 between our private equity and our real assets business lines. And if you look at our growth this quarter, it was 24% on the management fee line item side. ex catch-up fees still would have been 22% growth on an apples-to-apples basis.

As it relates to building blocks on total operating earnings, Clearly, a lot of momentum as it relates to our asset management business and FRE. I think what we're doing in insurance and then also strategic holdings, we talked about the $350 million guide number for '26. I think we're going to beat that number. We talked about this on the last call. Given where our strategy was in insurance, when we initially talked about the $7 per share of operating earnings. This was before we made the pivot to move in the direction of alternatives in the book, number one; and two, made the final decision that we want to cash account as opposed to mark-to-market accounting.

And so when you think about where we're going in insurance, we talked about $1 billion of operating earnings, plus or minus for 2026. And of course, that number can move around based on how the year goes. But very importantly, that's missing what we think is going to be roughly $350 million of, let's call it, economic outcomes from accrued returns in the portfolio that if we were showing that consistent with most other insurance accompanies that we compete against in the market would be showing up in the P&L.

We've chosen for a variety of reasons that we talked about last quarter, the cash account and not have that show up. I just think it makes that total operating earnings metric. a little bit less relevant certainly than when we initially discussed it a couple of years ago.

Our next question comes from the line of John Barnidge with Piper Sandler.

I think you talked about this new KKR solutions have an opportunity to get to $100 billion of AUM over time. Can you maybe talk about how large the sports business within that framework would be? And does that assume any changes in ownership limits by leagues domestically?

Yes. Listen, no specific targets as it relates to sports versus GP solutions versus secondaries, we think there's a lot of room to grow across each of those areas. And importantly, one of the key opportunities here for us in this transaction isn't just what Arctos can build in isolation. It's really about being able to use the presence that they have in the market, the areas they traffic to help originate across the broader KKR ecosystem.

Everything from our insurance business where we see a lot of opportunity through to our investing platforms across the firm through to capital markets. And in turn, if we're able to do that, we also make the Arctos business a lot more relevant in the marketplace to their partners because we provide them a differentiated toolkit.

Let me give you an example of what that could look like. You think about the sports business, as an example. And the Arctos platform today owns minority stakes and a number of sports teams around the world. There is a big opportunity in areas like stadium financing, sports adjacent real estate, where Arctos just doesn't have that toolkit. We do everything from the high-grade parts of capital structure and real estate all the way through equity, creates investing opportunity for our platform. And then in turn, makes Arctos much more relevant to their partners. It's a key reason why this deal makes a lot of sense for them and for us.

Yes. Just to add on, John, it's Scott. To your second question. Our expectation for growth in the sports business is not predicated on any change in the league rules. So it's as they exist today.

Our next question comes from the line of Arnaud Giblat with BNB Paribas.

Just going on to Global Atlantic. If we look at the flow mix, it seems as though it's getting a bit more skewed towards real estate versus the past sort of a change in mix there. Could you confirm if that's the case? And what is driving that mix? And I'm just wondering if that has an impact on margins and on the ROE for the insurance business?

Yes. Arnaud, thanks for the question. It's Rob. No change in mix. One of the things in real estate. As we noted, this goes back to really early 2024. We noted that there was a real opportunity in core real estate, given a real dearth of capital out there for core real estate transactions. And so most of the competition was either core plus capital but more likely value-added capital, the much higher cost of capital. And so we leaned in, in early mid-2024 when we thought valuations really troughed number one.

Number two, there was limited competition. And on an unlevered basis, inside of GA, we were creating some compelling risk return not overly sizable in the context of the broader GA balance sheet, but I think will turn out to be really good investments and again, on an unlevered basis across the insurance platform. And over time, I think we'll add to our insurance operating earnings if those play out in a meaningful way. In large part, because -- and we talked about this remember at the time, these were some of our first investments that had lower yields than they did all-in returns. And so we're originating those transactions that call it a 4% running yield.

Our liabilities were 5% to 6%. So definitionally, in our P&L, we're actually losing money. However, where we think those investments come out, there's going to be a lot of accretive income that we perform is going to turn into cash income over time. And so we're quite glad we made that pivot, but nothing that would meaningfully change our concentration to the asset class.

Thank you. We have no further questions at this time. Mr. Larson, I'd like to turn the call back over to you for closing comments.

Christine, thanks for help, and thanks, everybody, for joining our call. I know it's been a longer call for us. Look forward to chatting with everybody on our next quarter call. Thanks again.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Okay. Good morning, everyone. We'll get started with our next session. It is my pleasure to introduce Scott Nuttall, Co-CEO of KKR. With over $720 billion in assets under management, KKR is one of the largest and fastest-growing global alternative asset managers across private equity, real assets and private credit, again, across many other capabilities as well.

KKR has had a very active year so far, delivering strong investment performance, raising over $100 billion of capital and meaningfully accelerating both deployment and realization activity with lots of momentum into '26. We look forward to speaking with Scott about his expectations for KKR for next year and obviously, the investing landscape broadly. Thank you so much for being here. It's always great to see you.

Thanks for having me back to continue our December tradition, Alex.

Yes. More to come.

So first, Scott, I was hoping to kick things off with your views on the economy. KKR has really a broad set of capabilities really around the world. And as part of that, you obviously get a lot of insight into corporate health across many industries, across many geographies. What are you seeing on the ground today? And how do you expect corporate outlook to shape up for '26?

Sure. Well, first off, and thank you, everybody, for coming. We all grew up in a world where a rising tide lifts all boats. And then there's the proverbial when the tide goes out, who has the bathing suit on. And that was kind of the world for the last few decades. This is not that. There are very different outcomes for different parts of the economy that we're seeing in the numbers. And if you've ever seen like a lock like when 2 bodies of water come together and they adjust the water level, it feels a little bit like that. There are parts of the economy and types of businesses that are up here, and there are some behind the gate and the water is coming down.

And the media, the market likes very simple descriptions of what's happening. This defies easy description. And so from our seat, it's much more nuanced. So for the economy, take the U.S. economy, we have seen rolling recessions over the course of the last few years. We've been in the manufacturing recession, as an example, for the last 2 to 3 years. Building products, tough, chemicals, parts of leisure, tough. But entire swath of the economies that are doing quite well that are at the higher water level.

If you're exposed to businesses that are being impacted more by tariffs, you're feeling it. So it really does depend on where you are. The largest 100 U.S. companies in the United States have seen their margins expand materially in the last 5 years, 14% to 19%. The next 1,400 companies have had their margins flat and are working to stay even. So it's not easy to describe in one fell swoop. Same thing is true for investment managers. What you're seeing right now and feeling right now is entirely dependent on where your exposures are.

Are you exposed to the parts of the economy that are doing well or those that are suffering. That's going to be the determinant of your next several years of results. And so Europe, on the whole, slower growth, but there's opportunities on the ground. Asia, quite a bit of growth. Japan reminds us of Europe and the U.S. 30, 40 years ago. So it's not a one-size-fits-all type dynamic.

And the key thing to understand in our business, 2010 through 2020 was the rising tide lifts all boats, right? Last 5 years, interest rates up, inflation up, wars, tariffs. You cannot jump the gate on the lock. You are where you are in the private markets business based on the decisions you've made the last 5 to 10 years. So to answer your question about '26, I think it's going to be more apparent the decisions people made over the last 5-plus years, and this have, have not dynamic will become more visible.

Yes. Some maybe more bifurcation in returns and probably wider divergent trends across...

Exactly right.

Yes. All right. Let's step away from the macro for a second, talk about you guys specifically into next year. At KKR's Investor Day, you set targets to raise over $300 billion of capital, '24 through '26. You're well on your way there. I think you raised over $200 billion so far, give or take. So kind of 70-ish percent of your targets, so clearly on your way there. As you move through the process, what are some of the key fundraising themes you're hearing from LPs? And then maybe spend a minute also on where are you surpassing your expectations? And what are some of the areas that are proving out to be a little bit more challenged within that $300 billion number?

Yes, sure. We're having a record fundraising year. And it's really been incredibly broad-based. So you're right, you mentioned it's about $101 billion over the first 9 months of the year. And we're seeing significant demand across all of our asset classes. And I think what's starting to be clear back to the bifurcation point is investors are seeing that we are hopefully on the right side of a bunch of those decisions that needed to be made thoughtfully over the course of the last 5 to 10 years. And that's showing through in the results. And that's why despite all the headlines and everything you read, we're having a record year. And that's including for our private equity funds, which continue to be larger than the last vehicle.

So if you look at it, let's go by asset class first. A lot of demand in credit, asset-based finance, $55 billion of the $101 billion, by the way, so far this year has been raised in credit. So we're seeing a significant amount of demand there. Infrastructure, investors are still trying to catch up to their allocation. So there's a lot of interest in that asset class. No doubt, private equity, despite the have, have nots dynamic, if you've got the results and you're sending cash back, which we are, there's still quite a bit of demand around the world.

The asset class that's been further behind is real estate. And I would -- but I would bifurcate it. Real estate credit is actually interesting. And our real estate business is about half credit. Real estate equity, I would say, is still the toughest asset class to raise capital in today. But I think there's a general acknowledgment that the market bottomed in '23, and things are going to -- are starting to get better. So some of the family offices, and I would say the more forward-thinking institutions are starting to come back to real estate equity as well and talking to us more about that asset class.

By investor type, sovereign wealth funds risk on -- we are seeing insurance companies allocate more to alternatives, pension funds, certainly, infrastructure, private credit, definitely working to catch up to their allocation, private equity being more judicious. They are consolidating their relationships. So they're firing GPs and concentrating more of their capital with partners that are performing. And then depending on where you go after that, family offices continue to be investing, private wealth really just getting started. I'm sure we'll talk about that. And then retail at the very, very beginning.

So back to the broader point, we are seeing a significant amount of demand for what we do and feel like we have a lot of wind at our back. And as the performance bifurcates and that becomes more apparent, we feel especially optimistic about the next few years.

Great. Let's talk about the flip side of this, which is realizations. Probably most topical of that is really within private equity. As you mentioned, that's been also a bit of the world kind of the haves and the have-nots. KKR has been actually seeing a really nice ramp in realization activity over the last several quarters. I think Rob highlighted about $1 billion monetization income opportunity over the next couple of quarters. So maybe, one, give us a bit of a mark-to-market on what do you expect that to shake out. The market has been, I guess, a little bit more uneven, feels a little better today than it did a couple of weeks ago, but where we are. So how do you expect that to unfold? And as you look at your forward monetization pipeline. Maybe give us a little bit of a breakdown between equity exits, sponsor versus corporates, continuation vehicles, kind of how are you thinking about this monetization cycle to unfold?

No, I appreciate the -- we have a bit of an odd existence right now, everybody. So we keep reading all these headlines about how it's really hard to raise money, and we're having a record fundraising year. And then we keep reading all these headlines about how it's really hard to sell anything and monetize. Our realized carry is up 50% year-over-year over the first 9 months. And so when we kind of step back, it doesn't -- what we're reading about is not consistent with our actual results and our actual experience. And it's not just that the realized carry is up 50% in the first 9 months. We're actually seeing, despite that, our unrealized carry, so kind of the amount we haven't yet realized is also up year-to-date 14%. So that means that the underlying portfolio continues to perform despite all the monetizations that we've had.

And if you step back and you look at the whole firm, we've got about $17 billion of unrealized carrying gains. That's within $200 million of our all-time high. That number is up 10% over the last year and up 50% compared to 2 years ago. So my ask of you as it pertains to KKR is do not believe the hype, look at the facts. Those are our facts. And the reason for that is we think we've been thoughtful in being ready for the market that we're in now and what we think is coming.

We don't have many companies that are exposed to a lot of what we talked about before. The parts of the economy that are feeling more of the pressure, we have less of that. We're much more services focused. We're much more global. So we've had a lot of our monetization this year, for example, in Asia, where as you know, we have a very large franchise. And so people tend to get too U.S.-centric and paint everybody with one brush.

In terms of the types of exits to your question, it's been about 1/3, 1/3, 1/3, IPOs, strategic sales and sponsor sales. I think that's a reasonable expectation for the forward.

Great. Well, speaking of headlines, I think we should probably talk a couple -- for a couple of minutes about private credit. So credit broadly accounts for, I think, about 1/3 of KKR's management fees, and it's growing mid to high teens, so quite healthy over the last few years. The business is also very balanced between liquid direct lending. Obviously, you mentioned asset-backed finance. GA has been a big important part of the conversation as well. As you look out over the next 1 to 2 years, how do you think about sustainability of that mid- to high-teen fee growth for credit? And what are the kind of key building blocks within that?

I think we're going to continue to see really robust growth in credit. Part of it, we could just -- we know it because we've already raised the money. Remember, a bunch of the money that we raised in credit, the fees don't turn on until the capital is invested. So when we talk about the capital we're raising in asset-based finance as an example, other parts of private credit. We know the capital is already raised. It's just as we deploy, you'll see the management fees turn on, it will turn into fee-paying AUM. But a lot of the areas of the strength, ABF has become a real asset class. I think people talk private credit, and I think it's just direct lending.

So we manage about $280 billion in credit, give or take, roughly $130 billion of that is in private credit. If you work through it, $40 billion to $45 billion of that $130 billion is actually in direct lending. There's $80 billion, $85 billion plus that's in asset-based finance. That's a much bigger market. So just to dimensionalize direct lending about $1.7 trillion market. ABF, we think, is a $6 trillion market, going to $9 trillion. So you're going to continue to see capital raised there, both in an investment-grade format and an opportunistic format.

Asia credit is relatively small today, but I think has a lot of growth and opportunity ahead. That market is just starting to develop. We have an opportunistic investing business that kind of sits between equity and debt. It's more structured debt, then we think that opportunity is really attractive, especially in this kind of a market. So I think you're going to see significant growth across all of those. And then insurance companies in Global Atlantic are feeding a lot of this because they like the yield. And so as we're sourcing these investment opportunities, we're putting some in the Global Atlantic balance sheet into third-party capital, and there's a syndication opportunity for capital markets as well.

Yes. Let's double click on that for a second. Asset-backed finance broadly for you guys, but the industry broadly has become a much more important driver of growth. GA has been an important sort of anchor and foundation around the platform for you guys. But you did mention that third-party capital is starting to become a bit more interested in the asset class. So spend a couple of minutes on how do you see third-party opportunities within KKR's ABF business evolving? And when you think about the risks, I think when it comes to direct lending, it's actually relatively easy to analyze. There's a lot of data out there. It's levered corporate credit. It's a little bit more opaque when it comes to asset-backed finance, particularly related to consumer credit. So how do you think about the risks in that part of the market? And what are your sort of exposures to consumer maybe within ABF specifically?

Sure. So just to give you a sense for our ABF business, it's about $84 billion of AUM today. That number is up 30% over the last 12 months and 80% over the last 2 years. So it's seen significant growth. And I think when you read all these headlines about private credit, there is, to your point, a real focus on corporate private credit, which is more of the direct lending. So I think senior secured lending to middle market companies. And there will -- there's no doubt we've been through a period of time where the losses in that space have been relatively low. We're expecting a return to a more normal default environment. And frankly, if you lent a bunch of money, to a bunch of the Vintage 2021 private equity deals or you lent against revenues in the tech space, especially for deals done during that period of time, you probably are going to have some issues. But what we're seeing broadly defined is like a return to a more normal default environment. And I think that people are overreacting to that return.

That's not to say that some people won't have bigger issues than that. But to be able to actually get a 9%, 10% running return down to low single digits, you have to have a lot of defaults and really poor recoveries. So -- and that is a very small part of the business for us. ABF is the bulk of private credit, to your point, $15 billion of the $84 billion, that is really more opportunistic end. The most recent fund we raised was about $6.5 billion. The predecessor fund was $2 billion. So significant growth there.

In the investment-grade space, the other $60-some-odd billion of that asset class for us, we're seeing a lot of demand. I think separate accounts. We raised 5 scale separate accounts just in the third quarter for those who were new clients to the firm. So we're going to continue to see that investment grade, high-grade ABF space continue to grow. And then we're also introducing actually a new private wealth product in the ABF space. And so we'll continue to see this in fund format, separate account format and then private wealth and beyond.

Great. We'll get the private wealth in a second, but I did want to hit on real assets as another important growth vertical for you guys. You obviously have a very large infrastructure business, one of the largest in the world. This business as a whole has been growing management fees at over 20% per year really for the last 3 years. Maybe walk us through how you think about sustainability of that growth, especially once the global infra fund completes its fundraising cycle, which you guys are still in the market with.

And I guess in that context, any signs of real estate recovery? I know you mentioned there are some green shoots, but maybe you can expand on that a little bit as well.

Yes. And there's one thing I missed on your prior question, Alex, which is an ABF on the consumer front, I think you were getting at. We only focus on -- for that, probably half of the business would be -- have a consumer exposure. We're focused on prime and super prime. We're not going beneath that. And so a very small part of the book would be below that. Look, in the real assets, infrastructure has been a really fast-growing business for us. $95 billion of AUM today. That number was $15 billion 5 years ago, all organic growth.

Investors like the story, right? It's got some current return, it's inflation protected, it's themes, you can touch and feel like digitalization, data centers, power, fiber-to-the-home, it's very straightforward and people really like real assets. So we're seeing demand from a bunch of different places. And our business is very broad-based.

So just to try to give you a couple of examples. So we have our global infrastructure fund called the flagship that we've raised so far for that most recent vehicle, $15 billion. The prior was $16.6 billion. This fund will be larger than its predecessor. We have an Asia infrastructure business. We've already raised $3 billion for that. That's Asia Infra III. The prior vehicle is 6.6%. I expect this vehicle will be larger than the predecessor as well. We don't talk about it much, but we actually have a core infrastructure business that's been around 5 years. That business is just quietly steadily gotten up to now $13 billion of AUM.

And then in our K-Series, our private wealth space, we have K-INFRA, which is gathering assets at a rapid pace and ahead of our expectations. So I think you're going to continue to see a lot of growth in infrastructure. Real estate, back to my point, that's about $85 billion. So you got $95 billion infra, $85 billion real estate, the $85 billion real estate, about half credit, half equity, and it's got the growth profile I mentioned before. But I'm more optimistic. I think the bottom is behind us in real estate. And I think as we go over the next couple of years, you're going to see kind of a cyclical recovery and interest in that asset class again.

Well, and probably also a bit of that bifurcation, right, between the...

100%.

Yes. And real estate is probably more...

And we're really fortunate because we started our business post GFC, very little office exposure, very little retail exposure, right? And so we're feeling quite good about that have, have-not dynamic.

Yes. Okay. Let's talk about the wealth channel. A bunch of questions on this because it's obviously a very important topic for you guys in really the space broadly. Starting maybe with a question around K-Series. Really nice growth, $32 billion in assets currently and really consistent flows, which we like to see across private equity and Infra. Maybe walk us through your expansion plans for these vehicles across distribution networks. And what are some of the other products you're thinking about coming to market with in this K-Series part of the story?

