In the table above, certain private equity investments may be valued at cost for a period of time after an acquisition as the best indicator of fair value. In addition, certain valuations of private equity investments may be entirely or partially derived by reference to observable valuation measures for a pending or consummated transaction.
The various unobservable inputs used to determine the Level III valuations may have similar or diverging impacts on valuation. Significant increases and decreases in these inputs in isolation and interrelationships between those inputs could result in significantly higher or lower fair value measurements as noted in the table above.
The following table summarizes the financial instruments for which the fair value option has been elected:
| |
(1) | Represents the amount of carried interest payable to principals, professionals and other individuals with respect to KKR’s active funds and co-investment vehicles that provide for carried interest. |
| |
(2) | Represents amounts owed to third parties for investment purchases for which cash settlement has not occurred. |
| |
(3) | Represents the obligations of KKR to deliver a specified security at a future point in time. Such securities are measured at fair value with changes in fair value recorded in Net Gains (Losses) from Investment Activities in the accompanying condensed consolidated statements of operations. See Note 3 “Net Gains (Losses) from Investment Activities” for the net changes in fair value associated with these instruments. |
| |
(4) | Represents derivative financial instruments used to manage foreign exchange risk arising from certain foreign currency denominated investments. |
| |
(5) | Represents amounts owed for securities transactions initiated at clearing brokers. |
9.16. VARIABLE INTEREST ENTITIES
Consolidated VIEs
KKR consolidates certain VIEsvariable interest entities ("VIEs") in which it is determined that KKR is the primary beneficiary as described in Note 2 "Summary of Significant Accounting Policies" and whichbeneficiary. The consolidated VIEs are predominately CFEsCLOs and certain investment funds.funds sponsored by KKR. The primary purpose of these VIEs is to provide strategy specific investment opportunities to earn capitalinvestment gains, current income or both in exchange for management and performance based fees or carried interest. KKR’sincome. KKR's investment strategies differ for these VIEs differ by product;VIEs; however, the fundamental risks have similar characteristics, including loss of invested capital and loss of management fees and carried interests.performance income. KKR does not provide performance guarantees and has no other financial obligation to provide funding to these consolidated VIEs, beyond amounts previously committed, if any.
Furthermore, KKR consolidates certain VIEs, which are formed by Global Atlantic to hold investments, including investments in transportation, renewable energy, consumer and other loans and fixed maturity securities.
Unconsolidated VIEs
KKR holds variable interests in certain VIEs which are not consolidated as it has been determined that KKR is not the primary beneficiary. VIEs that are not consolidated predominantly include certain investment funds sponsored by KKR andas well as certain CLO vehicles.
Investments in Unconsolidated Investment Funds
KKR’sinvestment partnerships where Global Atlantic retains an economic interest. KKR's investment strategies differ by investment fund; however, the fundamental risks have similar characteristics, including loss of invested capital and loss of management fees and carried interests. KKR’sperformance income. KKR's maximum exposure to loss as a result of its investments in the unconsolidated investment funds is the carrying value of such investments, including KKR's capital interest and any unrealized carried interest, which was approximately $4.2 billion at September 30, 2017.interest. Accordingly, disaggregation of KKR’sKKR's involvement by type of unconsolidated investment fund would not provide more useful information. For these unconsolidated investment funds in which KKR is the sponsor, KKR may have an obligation as general partner to provide commitments to such investment funds. As of September 30, 2017,March 31, 2022, KKR's commitments to these unconsolidated investment funds was $2.3were $4.9 billion. KKR has not provided any financial support other than its obligated amount as of September 30, 2017.
InvestmentsMarch 31, 2022. Additionally, Global Atlantic also has unfunded commitments of $23.7 million in Unconsolidated CLO Vehicles
KKR provides collateral management services for, and has made nominal investments in, certain CLO vehicles that it does not consolidate. KKR’s investments in the unconsolidated CLO vehicles, if any, are carried at fair value in the consolidated statements of financial condition. KKR earns management fees, including subordinated collateral management fees, for managing the collateral of the CLO vehicles. As of September 30, 2017, combined assets under management in the pools of unconsolidated CLO vehicles were $0.5 billion. KKR’s maximum exposurerelation to loss as a result of its investments in the residualother limited partnership interests of unconsolidated CLO vehicles is the carrying value of such investments, which was $1.0 million as of September 30, 2017. CLO investors in the CLO vehicles may only use the assets of the CLO to settle the debt of the related CLO, and otherwise have no recourse against KKR for any losses sustained in the CLO structures.March 31, 2022.
As of September 30, 2017March 31, 2022 and December 31, 2016,2021, the maximum exposure to loss, before allocations to the carry pool and noncontrolling interests, if any, for those VIEs in which KKR is determined not to be the primary beneficiary but in which it has a variable interest is as follows:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Investments - Asset Management | $ | 10,254,226 | | | $ | 11,539,945 | |
Due from (to) Affiliates, net | 1,027,639 | | | 1,046,210 | |
Maximum Exposure to Loss - Asset Management | $ | 11,281,865 | | | $ | 12,586,155 | |
| | | |
Other Investment in Partnership - Insurance | $ | 204,984 | | | $ | 190,106 | |
Investment in Renewable Partnerships - Insurance | 30,194 | | | 30,760 | |
Maximum Exposure to Loss- Insurance | $ | 235,178 | | | $ | 220,866 | |
| | | |
Total Maximum Exposure to Loss | $ | 11,517,043 | | | $ | 12,807,021 | |
| | | |
| | | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Investments | $ | 4,151,598 |
| | $ | 3,632,162 |
|
Due from (to) Affiliates, net | 134,308 |
| | (60,604 | ) |
Maximum Exposure to Loss | $ | 4,285,906 |
| | $ | 3,571,558 |
|
10.17. DEBT OBLIGATIONS
Asset Management Debt Obligations
In Asset Management, KKR borrows and enters into credit agreements and issues debt for its general operating and investment purposes. Additionally, certain of KKR's consolidated investment funds borrow to meet financing needs of their operating and investing activities. KKR consolidates and reports KFN's debt obligations of KKR Financial Holdings LLC, a KKR subsidiary ("KFN"), which are non-recourse to KKR beyond the assets of KFN.
FundCertain of KKR's consolidated investment funds have entered into financing facilitiesarrangements with financial institutions, generally to provide liquidity to such investment funds. These financing arrangements are generally not direct obligations of the general partners of KKR's investment funds (beyond KKR's capital interest) or its management companies. Such borrowings have been establishedvarying maturities and bear interest at floating rates. Borrowings are generally secured by the investment purchased with the proceeds of the borrowing and/or the uncalled capital commitment of each respective fund. When an investment vehicle borrows, the proceeds are available only for use by that investment vehicle and are not available for the benefit of certainother investment funds. When anvehicles or KKR. Collateral within each investment fund borrows from the facility in which it participates, the proceeds fromvehicle is also available only against borrowings by that investment vehicle and not against the borrowings of other investment vehicles or KKR.
In certain other cases, investments and other assets held directly by majority-owned consolidated investment vehicles have been funded with borrowings that are limited for their intended usecollateralized by the borrowinginvestments and assets they own. These borrowings are non-recourse to KKR beyond the investments or assets serving as collateral or the capital that KKR has committed to fund such investment fund. KKR’s obligations with respect to these financing arrangements arevehicles. Such borrowings have varying maturities and generally limited to KKR’s pro-rata equitybear interest in such funds.at fixed rates.
In addition, certain consolidated CFE vehiclesCFEs issue debt securities to third partythird-party investors which are collateralized by assets held by the CFE vehicle.CFE. Debt securities issued by CFEs are supported solely by the assets held at the CFEs and are not collateralized by assets of any other KKR entity. CFEs also may have warehouse facilities with banks to provide liquidity to the CFE. The CFE's debt obligations are non-recourse to KKR beyond the assets of the CFE.
