KKR & Co. Inc. Barclays 24th Annual Global Financial Services Conference

Yeah. No, thanks for having me.

What I thought I would do, just to set the stage a little bit, give a brief overview of just our credit markets business, maybe talk a little bit about what we're seeing and some of the reflections over the last 12 months on some of the themes we're seeing across the business. Then I'll pivot a little bit into the markets in terms of tailwinds for credit and why we think those are going to persist even in some of this volatility, and then a little bit on how we're tackling it. Then we can go, and you can pepper me with some questions, and we can move from there. I did hear last year there was a fire alarm during this session, so it was our competitor. Hopefully that competitor doesn't get back at us.

But if I just do a quick snapshot of us today, we're $300 billion across our credit business, 250 professionals, global. You can see 12 cities, 10 countries. We think about the business in three areas. One are leveraged credit business, which is everything liquid traded, both corporate and ABS. We run a number of different strategies there. That's about $143 billion. The private credit, which is the center, similar sized, but think about it as two different businesses. Our corporate private credit business, so think direct lending, junior debt, and then our asset-based finance business, which may be surprising to some of you. Our asset-based finance business, which in the press doesn't get as much as the direct lending business, is actually larger at $91 billion versus the close to $50 billion in our corporate private credit business.

And then we have $11 billion in our strategic investment group, which is really structured equity, hybrid capital solutions. Something that we'll go in a little bit more detail, but is really, I think end up becoming a more permanent asset allocation as it is developing as an asset class. About 10 plus years ago, we combined our credit principal business with our capital markets business primarily to be solutions providers for our borrowers and our clients. It's really paying dividends, particularly around origination, and supplying our clients with a lot of diversified co-invest. The last thing at the bottom is, as many of you know, we own an insurance company, Global Atlantic, an annuity business. We closed that transaction in early 2021, and fully integrated within the credit business. So that investment office rolls into our credit markets platform.

If you look at our capital, it's scaled meaningfully since that period of acquiring the insurance business. It's up 50% since 2021, and with management fees up 32%. Even year to date, we're up double digit. So if I think about reflections on the last 12 months on our business, one, credit allocations are continuing to flow. Despite some of the noise and some of the press we read or hear about regarding private credit, we're still seeing the asset class see inflows. I think a lot of it, which I'll go into some of the tailwinds in terms of the attractiveness of risk-reward and relative value. As a result, we're seeing our management fees continuing to grow, and we expect them to continue to grow.

The other big theme, which I don't think a lot of people talk about, is we're seeing a much more trend to diversified income and narrowing their LP or their GP exposures to one. You're still seeing some allocators allocate per asset class, but we're actually now much more seeing multi-asset class partnerships across public, private, corporate, ABF, senior subordinated. I think they're relying on us to do the relative value. I think they're going to people that have scale, breadth, and actually can assess risk-adjusted return, particularly given the volatility and how quickly that rel val can change across the credit spectrum. If you actually rewind five years ago, it was very difficult for an allocator to get diversified income, right?

If you just pick the ABF sector alone, that's not a new asset class, but really in a multi-asset type way, it is essentially newer to allocators because you need big teams. You need a resi team, a consumer team, a commercial team, a transportation team, a renewables team. To be able to do that rel val across the board, if you wanted to get that exposure, you had to hire multiple different managers to do that. We're also seeing, as I mentioned, this capital solutions growth and really bespoke capital solutions both in the below investment grade and then last bullet in private IG. You're seeing much more bespoke financing to help companies grow.

Some of that is off balance sheet, like in the private IG world, where people are financing and using the technology no different than real estate sale leaseback, to more capital solutions, hybrid structured equity. A lot of times they're looking for incremental help in the boardroom. A lot of that sourcing for us is coming from our PE channel. Credit has had a good run in terms of allocations and flow over the last handful of years. We think that the tailwinds are going to continue, and a big part of it is, one, rates are higher for longer. We're seeing it today just given where the tenure is. This is our forecast versus consensus. Maybe that consensus is creeping up over the last few days. However, if you think about in the low interest rate environment, private equity's returns are here, treasuries are down here.

In a higher interest rate environment, those are compressed. As a result, credit is just naturally going to look much more attractive from a risk-adjusted basis. So we think that's going to continue to compound. There's also a ton of demand just for credit, and then we use the AI here in the top right. If you look at the CapEx from the hyperscalers over the next five years, it's $7.6 trillion forecasted. That'll get financed through public markets, equity markets, but they're going to rely a big part on private IG as a result. There's still a lot of dry powder in private equity. The last time I checked, they're not going to return that capital. So that will start turning on. We're starting to see that turn on.

Credit allocations are evolving and becoming more permanent and, as I sort of mentioned before, this multi-asset partnerships and multi-asset capital is a big trend we're seeing and will continue. So here's just sort of an example of a balanced portfolio across that. The other big driver is this, and our Head of Global Macro and Asset Allocation and CIO of KKR's Balance Sheet talks about this a lot, Henry McVey, is there's been a big trend for capital from capital-intensive businesses to capital light, and the capital-intensive businesses are trying to become more capital light. Because if you've been a public company, you've been capital light, you've been rewarded, as you can see in the blue line. If you've been capital-intensive, you haven't been rewarded in the stock prices in the purple line. So you're just seeing this big trend to accelerate growth.

How do you accelerate growth is raise capital. If you can do that off balance sheet, it's super attractive and it's been accretive. If you think about what we're doing across our asset-based finance, we've done financing facilities for PayPal, Lenovo, Volvo, Harley-Davidson, and immediately after doing those transactions, the stock price is up 5%-10%. You're going to see this technology get rolled out, and it's still not known by all, and there's still a lot of CFOs or CEOs that are looking at what their competitors are doing and say, "I want some of that." We're starting to see that origination really start playing through, and fueling the ABF business, our private IG business, and our capital solutions businesses.

Which is illustrative of what we've done in just private IG year to date, which is over $80 billion of transactions either originated or placed, which is up 104% versus all of last year, so for 6 months. As you can see, it's not just data center from the logos. It's not just data center. It's broad-based across all sectors. It's energy, healthcare, tech, consumer. Really that technology of this off-balance sheet, giving equity treatment for these companies, not burdening their ratings is something that is flowing through the corporate world. There's multiple conversations every day, new conversations every day happening of saying, "Wait, how does this work? How can I get access to this capital?" Which is exciting. Finally, before we go to questions, how are we navigating the market?