10-Q: KKR Reports Mixed Q2 2025: AUM Growth Amidst Profit Dip

KKR & Co. Inc. reported a significant increase in Assets Under Management and Fee Paying Assets Under Management for Q2 2025, alongside strong growth in fee-related earnings, despite a notable decline in GAAP net income attributable to common stockholders.

Summary

• Total Assets Under Management (AUM) increased by $48.2 billion to $685.8 billion as of June 30, 2025, from $637.6 billion at December 31, 2024.
• Fee Paying Assets Under Management (FPAUM) grew by $44.3 billion to $556.2 billion as of June 30, 2025, from $512.0 billion at December 31, 2024.
• Uncalled Commitments rose by $5.6 billion to $115.1 billion as of June 30, 2025, from $109.6 billion at December 31, 2024.
• For the three months ended June 30, 2025, total revenues increased by $916.9 million to $5.1 billion, compared to $4.2 billion in the prior year period.
• Asset Management and Strategic Holdings (AMSH) Fees and Other revenue increased by $102.1 million to $924.4 million for the three months ended June 30, 2025, driven by higher management and transaction fees.
• AMSH Capital Allocation-Based Income increased by $172.6 million to $910.7 million for the three months ended June 30, 2025, primarily due to net appreciation in unconsolidated carry-earning investment funds.
• Insurance Net Premiums decreased by $205.5 million to $730.2 million for the three months ended June 30, 2025, due to fewer reinsurance transactions with life contingencies or morbidity risk.
• Insurance Net Investment Income increased by $282.8 million to $1.9 billion for the three months ended June 30, 2025, driven by increased average assets under management and higher portfolio yields.
• Net Income Attributable to KKR & Co. Inc. Common Stockholders decreased by $195.5 million to $472.4 million for the three months ended June 30, 2025, compared to $667.9 million in the prior year period, partly due to new Series D Preferred Stock dividends.
• For the six months ended June 30, 2025, Net Income Attributable to KKR & Co. Inc. Common Stockholders significantly decreased by $1.1 billion to $286.5 million, compared to $1.4 billion in the prior year period.
• Adjusted Net Income (Non-GAAP) increased by $91.5 million to $1.1 billion for the three months ended June 30, 2025, and by $261.7 million to $2.1 billion for the six months ended June 30, 2025, reflecting strong operating performance.
• Capital Invested for the six months ended June 30, 2025, was $36.7 billion, a slight decrease of $162 million from $36.8 billion in the prior year period.

Sentiment

Score: 6

Explanation: While the company demonstrated strong growth in AUM, FPAUM, and core fee-related earnings, the significant decline in GAAP net income attributable to common stockholders and ongoing legal proceedings present notable headwinds. The positive outlook for H2 2025 realized performance income and strong performance of credit strategies against benchmarks offer some optimism, but overall results are mixed.

Positives

• Total Assets Under Management (AUM) increased by $48.2 billion to $685.8 billion as of June 30, 2025, demonstrating strong capital raising and asset growth.
• Fee Paying Assets Under Management (FPAUM) grew by $44.3 billion to $556.2 billion, indicating an expanded capital base generating management fees.
• Asset Management Segment Earnings increased by $131.0 million to $1.1 billion for the three months ended June 30, 2025, and by $365.5 million to $2.2 billion for the six months ended June 30, 2025, reflecting robust performance in the core asset management business.
• Fee Related Earnings (FRE) increased by $131.4 million to $886.8 million for the three months ended June 30, 2025, and by $285.2 million to $1.7 billion for the six months ended June 30, 2025, highlighting growth in recurring revenue streams.
• Insurance Operating Earnings increased by $24.7 million to $277.9 million for the three months ended June 30, 2025, and by $10.7 million to $536.7 million for the six months ended June 30, 2025, driven by increased average assets under management and higher portfolio yields.
• Net Investment-Related Gains (Losses) for the insurance segment swung to a positive $239.2 million for the three months ended June 30, 2025, from a loss of $(302.6) million in the prior year, primarily due to the performance of equity index options and interest rate contracts.
• Realized Performance Income in the Private Equity business line increased by $27.5 million to $355.5 million for the three months ended June 30, 2025, driven by significant exits.
• Realized Investment Income increased by $15.5 million to $154.0 million for the three months ended June 30, 2025, and by $98.7 million to $372.0 million for the six months ended June 30, 2025, reflecting successful investment realizations.
• Credit and Liquid Strategies demonstrated strong performance with all reported strategies (Multi-Asset Credit, Opportunistic Credit, Bank Loans, High-Yield, European Leveraged Loans, European Credit Opportunities) showing higher net returns compared to their respective benchmarks since inception.
• The company expects to realize at least $800 million in realized performance income and realized investment income in the second half of 2025, with most of it expected to be performance income.

