Earnings Call Transcript - KKR Q1 2025

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to KKR's First Quarter 2025 Earnings Conference Call. During today's presentation, all parties will be in the listen-only mode. Following management's prepared remarks, the conference will be open for questions. As a reminder, this conference is being recorded. I will now hand the call over to Craig Larson, Partner and Head of Investor Relations for KKR. Craig, please go ahead.

Craig Larson, Partner and Head of Investor Relations

Thank you, Operator. Good morning, everyone. Welcome to our first quarter 2025 earnings call. This morning, as usual, I'm joined by Rob Lewin, our Chief Financial Officer; and Scott Nuttall, our Co-Chief Executive Officer. We would 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. I'm going to begin this morning by reviewing our results for the quarter before Rob walks through the current environment, its impact on our key business drivers, as well as our strategic positioning longer term. Scott will then finish with some closing thoughts. So, beginning with our headline financial results for the quarter, fee-related earnings per share came in at $0.92, up 22% year-over-year. Total operating earnings of $1.24 per share are up 16% year-over-year. And adjusted net income of $1.15 per share is up 19% compared to a year ago. All of these figures are among the highest we reported as a public company and are reflective of a diversified and global business model built over the last decade-plus. Going into our quarterly results in a little more detail, management fees in Q1 were $917 million, up 13% year-over year driven by fundraising and deployment activities. If anything, management fee growth in the quarter feels understated relative to the breadth of the $31 billion of new capital that we raised in Q1. The largest component of this $31 billion was capital raised for North America 14, the latest vintage of our flagship North America private equity strategy, which had not turned on as of March 31st and therefore did not contribute to management fees in the quarter. Rob is going to give a little bit of a more fulsome update on North America 14 in a few minutes. Total transaction and monitoring fees were $262 million in the quarter. Capital markets transaction fees were $229 million driven primarily by activity in new and existing portfolio companies within both private equity and infrastructure. Fee related performance revenues were $21 million in the quarter. So, altogether, fee related revenues came in at $1.2 billion. That's up 22% year-over-year. Turning to expenses, fee-related compensation was right at the midpoint of our guided range at 17.5% of fee related revenues. Other operating expenses were $168 million for the quarter. So, in total, fee related earnings were $823 million or the $0.92 per share that I mentioned a moment ago with an FRE margin of 69%. Insurance segment operating earnings were $259 million and strategic holdings operating earnings were $31 million, both of which were in line to modestly ahead of our recent guidance. In terms of our strategic holdings segment, we've closed on our purchase of additional stakes in three existing core private equity businesses as we introduced on our call last quarter. We continue to feel that our strategic holdings business is a real differentiator for us. And these transactions are a further accelerant for this segment. Today, our share of annual revenue and EBITDA across the 18 company portfolio is approximately $3.8 billion and $920 million, respectively. Again, that's our share. Since quarter end, we've announced the acquisition of a new core private equity investment, Karo Healthcare, which will bring our strategic holdings portfolio to 19 companies. So, altogether, total operating earnings were $1.24 per share. As a reminder, total operating earnings is comprised of our fee related earnings together with our insurance and strategic holdings operating earnings, which represent the more recurring components of our earnings streams. Over the last 12 months, total operating earnings comprised nearly 80% of total segment earnings. So, said differently, nearly 80% of our pretax earnings over the last 12 months were driven by more recurring earnings streams highlighting the durability of our business, especially during periods of volatility. Turning now to investing earnings within our asset management segment, realized performance income was $348 million and realized investment income was $218 million for total monetization activity of $566 million. That's up almost 40% year-over-year. This quarter activity was largely driven by the annual crystallization of carry from Core PE as well as other monetization events across traditional PE as well as growth equity. Turning to investment performance and looking at page 10 of our earnings release, the private equity portfolio was up 4% in the quarter and up 11% over the last 12 months. This was a quarter where investment performance was undoubtedly helped by the geographic diversification of our firm as European and Asian equity indices were both up in the quarter. In real assets, the opportunistic real estate portfolio was up 2% in the quarter and up 5% over the LTM. Infrastructure was up 4% in the quarter and appreciated 13% over the LTM. In credit, the leveraged credit composite was flat in the quarter and up 7% over the last 12 months, and the alternative credit composite was up 3% in the quarter and up 11% over the last 12 months. Finally, consistent with historical practice, we increased our dividend to $0.74 per share on an annualized basis or $18.5 per share per quarter, beginning with this quarter. This is now the sixth consecutive year we've increased our dividend since we changed our corporate structure, increasing our annualized dividend from $0.50 per share to $0.74 over this period of time. And with that, I'm pleased to turn the call over to Rob.

