Earnings Call Transcript
KKR & Co. Inc. (KKR)
Earnings Call Transcript - KKR Q1 2023
Operator, Operator
Ladies and gentlemen, thank you for standing by. Welcome to KKR's First Quarter 2023 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following management's prepared remarks, the conference will be opened for questions. Please note, this conference is being recorded. I’ll 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, operator. Good afternoon, everyone. Welcome to our first quarter 2023 earnings call. As usual, for the call, I'm joined by Scott Nuttall, our co-Chief Executive Officer; and Rob Lewin, our Chief Financial Officer. We'd like to remind everyone that we'll refer 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. And as a reminder, we report our segment numbers on an adjusted share basis. This call will contain forward-looking statements, which do not guarantee future events or performance. Please refer to our earnings release and our SEC filings for cautionary factors about these statements. This quarter, fee-related earnings per share came in at $0.62, and after-tax distributable earnings came in at $0.81 per share. I'm going to begin the call by walking through the details for the quarter before turning things over to Rob. So, beginning with management fees. Management fee growth continues to be a real bright spot for us. In Q1, management fees were $738 million. That's up 18% year-over-year, and looking over the last 12 months, management fees are up 23%. Looking a little deeper, over the last 12 months, management fees in private equity and credit both increased 18%, while in real assets, management fees are up 40%. Net transaction and monitoring fees were $142 million for the quarter, $102 million of which came from our Capital Markets business. Our fee-related compensation margin was at the midpoint for the quarter at 22.5% and other operating expenses were $150 million. So, putting that together, fee-related earnings were $549 million for the quarter, or $0.62 per share, which I mentioned a moment ago, and that's with an FRE margin of 61%. This is now the 10th consecutive quarter where you've seen our FRE margin at or above that 60% level. Walking further down the income statement. Realized performance income totaled $175 million, driven by our traditional and core private equity businesses, and realized investment income was $198 million for the quarter, driven by activity in growth equity. Both realized performance and investment income compensation margins were at their midpoints for the quarter. Our asset management operating earnings were $778 million, and our insurance segment generated $205 million of pretax operating earnings, which I'll spend another minute on shortly. So in aggregate, this resulted in after-tax distributable earnings of $719 million or $0.81 per share. Now turning to investment performance. The traditional private equity business was up 2% for the quarter, and over the last 12 months was down 9%. Importantly here, inception-to-date IRRs for our blended flagship funds, so Americas XII, Europe V and Asia IV remained strong at 22%, which is meaningfully ahead of the corresponding 7% figure for the MSCI World. In real assets, the real estate portfolio was down 3% in Q1. While we are all seeing a difficult market for a handful of areas within real estate, our portfolio continues to be heavily weighted towards those assets and themes where you're seeing strong fundamentals and cash flow growth. So, think industrial assets, data centers, rental housing, student housing, and storage. However, as cap rates increased in the quarter, that more than offset NOI growth, leading to the modest decline in the portfolio for the quarter. Infrastructure was up 7% in the quarter. This performance reflects the strength of our infrastructure portfolio on a global basis. And with higher interest rates, we've strategically leaned into more inflation-protected assets. On the leveraged credit side, the portfolio was up 4% in the quarter, outperforming its index, while the alternative credit portfolio was up 2%. And for the balance sheet, investment performance was flat in Q1. Now, in addition, we have two new updates that can be seen through the earnings release. First, I briefly mentioned our insurance results this quarter. Turning back to this topic, we expect you saw the recast financials we posted last week on our website and also filed through an 8-K. These changes reflected two things. First, per FASB guidance and as required for all SEC filers, we implemented the accounting principles of LDTI within KKR's insurance segment to reflect the new accounting standards for long-duration contracts such as life insurance and annuities. Overall, the impact here on our segment financials are quite modest. There was a $1 million positive impact to 2021 pretax insurance segment operating earnings and a $74 million positive impact to 2022 pretax insurance segment operating earnings. And in terms of 12/31 book value, there is an increase of $480 million. And second, to conform to other alternative asset management companies and enhance comparability, we're reporting our insurance segment operating earnings on a pretax, not an after-tax basis. So, as you look at Page 3 of the earnings release, income taxes attributable to KKR's asset management and our insurance segment are now captured within that single line item titled Income Taxes on operating earnings. The 8-K referenced a moment ago recast our financials reflecting all of these changes for 2021 as well as on a quarterly basis for 2022 to help everyone look at our results on a comparable basis. And the second change within our press release you'll see on page 25. We’ve included additional disclosure on our core private equity strategy. With $34 billion of AUM, we believe we have the largest core PE asset management business in the world. And core PE remains the largest allocation we have on our balance sheet, so we thought the additional disclosure and context would be helpful for investors this quarter as well as in quarters to come. As a reminder, this is a long-duration investment strategy for us where we expect to hold investments for 10- to 15-plus years and believe these investments carry a more modest risk return profile compared to traditional PE. And as you can see on the page, our core PE balance sheet investments have increased steadily from $1.4 billion in 2018 to over $5.7 billion of fair value today. The $5.7 billion of fair value compares to the $2.7 billion of costs or 2.1 multiple of cost currently, a strong return over approximately five years. In total, core comprises approximately 32% of total balance sheet investments and consists of 19 companies across multiple industries and geographies. And with a little over 20% of total PE capital invested in the last 12 months into core PE, we remain very active in the space. And one final note. Consistent with historical practice, we increased our dividend to $0.165 per share per quarter or $0.66 on an annualized basis. This is now the fourth consecutive year we've increased our dividend since we changed our corporate structure. And with that, I'm pleased to turn the call over to Rob.