KKR's Asset Management debt obligations consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | Financing Available | | Borrowing Outstanding | | Fair Value | | Financing Available | | Borrowing Outstanding | | Fair Value |
Revolving Credit Facilities: | | | | | | | | | | | | |
Corporate Credit Agreement | | $ | 1,000,000 | | | $ | — | | | $ | — | | | $ | 1,000,000 | | | $ | — | | | $ | — | |
KCM Credit Agreement | | 728,493 | | | — | | | — | | | 728,799 | | | — | | | — | |
KCM 364-Day Revolving Credit Agreement | | 750,000 | | | — | | | — | | | 750,000 | | | — | | | — | |
Notes Issued: (1) | | | | | | | | | | | | |
KKR ¥25 billion (or $205.0 million) 0.509% Notes Due 2023 | (4) | — | | | 204,706 | | | 204,479 | | | — | | | 216,881 | | | 216,818 | |
KKR ¥5 billion (or $41.0 million) 0.764% Notes Due 2025 | (4) | — | | | 40,661 | | | 40,881 | | | — | | | 43,082 | | | 43,452 | |
KKR €650 million (or $723.8 million) 1.625% Notes Due 2029 | (5) | — | | | 717,092 | | | 703,183 | | | — | | | 729,048 | | | 776,926 | |
KKR $750 million 3.750% Notes Due 2029 | (4) | — | | | 743,555 | | | 766,035 | | | — | | | 743,333 | | | 825,540 | |
KKR ¥10.3 billion (or $84.5 million) 1.595% Notes Due 2038 | (4) | — | | | 83,473 | | | 83,191 | | | — | | | 88,505 | | | 92,198 | |
KKR $500 million 5.500% Notes Due 2043 (6) | (4) | — | | | 491,451 | | | 567,543 | | | — | | | 491,153 | | | 661,351 | |
KKR $1 billion 5.125% Notes Due 2044 (6) | (4) | — | | | 956,647 | | | 1,074,160 | | | — | | | 951,462 | | | 1,237,888 | |
KKR $500 million 3.625% Notes Due 2050 | (4) | — | | | 492,553 | | | 447,275 | | | — | | | 492,486 | | | 535,550 | |
KKR $750 million 3.500% Notes Due 2050 (6) | (4) | — | | | 736,056 | | | 658,983 | | | — | | | 735,905 | | | 784,650 | |
KKR $750 million 3.250% Notes Due 2051 | (4) | — | | | 739,569 | | | 629,693 | | | — | | | 739,481 | | | 747,900 | |
KKR $500 million 4.625% Notes Due 2061 | (5) | — | | | 486,133 | | | 439,000 | | | — | | | 486,044 | | | 523,200 | |
KFN $500 million 5.500% Notes Due 2032 | (2) | — | | | 495,147 | | | 466,871 | | | — | | | 495,025 | | | 487,779 | |
KFN $120 million 5.200% Notes Due 2033 | (2) | — | | | 118,683 | | | 108,766 | | | — | | | 118,654 | | | 115,535 | |
KFN $70 million 5.400% Notes Due 2033 | (2) | — | | | 68,980 | | | 64,437 | | | — | | | 68,957 | | | 68,532 | |
KFN Issued Junior Subordinated Notes (3) | (2) | — | | | 236,467 | | | 186,989 | | | — | | | 236,138 | | | 178,335 | |
| | 2,478,493 | | | 6,611,173 | | | 6,441,486 | | | 2,478,799 | | | 6,636,154 | | | 7,295,654 | |
| | | | | | | | | | | | |
Other Debt Obligations(6) | | 5,685,293 | | | 29,501,699 | | | 29,501,699 | | | 4,941,755 | | | 30,033,601 | | | 30,033,601 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | $ | 8,163,786 | | | $ | 36,112,872 | | | $ | 35,943,185 | | | $ | 7,420,554 | | | $ | 36,669,755 | | | $ | 37,329,255 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 | |
| Financing Available | | Borrowing Outstanding | | Fair Value | | Financing Available | | Borrowing Outstanding | | Fair Value | |
Revolving Credit Facilities: | | | | | | | | | | | | |
Corporate Credit Agreement | $ | 1,000,000 |
| | $ | — |
| | $ | — |
| | $ | 1,000,000 |
| | $ | — |
| | $ | — |
| |
KCM Credit Agreement | 488,256 |
| | — |
| | — |
| | 500,000 |
| | — |
| | — |
| |
KCM Short-Term Credit Agreement | 750,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Notes Issued: | | | | | | | | | | | | |
KKR Issued 6.375% Notes Due 2020 (1) | — |
| | 498,243 |
| | 556,655 |
| (10) | — |
| | 497,804 |
| | 562,960 |
| (10) |
KKR Issued 5.500% Notes Due 2043 (2) | — |
| | 491,412 |
| | 564,560 |
| (10) | — |
| | 491,158 |
| | 502,800 |
| (10) |
KKR Issued 5.125% Notes Due 2044 (3) | — |
| | 990,283 |
| | 1,081,200 |
| (10) | — |
| | 990,009 |
| | 955,240 |
| (10) |
KFN Issued 5.500% Notes Due 2032 (4) | — |
| | 367,852 |
| | 377,656 |
| | — |
| | — |
| | — |
| |
KFN Issued 7.500% Notes Due 2042 (5) | — |
| | — |
| | — |
| | — |
| | 123,008 |
| | 116,699 |
| (11) |
KFN Issued Junior Subordinated Notes (6) | — |
| | 235,684 |
| | 201,400 |
| | — |
| | 250,154 |
| | 210,084 |
| |
Other Consolidated Debt Obligations: | | | | | | | | | | | | |
Fund Financing Facilities and Other (7) | 2,028,972 |
| | 2,623,340 |
| | 2,623,340 |
| (12) | 2,039,532 |
| | 2,333,654 |
| | 2,333,654 |
| (12) |
CLO Senior Secured Notes (8) | — |
| | 9,499,495 |
| | 9,499,495 |
| | — |
| | 8,279,812 |
| | 8,279,812 |
| |
CLO Subordinated Notes (8) | — |
| | 289,222 |
| | 289,222 |
| | — |
| | 283,735 |
| | 283,735 |
| |
CMBS Debt Obligations (9) | — |
| | 5,295,183 |
| | 5,295,183 |
| | — |
| | 5,294,741 |
| | 5,294,741 |
| |
| $ | 4,267,228 |
| | $ | 20,290,714 |
| | $ | 20,488,711 |
| | $ | 3,539,532 |
| | $ | 18,544,075 |
| | $ | 18,539,725 |
| |
(1)Borrowing outstanding includes: (i) unamortized note discount (net of premium), as applicable and (ii) unamortized debt issuance costs, as applicable. Financing costs related to the issuance of the notes have been deducted from the note liability and are being amortized over the life of the notes. | |
(1) | $500 million aggregate principal amount of 6.375% senior notes of KKR due 2020. Borrowing outstanding is presented net of i) unamortized note discount and ii) unamortized debt issuance costs of $1.1 million and $1.4 million as of September 30, 2017 and December 31, 2016, respectively. |
| | |
(2) | $500 million aggregate principal amount of 5.500% senior notes of KKR due 2043. Borrowing outstanding is presented net of i) unamortized note discount and ii) unamortized debt issuance costs of $3.8 million and $3.9 million as of September 30, 2017 and December 31, 2016, respectively. |
| | |
(3) | $1.0 billion aggregate principal amount of 5.125% senior notes of KKR due 2044. Borrowing outstanding is presented net of i) unamortized note discount (net of premium) and ii) unamortized debt issuance costs of $8.4 million and $8.6 million as of September 30, 2017 and December 31, 2016, respectively. |
| | |
(4) | KKR consolidates KFN and thus reports KFN’s outstanding $375 million aggregate principal amount of 5.500% senior unsecured notes due 2032. Borrowing outstanding is presented net of i) unamortized note discount and ii) unamortized debt issuance costs of $4.6 million as of September 30, 2017. These debt obligations are classified as Level III within the fair value hierarchy and valued using the same valuation methodologies as KKR’s Level III credit investments. |
| | |
(5) | KKR consolidates KFN and thus reports KFN’s outstanding $115 million aggregate principal amount of 7.500% senior notes due 2042. These senior notes were redeemed in April 2017. Borrowing outstanding is presented net of unamortized note premium as of December 31, 2016. |
| | |
(6) | KKR consolidates KFN and thus reports KFN’s outstanding $264.8 million aggregate principal amount of junior subordinated notes. The weighted average interest rate is 3.8% and the weighted average years to maturity is 19.3 years as of September 30, 2017. These debt obligations are classified as Level III within the fair value hierarchy and valued using the same valuation methodologies as KKR’s Level III credit investments. |
| | |
(7) | Certain of KKR’s consolidated investment funds have entered into financing arrangements with major financial institutions, generally to enable such investment funds to make investments prior to or without receiving capital from fund limited partners. The weighted average interest rate is 2.9% and 2.4% as of September 30, 2017 and December 31, 2016, respectively. In addition, the weighted average years to maturity is 3.8 years and 2.4 years as of September 30, 2017 and December 31, 2016, respectively. |
| | |
(8) | CLO debt obligations are carried at fair value and are classified as Level II within the fair value hierarchy. See Note 5 “Fair Value Measurements.” |
| | |
(9) | CMBS debt obligations are carried at fair value and are classified as Level III within the fair value hierarchy. See Note 5 “Fair Value Measurements.” |
| | |
(10) | The notes are classified as Level II within the fair value hierarchy and fair value is determined by third party broker quotes. |
| | |
(11) | The notes are classified as Level I within the fair value hierarchy and fair value is determined by quoted prices in active markets since the debt is publicly listed. |
| | |
(12) | Carrying value approximates fair value given the fund financing facilities’ interest rates are variable. | | | |
| | | | |
| | | | |
| | | | |
| | | | |
(2)These debt obligations are classified as Level III within the fair value hierarchy and valued using the same valuation methodologies as KKR's Level III credit investments.
(3)KKR consolidates KFN and reports KFN's outstanding $258.5 million aggregate principal amount of junior subordinated notes. The weighted average interest rate is 2.6% and 2.6% and the weighted average years to maturity is 14.5 years and 14.8 years as of March 31, 2022 and December 31, 2021, respectively.
(4)The notes are classified as Level II within the fair value hierarchy and fair value is determined by third party broker quotes.
(5)The notes are classified as Level I within the fair value hierarchy and fair value is determined by quoted prices in active markets since the debt is publicly listed.
(6)As of March 31, 2022 and December 31, 2021, the borrowing outstanding reflects the elimination for the portion of these debt obligations that are held by Global Atlantic.
Asset Management Revolving Credit Facilities
KCM Short-Term Credit Agreement
On June 29, 2017,April 8, 2022, KKR Capital Markets ("KCM"Holdings L.P. and certain other capital markets subsidiaries (the "KCM Borrowers") entered into a 364-day revolving credit agreement (the “KCM"KCM Short-Term Credit Agreement”) with a major financial institution for use in KKR’s capital markets business. This financial institution also providesMizuho Bank, Ltd., as administrative agent, and one or more lenders party thereto. The KCM Short-Term Credit Agreement replaces the existingprior 364-day revolving credit agreement, dated as of April 9, 2021, between the KCM Credit Agreement.Borrowers and the administrative agent, and one or more lenders party to the KCM Short-Term Agreement, which was terminated according to its terms on April 8, 2022. The KCM Short-Term Credit Agreement provides for revolving borrowings of up to $750 million, expires on June 28, 2018,April 7, 2023, and ranks pari passu with the KCM Credit Agreement. Borrowings under the KCM Short-Term Credit Agreement may only be used to facilitate the settlement of debt transactions syndicatedexisting $750 million revolving credit facility provided by KKR’s capital markets business. Obligations under the KCM Short-Term Credit Agreement are limited solely to entities involved in KKR’sthem for KKR's capital markets business and liabilities under the KCM Short-Term(the "KCM Credit Agreement are non-recourse to other partsAgreement").
If a borrowing is made under the KCM Short-Term Credit Agreement, the interest rate will vary depending on the type of drawdown requested. If the borrowing is (i) denominated in U.S. dollars and a Eurocurrency loan,term rate, it will be based on a LIBOR ratethe term Secured Overnight Financing Rate (SOFR), (ii) denominated in euros, it will be based on EURIBOR and (iii) denominated in pounds sterling, it will be based on the Sterling Overnight Interbank Average Rate (SONIA), in each case, plus anthe applicable margin rangingwhich ranges initially between 1.25%1.50% and 2.50%2.75%, depending on the duration of the loan. If the borrowing is an alternate base rate loan,ABR Loan, it will be based on a basethe greater of (i) the federal funds rate plus an0.50% and (ii) term SOFR for one-month tenor plus 1.00%, in each case, plus the applicable margin rangingwhich ranges initially between 0.25%0.50% and 1.50%,1.75% depending on the durationamount and nature of the loan.
For the three and nine months ended September 30, 2017, $145 million was borrowed and repaid Borrowings under the KCM Short-Term Credit Agreement.Agreement may only be used to facilitate the settlement of debt transactions syndicated by KKR's capital markets business. Obligations under the KCM Short-Term Credit Agreement are limited to the KCM Borrowers, which are solely entities involved in KKR's capital markets business, and liabilities under the KCM Short-Term Credit Agreement are non-recourse to other parts of KKR.
