Speaker 1: Bloomberg Audio Studios, podcasts, radio news across Mole Street. And
Speaker 1: we're going to get to some of the things underpinning
Speaker 1: those goals. But first we're going to start with a
Speaker 1: big view on where the world stands today. And as
Speaker 1: we've been talking about Joe in the US, investors are
Speaker 1: trying to shake off that tariff hangover that exists right now.
Speaker 1: The markets have been very jittery, investors are digesting how
Speaker 1: these trade policies could be in the future. How do
Speaker 1: you view the impact from your seat?
Speaker 2: Sure, I think it's obvious to everybody.
Speaker 3: That we're in an environment right now where there's a
Speaker 3: lot of uncertainty around trade tariffs, but it's not necessarily new.
Speaker 3: Even with the first Trump administration, he was focused on
Speaker 3: tariffs and trade. Biden kept most of those tariffs in place.
Speaker 3: So I think in our business, you know, we're very
Speaker 3: long term investors. We need to be thinking about these
Speaker 3: issues over time, not just in one administration. And what
Speaker 3: it's say is, you know, we have teams at KKR
Speaker 3: who focus on all these areas of macro risk, whether
Speaker 3: that's currency risk, tariff and trade, geopolitical risk, regulatory risk
Speaker 3: in each of the.
Speaker 2: Different markets that we're investing in.
Speaker 3: I think this issue around supply chain security and resiliency,
Speaker 3: which relates to tariffs, is obviously front and center for
Speaker 3: all long term investors, but people are trying to parse
Speaker 3: through what this all means. The final policies are not
Speaker 3: in place. The actions of other countries and governments in
Speaker 3: reaction to what Trump may or may not do is
Speaker 3: still unknown, so it's very fluid at the moment, and
Speaker 3: I think that's obviously creating some uncertainty and volatility.
Speaker 1: You know, It's interesting in conversation with you, you had
Speaker 1: mentioned that this was a risk that you should have
Speaker 1: seen coming in a lot of ways. So from where
Speaker 1: I'm sitting, it looks like KKR has been preparing for
Speaker 1: this in a way that many investors have kind of
Speaker 1: very obviously have not been. So what have you been
Speaker 1: doing to prepare for all of this uncertainty knowing that
Speaker 1: there's even more of it ahead?
Speaker 3: Yeah, so I think you know, we have over one
Speaker 3: hundred and fifty companies in our private equity portfolio around
Speaker 3: the world, so again, supply chain resiliency multiple sourcing avenues
Speaker 3: for our companies has always been a part of the
Speaker 3: risk mitigation approach, and we've spent a lot of time
Speaker 3: really over the last five six seven years understanding that
Speaker 3: risk and mitigating that risk, and when it comes to
Speaker 3: new investments, I think a big part of our job
Speaker 3: thematically is understanding the risk environment we're in and choosing
Speaker 3: those themes and sectors and opportunities that really have less
Speaker 3: exposure to terrorf risk or trade risk. So maybe a
Speaker 3: couple of examples of that is, you know, healthcare services
Speaker 3: are very domestic, whether it's in the US, Europe, or Asia.
Speaker 3: You know, that's an area where we feel like the
Speaker 3: terrriff risk at least is not a pronounced risk. You
Speaker 3: could look at certain services businesses. We've made a number
Speaker 3: of investments in companies like home services, foundation inspection maintenance
Speaker 3: companies in the US for an aging housing stock, you
Speaker 3: look at it services and software investments in different countries. Again,
Speaker 3: very little terror risk, so you're able to really zero
Speaker 3: in and target those industries and sectors where you don't
Speaker 3: think this.
Speaker 2: Is going to be a big problem.
Speaker 1: When you think about the ripple effects that you might
Speaker 1: see from the terror strategy, there are a lot of
Speaker 1: concerns about inflation, sure growth.
Speaker 4: How are you.
Speaker 1: Thinking about the economic headwinds that the US is facing.
Speaker 3: Listen, I think that's one of the big uncertainties out
Speaker 3: there that people are trying to figure out. Tariffs are
Speaker 3: inflationary by design, So I think if that leads to
Speaker 3: an escalated level of inflation in US economy, obviously that's
Speaker 3: going to slow GDP growth.
Speaker 2: It may put some pressure on.
Speaker 3: The FED obviously in a more tough economic environment, to
Speaker 3: lower rates faster over time. But we've always felt that
Speaker 3: the bigger trends happening in the world, whether that's energy transition,
Speaker 3: the massive investments into data, a lot of these things
Speaker 3: are in inflationary by its nature. Putting aside tariffs, Right,
Speaker 3: so we have a higher resting heart rate for inflation
Speaker 3: globally today than we've had in the last decade, and
Speaker 3: you expect that to continue and potentially even get higher inflation.