Robert Lewin, Chief Financial Officer

Thanks a lot, Craig. And thanks, everyone, for joining our call this morning. We've all experienced some real volatility particularly since April. It is in this type of environment that our business model and collaborative culture uniquely positions us. And we are using that to lean in and source attractive investment opportunities around the globe for our clients. As we navigate this volatility, there are a number of themes and questions that we have consistently been hearing from our shareholders and clients. So, I thought I would spend my time this morning walking through a number of common areas of focus. The first is the impact of tariffs on our existing portfolio. As a starting point, it is important to remember that tariffs and supply chain diversification and resilience have been front-of-mind topics for our investment, public affairs, and macro teams dating back to the global pandemic. As a result, for five-plus years now, this has been a standard topic of conversation. Taking a look at our global private equity portfolio today, this includes traditional, core, and growth. Based on our initial findings, we estimate that 90% of our AUM has limited to no first-order impact from the announced tariffs. Importantly, this figure does not include identified mitigating measures that we are actively implementing. Specifically, our core private equity portfolio and our strategic holding segment are not expected to have any material impact from tariffs. Across our infrastructure platform, the vast majority of our companies have either contractual protections that insulate KKR returns or minimal estimated exposure. Looking at our infrastructure deployment over the last five years, approximately 70% has been in Europe and in Asia. And as we look at our credit portfolio, there will be pockets of exposure. But we believe the opportunities, and we really do think this is a credit picker's market, will outweigh the downsides. While we expect there will be individual instances of direct tariff impact in parts of the portfolio, based on how we understand tariffs today, we feel well-equipped to manage these challenges and on the whole feel very good with how our portfolio is positioned. The second theme that I wanted to cover this morning is the effect on both the deployment and the monetization environment. We find ourselves in the fortunate position of being ready as a firm to play offense on behalf of our clients. Volatility brings opportunity, and we benefit from the global and connected nature of our firm. We've closed or committed to over $30 billion worth of new investments since the start of the year. Within private markets, these investments are diversified across geographies, with more than half coming outside the U.S. Notably, multiple of these investments are in Japan, where we continue to be at the forefront of activity, including the purchases of Fuji Soft and Topcon in our private equity strategy. Looking only at investments that we announced over the last month, so when the tariff related volatility began, we committed over $10 billion of equity. This includes $7 billion in private markets across global opportunities in traditional PE, core PE, infrastructure, and tech growth, to name a few, and another $3 billion in private credit across direct lending, high-grade ABF, and junior debt. Moving next to monetizations, we think we remain really well positioned here. Our discipline around investment pacing and linear deployment has definitely contributed to the overall strength and maturity of our portfolio. At quarter end, our gross unrealized performance income stands at $8.7 billion. It's a high point for us and up over 25% year-on-year. I think this number in particular stands out given our healthy level of monetizations over the past 12 months. As a result of our mature and global portfolio and strong investment performance, we are better positioned than some might expect in terms of realization activity, even in the face of the market volatility. To give you a sense, looking at our pending monetizations, so this is based on transactions that are signed, but not yet closed, we have direct line of sight to north of $800 million of monetization related revenue, most of which will be performance income. This includes exits of Seiyu in Japan, Kito Crosby in the U.S., and foreign infrastructure investments to name a few of the key drivers. Of that $800 plus million, we expect at least $250 million to be generated in Q2. It's a very healthy figure for us as we stand here in just early May. The third theme that I wanted to hit on is the impact on our capital raising efforts. We are actively engaged with our clients. Part of this is making sure they know what is happening with their portfolios. But a lot of it is discussing how to invest into these markets and the ways we can work together. We've heard a range of responses, and they are evolving with the market. While it may be early as we see how this all plays out, today there are no changes to our targets and we have continued conviction in our fundraising outlook. Total new capital raised in the quarter was $31 billion, and it's worth spending a minute on our North America private equity strategy. In April, we completed the initial close period to North America at $14 billion. It's a great first step for us and reflects in our view the strong investment returns we've delivered on behalf of our clients alongside a differentiated return of capital profile. And remember, our approach here stands in contrast relative to many in our industry as we raise traditional PE funds focused across North America, Europe, and Asia, compared to the global funds you often see from our competitors. This approach, we think, has allowed us to raise more capital. As of 3/31, we had over $40 billion of committed capital across our active traditional private equity flagship funds and has also allowed for more diversified carried interest profile at the same time. And this doesn't include committed capital across core private equity, mid-market and our growth strategies. Looking at another important piece of capital raising private wealth, our K-Series suite of vehicles continues to maintain traction. Across the four investing verticals, AUM was at $22 billion including activity that closed April 1, 2025. This compares to $9 billion a year ago. Our North Star for the K-Series suite continues to be focused on building vehicles that we can be proud of 10 plus years from now. As a result, recognizing that we don't read too much into the month-to-month sales, we continue to be encouraged by our performance, deployment and the capital raising activity. Earlier this week, the two public private credit solutions created an exclusive partnership with Capital Group have launched. We are similarly focused on building these products for long-term success. As we look ahead to the second half of the year, we would expect to give you an update on the private equity and real asset product launches. In addition, work is underway to extend access for individuals interested in private markets through model portfolios and target date funds. Turning next to insurance, we are now a year plus into owning 100% of Global Atlantic and we are progressing well on our path to modestly evolving how we source both liabilities and assets, including raising more third-party capital, elongating our liability profile and sourcing additional alternatives. This addition of longer dated alternatives to the portfolio, where we think that we have a differentiated sourcing advantage, will drive up overall returns, while at the same time naturally reducing leverage over time. Financial performance here begins with Insurance segment operating earnings. In Q1, as you would have heard from Craig, we reported $259 million, which was in line with our expectations. Consistent with our comments last quarter, I would expect insurance operating earnings to stay in that $250 million plus or minus level during the next few quarters. This line item alone does not capture though how our model works and the overall impact of our insurance related economics. A lot of it appropriately shows up in our Asset Management segment. Firstly, management fees from our Ivy sidecar vehicles as well as strategic partnerships. This capital allows us to grow GA in a very capital efficient way, and there is more to come here. For example, Japan Post Insurance announced in Q1 their intention to expand our existing strategic partnership and make a new $1 billion to $2 billion investment here. Number two, capital markets fees, where we've just begun to scratch the surface. We see the potential to generate several hundred million of additional annual revenues over time. In 2024, that number was closer to $50 million. Finally, the management fees charged for our investment management agreement with Global Atlantic, critically even while we are in the process of shifting our strategy to emphasize longer duration and more private market assets. Our all-in pre-tax ROE of our insurance business is approaching 20%, with a clear path to 20-plus percent returns as we get all the elements of the business working well together. The last theme that I want to go through before handing it off to Scott is around the durability of our model, which provides us with a significant amount of both stability and visibility. Over 90% of our capital is perpetual or committed for an average of eight years or more. Today, we have $116 billion of committed but uncalled capital. If you look at our management fees, they are largely calculated on committed or invested capital, and therefore, not influenced by marks and corresponding NAVs. Finally, we have a record amount of capital on which we're not yet earning fees, with $64 billion committed with a weighted average management fee rate of about 100 basis points. That turns on when the capital is either invested or enters its investment period. Just to put that $64 billion figure into perspective, it is up almost 50% compared to one year ago. So, we benefit from real stability of management fees and increased visibility on how they will grow. Finally, our business is global and diversified. Almost half of our investment professionals sit outside of the U.S. Looking specifically at our management fees, they are well diversified across asset classes. Over the last 12 months, management fees across private equity, real assets, and credit and liquid strategies were each over $1 billion, and in aggregate, have grown at a high teens CAGR over the past three years. We don't think that there are any asset management firms that combine our scale, growth profile, and diversification. Now I'll end where I started. This is an environment where our people and our model really should excel. With that, let me hand it off to Scott.