Notes IssuancesThe KCM Short-Term Credit Agreement contains customary representations and Redemptions
KFN Issued 5.500% Notes Due 2032
On March 30, 2017, KFN issued $375.0 million par amountwarranties, events of 5.500% Senior Unsecured Notes (“KFN 2032 Senior Unsecured Notes”) indefault, and affirmative and negative covenants, including a private placement, resulting in net proceedsfinancial covenant providing for a maximum debt to KFN of $368.6 million. Interest onequity ratio for the KFN 2032 Senior Unsecured Notes is payable semi-annually on March 30th and September 30th.KCM Borrowers. The KFN 2032 Senior Unsecured Notes will mature on March 30, 2032. KFN may redeemKCM Borrowers' obligations under the KFN 2032 Senior Unsecured Notes in whole, but not in part, at a redemption price equal to 100%KCM Short-Term Credit Agreement are secured by certain assets of the outstanding principal amount plus accrued and unpaid interest to, but excluding, the dateKCM Borrowers, including a pledge of redemption on or after March 30, 2022 and annually thereafter, after providing notice to noteholdersequity interests of such redemption not less than 30 and no more than 60 business days prior to such redemption date. At any time prior to March 30, 2022, KFN may redeem the KFN 2032 Senior Unsecured Notes in whole, but not in part, at a redemption price equal to (i) 100%certain subsidiaries of the outstanding principal amount, (ii) plus accrued and unpaid interest to, but excluding, the date of redemption, (iii) plus the excess, if any, of (a) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes (as if the Notes matured on March 30, 2022), discounted to the redemption date on a semi-annual basis (assuming a 360-day year of twelve 30-day months) at a rate equal to the sum of the applicable treasury rate plus 50 basis points, minus accrued and unpaid interest, if any, on the KFN 2032 Senior Unsecured Notes being redeemed to, but excluding, the redemption date over (b) the principal amount of the KFN 2032 Senior Unsecured Notes being redeemed.KCM Borrowers.
KFN Issued 7.500% Notes Due 2042
On April 24, 2017, KFN redeemed all of its outstanding 7.500% Senior Notes due 2042 (the “KFN 2042 Senior Notes”) for cash, in accordance with the optional redemption provisions provided in the documents governing the KFN 2042 Senior Notes. The redemption price was equal to 100% of the principal amount of the KFN 2042 Senior Notes plus unpaid interest accrued thereon to, but excluding, the redemption date, in accordance with the terms of the KFN 2042 Senior Notes.
Other ConsolidatedAsset Management Debt Obligations
Debt Obligations of Consolidated CFEs
As of September 30, 2017,March 31, 2022, other debt obligations of consolidated CFEs consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Financing Available | | Borrowing Outstanding | | Fair Value | | Weighted Average Interest Rate | | Weighted Average Remaining Maturity in Years |
Financing Facilities of Consolidated Funds and Other (1) | $ | 5,685,293 | | | $ | 8,288,493 | | | $ | 8,288,493 | | | 3.5% | | 4.4 |
Debt Obligations of Consolidated CLOs | — | | | 21,213,206 | | | 21,213,206 | | | (2) | | 10.5 |
| $ | 5,685,293 | | | $ | 29,501,699 | | | $ | 29,501,699 | | | | | |
|
| | | | | | | | |
| Borrowing Outstanding | | Weighted Average Interest Rate | | Weighted Average Remaining Maturity in Years |
Senior Secured Notes of Consolidated CLOs | $ | 9,499,495 |
| | 2.7 | % | | 11.6 |
Subordinated Notes of Consolidated CLOs | 289,222 |
| | (1) |
| | 11.5 |
Debt Obligations of Consolidated CMBS Vehicles | 5,295,183 |
| | 4.4 | % | | 26.9 |
| $ | 15,083,900 |
| | |
| | |
(1)Includes borrowings collateralized by fund investments, fund co-investments and other assets held by levered investment vehicles of $2.0 billion. | |
(1) | The subordinated notes do not have contractual interest rates but instead receive a pro rata amount of the net distributions from the excess cash flows of the respective CLO vehicle. Accordingly, weighted average borrowing rates for the subordinated notes are based on cash distributions during the period, if any. |
(2)The senior notes of the consolidated CLOs had a weighted average interest rate of 1.9%. The subordinated notes of the consolidated CLOs do not have contractual interest rates but instead receive a pro rata amount of the net distributions from the excess cash flows of the respective CLO vehicle. Accordingly, weighted average borrowing rates for the subordinated notes are based on cash distributions during the period, if any.
Debt obligations of consolidated CFEsCLOs are collateralized by assets held by each respective CFECLO vehicle and assets of one CFECLO vehicle may not be used to satisfy the liabilities of another. As of September 30, 2017,March 31, 2022, the fair value of the consolidated CFECLO assets was $16.6$23.0 billion. This collateral consisted of Cash and Cash Equivalents, Held at Consolidated Entities, Investments, and Other Assets.
Insurance Debt Obligations
11.Global Atlantic's debt obligations consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Financing Available | | Borrowing Outstanding | | Fair Value(2) | | Financing Available | | Borrowing Outstanding | | Fair Value(2) |
Revolving Credit Facilities: | | | | | | | | | | | |
Global Atlantic revolving credit facility, due August 2026 | $ | 800,000 | | | $ | 200,000 | | | $ | 200,000 | | | $ | 1,000,000 | | | $ | — | | | $ | — | |
Notes Issued and Others: | | | | | | | | | | | |
Global Atlantic senior notes, due October 2029 | | | 500,000 | | | 500,100 | | | | | 500,000 | | | 539,350 | |
Global Atlantic senior notes, due June 2031 | | | 650,000 | | | 582,660 | | | | | 650,000 | | | 644,800 | |
Global Atlantic subordinated debentures, due October 2051 | | | 750,000 | | | 710,625 | | | | | 750,000 | | | 761,475 | |
| | | 2,100,000 | | | $ | 1,993,385 | | | | | 1,900,000 | | | $ | 1,945,625 | |
Purchase accounting adjustments(1) | | | 45,618 | | | | | | | 51,050 | | | |
Debt issuance costs, net of accumulated amortization | | | (18,413) | | | | | | | (18,675) | | | |
Fair value loss (gain) of hedged debt obligations, recognized in earnings | | | (97,436) | | | | | | | (24,369) | | | |
| | | $ | 2,029,769 | | | | | | | $ | 1,908,006 | | | |
(1)The amortization of the purchase accounting adjustments was $5.4 million and $2.0 million for the three months ended March 31, 2022 and 2021, respectively.
(2)These debt obligations are classified as Level III within the fair value hierarchy and valued using the same valuation methodologies as KKR's Level III credit investments.
Debt Covenants
Borrowings of KKR (including Global Atlantic) contain various debt covenants. These covenants do not, in management's opinion, materially restrict KKR's operating business or investment strategies as of March 31, 2022. KKR (including Global Atlantic) was in compliance with such debt covenants in all material respects as of March 31, 2022.
18. INCOME TAXES
The consolidated entities of KKR are generally treated as partnerships or disregarded entities& Co. Inc. is a domestic corporation for U.S. and non-U.S. tax purposes. The taxes payable on thefederal income generated by partnerships and disregarded entities are generally paid by the fund investors, unitholders, principals and other third parties who beneficially own such partnerships and disregarded entities and are generally not payable by KKR. However, certain consolidated entities are or are treated as corporations for U.S. and non-U.S. tax purposes and are thereforeis subject to U.S. federal, state and/orand local income taxes and/or non-U.S. taxes at the entity-level.entity level on its share of taxable income. In addition, KKR Group Partnership and certain consolidated entities which are treatedof its subsidiaries operate as partnerships for U.S. federal tax purposes but as taxable entities for certain state, local or non-U.S. tax purposes. Moreover, certain corporate subsidiaries of KKR, including certain Global Atlantic subsidiaries, are domestic corporations for U.S. federal income tax purposes and are subject to U.S. federal, state, and local income taxes. Income taxes reported in these consolidated financial statements include the New York City Unincorporated Business Tax or other local taxes.
taxes described in this paragraph.
The effective tax rates were 4.64%(0.3)% and 1.10%10.1% for the three months ended September 30, 2017March 31, 2022 and 2016, respectively, and 3.65% and 3.70% for the nine months ended September 30, 2017 and 2016, respectively.2021. The effective tax rate differs from the statutory rate primarily due to the following: (i)because a substantial portion of the reported net income (loss) before taxes is not attributable to KKR but rather is attributable to noncontrolling interests held in KKR’s consolidated entities by KKR HoldingsKKR's principals or by third parties, (ii) aparties.
Future realization of deferred tax assets is dependent on KKR generating sufficient taxable income before the tax benefits are expected to expire. KKR considers projections of taxable income in evaluating its ability to utilize those deferred tax assets. In projecting its taxable income, KKR begins with historical results and incorporates assumptions concerning the amount and timing of future pretax operating income. Those assumptions require significant judgment and are consistent with the plans and estimates that KKR uses to manage its business. As of March 31, 2022, $22.2 million of deferred tax assets are not considered to be more likely than not to be realized prior to the expiration of the related loss carryforwards. For that portion of the amount of the reported net income (loss) before taxes attributable to KKR is from certain entities that are not subject to U.S. federal, state or local income taxes and/or non-U.S. taxes, and (iii) certain compensation charges attributable to KKR are not deductible fortotal deferred tax purposes.asset, a valuation allowance has been recorded.
During the three and nine month periodmonths ended September 30, 2017,March 31, 2022, there were no material changeswas a decrease of $21.2 million to KKR’s uncertain tax positions and KKR believes there will be no significant increase or decreaseprimarily due to the uncertainsettlement of state tax positions within 12 monthsaudits conducted for the years ended 2010 through 2014.
