Earnings Call Transcript - KKR Q4 2021

Operator, Operator

Thank you for joining us. Welcome to KKR's Fourth Quarter 2021 Earnings Conference Call. Today's call is being recorded. I will now pass the call to Craig Larson, Head of Investor Relations for KKR. Please continue.

Craig Larson, Head of Investor Relations

Thank you, operator. Good morning, everyone. Welcome to our fourth quarter 2021 earnings call. As usual, I'm joined this morning by Rob Lewin, our CFO; and Scott Nuttall, our Co-Chief Executive 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 in the Investor Center section at kkr.com. And as a reminder, we report our segment numbers on an adjusted-share basis. Our call will contain forward-looking statements, which do not guarantee future events or performance. Please refer to our earnings release and SEC filings for cautionary factors about these statements. Now before we jump into our results for the quarter, we'd like to take a step back and talk about KKR in full. As we look at our business, we see four things. First, we see scaling. Organically, over the last 12 months, AUM at KKR increased 48%. For an asset management business of our size, that alone is a remarkable statistic. And including the Global Atlantic acquisition, AUM increased 87% year-over-year. Second, you're seeing the impact of the scaling across many of the numbers that we're reporting today. You see it in our financials. Management fees for the year increased 44%. Fee-related earnings increased 54%, while distributable earnings more than doubled. All of these figures are at a record level for us. And you also see it in our operating statistics. Investment activity, for example, is at a new level. In 2020, we invested $30 billion across the firm. In 2021, that increased to over $70 billion. And new capital raised of $121 billion for the year reflects breadth and diversification. Approximately one-third of that capital was raised from our broad private equity franchise, including our growth strategies and core PE. Another third came from our real assets businesses with the remaining third coming from public markets. Fundraising was truly diversified across the firm. And the other notable point about that $121 billion is that 45% of it came from strategies that didn't exist at KKR five years ago. We think that says a lot about our culture and our focus on innovation. Third, looking forward, we remain very constructive on the opportunities we have ahead of us with multiple identifiable growth avenues on a global basis. Rob is going to touch on our fundraising pipeline and our areas of focus in a few minutes. And finally, remember, we feel advantaged during periods of dislocation. There are very few long-dated pools of capital as large as ours that can take advantage of dislocations, and we have a unique business model and a unique culture that we think can lead to differentiated outcomes during these periods, and that's alongside $112 billion of dry powder. Suffice to say, there's plenty to focus on and many compelling opportunities in the uncertain world in which we all find ourselves. Now turning to our results. The fourth quarter was another very strong quarter for us. Fee-related earnings per share of $0.69 and after-tax distributable earnings of $1.59 per share are record quarterly figures for us. And full year FRE of $2.23 per share, an after-tax DE of $4.44 per share are record annual figures for us. Looking at the quarter's operating metrics, new capital raised totaled $19 billion driven by several strategies across private equity, infrastructure, real estate, and credit. Notably, Healthcare Strategic Growth II held its final close, bringing the fund to almost $4 billion or approximately three times larger than its predecessor. This brings the new capital raise for 2021 to $121 billion, and this record fundraising and the addition of $98 billion from the Global Atlantic acquisition in February significantly increased our asset base. AUM now totals $471 billion, up 87% year-over-year. The strength of this year's fundraising is importantly quite diverse, as I mentioned a minute ago, with about $70 billion from non-flagship strategies. Our younger strategies are scaling as they enter their second or third fund life, and we continue to innovate and expand into adjacencies across strategies and across geographies. And GA grew by $25 billion through block activity, alongside organic inflows in the year. We deployed $23 billion in the quarter. Capital invested in both traditional private equity and core private equity were strong. Our real estate platform continues to see robust deployment with real estate credit particularly operating at a high run rate, and that's been amplified by Global Atlantic. Similarly, on the public market side, GA has added to the rate of private credit deployment in the quarter, most meaningfully in asset-based finance, with additional deployment in direct lending and opportunistic strategies. Q4's activity brings capital invested for 2021 to $73 billion, up 2.5 times year-over-year. We've seen a step function type change in the level of deployment driven by the size and diversity of our capital base while at the same time remaining judicious in choosing our spots. Now just as we continue to see strength on the fundraising and deployment front, our funds and strategies continue to perform at a high level. You can see this on Page 7 of the earnings release, where we detail investment performance for the quarter and the year across investment strategies. And finally, I want to touch on capital return before Rob walks through our earnings profile. As you can see at the bottom of Page 2 of the release, consistent with historical practice, we're pleased to announce an increase in our annual dividend from $0.58 to $0.62 per share. This is the third consecutive year we've increased our dividend since we changed our corporate structure, and the change will go into effect beginning with any dividends to be announced for the first quarter of 2022. And since our third quarter earnings call in November through last week, we repurchased $363 million of our stock in the open market with the majority of that coming in 2022 in the midst of all of this volatility. And with that, I'll turn the call over to Rob.