Sure. So you're right, $32 billion so far. It's really early. So $32 billion out of $720-some-odd billion is obviously a relatively small percentage. But we're kind of in the top of the first inning around private wealth. The vehicles that we have, we have vehicles today across all 4 of our major products. So private equity, real estate, infrastructure and credit. But we're seeing really rapid growth. It's ahead of what we thought it would be. So the $32 billion was $15 billion a year ago and $6 billion 2 years ago. And we're ramping at a very rapid pace.

And the next step for the strategy is really simple. We're going to keep investing in head count and keep growing the team from a distribution standpoint because this is a ground game. You've got to be kind of in the offices of the advisers. We started with the wirehouses now focused on RIAs, thinking about IBDs and where do you go from there, more investment in Europe and Asia. About 40% of our flows right now are actually outside the United States. So we're leveraging our global footprint, and we're going to be even more active internationally.

We're going to be getting on more platforms as a result and scaling adviser education. We run these KKR academies all over the world to educate advisers on what we're doing and what's happening in K-Series. And you're going to see more products. I mentioned calling it K-ABF will be the next thing that will be launched in that suite. And then I'm sure we'll talk about it, but we also have our partnership with Capital Group, which goes below the accredited investor. And obviously, K-Series is focused on the accredited investor and up.

Yes. Let's talk a little bit about that. So you guys were one of the first, maybe the first alt manager to announce a partnership like that. Obviously, a really powerful brand between you guys and Capital, a slightly different audience for that, a slightly different sales process. The flows have been fairly muted so far. So maybe talk a little bit about reception you're hearing in this channel -- for this product in the channel and when you actually expect some of these initiatives to ramp a little faster?

Yes. Look, we've -- just to give everybody the background. So what we did with capital is we created more or less a hybrid product. It is a combination of their liquid public product and our private markets product in one wrapper. And it's designed to be able to go to the 90% of households that are below the accredited investor level. Because despite the progress we talked about on K-Series, we're hitting sub-10% of as an example, U.S. households. This partnership with Capital is meant to go to the other 90%. And so it is very early days. So we've started -- we've launched now 2 credit vehicles. We're on file with the SEC with a private equity vehicle. And then we've got in the lab of hybrid vehicle focused on real assets, the public-private construct, basically the same idea across all of those. And so that's what we're doing there.

I would not react to the flows yet. We've got $500 million, $600 million so far. We didn't expect any more than that at this stage because we're not on the platform yet. A lot of this, you're going to see launch as we get into the first half of next year. And then I think we should be having a conversation. I don't know what to expect. This is a new asset class. We're spending a lot of time on education. When we shared the $300 billion capital raise number back at our Investor Day, this was not part of it. Okay?

So think of this whatever happens here is upside relative to the numbers we've talked to you about. But we're really optimistic. I do think it's going to take some time. But we also, in the last week or two, announced an expansion of our partnership with Capital Group. So it's not just these public private vehicles that we're creating, that we're doing together, we're also working on target date funds and model portfolios and working even more closely. They've been a fantastic partner to us. And so we're really leveraging their amazing distribution footprint and their amazing investment capabilities. We could never build what they have. So our perspective was why not partner and then marry the best of both of us.

Yes. So much more of a multifaceted relationship on that. So as the wealth channel grows, it obviously creates a very different and new market structure for the alt ecosystem broadly than anything we've really seen. And as part of that, obviously, alpha is not infinite. So to an extent where some of the institutional investors are used to getting some of the fee-free co-invest and that's always been part of the relationship, that might change or that creates perhaps some tension as now you have vehicles competing for these investments at 125 basis points.

So how do you manage that tension perhaps? And what do you think is the outcome of this kind of evolution going to be on the space?

Yes. No, I've been reading about the same questions, and we do get questions from institutional investors is just like yours, how should we think about this? Now our facts are maybe a bit different. I can't speak for other firms. We have always been short capital at KKR. We have never had enough capital to actually pursue the ideas we have and the investments we're able to source. So much so just to give you a sense, we typically will syndicate $15 billion to $20 billion per year of excess deal flow. And one of the things that we are very religiously focused on. And part of the reason that our portfolio has been performing well, we did not see the over-deployment that the sector saw, for example, in 2021 and the first half of 2022 as we focus on linear deployment.

I know it sounds super low tech. But if you got about 5 years to make an investment out of a fund, invest about 20% per year. And where people in our industry get in trouble is they overdeploy relative to the linear line or they underdeploy. So what happens is people underdeploy into 2020 and they overdeploy in 2021, and then they live with regret. We're very focused on staying close to the line. What that means is even if you have an investment you really like, you're only going to deploy so much of that into your committed funds. So we generate significantly more excess opportunity than others because of us adhering to that philosophy and approach. And so even away from that, we have a lot of excess flow. With that philosophy, we have a lot more than we've ever had.

So people are always surprised to hear this, but 30% to 40% of our co-invest actually goes to people that do not invest with KKR. So our institutional LPs, they get filled. They have a significant amount of demand. They get what they want. And we still have a lot left. So a simple way to think about the answer to your question for K-Series is the first answer is the people that are going to get squeezed are the people that don't invest with KKR already.

It's not going to be the institutions, and that's what's happening right now. So we are taking it away from them. And all that means, to your point is, yes, you won't make the capital markets fee in the same way, but we're going to actually generate a fee and a carry that are ongoing and not onetime, right? And if we do our job, hopefully, that money sticks with us for a very long time. So I would think of it as for the same amount of work, the same amount of expense and head count in the firm, we're able to monetize more of that deal flow. And the proof is in the pudding, right?

So if you look at our most recent Americas private equity fund raise, that is kind of the answer to your question, right? The last fund was sizable. This fund will be larger, right? We've already closed on $17 billion. I think we'll be at $20 billion plus, who knows. We'll see what happens, things can change. But our expectation is that we'll continue to see that franchise grow while K-Series grows.

It's an easy trade-off to make between that decision on syndication versus [indiscernible]. Okay. Let's pivot a bit. So one of the maybe unique elements of KKR story is your Strategic Holdings. It's something you guys announced, I guess, a couple of years ago, a bit of a pivot in the strategy. But your guidance is calling for a material acceleration in dividends from that part of the business. You were doing about $120 million over the last 12 months on the way to $350 million in 2026. Can you update us on some of the key operating metrics at the portfolio company level? Anything you want to share, revenues, EBITDA growth, et cetera? And really importantly, that bridge of there's pretty sizable ramp that you expect to see next year?

And then when you zoom out a little bit broadly, and a little bit more strategic question, how do you manage this portfolio? And what do you expect the kind of the composition to look like over the next several years?

Sure. And just for those of you who with maybe less background, so we're a little different, right? So we have an asset -- our asset management business, which is what you read about a good amount. We have an insurance segment. And then we also created what we call Strategic Holdings, which is where Alex's question is coming from. And the basic observation on that was behind that business is there's a bunch of companies that we really liked that didn't model out to a 20-plus percent return, but we saw it generated attractive long-term cash flows we're highly recession-resistant, might have modeled out to a mid-teens, mid-teens plus return, but much lower risk that you might want to own for 10 to 20 years.

We now have 18, 19 of those companies. We also, by the way, created a third-party business alongside $35 billion, $40 billion of AUM in this. So think of it as the Strategic Holdings segment is our share, our direct ownership in those companies. And our direct share of that, those companies today about $4.2 billion of revenue, about $1 billion of EBITDA, give or take. You also have a whole bunch of third-party AUM, where we got fee and carry that gets booked in the asset management business. That's the high-level background.

So what we said is now we started this strategy 8 years ago. These companies are maturing. They're delevering, and they're starting to pay us dividends. And so that $350 million of guidance for dividends for next year going to $728 million and $1.1 billion plus in 2030, that's where that's coming from. So the answer to your question is, we live with these companies every day. We're still seeing high single-digit revenue and EBITDA growth uniformly. We've now owned these businesses as you think about it through COVID, through rising interest rates, through tariffs and they've continued to plug along at high teens to -- high single digits to low teens revenue and EBITDA growth throughout, very steady [indiscernible].

I would think of them, if you like fee-related earnings and you like the durability of fee-related earnings and the ability to model it, these businesses have the same characteristics, and they're starting to pay us a lot of cash. And as Joe and I and our team think about how we're going to continue to scale our market cap from $100 whatever billion to $200 billion to $300 billion to $500 billion, it's going to be the combination of all 3 elements working together. And the beautiful thing about this, we didn't hire a single person. Right? This was just monetizing deal flow that was already in the firm that we were doing nothing with. That's what's going on with Strategic Holdings.

Yes. In the last couple of minutes here, I would love to get your perspective on some of the inorganic opportunities as well. KKR largely has been an organic growth story. You stayed out of the market in terms of some of the larger deals, obviously, that we've seen out there. There was a headline, I think, last week that you guys were looking at something perhaps in sports media space, but how do you think about the opportunities for KKR to accelerate some of the growth in M&A? What are the things you're looking for?

Well, we've actually -- I mean, if you step back, I know maybe it hasn't been as flashy, but Global Atlantic. We did KJRM. So we're the third largest REIT manager in Japan. FSK, we bought a BDC platform. Earlier this year, we bought a health care royalties platform. And so we probably spent $10 billion, $11-plus billion on acquisitions, probably issued $2 billion to $3 billion of equity and debt to do it, given the way that we run the firm. So -- and those businesses have created an extraordinary amount of $2-plus billion of pretax, easily for that $10 billion, $11 billion.

So we've quietly just been plugging away with our M&A strategy, and it's worked quite nicely for us thus far. And if you step back and think about the attributes, right, we only want to be in businesses where we think we can be top 3 in the world. If we don't think we have a path to that, it's not a good use of our time and energy. We want to make sure there's an element of permanency of capital. It's hard to do asset management acquisitions. If you got runoff capital, you're going to end up paying for the business 2 or 3x, that seems like a bad idea, right?

So we like permanency of capital, and we like relatively few people because we're focused on our culture, right? So if we can find that, it's hard to find, to your point, then we've had great success. But critically, there has to be a cultural fit, right? And that's the lens through which we look at these things.

Great. Okay. All right. We'll leave it there. Scott, thanks so much. Great to see you.

Great to see you. Look forward to next year. Thanks, guys.

Ladies and gentlemen, thank you for standing by, and welcome to KKR's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Craig Larson. Thank you. You may begin.

Good morning, everyone, and welcome to our third quarter 2025 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. And as a reminder, we report our segment numbers on an adjusted share basis. This call will also contain forward-looking statements, which do not guarantee future events or performance. Please refer to our earnings release as well as our SEC filings for cautionary factors about these statements.

I'll begin this morning with our results for the third quarter. As you likely would have already seen through our press release, we had a strong Q3. We're pleased to be reporting fee-related earnings of $1.15 per share, total operating earnings of $1.55 per share, and adjusted net income of $1.41 per share. All of these figures are among the highest we reported in our history as a public company.

Going into the P&L in a little more detail. Management fees and management fee growth continues to be strong. For Q3, management fees were $1.1 billion, that's up 19% year-over-year, driven by both our fundraising success really across all of our asset classes, alongside continued capital deployment. Catch-up fees within the management fee line were more elevated this quarter given the strength of our fundraising. They came in at a little over $40 million. So excluding catch-up fees, management fee growth on a year-over-year basis is a healthy 16%. Total transaction and monitoring fees were $328 million in the quarter. Capital markets fees were quite strong at $276 million, driven by activity across private equity, infrastructure, core private equity as well as our work on behalf of our third-party clients.

Fee-related performance revenues in the quarter were $73 million. That figure is up nearly 30% year-over-year, with a growth here driven by the performance as well as the scaling at our K infra vehicle. And in terms of expenses, fee-related compensation was right at the midpoint of our guided range, which as a reminder, is 17.5%. Other operating expenses for the quarter came in at $176 million. So in total, fee-related earnings were $1 billion or $1.15 per share figure that I mentioned earlier, a record figure for us.

Insurance segment operating earnings were $305 million this quarter. The run rate here is still at that $250 million level plus or minus, as there was a $41 million benefit this quarter from GA's annual actuarial assumption review process. Strategic Holdings operating earnings were $58 million for the quarter. And on a year-to-date basis here, they're meaningfully ahead of where we were a year ago. And as we head into 2026, we're tracking nicely towards our expected $350-plus million of net dividends. So in aggregate, total operating earnings, which represent the more recurring component of our earnings streams, were $1.55 per share, that's a record quarter, and 17% ahead of just last quarter.

Moving on to investing earnings within our Asset Management segment. Realized performance and investment income totaled $935 million, and we had $70 million of net realized investment income within our Strategic Holdings segment. So over $1 billion of monetization activity on a combined basis, a healthy level, which, in our view, highlights both the strength as well as the maturity of our portfolio. And of note in Q3, to give a little color, almost half of realized carried interest came from our private equity business in Asia. So in total, looking on a net basis, investing earnings after compensation were $306 million in Q3. After interest expense and taxes, adjusted net income was $1.3 billion or $1.41 per share. That's up 8% year-over-year, so relative to the third quarter of 2024.

And stepping back for a moment, we're pleased with the progress and the momentum you're seeing beyond just this 90-day period. Looking over the last 12 months, management fees, fee-related earnings and adjusted net income are all at record levels for KKR over any 12-month period in our history, and are up 16%, 16% and 17%, respectively, compared to the 12-month period ended 1 year ago.

Turning now to some of the key operating metrics for us from the quarter, and let me start with capital raising. In the third quarter, we raised $43 billion of capital for the second highest fundraising quarter in our history, with an incremental $3 billion of capital coming in this quarter with the closing of our acquisition of HealthCare Royalty Partners. Organic new capital raised across our credit platform comprised roughly 60% of the $43 billion raised this quarter as we're seeing strong momentum in our asset-based finance business as well as our insurance business more broadly.

Inflows from Global Atlantic within credit were $15 billion. That's up considerably year-over-year, with $6 billion of that related to particularly strong funding agreement issuance as well as the Japan Post Insurance strategic partnership. In addition to this activity at GA, third-party asset-based finance and private IG represented over $5 billion of new capital raised in the quarter, and this included 5 separate private IG ABF mandates, 4 of which are with clients that are new to our credit platform, and our forward pipeline here remains quite strong. Looking across the entirety of our credit platform, we raised $55 billion year-to-date, and that's compared to $56 billion over all of 2024. Suffice to say, 2025 is on track to be a record capital raising year for our credit business.

Our private equity and real asset business lines together raised $16 billion of capital in the quarter across a number of strategies, and that includes additional closes in our flagship North America's private equity and our global infrastructure funds. And inflows from our private wealth efforts continue to be robust. In the third quarter, our K-Series suite of products brought in $4.1 billion, that is 20% higher compared to just last quarter, and is 80% above the new [indiscernible] figure from 1 year ago.

Turning to deployment. We invested $26 billion of capital in Q3, with activity really broad-based across geographies and asset classes. In looking over the last 12 months, we've invested $85 billion, that's up 12% compared to the prior LTM period. And with a record $126 billion of dry powder available, we remain incredibly well positioned to build our portfolio for the future. Our teams continue to find creative ways to put capital work across asset classes.

Now turning to investment performance. Page 10 of the earnings release details the continued performance we're seeing across asset classes this quarter and in the LTM. Overall, our portfolios remain well positioned. And given our disciplined approach around investment pacing and linear deployment, we have roughly $17 billion of embedded gains that sit on our balance sheet across our Asset Management and Strategic Holdings, which is at or near record levels for us, and this is despite the healthy monetization activity that you've seen in the quarter.

And with that, I'm pleased to turn the call over to Rob.

Thanks a lot, Craig, and thank you all for joining our call this morning. We have another 4 topics that we'd like to cover today, mostly addressing some of the consistent questions that we have been receiving. They are a bit more involved this quarter. So please bear with us.

The first topic relates to our insurance business. As we have discussed on prior calls, we have been focused on 4 meaningful changes to how we run insurance. Number one, we are originating longer-duration liabilities and assets. Two, we are aggressively expanding outside the U.S. to better match our global investment management footprint. Number three, GA is investing more capital across everything KKR does, including non-yielding and lower-yielding asset classes like private equity and real assets. And four, we are raising more third-party capital across our Ivy sidecar strategy and strategic partnerships to grow GA in a capital-efficient manner. In effect, we are evolving our insurance business to be able to extend the duration of our book, to use more of our asset management capabilities around the world and leverage one of our core capabilities as a firm, capital raising. We believe these changes will expand our competitive advantage and allow us to generate higher and more durable returns over the long term, and all is on track from our standpoint.

We also wanted to discuss how we look at the impact of GA on our total P&L. Insurance operating earnings alone do not capture 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. The last 2 quarters, we have talked about the total economics related to our insurance business, and we have received positive feedback on this topic. I think it has helped frame why the GA acquisition has been so powerful for KKR. Given this, we thought we would more clearly lay out the total economics, and we have added a new page to our earnings release that outlines this on Page 20. Let's take a quick minute to walk through that page more specifically.

The total economics on this page, of course, include [ the ] segment insurance operating earnings that we report. Next, you see we layer on the economics that show up in the Asset Management segment, and you could see that in 3 places. First, as GA assets have grown $139 billion in 2022 to $212 billion today, management fees under our investment management agreement have also significantly increased. Second, we have a differentiated third-party sidecar business. Of that $212 billion of total GA AUM, approximately $50 billion is from our Ivy-related vehicles. These vehicles allow us to marry third-party capital alongside the GA balance sheet, and they often pay fee and carry similar to a drawdown credit or PE fund. These assets would not exist without GA, but all of the management fees show up in our Asset Management segment. And third, capital markets fees driven by GA are starting to contribute.

Taken together, as you can see on Page 20, the total insurance economics have increased meaningfully since our initial acquisition of GA. Year-to-date, the total economics are approximately $1.4 billion net of compensation, and that is up 16% compared to the same period last year. And if anything, these figures meaningfully understate the earnings power of owning Global Atlantic. We now manage over $80 billion of capital on behalf of third-party insurance clients, that is 3x the AUM we managed when we bought GA, and that's because we are a much better partner to insurance clients.

In terms of the Ivy-related capital, when you aggregate where we stand on our Ivy strategy capital raise and the Japan Post Insurance commitment, we currently have approximately $6 billion of third-party capital capacity. And once this new capital is put to work, we expect that it will ultimately translate to north of $60 billion of additional fee-paying AUM. The vast majority of this is not showing up in our P&L today. Said another way, we expect that the capital we have raised over the last 12 months alone will allow us to more than double the aggregate AUM of our Ivy-related vehicles once it is put to work. From a capital markets perspective, and you've heard us say this before, we are just getting started here. And we have said that the GA related fees can be hundreds of millions annually over time.

And finally, as we add higher returning, lower-yielding investments to the investment portfolio, that includes private equity and real assets, those excess returns do not show up for a while given that we report the portfolio largely based on cash outcomes. As you can see from the callout box on the top right of this slide, none of those economics are included here. Transparently, we debated whether it changed our insurance operating reporting to mark-to-market and conform to many of the industry peers. But we have concluded that it would be inconsistent with how we think about the P&L across all of KKR. We have had a focus on cash outcomes in our segment reporting since 2018 when we moved away from reporting economic net income. We think it is the easiest way to understand our business and think that is the right decision for our insurance portfolio as well. And candidly, we like our conservative approach. So we have decided to continue reporting the lower-yielding investments in our insurance segment based on cash outcomes.

