8-K: KKR Reports Strong Third Quarter Results with Record Fee Related Earnings

KKR's third quarter 2024 results show significant year-over-year growth, driven by record fee-related earnings and total operating earnings.

Summary

• KKR reported its third quarter 2024 financial results, highlighting a strong performance with a return to a more normalized operating environment.
• Adjusted Net Income grew by more than 50% year-over-year, alongside record Fee Related Earnings and Total Operating Earnings.
• The company experienced continued acceleration across key operating metrics and financial results.
• Fee Related Earnings (FRE) reached $1.0 billion, a 79% increase year-over-year, and $3.1 billion for the last twelve months (LTM), up 37% year-over-year.
• Total Operating Earnings (TOE) were $1.3 billion for the quarter, a 71% increase year-over-year, and $4.2 billion for the LTM, up 37% year-over-year.
• Adjusted Net Income (ANI) was $1.2 billion for the quarter, a 58% increase year-over-year, and $4.0 billion for the LTM, up 32% year-over-year.
• Assets Under Management (AUM) totaled $624 billion, an 18% increase year-over-year, and Fee Paying Assets Under Management (FPAUM) reached $506 billion, a 19% increase year-over-year.
• New capital raised was $24 billion in the quarter and $118 billion in the LTM, while capital invested was $24 billion in the quarter and $77 billion in the LTM.
• A regular dividend of $0.175 per share of common stock was declared for the quarter.

Sentiment

Score: 9

Explanation: The document presents a very positive outlook with record earnings and strong growth across key metrics. The sentiment is highly positive from an investment perspective.

Positives

• The company experienced a strong quarter with significant growth in key financial metrics.
• Fee Related Earnings and Total Operating Earnings reached record levels.
• There was substantial growth in Assets Under Management and Fee Paying Assets Under Management.
• KKR successfully raised a significant amount of new capital and deployed a substantial amount of capital.
• The company's strategic holdings are expected to contribute more meaningfully to Total Operating Earnings over time.
• The company has a strong financial profile with a significant amount of cash and investments.
• KKR is 'A' rated by both S&P and Fitch.
• The average maturity of debt is approximately 15 years with an after-tax weighted average fixed coupon of 3%.

Negatives

• GAAP Net Income attributable to KKR common stockholders decreased to $0.7 billion for the quarter, compared to $1.5 billion in the same quarter last year.
• Net realized investment income for the asset management segment decreased to $128.8 million in the quarter, compared to $182 million in the same quarter last year.
• The insurance segment experienced a net cost of insurance of $1.1 billion in the quarter.

Risks

• The company's forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially.
• Past performance is not a guarantee of future results.
• The company's strategic holdings are subject to various assumptions and there is no guarantee that expectations will be realized.
• Perpetual capital is subject to material reductions from changes in valuation and withdrawals by investors.
• The company's investment valuations can be subjective and impacted by market conditions.
• The company is exposed to risks related to leveraged companies and illiquid assets.
• The insurance business is subject to risks related to interest rate fluctuations and policyholder behavior.

Future Outlook

KKR expects Strategic Holdings Operating Earnings to be modest in 2024, $300+ million by 2026, $600+ million by 2028 and $1+ billion by 2030. The company also anticipates continued growth across key operating metrics and financial results.

Management Comments

• This was a strong quarter for KKR reflecting a return to a more normalized operating environment.
• Activity levels across the firm remain high as we experience a continued acceleration across our key operating metrics and financial results.

Industry Context

The strong results reflect a positive trend in the alternative asset management industry, with increased investor interest and capital deployment. KKR's performance is indicative of the broader industry's recovery and growth after a period of uncertainty.

Comparison to Industry Standards

• KKR's 79% year-over-year growth in Fee Related Earnings significantly outperforms many of its peers in the alternative asset management space, such as Blackstone and Apollo, who have reported more modest growth in their recent quarterly results.
• The 18% year-over-year increase in AUM is also higher than the average growth rate reported by other major players in the industry, indicating KKR's strong capital raising capabilities.
• KKR's strategic focus on perpetual capital, which now represents 42% of AUM and 50% of FPAUM, is a strategic move to secure long-term, stable revenue streams, a trend that is becoming increasingly important in the industry.
• The company's investment performance, with the traditional private equity portfolio appreciating 17% in the LTM, is competitive with top-tier private equity firms, such as Carlyle and TPG.
• The growth in the insurance segment, particularly with Global Atlantic, is a strategic differentiator for KKR, setting it apart from many of its pure-play asset management competitors.

Stakeholder Impact

• Shareholders will benefit from the strong financial performance and the declared dividend.
• Employees may benefit from the company's growth and success.
• Customers and partners will benefit from KKR's continued investment and growth.
• Suppliers and creditors will benefit from KKR's strong financial position.

Next Steps

• KKR will hold a conference call on October 24, 2024, to discuss the financial results.
• The company will continue to focus on growing its AUM and deploying capital across its various investment strategies.
• KKR will continue to monitor the performance of its strategic holdings and expect them to contribute more meaningfully to Total Operating Earnings over time.

Key Dates

Keywords

Fee Related Earnings, Total Operating Earnings, Assets Under Management, Private Equity, Real Assets, Credit, Insurance, Capital Markets, Strategic Holdings, Investment Management