Speaker 3: Right if these tariff and these trade wars continue, it's
Speaker 3: not an unreasonable expectation that in the near term you
Speaker 3: can see higher inflation.
Speaker 1: Well, it doesn't that mean higher rates or do you
Speaker 1: think that the FED is going to have to lower
Speaker 1: rates into.
Speaker 4: The face of that.
Speaker 1: People are starting to use the words stagflation, an awful
Speaker 1: lot these days.
Speaker 3: I think it's going to be different in different markets,
Speaker 3: and I think the FED is going to have to be.
Speaker 2: Very nimble in how they navigate this risk.
Speaker 3: Obviously, if the US is headed towards an economic downturn,
Speaker 3: cutting rates is probably going to be the policy response.
Speaker 2: If rates are high and.
Speaker 3: We're not headed down that recession path or deceleration of
Speaker 3: growth path, then rates could actually be a little bit
Speaker 3: higher in the near term.
Speaker 1: So let's look at this from a global perspective as well.
Speaker 1: I think one unique view you can bring from KKR
Speaker 1: is that you are very global in nature. So you
Speaker 1: see the way that the changes are happening in a
Speaker 1: teriff strategy, the way that nations are kind of separating
Speaker 1: in their relationship to each other. You see that on
Speaker 1: the ground through your portfolio companies. What are then other
Speaker 1: areas of the worlds that are maybe even more attractive
Speaker 1: to you than the United States right now?
Speaker 3: Well, you know, I think it's not a secret. You
Speaker 3: had it up on the slide. We're big fans right
Speaker 3: now of Japan. We think that is a really really
Speaker 3: underpenetrated opportunity, especially among US investors.
Speaker 2: They really haven't figured.
Speaker 3: Out how to get the exposure they want in a
Speaker 3: market like Japan where they're coming out of two and
Speaker 3: a half decades of deflation. So finally positive wage growth,
Speaker 3: pricing power, inflation is very modest, but positive inflation right now,
Speaker 3: and rates are actually increasing modestly in Japan. That's a
Speaker 3: completely different macro picture than what we've seen in Japan
Speaker 3: for the last three decades, and a really exciting time
Speaker 3: when you marry that with shareholder reform, activism, activism, corporate
Speaker 3: governance reform in that market outside of the United States,
Speaker 3: Japan is the largest destination of our.
Speaker 1: Capital, so it's interesting. In addition to Japan, KKR has
Speaker 1: maintained a commitment to China as well. In fact, there
Speaker 1: are big deals that are in the market that KKR
Speaker 1: may be involved with at this very moment. So a
Speaker 1: lot of other investors are very worried about China, the
Speaker 1: internal economics and the relationship that China has to the
Speaker 1: United States.
Speaker 4: Yeah, how do you view that dynamic?
Speaker 3: Yeah, listen, I think the geopolitical tensions right now obviously
Speaker 3: are front and center for us as we think about
Speaker 3: where to invest in how to invest, and in China
Speaker 3: in particular, you have to avoid those sectors that have
Speaker 3: sensitivity on both sides of the ocean, both the US
Speaker 3: government and the Chinese government. So we have not invested
Speaker 3: in some of these sensitive sectors like electric vehicles or
Speaker 3: semiconductors or AI.
Speaker 2: That's not the focus of our China investment strategy.
Speaker 3: We're really focusing on super high quality domestic businesses that
Speaker 3: are around domestic and asumption and services. So we in
Speaker 3: our portfolio today we have one of the largest or
Speaker 3: the largest Chinese pet food company, again geopolitically not sensitive.
Speaker 3: We own one of the largest pharmacy chains in China.
Speaker 3: We own the largest white mushroom grower in China, all
Speaker 3: geared towards the domestic market, a growing middle class who
Speaker 3: wants higher quality goods and services and food, you know.
Speaker 3: And I think that's the sweet spot of where we're
Speaker 3: focused to the market today.
Speaker 1: That's interesting because even if you're focused on the Chinese
Speaker 1: consumer that might be a little more insulated to let's say,
Speaker 1: the global macro challenges. There are a lot of concerns
Speaker 1: about the Chinese economy.
Speaker 4: Why are you seeing through them?
