Earnings Call Transcript - KKR Q3 2020

Operator, Operator

Welcome to KKR's Third Quarter 2020 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the management's prepared remarks, the conference will be opened for questions. I would now hand the call over to Craig Larson, Head of Investor Relations for KKR. Craig, please go ahead.

Craig Larson, Head of Investor Relations

Thank you, good morning everybody and welcome to our third quarter 2020 earnings call. I'm joined by Scott Nuttall, our Co-President and Co-COO; and also by Rob Lewin, our CFO. We'd like to remind everyone that we'll be referring to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at KKR.com. This call will contain forward-looking statements, which do not guarantee future events or performance, so please refer to our SEC filings for cautionary factors related to these statements. And like previous quarters, we've also posted a supplementary deck on our website that we'll be referring to over the course of the call. We've all experienced volatility and disruption in many ways in 2020 across the globe. So we continue to hope that everyone is safe and healthy. But in terms of KKR and our results this quarter, we've continued to see strong performance really across all of our metrics. Turning to Page 2 of our supplement to begin, you can see that our key metrics are performing nicely. Looking at the upper left-hand part of the page, assets under management came in at $234 billion, representing a 12% increase from a year ago. And as fundraising and capital deployment momentum continued, our management fees of the past 12 months as you can see by the chart in the right-hand corner grew by 13% to $1.3 billion. Looking at the bottom left, you can see our book value per share, which saw a meaningful increase this quarter, attributed to strong investment performance. In the third quarter, book value per share grew from $17.73 as of 6/30 to $20.26, up 14%, and more broadly is up 11% from $18.22 per share a year ago. Finally, on the bottom right-hand side, you see our after-tax distributable earnings. For this quarter, DE came in at $410 million or $0.48 on a per-share basis, both figures up approximately 25% from our results last quarter. Moving on to our summary financials for the third quarter, please turn to Page 3 of the supplement, and let's walk through the left-hand part of that slide. Management fees increased to $360 million, up 14% to Q3 last year, driven most significantly by Asia IV, which entered its investment period in the quarter. Transaction fees totaled $301 million. We had a strong quarter within capital markets, with transaction fees here coming in at $158 million given the breadth of deployment and monetization activities we saw over the course of the quarter. Realized performance income came in at $234 million, with $260 million of realized investment income. Total revenues were $1.1 billion this quarter, up 11% from the same quarter a year ago. Notable monetization activity in the quarter included the IPO of Hut Group, a British e-commerce firm, the dividend recapitalization of Epicor, which is a software firm, and North America Fund XI, which we subsequently sold. On a blended basis, our exits this quarter were done at over three times costs. Turning to our expenses for the quarter, compensation expenses were $427 million, which brings our total compensation margin including equity-based comp to 40%. Non-compensation operating expenses were $90 million. Our operating margin increased to 52% with after-tax distributable earnings then of $410 million or $0.48 per share. And with that, I'd like to turn it over to Rob.