Robert Lewin, CFO

Thanks a lot, Craig. Now to walk you through our quarterly P&L, our management fees increased by 49% this quarter versus Q4 of 2020. Management fee growth was driven by closes across a number of active funds in the quarter. These closes, alongside our investment activity, bring fee-paying AUM to $357 billion. The fundraising success experienced over the past few quarters is really starting to flow through this line with another $38 billion of committed capital not yet paying fees. Our net transaction and monitoring fees were primarily driven by our capital markets franchise this quarter, which earned $320 million. This is a high point for us. This revenue figure encompasses a record number of transactions in a single quarter, and we only had one fee event that was greater than $20 million. For the year, Capital Markets totaled $847 million with revenues diversified by type, approximately one-fourth of our revenues related to private equity, infrastructure, and third-party clients, with the remaining quarter diversified across multiple different asset classes. Moving to our expenses. Fee-related compensation came in right at that 22.5% mark, the midpoint of the range we've discussed previously, while our other operating expenses came in at $140 million. The increase here was driven by higher placement fees as well as professional fees given high activity levels across the firm. We are also all back in the office across most of our locations, leading to an uptick in operating costs versus this time last year. In total, this brings our fee-related earnings to $606 million for the quarter, which is up 45% versus Q4 of 2020. The quarterly and yearly FRE margin both came in at 63%. And on a per-share basis, FRE is $2.23 for the year. Now moving on to realizations. Realized carried interest totaled $568 million in the quarter. Our realized incentive fees totaled $351 million in the quarter, largely due to Marshall Wace's strong investment performance. And realized investment income totaled $336 million. Together, these earnings streams resulted in $1.4 billion of asset management operating earnings. Our insurance segment also experienced an incredibly strong quarter with $347 million of operating earnings. In Q4, Global Atlantic sold its interest in Origis Energy, a solar renewable energy developer, at 12 times cost, resulting in a $200-plus million benefit to segment operating earnings. This was an amazing result for Global Atlantic and all of its shareholders while still recognizing that 12 times gains are not representative of our go-forward expectations here. Excluding all variable investment income for the year at GA, ROE would have still been a bit above 14%. This return represents a strong core operating level and modestly above our 12% to 13% expected range. Most importantly, a year into our partnership with GA, we couldn't feel any better about our collective progress, including the performance of management, the profitability of our stake, scaling of the AUM, and the integration of our teams. In total, our after-tax distributable earnings were $1.4 billion for the quarter or $1.59 per share. Comparing 2021 to 2020, DE per share is up over two times. Alongside an increase in earnings, we are also seeing continued compounding in our book value per share, which now totals $28.77. As a component of this, our 61% economic interest in Global Atlantic's book value now totals $3.4 billion, up 15% since the first quarter of our ownership. In summary, our business continues to perform at an exceptionally high level, and this is evident in both our Q4 as well as our 2021 results. Now there are two additional topics I would like to go through in a bit more detail. The first is our potential. In 2021, we generated almost $5 billion of distributable operating income, really a step function increase from the $2.3 billion that we generated in 2020. And to be clear, we don't believe these results reflect even our run rate profitability, let alone our potential. There are several reasons why we have room to run. Let's start with management fees. At 12/31, we had $38 billion of committed capital that isn't yet running through our management fee line. A year ago, that number was $20 billion. And as that $38 billion, which has a weighted average management fee north of 100 basis points, is either invested or enters its investment period, it will drive management fees in a meaningful way. Next are our embedded gains. Gross unrealized carry at year-end totaled $8.6 billion compared to $4.7 billion a year ago. So even after a record realization year, gross unrealized carry increased over 80%, positioning us well for future realized performance income. And embedded balance sheet gains at 12/31 were $6.7 billion, up from $4.4 billion a year ago. So similarly, while we saw a meaningful increase in balance sheet realizations in 2021, our embedded gains increased over 50%. Finally, as the overall footprint of the firm continues to grow, leading to increased deployment and more relationships, this continues to expand the opportunities we expect to have in our Capital Markets business, so really strong performance in 2021 over substantial potential still in front of us. That leads into the second topic I'd like to touch on: fundraising and our pipeline. As we look forward, we expect to be fundraising across 30-plus strategies in 2022, so we have a lot of runway and opportunity in front of us. In terms of areas of focus, I'd highlight four. The first area is private wealth. We now manage a little over $50 billion in private wealth assets, and we've been investing meaningfully into this channel. Historically, private wealth has contributed about 10% to 20% of the money that we raise annually. With the investments we're making in people, technology, and new product innovation, alongside the strength of our brand and our track record, we believe over time that it should be 30% to 50% of the money that we raise. The second area would be Asia. More than half of global GDP growth is expected to come from Asia. And as a reminder, eight of our 21 offices are in the region. We were early in Asia, and we've seen significant scaling as AUM across our Asia-dedicated strategies has gone from $20 billion to $42 billion over the last two years with private equity being the biggest driver of that growth. In 2022, we expect to be fundraising for 5 Asia-focused strategies outside of PE across our infrastructure, real estate, credit, and growth businesses. We have a leading footprint in Asia today, and building on our presence is a priority and a big opportunity for us. The third area would be our broader core franchises. These are all adjacent strategies to what we're doing in private equity, real estate, as well as infrastructure. So think longer-term capital, a lot of which can be raised on a continuous basis for strategies that leverage resources and deal flow that are already resident within the firm today. A year ago, we were at $17 billion of AUM across core. And today, that figure is north of $40 billion. In 2022, we look to continue the momentum and expect to be fundraising across 5 distinct strategies in private equity, real estate, and infrastructure. The fourth area is what we're doing across our real estate franchise. A year ago, AUM across real estate was $15 billion. Today, that figure is $41 billion. In 2022, we expect to fundraise across 10 distinct real estate strategies, including the next generation of our opportunistic real estate strategies across all three geographies. And with that, let me turn it over to Scott.