12.19. EQUITY BASED COMPENSATION
Asset Management
The following table summarizes
KKR Equity Incentive Plan Awards
For the expense associated withthree months ended March 31, 2022 and 2021 KKR recorded equity based compensation forexpense of $115.1 million and $64.5 million, respectively. For the three and nine months ended September 30, 2017March 31, 2022 and 2016,2021, $2.1 million and $0.2 million of equity based compensation related to our insurance business, respectively.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Equity Incentive Plan Units | $ | 54,921 |
| | $ | 50,270 |
| | $ | 149,840 |
| | $ | 148,257 |
|
KKR Holdings Principal Awards | 17,622 |
| | 7,425 |
| | 89,869 |
| | 21,138 |
|
Other Exchangeable Securities | — |
| | 3,460 |
| | — |
| | 10,306 |
|
Discretionary Compensation | 6,185 |
| | 397 |
| | 37,995 |
| | 6,331 |
|
Total (1) | $ | 78,728 |
| | $ | 61,552 |
| | $ | 277,704 |
| | $ | 186,032 |
|
| |
(1) | Includes $6,478 of equity based charges for the three and nine months ended September 30, 2017 related to employees of equity method investees. Such amounts are included in Net Gains (Losses) from Investment Activities in the condensed consolidated statements of operations. |
Under KKR's Equity Incentive Plan
Under the Equity Incentive Plan,Plans, KKR is permitted to grant equity awards representing ownership interests in KKR & Co. Inc. common stock. On March 29, 2019, the 2019 Equity Incentive Plan became effective. Following the effectiveness of the 2019 Equity Incentive Plan, KKR no longer makes further grants under the 2010 Equity Incentive Plan, and the 2019 Equity Incentive Plan became KKR's only plan for providing new equity-based awards by KKR & Co. Inc. Outstanding awards under the 2010 Equity Incentive Plan will remain outstanding, unchanged and subject to the terms of the 2010 Equity Incentive Plan and their respective equity award agreements, until the vesting, expiration or lapse of such awards in accordance with their terms. The total number of equity awards representing shares of common stock that may be issued under the 2019 Equity Incentive Plan is equivalent to 15% of the aggregate number of the shares of common stock and KKR Group Partnership Units (excluding KKR Group Partnership Units held by KKR & Co. Inc. or its wholly-owned subsidiaries), subject to annual adjustment. As of March 31, 2022, 72,237,327 shares may be issued under the 2019 Equity Incentive Plan. Equity awards granted pursuant to the Equity Plans generally consist of (i) restricted stock units ("RSUs") that convert to shares of common stock of KKR & Co. Inc. (or cash equivalent) upon vesting and (ii) restricted holdings units ("RHUs") through KKR Holdings II L.P. that are exchangeable into shares of common units.stock of KKR & Co. Inc. upon vesting and certain other conditions. Vested awards under the Equity Incentive PlanPlans dilute KKR & Co. L.P.Inc. common unitholdersstockholders and KKR Holdings pro rata in accordance with their respective percentage interests in the KKR Group Partnerships.Partnership.
Service-Vesting Awards
The total number of common units that may be issued underUnder the Equity Incentive Plan is equivalent to 15% of the number of fully diluted common units outstanding,Plans, KKR grants RSUs and RHUs that are subject to annual adjustment. Equity awards have been granted under the Equity Incentive Plan and are generally subject to service basedservice-based vesting, typically over a three to five yearfive-year period from the date of grant.grant (referred to hereafter as "Service-Vesting Awards"). In certain cases, these awardsService-Vesting Awards may have a percentage of the award that vests immediately upon grant. Additionally, some but not all Service-Vesting Awards are subject to transfer restrictions and/or minimum retained ownership requirements. The transfer restriction period, if applicable, lasts for (i) one year with respect to one-half of the interests vesting on any vesting date and (ii) two years with respect to the other one-half of the interests vesting on such vesting date. While providing services to KKR, if applicable, certainsome but not all of these awards are also subject to minimum retained ownership rules requiring the award recipient to continuously hold shares of common unitstock equivalents equal to at least 15% of their cumulatively vested awards that have or had the minimum retained ownership requirement.
Holders of the Service-Vesting Awards do not participate in dividends until such awards have met their vesting requirements.
Expense associated with the vesting of these awardsService-Vesting Awards is based on the closing price of the KKR & Co. L.P.Inc. common unitsstock on the date of grant, discounted for the lack of participation rights in the expected distributionsdividends on unvested units. Beginning with the financial results reported for the first quarter of 2017, KKR intends to make quarterly distributions to common unitholders of $0.17 per common unit per quarter or $0.68 per year. Therefore, for units granted on or after January 1, 2017, the discount for lack of participation rights in the expected distributions on unvested units is based on the $0.68 annual distribution. KKR has made equal quarterly distributions to holders of its common units of $0.16 per common unit per quarter or $0.64 per year in respect of financial results reported for the first quarter of 2016 through the fourth quarter of 2016. Accordingly, for units granted subsequent to December 31, 2015 but before January 1, 2017, the discount for the lack of participation rights in the expected distributions on unvested units was based on the $0.64 annual distribution. The discount range for awards granted prior to December 31, 2015 was based on management’s estimates of future distributions that the unvested equity awards would not be entitled to receive between the grant date and the vesting date which ranged from 8% to 56%.
awards. Expense is recognized on a straight line basis over the life of the award and assumes a forfeiture rate of up to 8%7% annually based upon expected turnover by class of recipient.
As of September 30, 2017,March 31, 2022, there was approximately $275.6$576.0 million of total estimated unrecognized expense related to unvested awards. That costService-Vesting Awards, which is expected to be recognized as follows:
|
| | | | |
Year | | Unrecognized Expense (in millions) |
Remainder of 2017 | | $ | 40.1 |
|
2018 | | 128.7 |
|
2019 | | 75.4 |
|
2020 | | 23.9 |
|
2021 | | 5.1 |
|
2022 | | 1.5 |
|
2023 | | 0.9 |
|
Total | | $ | 275.6 |
|
over the weighted average remaining requisite service period of 1.7 years.
A summary of the status of unvested awardsService-Vesting Awards granted under the Equity Incentive PlanPlans from January 1, 20172022 through September 30, 2017March 31, 2022 is presented below:
| | | | | | | | | | | |
| Shares | | Weighted Average Grant Date Fair Value |
Balance, January 1, 2022 | 19,307,041 | | | $ | 41.21 | |
Granted | 442,156 | | | 65.26 | |
Vested | (22,436) | | | 29.05 | |
Forfeitures | (101,404) | | | 35.66 | |
Balance, March 31, 2022 | 19,625,357 | | | $ | 41.79 | |
|
| | | | | | |
| Units | | Weighted Average Grant Date Fair Value |
Balance, January 1, 2017 | 37,498,333 |
| | $ | 13.85 |
|
Granted | 3,635,101 |
| | 15.67 |
|
Vested | (8,326,078 | ) | | 14.79 |
|
Forfeited | (1,734,984 | ) | | 13.72 |
|
Balance, September 30, 2017 | 31,072,372 |
| | $ | 13.82 |
|
Market Condition AwardsUnder the Equity Incentive Plans, KKR also grants RSUs and RHUs that are subject to both a service-based vesting condition and a market price based vesting condition (referred to hereafter as "Market Condition Awards") for certain employees (other than the Co-CEO Awards discussed below). The number of Market Condition Awards that will vest depend upon (i) the market price of KKR common stock reaching certain price targets that range from $45.00 to $140.00 and (ii) the employee being employed by KKR on a certain date, which typically is five and a half years from the date of grant (with exceptions for involuntary termination without cause, death and permanent disability). The market price vesting condition is met when the average closing price of KKR common stock during 20 consecutive trading days meets or exceeds the stock price targets. Holders of the Market Condition Awards do not participate in dividends until such awards have met both their service-based and market price based vesting requirements. Additionally, these awards are subject to additional transfer restrictions and minimum retained ownership requirements after vesting.
The weighted average remaining
Due to the existence of the service requirement, the vesting period for these Market Condition Awards is explicit, and as such, compensation expense will be recognized on (i) a straight-line basis over which unvestedthe period from the date of grant through the date the award recipient is required to be employed by KKR and (ii) assumes a forfeiture rate of up to 7% annually based upon expected turnover. The fair value of the awards granted are expected to vestbased on a Monte-Carlo simulation valuation model. In addition, the grant date fair value assumes that holders of the Market Condition Awards will not participate in dividends until such awards have met all of their vesting requirements.
Below is 1.2 years.
Aa summary of the remaining vesting tranchesgrant date fair value based on the Monte Carlo simulation valuation model and the significant assumptions used to estimate the grant date fair value of awards granted under the Equity Incentive Plan is presented below:these Market Condition Awards:
|
| | | | | | | | | | | |
Vesting Date | Weighted Average | Units | Range | |
October 1, 2017Grant Date Fair Value | $25.70 | 3,855,649 | $19.87 - $66.80 | |
April 1, 2018Closing KKR share price as of valuation date | $42.99 | 9,848,499 | $37.93 - $76.31 | |
October 1, 2018Risk Free Rate | 0.53% | 3,262,341 | 0.41% - 1.40% | |
April 1, 2019Volatility | 28.07% | 6,816,127 | 28.00% - 30.00% | |
October 1, 2019Dividend Yield | 1.41% | 1,839,242 | 0.76% - 1.53% | |
April 1, 2020Expected Cost of Equity | 10.59% | 3,721,944 |
|
October 1, 20209.13% - 10.76% | | 611,015 |
|
April 1, 2021 | | 638,955 |
|
October 1, 2021 | | 211,172 |
|
April 1, 2022 | | 85,084 |
|
October 1, 2022 | | 91,172 |
|
October 1, 2023 | | 91,172 |
|
| | 31,072,372 |
|
As of March 31, 2022, there was approximately $374.7 million of total estimated unrecognized expense related to these unvested Market Condition Awards, which is expected to be recognized over the weighted average remaining requisite service period of 4.2 years.
A summary of the status of unvested Market Condition Awards granted under the Equity Incentive Plans from January 1, 2022 through March 31, 2022 is presented below:
| | | | | | | | | | | |
| Shares | | Weighted Average Grant Date Fair Value |
Balance, January 1, 2022 | 21,370,847 | | | $ | 25.03 | |
Granted | 350,000 | | | 66.80 | |
Vested | — | | | — | |
Forfeitures | — | | | — | |
Balance, March 31, 2022 | 21,720,847 | | | $ | 25.70 | |
As of March 31, 2022, 19.7 million of these Market Condition awards have met their market price based vesting condition.
Co-CEO Awards
On December 9, 2021, the Board of Directors approved grants of 7.5 million RHUs to each of KKR’s Co-Chief Executive Officers that are subject to both a service-based vesting condition and a market price based vesting condition (referred to hereafter as "Co-CEOs Awards"). For both Co-Chief Executive Officers, 20% of the Co-CEOs Awards are eligible to vest at each of the following KKR common stock prices targets: $95.80, $105.80, $115.80, $125.80 and $135.80. The market price based vesting condition is met when the average closing price of KKR common stock during 20 consecutive trading days meets or exceeds the stock price targets. In addition to the market price based vesting conditions, in order for the Co-CEOs Awards to vest, the Co-Chief Executive Officer is required to be employed by KKR on December 31, 2026 (with exceptions for involuntary termination without cause, death and permanent disability).
These awards will be automatically canceled and forfeited upon the earlier of the Co-Chief Executive Officer’s termination of service (except for involuntary termination without cause, death or permanent disability) or the failure to meet the market price based vesting condition by December 31, 2028 (for which continued service is required if the market price vesting condition is met after December 31, 2026). Co-CEO Awards do not participate in dividends until such awards have met both their service-based and market price based vesting requirements. Additionally, these awards are subject to additional transfer restrictions and minimum retained ownership requirements after vesting.
