10-Q: KKR Reports Strong AUM Growth, Mixed Q3 Earnings

KKR & Co. Inc. announced a significant increase in Assets Under Management and operating earnings for the third quarter and first nine months of 2025, despite a decline in GAAP net income attributable to common stockholders for the nine-month period.

Summary

• Total Assets Under Management (AUM) increased by $85.6 billion to $723.2 billion as of September 30, 2025, from $637.6 billion at December 31, 2024.
• Fee Paying Assets Under Management (FPAUM) grew by $73.1 billion to $585.0 billion as of September 30, 2025, from $512.0 billion at December 31, 2024.
• Uncalled commitments rose by $16.2 billion to $125.8 billion as of September 30, 2025, from $109.6 billion at December 31, 2024.
• Total Operating Earnings for the three months ended September 30, 2025, increased by $149.2 million to $1.40 billion, compared to $1.25 billion in the prior year period.
• Adjusted Net Income (ANI) for the three months ended September 30, 2025, increased by $92.1 million to $1.27 billion, compared to $1.18 billion in the prior year period.
• Net Income Attributable to KKR & Co. Inc. Common Stockholders for the three months ended September 30, 2025, increased by $259.4 million to $859.9 million, compared to $600.6 million in the prior year period.
• Basic Earnings Per Share (EPS) for the three months ended September 30, 2025, was $0.97, up from $0.68 in the prior year period.
• Diluted EPS for the three months ended September 30, 2025, was $0.90, up from $0.64 in the prior year period.
• Acquired a majority ownership stake in HealthCare Royalty Management, LLC on July 30, 2025, adding approximately $3.2 billion in AUM to the Private Equity business line.
• Declared a common stock dividend of $0.185 per share and a Series D Mandatory Convertible Preferred Stock dividend of $0.78125 per share, both payable in December 2025.
• The share repurchase program had approximately $440 million remaining as of October 31, 2025, after an automatic $500 million increase was triggered in Q2 2025.

Sentiment

Score: 6

Explanation: The company shows strong operational growth in AUM and operating earnings, indicating robust business expansion. However, the decline in GAAP net income attributable to common stockholders for the nine-month period, coupled with significant legal/regulatory risks and a substantial clawback obligation, introduces notable uncertainty and offsets some of the positive momentum.

Positives

• Total Assets Under Management (AUM) grew significantly by $85.6 billion to $723.2 billion, reflecting strong capital raising and investment performance across Private Equity, Real Assets, and Credit & Liquid Strategies.
• Fee Paying Assets Under Management (FPAUM) increased by $73.1 billion to $585.0 billion, indicating a larger base for recurring management fees.
• Uncalled commitments increased by $16.2 billion to $125.8 billion, providing substantial capital for future investments.
• Total Operating Earnings for Q3 2025 rose by $149.2 million to $1.40 billion, driven by higher fee-related earnings, insurance operating earnings, and strategic holdings operating earnings.
• Adjusted Net Income (ANI) for Q3 2025 increased by $92.1 million to $1.27 billion, demonstrating improved profitability on an adjusted basis.
• Net Income Attributable to KKR & Co. Inc. Common Stockholders for Q3 2025 increased by $259.4 million to $859.9 million, showing strong quarterly performance for shareholders.
• Basic EPS for Q3 2025 increased to $0.97 from $0.68, and Diluted EPS increased to $0.90 from $0.64, indicating improved per-share profitability.
• Management fees increased across all asset management business lines (Private Equity, Real Assets, Credit & Liquid Strategies) for both the three and nine months ended September 30, 2025.
• Net Investment-Related Gains (Losses) for the Insurance segment swung positively by $587.8 million in Q3 2025, from a loss of $236.0 million to a gain of $351.8 million, primarily due to increased fair value of embedded derivatives and equity index options.
• Acquisition of HealthCare Royalty Management, LLC on July 30, 2025, adds approximately $3 billion in assets and expands the biopharma royalty acquisition business.
• Global Atlantic announced an additional $2 billion commitment to a co-investment vehicle, signaling continued growth in the insurance business.