But to give you a sense of the embedded profitability, our insurance operating earnings would have been approximately $50 million higher in Q3 if we included the impact of marks on our investments, where a significant portion of the return is related to appreciation and not cash yield. As we continue to rotate the book, we would expect the difference between our reported earnings and the earnings on a marked basis to go up in 2026, but come down over time as the portfolio matures. However, in a growing and performing business, that number will never be 0. As you can tell from the attractive profile of our total economics, looking at the insurance segment alone only really tells part of the story. So we will be sharing with you the entire story every quarter so you can clearly understand how our management team defines success. Hopefully, that is clear and helpful in addressing many of the questions on this topic.

The second topic this morning is the continued success we are seeing in private wealth. As Craig mentioned, we raised $4.1 billion in the quarter in our K-Series vehicles. Our capital inflows continue to be strong and gaining momentum. We now manage over $32 billion of assets across all of our K-Series vehicles, including activity through November 1. That $32 billion of K-Series AUM compares to $15 billion a year ago and just $6 billion 2 years ago. Our North Star for the K-Series suite continues to be focused on building vehicles that we can be proud of 10-plus years from now. As a result, recognizing we don't read too much into the month-to-month sales, our performance, deployment and capital raising activity continue to be ahead of our expectations.

Elsewhere in private wealth, we remain encouraged by the progress we are seeing within our strategic partnership with Capital Group. As a reminder, we launched our first 2 public private credit solutions in April. So we are in the very earliest days of capital raising. And in July, we made an initial filing with the SEC for a public private equity solution. We also remain exciting as to what we can do together in other areas where our combined capabilities can add value to our clients, including within the retirement space.

The third topic this morning relates to the monetization environment. As we have explained on prior calls, we are very pleased with the performance of our portfolio and are seeing the benefits of our focus on linear deployment and portfolio construction. You can see in our results that we've been monetizing this performance actively. As one example, our realized [ carry ] is up over 50% year-to-date. And despite all this realized carry that has been monetized so far during the year, our unrealized carry balance has actually grown 14% year-to-date. As we sit here at the end of Q3, we continue to have line of sight to more monetizations, with roughly $800 million expected over the next 2 quarters related to transactions already closed or that have been announced but not yet closed. So things feel healthy, both in performance and exits.

The one accepted here relates to our second Asia private equity fund, which has underperformed. Asia II was raised 12, 13 years ago and stopped investing roughly 8 years ago. And as we have disclosed to our Asia II investors, we expect that fund will roughly return its cost. Now to be clear, our performance in Asia private equity more broadly has been a real bright spot. Our most recent funds Asia III and Asia IV are both top quartile performing funds for their vintage, with gross IRRs over 20% and differentiated DPI statistics. Asia III has already returned over 100% of its capital, and Asia IV has already returned 40%.

The reason we are discussing this today is that we collected roughly $350 million of gross carry from Asia II many years ago that we now have to pay back. We will be taking a charge in the fourth quarter to do just that, and reversing the compensation that was paid out when that carrier was collected. To be clear, while we are recognizing this event in Q4, our accrued unrealized performance income on the balance sheet has been net of this impact for some time. The result is that we expect net realized performance income in Q4 to be lower than it otherwise would have been, and ANI per share to be about $0.18 lower. This is really a onetime charge that we've planned and reserved for that we wanted you to be aware is coming. And as we sit here today, we do not see any other material clawback risk that exists across our portfolio. When you cut through it, the monetization pipeline is strong, our performance is strong and we are taking a onetime charge for something that happened roughly 10 years ago.

The final topic that I want to discuss this morning relates to our expectations for 2026. And do we still feel good about our guidance of $4.50 plus in FRE per share and $7 to $8 an after-tax ANI per share that we introduced in November 2023 and November 2021, respectively. On FRE, the answer is an unreserved yes. As you could tell from our fundraising this quarter, we have good momentum here and real line of sight to continued management fee growth.

Turning to ANI. Given everything that we see and all of the momentum across KKR, we continue to feel confident in our ability to achieve our 2026 ANI guidance. A key component here will, of course, be monetization activity. Today, we have roughly $17 billion of embedded gains across the firm, that is gross unrealized carry and unrealized gains in our asset management investment portfolio and strategic holdings. That is the second highest level in our history, it's up 10% from a year ago and up over 50% from 2 years ago. Collectively, we've gone back with all of our business heads across all of our geographies and looked at our pipelines on a bottoms-up basis. And as a result of that exercise, we feel incredibly well positioned for future monetizations.

To be clear, the monetization environment today is constructive, and we would expect that to continue into 2026. However, if the monetization environment deteriorates, we may delay some of that activity. And if that were to happen, we would be earning less in 2026, but would be in service of more earnings in 2027 and beyond. Therefore, based on what we see today and our current conviction, we feel confident that we can achieve the $7-plus per share, and that includes the impact of our cash-based reporting approach for Global Atlantic. As you know, we share with you each quarter on our call, our expectations for gains in carry, and we update that expectation ahead of quarter end so you know what we know. And we will continue this practice so that we can track our progress together and that nobody is surprised as we move through 2026.

With that, let me hand the call off to Scott.

Thank you, Rob. Hi, everybody. I just wanted to share a few thoughts. Sentiment is a fickle thing. Sometimes, it seems the market is looking for everything to be good, and not asking enough questions about what isn't working or what to be worried about. Sometimes it seems to be opposite is true. The market is convinced things are bad and is so confident that something is wrong, that it can ignore good news and positive things that are happening. Most of the time, we're somewhere between these 2 ends of the spectrum. Lately, it seems we're closer to the high anxiety end of it. Virtually, every day has a media story on how difficult it is to raise private equity funds or how concerning private credit risk could be. As is typically the case, it is impossible to generalize and paint every firm with the same brush. So let me tell you how we see it.

In private equity, some players in our industry likely deployed more capital than is ideal in 2021 and early 2022. In hindsight, that was a period of high private valuations before interest rate hikes and tariffs. And some firms deployed a 5-year fund in 12 to 24 months during this period. Firms like these will likely need to own assets longer to grow out of the valuation multiple they paid. And some of those deals will not perform. Investors in those funds are waiting for monetizations to come back before they recommit. And some investors are telling those firms they will not be re-upping in their next fund. They are consolidating their relationships and doing more with fewer partners.

Happily for us, we learned the over deployment lesson nearly 20 years ago. We are deployed in 2006 and 2007, ahead of the financial crisis. and we were overconcentrated in our decade-plus old Asia II fund, and we changed how we invest as a result. Linear deployment, portfolio construction and macro and asset allocation expertise all came from these learnings. So we find ourselves in a great spot of not having too much exposure to 2021 and 2022, and we are generating differentiated performance and monetization. You can see that in our returns, and our fundraising results.

Stepping back, the last 15 years have been interesting. We had 10 years of low rates, low inflation and high multiples. It was during this period that we told the firm, do not confuse a [ bull ] market with [indiscernible]. Cycles and disruptive events happen, but they largely didn't during that 10-year period. Sure enough, that period was followed by COVID, inflation, rate increases, tariffs and war. So the last 5 years have been a far more volatile and interesting investment environment. We have been deploying steadily throughout all of it. As a result, we find ourselves in a happy situation where it is more clear to the people we work for, what is different about us, as there's more dispersion between our results and some others that do what we do. In short, we had to wait roughly 20 years for our learnings from before the financial crisis to show up fully in our relative results. That is now happening, which is why it can be the case that some private equity LPs are pulling back from some market participants, while we are raising record size private equity funds.

Second, on private credit. It is true the industry has grown a lot, in particular, direct lending. But let's put the direct lending market in context. $1.7 trillion compared to $145 trillion for the global fixed income market, a very small percentage. So any suggestion of systemic risk seems ill-informed. And that's before you get to the duration of capital and lack of deposit funding, low leverage and senior secured status in the capital structure.

Our base view is a credit of all kinds. We are talking both public and private has had low default rates for a long time. And we have seen defaults across both markets tick up somewhat. But from everything we are seeing, there's nothing alarming going on, just the beginning of a return to a more normal default environment. And as in private equity, in credit, we expect more dispersion across company, investment and manager performance. When you step back, our view is that forward credit fundamentals, both liquid and private, will remain attractive. And our clients feel the same way, which is why we are having a record credit fundraising year. So that's the backdrop on those 2 topics and how we view some of the noise you may be hearing.

As ever, for us, it is the signal, not the noise that matters. Our signals include record profitability over the last 12 months, over 15% annual growth in all of our key metrics, our second highest fundraising quarter ever, monetizations driving year-to-date realized carry up over 50%. And despite the monetizations, near-record unrealized carrying gains, indicating our portfolio, both equity and credit, is performing well. But the noise is bad and the facts are good. We will leave it to you to decide which to pay more attention to.

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

[Operator Instructions] Our first question is from Glenn Schorr with Evercore ISI.

I appreciate it. I think you answered the first 15 questions with your remarks. So that was helpful. Maybe we could -- a little like [ M&M ] and [ 8 mile ], but anyway. So I wonder if you get -- wrap up your international perspective, despite the comments that you came with on Asia II, like you said, III and IV PE are growing well. You're in the market for infra III Global IV in Asia. And then you made your comments about APAC insurance in Japan Post. So what I'm asking is, can you put that all in a bow, talk about investor demand for allocating outside the U.S. and at the same time, for demand inside Asia [indiscernible], how much can this add to the overall growth rate of KKR and differentiate your growth versus others?

Thanks for the question, Glenn. Look, I'd say investor demand for all things Asia continues to increase at a market space, especially over the course of this year, we have seen interest in Europe and Asia increased, but I'd say with a particular focus on Asia, and that's across all asset classes. I think for a while there, there was a dynamic where some investors would kind of complete China with Asia. And I'd say the education process has proceeded quite nicely, and there's a big and broad understanding now of the opportunities in markets like Japan, India, Korea, Southeast Asia, Australia is quite broad-based.

And as you know, we started our Asia platform in 2006 and now have 9 offices, over 600 people on the ground, 0 expats. So it's a very local presence. And now we've brought, in addition to private equity, infrastructure, real estate and credit. And increasingly, we're having insurance conversations as well to your comment. So we think we're extraordinarily well positioned, and we're seeing more origination opportunities on the ground and more penetration of all things private markets across Asia.

And I think for us, our AUM, just to give you a sense, in Asia, is now over $80 billion. I was going to give you a context, when we raised the Asia II fund, that number was [ 12 ]. So the business has grown incredibly rapidly over the course of the last 10, 12 years. And I think that's only gaining pace as we penetrate more of these markets.

In terms of what it can mean for us as a firm, we think Asia, on average, is going to grow faster than the rest of KKR. And we've said that just given the demographic tailwinds, given what we see in terms of the development of the capital markets, a lot of these markets remind us of the U.S. and Europe 20, 30, 40 years ago. And so we've been working to get ready for these markets to continue to grow and develop. So what we do becomes more and more relevant. So we feel very well positioned, very optimistic, and we're leaning into it.

Our next question comes from Bill Katz with TD Cowen.

Okay. Actually, I have 2, if I could squeeze it in. The first one on the insurance, and Rob, thank you for the expanded commentary. I think it would be interesting to see in your presentation, maybe what that mark-to-market pro forma look like so that the investment community could sort of track that along the way.

So my first question is, as you think about the ROE trajectory for the insurance business, what do you think is a normalized level, and when do you get there? And then relative to your guidance that you may or may not get to that $7 plus next year depending upon the monetization backdrop, what, if any, mitigants do you have on expense side to potentially soften the differential?

Yes. Thanks, Bill, for the question. Let me -- I'll take them in tandem. I'm going to bring you back to Page 20 of our earnings release, maybe as a starting point, Bill, because I really do think that's the best place to hang out as we're talking about how our insurance business is tracking. And what we're focused on is the [ $1.8 billion ] of LTM insurance economics. Our job there is to attractively scale those economics. And as we continue to lean into areas where we've got real competitive differentiation, whether that's our world-class investment platform, the global origination reach that we have and then especially our ability to really lean into third-party capital, we're excited on what that could translate to.

And then you referenced it, and we absolutely will be talking about this going forward. All of the economics on Page 20 are without giving benefit to the roughly $200 million of annual run rate accrued income that is not showing up in these numbers today. But if we do our jobs right, it will start hitting the P&L when the portfolio matures, that's likely probably going to start in 2027, 2028. And so I want to, of course, minimize the importance of our insurance operating earnings that are a critical component. But I think we've done a bit of a disservice spending the time we have on that one number without the context of what's going on around our broader insurance business or providing much detail around that accrued income that is building up in the business.

And as it relates to guidance, we definitely believe we can achieve the $7-plus of ANI next year, Bill. We were just making a comment and I think an appropriate one that it is going to be somewhat dependent on the monetization environment. Today, that monetization environment is constructive. You see that as it relates to our monetization guide, what we've been able to generate. We expect it to be constructive in 2026 as well. And so that was more of a comment.

But one thing as it relates to guidance and maybe even tying it back to the $200 million of annual accrued income and as we think about that topic in particular, that number is biased to go up materially in 2026 as we add more to our alts portfolio and get closer to industry average. So as we think about our '26 numbers, we've previously talked of $7-plus of total operating earnings. A couple of years ago, when we first talked about it, we did not expect a cash versus accrued impact to our numbers. And I know, of course, our investors and analysts are appropriately more focused on our FRE and ANI targets, but that's specifically why you didn't hear us refer to the '26 TOE target in our prepared remarks. It's just not a metric as relevant to '26 guidance given this dynamic. And so I don't think it's as appropriate to track on that basis. Really just want to be clear on that one point.

But I'll also be clear that as we think about that $7-plus of ANI next year, that includes the impact of how we're thinking about cash versus accrued on insurance, which is a real headwind there, and still think that we can achieve the $7-plus. And over time, we still expect TOE to represent 70-plus percent of our pretax earnings. So I know that was a mouthful, Bill, but hopefully answer both your questions.

Our next question comes from Alex Blostein with Goldman Sachs.

Just maybe building a little bit on that -- and sorry to make this about guidance, but just given the performance of the stock this year and investor focused on various metrics, I think it's worthwhile spending a minute on this. When you think about FRE, and you guys have a $450-plus target for 2026 as well, it might be helpful just to kind of go through the broader building blocks as you look through current fundraising dynamics, operating leverage opportunity. And anything else you feel is worthwhile addressing as you think about '26 FRE?

Thanks a lot for the question, Alex. It's a good one. Certainly, we're leaning into the plus on the [ $450 ], and it's in large part because of the component parts you referenced. And starting with management fees, which are going to be driven by fundraising. We have put out a $300-plus billion fundraising target between 2024 and 2026. We're tracking well ahead of our target there. We are north of 70-plus percent achieved on the target only 7 quarters into a 12-quarter target. So that feels like we're in a good position.

Our capital markets business, it's really generating significant outcomes. We think it's incredibly well positioned in an environment where deployment across our space increases, and we'd be biased to the upside on that for '26. You're starting to see our fee-related performance revenue scale in our business. We think the trajectory there [indiscernible] in '26, but beyond can be pretty material. And I think we've, as a management team, demonstrated a real ability to hold our operating costs well below our revenue growth, even as we pursue substantial scaling across the business. So when you add up all those component parts, that's a part of our P&L we feel really good about.

Our next question comes from Steven Chubak with Wolfe Research.

So I wanted to circle back to the insurance discussion and certainly appreciate the disclosure on Slide 20 and a lot of the additional contacts you offered, Rob, in your prepared remarks. As we think about the all-in ROE potential, I know you had talked about 20% plus or alluded to that in the past. As we look at the last 12 months under the new disclosure lens, ex unlocking it implies a return of about 18% to 19%, and that's before crediting various sources of upside, even putting aside the mark-to-market just from ongoing rotation of the GA general account, higher side car earnings, incremental contribution from capital markets. So I was hoping we could maybe anchor to what would be a reasonable all-in ROE once some of those benefits are reflected in the run rate.

Yes. Thanks for the question, Steven. And I think you answered a lot of the question for me in your question. So listen, no explicit target, other than we said we think over time that we should take our all-in return from that high teens to north of 20, and especially as you think about layering in all of those upsides.

And if you look at our insurance business today and the way it's positioned, I would say that the 2 biggest needle movers to our ability to generate outcomes over the next couple of years is going to be our alts portfolio starting to mature and generating cash outcomes relative to the accrued outcomes today as that catches up. And I think a big contributor over time is going to be third-party capital. Again, it's an area where, as a firm, we've got some real competitive advantages in the space versus the vast majority of insurance companies that are out there. $6 billion of dry powder, we think turns into $60-plus billion of fee-paying AUM, which should convert to some meaningful additional management fees for our platform. So those to me would be the 2 biggest drivers.

The third is, listen, we're in a, I would say, a competitive marketplace that is tight right now, and we all know that. There's a lot of competition for liabilities. There's a lot of competition on the asset side. Spreads are at really low rates. And we're able to generate these ROEs even in that kind of a competitive environment. But so as we're sitting here, that competitive environment will change over time, and the question is how are we positioned when things get more challenging.

And I would bring you back to a couple of things here. One is also our third-party capital. Think about it much like a private equity fund that we could draw down to invest into dislocation in the market. We could do the same thing here with our third-party capital. Most other insurance companies don't have the benefit of that. The other benefit in a world where the spreads go up materially in our space is that the return outcome is that attractive. We've got additional free cash flow across all of KKR that we could use to lean into that return environment. So I think those are just 2 things we think about in a world where we know the competition for assets and liabilities isn't always going to be like it is today. So how do we position ourselves to make sure we take advantage of that. And I think that, over time, will lead to more ROE as well.

Our next question comes from Brian Bedell with Deutsche Bank.

Great. Thanks for all the color on the slide presentation today. Really, really good in-depth in answering a lot of questions. Maybe just to zoom back to GA and Capital Markets and looking at Slide 20, I think in the footnote there, that is contribution for cap markets is net of FRE comp. I just want to confirm that. And then as you think about expanding the overall ROE past the 20% on the fee side, can you talk about that -- the expansion within the capital markets business from the GA side, what was that so far in '25 and how do you see that expanding in '26 and '27? Is that even a faster opportunity than the other parts of the fee-related business from the GA angle?

Yes. I didn't fully pick up the second piece of that, but let me just start with the KCM side, just to be clear on Slide 20, everything you're seeing on Slide 20, that's asset management related, and so that's going to be the IMA-related fees, management fees, that's going to be the Ivy side car-related fees and KCM are all net of the 17.5% comp load on the fee business. And you can see that reconciliation, I think, on Page 34 of our presentation.

We've talked about the opportunity here to be able to generate a very substantial capital markets business in tandem with Global Atlantic. We've got a peer that's done an incredibly good job and has provided a road map for what the art of the possible here is for us. And we really do think that the annual opportunity on the back of what we're doing in GA and on the origination side and the capabilities we've built out in distribution on the capital market side can be hundreds of millions of dollars of annual opportunity for us, and we think that's something that will materialize over the next couple of years.