Scott Nuttall, Co-Chief Executive Officer

Thanks, Rob. And thanks, everybody, for joining our call today. Given the recent volatility and uncertainty, I want to spend a few minutes on how we're navigating this environment and address what else may be on your minds. Before I do that, some context; today is KKR's 49th birthday. We were founded on this day in 1976, and I have been here nearly 29 of those 49 years. Over this period, the firm has seen a number of cycles and dislocations. In our experience, times like this yield some very attractive investment opportunities. The key is to use our global and diversified business model with significant locked-up capital and $116 billion of dry powder to keep investing when others are scared. These periods always end. We typically look back and wish we had invested more when the world is most uncertain. We are running the firm with those lessons in mind. We did a good job leaning into the COVID dislocation, and we're approaching this environment with the same mindset. As Rob mentioned, we've announced over $10 billion of investments in the last four weeks since the tariff announcement, and we have significant pipelines across our businesses. You should expect to continue to see us investing into this environment. No doubt some sale processes may be delayed if this continues. But it is times like this where we see the benefit of being very global, as Asia and Europe are less impacted so far, multi-asset class, and connected, as companies still need capital but may prefer debt over equity if valuations are down. So, we are optimistic about deployment and the returns we will see from this vintage. We're also sure you have questions about what this means for monetizations. As Rob mentioned, we have a mature portfolio and benefit from linear and disciplined deployment. As such, we have record embedded gains in our portfolio. Those gains are global and across asset classes. Here again, we have good line of sight and several assets in sale processes. We remain of the view that we can monetize gains in this environment. If we do decide to delay some processes, it just means we will likely monetize more next year. We're sure you also have some questions about fundraising. We want you to have our views and some facts. As an example, China-based LPs make up a low single-digit percentage of our AUM. Some may delay decisions in this environment, but we don't expect material impact. We're also watching private wealth flows, which have not been affected to date. These markets are in an adoption phase, and we have a long history of outperforming in down markets. This period could actually accelerate adoption over time, and we think our partnership with Capital Group will accelerate that adoption as well. And remember, a good portion of our fundraising comes through Global Atlantic. We expect annuity demands to be largely unaffected in this environment, and it could be positively impacted as investors focus on safety and quality. In short, given our momentum and the diversity of our global fundraising channels, we remain confident we will continue to raise scaled capital. Stepping back, you're also likely wondering if we have changed our view of what we are capable of achieving as a firm. We have not. Joe and I shared 2026 guidance last year. We still feel good about those numbers across both our fundraising and financial metrics. When you cut through it, we believe that while this dislocation may be different for a variety of reasons, the key is to stay focused on what we control and to not waste the opportunities it affords. We will continue investing, speaking with our clients, finding new themes, and looking for strategic opportunities, some of which are only available in times of distress. Times like this reveal experience, culture, and business model durability. They give us the opportunity to differentiate ourselves with performance, client engagement, and strategic action so that we emerge stronger as a firm and as investors. That's our focus and intent. With that, we're happy to take your questions.

Operator, Operator

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. The first question comes from Craig Siegenthaler with Bank of America. Please go ahead.

Craig Siegenthaler, Analyst

Good morning, Scott, Rob. Happy 49th birthday and hope everyone's doing well. Our question is on your Asia business. So, we all know that you have the largest private markets business across Asia. So, we're curious in your perspective on what the emerging trade war means for your strategy, your ability to fundraise and also investing effort across the region.

Scott Nuttall, Co-Chief Executive Officer

Thanks for the question, Craig. No change to our strategy. One of the things we talked about in the prepared remarks is that we learned a lot going through Trump 1.0 and thinking about tariff implications. I learned a lot during COVID about supply chains as an example. So, we have been looking at investments across asset classes with those lessons and the benefit of that timeframe in mind. So, no change to our strategy. Our effort, as you know, is cross-asset class and pan-Asian. We have efforts across private equity, real estate, infra, credit, and the beginnings of an insurance effort, nine offices across the region approaching 600 people. We think it is a big opportunity for us as a firm, and we see a lot of growth ahead. On the margin, one of our themes for a while has been intra-Asia trade as just an example. We think that's going to be an even bigger opportunity now on the back of this. Perhaps as investors stay focused on being even more global with their portfolios, I would say in January and February, there was a little bit of a bent toward maybe I should have more in the U.S. On the margin, I think it's going to be beneficial to Asia flows if people decide to stay more global. It's something that I think will benefit us, given our scale in the region.

