WEBVTT - KKR CFO Robert Lewin Talks Earnings

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>So it's a beat for KKR in the first quarter

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<v Speaker 2>against the estimates. The asset manager changed how it relays

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<v Speaker 2>its results. Shnelli Basik has the CFO in conversation, Sonali.

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<v Speaker 3>Thank you so much, Manis and Rob Lewin KKR CFO

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<v Speaker 3>is joining us. Now you're at Bloomberg and you have

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<v Speaker 3>your profit topping estimates, you also have assets under management.

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<v Speaker 3>Topping estimates puts you on the.

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<v Speaker 4>Way to reach the goal you've laid out at KKR

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<v Speaker 4>to reach a trillion worth of assets in the next

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<v Speaker 4>five years. Rob, is there anything that changes here in

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<v Speaker 4>this hire for longer environment in terms of how you

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<v Speaker 4>meet these goals?

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<v Speaker 5>Sure? Well, Snelli, thank you for having me on this morning.

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<v Speaker 5>Maybe we'll start with the headline of the day. Our

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<v Speaker 5>quarters are really strong our quarter for us at KKR,

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<v Speaker 5>across our core fine metrics even more encouraging as our

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<v Speaker 5>forward looking indicators. And so if you look across our

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<v Speaker 5>three core profitability measures, that's fee related earnings, that's total

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<v Speaker 5>operating earnings, adjustin ed income, all of which on a

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<v Speaker 5>per share basis, we're up between twenty and twenty eight

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<v Speaker 5>percent year on year, so really strong quarter in that respect,

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<v Speaker 5>but even more encouraging is what we're seeing going forward.

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<v Speaker 5>We raised thirty one billion dollars of capital in the quarter.

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<v Speaker 5>It's the second consecutive quarter where we've raised over thirty

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<v Speaker 5>billion of capital, which is actually the first time in

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<v Speaker 5>ky Care's forty eight year history where we've done that

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<v Speaker 5>in back to back quarter, so really bodes well for

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<v Speaker 5>the future. We've written a little bit most importantly, sorry

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<v Speaker 5>go ahead, Shell.

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<v Speaker 3>Yeah, we've written a little here about your fundraising plans here.

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<v Speaker 3>I know you can't talk about fundraising plans publicly, but

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<v Speaker 3>privately we know that you're on track to raise more

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<v Speaker 3>than a billion dollars here or roughly a billion dollars

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<v Speaker 3>for an infrastructure fund. Rob Can you give us some

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<v Speaker 3>picture here about where investors are putting money to work?

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<v Speaker 3>Where is most of this fundraising coming from across assets?

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<v Speaker 1>Sure?

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<v Speaker 5>And so the interesting thing is if you look at

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<v Speaker 5>KKR since the beginning of twenty twenty two, we've raised

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<v Speaker 5>about one hundred and eighty billion dollars of capital, which

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<v Speaker 5>is a really healthy number for us. But we've been

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<v Speaker 5>able to do that without a lot of our large

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<v Speaker 5>flagship strategies in the market. So as we've talked about

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<v Speaker 5>the go forward, we've talked about fundraising being able to

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<v Speaker 5>accelerate from here. If you look at where a lot

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<v Speaker 5>of that capital raising has been over the course of

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<v Speaker 5>the past number of quarters. You know, in Q one

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<v Speaker 5>we had a final close of six point four billion

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<v Speaker 5>dollars in our Asia Infrastructure strategy. That's the largest fund

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<v Speaker 5>by a good margin in Asia Pacific focused on infrastructure.

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<v Speaker 5>Lots of real good tailwinds there in terms of longer

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<v Speaker 5>term growth, a lot of capital raising across our credit

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<v Speaker 5>franchise that's the asset based finance that's direct lending leverage

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<v Speaker 5>credit north to twenty billion dollars in just this quarter alone.

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<v Speaker 5>So there's a lot of momentum for US across capital

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<v Speaker 5>raising and we would expect that to accelerate. What we've

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<v Speaker 5>articulated to our investors is we believe that we could

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<v Speaker 5>raise three hundred plus billion dollars of capital over the

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<v Speaker 5>course of the next three years.

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<v Speaker 3>How do you feel about the money not only brought in,

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<v Speaker 3>but the money that you're spitting back out to investors?

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<v Speaker 3>Big open question across Wall Street in terms of how

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<v Speaker 3>quickly firms like yours can be monetizing your assets, selling them,

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<v Speaker 3>putting them into public markets. With this kind of volatility around.

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<v Speaker 5>Sure, the important thing to think about when you're thinking

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<v Speaker 5>about KKR is that we have four main investing verticals,

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<v Speaker 5>So that's private equity, that's infrastructure, real estate, and credit.

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<v Speaker 5>We are also very much a global firm, and we've

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<v Speaker 5>got if you look at our investment professionals, nor than

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<v Speaker 5>fifty percent of our investment professionals today are based outside

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<v Speaker 5>the United States. So we are always in the market,

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<v Speaker 5>always able to pursue different investment themes that we have

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<v Speaker 5>in front of us really exciting in that respect.

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<v Speaker 3>Do you think in terms of do you think that

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<v Speaker 3>this year that that investment window can stay this open?

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<v Speaker 3>Do you think that that might be pushed out into

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<v Speaker 3>twenty twenty five in terms of monetization oportus unities with

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<v Speaker 3>the volatility that we're.

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<v Speaker 5>Seeing, Sure, let's maybe start on the deployment side and

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<v Speaker 5>then we'll move to monization. It's not what we're seeing.

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<v Speaker 5>Our pipelines on deployment are building across the firm. We

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<v Speaker 5>are really active in areas like infrastructure, all things digital infrastructure,

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<v Speaker 5>so towers, fiber, data centers. If you look, we're really

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<v Speaker 5>leaning in on the renewables energy transition side of investing.