Our next question comes from Ben Budish with Barclays Bank.

Maybe just a few kind of modeling details as we'll be getting a few questions on -- obviously, the big inflows in the credit space may be a little bit different from kind of the historical run rate. And then on the private equity side, it looks like the management fee rate -- I know there's been some catch-up fees in the past and other dynamics, but maybe just for those 2 segments, anything to call out maybe outside of catch-up fees that might be impacting the fee rate in this quarter? And how we should think about maybe the next couple of quarters?

Yes, sure. Let me hit on both of those questions and Scott or Craig can jump in with additional thoughts. First, as it relates to -- I would just say, the broader point on management fees, I think it's been a real bright spot here across KKR. And some of you have probably heard me say this before, but I don't think you're going to find another asset management company in the world that has the scale of management fees we do, the diversification of management fees and the growth profile of those management fees. We're up 19% year-on-year, 7% compared to last quarter. We do have some healthy catch-up fees in the quarter, principally in our real assets business. But even if you exclude those, we're still up 16% year-on-year in management fees. It's a pretty attractive number.

To your specific question, a more narrow question as it relates to PE, blended fee rate, there's always some puts and takes when you look at quarter-to-quarter fee rates. You're taking a quarter end fee-paying AUM number and also a management fee number earned over a 90-day period of time. But you're right, in Q3, we did have our Americas XII fund in private equity, have a step-down in fee rate. Now this is purely formulaic based on the age of the fund. But I think the bigger point and more important point here is that I don't think there's anything to read into as it relates to fee rates. I think the best example of that is if you look at the roughly $17.5 billion of capital we've raised so far in our North America XIV fund, and you compare that to the roughly $18.5 billion of capital that we raised for Americas XIII, our fee rates are pretty much on top of each other. If anything, Americas XIV is a smidge ahead of XIII, and so we're not seeing any kind of fee degradation there.

As it relates to credit business, we're really pleased, obviously, in the response from our clients, not just this quarter but over the course of the year, and we would continue to expect you to see a translation from the capital that we've raised on the credit side to the P&L over the coming quarters.

And Ben, it's Craig. Why don't I just give a little bit of color on the credit piece. And you're right, the $43 billion in Q3, second largest quarter for us ever. The $27 billion of credit liquid strategies, that is a record quarter for us. Of that $27 billion, Global Atlantic was about $15 billion of that, so a little over half. Of that $15 billion, over $6 billion of that came from FABN activity as well as the Japan Post strategic partnership capital. And I think on the FABN front, we've become a lot more creative honestly, in accessing these markets. If we look just over the last handful of months, we've issued FABNs in the U.S. [ east ], sterling, euro and Canadian dollar markets. So we've been very active in individual sales and institutional flow, at about [ 7 ] has been pretty equally split.

And so in addition to GA, I think the other piece is to note is in the private IG and third-party ABF part, again, as Rob noted in the prepared remarks, that number was at about $5 billion total AUM across the ABF franchise, now is $84 billion, that's up 12% just from last quarter, and it's up almost 30% on a year-over-year basis, a very strong growth. And as we've noted, on the private IG ABF mandates at 5 separate mandates in the quarter, 4 of which are with clients that are new to our credit business, and we've got a very strong pipeline on top of that. So you're correct. It was a very strong quarter for us.

Our next question comes from Michael Cyprys with Morgan Stanley.

I wanted to ask about the insurance business. I was just hoping you could elaborate a bit around how the changes you're making to the insurance business make you a better partner for insurance clients, how you'll be an even better partner for these clients and more clients over the next 3 to 5 years? And maybe you could elaborate on how these changes expand your competitive advantage?

Michael, it's Scott. I'll try to take that one. Look, I think we've always worked for insurance clients. If you go back even to the beginning of the firm, some of the first people that invested with KKR in the late '70s, early '80s were insurance companies. And then we spent many decades owning insurance companies and sitting on the Boards of those companies, more in the property and casualty space, primary and reinsurance.

But the comment really comes from the fact that when you're an agent working for an insurance company, you think you understand the job of the people that you work for. Now that we own an insurance company ourselves and manage the book, we have a much better appreciation for the complexity of the job. And so it comes from a couple of respects. One, we're sitting down with them as principles. We're talking to them about how they're investing in their book, how we're investing in ours. And it's not just theory, it's practice, and we're comparing notes. So we're able to sit down as true partners and talk to them about, that would be number one. It's just a different quality of dialogue.

Number two, when we're out originating transactions for our insurance business, we often like to have third parties alongside us. And so we're bringing them deal flow that is originated specifically for insurers and talking to them about how we're structuring it for our balance sheet and comparing notes on how it could work for theirs. It's a different dynamic than just taking a separate account and having some capital to manage. We do that as well. But we're finding that the engagement with insurance CIOs and CEOs is that it's just a different quality. And frankly, the intimacy of the discussion and the relationship is dramatically greater because we're talking all the time about deal flow and what we're seeing and how we're both navigating these markets and potential challenges.

And on the back of that, one of the concerns we had candidly when we bought Global Atlantic is how would our third-party insurance clients react? We were a little worried candidly about could there be a negative synergy. They say, okay, we're in the same business now. And what we're really pleased about is it's actually the opposite. We have seen -- guys took you through the numbers, the $25 billion is somewhere between [ $80 billion and $85 billion ] of third-party insurance AUM since we announced the Global Atlantic transaction. And that number just continues to grow and the pace of growth is actually increasing. So hopefully, that helps.

Our next question comes from John Barnidge with Piper Sandler.

My question is kind of focused on the life insurance business. We've seen a lot of life insurers with sizable asset management operations even, but some without, partnering with alternative asset managers in increasing fashion for product creation for retirement products, evergreen or [ interval ] funds. Is this an opportunity for enhancing your relationships and brought it out the tentacles which the organization touches within broader life insurance?

Thanks, John. No, it absolutely is an opportunity for us. And it has -- if you look at the growth that we've had in third-party insurers, life insurers has been a meaningful component of that, and it continues to scale in both life and property and casualty. And it's absolutely the case, especially now that we own 100% of Global Atlantic, and we're working across more of KKR's investing businesses. So we're talking about more infrastructure, real estate equity-type opportunities across the life insurer and P&C insurer space than we ever have before. And working with them on specific transactions, where some of these are quite sizable, that we want to partner or partners alongside of us.

The only thing I would add is this is not just a U.S. opportunity, right? So we're having these conversations with insurers in Europe and Asia as well, both on the life and P&C side. So it's an astute question. It's absolutely part of the reason that you're seeing our credit business, but also our other businesses accessing so much capital, insurance continues to be a growing component. And if you look at KKR in total, if you add up the numbers that I mentioned, we have somewhere between $290 billion and $300 billion now of our AUM from insurers, both Global Atlantic plus third parties.

Just one more thing to add on there, John, is that you're right, there's just so much more interconnectivity between us and our insurance clients today. We've actually formed now, one group at KKR, who just has oversight in being able to deliver the firm to our insurance clients, as one example. I'd also put reinsurance as a big opportunity to be able to provide to our life and annuity clients, and that is overseen by that same team that oversees the broader client relationship with insurance companies, to Scott's point, not just in the U.S., but really around the world.

Our next question comes from Patrick Davitt with Autonomous Research.

A lot of chatter on the "deal [indiscernible] breaking," and it certainly does seem like that's happening, at least from a deployment and IPO standpoint. The industry announced M&A data in the U.S. at least seems to still show fairly low strategic buyer activity for sponsor-backed companies even before the last 2 weeks volatility. So maybe it's just your point earlier on the bad vintages, but I would think there'd still be more. So from your perspective, what do you think is driving that disconnect? And in that vein, do you think there's something different about how the exit channel mix will track this cycle versus history? In other words, more reliant on the IPO channel versus strategic buyers?

Thank you, Patrick. I wouldn't overreact to some of the data. I mean from our seats -- and it could be just because we're so global, and we have more, maybe mature average private equity exposures, amongst others. We're having active dialogues with strategic buyers for our assets. We're definitely having dialogue with financial sponsors who are interested. To your point, the IPO market is the back open again. And we're also seeing opportunities for recaps and refis. So it's pretty broad-based in terms of what we're seeing. In terms of the broader market, I'm not sure I can give you much color, but from a KKR seat, the dialogue is broad.

Yes. I'm actually just going to add to that. I was just passed a note by the team that we expect another transaction to sign up today actually. And so I, in my prepared remarks today, I mentioned that we've got about $800 million of visibility, assuming that transaction gets signed up, that would take us from $800 million to roughly $1 billion of monetization visibility over the next couple of quarters. I don't believe we've had that type of visibility in one of these calls since Q4 of 2021. So listen, understand some of the data that's out there that has so far not been our experience. And we're expecting continued constructive environment here as firms and strategics look to put their dry powder to work.

Yes. The only thing I would add is for the prepared remarks, it is really hard to paint our whole industry with one brush. I think the 2 keywords are dispersion and bifurcation. So we -- our experience is quite a bit different than what we're reading in the headlines, I think that's the punchline.

Next question comes from Brian Mckenna with Citizens Bank.

Great. Of the $270 billion of carried interest eligible AUM that's above cost, maybe accrued and carry, what's the average multiple on invested capital for this AUM? And then is there a way to think about when the majority of this capital was invested on average?

Yes. Thanks, Brian. So we don't -- so we can pull and track down that data for you, we don't have it handy right now. But I would say, as you look across our platform, it's a pretty mature portfolio. So the multiple of money is going to be pretty healthy. And the way -- if you think broadly, the $17 billion of accrued gains that sit on our balance sheet and the $9 billion of unrealized carried interest, the way to think about that is it tends to expand over time, and you tend to get a little bit less of an uplift in the early years. So I think it would speak to sort of the maturity of that profile being a little longer than what you would think of sort of an average deployment period for us.

But your specific questions, as it relates to multiples and maturity, we can pull those over time and be able to provide those to our analysts and shareholder community.

And just -- Brian, to give you a couple of stats. I'd say, like, if I look at remaining fair value of the private equity portfolio, like the percentage of companies marked at 2-plus x is almost 30%. And like when you look broadly across the overall portfolio, back to some of the things we've talked about, linear deployment and deployment pacing, I think in our industry, we probably do benefit from a more mature portfolio and a portfolio that probably does have more meted gains in that portfolio relative to others.

Our next question comes from Craig Siegenthaler with Bank of America.

My question is on the capital markets business, and I appreciate some of the new color on the GA side and also the robust realization [indiscernible] you just provided. But it was a very strong quarter for transaction fees and some of what closed in 3Q was actually a function of 2Q activity given the delay, and Q2 was weighed down by the trade war and correction public equities, which is why there's [indiscernible] activity across the industry. So my question is, if I look at your 3Q results, $328 million a quarter for total transaction fees, $278 million for our Capital Markets segment, is that a solid baseline to grow off of into 2026, if we see M&A activity continue to be elevated? Or were there some lumpy items there?

Yes. Thanks for the question, Craig. And always tough to give specific guidance as it relates to our capital markets business. I'd tell you is we're really pleased with the trajectory of that business. I were actually, as a management team, really the most pleased with how that business performed in 2022 and 2023 when the capital markets were largely shut, and we were able to take the floor of revenue in that business up quite a bit. As you'll recall, we generated plus or minus $600 million of revenue in each of those 2 years. And as you saw the markets bounce back in 2024, we were close to $1 billion of fees. I don't think we'll quite get there. I know we won't quite get there as it relates to 2025, but another really attractive capital markets here.

So I do think that where we are, year-to-date, where we're at forecast through year-end gives a pretty good baseline for how you could think about growth from here. But we absolutely believe our capital markets business remains a real growth business for us. We think it will grow alongside everything we're doing at KKR is to act scales. We've got a very differentiated approach to third-party capital markets in an environment where mid-market PE starts to come back on the deployment side, which we believe it will. Over the course of the next 12, 18 months, we think we're incredibly well positioned to take share there. And then what we're doing alongside GA is just on top of everything else we're doing across KKR and with third-party clients.

And then just before -- we have no more questions in the queue, and thank you, everybody, for your time and interest in KKR.

Just one additional topic. We've received a lot of inbounds over the last couple of weeks just on some of the private credit names that have been in the news. And so just recognizing the questions we've received and the fact that we haven't had a public forum to respond, just wanted to let everybody know, to be clear that as a firm, we have no exposure to first brands, we have no exposure to tricolor or the couple of telecom names that were in the news last week. We don't own them, just to be clear, nor have we ever owned those names.

And again, just one other point on that, is a couple of those had reached out to our teams, one of those repeatedly, and they were turned down. And to be honest, they didn't check enough of our requirements to merit an initial screening. So just wanted to be clear on that point, recognizing the inbounds we've received.

Yes. Let me just pick up. I mean I think what's going on right now, everybody is like the market loves simple sound bites and a really tidy story. And candidly, when we read some of these headlines, it's clear many of us have PTSD from the financial crisis and are looking for, will it trigger the next one. Like where is the next boogeyman. But from our standpoint, this market and economy really don't provide a simple narrative like that. You just can't generalize. And as I said, it's dispersion and bifurcation. So between pandemic, wars, inflation, rising rates, tariffs over the last 5 years, there's obviously been a lot been thrown at all of us.

But from our standpoint, what we don't see talked about much is the fact that we've had kind of this rolling recession dynamic in the U.S., where some industries are already experiencing or have experienced their cycle. We've seen it in manufacturing. We're now seeing in building products, maybe parts of chemicals, parts of leisure. And the public markets are also obviously seeing dispersion, very different performance if you look by sector. And so that part of the narrative is not included when we kind of look at what's coming out in the media. But from our seats, it doesn't feel like last time. You can't paint it all with one brush. And that's not to say there isn't risk of excess and bad actors. But what we're taking comfort in is like air is periodically being led out of the balloon. And so we're just not seeing that uniform excess we saw before the GFC.

So as we said, to return to a more normal default environment, fundamentals away from the recession, the rolling recession areas are really solid. Our numbers, revenue and EBITDA continue to look really good. And so the job has stayed proactive in portfolio and risk management and focus critically on long-term funding, and we're going to find out who's good at investing through a cycle and a more dispersion heavy economic environment. So we wanted to make sure that you understood that perspective. We didn't get asked about it, but it is something we get asked about several days a week.

So with that, we really appreciate everybody having the patience to stick with us on this call. Appreciate your interest in our firm, and we'll talk to you along the way.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

All right. Good afternoon, everyone. Thanks for joining us for this next session. I'm Ben Budish. I cover the U.S. brokers, asset managers and exchanges here at Barclays for this next chat. From KKR, we've got CFO, Rob Lewin. Rob, thanks so much for being here.

Ben, thanks for having me and having the team. Great turnout today.

Before we dive into the details of some of the various parts of KKR, can you maybe level set for the group here, what are some of your key focuses for the firm? How is KKR -- how do you view the company as different from some of your peers?

Sure. So we've spent much of the past couple of decades really building out a business model very much on purpose that accentuates our core capabilities and our strengths. And so that's investing acumen at the top of the list. capital allocation, access to differentiated forms of culture. And then probably most importantly is the collaborative culture that we've created across the entire firm. We still pay everybody at KKR off of one compensation P&L.

And so if you look at our asset management business, now approaching $700 billion of assets under management, 49-year track record. Much of those core capabilities have been built up inside of our asset management franchise. And we have no aspiration to be all things to all people in asset management. So it's about taking those core capabilities and extending them to other parts of our firm. It's why we have an insurance business is why we have strategic holdings. As you think about our insurance footprint, Global Atlantic, we think best-in-class in sourcing long-dated and predictable liabilities with a risk management overlay.

From KKR's perspective, I think it's well understood that when you're sourcing liabilities, a great synergy is our investment platform. And I would take our global investment platform against anybody out there. But I think there's a number of other synergies where we're able to really leverage those core capabilities. I think the one that's maybe as impactful but less well understood is our access to distribution. Our IV funds and our recent strategic partnership upsized with Japan Post, really about third-party capital that pays asset management economics to Global Atlantic and really invest up and down the assets and liabilities of Global Atlantic. And we are accessing through our global distribution team in our asset management business, those same investors to invest in an insurance asset class. IV plus Japan Post, that latest iteration of funds is already north of 2x where we were in IV 2. There's additional synergy with our capital markets business, our geographic breadth. I'll come to that maybe a little bit later on in this discussion.

And then finally, strategic holdings. As we think about strategic holdings, it's an unconstrained addressable market, and it's an area where we are leveraging our global private equity footprint. We think we are the best private equity investor globally, sourcing investments, building companies. I would say our clients, our limited partners back that up and that we've got the most significant amount of AUM in direct private equity relative to any of our peers. And so an unconstrained addressable market in an area where we've got a real right to win organizationally. That's why we have strategic holdings as a part of our business plan. It is on top of everything that we are doing in asset management and insurance.

And the best part about this business model is we don't believe that in order to achieve long-term and perpetual growth that we need to add meaningfully to our number of people or the operating complexity inside of our business. So importantly, not only does it accentuate that core capability around our culture, it allows us to retain it. And that's why we're most excited about our business model. Of course, we think there's a lot of growth in what we're doing over the next 3 to 5 years. But just as importantly, more importantly, as we think about the next 10 or 15 years, we think we've got the business model that sets us up really well to go out and execute against.

Okay. Great. Maybe turning to a more zoomed-out macro question. Talk a bit about what you're seeing most recently in terms of realizations, transacting activity. Does it look like 2026 could be the year we've been waiting for? What are the key factors? What's the house view on rates and inflation? How are you thinking about all that?

Sure. I think the global macro backdrop is one that is clearly very constructive right now. Global equity markets are close to all-time highs. Fixed income spreads are really tight. Volatility indices remain at relatively low levels now for a multi-month period of time. Forward-looking metric I look at a lot is CLO formation, which is strong. And so you're starting to see naturally a buildup in the IPO calendar. You're seeing increased levels of secondaries, and you're seeing growing pipelines across sponsor-backed exits. I was actually having breakfast earlier this morning with a senior member of our sponsor coverage team. So this covers both sponsor clients from our private credit as well as capital markets businesses. And they're starting to see growing pipelines that are consistent with that.

And so we'll see what happens over the next few months, but we're pretty constructive looking into 2026 right now, Ben. And then you asked his views on inflation and interest rates. Consistent with some of our past commentary here. Organizationally, we expect inflation to continue to persist north of that 2% Fed target level. But at the same time, we do expect 2 interest rate cuts this year, 3 next year. Given some of the recent employment data, probably bias there is for increased cuts over time. And so not a market shift in how we're thinking about some of those core macro drivers.

Got it. Well, why don't we come back to private equity. So in your opening remarks, you sounded quite confident on KKR's franchise there. How would you describe current LP attitudes towards traditional PE? It seems like the whole industry for a few years have been struggling to raise and realize can KKR be an exception? And I'm also curious, and we've heard a lot of trends about things like GP consolidation. Anything you can share, any anecdotes that might -- things you might be observing on that kind of theme?