Craig Larson, Partner and Head of Investor Relations

And then, Craig, it's Craig. I was just going to add some numbers to this. I think you're probably aware of this. I know you spent a healthy amount of time in the region yourself. But at the end of 2019, we had $21 billion of AUM. Almost 90% was in private equity. Looking at Q1 '25, we had about $70 billion of AUM with traditional PE comprising just below 50% of that. So, as Scott noted, meaningful growth with meaningful diversification at the same time.

Craig Siegenthaler, Analyst

Thank you, Craig. Just for my follow-up, I heard your commentary towards the end of the call on the resilience of private wealth flows and actually the potential for an acceleration coming out of this correction. Do you see the strong relative performance to date or the very low adoption as the key drivers? And was that comment really brought across asset class? Because I know you're doing very well in particular in private equity, just given CapEx strong recent performance.

Scott Nuttall, Co-Chief Executive Officer

Yes, I think it all really is a comment on our ability to perform through a cycle, Craig. The comment was more if the public markets pull back, that's when we tend to outperform by even more. If the private wealth channel, which is newer to the alternative space, has that experience, we think over time that could actually accelerate adoption. So, it was more of a forward-looking comment. You're right, we haven't really seen impact flows as of yet. Craig will walk through some numbers in a minute. For us, as I mentioned in the prepared remarks, we've been around a long time. We've seen a lot of cycles. We're a learning organization. So, we learned a lot of lessons during the financial crisis. One of those was the importance of linear deployment and portfolio construction. As we've been talking about it for a long time. We've been implementing it for a long time. It's now coming through the results. One example, America's private equity over the last eight years, we've returned two times the amount of capital that we've called. That's in a business that's been growing. We think this is going to allow us to outperform over time in terms of capital access. We see it as a go-forward advantage across channels. So, private wealth is part of that, but we also see the benefit across institutional and everything else we do. Craig, you want to give an update on private wealth?

Craig Larson, Partner and Head of Investor Relations

Yes, we were looking at the stats through April. If you look at Q3 and Q4, we were below that $3 billion of new capital raised in Q3, right around that in Q4. In Q1, we'd raised $4 billion across the K-Series for the quarter. When we look at activity at this point through April, so one-month period, we're right at about that billion level. It feels like a healthy month for us. It's interesting when you look at overall flows, particularly for private equity and infrastructure. In Q1, roughly half of those were inside the U.S., roughly half outside the U.S. Based on this preliminary data for the month of April, we're again very diversified with a pretty equal split both inside and outside the U.S. Tough to read too much into any four weeks of data, particularly April of 2025, but at this point, things feel okay.

Operator, Operator

Thank you. The next question comes from Alex Blostein with Goldman Sachs. Please go ahead.

Alexander Blostein, Analyst

Hi, good morning. Thank you for the question. So, zooming out a little bit, the comments over the course of your prepared remarks suggested a much more resilient business, perhaps what's perceived in the market today. You talked about monetization not quite falling off the cliff, deployment, dry powder, really healthy. It sounds like you're not really changing the outlook for fundraising either. So, the question obviously is, with the stock doing what it's done over the last few months, why not step up the buyback here? I know it's a dynamic approach you guys have talked about in the past, and you're looking to generate the best return on investment capital. But if not now, when? Can you also hit on expectations for putting the $2 billion plus of Convert to Work and kind of how you're thinking about the use of those proceeds?

Robert Lewin, Chief Financial Officer

Great, Alex. It's Rob. Why don't I start? We’ve been very consistent as it relates to capital allocation for some time. The most important thing for any capital allocation process is consistency. We have two goals. One is to ensure every marginal dollar of free cash flow generates the most amount of long-term earnings per share. The second goal, closely related, is increasing the quality of those earnings. Every marginal dollar of free cash flow is looked at through that lens. We've talked about four areas of using our capital base to accomplish those goals. One is share buybacks. The other three are core private equity, strategic M&A, and insurance. Share buybacks, over the past several years, have been a really important part of our capital allocation framework and use of capital. I've got every confidence that as we look forward and think about using our capital, share buybacks will continue to be a core part of how we think about capital allocation. We don't have a framework that puts a specific amount in any one bucket. To us, it’s all about taking that marginal dollar of cash flow and deriving the most amount of earnings per share across our business over a long period, with durability and resilience to that cash flow. We're going to take that same lens. I expect share buybacks, as we look forward, will continue to be a very important part of that allocation framework. It’s also worth noting that KKR senior management own roughly 30% of KKR. Any decision taken around capital structure, around capital allocation, is through that lens, highly aligned with our shareholder base. If you look historically, we’ve used our capital base to retire roughly 10% of our shares outstanding, 15% of our free float. We've done so at an average price of roughly $28 per share. We like our historical body of work and would expect to continue to find accretive ways to put that capital to work for all of our shareholders.

Operator, Operator

Thank you. The next question comes from Bill Katz with TD Cowen. Please go ahead.

Unidentified Analyst, Analyst

Hi, good morning. This is Manu on for Bill. Happy birthday to you guys, just wanted to say that.

Scott Nuttall, Co-Chief Executive Officer

Thanks.

Unidentified Analyst, Analyst

Maybe a question on asset-backed finance, maybe update us on the platform as we go into the balance of 2025. Some color on expanding the sourcing funnel and bank partnerships.