Negatives

• Net Income Attributable to KKR & Co. Inc. Common Stockholders for the nine months ended September 30, 2025, decreased by $804.3 million to $1.15 billion, compared to $1.95 billion in the prior year period.
• Basic EPS for the nine months ended September 30, 2025, decreased to $1.27 from $2.20, and Diluted EPS decreased to $1.19 from $2.09.
• Capital Allocation-Based Income (Loss) for Asset Management and Strategic Holdings decreased by $524.7 million in Q3 2025 and by $455.9 million for the nine months ended September 30, 2025, primarily due to lower net appreciation of underlying investments.
• Total Revenues for the nine months ended September 30, 2025, decreased by $4.90 billion to $13.73 billion, primarily due to a significant decrease in Insurance Net Premiums.
• Insurance Net Premiums for the nine months ended September 30, 2025, decreased by $5.48 billion to $2.11 billion, primarily due to fewer reinsurance transactions with life contingencies or morbidity risk.
• Net Investment-Related Gains (Losses) for the Insurance segment showed a larger loss of $(845.4) million for the nine months ended September 30, 2025, compared to a loss of $(780.1) million in the prior year period, mainly due to increased realized losses on available-for-sale fixed maturity securities.
• Transaction and Monitoring Fees, Net, decreased by $139.0 million in Q3 2025 and by $18.2 million for the nine months ended September 30, 2025, primarily due to a decrease in the size of capital markets transactions.
• A clawback obligation of approximately $514 million of previously distributed carried interest was outstanding as of September 30, 2025, with $346 million related to Asian Fund II expected to reduce Q4 2025 net realized performance income by $210 million after recouping from employees.
• Netting holes in excess of $50 million existed at North America Fund XI ($550 million) and Health Care Strategic Growth Fund II ($53 million) as of September 30, 2025, which can delay carried interest distributions.

Risks

• Ongoing legal proceedings, including multiple lawsuits related to the Kentucky Retirement Systems, could result in adverse financial and nonfinancial consequences, despite KKR's intent to vigorously defend.
• Shareholder derivative litigation in Delaware Chancery Court alleges breach of fiduciary duties and waste of corporate assets related to the Reorganization Agreement, seeking significant remedies.
• Antitrust investigations by the DOJ related to HSR Act filings for 2021 and 2022 transactions, with a civil antitrust complaint filed, could lead to civil penalties, disgorgement, and injunctive relief.
• European Commission investigation related to the acquisition of certain infrastructure assets of Telecom Italia S.p.A. and FiberCop S.p.A. poses additional regulatory risk.
• Market volatility and uncertainty driven by geopolitical and global trade concerns, including tariffs, may impact investment valuations, transaction pace, and fundraising activities.
• The inherent uncertainty in valuing Level III investments, which rely on significant management judgment or estimation, could lead to material differences between estimated and realized values.
• Fluctuations in interest rates, credit spreads, and equity market prices can significantly impact the fair value of investments and insurance policy liabilities, affecting financial results.
• Clawback obligations on carried interest, particularly the $346 million from Asian Fund II, represent a potential reduction in future realized performance income.
• The ability to realize deferred tax assets, particularly for Global Atlantic, could be negatively affected by prolonged market volatility, potentially requiring a valuation allowance.

Future Outlook

KKR expects to realize at least $800 million in performance income and investment income between the fourth quarter of 2025 and the first quarter of 2026, though this will be partially offset by a $210 million reduction in Q4 2025 net realized performance income due to the Asian Fund II clawback obligation. The company continues to evaluate the impact of new FASB accounting standards on income tax disclosures, expense disaggregation, VIE acquisitions, credit loss measurement, and internal-use software accounting, with various effective dates extending to 2027. Global Atlantic anticipates accessing certain insurance, reinsurance, and strategic transactions through an additional $2 billion co-investment vehicle, subject to regulatory approvals.

Management Comments

• We believe making general partner commitments assists us in raising new funds from limited partners by demonstrating our conviction in a given fund's 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

KKR's performance reflects a mixed global economic environment, with expanding U.S. GDP but persistent inflation, moderately positive Eurozone growth, and negative growth in Japan. Equity markets showed positive returns globally, while credit spreads tightened in the U.S. The capital markets business is influenced by these conditions, with transaction fees decreasing due to a reduction in the size of capital markets transactions. The insurance business continues to benefit from increased average assets under management and higher portfolio yields, aligning with broader trends of growth in retirement and life insurance products. Geopolitical and global trade concerns, including tariffs, are noted as ongoing risks impacting market volatility and investment valuations.

Comparison to Industry Standards

• KKR's Private Equity and Real Assets funds' Gross IRRs and Net IRRs, ranging from negative to over 30%, demonstrate varied performance across vintages and strategies, with many funds showing strong historical returns (e.g., 1976 Fund Gross IRR 39.5%, Net IRR 35.5%).
• The Multi-Asset Credit Composite strategy's Gross Returns of 7.20% and Net Returns of 6.51% since July 2008 compare favorably to its benchmark (50% S&P/LSTA Loan Index, 50% BoAML HY Master II Index) Gross Returns of 5.90%.
• The Opportunistic Credit strategy's Gross Returns of 10.51% and Net Returns of 9.00% since May 2008 also outperform its benchmark (50% S&P/LSTA Loan Index, 50% BoAML HY Master II Index) Gross Returns of 6.07%.
• Global Atlantic's AFS fixed maturity securities portfolio, with 93% investment grade by NAIC ratings and 88% by NRSRO ratings as of September 30, 2025, indicates a strong credit quality profile compared to general industry benchmarks for insurance investment portfolios.
• The weighted average loan-to-value ratio for Global Atlantic's residential mortgage loans was 63% as of September 30, 2025, suggesting a conservative lending approach relative to typical industry averages for mortgage portfolios.