Sure. I think it is fair to say that our industry has struggled at returning capital to our collective clients over the past couple of years. I think one of the largest drivers around that is a level of overdeployment that our industry had in 2021 and 2022, early '22 when multiples were quite high. It hasn't allowed for some of those near-term exits that our industry has gotten used to. And I think one of the differentiators of KKR and you look at our private equity franchise, what's different about us is we've had a real focus on linear deployment of capital really since the financial crisis 15 years ago. And so relative to our industry, we well outdeployed our industry in 2020.

We underdeployed against the industry in 2021. Actually, our private equity deployment -- global private equity deployment in 2020 and 2021 were roughly equivalent to each other. I bet if you look at most industry participants, you would see a big multiple in 2021 and early '22 deployment relative to 2020. That's not the case with us. And I think that's one of the big reasons why we've outperformed from a returns perspective. And importantly, we've returned from a capital -- outperformed rather, from a capital return and DPI perspective. If you look at our Americas private equity franchise, over the past 8 years, we have distributed twice as much capital as we've called. And in each of those 8 years, we have returned at least as much capital as we've called in any given year.

Given that, that's been a growing business for us, I think that further highlights the point. And you see our Americas XII fund, our most mature recent fund, has a gross IRR north of 20% today, attractive DPI metrics. I think that's all translated to the fundraising success that you're seeing across our private equity franchise, our most recent Americas Private Equity Fund, 14, currently at $16 billion of capital as of June 30. Our last fund was roughly $18 billion, so a lot of good momentum there. And I think that capital raising has really underpinned some of the successes we've had in capital raising across all of KKR over the past couple of years.

Lastly, Ben, you had asked on GP consolidation. I'm personally not a big proponent of GP consolidation or I think you're going to see a ton of GP consolidation, at least on the inorganic side. From KKR's perspective, we have a really high bar in how we think about inorganic growth in the asset management space. From our perspective, we really look for businesses that have differentiated forms of capital, capital that might elongate our capital base, certainly diversify it, capabilities that can source across our platform, including Global Atlantic, including C-Series. So I don't expect a lot of GP consolidation in the inorganic sense. That said, I do think in this next wave of capital return to clients and capital raising, you're going to see a number of GPs that are going to shrink in size and some materially so. And given that they've got relatively high fixed cost basis, you could see some of those firms go away altogether.

And so I think organically, you're going to see a fair bit of GP consolidation over the next 5 years. And that should inure to the bigger players and certainly the players who have been able to deliver on behalf of their clients, and we feel well positioned there.

Sticking on the PE side, can you maybe talk about deployment opportunities? Where are you seeing the most interesting opportunities to deploy in traditional private equity these days?

We've had a healthy amount of deployment over the past 12 months in global private equity across everything we do, roughly $16 billion of capital. We've been particularly active internationally outside of the U.S. And as a reminder, roughly 50% of our investment professionals sit outside of the U.S. We've been quite constructive in Europe over the past 12 months, pockets of areas in Asia, we've really leaned into. The two I'd highlight are Japan and India for very different reasons. Of course, Japan is coming out of a multi-decade deflationary environment. I think we're really well positioned on the ground there. And India, we're a big believer in the multi-decade growth that the economy will benefit from a rising middle class. No doubt you'll have a lot of volatility over that period of time, but we think that volatility can create some interesting investment opportunities for us.

Great. And you kind of answered my next question on the opportunities in Asia. Is there anything else to add that was going to be the next one?

I think if it's okay, Ben, I think spending a bit of time on our Asia platform is worthwhile. Today, in Asia, we have roughly $80 billion of assets under management, and we are the leading alts player by some margin in that part of the world. 5, 6 years ago, that number was closer to $20 billion. And of that $20 billion, 90% was private equity. Of our $80 billion of capital today, less than 50% comes from private equity. So while our private equity business has doubled over that time period, our business in Asia Pac has diversified quite a bit as we scaled infrastructure, real estate and credit. We've been on the ground there since 2005.

We've got very large, deep and local teams across 8 geographies in Asia Pac. And as we think about that opportunity over the next decade, we believe more than half of global GDP growth is going to come from that part of the world. secularly, adoption to alternatives is still well behind in Asia versus Western markets. And so we can see some shift change there as well. And our market position in that part of the world, I think, really does differentiate us. There's some real barriers to entry from what we've built up over the past approximately 20 years.

Great. Maybe now switching gears to infrastructure real quick. So that is your other significant flagship fund in the market. Maybe talk about how LPs are currently thinking about allocations to this asset class? What might that mean for the ultimate level of fundraising for the fund in the market? How do kind of deployment opportunities play into this? Does that sort of expand the TAM or the appetite from LPs even further?

Yes, I think it for sure does. If you look at our infrastructure business zooming out for a second, roughly $90 billion of AUM. I'm going to do another comparison relative to where that was. So 5 years ago, that business was $15 billion of AUM, so $15 billion to $90 billion, all organic. So 5, 6 years ago, we had, I think, a great team built out in infrastructure, still more of maybe an upstart competitor in a lot of ways. Today, you look at our global infrastructure franchise, I think we're regarded fairly so as amongst the real leaders in infrastructure investing globally. Steve mentioned our flagship capital raise, where there's really good momentum. But it's more than just that, our diversified core infrastructure strategy, now roughly $13 billion of AUM. We've got quite a bit of momentum in our K-Series vehicles that are infrastructure related.

And our Asia infrastructure business, I referenced just a minute ago, on its third capital raise for that strategy. And that's an area, and we've talked about this in the past, given the amount of infrastructure investment that's required in that part of the world and our leading franchise in Asia infrastructure investing, we've got quite a bit of optimism about what that business can be both from a client interaction perspective at KKR and then what it can mean for our shareholders. And a lot get made, you mentioned these flagship capital raises and the word flagship gets thrown around quite a bit. We've said our job is to really proliferate the number of funds we have at KKR that are "flagships". And I think Asia infrastructure soon can be in that category.

Great. Maybe moving over to credit now. So you recently closed on a $6.5 billion ABF fund, which is your largest in credit. Where do you see the next leg of near-term growth in the broader credit business coming from? Is it scaling this franchise? You've got a nontraded BDC in the market? Like how do you think about that growth vector?

So our credit business is roughly $260 billion of AUM today. It's our largest business by AUM. And ABF, the asset-based finance part of that business is roughly $75 billion. And our asset-based finance business operates today in an addressable market that we think is plus or minus $5 trillion in size, growing to $8 trillion to $9 trillion over time. And much of the addressable market still today sits on regional bank balance sheets. And so a big opportunity, I think, for our industry from a share perspective is shifting allocation of dollars from regional bank balance sheets over time to the alternative asset management space.

And I think the biggest reason for that shift that you'll see, and this is not all going to happen at once, of course, is that our industry has a core competency in creating long-dated liabilities, whether that's long-dated fund structures, permanent capital vehicles like BDCs, long-dated insurance liabilities. And much like you would have seen in direct lending over the past 10 years, it's that duration of capital that's a real competitive advantage, especially when much of the capital you're competing against is really coming from on-demand liabilities in bank deposits.

And so over time, I think there's a real opportunity for our industry to take increased share. And I think given our leading platform today, our 18 origination platforms that we benefit from across the globe, we're really well situated from an industry perspective to participate in that share growth. So that would be one that I would highlight. We are raising capital today around opportunistic credit, direct lending, junior capital opportunities related credit investing down the capital structure.

This year is shaping up either close to a record capital raising year for us in credit or will be a record capital raising year for us in credit. So a lot of momentum in this part of our business, both from a returns perspective and then capital formation on top of that.

We touched on a bunch of the different segments of your asset management business. Maybe thinking more broadly about deployment, the tactical timing of the back half of the year. I mean, how are things shaking as we're going into the next couple of quarters? Curious about your capital markets fees. I think on your last update on your earnings call, you said the back half should look flattish with upside from constructive markets. How are things trending so far? Is there any update you can share there?

If you look at the first half in capital markets, we generated $430 million of fee revenue. I think there are some interesting stats that are worth sharing on that $430 million. Just under 30% of that revenue, respectively, came from each of our private equity and infrastructure businesses. On top of that, an additional 20% came from our third-party capital markets business. So pretty well diversified from an origination perspective. And I think that's part of the reason why you zoom out our Capital Markets business, why we have, I would say, increased the floor in what that business is able to generate. If you look at 2022 and 2023, for much of those 2 years, the equity and debt capital markets were largely closed. And our Capital Markets business generated plus or minus $600 million of revenue in each of those 2 years. Now it wasn't that long ago, and you've known us for a while, where in a really good year, we were generating $600 million of fees in that business.

Then fast forward to 2024, the markets were more open and our business really did capitalize on that, generating approximately $1 billion of revenue. And I think we've shown we were able to protect the P&L in down markets and be able to capitalize in up markets. Now when I look at 2025, I don't think we're going to quite get to 2024 levels from a revenue perspective, but we continue to be quite constructive on this business. And importantly, we really think we can grow this business over the next 3 to 5 years. As KKR does more around the world, our capital markets business is poised to capitalize on that. I believe there's an opportunity for us to take increased share in our third-party capital markets business where we've got, I believe, a really differentiated model and offering to the market.

And we've talked about in some of these settings before, the opportunity and the synergy between Global Atlantic and our Capital Markets business. where we're just getting going on that. And I've talked about the opportunity here being in the hundreds of millions of dollars from a fee perspective. So a lot of opportunity for us to continue to grow this franchise over time. by nature, it will have some lumpiness to it. But really, as we evaluate performance, it's over that multiyear period of time. And as we look back over the past 3, 3.5 years, we're quite proud of what we've been able to generate given in the different market cycles that, that business has faced.

Great. Maybe moving on to your wealth business. So maybe just to start, can you give us a little bit of an overview of the current product suite where are you focused on building out distribution, where is there room for additional product innovation?

So there's really two parts of our wealth franchise today or Wealth Franchise that I think you're referring to. And so there's our C-suite, vehicles and products where today, I would say there's a predominant focus on the credit investor on up. And we've got large vehicles and products and companies up and running across our 4 major investing verticals. So it's private equity, infrastructure, real estate and credit. In fact, in credit, we've got 2 separate vehicles.

We have a nontraded BDC, and we're in the process of converting an opportunities fund into an asset-based finance product that we're quite excited about, given some of the secular dynamics that I referenced a few minutes ago. Quite a bit of momentum in K Suite. So far, we're tracking ahead of what our expectations have been for this part of our business. As of September 1 closing, so 8 months into the year, we've generated just about $10 billion of capital raised. So that's right around $1.25 billion per month across our C-suite. If you look back at the first 8 months of 2024, that number was closer to $800 million a month. And so a 50-plus percent increase in capital raising year-on-year. We continue to believe that this channel will have real adoption over the next several years. And while our focus isn't month-to-month or year-to-year, capital raising in this business, it really is not -- we are pleased by the receptivity.

And so far, we've been able to deliver from a returns perspective to this new client base and think that the opportunity over the next 5, 7, 10 years is one where we can really differentiate ourselves further differentiate ourselves on the performance side and build a business here that we're really proud of. Sorry. That was the first part of our Wealth Business.

I'd be remiss if I didn't talk about the second part of our wealth business that we're building out, which is really our partnership with the Capital Group, where we are exclusive partners to each other on building private and public hybrid solutions for clients and benefit from capital groups really leading position around distribution through to the financial adviser community. We, today, have 2 products on offer in the credit space. We have a public private equity hybrid product, that is currently under registration and have talked about potentially creating a real asset product over time as well. And so we're in the earliest days of that partnership but we think that, that can be additional addressable market that today, C-Suite really doesn't attract and doing so with a really first-class partner in the capital group.

Maybe one final question on the retail side. One of the questions we get asked quite often is, how do you manage the conflict between retail fundraising, which needs to be invested immediately and is earning fees immediately versus institutional capital, which can be patient, but doesn't always generate fees right away. How do you think about managing those 2 sides and that sort of kind of inherent conflict at times?

Yes, I'm really glad you asked this question. And we spent a lot of time on product construction here. And so I'd say, if you look at our private equity and infrastructure, vehicles, we spent over 2 years with those products in the lab. And one of the really important things for us from the earliest of days was to make sure that our institutional vehicles and our wealth vehicles, we're really investing in the same deals. What we didn't want to have happen and we structured accordingly was for one investor group to be well overweighted in a transaction versus the other. And so unlike what some of our peers are structured that relies more on greenfield investing relies on large co-investing, we're investing largely pari passu between institutional and retail and wealth.

And I think that, that's a really important differentiator. I think that really, as we think about some of the reputational risks in the space as we think about managing complex I think how we've structured these vehicles, these funds is really important to keep in mind as you think about the question that you asked. And that's one that we spent organizationally a really long time talking about and focused on making sure we can come up with as best the structure we can to mitigate that risk that you highlighted.

Got it. Okay. Maybe moving to Global Atlantic. So you've owned 100% of that business for a few years now. And maybe just to start, can you talk about the changes you've made since you've owned the entirety of the business, how things have evolved in the last few years or so?

So when you have roughly 40% of the business owned by co-investors, a really important quarter-to-quarter measure of performance is book value. And I believe book value and book value per share in the insurance business over a multiyear period of time is a really important metric. But quarter-to-quarter, given what could move around on an insurance company balance sheet it is a less relevant metric. And so we've refocused really how we think about the business and driving profitability. So what have we done? Number one, we really turned on the full KKR organization for the opportunity at Global Atlantic. And as I said, Global Atlantic is great at sourcing, long-dated, predictable liabilities, great risk management overlay to that.

And one area where we've changed approach is that we are now focused on longer duration liabilities. And in turn, increasing our exposure to alternatives on the asset side of the balance sheet. Interestingly, and I think this surprised a lot of people when they hear for the first time about a year ago, Global Atlantic had 0 private equity allocation on its balance sheet. If you look at the vast majority of insurance companies, the world mutuals, many of which are KKR private equity clients, but Global Atlantic was not. And so today, we have roughly 1% allocation to alternatives, industry average is closer to 5% to 8%. And you should expect us, as we elongate our liabilities to shift our asset exposure up closer to industry average.

Some of the changes we've made today, the co-CIOs the Global Atlantic balance sheet are long-time KKR partners, really enabling us to be able to get the most out of our investing platform. We've fully turned on, as I talked about distribution for third-party capital. When you own 63% of the profitability of a business, it's really hard to fully turn on a $100 organizational cost, which is our distribution. Now that we own 100% of Global Atlantic there really isn't anything to think about. And so we fully turned on distribution. That's another, I would say, change, and you've seen that play through as it relates to the momentum we have on our capital raising efforts. And so those would be some of the changes that you would have seen since 100% ownership.

We feel really good about the trajectory of the business and importantly, how we're setting ourselves up over the course of the next several years to be a real leading player in what we believe to be a growing marketplace over that period of time.

And maybe can you talk about what you're seeing currently? How would you describe the current environment for retail annuities. We've heard from some of your competitors about increasing competition, narrowing market-wide spreads, weighing on yields. How -- what are you seeing from your [indiscernible]?

Yes. I don't think it's a surprise in this kind of a market environment that you're seeing increased levels of competition. It's part of the reason, not the most significant reason. But it's part of the reason why we're focused on more long-duration liabilities on the margin, we see less competition there than we do in some of the short-dated liabilities. But from our perspective, it's not -- we don't just look at one period of time. And today, we still operate at a level where we're able to achieve our cost of capital hurdles for that business, even with that intensified competition, even with where fixed income spreads are.

But sure as we're sitting here, there will be moments in time in the insurance business when volatility levels are up, and in turn, insurance companies are going to want to deploy less capital in those kind of environments. So there will be less competition on the liability side, which is at the very same period of time where definitionally spreads on the asset side are increasing. And so how have we set ourselves up. Well, third-party capital is going to be a big part of our model in that kind of environment. Just like in a private equity context where we could draw down a private equity fund to be able to invest into dislocation. We have the ability to draw down our third-party capital, our IV funds as an example, to be able to invest into dislocation.

The other competitive advantage that KKR would have, I think, relative to the industry in that kind of environment, is we have free cash flow KKR that sits outside of our insurance business. And if the market opportunity is so meaningful, we've got the ability to redirect capital to be able to capitalize on that market opportunity. I think unlike what most insurance companies will be able to do at that point in time. So I think as we evaluate how we've situated ourselves in our insurance business, it's very much how do we think we're going to perform through a cycle. Yes, you've highlighted that we're at a point in the cycle today where there's more competition on the liability side.

And on the asset side, there's a lot more competition, too, broadly speaking, given where spreads are.

Maybe putting that all together, just from a P&L perspective, so I think your current guidance calls for a continued kind of flattish near-term outlook for insurance operating earnings despite ongoing growth in the asset base. How should investors think about the cadence of the timing of the inflection here, given your plans to elongate the liability profile, what should we expect in terms of when you might get back to like a mid-teens reported pretax ROE?

And so what we've said, to be clear, is we think that I believe for the next handful of quarters that we would expect operating earnings to be flattish, plus or minus in the business. And I think there's a couple of reasons for that. Number one, and I think the largest driver here is as we think about increasing our alternatives portfolio, we cash account for that alternative portfolio. A lot of the market participants, I think is worth noting mark-to-market. I'm not saying there's a right or wrong answer, but for us, we believe cash accounting is the right answer and consistent with how we think about ANI across all of KKR.

And so as we're ramping our alternatives portfolio, much of what we're doing in alternatives, actually from a P&L perspective today loses money. Because the ongoing yield is less than the cost of liabilities that we're writing. And what we're making and one that we're really confident in executing in is that we are creating a lot of embedded profitability through accrued gains in our alternatives book that will materialize over time. And so a fair bit of what's going on here is more accounting in nature. I think it would look different if we mark-to-market versus cash accounting as an example. But our belief, and I think if you followed us for a long period of time, I think you would know that we are always going to choose long-term outcomes relative to short-term outcomes.

And I'd say there's nothing different here then as we think about insurance. And maybe the last point here is as we're talking about profitability and what we generate in insurance is obviously material and meaningful to KKR as a firm. But I was sitting down with Craig and his team on our IR site last week. And it's worth noting that even with that flattish expectation in insurance, our 2026 consensus growth numbers are industry-leading across our peer set. And so it's a piece of the earnings equation but one piece of our earnings equation as opposed to the predominant one.

I have two final questions. I want to make sure we get to them both, so I'll ask them both here. So first, in addition to Global Atlantic, strategic holdings is the other sort of newest line item at KKR, you talked about this at your last Investor Day, being the sort of solution to solving the longer-term problem of compounding in financial services. So maybe can you give us an update here talk about your current level of conviction?

And then the final question, I just want to make sure I get it as well, but just putting it all together, there's a number of sort of medium-term targets you've laid out, fundraising from '24 to '26, 2026 FRE and NTE per share. How are you feeling at the moment about those targets?

Okay. So I'll start on your first question. What we're building out in strategic holdings is really on top of everything we're doing in asset management insurance that we talked about. And it really leverages that core capability around capital allocation, around investing acumen and building businesses, our collaborative culture. And so today, in strategic holdings, we own roughly a 20% stake, direct stake in just under 20 businesses. In aggregate, those businesses on our 20% ownership stake drive approximately $4.1 billion of revenue and $1 billion of EBITDA, so quite sizable in its own right.