Craig Larson, Partner and Head of Investor Relations

Hey, Manu, it's Craig. Why don't I start? Glad you asked about it. First, on page 13 of our release, this is the page that details our credit and liquid strategies business. We break out the composition of the AUM in that piece. If you look overall, total credit AUM is up 10% year-over-year, 280 plus billion of AUM. The private credit component is growing at an even faster rate. We've got 117 billion of AUM up 26%. Within that private credit piece, 74 billion of that is in asset-based finance. ABF year-over-year has grown at a number between 35% and 40%. The asset-based finance business, it's a big business for us. Our scale here is probably larger than someone might expect. Back to your question on how we're positioned at this market. First, there’s a massive end market, 6 trillion on its way to 9. We have really high barriers to entry. There's a lack of scale capital with a number of traditional providers leaving this market and creating a void. We're continuing to find attractive risk-reward. Our clients like the diversification away from the corporate credit cycle. In terms of the current environment, we think this is a very good environment for asset-based finance. Companies will look for creative ways to finance themselves off balance sheet. As we think about banks, we believe our opportunity set will continue to increase. Overall asset-based finance deployment for us was a little over $4 billion in Q1. Over the trailing 12 months, we're at about $21 billion. It’s a healthy part of deployment for us. Just to give you a frame of reference, in 2023, that number was about $8 billion. So, you're seeing significant growth for us in a number of different asset classes, with a lot more for us to do.

Operator, Operator

Thank you. Our next question comes from Ben Budish with Barclays. Please go ahead.

Benjamin Budish, Analyst

Hi. Good morning, and thanks for taking the question. I wanted to ask maybe a two-in-one on capital markets fees. I know sometimes you'll kind of give a look into how Q2 is shaking up, so I was wondering if you could do that. But I'm also curious, in the slide deck, you noted that about two-thirds of transaction fees were debt-focused in the quarter. Can you talk about what is that historically? Is this sort of a function of a changing environment, or part of a more explicit strategy to broaden the type of business you're doing there? Thank you.

Robert Lewin, Chief Financial Officer

Great. Ben, thanks a lot for the question. Maybe I'll answer the second part first because it's the shorter part. Roughly, we've been at that two-thirds level over time, so no real big change in the quarter. As it relates to our capital markets business fees, listen, Q1 was a really solid quarter for us, particularly given the backdrop, $230 million of revenue. Q1 tends to be historically a lighter quarter, and frankly, as we came into the quarter looking at pipelines, I think we thought we'd be a little shy of that number. As we look at Q2, especially with the backdrop that we have, lower deal flow out there, we've got a very solid pipeline. Does that shape up to be similar revenue numbers to Q1? Not sure. We might be a little shy of that. Given the environment, feel good about that pipeline. Back half of the year, we’re going to need to see how the environment plays out, how the capital markets shape up. As of May 1, 2025, we feel better about it than we did May 1, 2024. We had a big back half of the year in 2024. We’ll see how the rest of 2025 shakes out, but we feel really good with how our business continues to be able to perform in different market environments. Looking at the 2022 and 2023, we generated roughly $600 million of revenue in both of those years, creating more of a floor from a revenue perspective in very choppy capital markets environments. In 2024, you saw a spike to roughly $1 billion of revenue. The team has done an awesome job building that business over the last almost two decades, so I think there's a lot of upside from here.

Operator, Operator

Thank you. The next question comes from Glenn Schorr with Evercore. Please go ahead.

Glenn Schorr, Analyst

Hi there. I want to revisit the discussion on private equity. You clearly illustrated how linear deployment and investment pacing benefit your situation, particularly when considering America's 12 and the capital you've returned. The broader question is whether, during the 2006, 2007, and 2008 vintages, which had subpar industry performance, people believed private equity was finished. We raised a significant amount of money, which doubled and tripled. So, is this time different for the industry? There are more funds and assets raised, yet performance remains subpar. Will we witness a larger shakeout, considering that there wasn't enough of one in previous downturns? The core question is whether we will see reduced allocations to private equity or simply a shift and consolidation towards better-performing entities.

Scott Nuttall, Co-Chief Executive Officer

Hey, Glenn, it's Scott. It's a great question. Our expectation is that it'll probably be more about dispersion. We think you're going to have meaningful dispersion of results across private equity managers, and that will start to come through in a way that it hasn't for a very long time. We've seen a trend for a while of institutional investors in particular globally wanting to do more with fewer. They've been consolidating their relationships with people that they think can perform through a cycle and that, in a lot of cases, are global and multi-asset class. Obviously, we've benefited from that. It will be more about concentration of capital with fewer players. We think we’ll now see the benefit of what I mentioned before, we’ve learned a lot during GFC, during COVID, during Trump 1.0. We've been applying those learnings. Volatility creates opportunity. You need to have the capital to invest and the courage to invest it. We as a firm, and we talk about culture all the time, are incredibly well-connected. If nothing else, we learn, and so, hopefully that will benefit us as it comes through results. It’s going to be dispersion, not a shakeout.

Operator, Operator

Thank you. The next question comes from Steve Chubak with Wolfe Research. Please go ahead.

Steve Chubak, Analyst

Hi, good morning.

Scott Nuttall, Co-Chief Executive Officer

Good morning.

Robert Lewin, Chief Financial Officer

Good morning.

Steve Chubak, Analyst

I recognize that you're planning to give a more fulsome update on the capital partnership in the second-half. But I was hoping you could just provide some early color on distribution strategy, and specifically areas of differentiation versus other competing products, and just how these vehicles might evolve over time.

