10-Q: KKR & Co. Inc. Reports Second Quarter 2024 Results, Driven by Strong Asset Management Performance

KKR & Co. Inc. announced its second quarter 2024 results, highlighting growth in asset management and strategic holdings, alongside continued performance in its insurance business.

Summary

• KKR & Co. Inc. reported a net income attributable to KKR & Co. Inc. common stockholders of $667.9 million for the three months ended June 30, 2024, compared to $861.7 million for the same period in 2023.
• Total revenues for the second quarter of 2024 were $4.2 billion, up from $3.6 billion in the second quarter of 2023.
• The asset management segment saw an increase in management fees, transaction fees, and monitoring fees, contributing to a total revenue of $1.6 billion.
• The insurance segment reported net premiums of $935.8 million and net investment income of $1.6 billion.
• Strategic Holdings segment earnings were $40.9 million, primarily from dividends.
• KKR's total assets under management (AUM) reached $601.3 billion as of June 30, 2024, with fee-paying AUM at $487.3 billion.
• The company's private equity business line had $185.3 billion of AUM, while the real assets business line had $151.5 billion of AUM.
• The credit and liquid strategies business line had $264.5 billion of AUM.
• KKR's capital invested was $22.7 billion for the three months ended June 30, 2024.
• The company's book value was $29.1 billion as of June 30, 2024, which included cash and short-term investments of $4.5 billion.

Sentiment

Score: 6

Explanation: The document presents a mixed picture with strong growth in AUM and fee-related revenues, but a decrease in net income and some negative investment results. The overall tone is cautiously optimistic, but the results are not uniformly positive.

Positives

• The asset management segment experienced growth in management fees, transaction fees, and monitoring fees.
• The insurance segment reported strong net premiums and net investment income.
• The strategic holdings segment contributed positively to earnings through dividends.
• KKR's total assets under management (AUM) and fee-paying AUM both increased.
• The company's private equity, real assets, and credit and liquid strategies business lines all saw growth in AUM.

Negatives

• Net income attributable to KKR & Co. Inc. common stockholders decreased to $667.9 million for the three months ended June 30, 2024, compared to $861.7 million for the same period in 2023.
• Net investment-related losses in the insurance segment were $(302.6) million for the three months ended June 30, 2024.
• The company's capital allocation-based income (loss) was $738.1 million for the three months ended June 30, 2024, compared to $696.9 million for the same period in 2023.

Risks

• The company's financial performance is subject to market and economic conditions, which can impact investment valuations and realization activity.
• Changes in interest rates and credit spreads can affect the value of investments and the performance of the insurance business.
• The company's legal proceedings, including the Kentucky matter and shareholder derivative litigation, could result in adverse outcomes.
• Regulatory investigations by the DOJ and SEC could lead to financial and non-financial consequences.
• The company's valuation methodologies for certain assets can be subjective, and the fair value of assets established pursuant to such subjective methodologies is uncertain and may never be realized.

Future Outlook

The report contains forward-looking statements regarding KKR's operations and financial performance, including potential for future business growth, ability to grow AUM, deploy capital, and realize unrealized investment appreciation. These statements are subject to various risks and uncertainties.

Management Comments

• Management believes that providing these performance measures on a supplemental basis to our GAAP results is helpful to stockholders in assessing the overall performance of KKR's businesses.
• Management believes it has made all necessary adjustments (consisting of only normal recurring items) such that the financial statements are presented fairly and that estimates made in preparing the financial statements are reasonable and prudent.

Industry Context

The report reflects KKR's position as a leading global investment firm with a diversified business model, including alternative asset management, capital markets, and insurance solutions. The results are influenced by broader market trends, including interest rates, equity market performance, and credit spreads.

Comparison to Industry Standards

• KKR's calculations of AUM, FPAUM, and capital invested may differ from those of other investment managers, making direct comparisons challenging.
• The report notes that KKR's non-GAAP financial measures may differ from the calculations of other investment managers, and as a result, may not be comparable to similar measures presented by other investment managers.
• The report does not provide specific comparisons to industry benchmarks or competitors, but it does provide detailed information about KKR's performance across its various business lines.

Corporate Governance

Legal Proceedings

• KKR is involved in various legal proceedings, requests for information, lawsuits, arbitration and claims incidental to the conduct of KKR's businesses.
• KKR is subject to investigations by the Antitrust Division of the DOJ related to antitrust matters, including civil investigative demands and a grand jury subpoena.
• KKR is subject to investigations by the SEC related to business-related electronic communications.
• KKR is involved in ongoing litigation related to the Kentucky Retirement Systems, including the 2020 AG Action, the 2024 AG Action, and the Second Tier 3 Action.
• A shareholder derivative complaint was filed in Delaware Chancery Court on July 30, 2024, and subsequently amended on August 7, 2024, alleging breach of fiduciary duties and waste of corporate assets in connection with the Reorganization Agreement.

Related Party Transactions

• KKR's Asset Management business, Strategic Holdings segment and Global Atlantic enter into transactions with each other, which may include transactions pursuant to their investment management agreements and financing arrangements.
• The borrowings from these financing arrangements are non-recourse to KKR beyond the assets pledged to support such borrowings.
• All intercompany transactions and balances have been eliminated.

Stakeholder Impact

• Shareholders may be impacted by the decrease in net income attributable to KKR & Co. Inc. common stockholders.
• Employees may be impacted by changes in compensation and benefits, including equity-based compensation.
• Fund investors may be impacted by changes in investment performance and carried interest.
• Policyholders may be impacted by changes in policy liabilities and benefits.

Next Steps

• KKR will continue to monitor the impact of market conditions on its investments and financial performance.
• KKR will continue to evaluate the potential future impacts of Pillar Two and will continue to review and monitor the issuance of additional guidance.
• KKR will continue to review and monitor the issuance of additional guidance from the U.S. Treasury and the U.S. Internal Revenue Service regarding the Inflation Reduction Act.
• KKR will continue to vigorously defend against the claims in the Kentucky matter and shareholder derivative litigation.

Key Dates

Keywords

Asset Management, Insurance, Strategic Holdings, Private Equity, Real Assets, Credit, Capital Markets, AUM, Fee Related Earnings, Investment Income, Net Premiums, Policy Liabilities, Carried Interest, Dividends