And what we've articulated to our investors is we believe that strategic holdings will generate cash operating earnings north of $350 million next year, growing to $1.1-plus billion by 2030. And so we're well on our way to being able to accomplish that. We've got a lot of confidence in what we're building. Importantly, there are no people that sit in our strategic holdings segment. So it's very culturally friendly to what we're building across the organization should add to our broader operating leverage as well. And so we're really excited about what this means as an additional growth factor to the firm.

One of the questions I get often actually, a little less often these days is the strategic holding add increased risk to your firm. And my response to that is I think it's just the opposite. If we're able to achieve $1.1-plus billion of operating earnings by 2030, and we've got a lot of conviction as a management team that we're going to be able to do that. And at the extreme, everybody left KKR on January 1, 2031. We still have that $1.1 billion of operating earnings. I don't think you can say that across any of our peers.

And so from our standpoint, it's both a real growth factor and something that reduces risk in our franchise as opposed to add to risk. And I think sometimes people conflate financial services and capital allocation to one that can add risk, we think it's quite the opposite. And then, Ben, your last question as it relates to some of our guidance, we've got a lot of momentum on the capital raising side, $110 billion of capital raised in the last 12 months, $220 billion the last 2 years. We feel really well situated across our target of $300-plus billion of capital raising from 2024 through to 2026.

And then we had put out some targets as it relates to FRE and ANI per share $4.50-plus per share, $7 to $8 of ANI. And on our last earnings call, we had reaffirmed the guidance for both of those measures and have consistent feedback as it relates to our confidence in continuing to be able to achieve those numbers today.

Great. Well, we're just about out of time. But Rob, thank you so much for the pleasure to have you.

Great. Thank you all. Thank you, Ben.

Ladies and gentlemen, thank you for standing by. Welcome to KKR's Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I will now hand the call over to Craig Larson, Partner and Head of Investor Relations for KKR. Craig, please go ahead.

Thank you, operator. Good morning, everyone. Welcome to our second quarter 2020 earnings call. This morning, as usual, I'm joined by Rob Lewin, our Chief Financial Officer; as well as 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. 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, so please refer to our earnings release as well as our SEC filings for cautionary factors about these statements.

So first, beginning with our results that we've just announced for the second quarter. We're pleased to be reporting fee-related earnings of $0.98 per share. Total operating earnings of $1.33 per share and adjusted net income of $1.18 per share. All of these figures are among the highest we've reported in our history as a public company. Now going into more detail. Management fees in the quarter were $996 million with Americas 14 turning on in Q2, alongside of our broader fundraising initiatives and continued deployment, management fees in total are up 18% on a year-over-year basis. Total transaction and monitoring fees were $234 million in the quarter.

Capital Markets transaction fees were $200 million, driven by activity with infrastructure and private equity with just over half of capital markets fees this quarter coming from our activities in Europe. Fee-related performance revenues in the quarter were $54 million. That figure is up 45% year-over-year with the growth here driven by the performance allocation from our offshore infrastructure K-Series vehicle. Fee-related compensation was again right at the midpoint of our guided range, which as a reminder, is 17.5%. Other operating expenses for the quarter came in at $172 million.

So in total, FRE was $887 million or the $0.98 per share that I mentioned a moment ago, and our FRE margin came in at 69%. Looking at fee related earnings, more broadly for a moment and the results you've seen over the last 12 months, driven by healthy management fee growth and a strengthening in our capital markets activities, alongside of operating leverage, FRE per share increased 33% for the 12-month period ended June 30, '25 compared to June 30, '24. And with a 360 basis point improvement in our FRE margin. Now back to the quarter. Insurance segment operating earnings came in at $278 million, so modestly ahead of the 250 plus/minus level we discussed last quarter which is where we continue to expect to see insurance operating earnings over the next few quarters.

And remember that this line item alone does not capture how our model works and all of our insurance-related economics, recognizing the economics that show up within our Asset Management segment. So when you include the management fees from the approximately $50 billion of AUM from our IV side car and co-invest vehicles, Capital markets fees also associated with Global Atlantic as well as the management fees from our investment management agreement with GA, our all-in pretax ROE continues to approach that 20% level.

Strategic Holdings operating earnings were $29 million -- so total operating earnings, which again represents the more recurring components of our earnings streams were $1.33 per share. And over the last 12 months, nearly 80% of of our segment earnings were driven by our more recurring earnings streams, demonstrating in our view, the durability that you're seeing across our business model. Turning to investing earnings. Realized performance income was $419 million and realized investment income was $154 million. These earnings were driven by a combination of public secondary sales and private transactions, as well as K-Prime's annual crystallization alongside with dividends and interest income.

And finally, turning to investment performance on Page 10 of our earnings release. Broadly, when you look at the statistics on the page, you're seeing healthy investment performance on behalf of our clients across asset classes during periods of time with uncertainty alongside a real spikes in volatility. Looking at the statistics themselves. The private equity portfolio was up 5% in the quarter and 13% over the last 12 months within Real Assets, the opportunistic real estate portfolio was up 3% in the quarter and 7% over the LTM, Infrastructure, up 3% in the quarter and appreciated 14% over the last 12 months.

In credit. The leverage credit composite was up 2% in the quarter and up 7% over the last 12 months with the alternative credit composite up 1% and 9%, respectively, over those same periods. And with that, I'm pleased to turn the call over to Rob.

Thanks a lot, Craig, and thanks to everyone for joining our call this morning. As Craig just walked through, our model continues to deliver consistent results. I'd like to begin by highlighting our deployment and monetization activity, which demonstrates the strength of our global and diversified platform. KKR has been around now for 49 years and has navigated a range of macroeconomic backdrops over those 5 decades. We understand that volatility and uncertainty create opportunity and have positioned our firm to ensure that we are maximizing that opportunity on behalf of our clients.

We build portfolios for the very long term. And when you invest in companies and assets for 5- to 10-plus-year horizons, you need to be thoughtful about the -- excuse me, you need to be thoughtful about how the world is going to evolve. And we have found it less important to try and time the market. It is why we are so disciplined in linear deployment and creating outperformance through our approach to value creation at the asset level. Since the start of the year, we've deployed nearly $37 billion of capital with around half of that deployed in the second quarter.

Within private markets, nearly 50% of our year-to-date activity has been outside of the U.S., and we've been balanced in deploying capital across traditional private equity growth equity, infrastructure and real estate. In credit, we've deployed $18 billion of alternative capital since January, diversified largely across direct lending and asset-based finance. ABF in particular, is an area where we continue to see a lot of growth opportunity, which I'll touch on in a bit more detail in a few minutes.

Importantly, there remains a healthy pipeline for deployment in the second half of 2025, and we feel well positioned with $115 billion of uncalled capital. As a result of this consistent approach to investing, we also have a mature portfolio that we can monetize opportunistically. Over the last 12 months, realized performance and investment income totaled $2.6 billion. That number is up over 20% from the same period a year ago. Even with that healthy momentum on monetizations, our unrealized carried interest across our global portfolio today stands at a record $9.2 billion. And that number is up roughly 30% from $7.1 billion just 12 months ago.

Looking at our private equity portfolio specifically. Approximately 60% is marked at over 1.5x our cost. And on average, our public names are marked at over 5x our cost. So our portfolio is in very good shape. And ultimately, that is the most important indicator of future monetizations. I would say that it is really our global footprint that is a large driver of the continued deployment and monetization activity that we are seeing across the firm. As an example, we've seen robust activity out of Asia recently where we have 9 offices, nearly 600 executives and manage over $75 billion of assets.

Over the past 20 years, we've built a very large localized business, and we've grown and diversified. Today, traditional private equity comprises less than half of our Asia AUM. That's compared to approximately 90% in 2019. Just to give you a sense of our activity here, we recently signed a definitive agreement to exit an investment in a pharmaceutical company in India, closed on our previously announced exits of a telecom tower company in the Philippines and a grocery store chain in Japan. Invested in a leading agricultural infrastructure business in Australia and a new financial services platform in Singapore and established a battery energy storage joint venture in Korea.

As you can hear, we got a lot going on across Asia and really continue to be at the forefront of activity in the region. To close out my remarks this morning on monetization. If you take a look at our pending monetization as we head into the second half of 2025, so transactions that are signed but not yet closed. We have direct line of sight to north of $800 million of monetization-related revenue the vast majority of which will be performance income. This is a healthy figure for us and consistent with the overall health of our portfolio.

Now turning to the fundraising environment and a few other notable items for the quarter. In Q2, we raised $28 billion of capital and continue to see meaningful progress across asset classes. We held a final close in the second vintage of our asset-based finance drawdown fund and parallel separately managed accounts, with a total of $6.5 billion in commitments. This is more than triple the $2.1 billion predecessor pool of capital. The composition of investors in the fund is encouraging with approximately 50% of limited partners new to the KKR Credit platform and commitments are roughly evenly split across clients from the U.S., Europe and Asia.

More broadly, our ABF business continues to see meaningful growth with AUM increasing over 20% from this time last year to $75 billion. We see ABF as a $6 trillion addressable market today, increasing to over $9 trillion over the next 4 years. The alternative credit ecosystem overall, including not only ABF, but also direct lending and capital solutions is now larger than the traditional high-yield and leveraged loan markets combined. So ABF is a growing market with secular tailwinds for our industry, and we believe that we are already a leader in the space today.

In real assets, we've begun raising capital for our Asia infrastructure strategy. And as we think about demand, we feel encouraged by our historical success in this asset class and the differentiated investment returns that we've been able to achieve as well as the depth of our [ panacea ] presence and breadth of our global connectivity. Turning to wealth. K-Series AUM was $25 billion across private equity, infrastructure, real estate and credit as of June 30. That figure compares to $11 billion just a year ago.

We've been really pleased here to see inflows continue to track at or ahead of our expectations despite the market volatility that we've experienced year-to-date. As you know, in April, we launched 2 public private solutions through our strategic partnership with Capital Group, making the KKR platform available to an even broader universe of clients. Our continued momentum is earmarked most recently with the filing of a registration statement with the SEC for a public private equity product, which on the private side, will be investing in a K-Series private equity vehicle as well as PE co-invest opportunities.

And looking ahead, we continue to work on a real asset product. We feel great about our partnership with Capital Group and believe that there is more to do together as partners. Next, I'd like to give a brief update on our insurance business. First, with a focus on elongating and further diversifying our liabilities. Over the last 4 months, we successfully issued approximately $2.5 billion of funding agreements with a weighted average duration of 8 years through separate transactions in the U.S., Europe, Japan and Canada.

We believe the local currency liability funding will also help support asset origination outside of the U.S. And you should expect us to continue to be active here with a real focus on the longer duration parts of the FABN market. Alongside of this, we continue to make very good progress on the addition of alternatives to the portfolio where we believe that we have a differentiated sourcing advantage as a firm. We expect these changes will ultimately drive up overall returns, while at the same time, naturally reducing our leverage profile.

And second, an update on third-party capital, which is a critical component of our strategy at Global Atlantic. Earlier this week, Japan Post Insurance announced that it would invest $2 billion through a new vehicle managed by Global Atlantic, expanding our existing strategic partnership. As we have talked about since our initial purchase of Global Atlantic, our ability to marry third-party capital alongside the GA balance sheet is a real differentiator for us. Our IV sidecar vehicles, which pay fee and carry similar to a drawdown credit or PE fund, allow us to grow GA in a very capital-efficient way.

More specific to the Japan Post commitment. This is another milestone in that effort. And when you aggregate the JPI commitment and where we stand on our IV strategy capital raise, we currently have approximately $6 billion of third-party capital capacity versus IV 2, which was at $2.7 billion. Once this new capital is put to work, we expect it will translate to over $60 billion of additional fee-paying AUM. So we are seeing significant momentum and an important part of our strategy and are pleased by the receptivity of our client base to insurance as a new and compelling asset class.

The last item I wanted to touch on is more of a strategic update. Yesterday, we announced an expansion of our life sciences footprint through the acquisition of a majority stake in HealthCare Royalty Partners or HCR, a leader in biopharma royalty investing. The company's total AUM of approximately $3 billion is largely perpetual in nature. As part of this transaction, HCR's approximately 30 employees will continue to focus on royalties and credit investing opportunities and we'll collaborate closely with KKR's existing teams.

HCR builds on KKR's long-standing experience in health care investing across traditional private equity and middle market funds. Our dedicated health care strategic growth strategy as well as our existing strategic investment in Catalio Capital. This acquisition is also very consistent with our framework for evaluating strategic asset manager M&A. HDR brings us long duration, unique and largely perpetual capital, access to large addressable markets where HCR is already a top 3 player.

And importantly, we believe that HCR will bring additional origination capacity to our overall platform, primarily across Global Atlantic and our credit pools of capital. Thank you all for joining our call this morning. Our team remains very excited around the business momentum that we are seeing across the firm. And importantly, how that will translate into further P&L outcomes. And to be clear, given all of this momentum, we continue to feel confident in our ability to achieve the 2026 guidance that we shared last year across both our fundraising and our core financial metrics which include FRE per share, TOE per share and, of course, ANI per share.

And now before we move on to questions, I'd like to briefly hand it off to Scott.

Thank you, Rob. Before we start today, we want to acknowledge the tragic events of earlier this week. We all have a lot of friends at Blackstone and a number of people here were friends with Wesley. Our hearts and thoughts are with all of the victims and their families. We mourn with them. Operator let's please open the line.

[Operator Instructions] Our first question comes from the line of Craig Siegenthaler with Bank of America.

Scott, Rob. Hope everyone is doing well. You called out K-Series credit in the release. And we wanted to circle back on KIT. This was previously somewhat of a gap for [indiscernible] but it's been progressing as of late. So I was hoping you could update us on the fundraising front progress on platform additions and how this product is differentiating itself versus an increasingly crowded field of players in private wealth.

Craig, it's Craig. Why don't I start on that? And just to take a step back for a moment on K-Series more broadly before diving into credit. Just to level set for everyone. As of June 30, we had approximately $120 billion of assets under management from individuals and that number does not include policyholders at Global Atlantic. So if anything, again, that figure is understated as you think of the breadth that we have and the presence that we have with individuals.

And in terms of K-Series, Rob gave some of these stats, obviously. A year ago, we were at $11 billion of -- and as we look at where we are today, we're at $25 billion. So early days, but we are really encouraged about the progress that we have. I think that is particularly true in infra and private equity which are newer asset classes for more mass affluent investors. And in terms of credit, if you look at the decisions that -- and how we're situated, we did make the active decision to launch PE and Infra ahead of our private BDC. I think we did want to be earlier to market in these newer asset classes and when you look at market share across new capital raise across all of these different strategies, we ranked second on a year-to-date basis.

So I think we feel very good about our progress. In terms of CFIT specifically, we do have a specific allocation to asset-based finance as we think about how to position and how to differentiate KIF relative to, as you noted, a space where you have a lot of competition. And it's early days. We are continuing to see progress from here as it relates to distribution partners. We did raise more capital on KIF in Q2 than we have in its history. So we are seeing progress albeit off a lower base and where we see lots of continued opportunities for runway for us. And then just to be clear, we also are converting what is called KIF, which was a multi-sector credit vehicle to a primarily asset-based finance focused vehicle, which we're calling K-ABS.

And so I think as we look at this opportunity in asset-based finance, it feels to us like there is real demand for dedicated evergreen ABF product that's tailored to individuals and it felt to us like converting KCAP was the best way for us to develop this solution efficiently. This is contingent to be clear, on a proxy that we have with KCAP shareholders. We do anticipate that conversion to take effect on or around the end of August. So I think at the heart, lots of progress. It does feel like there's a lot more for us to do on this front, most specifically -- and then just to be clear, everything that we've launched with Capital Group is incremental to all of us.

Craig, it's Scott. I think that's what I said. The main difference, I think, we're hearing in the market is this allocation to asset-based finance as part of CFI. I think that's helping. We're getting added to more platforms every quarter. So I appreciate you pointing out the momentum that we're starting to see there.

We'll keep it posted on K-ABS that Craig just referenced, we're optimistic about that. And as you know, it's early days with capital in terms of what we've done there. And as a reminder, that public-private solution that we've launched with our partner, has a 40% allocation to what we do, about 20 of those points to direct lending, 20 to asset-based finance. So we have another avenue to the wealth channel through our partnership with capital. So we'll keep you posted, but I appreciate you highlighting it.

And Craig, there's just one other thought here. I'd be remiss if I didn't mention if you do look at case fit returns, whether that's on a year-to-date basis or on an inception-to-date basis, they're as good as it gets in the industry in terms of private BDCs. So I think if we continue to perform from an investment standpoint, that again will bode exceptionally well where we think we can end up in terms ultimately in the size of the vehicle.

Our next question comes from the line of Alex Blostein with Goldman Sachs.

I wanted to zone in the environment, of course, has changed drastically relative to prior quarter call. I know we've talked in the past about more of I guess, a barbelled approach to institutional fundraising. But given a better outlook for monetization activity, obviously, a much healthier equity market as well.

Is that still the case? How are you sort of gauging the pulse of institutional clients as you go through this fundraising cycle?

Thanks for the question, Alex. It's Scott. I would say, as you can tell from our numbers, I mean, we've been really busy on the fundraising front. $109 billion in the last 12 months -- if you look at the last couple of years, $217 billion, so pretty consistent momentum throughout. So we read the same headlines you do. But as we look at kind of what's happening here in the firm, we remain very, very active. I'd say investors are kind of back to -- or getting back to business as usual.

So we're having highly constructive discussions on multiple fronts and around the world. And I think the punchline that probably matters for most of the people listening is last April, we had shared a target for fundraising for 2024 through 2026 at over $300 million we're halfway through those 36 months, and we're ahead of pace and feel really good about the target we shared with you, including the plus behind the $300 billion.

So I would say the institutional investors we're talking to is a little bit of a different story depending on where you are and what you're talking about. But I'd say infrastructure, people still trying to catch up to their allocation, Same thing with private credit with increasing interest in asset-based finance. Rob mentioned this development of insurance as an asset class that we think has attractive opportunity on the forward.

And I think most of the noise has been around private equity and how those would mature programs on the institutional front are thinking and acting. But given the fact that we have sent back so much cash relative to that, which we've called and as a reminder, over the last years approaching 2 to 1 back to dollars call. We are finding that to be a very productive set of discussions and very much business as usual for us. The other thing I'd call out is we've referenced this before, but I think it's actually accelerating as a theme.

We are finding institutions consolidating their relationships. They want to do more with fewer partners. So we're having more strategic partnership dialogues, more multiproduct dialogues. And that plays to our strengths, as you know. Then you add on Private Wealth and Capital Group and GA it just feels really good right now.

Our next question comes from the line of Steven Chubak with Wolfe Research.

So I did want to circle back to the ABF deployment opportunity the strong fundraise in ABF vehicle is juxtaposed with the announcement of the Harley-Davidson deal. I know you took a stake in the financing unit, purchased a significant portion of the loan portfolio. was hoping to -- whether you could speak to opportunities to consummate similar transactions with other retail participants. I'm just trying to gauge whether there's more of a one-off for where other retail firms might be open to exploring similar transactions just given the positive reaction to HOG shares following the announcement.