Scott Nuttall, Co-Chief Executive Officer

Thank you, Rob, and thank you, everyone, for joining our call today. As Craig and Rob reviewed, 2021 was a very strong year with record AUM, FRE, and earnings. The hard work of the last 10 to 15 years of business-building began to show up in bigger ways last year, and we're ahead of where we thought we would be at this point. With a record $112 billion of dry powder, we are well capitalized to invest in the opportunities presented by more volatile markets and an evolving macro picture. In summary, we feel incredibly well positioned. While we're together today, I also want to give you a little color on our annual planning meetings. Last week, we gathered 35 of our partners for two full days to review where we are, where we're going, and what we need to get right to capture the opportunity in front of us. It was an extremely energizing discussion. As we discussed at our Investor Day last April, we had significant runway in all of our businesses and see the opportunity to meaningfully scale across multiple platforms and markets simultaneously, including Asia, real estate, infrastructure, our core suite of products, private wealth, growth, impact in ESG, insurance, credit, and private equity, among others. What we discussed last week is that our progress makes us even more confident in the opportunity ahead and what these businesses can become. Said another way, we believe we can get to the destination faster than we thought a year ago, and the quantum of the growth opportunity is greater than we anticipated. So while 2021 was a great year for the firm, what's particularly exciting is that the progress we made last year positions us for more growth in the years ahead. Critically, Joe and I have never had more confidence in our team. We have a focused and highly motivated group driving our businesses and functions and responsible for each of our growth initiatives. So we enter 2022 with significant conviction in our growth prospects, our model, and our people and look forward to keeping you updated throughout the year. And with that, we're happy to take your questions.

Operator, Operator

Our first question comes from Alex Blostein with Goldman Sachs.

Alexander Blostein, Analyst

Why don't we start with just the dynamics around fundraising and management fee growth? And I really kind of want to zone in on a couple of things. I guess, first, whether or not the current macro conditions are having any impact on LP appetite to allocate to private markets broadly, even if just tactically, but curious what to hear from you guys on the ground. And then, secondly, Rob, you mentioned a number of fundraising initiatives for 2022. I was hoping you could size how much you expect to raise across those 30-plus strategies and ultimately what that means for 2022 management fee growth.

Craig Larson, Head of Investor Relations

Alex, it's Craig. Let me start by addressing the first part of your question. There has been no change in the interest level from our limited partners regarding fundraising, and we continue to experience significant momentum, which is encouraging. Allow me to provide more details about the various areas where we are fundraising to give you an overview of our activities. Rob mentioned our four focus areas for 2022. Specifically, in private equity, we are still raising funds for our Americas Private Equity and our Europe private equity strategy. In growth, we have launched fundraising for both our impact and next-gen tech strategies. In our core segment, we are fundraising across private equity, infrastructure, and core plus real estate strategies. The latter two strategies are open-ended. Beyond core plus in the US, we have commenced fundraising for core plus real estate in Europe and Asia, also open-ended, along with our benchmark infrastructure strategy. In real estate, alongside the core plus strategies across all three regions, we are also raising funds for a stabilized real estate credit strategy and an opportunistic real estate credit strategy. In credit, we are active in the US, Europe, and Asia, with fundraising efforts for lending partners, European revolving credit, Asia credit, asset-based finance, credit opportunities, and in addition to our Global Atlantic sidecar strategy. Our CLO business remains active as we seek to raise capital across leveraged credit platforms and hedge fund partnerships consistently. This is also accompanied by our range of democratized products. In summary, there is a lot of activity, and it continues to feel like we have strong momentum.

Scott Nuttall, Co-Chief Executive Officer

Yes. The only thing I would add, Alex, I agree with Craig, no change in LP appetite. The only incremental color I'd give is, if anything, we're seeing more interest in real assets with yield. So anything with some inflation protection, so think infrastructure and real estate. As we see inflation expectations go up, we're finding even more interest in those asset classes. Rob, do you want to pick up on the second part?

Robert Lewin, CFO

Yes, Alex. As it relates to the management fee piece of it, Alex, we've never felt as good as we do right now about our ability to sustainably grow management fees over time. Obviously, I referenced the $38 billion of capital that hasn't yet flowed through our management fee line item, the 30-plus products Craig just went through, our relationship with Global Atlantic where assets are much higher than where we thought it would be and, frankly, just the new product innovation that's happening across the firm today that gives us visibility around our ability to grow management fees tomorrow. So I think the expectation should certainly be continued management fee growth from us and being able to do so sustainably over time.