Craig Larson, Partner and Head of Investor Relations

Hey, Steve. This is Craig. Why don’t I start? We are at the earliest of days. We are really excited about gaining a position to launch the two vehicles, as you would have seen in the press release a couple of days ago; that there is more to come with the private equity-focused product in addition to real assets yield-oriented products. Alongside that, there are initiatives focused on things like model portfolios, as well as target date funds. We are just at the earliest of days, and we are preparing for the question of what we think it looks like. It’s a tough question to answer because we feel like, together, we are forging a new path, a very exciting path, and we will keep everybody addressed in terms of progress as we proceed. Our mindset, as you’ve heard from us over time, is not on new capital raised in a 3, 6, to 12-month period. We are collectively trying to design products that we think, five, ten, or fifteen years from now, we both will look back at, and feel really proud about the net investment performance that we delivered on behalf of our clients. If we are successful in that part of the equation, we will be able to raise just a fine amount of money. There is a lot of excitement within our firm, I think, within Capital Group as well, about the opportunity, and it feels great to be launched and underway.

Scott Nuttall, Co-Chief Executive Officer

Hey, Steve, this is Scott. I think Craig said it well. We talked about the private wealth opportunity for a while. We do think that it is significant. A lot of institutions globally are 30% to 50% in alternatives; individual investors are low single-digits, depending on when you look at 1% or 2%. The opportunity for expanding our market is meaningful. More importantly, it doesn't make sense that if you are a teacher in Texas and you retired, you have 30-40% of your retirement funds invested in alternatives. If you are a retired dentist, you have zero. You haven't had access to what we do. With K-Series, we've been focused on hitting the accredited investor. That’s about 5% to 7% of U.S. households. We’ve launched there, and we are underway. With Capital Group, we are focused on the other 95%. We've just launched these first two products in the credit space, but what's coming is private equity, real estate, infrastructure, models, and figuring out how to access more efficiently the broader investor universe, as well as target fees. There is a lot more coming attractions, and there is work done to date. We think the opportunity is immense. But our focus, to be super clear, is the investment performance that we generate for the client. Just like we have been for pension funds, sovereign wealth funds, insurance companies, and family offices for nearly 50 years, that remains our focus.

Operator, Operator

Thank you. The next question comes from Mike Brown with Wells Fargo. Please go ahead.

Mike Brown, Analyst

Hi, good morning, Scott, Rob, and Craig.

Scott Nuttall, Co-Chief Executive Officer

Good morning.

Robert Lewin, Chief Financial Officer

Good morning.

Mike Brown, Analyst

I wanted to ask on the flagship fundraising in 2025. So, you had the first close on North America buyout. It seems like the industry-wide fundraising is elongated. What’s the right timeframe to consider for a final close? Beyond North America buyout, where else you're expecting the enclosing of big flagships in 2025? I believe Asia is starting, so can we see some inflows in '25? What's the expected timing on the final close for infra fundraising? Thank you.

Craig Larson, Partner and Head of Investor Relations

Hey, Mike. This is Craig. Why don’t I start? First on infra and flagship infra fundraising at 3/31, we are a little over $11 billion – $11.3 billion, as you can see in the back of the release. We feel good about progress to date. We may be seeing a little bit more of a barbelled approach to fundraising in this environment. The biggest components of capital coming in either at the initial close to take advantage of first-close discounts or the final close. That’s probably always been the case, but perhaps feels more so in the current environment. As it relates to Americas private equity, we wrapped up the first close at $14 billion, as Rob alluded to in the prepared remarks. We feel great about progress to date. It’s a credit to the team as we look at absolute returns and capital return and all the things we've talked about. We would expect, we’ll have a couple of closes in America, and will launch fundraising for the flagship Asia strategy on the heels of that. We haven't announced publicly any specific timing for that fundraising, but it is on our minds. We also haven’t announced a final close date on Infra V; our first close period ended in July '24. We’re well within 12 months at this point, and we’ll keep you abreast as we move forward. The broader point is there is a breadth of activity; while it’s easy to focus on flagship activity, if that's been $20 billion or so in the trailing 12 months, it still means you've got $80 billion to $90 billion outside of that activity across the breadth of our platform. There’s lots of activity across the credit business, broadly across infrastructure, even in launched fundraising for Asia infrastructure and various wealth platforms, climate, et cetera. There's an underlying breadth of activity that gives us comfort.

Scott Nuttall, Co-Chief Executive Officer

Yes. I think the only thing I'd add, Mike, is just to underscore Craig’s last point, we've been very focused on this for the last 10-15 years. Flagships obviously remain important, but over the last two years, we've raised over $200 billion of capital, just over 12% of that from flagships. This gives you a sense of the diversity of the fundraising channels that we have and all the different ways we can access capital, meaningfully different than how we looked and felt a decade ago.

Operator, Operator

Thank you. The next question comes from Dan Fannon with Jefferies. Please go ahead.

Dan Fannon, Analyst

Thanks. I wanted to follow up on just fundraising and was hoping you could just talk about your conversations you’re having with LPs? Generally, the health of that client base on the institutional side as you think, in the heels of this volatile market we’ve been in?

Scott Nuttall, Co-Chief Executive Officer

Great, thanks, Dan; Scott. We have had, as you’d expect, significant engagement with our clients the last several weeks. We tend to lean in even more when the world’s uncertain, and have even more connectivity. It’s hard to paint everybody with one brush, but clients are in healthy shape overall. The characteristics of the dialogue are that one, it’s super early. Everybody is just processing all of this: What does it mean? How do I think about it? What are we seeing around the world? We’re sharing that with everybody. There’s confusion on what this means. People are asking what it means in different places and where we end up. The clients overall are liquid. They’re asking us where they should lean in to take advantage of this for the most part. A number of them probably wish they’d invested more aggressively post-COVID and post the GFC, so they don’t want to make the same mistake. We’re getting questions about traded and opportunistic credit, for example. I’d characterize it as cautious greed and the desire not to look back with regret again. I say all this and I mentioned it’s changing very quickly. The S&P is now down 1% since April 1. I haven’t looked at where we’re trading since our call started. And down 5% since the beginning of the year. Credit spreads that were very tight have moved back maybe to the averages. We haven’t seen them blow out materially. So, people are liquid. Overall, they’re trying to figure out how to take advantage of this. A lot of folks were thinking about, if they were 60% to 70% U.S., should they be even more on the front foot? That was January and February. Now it’s more retrenching. People are trying to rethink things. In the end, the U.S. constitutes 25% of global GDP and 65% of global market cap. The U.S. equity market is two times the size of Europe, Japan, and India combined. So, as we talk to CIOs, CEOs around the world allocating capital, there's a recognition of that fact and the depth and liquidity of this market. We haven’t seen anybody make abrupt changes, but it's super early. I'd say the discussions are highly constructive and business as usual, with a lot more engagement.