Robert Lewin, CFO

Thanks a lot, Craig. And good morning, everyone. Similar to last quarter, I want to start off by focusing on our year-to-date performance. We've clearly experienced some market volatility in 2020, and we believe our results over the past nine months highlight both the resilience of our business model and the high level of execution by our global teams. I'm going to start with the right-hand side of Page 3, focusing initially on three major drivers of our revenue. First, our management fees are up 13% this year. Our ability to realize carry through different market environments also remained strong, bringing our realized performance fees to just under $1 billion year-to-date. Finally, our balance sheet continues to perform with realized investment income up 8%, demonstrating the important contribution of this revenue stream towards our overall financial performance. In aggregate, our revenues are up 7% through the first nine months of the year. Moving through our expenses, the compensation margin has remained at 40% through the year. In terms of non-compensation related expenses, we have been deliberately prudent with expense management in 2020, and have obviously benefited from the limited amount of travel and office-related expenses this year. Year-to-date, our other operating expenses, together with occupancy, are down 4% compared to this period last year, despite making some very meaningful investments across our platform. As a result, our distributable operating margins are up 100 basis points, while our total operating earnings are up 9%. Our after-tax DE per share of $1.28 for the nine months ended September 2020 compares favorably to $1.23 in the same period in 2019. It's important to note here that we have completed our financing related to Global Atlantic in Q3, which has already started to burden our after-tax DE per share in advance of generating the revenue associated with the acquisition. Switching to capital raising, on a year-to-date basis, we have raised 80% more capital than we raised in the same period in 2019, which really does set us up nicely for future growth. Moving to investment performance on Page four, which has largely been a real strength for us this year. Our flagship private equity funds returned 27% over the past 12 months, and our real estate and infrastructure strategies returned 10% and 7% respectively over that same period. In credit, we had a very positive quarter; leveraged credit, which is the largest of our credit businesses by AUM, was up 5% in Q3, and is up 3% over the LTM period. Alternative credit was up 6% in the quarter and down 7% LTM. Our alternative credit numbers are a combination of our private performing credit strategies, which had solid performance and our distressed portfolio, which has taken some marks LTM. Turning to Page 5, we thought it was worth spending a minute specifically discussing our benchmark PE performance. As you can see, really across all geographies, our flagship private equity funds are meaningfully outperforming their benchmark indices on a since-inception basis. This performance is partly generated by our portfolio construction, especially in a bifurcated market like the one we have seen in 2020. We are underweight some of the harder-hit sectors while also importantly choosing to have a large exposure to technology, with a focus on investments in data, e-commerce, and digitalization. Our relative weighting to Asia has also benefited our performance. Page 6 provides some additional detail on our balance sheet. Consistent with the performance across the firm, our book value per share increased to $20.26, representing a 14% increase from June 30. Our balance sheet investment portfolio returned 11% in the quarter, and our net accrued carry balance increased 44% from Q2, providing additional visibility for future carry. Also, as it relates to our balance sheet, it is worth highlighting our buyback activity this year. Since January, we've used $324 million under our buyback program. The majority of this activity occurred in the first four months of the year, as we leaned into the volatility and repurchased stock at a weighted average price of just over $24 per share. In total now, since we announced our first buyback program at the end of 2015, we've used $1.4 billion to retire shares at an average price of just under $19 per share. With our book value today in excess of $20 and the stock price where it is, we feel good about our activity levels here. Turning to fundraising, new capital raised totaled $8.7 billion in the quarter driven by fundraising across private markets in our U.S. real estate strategy, as well as across three strategies in Asia, real estate, infrastructure, and private equity. Additionally, we raised capital related to leverage and private credit. New capital raised from a fee-paying AUM standpoint was a record $19 billion this quarter, with $12 billion of that attributed to Asia IV as it entered its investment period in July. We now have over $13 billion of capital in Asia IV, and I will provide further updates on the fundraise as it continues to progress. The $32 billion of capital raised year-to-date importantly sets us up with $67 billion of dry powder, which is a high point for us. As we have discussed on prior calls, we really did lean in when the market was dislocated. So this dry powder is particularly noteworthy given the level of capital investment we have made year-to-date. Focusing on this deployment more specifically, our private markets business had a record investment quarter with $6.2 billion deployed, which was largely in transactions that were entered into during the more heightened market dislocation in the spring and early summer. In Europe, two previously announced core PE investments closed. Our infrastructure team continued to find compelling opportunities across various sectors in Europe and Asia, and a number of Asia P investments closed, including our investment GI. Finally, an update on a couple of items related to Global Atlantic. We completed two financings in the quarter, the proceeds of which will be used to fund the acquisition. In August, we issued $1.15 billion of mandatory convertible preferred stock. You'll see in our earnings release that on a distributable earning basis, this offering is reported on an as-if-converted basis. Subsequent to the mandatory convertible offering, we also issued $750 million of 30-year senior notes with a 3.5% coupon. Behind the scenes, the GA team has been hard at work completing tasks. Following KKR's announcement of the acquisition in July, GA completed two block reinsurance transactions, adding an incremental $8 billion of assets. Notably, we have an active pipeline for similar transactions and we have confidence in the team's ability to execute. We continue to see strong opportunities here for both organic and inorganic growth. And with that, let me hand it over to Scott.