Alexander Blostein, Analyst

Great. And then just my follow-up is around capital management. So you guys obviously picked up the pace of buyback so far in the first quarter. Given your comments around the robustness of the business going forward, obviously, lots of capacity on the balance sheet given realizations and embedded gains. How are you thinking about the buyback at this level for the share price? And should we be thinking about acceleration in share repurchases from here?

Robert Lewin, CFO

Yes. Alex, the key for us on capital allocation is to have a consistent approach, and you've heard that from us over the last several years, and we'd anticipate that continuing. As we think about our overall capital allocation strategy, we want to make sure that we're striking the right balance between capital return to shareholders and investing back into KKR for growth, so long as that can be done at high ROEs and above our cost of equity. So let's take those in order. You would have seen, obviously, that we just increased our dividend 7%, the third consecutive year since we became a C-corp where we've increased our dividend. And then we want to continue to invest back into KKR stock, as you said. Certainly at these levels, we feel really good about our overall body of work on our share buyback. We've repurchased or retired north of 80 million shares now. That's almost 10% of KKR shares outstanding, almost 15% of our free float. Our goal is to keep our share count flat in relation to employee dilution. I think the expectation over time would certainly see us be in the market and acquiring and retiring KKR stock. In terms of balancing that with the overall opportunity to grow KKR, it is a big priority for us to reinvest back into KKR, whether that's in M&A or supporting new products or supporting new innovations, so long as we're seeing returns that are commensurate with that capital commitment. Over the last number of years, we certainly have. So we're going to continue to have a capital allocation framework that is very much ROE-based. We feel that's a real core competency of ours as we think about moving capital around to the highest ROE opportunity. If you think about our overall capital allocation framework, it's also worth remembering that KKR's employee base is the single-largest shareholder in KKR. So we come at that from a very aligned basis.

Operator, Operator

Our next question comes from the line of Robert Lee with KBW.

Robert Lee, Analyst

Great. Maybe, first, looking at wealth management. Generating 30% to 50% of your fundraising from that channel in several years is a pretty big step-up, particularly in light of your overall fundraising. So could you maybe put a little bit more meat on the bone? Like I know you had just hired a new Head of Global Wealth Management, but whether specific products or specific things that kind of give you that confidence sitting here today that in the next couple of years, you can have that magnitude of an increase coming from that channel. I mean, what would drive that?

Craig Larson, Head of Investor Relations

Yes. Rob, it's Craig. Why don't I begin? So private wealth is as big a priority as we have as a firm. The addressable market here, as everyone knows, is massive. Total client assets are estimated to be around $280 trillion. That's pension funds, sovereign wealth, insurance, private wealth combined. Private wealth is almost 65% of that and is growing, so it's a massive end market. But at the same time, allocations, as we all know, for individual investors are a fraction of what you find at institutions. Individual investors are less than 5%. By our research, we actually think that number is around 2% to 3%. We have this enormous end market. It's underpenetrated with allocations that are increasing. So it's a huge opportunity. As we think of our investment skills, our track record, combined with our brand, we really think we're exceptionally well positioned to be a winner here. The focus, I'd say, is really threefold. First, we're focused on our partnerships with private wealth platforms. In the US, that's the wirehouses, the independent broker-dealers, and the RIAs. Outside the US, it's the global private banks and the regional private banks. The business is organized by geography here. You're correct. You've seen some hiring related to that. Second, we're focused on the family capital part, so think about that single-family offices, multifamily, ultra-high net worth. Some of those folks are very large and very sophisticated. Again, we're organized by geography here. Third, we're focused on product creation. Historically, we've offered private fund solutions through the private wealth space. But really, there are only a limited number of private wealth investors who are qualified to look at private funds as appropriate. We're focusing on creating these new investment solutions, more democratized products, that are in a registered fund format and have much wider applicability within the private wealth channel. Suffice to say, when you combine where we are in the development of the channel, the maturing of our product set, including, and Scott mentioned this a moment ago, all the products that we have with yields, real assets, et cetera, and put that together with our brands, we are encouraged with how we're situated and all of the opportunities that we have ahead of us.

Robert Lee, Analyst

Okay. Great. And maybe as a follow-up, I mean, lease equity mark has been a pretty rocky start to the year, so I guess investors are generally concerned about realizing outlook from here. Could you maybe update us on where things are for you guys right now through the start of the year, in the first half of the quarter in Q1?

Robert Lewin, CFO

As it relates to Q1, we already have a good amount of visibility into some significant revenue from monetization activity. As of now, that figure is around $700 million, maybe a bit above that. As you know, that's collectively across both our performance and our investment income. And as a reminder, that is from deals that are already closed or have been signed up and that we expect to close in Q1. So we're off to a really good start there. This is one of the strongest figures we've had at this stage of the quarter. The other relevant thing for your models is the split. It's weighted around 75-25 carry investment income right now. Yes, we feel like a pretty good start to the year and provides us some support going into Q1 in 2022.

Operator, Operator

Our next question comes from the line of Bill Katz with Citi.

William Katz, Analyst

Okay. So maybe come back to interest rates for a moment. I was wondering if you could let us know what your rate assumption is that you have that supports your sort of 12% to 13% ROE for Global Atlantic? And then if rates were to go up, can you walk us through what the net impact would be between a higher ROE there versus any impact on management fees?