Operator, Operator

Thank you. The next question comes from Patrick Davitt with Autonomous Research. Please go ahead.

Patrick Davitt, Analyst

Hi, good morning, everyone. My question is on the insurance discussion. I think you said you expect it to stay in the 250 million range for the next few quarters, but with the ongoing portfolio repositioning, I would think there is potential for wider new investment spreads. Why is there not room for that to tick up through the year? Thanks.

Robert Lewin, Chief Financial Officer

Yes, thanks a lot for the question, Patrick. There are a few different things going on. So, let me start with how we look at things, and then I'll work towards your specific question. We focus on that all-in ROE concept. Today, we are approaching that 20% level, so pretty attractive in its own right. We have a clear path to sustainably beating that level to generate 20 plus percent all-in ROEs, especially as we get all elements of the business model working together. I’d point out that we're achieving that return while we’re going through this evolution of our business model at GA, which we know will put some near-term pressure on insurance segment operating earnings for a bit of time, but with the benefit of the longer-term economic profile we think we can achieve. We believe that's unquestionably the right path to take. We're always going to side for long-term economics, even at the expense of short-term P&L. Going into a little more detail that will address your question, we’re working on a few different initiatives simultaneously, all with good momentum. Here are a few different data points. This all starts with elongating our liabilities. In Q1, 90% of the annuities we sold had a duration of five-plus years. This time last year, that number was 65%. We’re talking about taking our exposure to alternatives up. Industry average tends to be 5%-8% alternatives exposure. Global Atlantic was 1%. In the quarter, we added roughly a billion dollars of alternatives exposure, so making progress there too. Third-party capital is a very significant part of our strategy going forward. I referenced the momentum we have there, the Japan post-strategic partnership. We're currently out-raising IB3 deal. We have a lot going on as it relates to third-party capital. Good progress across these initiatives, but to answer your question specifically, it will take a little bit of time to impact the P&L, especially the part around the alternatives book, as much of that doesn't come through in yield. Additionally, as we grow our third-party capital, those fees only turn on when the capital is invested. Again, this takes time. Where this leads us is a very attractive run rate return inside the insurance business with lower leverage over time, alongside significant asset management economics that will take the all-in ROE to that sustainable 20% plus level I referenced earlier. I hope this helps clarify.

Operator, Operator

Thank you. The next question comes from Arnaud Giblat with BNP. Please go ahead.

Arnaud Giblat, Analyst

Yes, good morning. We've seen a number of large deals that would have been financed through the broad syndicated loan market or through private debt in April, I think Cairo is an example here. I was wondering how the availability of bank debt is currently evolving, as we’ve seen spreads tighten once again. I'm asking the question from two angles. Firstly, what is the availability to do deals and how is that evolving in April given that spreads are tightening once again? Secondly, looking through the lens of KKR as a provider of private debt, is there an opportunity to take back market share from the banks here? Thanks.

Robert Lewin, Chief Financial Officer

Great. Thanks, Arnaud. It’s Rob. I think very early April, you saw a brief dislocation where it was hard to secure bank financing. We talk a lot about our capital markets business as a fee generator for KKR and a profitability generator. The whole reason that business started was to support our portfolio companies in a differentiated way. We saw that in Cairo where we went out and arranged our own financing. Today, we see bank capital availability. The leveraged finance market is open, albeit, I think it’s in order to access it, spreads are a little bit higher for sure today than where they were, but it's open and available for new deals as we sit here in early May. The private credit opportunity remains robust. Given the backup in spreads in the leveraged finance market, little activity, of course, in the CLO formation market, we think the spread opportunity in our private credit and direct lending business is attractive heading into Q2 as well.

Scott Nuttall, Co-Chief Executive Officer

Arnaud, it's Scott. I'd say capital is available to do deals. Depending on the transaction, I’d say simple stories that have a high line of sight to syndicatability, those are going the leveraged credit bank route. Those with a more complicated story can go the private credit route, and that capital is available. The key for us is those markets exist and function side by side. It presents an option for us as we think about the best way to proceed. Each transaction varies. In the private credit space, that capital tends to be locked up and readily available. You’ll continue to see as banks periodically pull back, if volatility increases, private credit will take more share from the leveraged credit or the syndicated market and then cut back the other way. This is an environment where we’ve got both going on.

Operator, Operator

Thank you. The next question comes from Brian Bedell with Deutsche Bank. Please go ahead.

Brian Bedell, Analyst

Great, thanks. Good morning. Thanks for taking my question. Most have been asked and answered, but I wanted to ask about FRE margin, which continues to be impressive, growth in the FRE margin. Rob, do you see any kind of ceiling there? You’ve basically talked about investing more if the fee revenue growth improves. Should we anticipate higher expenses around distribution costs for your capital partnership as that evolves? Those might be headwinds on margin?