Due to the existence of the service requirement, the vesting period for these Co-CEO Awards is explicit, and as such, compensation expense will be recognized on a straight-line basis over the period from the date of grant through December 31, 2026 given the derived service period is less than the explicit service period. The fair value of the awards granted are based on a Monte-Carlo simulation valuation model. In addition, the grant date fair value assumes that these Co-CEO Awards will not participate in dividends until such awards have met all of their vesting requirements.
Below is a summary of the grant date fair value based on the Monte Carlo simulation valuation model and the significant assumptions used to estimate the grant date fair value of these Co-CEO Awards:
| | | | | | | |
Grant Date Fair Value | | $48.91 | |
Closing KKR share price as of valuation date | | $75.76 | |
Risk Free Rate | | 1.42% | |
Volatility | | 28.0% | |
Dividend Yield | | 0.77% | |
Expected Cost of Equity | | 9.36% | |
As of March 31, 2022, there was approximately $689.2 million of total estimated unrecognized expense related to these unvested Co-CEO Awards, which is expected to be recognized ratably from April 1, 2022 to December 31, 2026. As of March 31, 2022, none of these Co-CEO awards have met their market price based vesting condition.
KKR Holdings Awards
For the three months ended March 31, 2022 and 2021, KKR recorded equity based compensation expense of $19.8 million and $16.4 million, respectively.
KKR Holdings units are exchangeable for KKR Group Partnership Units and allow for their exchange into common unitsstock of KKR & Co. L.P.Inc. on a one-for one1-for-one basis. As of September 30, 2017March 31, 2022 and 2016,2021, KKR Holdings owned approximately 41.8%30.4% or 339,845,707258,726,163 units and 44.4%,32.1% or 356,686,744273,367,712 units, respectively, of outstanding KKR Group Partnership Units. Awards forIn the past, awards of KKR Holdings units that have been granted are generally subject to service basedhad service-based vesting, typically over a three to five yearfive-year period from the date of grant, although some historical awards had a percentage of the award vested immediately upon grant. They areThese awards also subject togenerally had transfer restrictions which last or had lasted for (i) one year with respect to one-half of the interests vesting on any vesting date and (ii) two years with respect to the other one-half of the interests vesting on such vesting
date. While providing services to KKR, the recipients are also subject to minimum retained ownership rules requiring them to continuously hold 25% of their vested interests. Upon separation from KKR, award recipients are subject to the terms of a confidentiality and restrictive covenants agreement that would require the forfeiture of certain vested and unvested units should the terms of the agreement be violated. Holders of KKR Holdings units are not entitled to participate in distributions made on KKR Group Partnership Units underlying their KKR Holdings units until such units are vested.
Because KKR Holdings is a partnership, As of March 31, 2022, all of the 339,845,707 KKR Holdings units (except for less than 0.5% of the outstanding KKR Holdings units) have been legally allocated, but the allocation of 10,402,858granted, and certain Holdings units remain subject to vesting. All of these KKR Holdings units hasrepresent KKR Group Partnership units that are already outstanding, and therefore their vesting and allocations as described above do not been communicatedrepresent any incremental dilution to KKR.
On October 8, 2021, as part of the transactions contemplated by the Reorganization, of the 3.3 million outstanding KKR Holdings units that remained unallocated as of September 30, 2021, KKR Holdings allocated 1,150,000 KKR Holdings units to each respective principalof KKR’s Co-CEOs, of which 70% vested immediately, on October 8, 2021, and the final allocation and terms of vesting for these unitsremaining 30% are subject to changeforfeiture if such Co-CEO is not employed by KKR on October 1, 2022 (except in the case of death or permanent disability). These KKR Holdings units (or shares of common stock to be received in respect thereof) are subject to customary one- and two-year transfer restrictions that will apply, as applicable, until October 1, 2023 and October 1, 2024. In addition, the exerciselegal vesting and delivery of judgmentcertain awards of KKR Holdings units held by Messrs. Kravis, Roberts, Bae and Nuttall will be accelerated as part of the transactions contemplated by the general partner of KKR Holdings. It was therefore determined that the grant date and service inception date had not occurred and these units do not yet meet the criteria for recognition of compensation expense.Reorganization Agreement.
The fair value of awards granted out of KKR Holdings is generally based on the closing price of KKR & Co L.P.Co. Inc. common unitsstock on the date of grant.grant discounted for the lack of participation rights in the expected distributions on unvested units. KKR determined this to be the best evidence of fair value as a KKR & Co. L.P.Inc. common unitstock is traded in an active market and has an observable market price. Additionally, a KKR Holdings unit is an instrument with terms and conditions similar to those of a KKR & Co. L.P.Inc. common unit.stock. Specifically, units in both KKR Holdings and shares of KKR & Co. L.P.Inc. represent ownership interests in KKR Group Partnership Units and, subject to any vesting, minimum retained ownership requirements and transfer restrictions, each KKR Holdings unit is exchangeable into a KKR Group Partnership Unit and then into a share of KKR & Co. L.P.Inc. common unitstock on a one-for-one1-for-one basis.
In February 2016, approximately 28.9 million KKR Holdings units were granted that were originally subject to market condition and service-based vesting that were subsequently modified in November 2016 to eliminate the market condition vesting and instead require only service-based vesting in equal annual installments over a five year period. At the date of modification, total future compensation expense amounted to $320.9 million, net of estimated forfeitures, to be recognized over the remaining vesting period of the modified awards.
The awards described above were granted from outstanding but previously unallocated units of KKR Holdings, and consequently these grants did not increase the number of KKR Holdings units outstanding or outstanding KKR common units on a fully-diluted basis. If and when vested, these awards will not dilute KKR's respective ownership interests in the KKR Group Partnerships.
KKR Holdings Awardsawards give rise to equity-based compensation in the consolidated statements of operations based on the grant-date fair value of the award discounted for the lack of participation rights in the expected distributions on unvested units. BeginningThis discount is consistent with that noted above for shares issued under the financial results reported for the first quarter of 2017, KKR intends to make quarterly distributions to common unitholders of $0.17 per common unit per quarter or $0.68 per year. Therefore, for awards granted on or after January 1, 2017, the discount for lack of participation rights in the expected distributions on unvested units is based on the $0.68 annual distribution. KKR has made equal quarterly distributions to holders of its common units of $0.16 per common unit per quarter or $0.64 per year in respect of financial results reported for the first quarter of 2016 through the fourth quarter of 2016. Accordingly, for awards granted subsequent to December 31, 2015 but before January 1, 2017, the discount for the lack of participation rights in the expected distributions on unvested units was based on the $0.64 annual distribution.
Equity Incentive Plans. Expense is recognized on a straight line basis over the life of the award and assumes a forfeiture rate of up to 8%7% annually based on expected turnover by class of recipient.
As of September 30, 2017,March 31, 2022, there was approximately $207.2$40.0 million of estimated unrecognized expense, related to unvested KKR Holdings awards. That costwhich is expected to be recognized as follows:ratably from April 1, 2022 to October 1, 2022.
|
| | | | |
Year | | Unrecognized Expense (in millions) |
Remainder of 2017 | | $ | 17.4 |
|
2018 | | 63.0 |
|
2019 | | 57.3 |
|
2020 | | 52.4 |
|
2021 | | 17.1 |
|
Total | | $ | 207.2 |
|
A summary of the status of unvested awards granted under the KKR Holdings Plan from January 1, 20172022 through September 30, 2017March 31, 2022 is presented below:
| | | | | | | | | | | |
| Units | | Weighted Average Grant Date Fair Value |
Balance, January 1, 2022 | 4,600,000 | | | $ | 21.88 | |
Granted | — | | | — | |
Vested | — | | | — | |
Forfeitures | — | | | — | |
Balance, March 31, 2022 | 4,600,000 | | | $ | 21.88 | |
|
| | | | | | |
| Units | | Weighted Average Grant Date Fair Value |
Balance, January 1, 2017 | 28,245,886 |
| | $ | 12.10 |
|
Granted | — |
| | — |
|
Vested | (5,968,939 | ) | | 13.97 |
|
Forfeited | (1,537,807 | ) | | 11.76 |
|
Balance, September 30, 2017 | 20,739,140 |
| | $ | 11.59 |
|
Insurance
Global Atlantic recognized $20.6 million and $7.4 million of expense related equity-based compensation and long-term incentive awards for the three months ended March 31, 2022 and 2021, respectively.
The weighted average remaining
No equity-based compensation costs were capitalized during the three months ended March 31, 2022 and 2021, respectively.
Equity Classified Awards - KKR Equity Incentive Plan Awards
On February 1, 2021, in connection with the GA Acquisition, employees of Global Atlantic were awarded a one-time grant of RSUs under the 2019 Equity Incentive Plan. These awards (i) are subject to service-based vesting period over which unvestedconditions and (ii) expense associated with the vesting of these awards are expected to vest is 2.0 years.
A summarybased on the closing price of KKR & Co. Inc. common stock on the remaining vesting tranchesdate of grant, consistent with other awards granted under the KKR Holdings2019 Equity Incentive Plan is presented below:as described above.
|
| | | |
Vesting Date | | Units |
October 1, 2017 | | 93,486 |
|
April 1, 2018 | | 824,999 |
|
May 1, 2018 | | 4,820,000 |
|
April 1, 2019 | | 349,143 |
|
May 1, 2019 | | 4,820,000 |
|
April 1, 2020 | | 191,512 |
|
May 1, 2020 | | 4,820,000 |
|
May 1, 2021 | | 4,820,000 |
|
| | 20,739,140 |
|
Other Exchangeable Securities
As of OctoberOn July 1, 2016, all equity securities2021, a grant of a subsidiaryMarket Condition Award was made under the 2019 Equity Incentive Plan. This award is subject to meeting certain market price based vesting conditions of KKR common stock but has no service vesting condition. Expense associated with the grant date fair value of this award of $10.5 million was fully recognized in the three months ended September 30, 2021.
Global Atlantic recognized $2.1 million and $0.2 million of total equity-based compensation expense for the three months ended March 31, 2022 and 2021 associated with these awards, respectively.
Liability Classified Awards - Book Value Awards
On February 1, 2021, Global Atlantic adopted the Global Atlantic Financial Company Book Value Award Plan ("GA Book Value Plan") to enhance the ability of Global Atlantic to attract, motivate and retain its employees and to promote the success of the Global Atlantic business.
The GA Book Value Plan authorizes the grant of cash-settled awards ("book value awards") representing the right to receive 1 or more payments upon vesting equal to the product of an initial dollar value set by the award multiplied by a pre-determined formula as of each applicable vesting date. The predetermined formula is equal to the quotient determined by dividing the book value of 1 share of TGAFG on the applicable vesting date by the book value of a KKR Group Partnershipshare on the original grant date, subject to adjustments. Book value awards generally vest in 3 equal, annual installments, subject to continued employment.