Robert Lewin, CFO

Bill, it's Rob. Thanks for the question. Let's start with where we think interest rates are going. We do see rates certainly increasing like the rest of the market. I think we're likely to get 4 more fed funds increases this year. But at the same time, we see that coming on the back of robust financial conditions. Our expectation is that we can be in an environment here where rates are still low or negative over the next couple of years, which I think is a positive place for us to be from a business model perspective. Of course, there are uncertainties around where rates are going, but I think there are a number of areas where we're pretty well competitively positioned. As you referenced, Global Atlantic, they are largely biased to benefit from interest rates rising over time. So $120 billion of capital there, as well as how we think about their individual channel and our ability to generate sales from that channel, we think are positively biased in a rising rate environment. I think there are a number of other areas around KKR as well where we think we're competitively well positioned. You look at our credit business, over close to $200 billion of AUM. Much of our third-party business there is floating rate exposure in nature. As interest rates rise, all things equal, our returns go up. The hurdle rates across many of those products tend to be fixed in nature, making the likelihood of earning additional incentive fees much higher. Hopefully, that helps answer your question.

William Katz, Analyst

And just a follow-up regarding your prior guidance. I certainly appreciate the tone and tenor of what you're saying about the confidence. But can you sort of still triangulate back to your guidance for this year in terms of $2 plus of FRE and sort of how you think about that, not only for this year but maybe into 2023, just given the compounding nature of growth? And then maybe just sort of level set where you are in terms of the capital raising flagship of the $100 billion plus well into that as well.

Robert Lewin, CFO

No updates to the numbers, Bill. Obviously, we're well ahead of where we thought we would be even 6 or 12 months ago. As it relates to both fundraising as well as management fee growth, this isn't just a result of an acceleration of fundraisers. In many cases, we have well exceeded the expectations that we have for ourselves, and we continue to see a robust environment to be able to raise capital. As I mentioned earlier, we continue to see an environment where we should be able to drive substantial management fee growth as well as FRE growth off of a base of $2.23, so we should be well ahead of our target for 2022 that we laid out about 12 months ago.

Scott Nuttall, Co-Chief Executive Officer

The only thing I'd add, Bill, last quarter, we said we thought we could double fee-related earnings in TDE over the next 5 years. That's still very much the case. So no updated guidance for '22, but suffice it to say, we well exceeded what we told you a year ago.

Operator, Operator

Our next question comes from the line of Glenn Schorr with Evercore ISI.

Glenn Schorr, Analyst

There has been a slower start to the year for Capital Markets activity. It's early, but if you examine the pipelines for M&A and IPOs, they are down. I think this is primarily due to market jitters. Given the slower pipeline, I am curious about how insulated you believe the realization pipeline and Capital Markets pipeline will be this year. In the past, you have provided insights on the core run rate for transactional monitoring fees or Capital Markets, which would be useful.

Robert Lewin, CFO

It's Rob. I believe it's important to discuss our Capital Markets business. It experienced significant growth in 2021. If we consider the overall picture, our Capital Markets business has averaged around $200 million in revenue each quarter over the last few quarters. While the markets have been open and functioning well, we've also managed to capture additional market share. In a market environment where capital is being utilized, even though it can be quite volatile, we think that $200 million is a reasonable expectation for our business. More crucial for us is how we can increase our revenue from $850 million in 2021 and expand our market share meaningfully in the coming years. We have plans to achieve this. Our strategy includes following KKR's lead in product and geographic expansion. By bringing in the right skills and expertise internally, we believe this could drive substantial revenue growth. Notably, our non-KKR issuer business, or third-party business, generated nearly $200 million in revenue in 2021. This demonstrates the strength of our business model and the capability of our team, allowing us to scale that segment to a revenue level similar to our overall Capital Markets business from not too long ago.

Craig Larson, Head of Investor Relations

Glenn, it's Craig. We were looking at some of these statistics, and it's kind of interesting just to give you another sense of the breadth in Capital Markets fees. When you look at deployment for us as a firm, deployments increased materially, obviously. We were $30 billion in 2020, $70 billion in 2021. If you look at where that came from and the impact of that, it had a big impact on Capital Markets revenues. That increase in deployment for us really didn't come from private equity. We invested $10 billion in 2020, we invested $10.2 billion in 2021. KCM fees from Capital Markets went from $230 million to $250 million in the year. I think they were up modestly. What you really saw, the big driver when you add up deployment for us in infrastructure, core private equity growth, and real estate equity, these are the areas that are going to generate sizable capital markets fees. That deployment for us went up 2.3 times in 2021. Capital Markets fees cumulatively, similarly, went up 2.3 times, going from $150 million to about $350 million. The dynamic that you have is one where deployment is becoming much more broad-based. Again, KCM is not solely going to be based on how we're deploying capital, but it's certainly going to be one of those factors. Really, in that number, as Rob said, you're seeing a real development in the footprint, in the framework of the firm, which is exciting from a management fee standpoint. It's also exciting from a Capital Markets standpoint.