Scott Nuttall, Co-President and Co-COO

Thank you, Rob. And thank you everyone for joining our call today. All of us at KKR hope you and your families are happy, safe, and healthy. Our numbers speak for themselves this quarter, so I'm going to be brief. From my seat, there are a handful of things I thought I would highlight. First, we have invested and committed $42 billion so far this year around the world and across strategies. We were prepared to lean into dislocation coming into the spring, and our preparedness has paid off. Second, investment performance has been strong and we see more upside in the portfolio from here. Third, fundraising momentum has continued. In the first three quarters, we have raised $32 billion. We have three more flagship funds and over 20 other strategies in or coming to market over the next 18 months. Fourth, our model is working with our combination of AUM, capital markets, and balance sheet, we have multiple ways to win. We have always felt our model is resilient. One silver lining of this year has been an opportunity for that resilience to shine through. And fifth, the Global Atlantic acquisition is on track. As you heard from Rob, GA is winning in the marketplace and will be larger at closing than we had anticipated, with multiple ways to grow from here. It has been a busy year, but we have a lot more ahead of us. And with that, we're happy to take your questions.

Operator, Operator

Our first question is from William Katz with Citi.

William Katz, Analyst

Thank you very much for taking the question. I think you guys answered a little bit of it in some of your prepared commentary. But Scott, just sort of wondering rather you guys want to maybe to sort of step back and update us around Vista management fee walk-up as you see it another sort of quarter under your belt, just given sort of the outsized economics this quarter and your commentary on the Global Atlantic transaction?

Scott Nuttall, Co-President and Co-COO

Sure, thanks a lot, Bill. So nothing has changed in our view on management fee growth from here. We communicated a little while back that our expectation is that we'll be able to generate 50 plus percent management fee growth. On top of that, we believe there are an additional $200 plus million of net management fees that we would expect to generate from Global Atlantic. And so, I'd say we continue to be convinced about being able to achieve that.

William Katz, Analyst

Okay. And just a follow-up, a big picture, maybe a little bit unanswerable today. But just to the extent that there will be any kind of shift in carried interest taxation. How might that impact the economics or the franchise, either bottom line or from a sort of comp perspective? And then the harder part is to the extent there is any kind of sort of administrative change next week. How might that influence institutional allocations and with the relative appeal of alternatives more broadly?

Robert Lewin, CFO

Sure, so as it relates to any changes around carried interest taxation, that won't have an impact on distributable earnings for us. All forms of our income are taxed the same at the statutory rate. As you know, we benefit from a bit of a tax step-up that we achieved at our C-Corp conversion, but other than that, any new revenue that comes into the firm is taxed at the statutory rate all the same.

Scott Nuttall, Co-President and Co-COO

And Bill, just on the other parts of your question it’s Scott. So no impact on the DE, no impact on compensation or how we think about it, and with respect to fundraising, we do not expect any change in the tax code to have an impact. Remember a lot of the people that invest with us are tax-exempt, and regardless of what happens from a tax code standpoint. We believe the interest in alternatives will continue to grow.

Operator, Operator

Our next question is from Glenn Schorr with Evercore.

Glenn Schorr, Analyst

Thanks very much. I wonder if you could talk a little bit more about alternative credit. You mentioned the performance and the stress is not the biggest piece. But I'm curious on what you see as temporary versus permanent impairments in that book and the outlook more importantly for distress. Because we keep thinking there's a good outlook but every time, every time it happens more stimulus comes and maybe you could tie it in to dislocation fund what's going on in the distressed landscape? Thanks so much.