On February 1, 2021, under the terms of the GA Merger Agreement and in accordance with applicable plan documentation, former Global Atlantic restricted share awards that were unvested immediately prior to the closing of KKR & Co. L.P. boththe GA Acquisition converted into the right to receive a number of which are exchangeable into common unitsbook value awards under the GA Book Value Plan having the same value and the same vesting schedule as the former Global Atlantic restricted share awards immediately prior to the closing of KKR & Co. L.P. onthe GA Acquisition.
An aggregate of 3,020,017 unvested former Global Atlantic restricted share awards having a one-for-one basis issuedfair value of $29.47 per share were converted to book value awards at an aggregate grant-date value of $89.0 million. On February 28, 2021, book value awards having an aggregate value of approximately $28.0 million vested as set forth in the former Global Atlantic grant agreements and resulted in a cash payment of $17.0 million to participants, net of applicable tax withholding.
Also in connection with the acquisitionGA Acquisition, on February 1, 2021, Global Atlantic employees were issued a one-time grant of Avoca ("Other Exchangeable Securities") have eitherbook value awards having an aggregate initial value of $23.0 million. These one-time book value awards vest over five (5) years, with the first 25% vesting on April 1, 2023 and the remainder vesting 25% annually on April 1 each subsequent year until fully vested, subject to continued employment. Global Atlantic is recording compensation expense over the vesting schedule of the awards, net of an estimated forfeiture rate of 4%.
On March 1, 2021, pursuant to the GA Book Value Plan, book value awards having an aggregate initial value of approximately $32 million were granted. Such book value awards generally vest annually over three years in equal increments, subject to continued employment. Global Atlantic is recording compensation expense over the vesting schedule of the awards, net of an estimated forfeiture rate of 4%.
Global Atlantic began recognizing long-term incentive expense for the book value awards described above at the grant dates, based on their initial value, net of a 4% estimated forfeiture rate. Global Atlantic adjusts expense periodically for changes in book value until the awards are settled or forfeited. Expense recognized on forfeited awards is reversed in the period of forfeiture. The table below presents the activity related to book value awards for the three months ended March 31, 2022 and there is no unrecognized2021:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Outstanding amount as of beginning of period | $ | 145,000 | | | $ | — | |
Pre-acquisition awards converted to book-value awards on February 1, 2021 | — | | | 89,000 | |
Granted | 20,205 | | | 53,969 | |
Forfeited | (874) | | | (957) | |
| | | |
Vested and issued | (39,029) | | | (30,280) | |
| | | |
Outstanding amount as of end of period | $ | 125,302 | | | $ | 111,732 | |
Global Atlantic recognized $18.5 million and $7.2 million of compensation expense for the three months ended March 31, 2022 and 2021 associated with Other Exchangeable Securities asthese awards, respectively. As of September 30, 2017.March 31, 2022 and December 31, 2021, the remaining unamortized compensation expenses of $108.1 million and $99.6 million are expected to be recognized over a remaining average period of 2.65 years and 2.67 years, respectively.
Discretionary CompensationGA Equity Incentive Plan Awards
KKROn June 24, 2021, Global Atlantic issued 1,000 non-voting incentive shares to a Bermuda exempted partnership owned by certain Global Atlantic employees, and certain employees of certain consolidated entitieswho are eligible to receive discretionary cash bonuses. While cash bonuses paidincentive units under Global Atlantic's Senior Management Equity Incentive Plan ("GA Equity Incentive Plan"). These incentive units represent an interest in the receipt of certain amounts based on Global Atlantic's book value, market value, and AUM, in each case as derived in part from the value of TGAFG’s fully-diluted equity shares.
On June 24, 2021, Global Atlantic granted approximately 808 incentive units under the GA Equity Incentive Plan. The book value component of the incentive units vests 20% per year on the anniversary of the GA Acquisition Date, as long as the grantee remains then employed, and will be settled in cash. The market value and AUM components of the incentive units cliff vest upon the earlier to occur of (i) the fifth anniversary of the GA Acquisition Date, or (ii) a change of control, and will be settled in a variable number of TGAFG’s non-voting common shares. TGAFG shares issued under the AUM component of the Plan are exchangeable for shares of KKR. Except in the event of termination due to death or disability, generally, unvested market value and AUM amounts are forfeited upon a termination of employment.
The GA Equity Incentive Plan is accounted for as a hybrid compensation plan, consisting of one component most employees are borne by KKRclosely aligned with a profit-sharing plan under ASC 710, Compensation - General, as well as other components within scope of ASC 718, Compensation - Stock Compensation, in all cases with obligations liability-classified. Accordingly, with regard to awards within scope of ASC 710, Global Atlantic records expense based on payouts deemed to be probable and certain consolidated entities and result in customary compensation and benefits expense, cash bonuses that are paid to certain principals are currently borne by KKR Holdings. These compensation charges are currently recordedreasonably estimable based on the amountbook value growth of cash expectedGlobal Atlantic at the grant date and at each reporting period. For award components subject to liability-classification under ASC 718, Global Atlantic records expense, net of a 0% estimated forfeiture rate, based on the fair value of awards granted, with periodic adjustments to expense for changes in fair value, over the requisite 5-year service period.
The aggregate value of the GA Equity Incentive Plan awards at the initial date of grant was $197 million, based on the intrinsic value of the book value component at the date of grant ($5 million) and the fair value of the market value and AUM components at the date of grant ($192 million, collectively), based on the projected growth in value of each component over the 5-year vesting schedule and applying a forfeiture rate of 0%. Expense will be paid by KKR Holdings.remeasured at each reporting period and adjusted as needed until the awards are forfeited or settled.
13.During the three months ended March 31, 2022, no incentive units were granted to employees and approximately 8 incentive units were forfeited. As of March 31, 2022 and December 31, 2021, there were approximately 823 and 831 incentive units outstanding under the Plan, respectively.
Global Atlantic recorded compensation expense of $17.3 million for the three months ended March 31, 2022 related to the GA Units granted under the GA Equity Incentive Plan, with a corresponding offset to other liabilities. As of March 31, 2022 and December 31, 2021, there was approximately $97.8 million and $104.1 million of unrecognized expense related to the GA Units granted under the GA Equity Incentive Plan with a weighted average service period remaining of 3.84 years and 4.09 years, respectively.
20. RELATED PARTY TRANSACTIONS
Due from Affiliates consists of:
| | | September 30, 2017 | | December 31, 2016 | | March 31, 2022 | | December 31, 2021 |
Amounts due from portfolio companies | $ | 105,277 |
| | $ | 66,940 |
| Amounts due from portfolio companies | $ | 188,394 | | | $ | 114,514 | |
Amounts due from unconsolidated investment funds | 371,726 |
| | 170,219 |
| Amounts due from unconsolidated investment funds | 1,089,180 | | | 1,109,769 | |
Amounts due from related entities | 7,001 |
| | 13,293 |
| |
| Due from Affiliates | $ | 484,004 |
| | $ | 250,452 |
| Due from Affiliates | $ | 1,277,574 | | | $ | 1,224,283 | |
Due to Affiliates consists of:
| | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 | | |
Amounts due to KKR Holdings - tax receivable agreement | $ | 396,127 | | | $ | 399,163 | | | |
Amounts due to unconsolidated investment funds | 61,541 | | | 63,559 | | | |
| | | | | |
Due to Affiliates | $ | 457,668 | | | $ | 462,722 | | | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Amounts due to KKR Holdings in connection with the tax receivable agreement | $ | 141,891 |
| | $ | 128,091 |
|
Amounts due to unconsolidated investment funds | 237,418 |
| | 230,823 |
|
Amounts due to related entities | 500 |
| | 565 |
|
Due to Affiliates | $ | 379,809 |
| | $ | 359,479 |
|
14.21. SEGMENT REPORTING
KKR operates through four2 reportable business segments. These segments which are differentiated primarily by theirpresented below and reflect how its chief operating decision-makers allocate resources and assess performance:
•Asset Management -the asset management business objectives andoffers a broad range of investment strategies, are presented below. These financial results represent the combined financial results of the KKR Group Partnerships on a segment basis. KKR earns the majority of its fees from subsidiaries located in the United States.
Private Markets
Through KKR’s Private Markets segment, KKR manages and sponsors private equity funds and co-investment vehicles, which invest capital for long-term appreciation, either through controlling ownership of a company or strategic minority positions. KKR also manages and sponsorsmanagement services to investment funds, vehicles and co-investment vehicles that invest capital in real assets, such as infrastructure, energyaccounts (including Global Atlantic) and real estate.
Public Markets
KKR operates and reports its combined credit and hedge funds businesses through the Public Markets segment. KKR’s credit business invests capital in leveraged credit strategies, including leveraged loans, high yield bonds and opportunistic credit, and alternative credit strategies including special situations and private credit opportunities, such as mezzanine or private credit opportunities, direct lending, and revolving credit investment strategies. KKR’s hedge funds business consists of strategic manager partnerships with third party hedge fund managers in which KKR owns minority stakes.
Capital Markets
KKR’s globalprovides capital markets business supports the firm,services to portfolio companies and third-partythird parties. This reportable segment also reflects how its business lines operate collaboratively with predominantly a single expense pool.
•Insurance - the insurance business is operated by Global Atlantic, which is a leading U.S. retirement and life insurance company that provides a broad suite of protection, legacy and savings products and reinsurance solutions to clients across individual and institutional markets. Global Atlantic primarily generates income by developingearning a spread between its investment income and implementing both traditional and non-traditional capital solutions for investments or companies seeking financing. These services include arranging debt and equity financing for transactions, placing and underwriting securities offerings and providing other typesthe cost of capital markets services.policyholder benefits.
Principal Activities
Through KKR's Principal ActivitiesKKR’s segment we manage the firm’s assets and deploy capital to support and grow our businesses.
KKR's Principal Activities segment uses its balance sheet assets to support KKR's investment management and capital markets businesses, includingprofitability measure used to make capital commitments as general partner to its funds, to seed new businesses or investments for new funds or to bridge capital selectively for its funds’ investments.
The Principal Activities segment also provides the required capital to fund the various commitments of KKR's Capital Markets business or to meet regulatory capital requirements.