Robert Lewin, Chief Financial Officer

Great, thanks a lot, Brian. A few different things as I address your question. Let me start on the expense side. We’ve talked about continuing to want to invest back into our business for growth. Placement fees and distribution costs have the clearest ROI attached to it. That said, I’ve talked in the past as it relates to margin. We can operate sustainably at mid-60% FRE margin. For many quarters, we’ve approached high 60%. That’s not a ceiling for us. We’re confident in our ability to scale things we’ve started. If we execute our strategy well, we’ll grow revenue at a pace that exceeds headcount growth and the operating complexity across the firm. While FRE margin or overall margin expansion isn’t an input to our business strategy, it is a nice output if we get it right. We believe we will.

Operator, Operator

Thank you. The next question comes from Michael Cyprys with Morgan Stanley. Please go ahead.

Michael Cyprys, Analyst

Hey, good morning. Thanks for squeezing me in here. Just a question on tariffs. I think you referenced about 10% of your AUM that has some sort of first-order impact, which sounds like that’s mostly in credit. Can you elaborate on how you see restrictive trade policy impacting the portfolio? You also mentioned you are taking some mitigation steps. Could you also speak to any second or third-order impacts that you're considering? How are you going about assessing that?

Robert Lewin, Chief Financial Officer

Yes, thanks, Mike. Let me start. The 90% number I referenced was a private equity number across our portfolio. We estimate 90% of our AUM has limited to no first-order impact from the announced tariffs. That figure does not include any mitigation strategies that are well underway. We feel well positioned. Regarding infrastructure, much of our work consists of contractual protections that insulate KKR returns or have no exposure at all. As for credit, as we understand tariffs today, we think there might be even less exposure than what we're seeing in the private equity portfolio today. Across our $600 plus billion of AUM, we feel very well situated. It’s not to say we're not going to have issues. We believe we're attuned to potential second or third-order impacts related to the economy, be it GDP or inflation or interest rates. We’ve invested meaningfully behind macro functions, a geopolitics function, public policy, and all of those teams are deeply embedded across our investment teams globally. We’re trying to anticipate and be positioned where we can react swiftly if things change.

Scott Nuttall, Co-Chief Executive Officer

Mike, it’s Scott. I want to add that this is not by accident. As I mentioned, we learned a lot during COVID and during Trump. We’ve been focused on acquiring assets and companies that have more durable demand drivers. We want to ensure that companies can hold margins in higher cost or inflation environments. We've been leaning into those parts of the economy while pulling back from others. As Rob said, we expect to be surprised, but our position today with the investments made over the last five plus years is well poised to handle potential challenges ahead. Our management teams are prepared and experienced through these cycles. We believe we are well tested, but we’ll see how it unfolds.

Operator, Operator

Thank you. The next question is from Kyle Voigt with KBW. Please go ahead.

Kyle Voigt, Analyst

Hi, good morning, everyone. Maybe just a blended follow-up question on insurance and capital markets. Rob, should investors move away from thinking about insurance earnings being at the 14% to 15% pre-tax ROE range over the long run, and instead simply think about an all-in type 20% plus target instead? Secondly, in the prepared remarks, you reiterated the opportunity to substantially grow capital market fees tied to insurance versus the $50 million level in 2024. Can you give us an update on the roadmap to get to the several hundred million level you noted? And how you are thinking about the timeframe to achieve that?

Robert Lewin, Chief Financial Officer

Short answer is no, as it relates to insurance operating earnings. The functioning of profitability inside our insurance business, and how we operate on behalf of our annuity holders, is an important consideration. When framing the insurance business at KKR, it’s important to look at it holistically. The insurance operating earnings are important and holistic, with third-party capital fees from IV, our capital markets business, in addition to our investment management agreement between our asset management and insurance businesses. We consider both very important. Holistically, we look at that all-in ROE. It was essential to share on this call because generating high teens approaching 20% all-in ROE at the same time, while evolving our business model, is noteworthy and speaks to the potential we have once we get the elements working well together. Regarding your second question on capital markets fees, we have a solid team building that part of the business. They have composed it into something that significantly contributes to our revenue. If you look at 2024, we were roughly $50 million in fees for that business. In Q1 of this year, that number is about $20 million. Like most things here, we're not in a rush. We want to do it right while maximizing the long-term opportunity. Generating hundreds of millions in revenue from this opportunity is well within reach from our perspective.

Operator, Operator

Thank you. Our next question is a follow-up from Ben Budish from Barclays. Please go ahead.

Benjamin Budish, Analyst

Hi. Thank you for taking my follow-up. I wanted to ask about your earlier comments in the last quarter. Regarding management fee growth, Rob, last quarter, you suggested that we should see some acceleration. Is that still the case? Could you remind us what are the sort of constraints dependent on making the first investment and the pace of deployment of predecessor?

Robert Lewin, Chief Financial Officer

Yes, thanks for the question, Ben. We continue to believe that management fees will accelerate from here. Keep in mind that much of the $31 billion of capital that we raised is appearing in management fees. We have $64 billion in AUM where fees have not yet turned on with a weighted average management of approximately 100 basis points, so there's visibility around where future growth will come from. I can't tell you that North America 14 will be activated in Q2 2025, providing a partial benefit to the Q2 quarter. We have momentum across our capital raising channels discussed today, so we still believe management fees will accelerate from here.

Operator, Operator

Thank you. As there are no further questions, I'd now like to hand the conference call to Craig Larson for closing comments.

Craig Larson, Partner and Head of Investor Relations

Thank you for your help this morning, and thank you everybody for your attention. I know this has been a longer call during a very volatile environment. We appreciate your interest and we look forward to giving everybody another broad update in 90 days. Thank you so much.

Operator, Operator

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