Robert Lewin, CFO

Yes, thanks a lot for the question Glenn, this is Rob, I'll start and I'm sure Scott will have some views here as well. I think the punch line is we continue to view a number of assets in our distressed portfolio that have taken some marks on an LTM basis quite favorably. As you also know, and you hit on this, we've shifted a number of our distressed-oriented resources to our dislocation opportunity strategy. In an 8-week period in spring, we raised $2.8 billion fund; we have over $4 billion of capital committed to that strategy and already through the first several months of that fund strategy. We either deployed or committed a little bit north of 40% of that fund already. It's a big opportunity, we think for us and that's why we've diverted some of the team to be focused on those activities.

Scott Nuttall, Co-President and Co-COO

Yes, just to add a couple of thoughts, Glenn. First, we feel good about the underlying portfolio, we think a bunch of those marks are going to come back. Secondly, when you look at the page in the deck that shows kind of the LTM period, it's important to keep in mind that the convention in terms of how that page is put together means that what's dragging that number down is our Special Sits II fund, which is about $2.1 billion of fair value among a $73 billion credit business. So our perspective is a lot of that is going to come back over time and it's a very small part of the overall business and credit as a whole continues to perform. I think perhaps to your market opportunity question, we do think that there is going to continue to be an interesting opportunity, but what it's going to require is to be really nimble and flexible as to how you deploy capital, and that's why to your point we raised a dislocation vehicle, incentive vehicles. They have the ability to invest across asset classes. We're investing not only in traditional distressed but traded markets, real estate credit, and corporate credit; you've got to be able to move quickly and actually some of the early investments we made there, we've already monetized. So I think you should expect us to continue to scale that dislocation platform over time. But that's how we're thinking about it. It's first control for just control distress, then it is just being able to move quickly.

Operator, Operator

Our next question is from Alex Blostein with Goldman Sachs.

Alex Blostein, Analyst

Great thanks, good morning, everybody. Thanks for the question. I was hoping you could talk a little bit about deployment dynamics and the implications that might have on both the fundraising and the capital markets business. So from what we could see, you guys have been quite active and the pipeline of deployment looks really strong coming up? So I guess what does it mean for sort of timing of North America up 13, the next infra fund or the next European fund in terms of both kind of fundraising and when those fees could ultimately come online? And then I guess secondly, the outlook for the transaction revenues albeit kind of lumpy and hard to predict, but just from a trajectory perspective, given the strong deployment pipeline, how should we think about that over the next 12 months? Thanks.

Craig Larson, Head of Investor Relations

Alex, it's Craig, why don't I give a beginning part answer there as it relates to deployment, and then as well as fundraising and then Scott and Rob may want to add on. I think you're right as it relates to deployment it's been a really busy period for us as you heard from Rob, private markets in particular in the third quarter was a really healthy figure for us. I think that reflects a number of things. One, the overall growing platforms for us certainly also reflects the decisions that we had to lean into dislocation earlier in the year. As Rob had mentioned, the activity that closed in Q3 largely reflects transactions that were announced in the spring. The third thing you see reflects the geographic breadth that we have in our presence in Asia. Asia within private equity was the busiest geography for us deployment-wise in PE in the quarter as well as year-to-date. As you'll remember, we do run a very localized model in Asia, so I think that approach is very helpful for us as it relates to sourcing and executing opportunities. I do think as it relates to fundraising the main dynamic is that things are on track. So as it relates to the three additional flagship funds for us in addition to the fundraising continued for our Asia private equity strategy. When you layer on the 20 plus additional strategies, as we look forward, I think everything is on pace for us. It's important in that only 25% of those strategies that we see coming to market are first-time for us. We have predecessors that are performing and real benefits as it relates to maturation. I do think as it relates to that overall deployment dynamic, one of the things that is correct is that as it relates to accelerated deployment finding attractive risk-reward, if anything that can move the overall timing as we try to think things through a forward lens. But the overall message is one that we're on pace.

