KKR & Co. Inc. - Third Quarter Financial Results Conference Call - KKR & CO INC

Explicit Guidance:

• Strategic Holdings Earnings: Expectation to deliver more than $350 million in operating earnings for full-year 2026; reiterated guidance of $1.1 billion+ for 2030.
• Monetization (Capital Returned): Expect $40 billion+ to be returned to clients in 2026 (up from $31 billion YTD excluding Q4 and USI), exceeding the prior annual record by over 50%.
• Adjusted Net Income (ANP) Per Share: Anticipate a third consecutive quarter with record Adjusted Net Income per share to close 2026; long-term goal of $15+ per share by 2034 or earlier (10-year horizon).
• Insurance Capital Markets Fees: Expect several hundred million dollars in annual insurance-related capital markets fees (current run rate implies ~$13.5 billion annualized from Q3, $20 billion annualized from Sept/Oct).
• Cake Air Solutions (Strategic M&A): Projected to become a $100+ billion AUM business over time.
• USI Transaction Impact: Expected to generate approximately $2 billion in Adjusted Net Income (approx. $2/share) upon closing; $550 million in realized earnings from carried interest/fees; $3.3 billion in after-tax proceeds.
• GA Rail Car Sale: Expect a gain generating over $200 million in operating earnings upon closing in Q1 2027.
• New Strategic Holdings Earnings Contribution: Three announced deals (Integer, Gen2, A1) expected to generate roughly half of USI's anticipated operating earnings by 2028 and nearly match them by 2030.

Business-Segment Outlook:

• Management Fees: $75 billion in "dry" AUM (not yet paying fees) with a 90 bps blended rate; this figure is up 24% YTD. Expect strong fee growth driven by the ramp-up of this $75 billion, though a slowdown in campaign fundraising is expected starting H1 2027. Asia private equity and Europe campaigns will generate inflows through 2027–2028.
• Private Wealth (K-Series): AUM stands at $45 billion (up 55% YoY, 32% YTD); K-Series private equity ($22B) and infrastructure ($17B) AUM reached these levels in just three years. Expect continued momentum as investors react to the firm's through-cycle performance.
• Real Assets: Real estate equity portfolio is expected to benefit from opportunities to buy below replacement cost due to supply decline and inflation; infrastructure momentum is strong, with a new vintage flagship global infrastructure fund closing at $19.2 billion (up from $17B).
• Capital Markets: Fees are viewed as highly recurring and "bottom-of-barrel" resilient. Growth drivers include insurance-related structuring (several hundred million annually), third-party client coverage, and expansion in Asia-Pacific.
• Insurance (Global Atlantic): Capital raising accelerated in Q3 ($9B+, up 42% QoQ); new business run rate reached ~$20B annualized in Sept/Oct. Management expects to maintain returns while growing volumes.
• Credit: Expects a record fundraising year for third-party credit and private credit in 2026.

Market and Competitive Outlook:

• K-Shaped Industry: The firm anticipates a widening divergence where top-tier firms with multi-cycle experience capture increasing market share from younger entrants who have not experienced a full recession. 65% of market participants formed after 2009; over 80% were not active during the 2001 recession.
• Monetization Visibility: Embedded gains across the platform stand at $18 billion (up 60% in 3 years). USI and other transactions contribute to a robust pipeline, with USI alone providing $3.5B+ in proceeds over the next few quarters.
• Capital Markets Resilience: The firm believes the "floor" of the capital markets business has been raised significantly, with a baseline that can protect fees on the downside despite market volatility.
• Real Estate Cycle: Views the current environment as constructive for vintages entering the market, contrasting with the 2% Treasury era; prefers capital deployment at higher yields (10-year Treasury ~4.85%).