Rob Lewin, CFO
Thanks a lot, Craig. The past few months have certainly continued to be dynamic on the macro front. However, different backdrops do create opportunities, especially for firms like ours that have substantial locked-up capital, a significant amount of dry powder, and a global and highly coordinated investment team with expertise that spans multiple different asset classes. I thought it would be helpful this morning to go through what we are experiencing day-to-day across the firm. Let's start with fundraising. We raised $12 billion of capital in the quarter. In private equity, activity this quarter included the final close on European Fund VI at $8 billion, which is approximately 20% larger than its predecessor. It's a really great outcome in what is the most challenged part of the fundraising market and now gives us $40 billion of committed capital in total, looking at our active traditional PE funds across Asia, North America, and Europe. We believe this is the largest active capital base for traditional private equity by a wide margin. In credit and liquid strategies, we raised almost $9 billion in Q1, which is just about what we raised on average per quarter in 2022. In total, though, the $12 billion of new capital raised is a little bit on the lighter side for us. Scott is going to follow up with a little more color on the fundraising environment in a few minutes. Now against this backdrop, we still do feel incredibly fortunate for a few reasons. First, since 2020, we've raised approximately $60 billion of capital for our traditional private equity and core private equity franchises. Given all the flagships raised over this period, 2023 was never going to be an outsized fundraising year for us. So, our focus in private equity is on investing the capital that we have previously raised. And we have almost as dry powder as we've ever had as a firm to invest into the dislocated environment. Now, to be clear, we are still in the market fundraising for 30-plus strategies, largely in real assets and credit over the next 12 to 18 months, and our fundraising teams remain highly engaged with our clients. Second, we continue to make progress against our strategic priorities. As an example, we've talked to private wealth and democratized products several times on these calls. And we are pleased that since our last earnings call, our democratized private equity vehicle outside the U.S. raised over $400 million on just one platform at its first close, which will show up in our Q2 results. It's a great start for us, and we hope to build on this momentum with the wire houses as the domestic vehicle comes online in the second half of the year. And in terms of our democratized infrastructure strategy, our U.S. vehicle is expecting a first close over the summer, while its international counterpart is right on its heels with a first close expected soon thereafter. We are really excited about both of these strategies. And while we're in the earlier days, we're pleased with initial reception and enthusiasm. The launch of these products is a critical step in addressing the huge private wealth end market and bringing products that traditionally have largely not been accessible to non-institutional clients on a global scale. And third, on the insurance front, momentum really does continue at Global Atlantic. AUM at GA has almost doubled since we announced the acquisition in July 2020 from $72 billion to $142 billion today. And since the transaction closed in early 2021, our share of book value has increased from $2.9 billion to $4.4 billion. In terms of Q1, financial performance continued to run ahead of our expectations and capital raising remains robust. While GA did not announce any block transactions in Q1, our pipeline here of compelling opportunities remains quite strong, and we would expect greater activity over time. Turning now to deployment. We have $106 billion of dry powder, which is close to a record figure for us and feel really excited about the investing environment that we are currently in, so we remain incredibly well positioned to build the portfolio for the future. And looking at what our teams have done more recently, we continue to be pretty creative in putting that capital to work. In European Private Equity, we announced the acquisition of FGS Global, a leading strategic communications advisory firm. This is the latest example of the team's focus on proprietary opportunities where we can provide long-term capital and a global network of resources to help an entrepreneurial, world-class management team that we've known and worked with for over a decade. In infrastructure, we closed on the acquisition of Vantage Towers in partnership with Vodafone. Vantage is our latest take-private transaction. We have announced or closed on 10 take-privates since the beginning of 2022. An investment largely from our diversified core Infra Fund, Vantage is the second largest telecom tower company in Europe. And in our credit business, we are very constructive on the risk-reward we're seeing today in the market. As the syndicated loan markets have remained choppy, new issue volumes are down over 50% year-to-date. Companies looking for debt capital continue to increasingly look to the private credit markets where base rates are up, spreads are wider and lender protections are more significant. We believe that we are in the best direct lending environment that we have seen for the past 10-plus years. Now with interesting deployment, which largely comes from higher volatility does come a more challenged monetization environment. The environment here continues to be quiet and our expectation is that it will remain soft for much of 2023. However, as we've discussed in prior calls, our business model has multiple advantages. And one of them is that 90-plus percent of our capital is locked up for the long term or is perpetual in nature. So, we are not core sellers, and we won't look to aggressively monetize our portfolio unless it's into a window that maximizes outcomes for our investors. Even with the volatility and markdowns we have appropriately taken over the last 12 to 15 months, we maintain over $9 billion of embedded gains on our balance sheet. So, if we never made another investment and created no additional value or returns, we are positioned to generate $9-plus billion of monetization-related revenue. The key message you're hearing from us today is that we remain highly confident in our portfolio, and we'll optimize the monetization outcome when it is most advantageous to our investors. So to summarize, while the past several months have presented a more challenging operating environment, it has not changed our long-term outlook. We continue to have more conviction in our ability to meet our goals: FRE of $4-plus per share and after-tax DE of $7-plus per share by 2026 than we did when we first issued that guidance in late 2021. In our teaching materials posted at the beginning of this year, we introduced six very significant drivers of value creation for KKR. These areas, real assets, Asia Pacific, core private equity, private wealth, insurance as well as the opportunities afforded to us through our balance sheet continue to position us for substantial growth, and that is why we have the confidence that we do in our long-term fundamentals. With that, let me hand it off to Scott.