Negatives

• Net Income Attributable to KKR & Co. Inc. Common Stockholders decreased significantly by $195.5 million to $472.4 million for the three months ended June 30, 2025, and by $1.1 billion to $286.5 million for the six months ended June 30, 2025.
• Basic EPS decreased to $0.53 for the three months ended June 30, 2025, from $0.75 in the prior year, and to $0.31 for the six months ended June 30, 2025, from $1.52 in the prior year.
• Diluted EPS decreased to $0.50 for the three months ended June 30, 2025, from $0.72 in the prior year, and to $0.29 for the six months ended June 30, 2025, from $1.45 in the prior year.
• Insurance Net Premiums decreased by $205.5 million for the three months and $5.9 billion for the six months ended June 30, 2025, primarily due to fewer new reinsurance transactions with life contingencies or morbidity risk.
• Strategic Holdings Segment Earnings decreased by $11.7 million to $29.1 million for the three months ended June 30, 2025, and by $965K to $60.6 million for the six months ended June 30, 2025, due to lower dividends from core private equity companies.
• Realized Performance Income for the Asset Management segment decreased by $63.5 million for the three months ended June 30, 2025, compared to the prior year period.
• Net Investment-Related Gains (Losses) for the insurance segment showed a larger loss of $(1.2) billion for the six months ended June 30, 2025, compared to $(544.1) million in the prior year period, primarily due to changes in embedded derivatives on funds withheld and foreign exchange contracts.

Risks

• The company is involved in multiple ongoing legal proceedings, including a lawsuit in Kentucky state court (2020 AG Action and 2024 AG Action) alleging violation of fiduciary duties and breach of contract, which the trial court declined to approve a settlement for.
• A shareholder derivative complaint was filed in Delaware Chancery Court on July 30, 2024, alleging breach of fiduciary duties and corporate asset waste related to the Reorganization Agreement, seeking cancellation of shares and monetary damages.
• The company is subject to ongoing antitrust investigations by the U.S. Department of Justice (DOJ) related to HSR Act filings for certain transactions in 2021 and 2022, with a civil antitrust complaint filed by the DOJ on January 14, 2025, seeking civil penalties and equitable relief.
• There is inherent uncertainty in the valuation of Level III investments, and actual realized values upon liquidation may differ significantly from reported fair values, potentially impacting carried interest and investment income.
• The clawback provision in investment fund partnership documents may require the general partner to return previously distributed carried interest if aggregate distributions exceed entitlements at fund liquidation, with approximately $521 million subject to this obligation as of June 30, 2025.
• Prolonged market volatility may negatively affect Global Atlantic's operating results and its ability to execute on tax planning strategies, potentially warranting the establishment of a valuation allowance on a portion of its deferred tax assets within the next 12 months.
• Geopolitical developments and global trade concerns, including U.S. tariffs and retaliations, can materially and adversely impact KKR's business, investment valuations, capital market transactions, and fundraising activities.

Future Outlook

The company expects its Strategic Holdings segment to generate income primarily from dividends. It plans to strategically and opportunistically utilize its balance sheet to generate attractive risk-adjusted returns. The company anticipates its primary liquidity needs will involve supporting and growing its asset management, insurance, and strategic holdings businesses, funding capital commitments, servicing debt, covering operating expenses and contingencies, paying taxes, policyholder obligations, and dividends, and repurchasing shares. Borrowings under the KCM 364-Day Revolving Credit Facility are expected to be promptly repaid as commitments are syndicated or fulfilled. The company expects to realize at least $800 million in realized performance income and realized investment income in the second half of 2025. While the recently enacted One Big Beautiful Bill Act (OBBBA) is not expected to have a material impact on income taxes, prolonged market volatility could negatively affect Global Atlantic's operating results and potentially necessitate a valuation allowance on deferred tax assets within the next 12 months.