Robert Lewin, CFO

Glenn, one other. I know you had referenced the impact of the Capital Markets environment on monetizations. A significant advantage as we come into 2022 with over $15 billion of embedded revenue that sits on our balance sheet between gross unrealized carry and the embedded gains of our investment portfolio. Q1, and we were off to a good start from the monetization perspective, is a good example of that. We don't need straight-line markets up to be able to monetize that $15 billion of embedded revenue, but what we will need is a market environment that has some stability over periods of time and is flexible in nature. There are going to be areas where we're going to be able to continue to pick our spots in this kind of a market environment and generate monetizations for our shareholders.

Operator, Operator

Our next question comes from the line of Gerry O'Hara with Jefferies.

Gerald O'Hara, Analyst

Great. Hoping we could get an update just on the strategic investments within your kind of perpetual capital sleeves. Clearly, a nice uptick year-over-year, but perhaps you can talk about some of the drivers of that increase and what we might be able to expect on a go-forward basis.

Craig Larson, Head of Investor Relations

I think it's very broad-based again. When you look at a lot of the core areas for us from a perpetual standpoint, we are raising capital. Infrastructure and real estate, particularly in Europe and Asia, are aspects where capital will be perpetual in nature. The global dynamic continues to grow and scale, which is great. Over time, we have also mentioned that longer-dated strategic partnerships are ongoing. It's multi-asset class capital, allowing for recycling, which can be very valuable economically. However, you won't see that activity from us every quarter. Those discussions are ongoing, and we'll keep you updated.

Robert Lewin, CFO

Gerry, one other thing, if you look at Page 5 on our press release, you can see our perpetual capital. It was up year-over-year over 7 times. Now a lot of that is Global Atlantic. What we don't want to get lost in that slide is that, ex Global Atlantic, our perpetual capital year-over-year was still up 4 times versus this time last year. There's a lot of momentum across that part of our business.

Gerald O'Hara, Analyst

Great. That's helpful. And then just as a follow-up, I appreciate the thoughts around the private wealth channel. But as it relates to the sort of investment, I think last quarter you talked about sort of looking to triple headcount, if my notes are right, and continuing to sort of invest in operations and technology. Can you just perhaps give us an update on how things have progressed there and how we're tracking relative to perhaps where you were last quarter?

Craig Larson, Head of Investor Relations

Gerry, it's Craig. We don't really want to get into the habit, honestly, of giving individual headcount updates on the part of the business and where we are from that. Suffice to say, this part is a real strategic priority for us, as we've spoken about. There are lots of underlying activities and growth. We feel really well positioned and we're very active as it relates to hiring talent on a global basis. I hope that gives you a clear sense of the importance for us.

Operator, Operator

Our next question comes from the line of Craig Siegenthaler with Bank of America.

Craig Siegenthaler, Analyst

So my question is on Global Atlantic. I just want to get an update on your progress to reinvest Global Atlantic's portfolio into KKR-originated product. And also how this could or will impact your blended fee rate as GA reaches your longer-term objective.

Robert Lewin, CFO

Craig, it's Rob. That's going to be a multiyear process, and we're going to do it in a very prudent way and make sure that we're rotating GA's balance sheet from quality investments that they had today into opportunities for KKR to be able to invest that capital with a similar or better risk level and at an increased yield. That process is taking place. I'd say 11 months in, we're probably in a better place than we thought we'd be at the beginning of the deal. No doubt, as we complete that rotation or we make progress on that rotation, that's going to increase the blended management fee rate in our overall relationship with Global Atlantic. I think that blended management fee rate today is in the mid-teens, and so it definitely has the ability to go up over time based on the rotation that you referenced.

Scott Nuttall, Co-Chief Executive Officer

The only thing I'd add, Craig, is that it's going to be a constantly evolving answer to your question because if you think, especially as Global Atlantic pursues block activity, we're bringing on more assets, and then those blocks need to be rotated themselves. I'm not sure we'll ever reach stasis, frankly. To Rob's point, we're a bit ahead of where we thought we'd be, and we'll keep you updated. But the block activity has obviously been significant since we signed the deal.

Craig Siegenthaler, Analyst

And just one other question on that one. What assets or KKR-originated assets are being allocated into Global Atlantic today?

Robert Lewin, CFO

It's a lot across our real estate credit franchise, our private credit franchise, structured finance, asset-based finance. Those are really the big areas of opportunity that we're working together with the GA team.

Operator, Operator

Our next question comes from the line of Devin Ryan with JMP Securities.

Brian McKenna, Analyst

This is Brian McKenna for Devin. There's clearly a lot of momentum across the entire platform, and I appreciate all the color on the outlook. But what do you think will be the biggest driver of growth over the next 5 years? And then what products will be the biggest contributor to achieving your FRE and DE targets of $4 plus and $7 plus?