Scott Nuttall, Co-CEO
Thank you, Rob, and thank you, everybody, for joining our call today. I thought today, I'd talk about what we're seeing near term and how we're feeling longer term. Near term, the market volatility is doing three things: it's causing some institutional asset allocators to be more cautious and delay decisions; it's making us want to sell less of our portfolio; and it's creating some very attractive investment opportunities for us. On the fundraising front, we are seeing some investors pause as they get their bearings. This is, in particular, true in some U.S. and European institutions. It has not been the case in other areas. Until this changes, it will likely slow down capital formation in the near term for some of our efforts. We don't expect this to have a big impact on the firm for a couple of reasons. First, as Rob noted, we are not in the market with our flagship PE funds this year. We expect those to come back to market in 2024 and 2025. Frankly, we're fortunate with that timing. We have been actively raising capital, however, for our non-private equity businesses. To put some numbers to this, new capital raised over the last 12 months totaled $67 billion. $63 billion or 95% of that number was raised in strategies outside of traditional private equity funds. Given the growth in scaling across our credit and real asset platforms, we are meaningfully more diversified across strategies than someone less familiar with KKR would likely expect. Second, we are seeing the benefit of increased diversification across our distribution channels and are less reliant on any 1 type of investor than we used to be. As background, a handful of years ago, we sold almost exclusively to institutions. Today, we sell to institutions, insurance, and private wealth. Taking those in turn, while some institutions are pulling back or delaying a bit, others like sovereign wealth funds are not, and we are having a number of productive dialogues globally, in particular around private credit and real assets. Our insurance efforts are also scaling meaningfully. You heard the $142 billion number from Global Atlantic. If you include the $56 billion we have from third-party insurers, we now manage nearly $200 billion for insurance companies globally. That number is up nearly 50% from two years ago. Also, as Rob referenced, we are now live with our democratized PE and infrastructure strategies. Our democratized real estate product has been raising capital since mid-2021 and is adding more platforms. And we have another private credit vehicle for the wealth channel in the pipeline for later this year. So, we will have all four of our major asset classes in democratized format available globally and being added to multiple new platforms over the course of the next several quarters. Candidly, we don't yet know what all this will yield. But we do know it will be upside for us relative to what we've been doing to date. And we know that the private wealth opportunity is significant for the firm. So, we are diversifying KKR not just in how we invest but in how we access capital. And we see all this lining up really well for us over the next couple of years as we expect to be back in the market with our flagship funds at a more hospitable time, which will coincide with us continuing to scale our insurance efforts, which are proving countercyclical and benefiting from a higher rate environment, at which point, we will also be more mature in private wealth with our products on multiple platforms in multiple geographies, all while our recently expanded sales force, up from 100 to 280 people in the last couple of years, is hitting their stride. So, despite the near-term fundraising environment, we feel good about the progress we're making and now have multiple ways to win with more momentum coming. So, that all bodes well. On the monetization front, we will likely sell less in an environment like this, but we are seeing the value of the portfolio continue to grow so this is really just a timing question. And on the investing front, the great news is times like these tend to generate some of our best investments. We expect the next couple of years to be strong vintage years for returns across asset classes. So we expect our earnings down the road to be higher as we monetize the investments we're making in this environment. Putting this all together, while the near term may feel harder to interpret and the next couple of quarters may stay bumpy in markets, we actually feel great about how we are building the firm and executing our plan. Now, switching to the longer term. Last quarter, I referenced the market volatility and suggested it's important to separate the signal from the noise and that we remain focused on what we can control. That continues to be the case. The market noise has not changed our bottom line. We feel even more convicted in hitting the FRE and after-tax DE targets we shared with you. Let me explain why. In January, we shared how the earnings power of the firm has evolved. We are in a fundamentally different place than we were even a few years ago. Because we report DE largely on a cash basis, there will be times we are over-earning that earnings power and times we are under-earning. In times like this, when we are selling less, we are under-earning. But we look at how that earnings power is trending and our progress has been significant. Our ability to create forward-looking financial outcomes is well ahead of where we were just a few years ago. The capital we're raising is increasing the amount of dry powder we have, already a near record $106 billion. And we have a lot of management fee growth visibility with $37 billion of committed capital where fees turn on when the capital is invested. Our carry-bearing invested capital, up 3 times over the last five or so years, is continuing to scale with a great investing environment in front of us as we deploy our dry powder. And our embedded gains continue to increase, from $2 billion to $9 billion over the last three years. Putting all this together and stepping back, our run rate earnings power has doubled over the last three years at KKR. That's a metric we think matters, especially when the noise is loud. So, thank you for taking the time to understand our business. And hopefully, it's clear why we are so optimistic about the path and growth ahead. With that, we're happy to take your questions.