Robert Lewin, CFO

Alex, it's Rob, maybe a couple of points to add on. In terms of the geographic breadth of our deployment, as we've looked at where we're likely to wind up in the year from a private equity perspective, it's actually close to a third, a third, a third, Americas, Europe, and Asia in terms of deployment. That geographic breadth and diversification has really helped us be able to lean into different opportunities on a global basis. As it relates to the second part of your question, in terms of the impact this can have on transaction fees, our pipeline remains healthy for investment; the remainder of the year, of course, we've got a couple of months left in 2020. Some of the deals in our pipeline might slip to Q1. It's a little bit hard to predict our transaction fees for the quarter, but certainly our deployment levels have helped those figures on a year-to-date basis. If our deployment continues to be robust over the coming quarters, then you should see a similar level of transaction fees play out.

Operator, Operator

Our next question is from Jeremy Campbell with Barclays.

Jeremy Campbell, Analyst

Just a quick point of clarification before I ask the question, relative to the $200 million plus fee revenue opportunity from Global Atlantic you guys highlighted back in the summertime. Just curious if these recent block deals were baked into that or incremental to that?

Robert Lewin, CFO

The short answer Jeremy is they're incremental to that.

Jeremy Campbell, Analyst

And then, I guess bigger picture on Global Atlantic. Can you remind us what the typical organic growth looks like? I think the summer slide deck is something like $9 billion, and then maybe how you envision the growth algorithm going forward between organic flow and inorganic blocks?

Scott Nuttall, Co-President and Co-COO

Yes sure Jeremy, it’s Scott, I'll take that. Thinking about Global Atlantic, in our view, it has multiple ways to grow. There is the retail business where they have relationships with over 200 banks and broker-dealers. There is the institutional business and it's really although it could be thought of as organic or inorganic I suppose. There are many aspects of that that are fairly recurring and somewhat predictable. For example, they have flow reinsurance arrangements with a number of counterparties. They're in the pension risk transfer business. Then on top of that, you've got these reinsurance blocks that you referenced, that although they are transaction-like, there has actually been a very steady stream of them and that’s a consistent flow for the business over the last several years. So there are opportunities to grow from what they've done - group that together, and we call the institutional business. Third, there is potential acquisitions of other companies, which is truly inorganic. As you can see from the slide deck from July, the company has by virtue of that retail and institutional approach grown quite significantly at a very steady pace over time. With the addition of, hopefully, our help in terms of access to capital and investment returns, our expectation is that we can continue to see attractive growth. We're not putting out a forecast per se, but we're happy to share with you what we're seeing over time. As you've noted, we do expect to be larger at closing than we had expected, partially because the organic growth has been better than we thought on the retail channel so far. Also, the blocks are on top of that, but we'll keep you updated along the way.

Operator, Operator

Our next question is from Patrick Davitt with Autonomous Research.

Patrick Davitt, Analyst

You mentioned the Epicor sale, which looks fairly punchy. So could you just give us an update on kind of the announced pipeline of carry and investment income as it sits right now?

Robert Lewin, CFO

Yes sure, hi Patrick, it's Rob. Just to clarify, that was - that Craig mentioned was a dividend for Epicor in Q3, the announced sale closing in Q4, which I could lead into your question. As it relates to Q4 revenue, as of now we have more than $250 million of performance and balance sheet revenue that we've got line of sight on. This is from deals that are already closed or have been signed up and we expect to close as well as from booked incentive fees that have already been crystallized. We're only one month into the quarter, and hopefully, we'll have some things break in our direction in November and December to elevate that number, but our line of sight is about $250 million, a little bit north of that right now, which is similar to where we were at this point last quarter.

Operator, Operator

Our next question is from Mike Carrier with Bank of America.