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<v Speaker 5>We just complete our first climate investment in the US

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<v Speaker 5>and Q one a business called Avantis in the energy,

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<v Speaker 5>a solar energy storage business. Really exciting opportunities for US

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<v Speaker 5>across all areas of infrastructure. Asset based finance is another

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<v Speaker 5>area where we're really leaning in as a firm. I

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<v Speaker 5>think there's a lot of really good tailwinds for the

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<v Speaker 5>alternative asset manager in asset based finance, and KKR is

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<v Speaker 5>a real market leader there with nor than fifty billion

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<v Speaker 5>of assets under management today. Focused on that area. In

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<v Speaker 5>terms of.

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<v Speaker 3>Please go ahead monetization, yeah, sure.

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<v Speaker 5>In terms of your question as it relates to monetization, again,

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<v Speaker 5>we're starting to see pipelines building. In just Q one,

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<v Speaker 5>we exited a really successful investment for our firm at

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<v Speaker 5>these partially exited a business called app Love and at

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<v Speaker 5>north of eighteen times multiple money for our investors. So

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<v Speaker 5>we are seeing real opportunities across the firm to be

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<v Speaker 5>able to monetize. And likewise, just like we're seeing growing

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<v Speaker 5>pipelines on deployment, we're seeing growing pipelines on the monetization

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<v Speaker 5>side as well.

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<v Speaker 3>It sounds like you're trying to find opportunities or are

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<v Speaker 3>finding opportunities regardless of this kind of higher for longer environment.

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<v Speaker 3>It's fed day, Rob, How do you think about what

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<v Speaker 3>the investment opportunity looks like with rates potentially staying at

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<v Speaker 3>this level or not much soler Yeah.

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<v Speaker 5>So one of the unique things about our model right

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<v Speaker 5>is we have over two hundred companies that we're invested

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<v Speaker 5>in across the globe, so it gives us a pretty

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<v Speaker 5>good lens into what's going on from an economy standpoint.

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<v Speaker 5>And we're seeing goods inflation come down, we're seeing shelter

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<v Speaker 5>inflation come down, we are seeing core services inflation remain stickier.

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<v Speaker 5>And we've been feeling this way for quite some time

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<v Speaker 5>and we've been able to position our portfolio to be

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<v Speaker 5>able to address this. And so we you see interest

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<v Speaker 5>rates coming down over time, but we don't see any

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<v Speaker 5>CONTs in twenty twenty four. We would expect the tenure

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<v Speaker 5>to probably come down to somewhere around four percent plus

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<v Speaker 5>or minus. But all been very front of mind for

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<v Speaker 5>us as we pursued investment themes. We've been focused on

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<v Speaker 5>businesses now for some time that we feel can sustain

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<v Speaker 5>margin in a higher cost environment. You're starting or you're

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<v Speaker 5>really seeing that play out in our portfolio really healthy.

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<v Speaker 5>Back to we've driven real investment performance on behalf of

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<v Speaker 5>our clients again this quarter and over a longer period

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<v Speaker 5>of time, so we're quite proud of that. And back

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<v Speaker 5>to areas where we've been leaning in asset based finance

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<v Speaker 5>infrastructure both have a component of inflation protection baked into

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<v Speaker 5>those asset classes.

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<v Speaker 3>Speak to us more about inflation here and how inflation

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<v Speaker 3>might be impacting your portfolio companies, and you've we've kind

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<v Speaker 3>of talked about this kind of potentially higher for longer

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<v Speaker 3>inflationary environment as well. How are you thinking about investing

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<v Speaker 3>through that? Sure?

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<v Speaker 5>You know, back to we've got a big, global, diverse platform,

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<v Speaker 5>so we're able to move capital around where we think

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<v Speaker 5>we see the highest opportunities across the globe. As it

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<v Speaker 5>relates to our portfolio specifically, we feel really good with

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<v Speaker 5>the health of the overall portfolio. You know, there's aspects

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<v Speaker 5>of KKR's business that are going to perform better in

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<v Speaker 5>a higher rate environment and aspects of our business that

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<v Speaker 5>are going to perform better in a lower rate environment.

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<v Speaker 5>The key for us. Have we set up a firm

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<v Speaker 5>where we think that we could go out compete our

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<v Speaker 5>competitors regardless of the environment. And we feel like we've

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<v Speaker 5>got the tool kit inside KKR to really be able

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<v Speaker 5>to do that.

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<v Speaker 3>But do you think at KKR you have to prepare

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<v Speaker 3>here for potentially higher prices across those portfolio companies and

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<v Speaker 3>pr fuertionality.

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<v Speaker 5>Yeah, and we have and absolutely I think from a

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<v Speaker 5>portfolio construction perspective, we feel really well prepared for that boat.

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<v Speaker 5>At KKR, we really have to prepare across different outcomes Dynamically.

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<v Speaker 5>You might be in an environment where our interest rates

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<v Speaker 5>are higher, or you might be in an environment where

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<v Speaker 5>you know, we're surprised on the inflation side and it

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<v Speaker 5>could be lower. And so back to how we focus

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<v Speaker 5>our teams, it's very much real time. The information we

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<v Speaker 5>have back from our two hundred plus companies inform our

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<v Speaker 5>investment process and I think allow us to stay really

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<v Speaker 5>ahead of the curve, which ultimately benefits our clients with

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<v Speaker 5>greater investment performance relative to the competitors that we're competing

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<v Speaker 5>against in the market.

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<v Speaker 3>Rob thank you so very much for your time here,

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<v Speaker 3>and I know you have an earnings call ahead of

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<v Speaker 3>you as well. That is Rob Lewin, the CFO of KKR,