Key Performance Measure - Economic Net Income (“ENI”)
ENI is used by management in making operating decisions and resource deployment decisions as well as assessing the overallassess performance of each ofacross KKR’s reportable business segments. The reportable segments for KKR’s business areis presented prior to giving effect to the allocation of income (loss) betweenamong KKR & Co. L.P. andInc., KKR Holdings and as such represents the business in total. In addition, KKR’s reportable segments are presented without giving effect toholders of other exchangeable securities, and the consolidation of the investment funds, vehicles and accounts that KKR manages.advises, manages or sponsors (including CFEs). KKR's segment profitability measure excludes: (i) equity-based compensation charges, (ii) amortization of acquired intangibles, (iii) strategic transaction-related charges and (iv) non-recurring items, if any. Strategic transaction-related items arise from corporate actions and consist primarily of (i) impairments, (ii) non-monetary gains or losses on divestitures, (iii) transaction costs from strategic acquisitions, and (iv) depreciation on real estate that KKR owns and occupies. Inter-segment transactions are not eliminated from segment results when management considers those transactions in assessing the results of the respective segments. These transactions include (i) management fees earned by KKR as the investment adviser for Global Atlantic insurance companies and (ii) interest income and expense based on lending arrangements where one or more KKR subsidiaries borrow from a Global Atlantic insurance subsidiary. Inter-segment transactions are recorded by each segment based on the definitive documents that contain arms' length terms and comply with applicable regulatory requirements. Segment operating earnings for the Asset Management and Insurance segments is further defined as follows:
ENI•Asset Management Segment Operating Earnings is athe profitability measure used to make operating decisions and to assess the performance of profitability for KKR’s reportable segmentsthe Asset Management segment and is comprised of: (i) Fee Related Earnings, (ii) Realized Performance Income, (iii) Realized Performance Income Compensation, (iv) Realized Investment Income, and (v) Realized Investment Income Compensation. Asset Management Segment Operating Earnings excludes (i) unrealized carried interest, (ii) net unrealized gains (losses) on investments, and (iii) related unrealized performance income compensation. Management fees earned by KKR as the adviser, manager, or sponsor for its investment funds, vehicles and accounts, including its Global Atlantic insurance companies are included in Asset Management Segment Operating Earnings.
•Insurance Segment Operating Earnings is the profitability measure used by management as an alternative measurementto make operating decisions and to assess the performance of the operatingInsurance segment and investment earnings of KKR and its business segments. ENI is comprised of: (i) Net Investment Income, (ii) Net Cost of total segment revenues; less total segmentInsurance, (iii) General, Administrative, and Other Expenses, (iv) Income Taxes, and (v) Net Income Attributable to Noncontrolling Interests. The non-operating adjustments made to derive Insurance Segment Operating Earnings eliminate the impact of: (i) realized (gains) losses related to asset/liability matching investments strategies, (ii) unrealized investment (gains) losses, (iii) changes in the fair value of derivatives, embedded derivatives, and fair value liabilities for fixed-indexed annuities, indexed universal life contracts and variable annuities, and (iv) the associated income tax effects of all exclusions from Insurance Segment Operating Earnings except for equity-based compensation expense. Insurance Segment Operating Earnings includes (i) realized gains and losses not related to asset/liability matching investments strategies and (ii) the investment management fee expenses and certain economic interests in KKR’s segments heldthat are earned by third parties.KKR as the investment adviser of the Global Atlantic insurance companies.
Segment Presentation
The following tables present the financial data for KKR’s reportable segments:set forth information regarding KKR's segment results:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | | | |
Asset Management | | | | | | | | | |
Management Fees (1) | $ | 624,928 | | | $ | 439,740 | | | | | | | |
Transaction and Monitoring Fees, Net | 306,038 | | | 135,677 | | | | | | | |
Fee Related Performance Revenues | 12,051 | | | 10,296 | | | | | | | |
Fee Related Compensation | (212,220) | | | (131,785) | | | | | | | |
Other Operating Expenses | (125,875) | | | (90,161) | | | | | | | |
Fee Related Earnings | 604,922 | | | 363,767 | | | | | | | |
Realized Performance Income | 609,207 | | | 171,309 | | | | | | | |
Realized Performance Income Compensation | (383,635) | | | (109,986) | | | | | | | |
Realized Investment Income (2) | 349,354 | | | 461,273 | | | | | | | |
Realized Investment Income Compensation | (52,403) | | | (69,191) | | | | | | | |
Asset Management Segment Operating Earnings | 1,127,445 | | | 817,172 | | | | | | | |
| | | | | | | | | |
Insurance | | | | | | | | | |
Net Investment Income (1) (2) | 862,414 | | | 445,898 | | | | | | | |
Net Cost of Insurance | (493,649) | | | (250,219) | | | | | | | |
General, Administrative and Other | (146,002) | | | (75,489) | | | | | | | |
Pre-tax Insurance Operating Earnings | 222,763 | | | 120,190 | | | | | | | |
Income Taxes | (34,106) | | | (16,626) | | | | | | | |
Net Income Attributable to Noncontrolling Interest | (72,669) | | | (40,299) | | | | | | | |
Insurance Segment Operating Earnings | 115,988 | | | 63,265 | | | | | | | |
| | | | | | | | | |
Total Segment Operating Earnings | $ | 1,243,433 | | | $ | 880,437 | | | | | | | |
| | | | | | | | | |
(1) Includes intersegment management fees of $59.0 million and $22.9 million for the three months ended March 31, 2022 and 2021, respectively. |
(2) Includes intersegment interest expense and income of $25.8 million for the three months ended March 31, 2022. |
| | | | | | | | | |
| As of | | | | |
| March 31, 2022 | | March 31, 2021 | | | | | | |
Segment Assets: | | | | | | | | | |
Asset Management | $ | 31,921,809 | | | $ | 28,247,535 | | | | | | | |
Insurance | 167,492,964 | | | 131,350,085 | | | | | | | |
Total Segment Assets | $ | 199,414,773 | | | $ | 159,597,620 | | | | | | | |
| | | | | | | | | |
| Three Months Ended March 31, | | |
Noncash expenses excluded from Segment Operating Earnings | 2022 | | 2021 | | | | | | |
Equity Based Compensation and Other | | | | | | | | | |
Asset Management | $ | 113,064 | | | $ | 64,317 | | | | | | | |
Insurance | 31,711 | | | 7,411 | | | | | | | |
Total Non-cash expenses | $ | 144,775 | | | $ | 71,728 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| As of and for the Three Months Ended September 30, 2017 |
| Private Markets | | Public Markets | | Capital Markets | | Principal Activities | | Total Reportable Segments |
Segment Revenues | |
| | |
| | |
| | |
| | |
Management, Monitoring and Transaction Fees, Net | |
| | |
| | |
| | |
| | |
Management Fees | $ | 153,841 |
| | $ | 79,113 |
| | $ | — |
| | $ | — |
| | $ | 232,954 |
|
Monitoring Fees | 14,342 |
| | — |
| | — |
| | — |
| | 14,342 |
|
Transaction Fees | 82,258 |
| | 11,469 |
| | 85,440 |
| | — |
| | 179,167 |
|
Fee Credits | (59,854 | ) | | (10,893 | ) | | — |
| | — |
| | (70,747 | ) |
Total Management, Monitoring and Transaction Fees, Net | 190,587 |
| | 79,689 |
| | 85,440 |
| | — |
| | 355,716 |
|
| | | | | | | | | |
Performance Income (Loss) | |
| | |
| | |
| | |
| | |
Realized Incentive Fees | — |
| | 4,074 |
| | — |
| | — |
| | 4,074 |
|
Realized Carried Interest | 419,438 |
| | — |
| | — |
| | — |
| | 419,438 |
|
Unrealized Carried Interest | (96,571 | ) | | 36,933 |
| | — |
| | — |
| | (59,638 | ) |
Total Performance Income (Loss) | 322,867 |
| | 41,007 |
| | — |
| | — |
| | 363,874 |
|
| | | | | | | | | |
Investment Income (Loss) | |
| | |
| | |
| | |
| | |
Net Realized Gains (Losses) | — |
| | — |
| | — |
| | 76,053 |
| | 76,053 |
|
Net Unrealized Gains (Losses) | — |
| | — |
| | — |
| | (50,902 | ) | | (50,902 | ) |
Total Realized and Unrealized | — |
| | — |
| | — |
| | 25,151 |
| | 25,151 |
|
Interest Income and Dividends | — |
| | — |
| | — |
| | 70,557 |
| | 70,557 |
|
Interest Expense | — |
| | — |
| | — |
| | (45,613 | ) | | (45,613 | ) |
Net Interest and Dividends | — |
| | — |
| | — |
| | 24,944 |
| | 24,944 |
|
Total Investment Income (Loss) | — |
| | — |
| | — |
| | 50,095 |
| | 50,095 |
|
| | | | | | | | | |
Total Segment Revenues | 513,454 |
| | 120,696 |
| | 85,440 |
| | 50,095 |
| | 769,685 |
|
| | | | | | | | | |
Segment Expenses | |
| | |
| | |
| | |
| | |
Compensation and Benefits | |
| | |
| | |
| | |
| | |
Cash Compensation and Benefits | 63,482 |
| | 16,257 |
| | 16,924 |
| | 33,958 |
| | 130,621 |
|
Realized Performance Income Compensation | 176,075 |
| | 1,630 |
| | — |
| | — |
| | 177,705 |
|
Unrealized Performance Income Compensation | (36,379 | ) | | 16,553 |