Michael Carrier, Analyst

Thanks for taking the question. Given the strength in private equity on the performance side, just wanted to get maybe some color on what you're seeing across some of the different industries and regions, because it was obviously pretty broad-based. But when we look at the economic activity, it's pretty kind of stark differences. So just any color in terms of what the drivers are and - is this broad based as it looks? Thanks.

Craig Larson, Head of Investor Relations

Mike it’s Craig. Why don't I start and Scott may add in. I think the answers are really situation-specific, so, businesses that are in troubled sectors or have seen real impacts from COVID are obviously impacted. On the flip side, we have seen real strength in companies focused in areas that have been given tailwinds from COVID. So that's e-commerce, gaming, mobile gaming, software, housing-related themes, health and wellness, and the like. Given the conviction that we've had around several of those themes, we were better positioned as a result of that. That's really what you see across the performance statistics for the year. It is worth mentioning Asia again as part of that, as we've a large business in Asia in our geographic focus. It helped as we learned in the spring, as these economies recovered first. Most Asian economies haven't seen the recent spike in COVID trends that we've seen across several states in the U.S. and European countries.

Scott Nuttall, Co-President and Co-COO

Yes Mike, the only thing I'd add is just to put some numbers around that. It really is about portfolio construction. The fact that we've been focused on a number of investment themes for the last several years that we think have long-term durability, and that actually the pandemic has probably accelerated the development of those themes. A big part of the answer to your question, why you're seeing the performance is we've been meaningfully underweight in the sectors that have most dramatically been impacted. If you aggregate hotels, leisure, retail, and energy, it's a sum total of about 8% of our total exposure. Even within real estate, it's a very small piece on the hotel side. So we've had very little exposure to the most impacted sectors. As we can tell from the markets, it's a really bifurcated story. Where we have been more exposed has been tech media and telecom; to Craig's point, that's been around 25%. Overall, the answer is around portfolio construction and leading into these themes that we think are just being accelerated.

Operator, Operator

Our next question is from Gerry O'Hara with Jefferies.

Gerry O'Hara, Analyst

My question sort of runs to balance sheet and the allocations there. Clearly, the allocation has certainly changed with the addition of the global pandemic. I think in the past, you talked about diversifying exposure across asset classes. But perhaps you can give us an update on how you're thinking about that post-insurance assets coming into the mix or if that's even really a focus right now?

Robert Lewin, CFO

Gerry, it's Rob. Thanks for the question. Global Atlantic is our largest single investment in our balance sheet; it's not going to show up in our investment table, per se since it's really going to be a consolidated operating asset of KKR’s like our other operating businesses. In terms of diversification of our balance sheet holdings, you look at the chart in our earnings release. It does show about 70% exposure to private equity; inside of that, we've got meaningful exposure to core private equity; it's about 20% of our portfolio, a little bit north of that today, on a growing exposure, growth equity. We do certainly want to have greater exposure to these types of assets on our balance sheet, and I wouldn't expect dramatic changes from here around how we've allocated our balance sheet to date.

Operator, Operator

Our next question is from Chris Kotowski with Oppenheimer.

Christoph Kotowski, Analyst

Yes, good morning, thank you. I know these numbers bounce around quite a bit. But normally, your realized carry is like four or five times the level of realized balance sheet gains. This quarter, they were almost equal. I'm wondering, is that – did that - I was trying to figure out where that came from and why that is? Should we expect to see a shift towards more realizations in the coming quarters?

Robert Lewin, CFO

Hey, Chris, thanks for the question. No, I don't think that's a fundamental shift. I think that's just looking one quarter at a time. We had meaningful balance sheet realization through our stake in the Hut Group, and while that was invested across our broader platform, it was certainly weighted towards our balance sheet. I would not expect this to be necessarily a trend on a go-forward basis. At least in the near term, our balance sheet continues the evolution into one that will be compounding in nature at some point in time in the future. We've completed that evolution of moving from a balance sheet that is generating cash to one that is compounding over time; that compounded balance sheet will mature to the point where it's generating meaningfully more cash. The expectation would continue to be carried as elevated gains compared to balance sheet income.