Speaker 3: Yeah, listen, I think the overall long term trend in
Speaker 3: China is the middle class is growing, and the expectations
Speaker 3: of the middle class are really for higher quality goods
Speaker 3: and services, safer food, safer services, and that's what these
Speaker 3: companies that we're investing behind are really catering towards. No doubt,
Speaker 3: the macro growth China has slowed from a decade ago, right,
Speaker 3: you were talking about a country growing at double digits GDP.
Speaker 3: They're targeting four to five percent growth today, right, So
Speaker 3: there has been a slow down. There's clearly challenges in
Speaker 3: terms of the real estate market in China, and you
Speaker 3: have to factor all that in in terms of the
Speaker 3: growth rate you're underwriting, and largely the entry multiple. You know,
Speaker 3: the Chinese stock market today is one of the most
Speaker 3: interesting value markets in the world in terms of the multiples.
Speaker 3: So if you know what you're looking for, the type
Speaker 3: of risk you're trying to mitigate against, you could still
Speaker 3: find some interesting opportunities.
Speaker 4: You know.
Speaker 1: Yes, Jay, I asked the question, is American exceptionalism dead?
Speaker 4: In addition to that, I ask you, is.
Speaker 1: Globalization or diversification play? Is it a safety trade? How
Speaker 1: do you think about it?
Speaker 3: But we are a very very global firm and we
Speaker 3: have a lot of different ways to participate in those
Speaker 3: opportunities private equity, real estate, private credit, and infrastructure. So
Speaker 3: in really volatile periods like we're in right now, having
Speaker 3: that flexibility of capital, we could partner with companies management
Speaker 3: teams as a provider of anything from senior investment grade
Speaker 3: debt right to non investment grade debt, to structured credit solutions,
Speaker 3: structured equity solutions, growth equity capital, to buy out capital.
Speaker 3: So today it's an interesting market. When volatility spikes, that
Speaker 3: usually leads to really really interesting deployment opportunities for our firm.
Speaker 3: You need to be nimble, you need to have the
Speaker 3: local reach in all these different markets. But we're excited,
Speaker 3: quite frankly about twenty twenty five.
Speaker 2: They're going to be hiccups.
Speaker 3: There's going to be some headwinds in terms of some
Speaker 3: of these macro policies, but our ability to deploy scale
Speaker 3: capital around the world we think is quite high.
Speaker 1: I will still ask you, if not dead, then is
Speaker 1: American exceptionalism then overblown?
Speaker 3: Now listen, I think this notion that the US is
Speaker 3: going to win alone has never been the case. I
Speaker 3: think the strength of the United States is really the
Speaker 3: resiliency of the economy, the strength of our capital markets,
Speaker 3: to mobilize capitals, to support companies in the private sector,
Speaker 3: and labor productivity.
Speaker 2: Right when you think.
Speaker 3: About why the US has grown faster than Europe or
Speaker 3: faster than Japan, it's really about labor productivity in the
Speaker 3: United States. A lot of that is technology driven and
Speaker 3: innovation driven, but a lot of that is our unique
Speaker 3: mobility of labor in this country. You think about Japan,
Speaker 3: which is going through this resurgence. Structurally, they've done the
Speaker 3: best job of any country in terms of women participation
Speaker 3: in the workforce, people working longer in Japan, right, They've
Speaker 3: got real demographic challenges.
Speaker 2: They've done an excellent.
Speaker 3: Job around automation and robotics in their industrial base, but
Speaker 3: they're not getting the labor productivity because the mobility of
Speaker 3: labor in Japan is quite constrained, and their investment in
Speaker 3: software and tech is a fraction of.
Speaker 2: What you see in the United States.
Speaker 3: So the real superpower of the United States is labor productivity.
Speaker 1: At the end of the day, I do want to
Speaker 1: spend the remaining time here and gear is talking about
Speaker 1: the future of KKR because it's been fascinating to watch
Speaker 1: the change from an iconic private equity company to what
Speaker 1: you are today. There was the full acquisition of your
Speaker 1: insurance company last year, Global Atlantic, and it's made KKR.
Speaker 4: Look more and more like Berkshire Hathaway.
Speaker 1: And there's one part of your business that's far less
Speaker 1: understood that I think makes you look like the most
Speaker 1: like Berkshire Hathaway, and that's your strategic holdings business. Many
Speaker 1: people don't know that KKR owns eighteen companies on your
Speaker 1: own balance sheet at KKR, what is this business going
Speaker 1: to be in maybe ten years and why is it
Speaker 1: valuable to you?
Speaker 2: Sure?