Yes, Steven, thanks for the question. Why don't I start broadly on ABF? And then we can talk about Harley-Davidson. So just to level set again on Page 13 of our release, we detail in our credit liquid strategies business, the composition of our 290-some-odd billion of AUM. And within private credit, you've seen that grow at a very healthy rate. We're up 20% year-over-year, $120 billion of AUM. $75 million of that is asset-based finance. That year-over-year growth is in the mid-20s so I think with $75 billion of ADF AUM growing at a north of 20% year-over-year rate. You get a sense of the significance of this business and the growth trajectory that we've -- that you've seen and Rob had mentioned in our prepared remarks, just how we feel we're really well positioned strategically looking forward from here.

And look, in this environment, back to your more specific question on Harley-Davidson in the outlook, but we think this should be a wonderful environment for asset-based finance. And this is one of the things that Henry McVay and our macro team have actually written about as opportunities for us. And as we think about this overall environment, are companies that want to see or are electing to go in a more capital-light fashion and if there's a way for them to free up capital and use that capital for other strategic initiatives. And I think at the heart, that's what you saw in the Harley-Davidson deal.

So again, they sold the majority of their motorcycle loan portfolio, and then there's also a long-term flow partnership to sell new motorcycle loan originations. Look, I think as we look at Harley-Davidson, it's a company obviously with a truly iconic brands, a really passionate, loyal customer base. but it is another example of this broader trend. And you've seen this in a number of instances for us, whether this is Discover, PayPal, BMO Financial Group, GreenSky home loan improvements. Again, you've just seen a handful of these instances of companies electing to go capital light, to free up capital to pursue other strategic objectives.

And it was great from our standpoint to see the reaction in their stock. I think it was up 12% or 13%. So it certainly seemed to be very, very well received by Harley-Davidson shareholders. Again, they reacted very positively to the news.

Our next question comes from the line of Glenn Schorr with Evercore.

I think it was after the quarter, you announced just the other day, the first investment with Energy Capital Partners relationship, that big $50 billion announcement and so my question is, I get the huge benefit of having dedicated 24/7 power and you're building. The question I have is, do you have those type of relationships pre-leased and pre-spoken for, are we -- if we build it, they will come, and there's so much demand that we're going to start leasing it. I'm just curious on how you put that money to work, how and what year the cash flow start beginning? Just curious on how that ramps because the TAMs are so big. I'm looking to get a little...

It's Craig. Why don't I start? So just to be clear, we are not speculative builders. So the answer to the question, yes, the project has already been leased to, in our view, a very attractive counterparty. And I think the other broad point, as you know, there is just a massive need for capital. And in many ways, the opportunity is broader than just data centers. So there's going to be a need for data center, certainly, but at the same time, you need massive investment in fiber, massive investment in mobile infrastructure at the same time to support the growth in data creation and consumption.

And so for us, when we look at our digital infrastructure presence and you add what we've done in those 3 pieces together, in total, there's over [indiscernible] of equity invested across these areas. Now to be clear, that does include co-investment and co-underwriting, but it certainly gives you a very good sense of how active we've been in this area -- and I think one of the things that plays to our strength here is the connectivity and the culture you have across the firm.

So again, we're able to invest in these themes across a whole bunch of different pools with different risk return, different geographic exposures, et cetera. And so if you look at just the data center piece in that, we have exposure across Global Infra Asia and for our real estate, core private equity, our wealth strategies in addition to Global Atlantic. So it is a huge mega theme. I think you're going to hear more from us over time related to this. And again, thanks for the question.

We do look at last night's announcement, it's just a really interesting, really interesting direction of travel as it relates to the intersection of both as it relates to infrastructure as well as energy infrastructure and the need to link power as a solution.

And Glenn, it's Scott. To your question on timing. So construction is already underway expected completion date fourth quarter next year. Let's give you a sense of when they start to turn on in the lead times.

Our next question comes from the line of Ben Budish with Barclays.

Helpful updates on Global Atlantic in the prepared remarks. I was wondering if you could unpack a little bit more of just the performance in the quarter itself, what specifically changed that led to the outperformance versus your prior guide of kind of around $250 million for the next couple of quarters? And then as we think longer term, how important is the sort of elongation of the liability profile. How dependent is that on the FABN market or sort of pivoting the liability profile of your retail flows? Does one matter more than the other? And how long may that take to kind of get to where you want it to be?

Thanks a lot, Ben, for the question. It was definitely a solid quarter for Global Atlantic in Q2, $278 million of operating earnings. To be clear, there was some variable investment income that drove that number. And so as we've previously provided a guide of plus or minus $250 million of operating earnings, our expectation for the foreseeable future is that is still the right number to model going forward? As it relates to the evolution of the business, I think there's really 3 things going on simultaneously.

Number one, third-party capital is a big advantage for us, and we talked about where we stand today relative to where we were when we had IVI, which we're still investing as a strategy. We're north of double the amount of capital, and that's a really important strategic imperative. So a lot of good momentum there. In terms of the liabilities and wanting to elongate those liabilities, it's definitely not just the FABN channel, but that's a component, we're seeing that more in the individual channel as well.

We continue to have an active pipeline on the block side, which is longer-duration liabilities to and so there's a number of different ways that we can factuate longer duration liabilities. But I think that's going to be ultimately a multiyear process. And alongside that, as we are elongating our liabilities, we're going to methodically take up our allocation to alternatives, and we're making good progress there, too. We're still only about 1% allocated to alternatives at Global Atlantic industry average is closer to 5%. And so we've got some work there to go, but we're not in a rush.

We're going to make sure we do this in the right way and to ensure that when all elements of those business model come together, it will really set us in a very differentiated way from the industry. And I think to be really beneficial to our shareholders over the long term. So we're excited with the progress, but still relatively early days.

Our next question comes from the line of John Barnidge with Piper Sandler.

Can you talk about the opportunity presented for the company from potential 401(k) retirement reform and how meaningful this could be?

Craig, do you want to start?

Sure. So John, a couple of thoughts just to begin. Look at the heart, we are encouraged to hear the policymakers are discussing ways to help make private market investments more available to U.S. retirement plans. And I think as we hear this, I think we have 2 overarching thoughts. I think the first -- and this is a phrase that our public affairs team uses internally. But we think in many ways, this is about giving similarly situated people, similar options.

And what we mean by that is that right now across many states in the U.S. If you're a teacher, probably 30% or so of your retirement is provided through alternative investments. That percentage though, for a dentist is going to be closer to 0 and so in many ways, this is about giving people an option to increase to allocate a portion of their savings to higher-performing asset classes, no different than what we've seen from institutions over the last many number of decades.

And I think the second part of this is that we think at the heart fiduciary should be able to act as fiduciaries and increase the investment options that are available to fiduciaries to consider on behalf of their clients. So back to your question in terms of what this means for us. Look, we think there's a real opportunity here. That's true for individual investors. That's also true for firms like ours. It's a massive market I think these statistics are broadly well known.

But in the U.S., retirement is a $40 trillion market with defined contribution being $12 billion or if not even north of that. It does make a lot of sense to us, the target date funds which have been taking 60% plus of share of 401(k) flows, if you will, is where you'll probably see alternatives first. So again, if you think of someone who's early in their retirement planning. It just makes sense to us that someone who's early in that glide path with that really long-term vision is where Al can be most relevant. And so I think as we think about this opportunity, we do look at it as a very interesting long-term opportunity, no question, but it is a long-term opportunity. And we don't think you should expect this to be like flipping a switch, but it is incremental.

It's everything that you see across the firm currently and we think we're really well positioned. We do think brand will matter. We're in track records, investment expertise will matter, and we think depth and breadth of origination will matter. And these are all things that we think are truly differentiated aspects of KKR. And given all of that, again, just to be clear, we are dedicating the resources against this that you'd expect.

John, it's Scott. I think to your question, we don't know the quantum and we don't know the timing. But I think Craig said it right, this is all incremental to everything that we've talked about and the longer-term vision that we've shared for the firm in the past. So we're trying to make sure we're well positioned as it plays out. Craig referenced it, but 60% of 401(k) flows go to target date funds. If you think of that format, it just makes sense for an individual investor because probably the allocation to alternatives in private markets should be different for somebody who's 30 versus someone who's 70.

And so it's a nice format to be able to provide that flexibility. The target date market is very concentrated. The top 5 players have over 80% market share. Our partners at Capital Group are 1 of those 5 players. So you can imagine we're having discussions as to what the future might look like together. But not a lot more color to share with you today, but we'll keep you posted over time as this plays out.

Our next question comes from the line of Michael Cyprys with Morgan Stanley.

More of a bigger picture question for you guys on AI and blockchain just as you look out over the next 5, 10 years. Curious how you see the industry evolving given potential changes here from AI to blockchain. Curious how you're adjusting your business model. What steps are you guys thinking today and might take in the coming years? And what this all mean for your business?

Yes, Mike, it's Craig. Really interesting question. Again, not surprisingly, lots of activity around this across the globe, both as we're considering our portfolio as well as we're considering new investments -- so very early. But I think what we'd say at this stage, a couple of thoughts. First, our areas of focus are broad, certainly, and we're first focused on building smarter solutions in our companies. And I think that framework is one where we're looking to bring solutions that deliver more value to our customers.

I think there's a second aspect and that's helping our people and our portfolio companies to be even more productive so they can do more, solve more and have a better experience on the job. And then finally, in some cases, it's reimagining business models to unlock even bigger upside. And I think in addition to the portfolio companies and opportunities again, like back to Glenn's question earlier on data centers. So this is increasing our opportunity set even at the same time. And so again, we've talked a lot about digital infrastructure on these calls and all the activity that you're seeing.

But there's just some AI is creating a massive need for capital and solutions -- and we want to make sure as we look to position ourselves strategically that we're bringing the right resources to bear for us across those opportunities. So it's our portfolio companies. It's new investments. It's areas like digital infra and I'm sure there will be more to come over time as it relates to other aspects. And I think you have seen other signs of this for us.

Again, I'd point you back to and Mike, I expect you remember this, but even back in '22. We partnered with a firm to offer a tokenized interest in our health care growth fund. So again, this was the first time that 1 of our strategies was offered in a digital blockchain format. So it was not a significant part of that fundraise, and I think these aspects are not material as we think of the go-forward fund raise for us. But do you think it's a sign of the creativity that you're going to see in our firm as we look at evolving even the more traditional parts of our business model.

Michael, it's Scott. I appreciate the question. Look, it's early. We're still learning from our companies. We're spending a lot of time with young companies in the AI space and their founders and helping to connect dots between what they're building and how an alternative asset management firm actually functions. So when it comes to how we run KKR, which I think is part of the thrust of your question, we're still figuring that out and we're connecting those dots. So far, it's clear it's going to help make our teams more productive.

It will help us scale the firm using technology in a way that we've never been able to before. But the specific answers to exactly what does that mean? That's what we're still working on. We'll keep you posted, but it's clear that there's meaningful opportunity, especially as we approach areas like private wealth scale our insurance businesses to do this -- some of this stuff in a different way operationally.

Our next question comes from the line of Bill Katz with TD Cowen.

So just coming back, I wanted to pushbacks we get on KKR and the group at large is as the industry continues to scale, particularly in private credit, the ability to drive differentiated returns goes down. We don't agree with that. scale win. But that being said, I'm sort of curious if you could maybe update us on your origination platform. I know a couple of your peers do a pretty good job of delineating what their capacity is. I'd be curious, maybe get a little bit of a refresh of just number of origination platforms you have and why you think that could translate into the ability to generate further alpha?

Bill, it's Craig. Why don't I start? And then I'm sure Scott and Rob will chime in. Just in terms of the platform question, looking holistically across the firm, we have 35 platforms. That's both in asset-based finance as well as in real estate to help generate differentiated origination. And I think in terms of -- in addition to the activity, you are going to have a whole bunch of different aspects for us to look to drive that origination flow. Do you think depth and breadth of origination is a really critical part to your point of generating attractive investment returns for us.

I think as we look at our IG footprint today and look at that in total, that number for us is approaching of $30 billion to $35 billion annually. So again -- and again, the largest piece of that is going to be in high-grade ABF, which wasn't the heart of your question as it relates to direct lending. But I think as we think of the framework broadly in the credit business, the connectivity that we have and as direct lending is just becoming a much more mainstream part of how companies look to finance themselves -- it just feels like the opportunity set is one that is continuing to increase and does feel very differentiated relative to even 5-plus years ago.

Bill, it's Scott. Maybe just historical perspective. Private credit as a space is being some of the same kind of noise that private equity got 20-plus years ago. number of new entrants. Can it scale? What does this mean? And to your point, what we and others have found, if you go up in size, you build different capabilities you look at adjacencies, there's lots of different ways to continue to grow. In the grand scheme of the capital markets, even in direct lending is pretty small. ABF, $5 trillion or $6 trillion on its way to 7 million to 9 much larger space. The 7,500 people or so, we have sourcing today across our platforms, 19 of them just in ABF.

That number will continue to grow with the announcement this week with HCR is another example of adding another platform and a team that's originating really private credit opportunity. So you'll continue to see us scale our ability to originate, and it has a bit of an echo to me of a lot of the things we've done in other asset classes across the firm, whether that be private equity or infrastructure or otherwise. So I'm with you on this. I think the sentiment is a bit overdone.

Our next question comes from the line of Patrick David with Autonomous.

To your prepared remarks, KK, obviously in a good position with its large high MOIC public position -- but commentary from other execs and even the tangible data, we see still suggest that strategic seem to be hesitant to buy sponsored-backed companies more broadly so could you update us on your conversations with strategic buyers where you think that bid ask is now? And what do you think needs to change to really open up that side of the realization equation?

Yes. We read what you read, Patrick, that hasn't been our experience. We've been really active on the monetization front around the world, particularly in Asia this year. I know a lot gets talked about the IPO market, but we've been selling assets to strategic buyers. I think the bid ask that we were seeing a spread that we were seeing 12, 24 months ago continue to dissipate or the public strategic, their stocks are up, so they have a more attractively priced currency and a lower cost of capital. And we're not experiencing what we're reading about would be a simple way to say it.

Our next question comes from the line of Brian Bedell with Deutsche Bank.

A 2-parter, if I may. One, on the investment management fees in both private equity and real assets were ahead of our estimates and I think ahead of consensus. I know the Fund [indiscernible] turned on just trying to get a sense of is, is there anything else unusual in terms of like catch-up fees or anything else? And I think there's maybe some step-down dynamics that might go into third quarter. So any kind of color you could give on that? And then the second question is just good capital market momentum. And obviously, the environment seemingly good into the second half.

So I just wanted to get your view on whether you think the capital markets fees can be even stronger in the second half than they were in the first half?

Great. Thanks a lot for the question. So on investment management fees, nothing out of the ordinary other than to your point, we're turning on some larger funds. If you look in the quarter, we probably benefited around $30 million from the turn on of [indiscernible] in Q2. We did have a bit of catch-up fees in our Real Assets business, but again, nothing really out of the ordinary across the platform. I mean it's just solid organic growth across our platform and feel good about our trajectory on management fees, both on an absolute basis and relative to our industry.

As it relates to capital markets, I think another solid quarter, roughly $200 million of fees. I think we're $430 million on a year-to-date basis. We see some strength absolutely on the industry-wide side as we look at Q3 and the pipeline. We're only a month in, but feel good that we'll be plus or minus in line with where we were in Q2. Obviously, some upside if the capital markets stay healthy over the course of the rest of the quarter. And it's probably a little bit premature at this stage to have a view with any precision on Q4.

But pipelines are building. I think much more importantly, as we look at our capital markets business, we're able to hire the right talent. I think we've got the business model fully in place. And if the capital markets really do continue to stay strong and healthy and stable, we feel really good about growing our franchise heading into 2026.

Brian, it's Scott. I mean one of the things we reflect on is, I think the sentiment around our space is dramatically more volatile than the reality. If you think about April and May and the commentary over that period of time and you kind of would have guessed what Q2 would have looked like in terms of activity. We raised $28 billion. We invested $18 billion. You heard the financial metrics in terms of fee-related earnings, up over 30% the last 12 months, ANI uncertainty creates volatility creates opportunity for us in the investing side.

But as we've shared, 70% to 80% and more recently, 80% of our pretax income is coming from activities that we think are highly repeatable and durable and can grow. And so I think you have that come through in the quarter. And so anyway, that's the broader takeaway from our standpoint is the commentary makes it sound like the business is very difficult. The results and our day-to-day experience speaks otherwise.

Our next question comes from the line of Arnaud Giblat with BMP Barba.

I'd like to come back to the ECP joint venture? And just a follow-up on that question. So I was hoping to get a bit more color around the $50 billion JV there in terms of how this money gets deployed? I mean, part of that is going to go through existing funds, if I understood well. And the rest are probably through SMAs and coinvest. I'm just wondering if you give us a bit of color around that. Also, I mean, clearly, there's ECP in that joint venture. So what's -- how should we think about the split of that [indiscernible] between you and your partner? And in terms of timing, how long should we be looking for the deployment of those $50 billion?

Thanks for the question. It's Craig, why don't I start. So in late '24, we formed a partnership with Energy Capital Partners that effectively combines our respective capabilities and capital across digital and energy infrastructure. And really, again, if you think about the surge in AI demand and what that requires, I think we all have a clear sense of this that it's stretching infrastructure -- but it's doing more than that.

It's changing the blueprint for how these projects need to be built. And so if you look at the announcement we made last night, that again is really a direct reflection of the reality. And so what we formed with ECP is the ability for us to approach hyperscalers and make their lives easy and be a one-stop shop and provide creative thoughtful solutions from the construction side, from the real estate side, from the Energy Solutions side. And it's really -- that's how we're going to differentiate ourselves.

So I think a lot of these firms, again, are incredibly, incredibly cash-generative firms with a lot of capital. And I think if you're only showing up with capital, that's not going to be a differentiator. So again, how do we look to be a really value-added partner and so this was our approach, and I think the transaction you saw last night is a direct reflection of that. I would think of that, that overall partnership is being 50-50 between the 2 of us, yes, I would expect over time that capital from us to come from our existing funds and strategies.

And again, there's no timing or specific threshold through which that we need to invest that capital, et cetera, in partnership with ECP. But I think, again, a really powerful outcome as you would have seen last night.

The only thing I'd add, Arnaud, is that as we find more projects in addition to using our existing funds and SMAs as you point out, there's definitely an ability to raise capital -- incremental capital to further fund the activity.

Our next question comes from the line of Brian McKenna with Citizens JMP.

Great appreciate all the detail this morning. I just had a quick question on the trajectory of earnings over the next 12 to 18 months. So you're on track to generate about $5 of adjusted EPS in 2025. That implies about 40% earnings growth in '26 to get to the low end of your target. So can you just help us bridge the gap here and what some of the bigger drivers will be for this earnings growth over the next 4 to 6 quarters?