Scott Nuttall, Co-President and Co-COO

That’s a segment I would add. It's always felt to me like we have multiple ways to win, and this was a quarter where I think you're right; investment income and balance sheet performance contributed to DE while we still saw significant book value compounding. Capital markets also had a very strong quarter, so it's always – we've talked about how we think the business model is really wonderfully resilient, and I think this quarter those items were both great examples.

Christoph Kotowski, Analyst

Yes and then I was also curious if you can discuss why the odd kind of like two-part exit from Epicor is with first the dividend recap and then a sale process. Is that tax driven or if you are going to sell something, why would you do a dividend recap immediately in front of that?

Robert Lewin, CFO

Chris, it was not tax driven and without commenting too much on any specific situation, we were able to get something done that drove liquidity back to the firm with a capital structure that was portable for a new buyer. It just so happened that we were able to exit it a couple months later, so there is nothing that was specifically unusual about that transaction.

Operator, Operator

Our next question is from Christopher Harris with Wells Fargo.

Christopher Harris, Analyst

So with the news out there that Aries is bidding for A&P, I was hoping you could give us your updated thoughts on how you guys are thinking about M&A at this point. Are you open to deals, are you looking at deals, or is the main focus right now primarily Global Atlantic?

Scott Nuttall, Co-President and Co-COO

Chris, it’s Scott, thanks for the question. We do have a lot of work to do on the Global Atlantic front, but the answer to your question is that we continue to look for new opportunities. The bar remains very high, but we are continuing to focus on some of the areas we've talked about in the past, growth areas for us, like real estate, as well as secondary or co-invest opportunities. Over time, you should continue to expect us to be thinking about through and with Global Atlantic whether there are more things to do in insurance. We're continuing to look, and we'll keep you posted, but we're definitely still out there.

Operator, Operator

Our next question is from Robert Lee with KBW.

Robert Lee, Analyst

I'm just curious - actually, I have a question on Marshall Wace. I know there is a slide in your Investor Deck from September showing pretty phenomenal growth. Can you maybe just update us on what its contribution was this quarter, and is there still kind of how you're working with them? And then maybe is there still an opportunity for you to increase your stake in Marshall Wace?

Robert Lewin, CFO

Rob, I'll take the first part of that, and I think Scott is going to take how we're working together. Our punch line is, the business is performing very well; north of $45 billion of AUM today. We have a 40% share in that, and you're seeing that flow through our financial results in a couple of ways through most of the year on our pro-rata share of management fees. In Q4, you'll see elevated incentive fees, which is our pro-rata share of Marshall Wace incentive fees. That was part of the $250 plus million number that I gave earlier on this call around our pipeline of visibility.

Scott Nuttall, Co-President and Co-COO

The only thing I would add, Rob, is that the Marshall Wace management team has done a fantastic job growing the business, navigating this environment, and continuing to grow the firm. We have continued to work together on a number of different fronts. It has been a great partnership, satisfying in terms of the discussions we have about markets, and we continue to explore ways to do more strategically together. It's also been a partnership that has had a very nice economic return for the investment that we've made off the balance sheet. In terms of raising the stake, the initial phase of the transaction was for us to invest 24.9%, and that as scheduled went up to where we are now, which is about 40%. There's no near-term plan to change that, but that may always change over time.

Robert Lee, Analyst

And then maybe just a follow-up question. I guess you can have a conference call that ESG coming up, I guess. But, thinking about you had the announcement today about the impacts of your platform, I just want to know how you're incorporating some of the principles within your strategies? On the private investment side, private equity side, do you feel like it's more important or similar to what you're seeing on the public investment side in terms of LPs focusing on those capabilities and how you're incorporating it into your process?