Speaker 3: So when you think about KKR as a business, we
Speaker 3: really have three core strategic parts of our business. Strategy
Speaker 3: asset management, I think is well understood. That's what we're
Speaker 3: known for for the last fifty years. So that's our
Speaker 3: third party private equity again, real estate and infrastructure, a
Speaker 3: private credit business, and that's a six hundred and fifty
Speaker 3: billion dollar business that you mentioned.
Speaker 2: At the start.
Speaker 3: The second big pillar of our business today is Global Atlantic.
Speaker 2: It's one hundred percent.
Speaker 3: Owned insurance company in the life and annuity space, roughly
Speaker 3: one hundred and ninety billion dollars of valuem there and
Speaker 3: again playing into all of these trends around retirement savings,
Speaker 3: retirement security, and being able to offer individuals compelling products
Speaker 3: for their own long term savings. The third piece of
Speaker 3: it is a segment that we introduced last year at
Speaker 3: our investor Day, but it's been a segment we've been
Speaker 3: incubating for well over a decade now at KKR, and
Speaker 3: that's Strategic Holdings. So what we're trying to build in
Speaker 3: Strategic Holdings is, in some ways the mini Berkshire Hathaway.
Speaker 3: These are companies where we own large stakes, sometimes controlling stakes,
Speaker 3: sometimes not, but businesses that we think we could own
Speaker 3: literally forever, Businesses that have the potential to compound in
Speaker 3: mid teens over a very very long period of time,
Speaker 3: very defensive, innate, sure. So we have eighteen companies in
Speaker 3: that portfolio today. We're going to continue to redeploy our
Speaker 3: free cash flow at KKR to invest in more of
Speaker 3: these types of businesses.
Speaker 2: And it's not just private equity.
Speaker 3: Over time, it's going to include certain platforms, probably in
Speaker 3: infrastructure and real assets, maybe certain build ups you know
Speaker 3: that we're going to do in different sectors. You know,
Speaker 3: when Scott Knuttell and I, my co CEO, joined KKR.
Speaker 3: Back in nineteen ninety six, Berkshire Hathaway had a market
Speaker 3: cap of forty billion dollars and roughly nav balance sheet
Speaker 3: of forty billion dollars. You fast forward twenty eight years,
Speaker 3: they have a trillion dollar market cap on the back
Speaker 3: of long term compounding of their balance sheet and their investments. Right,
Speaker 3: some version of that is what we're going to be
Speaker 3: doing with strategic holdings, but leveraging all of the skills
Speaker 3: and expertise we have in our private equity teams, our
Speaker 3: infrastructure teams around the world.
Speaker 4: So what's an interesting parallel here?
Speaker 1: If you think about Berkshire Hathaway, is it almost like
Speaker 1: Global Atlantic is your own Geico, and these future infrastructure
Speaker 1: holdings will be your BNSF and your private equity holdings
Speaker 1: would be kind of like your stock portfolio.
Speaker 3: Yes, it's imperfect analogy, but directionally you are absolutely right.
Speaker 3: I think listen strategic holdings for us, you got to
Speaker 3: think about it as a way, how do we think
Speaker 3: about redeploying our free cash flow as a business back
Speaker 3: into the most attractive areas.
Speaker 2: Some of that might be.
Speaker 3: In our traditional third party asset management business. Right, we
Speaker 3: find great ways to deploy capital across those investments.
Speaker 2: We will deploy that capital.
Speaker 3: A lot of the capitals reinvested back into Global Atlantic.
Speaker 3: We acquired our first controlling stake in Global Atlantic in
Speaker 3: twenty twenty and GA at that time had around seventy
Speaker 3: billion dollars at AUM. Four years later it has one
Speaker 3: hundred ninety billion dollars at AUM, so we've supported that
Speaker 3: growth with more investment. And then this third segment of
Speaker 3: strategic holdings, obviously, which is what we're super excited about,
Speaker 3: is one where we're going to be continuing to invest
Speaker 3: a lot more of our free cash flow.
Speaker 2: As a business.
Speaker 3: So our guidance to this treat today is by twenty
Speaker 3: twenty six, that portfolio will be generating around three hundred
Speaker 3: and fifty plus million dollars of after tax dividends for US.
Speaker 2: That's growing to seven hundred.
Speaker 3: Million dollars by twenty twenty eight and one point one
Speaker 3: billion dollars by twenty thirty. So it is a very
Speaker 3: very visible, recurring, growing cash flow stream at KKR.
Speaker 1: So you essentially have a kind of a future Unicorn
Speaker 1: of sorts being built inside of KKRE. If you're going
Speaker 1: to be bringing in a billion dollars over time in
Speaker 1: this business. Do you think it's built into KKR stock
Speaker 1: that assumption yet?