Robert Lewin, CFO

Yes, Brian, it's Rob. I'll go ahead and answer that. The reality is we have a lot of confidence in various areas of our business. I want to highlight a few, which we mentioned in our prepared remarks. Asia represents a significant long-term opportunity for us, and we've previously stated that we believe our operations in Asia could eventually match the size of our North American business. This belief is based on a couple of factors. Firstly, we anticipate that more than half of global growth will originate from that region in the coming years. Secondly, we have a substantial head start and competitive edge over our rivals. Our goal is to leverage our leading position there along with our strengths in infrastructure, real estate, and credit growth equity globally. We believe this combination could drive significant growth in that region. In 2022, we plan to fundraise for five products, excluding private equity, in Asia. This is a major focus for us. The work we're doing in real assets, real estate, and infrastructure is quite promising. Additionally, we've discussed our expansion in private wealth. There are numerous strategies we can pursue to achieve profit and loss growth over the next several years.

Scott Nuttall, Co-Chief Executive Officer

Yes, Brian, it's Scott. Thanks for the question. It's enjoyable to respond, really. Last April, we had a lot going on. We expanded from six to nearly 28 investing strategies over the past decade or so, making it a bit challenging to provide a concise answer. We need to scale all the initiatives we've started, spanning a variety of asset classes such as real estate, infrastructure, growth, and insurance. There are many opportunities to significantly broaden our client base. We've discussed private wealth today, but there's also significant activity in the institutional channels. We're developing new growth avenues, not just with the current 28 strategies, but you'll see additional initiatives from us aimed at growth. I believe strategic mergers and acquisitions will continue to be important, not only through Global Atlantic but also by exploring other acquisitions. Having a strong balance sheet and currency provides us with valuable tools to speed up our growth. There are numerous opportunities for scaling, many of which we haven't even touched on today. I'm not certain we can pinpoint one or two main drivers; I think growth will stem from a variety of sources. The confidence you hear in our voices about doubling again after achieving such rapid growth previously is rooted in everything I've mentioned.

Brian McKenna, Analyst

Yes. Got it. Appreciate the color there. And then just two quick modeling questions for Rob. How should we think about margin expansion in 2022 relative to 2021? And then is there any updated guidance on the tax rate moving forward?

Robert Lewin, CFO

Yes. I'll start with the second one. Our tax rate this year was a little over 17%. What we said over time is we would expect that to migrate up to the statutory rate in the low 20s. As it relates to margin, we've talked about operating in the low 60s. In Q4, we were at 63%. In 2021, we were at 63%, so a little bit ahead of where we thought we would be. We're investing a lot back into the firm right now. I think low 60s is the right level to think about in the near term. We believe over the medium term that we could take our margins to mid-60s on a sustainable basis if we're able to execute on the revenue opportunity in front of us.

Operator, Operator

Our next question comes from the line of Brian Bedell with Deutsche Bank.

Brian Bedell, Analyst

Great. Just back on the retail side. Of the $50 billion in private wealth assets right now, are you able to break that out between what you would call democratized products? I know those are still very much in development but just to try to get a sense of how you're thinking about that fundraising in retail from new products. Scott, you mentioned obviously some products on the yield side gaining attention. Maybe just a flavor of that growth path of that 10% to 20% to 30% to 50%. Maybe even just in the next 1 to 2 years, what kind of AUM you think you could raise in new democratized products in retail? And then to what extent would there be significant placement fees attached with the retail side of that?

Craig Larson, Head of Investor Relations

Brian, it's Craig. Why don't I start? Look, in terms of where we are today, we have three broad democratized solutions that are on a bunch of different platforms in addition to bespoke solutions that are tailored for individual platforms. To your first question, we have about $5 billion of AUM across that family, if you will. We do believe over time that we'll have democratized products really across all of our asset classes. Alongside of that, we're going to continue to invest in sales, marketing, data, digital talent, et cetera. Alongside of where we are today, we expect to see these products launched on additional platforms over the course of the year which will be additive to all of this. It feels like we're off to a great start. It still feels to us like we're in the earliest stages. One of those products that seems to be taking or having a lot of mind share that we began accepting capital in June has started off strong in the real estate business. We have a lot of momentum, which is exciting for us. We don't have a breakdown of democratized products for you in terms of where we think that number could grow. There are certainly lots of data points out there that highlight the opportunity. Given the investment we have, the brand investment performance, we think we're well positioned to be a big winner in a massive end market.

Brian Bedell, Analyst

Fair enough. Regarding the timing of a couple of things, what is your expectation for the $38 billion that is currently not earning management fees? Over what time frame do you anticipate the rest of that moving into fee-paying assets under management? Additionally, the dry powder of $112 billion is nearly double what it was six quarters ago. As you raise products, should we consider that deploying this dry powder will diminish based on the investment opportunities you see are concerning during the call? Or is it possible that this dry powder will keep increasing due to your fundraising efforts?

Robert Lewin, CFO

Brian, it's Rob. So on your first question, that $38 billion is a mix of different things. In some cases, it's some investment products where the fee turns on when you invest it, and some of those have lives of 3, 4, or 5 years from an investment period perspective. I think about that on a blended basis of about 3 years. Some of the other products, it's just capital we've raised and funds that we haven't yet turned on. We think that, that's more in the next 3- to 6-month time frame. So on a blended basis, a couple of years overall feels like a reasonable assumption for that $38 billion, maybe a little bit inside of that. As for the dry powder, it's a tough question to answer. It is really a function of how active the investment environment is, coupled with our fundraising activity. What you've heard from us several times on this call is the excitement we have for future fundraising. At the same time, in these volatile markets, we think the opportunity for us to lean in from an investment perspective might get more interesting. It's just a balance of those two things. Hard to be prescriptive about where that number goes over the next couple of quarters.