Operator, Operator
And our first question is from Alex Blostein with Goldman Sachs.
Alex Blostein, Analyst
Maybe we could start with some of the dynamics you're seeing in private credit. And specifically, I was hoping we can zone in on direct lending. So, Scott, you suggested that's an area where you continue to see opportunities and the environment remains, obviously, quite interesting there. Can you help maybe unpack the sizing of that business for you guys outside of the BDC? And ultimately, how much of third-party capital outside of GA you have in there and the opportunity to really scale that where you could bring in third-party assets into the franchise? Thanks.
Scott Nuttall, Co-CEO
Sounds good. Thanks for the question, Alex. Craig, why don't you kick off and then I'll jump on?
Craig Larson, Head of Investor Relations
Yes, sure. So look, I think in terms of the industry, just to start there, Alex, and some of the dynamics we're seeing, I think mid-market private equity firms, which really are a lot of the drivers of the deployment you see here, do have a lot of dry powder. And so you're seeing more of these firms, more mid-market borrowers generally who want to use the private debt markets. So we expect the private debt markets broadly in direct lending specifically to continue to grow and take share. And I think in terms of KKR, you should expect to see us grow here in a number of ways. First, in a traditional institutional format. So we're fundraising for our U.S. and European direct lending strategy. Second, we have our BDC, as you mentioned. And we think there'll be opportunities over time to introduce additional vehicles focused on the private wealth opportunity. And finally, Global Atlantic is also active here. So I think in summary, direct lending, it's a core part of our credit business, lots of ways for us to grow. We think that can be in the institutional private wealth, insurance businesses across multiple forms of capital, traditional funds, separately managed accounts, perpetual capital, and that's both in the U.S. and outside the U.S. So again, the backdrop for us just feels really constructive with lots of opportunities going out.
Scott Nuttall, Co-CEO
I have a few additional thoughts to share. Our private credit and corporate credit business comprises approximately $75 billion in assets, and if we include real estate credit, which is significant for us, that adds another $30 billion to $35 billion. So, our total stands around $110 billion. This is distributed across various vehicles, including Global Atlantic, our BDC and other permanent vehicles, funds, and separate accounts, with capital being raised across all of these. There's a substantial opportunity to scale these businesses, particularly as traditional banks reduce their lending. Direct lending, which garners much attention, shows promising senior secured opportunities with wider spreads and enhanced protections. We expect this to be a fruitful period, with strong interest from global investors in the mix of seniority and yield driven by a higher base rate. Additionally, our asset-based finance business represents another major opportunity, with a market in the range of $4 trillion to $5 trillion expected to grow to $7 trillion. This encompasses various hard and consumer assets that banks previously used for financing but are now pulling back from. We have developed several platforms to target this segment, utilizing different vehicles as mentioned before. Real estate credit also looks promising for the coming years, where we already hold a strong position as one of the largest players. Thus, there is significant growth potential as we aim to double our credit footprint, which exceeds $200 billion globally.
Operator, Operator
The next question is from the line of Patrick Davitt with Autonomous Research.
Patrick Davitt, Analyst
You mentioned holding on to some things longer and pausing realizations, and last week, a competitor gave a pretty big guide down on PE realization expectations for the year, basically saying they didn't expect a big uptick until 2024. So, do you agree with this view? And I guess, more specifically looking at your pipeline and conversations, do you still think there's a path to posting meaningful pickup in the second half? Thank you.