Speaker 3: I think people are starting to appreciate what we're trying
Speaker 3: to build. But I think the bigger picture is when
Speaker 3: you look at our universe in the alt space five
Speaker 3: years from now, ten years from now, I think many
Speaker 3: of the public peers in the sector are going to
Speaker 3: actually take very different approaches to how do they grow
Speaker 3: their firms.
Speaker 2: I think the approach we have was.
Speaker 3: With third party asset management, insurance and strategic holdings is
Speaker 3: quite differentiated and different than the way most of our
Speaker 3: peers are trying to grow their firms today.
Speaker 1: Now, I want to spend a little time talking about
Speaker 1: not just institutional capital and how you are deploying capital
Speaker 1: in your own balance sheet. We've been talking so much
Speaker 1: about how there's been a massive push for retail. When
Speaker 1: it comes to the world of private assets, everyone is
Speaker 1: doing it differently. You have a relationship with Capital Group
Speaker 1: in order to make this available in.
Speaker 4: A mutual fund form.
Speaker 1: So how available is it to invest in private assets
Speaker 1: from where you're sitting. What's the minimum amount you would
Speaker 1: need to put into a fund to.
Speaker 4: Start to get access to what you're offering.
Speaker 2: Sure.
Speaker 3: So the way to think about the bigger picture opportunity
Speaker 3: is for most of our history at KKR, we were
Speaker 3: found in nineteen seventy six, our core client base was
Speaker 3: really large institutional investors, pension funds, insurance companies, sovereign wealth
Speaker 3: funds around the world. The individual investors who participated with
Speaker 3: us were really ultra high networth families and family offices
Speaker 3: who could allocate capital as part of their diversification as
Speaker 3: really LPs in our funds. They were willing, they were
Speaker 3: sophisticated investors, willing to take at ten or twelve year
Speaker 3: you know, illiquidity risk, just like a pension fund would.
Speaker 3: So that's a very small percent of the household obviously in.
Speaker 2: The United States, but that's how they've accessed and partnered
Speaker 2: with us historically.
Speaker 3: What's relatively new for us in the last two to
Speaker 3: three years is we've introduced a series of private wealth
Speaker 3: products for individual investors who are accredited investors. Okay, so
Speaker 3: those are investors with a net worth of call at
Speaker 3: one to five million dollars.
Speaker 2: These open ended.
Speaker 3: Evergreen products have semularquidity of features, so you're not locking
Speaker 3: up your capital for ten to twelve years, you have
Speaker 3: the ability if you needed to redeem a portion of.
Speaker 2: Your capital every quarter.
Speaker 3: So it's a slightly different format, but it's it's investing
Speaker 3: in exactly the same deals that our flagship funds are
Speaker 3: investing in, right So that's we're trying to deliver that
Speaker 3: same institutional quality experience, the same portfolio, the same access
Speaker 3: to deal flow, whether that's in private equity, real estate, infrastructure,
Speaker 3: of private credit to individual accredited investors. Right in that
Speaker 3: one to five million dollars in net worth, that's around
Speaker 3: ten percent of the households in the United States in
Speaker 3: those first two buckets ultra high net worth and accredited investors,
Speaker 3: and roughly half the AOM in the individual channel. With
Speaker 3: Capital Group, we have an exciting new partnership which really
Speaker 3: addresses the next ninety percent of US households. These are
Speaker 3: mass affluent individual investors who probably wouldn't be buying our
Speaker 3: private wealth product and wouldn't be LP's in our traditional fund.
Speaker 2: So we're creating.
Speaker 3: Hybrid products with Capital Group in a mutual fund format.
Speaker 3: We're starting with credit in the second quarter, where we're
Speaker 3: going to be putting a portfolio together where Capitol Group
Speaker 3: manages the public credit. We will manage the private credit
Speaker 3: allocation in that mutual fund and deliver a product to
Speaker 3: the mass affluent that looks very different and from anything
Speaker 3: they've been able to buy before.
Speaker 1: You know, it feels like the holy grail for this
Speaker 1: industry is making private assets available in four one K plans. Yes,
Speaker 1: how soon do you think that happens? And if not
Speaker 1: that soon, what's the biggest barrier?
Speaker 3: Well, listen, I think again, at a high level, when
Speaker 3: you think about some of the societal challenges, we have
Speaker 3: a big part of that is securing your retirement right
Speaker 3: as you retire from work.
Speaker 2: Kr co Ceo Jove Demographic along with Blue Meg, Shinali
Speaker 2: Bassek from Bloomberg invest