Corporate Governance

Legal Proceedings

• Multiple lawsuits (2017 Action, 2020 AG Action, Tier 3 Plaintiffs, Second Tier 3 Action, 2024 AG Action, declaratory judgment action) related to the Kentucky Retirement Systems, alleging breach of fiduciary and other duties. A settlement agreement for the 2020 AG and 2024 AG actions was terminated due to court disapproval. KKR denies liability and intends to vigorously defend.
• A shareholder derivative complaint, amended on August 19, 2025, was filed in Delaware Chancery Court, alleging breach of fiduciary duties and waste of corporate assets in connection with transactions contemplated by the Reorganization Agreement. KKR filed a motion to dismiss.
• Investigations by the Antitrust Division of the DOJ related to the accuracy and completeness of certain HSR Act filings for 2021 and 2022 transactions. A civil antitrust complaint was filed by the DOJ, and KKR filed its own complaint challenging the allegations and interpretations of the HSR Act. The DOJ's motion to dismiss KKR's complaint is stayed, and investigations are ongoing, with potential for significant monetary penalties or remedial measures.
• An investigation by the European Commission relating to the acquisition of certain infrastructure assets of Telecom Italia S.p.A. and FiberCop S.p.A., with KKR cooperating.

Related Party Transactions

• Management fees earned by the Asset Management segment from the Insurance and Strategic Holdings segments are inter-segment transactions recorded based on governing agreements.
• Interest income and expense based on lending arrangements where the Asset Management segment borrows from the Insurance segment are inter-segment transactions.
• KKR's Asset Management segment charges a quarterly management fee based on invested capital in the Strategic Holdings segment, and a performance fee from the sale of interests in Strategic Holdings companies.
• KKR allocates a portion of realized and unrealized carried interest to Associates Holdings (the carry pool), from which asset management employees and other participants are eligible to receive allocations. KKR will acquire control of Associates Holdings on the Sunset Date (no later than December 31, 2026).

Stakeholder Impact

• Shareholders: Mixed impact with strong AUM growth and operating earnings, but a decline in GAAP net income attributable to common stockholders for the nine-month period and ongoing legal/regulatory risks create uncertainty. Dividends are maintained at $0.185 per share quarterly.
• Employees: Compensation and benefits expense decreased due to lower carried interest compensation, but discretionary cash compensation increased due to higher fee-related revenues. Equity awards continue to be a significant component of compensation.
• Customers (Global Atlantic policyholders): Global Atlantic served over 3.5 million policyholders as of September 30, 2025, with increased average assets under management and higher portfolio yields supporting policy benefits.
• Fund Investors: Strong AUM and FPAUM growth, along with increased uncalled commitments, indicate continued investment opportunities. However, netting holes in some funds may delay carried interest distributions.
• Regulatory Bodies: KKR is subject to multiple ongoing investigations and legal proceedings by the SEC, DOJ, and other U.S. and non-U.S. governmental and regulatory agencies, which could result in fines or other remedies.

Next Steps

• Vigorously defend against multiple legal proceedings related to the Kentucky Retirement Systems and shareholder derivative litigation.
• Continue cooperation with DOJ antitrust investigations and European Commission investigation.
• Manage the realization of the Asian Fund II clawback obligation in Q4 2025, expected to reduce net realized performance income by $210 million.
• Monitor and evaluate the impact of new FASB accounting pronouncements (ASU 2023-09, 2024-03, 2025-03, 2025-05, 2025-06) on financial statements and disclosures.
• Proceed with the additional $2 billion commitment to a Global Atlantic co-investment vehicle, pending regulatory approvals.
• The Reorganization Agreement's Sunset Date is set for no later than December 31, 2026, which will trigger changes in corporate governance, including the elimination of KKR Management LLP voting control and the establishment of one vote per common share.

Key Dates

Recommendation

KKR demonstrates robust operational performance with significant growth in Assets Under Management and Fee Related Earnings, indicating a strong underlying business model and successful capital deployment. The increase in quarterly GAAP net income and EPS is positive. However, the decline in GAAP net income attributable to common stockholders for the nine-month period, coupled with substantial ongoing legal and regulatory challenges (including antitrust investigations and shareholder litigation), and a material clawback obligation, introduces considerable uncertainty. While the long-term growth trajectory appears intact, these near-term headwinds and potential financial liabilities warrant a cautious approach. Investors should hold, monitoring the outcomes of legal proceedings and the impact of the clawback, as these factors could significantly influence future financial performance and stock valuation.

Keywords

Alternative Asset Management, Private Equity, Credit, Real Assets, Insurance Solutions, Global Atlantic, AUM Growth, Fee Related Earnings, SEC Filing, 10-Q, Investment Performance, Capital Markets, Strategic Holdings, Carried Interest, Legal Proceedings, Antitrust Investigation, Clawback Obligation, Financial Reporting