Rob Lewin, CFO
Thank you for your question, Patrick. Currently, the monetization outlook appears quite subdued based on our existing pipeline, and we expect this trend to continue for the rest of the year. Specifically regarding KKR, it's important to note that over 90 percent of our capital is either perpetual or locked up for more than eight years. For our carry-eligible assets under management, that figure might be closer to 100 percent, which means we are not under pressure to sell into the market. While we anticipate a slow near term, several factors give us confidence in our potential for significant increases in monetization-related revenue when conditions improve. First, the health of our existing portfolio is very strong, which is critical. We believe we entered this period in a strong position, positioning us competitively for the future. Second, our capital deployment has significantly scaled and diversified over the last five years, contributing to future carry and balance sheet gains. Our carry-eligible assets under management have tripled compared to the last vintage, enhancing our current carry. Third, we have $106 billion in dry powder, a near-record amount, with over 95 percent of it being carry-eligible. The trade-offs between realizing investments now versus later were key factors in the earnings power framework we included in our January materials. This metric highlights our ongoing opportunities and reinforces our positive outlook on our ability to generate substantial monetization outcomes, aiming for over $7 per share of TDE by 2026.
Scott Nuttall, Co-CEO
Yes. The only thing I'd add, Patrick, a couple of things. One, this is obviously going to be heavily market-dependent. I think Rob hit on it. We've gone from $2 billion to $9 billion of unrealized gains in the last three years. So that's the number that we track. That's why we shared that with this. So, this is just a matter of when do we choose that we want to monetize some of those gains on the margin, especially in U.S. and Europe. We're probably going to choose to wait. But keep in mind, one of the things we benefit from is a more global portfolio than most. Asia, in particular, has some different market dynamics going on right now. I think that will help on the margin. But the bigger picture message you should take is the $4-plus of FRE that we shared and the $7-plus of TDE per share a few years out, we still feel great about that. So I wouldn't get too worried about what we say in the next couple of quarters. I'd focus more on that earnings power and where do we expect to end up. My personal perspective is I would expect those numbers will go up relative to down based on what we're going through now.
Operator, Operator
The next question is from the line of Brian McKenna with JMP Securities.
Brian McKenna, Analyst
So I had a question on your infrastructure business. Fund IV has about $10 billion of uncalled commitments. So how should we think about the quarterly pace of deployment here for the remainder of the year? And then do you have any initial expectations around the size and timing of Fund V?
Craig Larson, Head of Investor Relations
Brian, it's Craig. I'll start by discussing deployment. It's interesting to note the scaling of our deployment efforts over time. In 2019, infrastructure deployment was $2.1 billion, and it increased to $2.2 billion in 2020. Over the last 12 months, we have invested $14 billion in our infrastructure platform, and activity remains very high. This is one of the busiest teams within our company, and it operates on a global scale. The returns have been strong and distinct, as indicated in the snapshot from page 7. Therefore, the level of activity is still elevated. We haven't made announcements about the timing of future fundraising yet, but if we continue to execute as we have been, I believe there will be ongoing opportunities for us. Additionally, innovation will continue to be a part of our firm's framework, as evidenced by the discussion in our prepared remarks about democratized infrastructure, which will help us in both deployment and fundraising efforts.
Operator, Operator
Our next question is from the line of Mike Brown with KBW.
Mike Brown, Analyst
So in the quarter, concerns related to the fixed annuity surrenders really picked up in March as the liquidity stress really led the market. In GA, what did you guys see in terms of the fixed annuity surrenders in the quarter and what have you seen thus far in the second quarter? And then if you just take the other side, what are you guys seeing on the organic growth side? How has that performance been in the first quarter, specifically towards the tail end and then into the second quarter?
Rob Lewin, CFO
Yes, Mike, it's Rob. Thanks a lot for the question. Punchline is no surprises as it relates to surrenders. They remain in line with management's expectation on initial underwriting. So we feel good about that. That has continued into the second quarter as well into April. As it relates to the opportunity from here, clearly, the opportunity, we think, on the retail side of the business, given where interest rates are and where annuities are priced today remains a really robust one that our team is very focused on. We have a very strong market share there. And I mentioned this earlier through the prepared remarks, but the institutional side of our business has a real healthy pipeline right now. And so be a little bit lumpier in nature, but we feel good with what we're seeing there and some of the risk-reward that exists in that part of the market as well.
Operator, Operator
The next question is from the line of Brian Bedell with Deutsche Bank.
Brian Bedell, Analyst
Maybe just on capital deployment. How are you thinking about the pace? And I guess in the context of monetization slowing down, clearly, the market is slower, and you don't want to be monetizing in this environment. And heard you loud and clear, you're eager, of course, to deploy in this environment with valuations being good. But to what extent will any kind of slowdown in the market prevent you from doing that? And how important can your own internal capital markets business be in sort of narrowing that gap versus, say, using other means of deploying capital? And then if I could just weave in just the $37 billion of committed capital that comes into fee-paying AUM, just your expectations of timing on that.