Macro / Industry Outlook:

• Interest Rates: Management views the current 5% Treasury yield as a return to "normalcy" relative to the 50-year average (5.8%), contrasting with the anomaly of the 2010–2024 low-rate period. Believes higher rates allow for lower entry multiples and reduce the likelihood of multiple contraction at exit.
• AI Infrastructure: Acknowledges the "unprecedented" scale of AI spend but maintains a cautious, diversified approach. Estimates 6% of infrastructure AUM and 1–2% of total firm AUM are allocated to AI/data centers. Focuses on investment-grade off-takers (90% exposure to governments/hyperscalers) and avoids speculative builds.
• Regulatory (401k): Welcomes DOL efforts to clarify private investment access in 401(k) plans, viewing this as a long-term tailwind for asset inflows, though impact on 2026 Q4 is not immediate.
• Political Environment: Anticipates potential volatility from midterm elections but notes the firm's long-duration capital allows it to ignore short-term political noise.

Strategic Initiatives:

• Capital Allocation: No fixed buckets for capital deployment; focus is on deploying marginal cash flow to maximize recurring, durable earnings per share. Key levers: Share Buybacks, Strategic Holdings, Strategic M&A, and Insurance.
• Share Buybacks: Repurchased $900+ million YTD 2026 (avg price $92); significant activity from Q3 through Nov 4 ($567 million). Plans to continue deploying capital here if share price disconnects from intrinsic value.
• Strategic Holdings Portfolio: Actively replenishing the USI footprint with new investments (Integer, Gen2, A1) to replace earnings by 2028/2030. Focus on durable, less cyclical businesses (medical devices, fund admin, residential services).
• M&A: Completed acquisition of Arctos (May 2026); closed Keystone ($6B commitments) last quarter. Launching Arcus sports strategy (launched) and GP-led secondary strategy (expected 2027).
• Governance Transition: KKR will fully transition to a one-share, one-vote governance structure by the next earnings cycle following the sunset of super-voting rights for co-founders.
• AI Strategy (Helix): Samsung committed $1B to AI infrastructure strategy; total commitments >$11B.
• Geographic Expansion: Intensifying fundraising for Asia infrastructure and Asia-Pacific capital markets; Asia infrastructure strategy expected to raise capital in H1 2027.

Risks and Headwinds to Outlook:

• Market Volatility: Acknowledges uncertainty in AI deployment pacing, potential data center restrictions, and broader market cycles which could impact monetization timing.
• Execution Risk: New strategic holdings (Integer, Gen2, A1) must achieve projected earnings growth to replace USI income.
• Competition: While confident in the "K-shaped" shift, competition in capital markets and fundraising remains present; some competitors may struggle or disappear if they lack cycle experience.
• Regulatory/Political: Potential impacts from US midterm elections on data center policy or retirement regulations (401k), though firm views long-term capital duration as a hedge.
• Asset Class Specifics: Real estate remains cyclical; private credit and wealth management faces market-wide sentiment noise that may not reflect the firm's actual performance.

Management Tone on the Future:

• Confidence: High confidence in the "K-shaped" industry dynamic favoring experienced, through-cycle managers. Management emphasizes "humility" regarding AI but confidence in the firm's ability to navigate it via due diligence and capital allocation.
• Optimism: Describes the current environment as a "return to normalcy" where the firm's historical advantage (50 years, 3 recessions) is becoming more valuable compared to public market perceptions driven by low-rate era data.
• Defensive Posture: Explicitly states they are "leaning in" to buybacks and insurance due to attractive risk/reward at current valuations.
• Discipline: Reiterated commitment to not "go down market" for the last dollar of fee growth; focused on high-quality, scalable opportunities.

Miscellaneous:

• Transaction Timing: USI closing expected to contribute $2B net income shortly; GA rail car sale closing expected Q1 2027.
• Fee Structure: Management fees in Q3 were $1.2B; excluding catch-up fees, fees grew 16% YoY. "Fee-related compensation" held at 17.5% of the midpoint.
• Insurance Economics: Over $60B of AUM in IV-related vehicles exists solely due to the GA insurance affiliate; total insurance economic figure over LTM was $1.9B (net of comp).