KKR : Transcript

KKR Investor Day 2021

Tuesday, April 13th 2021

Investor Day 2021

Tuesday, April 13th, 2021

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	KKR Investor Day 2021	Tuesday, April 13th 2021
Narrator:	00:00:10	Like all businesses in these extraordinary times, KKR has had to
			confront the profound economic repercussions of a global
			pandemic, along with considerable social and political upheaval.
			The resulting uncertainty has made today one of the most

challenging times for global investors. Fortunately, over the last 40 plus years, we have built a platform to meet this moment. With our global reach and a team oriented, one firm culture, we have mobilized all our resources to support our employees, our portfolio companies and our public and private investors.

We have emerged a stronger firm, clear about the challenges we face today and optimistic about the future we will build together. Investors, colleagues and friends, welcome to KKR's 2021 Investor Day.

Craig Larson

Partner, Head of Investor Relations

00:01:16Good morning, good afternoon, good evening. Welcome to KKR's 2021 Investor Day. My name is Craig Larson. I'm a partner, and I'm head of investor relations. We're all thrilled with the level of interest we've had in this morning's event. Thank you everybody for your continued interest in KKR and for joining us. Now, before we begin in earnest, it's my pleasure to review first our disclosure statement that's at the beginning of the presentation.

Our presentations today will contain forward looking statements which do not guarantee future events or performance, and actual results may differ materially. We will be referring to non GAAP measures over the course of the morning, that are reconciled to the most directly comparable GAAP figures, that are in the presentation and are also on our website. And the presentation materials contain other important information. For the further discussion of some of the risks that could affect results, please refer to the risk factor sections in our 10-K, as well as other SEC filings for additional cautionary factors.

We're really excited to be with you, even if only virtually. It's been fun preparing for this event because it's given us the opportunity to look back, and reflect on the growth that we've seen across the firm, while at the same time looking forward, we really believe we're as well positioned today as we've ever

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KKR Investor Day 2021

Tuesday, April 13th 2021

been. So in this vein, we thought we'd begin by looking back at our last Investor Day that was held in July, 2018, review the key messages from that event and update you on our progress.

So first, we spent a great deal of time in July 2018 focused on scaling, and how well positioned we were for continued growth. And that has played out over the last three years. Our flagship funds and strategies have continued to scale. Younger platforms for us like Core and Growth have flourished. And 2020 was a record fundraising year for us, with a lot more to come. We're nicely ahead of plan.

C-Corp conversion. We were the first in our industry to change our structure from a partnership to a corporation, and our 2018 Investor Day was only a week or so after that conversion had actually taken place. We felt the opportunities we saw from broadening our shareholder base comfortably outweighed the negative tax implications.

Fast forward to today. The number of institutions that own KKR stock has doubled. And while we really think the strong fundamental performance is really what has driven our stock price, as well as the significant outperformance you see on this page, we certainly think the conversion was an important catalyst in broadening the universe of investors that could consider KKR as a key equity holding. And looking forward, we continue to believe that we offer our shareholders a unique combination of growth and value.

And finally, in July 2018, we provided a framework in order for our earnings and book value to double over a five year period. And on the right hand side of the page, you see how we're tracking. Relative to the 8% framework figure, our fee paying AUM has grown at a 14% CAGR organically, and in total on a pro forma basis including Global Atlantic, the current CAGR of our fee paying AUM is 37%.

Transitioning to investment performance across our key asset classes. Gross performance has met or exceeded the numbers reviewed in July 2018. Mostly significantly, both from an AUM as well a carried interest standpoint, are the numbers you see for private equity and growth equity. Performance here of 22% is well ahead of the 17.5% framework figure, and several hundred basis points ahead of public indexes. When you look at the annualized total returns for the S&P 500, MSCI World and Russel 2000 indices, those figures are 16%, 13% and 11% respectively. Performance really has been quite strong.

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KKR Investor Day 2021

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So, in terms of our event today, we're pursuing a much more streamlined approach relative to our previous Investor Days. Joe Bae and Scott Nuttall, our co-presidents are going to begin with a strategic review across our businesses. We're pleased to have Allan Levine, Global Atlantic's Chairman and CEO introduce all of you to Global Atlantic personally, and Rob Lewin, our CFO, is going to wrap up with our financials. And at the end of the presentations, all five of us are going to be available for a Q&A session with the equity research community.

And in addition to this, if you have any questions you would be interested in our reviewing during that Q&A session, please feel free to email me directly. My email is [e-mail].

And with that, it's my pleasure to turn things over to Scott Nuttall, our Co-President and Co-COO.

Scott?

Scott Nuttall

Co-President & Co-COO

00:06:04Thank you, Craig, and thanks everybody for joining us today. Joe and I thought we would start by taking you through the four main takeaways we hope you have at the end of today's session. The first of those is that, from our vantage point, scaling is happening faster than we expected, and as a result, our fee related earnings opportunity is significant and it's highly visible. It's right in front of us. So, the scaling's been occurring and we see even more right in front of us today.

And a little bit of background first. So, we've scaled meaningfully since our last Investor Day, which was in July of 2018. You can see at that moment, we had about $176 billion of AUM. That scaled to $252 billion, or up 43% before the Global Atlantic acquisition, which scales us more meaningfully. So, you can see a 98% growth rate since July 2018 with GA. It's about $349 billion. And as a reminder, we are very fortunate. We are in an industry that is growing quickly. Alternative asset AUM has been growing at an 11% growth rate since 2004, as you can see on the slide. And if you look at the right hand side, you can see we've been growing faster than the industry itself. So, we have been actually growing at a 22% CAGR, with Global Atlantic. But, ex-GA, it's still been a 19% annual growth rate over this period of time.

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KKR Investor Day 2021

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So, we are growing faster than a fast growing industry. And what that's translated into is very significant growth in our management fees, and on the slide you can see, over the last five years, they've doubled from a bit over $700 million to a bit over a billion four. So, we've seen a 15% growth rate in our management over this period of time, and as you go from the left to the right, you can see they've become more diversified across our different major platforms.

So, the growth has resulted in management fee profile growing as well. But what's critically important and the big takeaway here is that we have even more growth to come. Now, why is that? We have spent the last 10 to 15 years, we believe building highly differentiated investment platforms. And as a reminder, our strategy is to only be in businesses where we believe we can be a top three player. Either we want to be there now, or we want a clear and credible path to get there.

And most of our strategies given their age, are not yet top three. But we believe that we have a path to make it happen. And we're much closer to that inflection point than we have ever been and many of our businesses are actually experiencing that inflection right now. So, let's talk about the businesses themselves. You can see 26 different investing businesses on this slide. And as you can tell from the aging, a number of these businesses have been started in the last 10 to 15 years or less.

And so, as we experienced our business at KKR, what we find is it takes 10 plus years to start to get to scale. And as you can see from this slide, we only have six of these 26 businesses that are over 10 years old. That means we have a lot of growth ahead of us. And the great thing is, we believe we can grow in these markets and the markets themselves are growing.

So, take a look, this just gives you a sense, for the market size across many of our businesses, where we are from an AUM standpoint and what our market share is. So, take the top line, private equity, $4.7 trillion dollar market. We're one of the largest players. We're already top three in this business. Our AUM only gives us a 4.2% market share, and you can see the rest of the slide as well. Low single digits, to mid-single digits market share.

If you look at the whole slide, $14 trillion market. Our market share is somewhere between two and two and a half percent. So, a lot of opportunity for us to grow our market share in an absolute way, and the market itself is growing very quickly. So,

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