Craig Larson, Head of Investor Relations
Brian, it's Craig. I'll start, and then Rob can address the $37 billion number. Over the last 18 months, we've observed significant dislocation and a notable decline in valuations. Many primary markets remain restricted, particularly the IPO and syndicated debt markets, which haven't fully recovered. Consequently, capital is currently valuable, but these factors present positive opportunities for us in terms of deployment. As Rob mentioned in our prepared remarks, our successful fundraising has positioned us well during this time. Given this backdrop, we plan to focus on value and seek opportunities where our operational resources can drive meaningful impact. We have a strong interest in corporate carve-outs and have been actively pursuing public-to-private transactions, showcasing our industry activity. We will remain opportunistic in these areas. Additionally, it's important to note the balance across our firm. Our investment activity over the past 12 months shows real diversification, with traditional private equity deployment at $11 billion, real estate at $10 billion, and infrastructure at $14 billion. This diversity highlights our strong investment activity. Furthermore, we've seen significant growth in real asset deployment, especially within our infrastructure and real estate platforms, which has also positively impacted our credit business. In 2019, credit deployment was $10 billion, rising to $10.3 billion in 2020, and reaching $17 billion in the last 12 months. Regarding capital markets, you raise a valid point about the strength of our team and the benefits of having 70 people manage capital structures and finance deployment opportunities. Despite the disruptions we've faced, we haven't encountered issues financing opportunities we were interested in, thanks to our team's strength and the broad capabilities of our global capital markets franchise.
Scott Nuttall, Co-CEO
Yes, Brian, it's Scott. Just a couple of things I'd add. One, as I mentioned in the prepared remarks, I think it's going to be a great couple of vintage years we're walking into here. So if you first start with equity, which is probably the focus of your question, there's a couple of things that go on. Buyers and sellers need to find common ground. It usually takes about 12 months for that to happen as the markets adjust. We seem to be countering that. We're starting to work to the other side of that. Obviously, the bank failure has created a little bit of a pause in some discussions, but we are pretty active on a number of different fronts. So we think that will not be something that holds us up for much longer. I think the financing markets, to Craig's good point, capital markets, and to your question, has been a secret weapon for us and has allowed us to get some deals done. We've done a couple of deals where we've spoken for 100% equity and then the private credit market shows up and put the financing in place. So we're not letting the financing markets hold us back in TE or in infrastructure. In fact, it's kind of creating some opportunities where maybe it's tougher for our competition that don't have the same capability sets and the same capital markets team. And then as I mentioned before, on the credit side, it's just more flow and more opportunity across both corporate and real estate credit for us.
Rob Lewin, CFO
And Brian, just a quick follow-up on the $37 billion of capital, no firm guidance there, but a decent rule of thumb would be 3 to 4 years until that shows up in fee-paying AUM. As a reminder, that capital comes in at close to 100 basis points on a weighted average fee basis.
Operator, Operator
Our next question is from the line of Michael Cyprys with Morgan Stanley.
Michael Cyprys, Analyst
As you guys have continued to grow out your insurance relationships, can you talk about how you have expanded your investment capabilities there, where you see room to further scale some of those capabilities maybe in real estate credit? And maybe you could talk about some of the initiatives there. And then what white space opportunities remain at this point where you could broaden out the investment capability set there?
Scott Nuttall, Co-CEO
Michael, it's Scott. That's a great question. There's no doubt that expanding our insurance partnerships, particularly with Global Atlantic and other third parties, has significantly boosted several areas of our firm. Specifically, private credit, direct lending, and asset-based finance have notably increased, especially in real estate credit. For example, the year before we completed the Global Atlantic deal, our real estate credit team originated approximately $2 billion in loans, and in the first year post-transaction, that figure rose to around $12 billion or $13 billion. This expansion has not only enhanced our origination capacity but has also improved our ability to serve third-party insurers, as we now operate similarly to them within their regulatory framework. There are substantial growth opportunities across these sectors, which are very large markets. Our strategy focuses on being among the top three players in our chosen spaces, and we feel confident about our position across all these fronts. This expansion also allows us to pursue global opportunities, specifically considering Global Atlantic's assets in Asia and Europe while also adding clients outside the U.S. Currently, our client base is primarily U.S.-based, but we are actively establishing relationships internationally. This growth mirrors our U.S. success, enabling us to broaden our origination efforts in international markets, particularly in Europe and Asia within those asset classes. Overall, this development has been very beneficial for us across various aspects, helping us quickly ascend to the top three in several business areas. Regarding the second part of your question about potential growth areas, scaling our existing initiatives will have the most significant impact on the firm. We see a chance to double or triple many of our current businesses, especially since over 50% of our firm consists of strategies that are under five years old. While scaling our existing initiatives is paramount, other growth opportunities include focusing on energy transition, climate-related investments, and life sciences, which could be significant for us in the future.
Michael Cyprys, Analyst
Great. And if I could just sneak in a housekeeping question for Rob, just on the investment deployment off the balance sheet.
Rob Lewin, CFO
Mike, we were at $500 million of deployment in the quarter and realization is about $150 million.
Operator, Operator
Our next question is from the line of Arnaud Giblat with BNP Paribas.