Management Comments

• "We aim to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and supporting growth in our portfolio companies and communities."
• "We believe making general partner commitments assists us in raising new funds from limited partners by demonstrating our conviction in a given funds strategy."
• "We endeavor to use our balance sheet strategically and opportunistically to generate an attractive risk-adjusted return on equity in a manner that is consistent with our fiduciary duties, in compliance with applicable laws, and consistent with our one firm approach."
• Management does not believe, based on currently available information, that the outcomes of the matters pending against KKR will have a material adverse effect upon its financial statements.

Industry Context

During Q2 2025, the U.S. economy experienced expanding growth, though inflation persisted above the Federal Reserve's target, leading to stable interest rates. The Eurozone saw moderate GDP growth and the European Central Bank lowered rates to 2.0% as inflation slowed. Japan's economy showed positive growth with the Bank of Japan maintaining a 0.50% policy rate. China's economy grew but faced headwinds from its property sector and potential trade tensions with the U.S. Global equity markets, including the S&P 500 (+10.9%), MSCI Europe (+13.3%), MSCI Asia (+12.5%), and MSCI World (+11.6%), showed strong total returns, while market volatility (VIX) decreased. U.S. investment grade corporate bond spreads widened, but non-investment grade credit indices were up. 10-year government bond yields varied globally, rising in the U.S. but falling in Germany, Japan, the UK, and China. Commodity prices for WTI crude oil and natural gas decreased, as did Japan's spot LNG import price. Overall, the business environment is characterized by elevated market volatility and uncertainty due to geopolitical and global trade concerns, which could impact investment valuations, transaction volumes, and fundraising.

Comparison to Industry Standards

• KKR's Multi-Asset Credit Composite strategy (inception Jul 2008) achieved a Net Return of 6.49%, outperforming its blended benchmark (50% S&P/LSTA Loan Index, 50% BoAML HY Master II Index) which had Gross Returns of 5.86%.
• The Opportunistic Credit strategy (inception May 2008) delivered a Net Return of 8.99%, significantly exceeding its blended benchmark (50% S&P/LSTA Loan Index, 50% BoAML HY Master II Index) Gross Returns of 6.03%.
• The Bank Loans strategy (inception Apr 2011) reported a Net Return of 5.29%, higher than the S&P/LSTA Loan Index Gross Returns of 4.89%.
• The High-Yield strategy (inception Apr 2011) achieved a Net Return of 5.73%, slightly above the BoAML HY Master II Index Gross Returns of 5.67%.
• European Leveraged Loans (inception Sep 2009) had a Net Return of 4.44%, surpassing the CS Inst West European Leveraged Loan Index Gross Returns of 4.04%.
• European Credit Opportunities (inception Sept 2007) recorded a Net Return of 5.64%, outperforming the S&P European Leveraged Loans (All Loans) Gross Returns of 4.51%.
• For all Private Equity and Real Assets funds combined (since inception), KKR reported a Gross IRR of 25.5% and a Net IRR of 18.6%, with a Gross Multiple of Invested Capital of 1.9.
• Legacy Private Equity Funds (1976-1996) showed strong historical performance with a Net IRR of 19.9% and a Gross Multiple of 3.1.
• Global Atlantic's Available-For-Sale (AFS) fixed maturity securities portfolio was 94% investment grade by NAIC ratings and 89% by NRSRO ratings as of June 30, 2025, indicating a high credit quality portfolio.
• For commercial mortgage loans, 91% of the portfolio was rated investment grade based on NAIC designation, with over 99% of loans in current payment status and approximately 90% having a loan-to-value ratio of 70% or less.