Operator, Operator

Our next question comes from the line of Michael Cyprys with Morgan Stanley.

Michael Cyprys, Analyst

I wanted to circle back to a comment Scott had made. Scott, you had mentioned that the quantum of opportunity was greater than anticipated. I'd just be curious to hear your perspectives on why that's been the case. What's changed across the industry over the past 12 to 18 months? And as you look forward, are there any sort of risk to the outlook that you're paying attention to, either regulatory-wise? Clearly, there's been some movement there or on the macro front. Just curious your perspectives there.

Scott Nuttall, Co-Chief Executive Officer

Thanks for the question, Michael. I think part of it is that we only wanted to be in businesses where we believed we could be in the top 3 globally. We aimed to stay focused on those areas. The reason we think the opportunity is greater than expected is that the end markets we are engaging with are growing rapidly. We're seeing an increase in investor interest from both traditional and new sources, which is outpacing our initial expectations. Additionally, we are approaching the top 3 status more quickly in some asset classes, thanks to strong investment performance and building trust with a wider client base. The overall opportunity is larger than we anticipated, and we are making faster progress towards it. The risks are clear; we need to execute well. If we maintain strong investment performance and provide products that clients are interested in while earning their trust, scaling up becomes simpler. Many risks lie with us, and execution is key. Our rapid scaling is driven by solid investment performance as we expand our client base. We see ample opportunity in both areas. While there have been questions about market volatility, which has been more variable this year compared to last, this usually bodes well for us. With $112 billion of dry powder available, investing during periods of volatility can lead to long-term revenue and profit opportunities. We feel confident about our current position. While low volatility is beneficial for our business in the long term, we believe the opportunities ahead are substantial.

Michael Cyprys, Analyst

Just on the regulatory point, just any sort of thoughts around potential for regulatory changes, enhanced transparency around fees, et cetera?

Scott Nuttall, Co-Chief Executive Officer

Look, I think the level of scrutiny in our space is probably a positive for larger players that are more institutionalized. There are aspects of how the regulatory environment has developed that we think the barriers to entry in our space have gone up, and that's good for incumbent players. Nothing that we see that I would call out today. Our job is to react to what the regulators talk to us about. So far, we think it's been long-term helpful to our business.

Robert Lewin, CFO

Yes. Activity was certainly up across the board, Mike. We monetized just over $3 billion of the balance sheet in 2021. We deployed about $3.7 billion. That deployment does not include Global Atlantic. If you include Global Atlantic in that number, we would be a little below $7 billion of deployment for the year.

Operator, Operator

Our next question comes from the line of Finian O'Shea with Wells Fargo Securities.

Finian O'Shea, Analyst

To follow on the insurance topic, are you able to touch on what you're seeing on the regulatory agenda, focusing more on structured products and alternative asset manager affiliates and if you see any major impact to the product that you and your peers are providing to insurance clients?

Robert Lewin, CFO

Thank you for your question. It's an important issue that we're currently focusing on internally. Part of my response aligns with what Scott mentioned regarding the regulatory environment. The insurance sector, like other financial services, is undergoing significant changes. The industry is becoming more advanced, which we believe is ultimately beneficial for policyholders. Consequently, we think it is appropriate for regulators to adjust as the industry develops. Effective regulation is advantageous for the entire industry. Specifically regarding Global Atlantic, we maintain strong and open relationships with our regulators, who are actively gathering information and feedback from the industry. However, there isn’t much more we can say on this matter. We can only assure you that we do not expect any major changes to our core business model, which involves making thoughtful investments aligned with the long-term commitments we have to our policyholders. Thank you for your question; it certainly is a timely topic.

Operator, Operator

Our final question this morning comes from the line of Rufus Hone with Bank of Montreal.

Rufus Hone, Analyst

Great. Had one on Global Atlantic. Clearly, strong AUM and earnings growth since the acquisition, and I was curious if you anticipate any change in the appetite for block transactions and on your regular quarterly inflows as interest rates start to rise. Any details there would be helpful.

Robert Lewin, CFO

Yes. So no change in our appetite. It's been an area of very meaningful growth that we think is very smart growth that Global Atlantic has had over the past 12 months. The space around block transactions, I'm sure, as you noted, has become a bit more competitive. With our capital base, the quality of our management team, the relationships we have, and really our systems and processes, they position us to compete effectively for block transactions. A big reason why Global Atlantic partnered with KKR was our capabilities on the asset management side and our ability to rotate assets in these blocks into KKR-originated products. We think we're really well positioned. No change in appetite, and the institutional part of GA's business will continue to be a big growth driver for them going forward.

Operator, Operator

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Larson for any final comments.

Craig Larson, Head of Investor Relations

We would just really like to thank everybody for your interest in KKR, and we look forward to chatting with you next quarter. Take care. Thanks again.

Operator, Operator

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