Arnaud Giblat, Analyst
I'd like to follow up on the deployment in credit. It has been identified by you and many of your peers as a significant opportunity to capture market share from the banks. However, when we examine the Q1 data, the outlook for credit seems quite weak. I was curious about what kind of dynamics need to change for us to see real deployment and improvement in this area.
Craig Larson, Head of Investor Relations
Yes, it's Craig. I'll start by saying that the first quarter, particularly March, was quite disruptive. There have been two bank failures since early March, leading to significant volatility. These circumstances will be challenging for the financing market and deal activity, as Scott mentioned earlier. Therefore, I wouldn't put too much emphasis on the industry performance over the last 90 days. Much of the activity in private credit is driven by financial sponsors within new transactions. We believe that as refinancing opportunities arise and the market improves, coupled with increased M&A activity from mid-market sponsors, you will see an uptick in deployment. Overall, private credit continues to grow in share. So again, I wouldn’t be overly focused on the past 90 days.
Operator, Operator
Our next question is from the line of Benjamin Budish with Barclays.
Benjamin Budish, Analyst
I kind of wanted to revisit, Scott, some of your comments about fundraising. Just thinking about sort of the more excess caution across the LT base. Could you maybe characterize that a little bit? Is it sort of denominator effect issues? Or is it sort of a broad skittishness that's sort of just delaying all decision-making? And then kind of in the context of the 30 funds you've got coming to market, how much of that is expected to start raising in the back half of the year? Just maybe help us think through the sort of risk that some of that gets pushed further into 2024.
Scott Nuttall, Co-CEO
Thanks, Ben. Regarding the dynamics among limited partners, it really varies based on the product area and type of investor. There's been a noticeable caution among U.S. and European pensions, partly due to the denominator effect as they adjust to this year. Some of these pensions have reached their alternative allocation limits and are figuring out their spending budgets and timing. However, this caution is specific to that segment, which is more equity-oriented compared to credit and real estate credit. Looking more broadly, sovereign wealth funds, whether in Asia or the Middle East, are not experiencing the same caution. They have substantial capital and are eager to invest across various asset classes and regions. Insurance companies, despite higher base rates, continue to show strong interest in our offerings, managing nearly a couple of hundred billion for them, which has positively impacted their businesses, particularly in life and annuities. We also see family offices acting contrarian in this environment, investing actively since they recognize this as a favorable time to deploy capital. The private wealth sector is also new for many, offering access to private equity and infrastructure for the first time, which presents a fresh dynamic. We shouldn't focus solely on U.S. and European pensions; some of them have learned from past experiences post-financial crisis, and rather than stopping their investments, they are simply reducing their commitments in the current environment. Overall, across private equity, infrastructure, real estate, and credit, there is a lot of engagement from both institutional and individual investors. While we are hearing some caution from a few, the recent bank crisis in March may have contributed to that sentiment. Nonetheless, many contacts understand the importance of not underinvesting or undercommitting, as they anticipate the coming years will present solid investment opportunities. As for the 30 investment strategies, most are expected to enter the market within the next year, including the latter half of this year.
Craig Larson, Head of Investor Relations
I would add, Alex, regarding the last point, that the part of the market with the most headlines and likely the most congestion is in traditional private equity. We recently closed our Europe VI fund, which is 20% larger than the previous fund, which is a great outcome. It's notable that nearly 25% of the limited partners in this fund are new investors, who are now clients of KKR. We have long discussed our focus on expanding our LP base and the success we are experiencing in that area. More importantly, as we've stated, we will not be launching a flagship private equity fund this year, and we do not anticipate returning to market until 2024 or 2025. We feel fortunate about this timing, as it allows us to concentrate on deploying that capital.
Scott Nuttall, Co-CEO
Maybe just one other macro comment I'd make, Ben, is if you think about this. If you step back and think about our firm, so 15 years ago, we managed about $50 billion of capital; 10 years ago at less than $100 billion; 5 years ago less than $200 billion. We're now in excess of $500 billion. And what we tend to find coming out of periods of time like this, we've got a bit of a market dislocation and the question around economic cycles is investors tend to look back and say what performed when the markets were difficult. And what we found is, over time, alternatives have tended to perform quite well. And usually, what happens coming out of an environment like this is they increase their allocation to alts. Our expectation is that the same thing will happen here. That will be a nice wind at our back as we kind of head into the next several years and launch the flagship funds that Craig was referencing. And then you've got on top of that, the compounding benefit of private wealth. So the reason you hear the optimism in our voices is over the next several years, we actually think we're going to look back on this period of time and feel like this has been quite helpful and helps fuel the next leg of growth for the industry and for the firm.
Operator, Operator
Our next question is from the line of Bill Katz with Credit Suisse.
Michael Kelly, Analyst
This is Michael Kelly on for Bill. You've seen a nice uptrend in the non-GAA-related credit fee rate over the last 4 quarters with a nice step-up in 1Q. Was there anything to call out in the fee rate this quarter? And then how should we think about the trend in that moving forward from here?