Brian, thanks a lot for the question. Maybe just unpack a bit of the P&L. You're seeing, obviously, a lot of momentum on the management fee line item. A lot of ways, I think this speaks maybe best to the financial health of our firm and where we're going. We feel like we got a lot of momentum in our capital markets franchise, especially as the capital markets continue to open up. feel really well positioned to be able to grow.

You're starting to see some fee-related performance revenue now flow into our P&L, which we think can scale really nicely. We've talked about a lot of the things that we're doing across the insurance space, including a much more meaningful contribution of third-party capital. And then one of the things that's really important to think about over the next 12 to 18 months as we look at how our earnings can scale. Today, we have roughly $17.1 billion of embedded gains that sit on our balance sheet. That's the record high for us.

So that's an aggregation of our gross unrealized carried interest as well as the differential between the fair value and the cost of both our asset management investment portfolio and what sits in strategic holdings. So when you add all those things together, and we look forward, not just in 2016, but importantly, over the long term, we feel like we're in a really good position to be able to scale the firm and its earnings trajectory.

In addition to that, what we're doing in strategic holdings, we think will further benefit the overall growth of our platform is just this new segment that today is still not generating a lot of operating earnings. But as you look at 2026, as a management team, we look at that portfolio, we look at our $350 million of operating earnings guidance for next year, and we feel really good in our ability to beat that. So those are a bunch of the pieces to the puzzle as we look over the course of the next 12 months.

But importantly, as a management team, we're looking long term as well. And so we not only feel good about what we're going to be able to achieve in 2016, but also feel like we're really very much on track for some of our longer-term goals, which, as you know, is to grow to $15-plus per share of earnings and think that we've got the business model to be able to do that without creating anything new. And we do see some new things on the horizon that we think we can add to our platform.

Our next question comes from the line of Kyle Voigt with KBW.

So Rob, you just mentioned management fee growth as a kind of key part of the algorithm to how to get to your targets for 2026. I'm just wondering if you can get some clarity on 2025. I know you previously outlined that you could see a bit of an acceleration in '25 versus the 14% realized in 2024. I think you posted 15% in the first half of the year, but that accelerated to 18% in 2Q with NA 14 turning on. So just wondering if we can get update on how to think about second half management fee growth.

Is that 18% year-on-year growth rate, the right jumping off point for the second half of the year -- and then any other notable activations or final closes to call out for 2H. I know Infra 5 is still in the market. So anything to call out there from a timing perspective.

Yes. Thanks a lot for the question, Kyle. When we continue to raise capital across the platform. I think it's worth noting as you look at that 18% growth rate we had in the quarter, talked about $30 million having come from next. So our largest product only contributed $30 million of growth in the quarter, fairly immaterial number as you think about our roughly $1 billion of management fee in the quarter.

So I don't have any specificity for you around the back half of the year, management fee other than to say we feel good about the capital raising momentum we have across all of KKR, not just in our big flagship products. And our expectation is that we'll continue to post solid results as we go through the end of the year.

And Kyle, it's Craig. Just one thing. Rob, at our firm meeting had mentioned statistics earlier that I thought was interesting. Like I think the breadth and diversification in our fundraising is just worth highlighting. So over the trailing 12 months, we've raised $110 billion. If you look at that, that's $50 million in credit, $30 million in private equity, 30% in real assets.

And we've noted historically on some of these calls in turn, the diversification you're seeing in management fees so on -- again, on a trailing 12-month basis, management fees are between $1.1 billion and $1.4 billion across each of our 3 businesses. So I think when you think of the breadth and diversification we have across strategies, across geographies, again, it just feels like we've got -- we've got a number of ways to win.

Thank you. We have no further questions at this time. Mr. Larson, I'd like to turn the floor back over to you for closing comments.

Elizabeth just thank you for your help this morning, and everybody who joined. Thank you for your interest in KKR. We look forward to following up further with those of you who have more specific questions. And otherwise, we'll be back chatting with everybody in 90 days. Thank you so much.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

The taking of photographs and the use of recording devices is also not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative.

All right. With that out of the way, good morning, everyone. Thanks for staying with us here on day 1 of Morgan Stanley Financials Conference. I'm Mike Cyprys, equity analyst covering brokers, asset managers and exchanges for Morgan Stanley Research. And welcome to our hybrid fireside chat with KKR. And we're excited to have with us Adam Smith, Partner and Co-Head of KKR's Credit business and Capital Markets business.

As you know, KKR is a global investment firm that offers alternative asset management, capital markets and insurance solutions and today manages over $664 billion of assets under management. Adam, thank you for joining us today. Appreciate you coming over here. It's been, I think, 5 years since you were last here. And I think you're going to kick off with a little bit of a presentation, and then we'll jump into a fireside chat.

Great. Well, thank you for having us. We really appreciate the opportunity to tell our story and interact on a stage with you. I will go ahead and start maybe talking a little about our Capital Markets platform to provide some context for the fireside chat. I think your questions are going to be more interesting than my presentation, so I'll try to run through this pretty quickly.

There's 3 big things that I think you're going to hear run through this presentation in our chat today, and that's the following. One, we have the largest and most specialized Capital Markets platform with any asset manager out there. Two, we help drive investment performance for the firm, and we're also an attractive and meaningful revenue stream for the firm. And thirdly, we have a growth orientation, and that comes from 2 sources. One, we grow as the firm grows. And secondly, there's a third-party business that we engage in that has a large addressable market and opportunity for us to grow and take share on that.

So with that in mind, our Capital Markets platform is the centralized financing arm inside of KKR, and it's responsible for arranging all the debt and equity financing that our firm consumes across all of our investment strategies, all of our investment businesses globally. We also provide the same capabilities and services to independently owned companies, whether they're sponsors or family-owned or privately backed companies or even public companies. And we do that across 4 main product areas. One would be debt capital markets. So I think about that as a corporate credit markets. Second would be equity capital markets. I would think about that as our IPO and follow-on business. Third is our structured Capital Markets business, which is one of our newer businesses. That's engaged in structured finance and asset-based financing transactions. And third -- or sorry, fourth is our co-investment partnership business. This is actually where we began. This is the syndication of excess investment opportunities that we have where our funds don't take them down entirely. We figured out a way to commercialize that.

What do we do? We have the ability to both structure and distribute transactions into the markets. And we are able to do that across both private markets and broadly syndicated markets. So not only do we put transactions together but we're able to place them to investors such as you. That is a tremendously powerful thing in a platform like ours.

And then the final thing I'd say is that we do this in large scale. On average, we're completing around 400 transactions a year. That's 400 different fee opportunities that we're able to complete. And we do that across all these different asset classes and it accumulates in a really big number. So last year, we generated -- we participated over $400 billion of debt and equity financings. And since we began this, that number is $2 trillion.

We're also a very strategically connected part of the firm to our Credit business. And that's why you introduced me as the Head of our Credit and Capital Markets business or Co-Head of that. We've been able to integrate our capital markets capabilities and our credit capabilities together to approach borrowers and offer them essentially a one-stop shop to provide financing solutions that are tailored to what they want. So we can provide them with private credit, we can provide them with the capital markets opportunity or financing or we can combine those 2 things together. And that makes us more relevant. It makes us more likely to win a transaction, maintain incumbency, get ball control and ultimately convert that into an investment opportunity or a fee or both.

There's very few people that can do that, and I don't think anyone can really do that in as an integrated of way. And as I mentioned before, we're really a revenue center for the firm. When we started the business, we made $1 million in 2007. Last year, we made $1 billion of fees doing the exact same thing. And that growth has really been driven by 2 things. Firstly, it's been driven by the growth of the firm. As KKR scaled, as KKR added new investment strategies, as KKR's funds grew, as our portfolio accumulated more companies, those all presented more opportunities to finance transactions.

Secondly, we also extended the same capabilities and services to a bigger client base, which is other companies that we don't own. And the accumulation of both the third-party business and the growth in the firm really has led to the steady growth over time. You'll see we present this chart with sort of these yellow lines that show you what the fee averages are over a 4-year period. We do that because we think it's important to understand that this business really operates across cycles, and you really want to think about what's the normalized business over time. There can be periods of time or a quarter where activity may be high or may be low. But over time, you start to see trends in the underlying business.

I think the big trend that you see on this slide is the power of the diversification and scaling of our firm and how that rolls through in KKR. And what that really means in capital markets is we have a more granular, a more diversified revenue base, and we have more ways to win. And that diversification, you can see in comparing 2012 to 2015 to the period 2020 to 2024.

In 2012 to 2015, we were largely driven by traditional private equity activities, whether it was for our flagship funds or for third-party clients. There, we were averaging about $170 million a year of revenue, and 91% of all our fees were generated from those traditional private equity activities. If you go look at the last 4 years, 2020 to 2024, we've averaged over $700 million a year. And private equity or traditional private equity activities really only accounted for 50% of that, which means that infrastructure, credit, asset-based financing, real estate, all those growth businesses and core strategies have provided more ways for us to generate revenue and really increase the size of the pie that we can go after.

And so if you look at that on the right chart, you'll see this, how this plays out. 2021 was a record year in the capital markets, and it was a record year for our Capital Markets platform. We generated almost $850 million that year when the markets were at an all-time high and activity levels were at an all-time high. What I think is even more interesting is if you look at 2022 to 2023, you really saw a recession in the capital markets activity. You saw a massive falloff in deal flow and really decreased activity. And despite that, we were able to generate about $600 million a year. And those were our third and fourth best years ever.

And so if 2021 showed you, you could have record performance in record years, 2022 and 2023 really showed you could have resilient performance in dislocated years. And what I think is really more interesting than that is you go look at last year. No one would say last year was an incredible year in the capital markets. It was good. You saw a resumption of activity levels. You saw more deal-making. That year, we made $1 billion of revenue. And that activity level didn't seem or feel like what 2021 presented. And I think that, that shows you the benefit of this accumulation of more revenue streams and more opportunities to go after. And it shows you what can happen when deal-making activity kind of picks up, which leads me to our final point here. And I think this will be a springboard for some of our conversation.

We really do have a growth orientation in capital markets. And in some ways, I had the easiest job in the firm. The first pillar of our growth is that we grow when the firm grows. So if you think about the scaling of KKR across our diversified slate of businesses: private equity, infrastructure, real estate, credit; as those businesses get bigger, as their funds get bigger, as the capital structures we invest in get bigger, those are more opportunities for us to participate in financing transactions. And you can see that there's a correlation between the size of our AUM and the growth in our Capital Markets business. We have more ways to win.

The other area of growth for us is our third-party business. This is a business that we started in -- really probably 2008 was where it really kind of grew, and it's grown steadily over the years. And what we're doing here is we're applying the exact same services using the exact same team with the exact same capabilities and the exact same pipes, but were just allowing us to provide those services to more people that are looking to get the same kind of quality of capital market services, their own investment teams and firms looking to get. And the accumulation of that can be meaningful. So over the last -- since we started this business, we generated over $1 billion of revenue from people that used to think of us as a competitor.

To me, this is a big market to go after. There's a lot more companies that we don't own than that we do own. And this universe is also expanding into new places as you see in markets like private IG and some of the other financing areas start to grow as well. So we're really excited about where we are.

So the 3 big things we talked about, largest and most specialized capital markets platform in our industry. Second, we're both a revenue driver and driver of investment performance for our firm. And thirdly, we have this great growth orientation that benefits from both the growth of the firm and the opportunities we have in third party.

So with that in mind, maybe we'll have a fireside chat.

Great. Thank you.

[ I don't know, we do it ]. There.

Well, why don't we start off talking about the capital markets backdrop. It's been a little bit volatile this year, a little bit of a pause in April. Now it appears that some of the activity is picking up. So just curious your take on the outlook for capital markets activity from here. What do we need to see in order to see a significant uptick in transactions? And what are some of the indicators you guys are tracking and watching on that front?

Sure. That's a great question. And I wish I had that crystal ball. The year started with a really positive outlook. We saw the market run-up after the election. I think people thought that the policies of the administration were going to lead to a resumption of that 2021 kind of feeling. We did see some concerns around inflationary pressures with some of those policy decisions. And then we saw a tremendous amount of volatility, as everyone knows, with the tariff announcements, and we've seen that play through.

What's really been interesting for us has been that, that volatility was really in the equity markets. The credit market did experience volatility and things did kind of widen out but much less. And what was really important for us is all those markets remain functional. And we continued our deal-making activity. And Scott and Rob talked about this in our investor call recently. Throughout that period of time, we have a linear deployment model at the firm. So we stay investing throughout market cycles and invest through them. That really helps.

We've seen a snapback, so valuations have gone back up. The S&P is up, I think, almost 20% from its low around Liberation Day. And so -- and you saw IPO windows open up. So there have been a number of IPOs that have happened. We participate in some of those IPOs on the capital markets side.

So what are we looking at? We're looking at a couple of things. We're looking at the debt and liquidity in the capital markets, and we'd say it's strong. There's $7 trillion of cash on the sidelines that's waiting to be invested. There's a tremendous amount of capital out there in credit across all different asset classes so you can finance transactions. For the right businesses, the IPO market is open. So those businesses, what would we think about? We would think about businesses that are fairly insulated from tariffs. I think Aspen Insurance was the IPO that led the market open. That's an insurance brokerage business. Hard to get hurt by the current policies on that.

And then so the real unlock, I think, will be when does the M&A pipeline really manifest to the levels that people are hoping for. There's been a feeling that M&A has been depressed really since 2021. Every year, people are saying it's about to unlock. And that's driven by a couple of things. There's certainly a lot of corporate activity that should be happening. There's also a lot of privately owned sponsor-backed companies that need to find a source of liquidity, and a sponsor-to-sponsor transaction is one of the sources of liquidity beyond the public market. So M&A, I think, will be the big question mark. And if you're really focused on what's the future state of deal-making, you really got to start with the M&A pipeline.

Why don't we dive into your KKR Capital Markets business, which you gave a nice overview. You helped build the Capital Markets business back from its roots in 2007. So maybe just how has the business evolved relative to your initial expectations that you had back many years ago? And looking out over the next decade, how do you see the business evolving from here over the next decade?

Yes. So -- and I should not -- I don't want to take credit for the business that Scott and my predecessor really had the idea to put it in place. I was around from the beginning of it. And what I think we got right was the business model. And the basic thesis of KKR Capital Markets is that there's a lot of value in being able to control deal flow. And there's a lot of value in being able to deliver people investment opportunities. And if you can figure out how to commercialize that, you have a way to capture a portion of that value.

And so what we did is we took all of the consumption of capital that our firm has, which really meant opportunities to finance ourselves and said, "We're going to participate in that." And what we decided was you needed to have the right infrastructure, you needed to have the right product expertise and you needed to have a distribution capability so you could take that directly to market and provide it to the end user, which is the investor, which is the people in this room. And so we got that model right.

What I think that we learned over time was that model was a really replicable model. And so we built it around traditional private equity. Remember that slide we talked about where you see that ramp. And 2012 to 2015, 91% of our revenues were driven by traditional private equity. We realized you can take that same principle, that same business model, that same strategy and you could do it in other areas like infrastructure. You could do it in things like securitization, ABS.

And as the firm started to create more investing businesses and scaling those in large ways with large capital structures, we realized there's a huge fee stream associated with that. And we just employed the exact same model. We hired the right people with the right capabilities and we kept on replicating it. And so what we've been really pleasantly surprised by has been how you can take the simple model and just port it over and do the same thing in a slightly different area or market and commercialize it in the same way. And the adoption rate and the speed that you can do that is really high.

Where are we going? Our view would be that we're going to continue to do what we do best, which is new issue financings. It's capture all these transactions that sit in front of us and then apply those same capabilities to third parties and just create more operating leverage in the system. We run a really tight ship. We have 70 people in Capital Markets, give or take. And we've been able to really scale up the revenue base without having a lot of head count growth. It's a very efficient model. So we like that.

To me, the emerging areas -- it's funny we left the Global Atlantic case study on the screen for the people who will look at it. There's a huge growing market around private investment grade. You're probably talking about it a lot with the people that you talk to. I think that there's a huge opportunity in the market to take more transactions and place them in institutional private markets in the investment-grade capability. That is a core sort of pillar of what our future growth is going to look like. And our acquisition of CyrusOne, which we completed last year on a 100% basis, will help facilitate that.

Great. Why don't we talk about the mix of the business? Quite diversified, right, mix of debt syndication, various types of equity syndication, third-party-related transactions in there. I guess how do you think about the mix evolving over time?

Yes. So what's -- I went and I looked at a lot of our historical data. And if you've been in the business for 18 years and you've seen market cycles that go from the GFC all the way through today, you've seen a lot of different things. There's been a tremendous amount of stability in some of the underlying trends. So I'll hit some of those, and then we'll talk about maybe what that business mix looks like.

On a pretty normalized basis, debt financings end up being, call it, 60% to 70% of what we do. And that makes sense for 2 reasons. One, debt is generally a larger percentage of a capital stack, if you look at some of our levered transactions. And secondly, debt is a very transactable instrument. You put it in place, you can reprice it, you can extend it, you can add to it, you can refinance it, you can amend it. Every one of those moments is an opportunity for us. Equity, you tend to buy it once and you sell it once. And so the mix tends to be pretty stable over time that debt tends to be a bigger part of our business than equity. And our head count would sort of reflect that as well.

I think on a pretty normalized basis, the U.S. is always a little over a majority of what we do, which makes sense. It's one of the largest markets out there. It's one of the most robust and transactable markets. And if you think about where our AUM is, there's a healthy percentage in the U.S. What I really like about that, though, is that it means that 40% or so is also things that aren't in the U.S., right? So Europe and Asia.

I think Europe and Asia will kind of balance each other out. One area may be more active than the other. What we're really looking to achieve in Capital Markets is a large diversified business where we have a lot of different markets to win in so we're not reliant on any one market. Geography would be one of those things. Debt equity would be one of those things. And then you see things like infrastructure, you see things like securitization, private IG asset-based lending, those are all part of it in that if we go back to the diversification slide I talked about, you do see this increasing diversification for things that are outside of what I call traditional private equity financing, meaning that fees that aren't generated just by LBOs, just by IPOs. In infrastructure, securitization, those are the types of things that are coming. So I would hope that we're going to have a continued diversification. And over time, I think that you'll see a pretty nice balance. When you get to $1 billion of revenue, it's hard for any -- the large number starts to come into play and you have a hard time swinging a thing around too much.

Great. Why don't we shift and talk about the outlook for transaction fees this year? First quarter was pretty strong despite the backdrop, so impressive there. I think 2/3 were more debt focused to your point on sort of the debt mix, about 80% or so driven by portfolio company activity. So I guess how do you see capital market fees trending this year and the mix of activity?

Yes. I think that you're going to see a continued pacing like we've seen. And I think it gets into what does the market activity really look like? We have so many ways to win. New deal activity is part of it, portfolio work is part of it, third party is part of it. I tend to focus the business not on a quarter-by-quarter or fiscal year basis, I tend to look at it on what's the normalized period of time. I think that's the best way to look at it. And we really benefit from this resiliency and durability and stability in the tougher periods that's been driven by the diversification. And we also benefit from in upswings, the opportunity to capture a lot of transaction volumes.