Corporate Governance

Legal Proceedings

• The company is involved in ongoing litigation in Kentucky (2020 AG Action and 2024 AG Action) alleging breach of fiduciary and other duties, where a proposed settlement was recently rejected by the trial court.
• A shareholder derivative lawsuit was filed on July 30, 2024, in Delaware Chancery Court, alleging breach of fiduciary duties and corporate asset waste related to the Reorganization Agreement.
• The company is subject to civil antitrust litigation by the U.S. Department of Justice (DOJ) related to alleged violations of the Hart-Scott-Rodino Act for certain transactions in 2021 and 2022, with KKR filing a motion to dismiss the DOJ's complaint.
• KKR is also cooperating with the DOJ on other antitrust investigations, including restrictions on interlocking directorates under Section 8 of the Clayton Act.

Related Party Transactions

• Amounts Due From Unconsolidated Investment Funds: $1,648,580K as of June 30, 2025.
• Amounts Due From Portfolio Companies: $304,770K as of June 30, 2025.
• Amounts Due to Current and Former Employees Under the Tax Receivable Agreement: $355,502K as of June 30, 2025, with $129,400K of cumulative cash payments made since inception.
• Amounts Due to Unconsolidated Investment Funds: $97,479K as of June 30, 2025.
• Intersegment transactions occur, including management fees earned by the Asset Management segment from the Insurance and Strategic Holdings segments, and interest income/expense from lending arrangements between Asset Management and Insurance segments. These are eliminated in consolidation but reported in segment results.

Stakeholder Impact

• Shareholders: Experienced a significant decrease in GAAP net income and EPS, but also benefit from increased AUM/FPAUM, strong fee-related earnings, and ongoing share repurchase program. New Series D Preferred Stock dividends impact common stockholder earnings.
• Employees: Benefit from increased carry pool allocations (up to 80% for new funds, and potentially higher for older funds if certain thresholds are met) and increased accrued discretionary cash compensation, enhancing retention and incentives.
• Customers (Fund Investors): Benefit from strong performance in credit strategies outperforming benchmarks and continued capital deployment through new funds and investment vehicles.
• Policyholders (Global Atlantic): Benefit from increased average assets under management and higher portfolio yields in the insurance business, contributing to the stability of policy liabilities.
• Regulatory Authorities: The company is subject to ongoing examinations, inquiries, and investigations by various U.S. and non-U.S. governmental and regulatory agencies, including the SEC and DOJ, which could result in fines or other remedies.

Next Steps

• The company expects to realize at least $800 million in realized performance income and realized investment income in the second half of 2025.
• The 6.875% Subordinated Notes due 2065 will have quarterly interest payments commencing on September 1, 2025.
• A common stock dividend of $0.185 per share will be paid on August 26, 2025.
• A Series D Mandatory Convertible Preferred Stock dividend of $0.78125 per share will be paid on September 1, 2025.
• The Reorganization Agreement's 'Sunset Date' will occur no later than December 31, 2026, leading to the elimination of Series I preferred stock control, one-vote-per-share common stock voting rights, and KKR acquiring control of the carry pool.
• The Series D Mandatory Convertible Preferred Stock is expected to automatically convert on March 1, 2028.

Key Dates

Recommendation

While KKR demonstrates robust growth in Assets Under Management and Fee Paying Assets Under Management, alongside strong Fee Related Earnings and Insurance Operating Earnings, the significant decline in GAAP Net Income Attributable to Common Stockholders and diluted EPS is a concern. This GAAP decline is partly due to the introduction of Series D Preferred Stock dividends and lower investment-related gains attributable to KKR. The ongoing legal proceedings, particularly the unresolved Kentucky matter and DOJ antitrust investigations, introduce a layer of uncertainty. Despite the positive outlook for realized performance income in the second half of 2025 and the outperformance of credit strategies against benchmarks, the mixed financial results and legal overhang suggest a 'hold' position for seasoned investors, awaiting clearer resolution on legal matters and sustained improvement in GAAP profitability for common shareholders.

Keywords

Asset Management, Private Equity, Credit, Insurance, Global Atlantic, AUM, FPAUM, Fee Related Earnings, Real Assets, Capital Markets, SEC Filing, 10-Q, Investment Firm, Financial Services, Alternative Investments