Rob Lewin, CFO
Thanks, Michael. Nothing specifically to call out. It's a little bit of a mix issue that we're benefiting from. You'd see that uptick, but nothing specifically other than a little bit of mix of product.
Operator, Operator
The next question is from the line of Finian O’Shea with Wells Fargo.
Finian O’Shea, Analyst
Just sort of a follow-up to the last question on the higher fee rate. Is there an ability to rotate sort of the back book into more direct origination now that longer-term yields have come back down? And if so, how would you size that runway or opportunity for, say, optimizing the GA book?
Rob Lewin, CFO
To clarify, that question was about Global Atlantic. When we acquired Global Atlantic, we focused on ensuring a careful transition from GA-sourced assets to KKR-sourced assets. We were not in a hurry, and we still aren't, as this has been done methodically over time. Consequently, our blended fee rate has increased steadily over the past couple of years. Currently, the blended fee rate at GA is approximately 30 basis points. I believe there is potential for further rotation over time, and we will continue to approach this in the most careful manner possible with the GA investment team. However, I do not anticipate any significant changes in market trends based on what we've seen in recent years.
Operator, Operator
Our next question is from Alex Blostein with Goldman Sachs.
Alex Blostein, Analyst
Maybe just like zooming out for a second. I was hoping to get your latest perspective on capital management in light of kind of where we are in the cycle. Yourself and, obviously, many of your peers are going through a bit of an earnings lull, but you outlined multiple times now that the firm continues to be really well positioned. You guys have a significant amount of embedded earnings power, as you've outlined. So why not lean into the share count shrinkage a little bit more here to take advantage of significantly higher earnings power down the road?
Rob Lewin, CFO
Thank you for the question, Alex. It's an important one. I want to provide some context on capital allocation. As a management team, we prioritize a consistent approach. Our strategy is heavily focused on return on equity. When allocating capital, our main concern is identifying what will deliver the best risk-adjusted return per share. That's our top priority. We believe moving our available liquidity toward the highest return opportunities is essential. Regarding share buybacks, we've had a buyback authorization for several years and have repurchased over 85 million shares, nearly 10% of our outstanding shares, with an average repurchase price of $25 each. We're pleased with our results. Additionally, in the last couple of years, we’ve completed almost $5 billion in related acquisitions, predominantly funded by cash without needing to issue many shares. We view share buybacks as part of our overall capital allocation strategy. Looking ahead, we anticipate share buybacks will play a significant role in our plans. We'll assess them based on the same criteria we use for all capital allocation decisions. In the coming quarters and years, expect us to focus on reducing our share count when it aligns with our liquidity situation and in relation to other opportunities, along with the stock price. Thank you for your question, and I hope this clarifies how we value the use of our liquidity.
Operator, Operator
Our final question is from the line of Finian O’Shea with Wells Fargo.
Finian O’Shea, Analyst
Can you touch on the outlook for capital market transaction fees? I think those looked a little strong in the context of the softer environment. Was a lot of this perhaps a one-off? Or has the development of your platform there started to show through and maybe we can expect stable to improving levels throughout the year?
Rob Lewin, CFO
Yes. We're really proud of how durable our Capital Markets business has been in what has been a really tough capital markets environment. Obviously, equity markets largely shut. Leveraged finance markets have been largely shut for some period of time. And if you look at our average quarterly revenue over the past four quarters, it's been a little bit north of $100 million per quarter. And so I think it's important to think about that in context of our Capital Markets franchise. Seven-plus years ago is probably a $200 million-a-year business in good markets. Five-plus years ago, it was probably a $400 million year in good markets type business. And today, our LTM revenue is a little bit north of that $400 million number in a really tough environment. And so no guidance as it relates to forward-looking quarters, but we do look at the performance that the team has been able to generate in a really tough market and feel really great about how we're positioned and do know that when we do come out of this period of time, when markets open back up, we, as a management team, have every expectation that we're going to be talking about a Capital Markets business 3, 5 years from now that's well in excess of the size that it is today for a number of reasons, just how we're positioned competitively, our access to talent. We see a lot of talent potentially coming out of traditional sources of capital markets institutions where we could take advantage of that. And then as KKR expands what we do, that's a real opportunity for our Capital Markets business.
Finian O’Shea, Analyst
That's very helpful. And one final, if I may. Any color or line of sight on second quarter monetizations?
Rob Lewin, CFO
Great. Thanks for that question. It's plus or minus around $125 million of forward look that we have, again, in context of the $9-plus billion of embedded gains on our balance sheet.
Operator, Operator
Thank you. At this time, we've reached the end of our question-and-answer session. And I'll hand the floor back to Craig Larson for closing remarks.
Craig Larson, Head of Investor Relations
Rob, thank you for your help, and thank you everyone for your interest in KKR. We look forward to speaking again post our Q2 results. And if you have any questions in the interim, please, of course, follow up with us directly. Thank you once again.
Operator, Operator
Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.