Craig Larson, Head of Investor Relations

Bob, it's Craig Larson. I think there are two things to understand. First, we, as a firm, have been focused on ESG since 2008. At this point, we have over a decade of experience in driving and protecting value through ESG management. We've established ourselves as a clear leader in these areas. What that means at this point is that within our firm, ESG considerations are integrated into the decision-making that takes place every day within our deal teams and our investment committees on a global basis. These are not one-off items or one-off projects; it's part of the mindset of our teams as we evaluate opportunities and look to execute and create value. The second point is really, as a result of all of this work, we are finding good investment opportunities through the work that everyone is doing, but there are cases when we didn't have a home for these investments. We have created a business around this, that's our impact business, which focuses on opportunities to generate private equity-like returns while driving positive impact at the same time. Earlier this year, we held our final close in February on our impact funds, and we're off to a very good start. As it relates to trends and dynamics from a public shareholder perspective, from an LP standpoint, et cetera, all these considerations and dynamics are only increasing in importance and focus from third-party constituents, consistent with what I expect you're hearing from others.

Operator, Operator

Our next question is from Mike Cyprys with Morgan Stanley.

Michael Cyprys, Analyst

I wanted to follow-up on the strong investment returns that you guys posted today and touched on earlier. I was just hoping you could elaborate a bit more on your views on the investment return outlook on both the existing investments there that are in the ground, and also the new capital that you're putting to work today. What sort of returns are you expecting to generate across the different strategies you're managing? And how is the attribution of those returns evolving?

Scott Nuttall, Co-President and Co-COO

Mike, it’s Scott. Thanks for the question. The short answer to the first part of the question is that we continue to see a lot of upside in the portfolio. As you can tell from the amount of deployment we've had this year, $42 billion total in closed and announced transactions, we've been deploying more capital into those investment themes that we think have a lot of legs. The opportunity to continue to generate attractive returns from here we think is very favorable. We believe it's going to continue to be driven by having exposures to parts of the economy globally, where we see those long-term trends playing out. We think our globality is going to help. The fact that Rob's point on deployments being about a third, a third, a third in the U.S., Europe, and Asia will also help the returns going forward. Most investors look at us and monitor how we're performing relative to the public markets when they examine our private markets returns. Our expectation is that we can continue to outperform nicely and hopefully meet and beat their hurdles. As it relates to the go-forward opportunity, we continue to focus on a number of those themes and continue to evolve them all the time. It's important to address the investment themes, but we should discuss more on these calls is our growing real assets businesses. We're seeing real opportunities to invest in real assets with yield, and that's part of the reason you're seeing such growth in our infrastructure and real estate businesses in particular.

Operator, Operator

Our next question is a follow-up from Patrick Davitt with Autonomous Research.

Patrick Davitt, Analyst

Thanks for the follow-up. I have a quick follow-up on the tax question. Obviously, public shareholders are looking at changes towards the change in the corporate rate that impacts us, but as you think about a potential change in the capital gains tax rate, would that cause any kind of rethink of how the balance sheet growth strategy works for you internally or not?

Scott Nuttall, Co-President and Co-COO

No change in how we would - short answer, no change in how we would evaluate opportunities in our balance sheet strategy.

Operator, Operator

And we have a follow-up question for Mike Cyprys with Morgan Stanley.

Mike Cyprys, Analyst

Thanks for taking the follow-up. I just wanted to ask about the balance sheet, if you guys are able to share with us the amount of capital that was deployed off the balance sheet in the quarter and also how much was monetized from the balance sheet? Thanks.

Robert Lewin, CFO

Yes, sure. No problem. In the quarter, we deployed a little bit more than $800 million of capital to the balance sheet, and we realized about $360 million.

Operator, Operator

Ladies and gentlemen, we've reached the end of the question-and-answer session. I would like to turn the call back to Craig Larson for closing remarks.

Craig Larson, Head of Investor Relations

Just would like to thank everybody for joining us. If you have any follow-ups, we look forward to following up with you directly. Please reach out directly, and thank you once again. Bye, bye.

Operator, Operator

Thank you. This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.