8-K: KKR Reports Record Fee Related Earnings and Completes Global Atlantic Acquisition in Strong Q4 2023

KKR's fourth quarter of 2023 saw record fee-related earnings, significant fundraising and deployment activity, and the completion of the Global Atlantic acquisition.

Summary

• KKR reported its fourth quarter and full year 2023 financial results, highlighting strong performance across its asset management and insurance segments.
• The company achieved record Fee Related Earnings (FRE) in the fourth quarter, reaching $675 million, a 21% increase year-over-year.
• Full-year FRE was $2.4 billion, up 10% from the previous year.
• After-tax Distributable Earnings (DE) for the quarter were $888 million, a 4% increase year-over-year, while full-year DE was $3.0 billion, down 13% year-over-year.
• Assets Under Management (AUM) grew to $553 billion, a 10% increase year-over-year, and Fee Paying AUM (FPAUM) reached $446 billion, up 8% year-over-year.
• KKR raised $31 billion in new capital during the quarter and $69 billion for the full year, deploying $16 billion in the quarter and $44 billion for the year.
• The company's book value per adjusted share was $30.95 at year-end, including $23.27 per adjusted share of net cash and total investments.
• KKR also announced an increase in its regular annualized dividend from $0.66 to $0.70 per share, starting with the dividend announced for the quarter ending March 31, 2024.
• The acquisition of the remaining stake in Global Atlantic was completed in early January 2024, increasing KKR's ownership to 100%.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, record fee-related earnings, and strategic acquisitions. The increase in dividends and the completion of the Global Atlantic acquisition are also positive indicators. However, the decrease in full-year distributable earnings and the decline in the opportunistic real estate portfolio temper the overall sentiment slightly.

Positives

• KKR achieved record Fee Related Earnings in the fourth quarter of 2023.
• The company experienced significant growth in Assets Under Management and Fee Paying Assets Under Management.
• KKR successfully raised a substantial amount of new capital and deployed a significant amount of capital during the year.
• The book value per adjusted share increased year-over-year.
• KKR increased its regular annualized dividend, demonstrating confidence in future performance.
• The acquisition of the remaining stake in Global Atlantic was completed, positioning KKR for further growth.
• The Traditional Private Equity portfolio appreciated 16% during the year.
• The Infrastructure portfolio appreciated 18% during the year.
• The Leveraged Credit composite appreciated 14% during the year.
• The Alternative Credit composite was up 10% during the year.

Negatives

• Full-year After-tax Distributable Earnings (DE) decreased by 13% year-over-year.
• The Opportunistic Real Estate portfolio declined 2% during the year.
• Realized Investment Income decreased to $147 million in the quarter and $691 million for the year.
• Net Cost of Insurance totaled $901 million in the quarter, driven by new business growth and the run off of older business.

Risks

• The document contains forward-looking statements that are subject to various risks and uncertainties, which could cause actual results to differ materially.
• Changes in market conditions, interest rates, and economic factors could impact KKR's performance.
• The company's investment performance is not guaranteed, and past performance is not indicative of future results.
• The integration of Global Atlantic and other acquisitions could present challenges and unforeseen costs.
• The document mentions that perpetual capital is subject to material reductions from changes in valuation and withdrawals by investors.

Future Outlook

KKR is well-positioned for long-term sustained growth with three avenues: Asset Management, Insurance, and Strategic Holdings. The company expects to see the impact of the Global Atlantic acquisition in its first quarter 2024 reporting, including revised compensation ratios, the new Strategic Holdings segment, and a new financial metric, Total Operating Earnings. KKR intends to increase its regular annualized dividend per share of common stock from $0.66 to $0.70 starting with the dividend to be announced with the results of the quarter ending March 31, 2024.

Management Comments

• Our business momentum continues.
• The fourth quarter had record Fee Related Earnings and was our most active fundraising and deployment quarter of 2023.
• With three avenues for long-term sustained growth Asset Management, Insurance and Strategic Holdings we are well positioned for the years ahead.

Industry Context

KKR's results reflect a broader trend of growth in alternative asset management and the increasing importance of insurance solutions within the financial industry. The acquisition of Global Atlantic further solidifies KKR's position in the insurance sector, aligning with the trend of asset managers expanding into insurance to diversify revenue streams and access long-term capital. The company's focus on private equity, real assets, and credit strategies is consistent with the demand for alternative investments in the current market environment.

Comparison to Industry Standards

• KKR's Fee Related Earnings growth of 21% year-over-year in Q4 2023 is strong compared to peers such as Blackstone (BX) and Apollo Global Management (APO), which have also reported growth in fee-related revenues, but not necessarily at the same rate.
• The 10% year-over-year growth in AUM is comparable to the growth rates of other large alternative asset managers, although specific growth rates vary based on investment strategies and market conditions.
• KKR's strategic move to acquire the remaining stake in Global Atlantic is similar to other asset managers' moves to expand into insurance, such as Apollo's acquisition of Athene, indicating a trend towards integrating asset management and insurance businesses.
• The increase in KKR's dividend is in line with the trend of returning capital to shareholders, which is a common practice among publicly traded asset managers.
• KKR's investment performance in traditional private equity (16% appreciation) and infrastructure (18% appreciation) is competitive with industry benchmarks, while the decline in the opportunistic real estate portfolio (-2%) highlights the challenges in that sector.

Stakeholder Impact

• Shareholders will benefit from the increased dividend and the potential for future growth.
• Employees may see changes in compensation ratios and new opportunities within the expanded organization.
• Customers of KKR's investment funds and insurance products will have access to a broader range of services and solutions.
• Suppliers and creditors may see increased business opportunities with the expanded KKR organization.

Next Steps

• KKR will integrate Global Atlantic into its reporting structure, reflecting the acquisition in its first quarter 2024 results.
• The company will implement revised compensation ratios and introduce a new Strategic Holdings segment and financial metric, Total Operating Earnings.
• KKR will increase its regular annualized dividend per share of common stock from $0.66 to $0.70 starting with the dividend to be announced with the results of the quarter ending March 31, 2024.
• The pending Manulife block reinsurance transaction is expected to close in the first half of 2024.

Key Dates

Keywords

KKR, Asset Management, Insurance, Global Atlantic, Fee Related Earnings, Distributable Earnings, Assets Under Management, Private Equity, Real Assets, Credit, Dividends, Capital Raising, Investments