| | — |
| | — |
| | (19,826 | ) |
Total Compensation and Benefits | 203,178 |
| | 34,440 |
| | 16,924 |
| | 33,958 |
| | 288,500 |
|
Occupancy and Related Charges | 8,537 |
| | 1,535 |
| | 760 |
| | 3,840 |
| | 14,672 |
|
Other Operating Expenses | 42,376 |
| | 7,672 |
| | 6,293 |
| | 14,176 |
| | 70,517 |
|
Total Segment Expenses | 254,091 |
| | 43,647 |
| | 23,977 |
| | 51,974 |
| | 373,689 |
|
| | | | | | | | | |
Income (Loss) attributable to noncontrolling interests | — |
| | — |
| | 1,046 |
| | — |
| | 1,046 |
|
| | | | | | | | | |
Economic Net Income (Loss) | $ | 259,363 |
| | $ | 77,049 |
| | $ | 60,417 |
| | $ | (1,879 | ) | | $ | 394,950 |
|
| | | | | | | | | |
Total Assets | $ | 2,123,892 |
| | $ | 1,313,920 |
| | $ | 458,269 |
| | $ | 11,451,918 |
| | $ | 15,347,999 |
|
|
| | | | | | | | | | | | | | | | | | | |
| As of and for the Three Months Ended September 30, 2016 |
| Private Markets | | Public Markets | | Capital Markets | | Principal Activities | | Total Reportable Segments |
Segment Revenues | |
| | |
| | |
| | |
| | |
Management, Monitoring and Transaction Fees, Net | |
| | |
| | |
| | |
| | |
Management Fees | $ | 117,795 |
| | $ | 83,713 |
| | $ | — |
| | $ | — |
| | $ | 201,508 |
|
Monitoring Fees | 11,091 |
| | — |
| | — |
| | — |
| | 11,091 |
|
Transaction Fees | 53,223 |
| | 10,748 |
| | 47,383 |
| | — |
| | 111,354 |
|
Fee Credits | (37,127 | ) | | (10,265 | ) | | — |
| | — |
| | (47,392 | ) |
Total Management, Monitoring and Transaction Fees, Net | 144,982 |
| | 84,196 |
| | 47,383 |
| | — |
| | 276,561 |
|
| | | | | | | | | |
Performance Income (Loss) | |
| | |
| | |
| | |
| | |
Realized Incentive Fees | — |
| | 3,659 |
| | — |
| | — |
| | 3,659 |
|
Realized Carried Interest | 350,469 |
| | — |
| | — |
| | — |
| | 350,469 |
|
Unrealized Carried Interest | 53,339 |
| | 17,012 |
| | — |
| | — |
| | 70,351 |
|
Total Performance Income (Loss) | 403,808 |
| | 20,671 |
| | — |
| | — |
| | 424,479 |
|
| | | | | | | | | |
Investment Income (Loss) | |
| | |
| | |
| | |
| | |
Net Realized Gains (Losses) | — |
| | — |
| | — |
| | 170,078 |
| | 170,078 |
|
Net Unrealized Gains (Losses) | — |
| | — |
| | — |
| | 136,740 |
| | 136,740 |
|
Total Realized and Unrealized | — |
| | — |
| | — |
| | 306,818 |
| | 306,818 |
|
Interest Income and Dividends | — |
| | — |
| | — |
| | 71,185 |
| | 71,185 |
|
Interest Expense | — |
| | — |
| | — |
| | (47,506 | ) | | (47,506 | ) |
Net Interest and Dividends | — |
| | — |
| | — |
| | 23,679 |
| | 23,679 |
|
Total Investment Income (Loss) | — |
| | — |
| | — |
| | 330,497 |
| | 330,497 |
|
| | | | | | | | | |
Total Segment Revenues | 548,790 |
| | 104,867 |
| | 47,383 |
| | 330,497 |
| | 1,031,537 |
|
| | | | | | | | | |
Segment Expenses | |
| | |
| | |
| | |
| | |
Compensation and Benefits | |
| | |
| | |
| | |
| | |
Cash Compensation and Benefits | 47,858 |
| | 22,022 |
| | 7,803 |
| | 24,284 |
| | 101,967 |
|
Realized Performance Income Compensation | 157,688 |
| | 1,463 |
| | — |
| | — |
| | 159,151 |
|
Unrealized Performance Income Compensation | 22,588 |
| | 6,805 |
| | — |
| | — |
| | 29,393 |
|
Total Compensation and Benefits | 228,134 |
| | 30,290 |
| | 7,803 |
| | 24,284 |
| | 290,511 |
|
Occupancy and Related Charges | 9,248 |
| | 2,570 |
| | 330 |
| | 3,729 |
| | 15,877 |
|
Other Operating Expenses | 32,031 |
| | 8,894 |
| | 3,552 |
| | 10,646 |
| | 55,123 |
|
Total Segment Expenses | 269,413 |
| | 41,754 |
| | 11,685 |
| | 38,659 |
| | 361,511 |
|
| | | | | | | | | |
Income (Loss) attributable to noncontrolling interests | — |
| | — |
| | 760 |
| | — |
| | 760 |
|
| | | | | | | | | |
Economic Net Income (Loss) | $ | 279,377 |
| | $ | 63,113 |
| | $ | 34,938 |
| | $ | 291,838 |
| | $ | 669,266 |
|
| | | | | | | | | |
Total Assets | $ | 1,835,166 |
| | $ | 1,179,955 |
| | $ | 403,609 |
| | $ | 10,119,919 |
| | $ | 13,538,649 |
|
|
| | | | | | | | | | | | | | | | | | | |
| As of and for the Nine Months Ended September 30, 2017 |
| Private Markets | | Public Markets | | Capital Markets | | Principal Activities | | Total Reportable Segments |
Segment Revenues | |
| | |
| | |
| | |
| | |
Management, Monitoring and Transaction Fees, Net | |
| | |
| | |
| | |
| | |
Management Fees | $ | 419,606 |
| | $ | 251,201 |
| | $ | — |
| | $ | — |
| | $ | 670,807 |
|
Monitoring Fees | 58,072 |
| | — |
| | — |
| | — |
| | 58,072 |
|
Transaction Fees | 237,392 |
| | 41,040 |
| | 300,235 |
| | — |
| | 578,667 |
|
Fee Credits | (177,254 | ) | | (33,894 | ) | | — |
| | — |
| | (211,148 | ) |
Total Management, Monitoring and Transaction Fees, Net | 537,816 |
| | 258,347 |
| | 300,235 |
| | — |
| | 1,096,398 |
|
| | | | | | | | | |
Performance Income (Loss) | |
| | |
| | |
| | |
| | |
Realized Incentive Fees | — |
| | 8,384 |
| | — |
| | — |
| | 8,384 |
|
Realized Carried Interest | 890,310 |
| | — |
| | — |
| | — |
| | 890,310 |
|
Unrealized Carried Interest | 305,945 |
| | 71,762 |
| | — |
| | — |
| | 377,707 |
|
Total Performance Income (Loss) | 1,196,255 |
| | 80,146 |
| | — |
| | — |
| | 1,276,401 |
|
| | | | | | | | | |
Investment Income (Loss) | |
| | |
| | |
| | |
| | |
Net Realized Gains (Losses) | — |
| | — |
| | — |
| | 162,684 |
| | 162,684 |
|
Net Unrealized Gains (Losses) | — |
| | — |
| | — |
| | 461,111 |
| | 461,111 |
|
Total Realized and Unrealized | — |
| | — |
| | — |
| | 623,795 |
| | 623,795 |
|
Interest Income and Dividends | — |
| | — |
| | — |
| | 195,275 |
| | 195,275 |
|
Interest Expense | — |
| | — |
| | — |
| | (134,348 | ) | | (134,348 | ) |
Net Interest and Dividends | — |
| | — |
| | — |
| | 60,927 |
| | 60,927 |
|
Total Investment Income (Loss) | — |
| | — |
| | — |
| | 684,722 |
| | 684,722 |
|
| | | | | | | | | |
Total Segment Revenues | 1,734,071 |
| | 338,493 |
| | 300,235 |
| | 684,722 |
| | 3,057,521 |
|
| | | | | | | | | |
Segment Expenses | |
| | |
| | |
| | |
| | |
Compensation and Benefits | |
| | |
| | |
| | |
| | |
Cash Compensation and Benefits | 183,943 |
| | 58,991 |
| | 57,053 |
| | 105,591 |
| | 405,578 |
|
Realized Performance Income Compensation | 374,335 |
| | 3,354 |
| | — |
| | — |
| | 377,689 |
|
Unrealized Performance Income Compensation | 126,677 |
| | 30,485 |
| | — |
| | — |
| | 157,162 |
|
Total Compensation and Benefits | 684,955 |
| | 92,830 |
| | 57,053 |
| | 105,591 |
| | 940,429 |
|
Occupancy and Related Charges | 24,174 |
| | 5,140 |
| | 2,052 |
| | 11,082 |
| | 42,448 |
|
Other Operating Expenses | 97,255 |
| | 24,244 |
| | 15,320 |
| | 40,265 |
| | 177,084 |
|
Total Segment Expenses | 806,384 |
| | 122,214 |
| | 74,425 |
| | 156,938 |
| | 1,159,961 |
|
| | | | | | | | | |
Income (Loss) attributable to noncontrolling interests | — |
| | — |
| | 3,810 |
| | — |
| | 3,810 |
|
| | | | | | | | | |
Economic Net Income (Loss) | $ | 927,687 |
| | $ | 216,279 |
| | $ | 222,000 |
| | $ | 527,784 |
| | $ | 1,893,750 |
|
| | | | | | | | | |
Total Assets | $ | 2,123,892 |
| | $ | 1,313,920 |
| | $ | 458,269 |
| | $ | 11,451,918 |
| | $ | 15,347,999 |
|
|
| | | | | | | | | | | | | | | | | | | |
| As of and for the Nine Months Ended September 30, 2016 |
| Private Markets | | Public Markets | | Capital Markets | | Principal Activities | | Total Reportable Segments |
Segment Revenues | |
| | |
| | |
| | |
| | |
Management, Monitoring and Transaction Fees, Net | |
| | |
| | |
| | |
| | |
Management Fees | $ | 354,376 |
| | $ | 245,349 |
| | $ | — |
| | $ | — |
| | $ | 599,725 |
|
Monitoring Fees | 52,126 |
| | — |
| | — |
| | — |
| | 52,126 |
|
Transaction Fees | 114,021 |
| | 17,768 |
| | 144,214 |
| | — |
| | 276,003 |
|
Fee Credits | (93,042 | ) | | (16,230 | ) | | — |
| | — |
| | (109,272 | ) |
Total Management, Monitoring and Transaction Fees, Net | 427,481 |
| | 246,887 |
| | 144,214 |
| | — |
| | 818,582 |
|
| | | | | | | | | |
Performance Income (Loss) | |
| | |
| | |
| | |
| | |
Realized Incentive Fees | — |
| | 9,897 |
| | — |
| | — |
| | 9,897 |
|
Realized Carried Interest | 749,194 |
| | 3,838 |
| | — |
| | — |
| | 753,032 |
|
Unrealized Carried Interest | (131,386 | ) | | (3,370 | ) | | — |
| | — |
| | (134,756 | ) |
Total Performance Income (Loss) | 617,808 |
| | 10,365 |
| | — |
| | — |
| | 628,173 |
|
| | | | | | | | | |
Investment Income (Loss) | |
| | |
| | |
| | |
| | |
Net Realized Gains (Losses) | — |
| | — |
| | — |
| | 370,594 |
| | 370,594 |
|
Net Unrealized Gains (Losses) | — |
| | — |
| | — |
| | (725,699 | ) | | (725,699 | ) |
Total Realized and Unrealized | — |
| | — |
| | — |
| | (355,105 | ) | | (355,105 | ) |
Interest Income and Dividends | — |
| | — |
| | — |
| | 253,756 |
| | 253,756 |
|
Interest Expense | — |
| | — |
| | — |
| | (144,497 | ) | | (144,497 | ) |
Net Interest and Dividends | — |
| | — |
| | — |
| | 109,259 |
| | 109,259 |
|
Total Investment Income (Loss) | — |
| | — |
| | — |
| | (245,846 | ) | | (245,846 | ) |
| | | | | | | | | |
Total Segment Revenues | 1,045,289 |
| | 257,252 |
| | 144,214 |
| | (245,846 | ) | | 1,200,909 |
|
| | | | | | | | | |
Segment Expenses | |
| | |
| | |
| | |
| | |
Compensation and Benefits | |
| | |
| | |
| | |
| | |
Cash Compensation and Benefits | 142,500 |
| | 61,193 |
| | 23,374 |
| | 72,689 |
| | 299,756 |
|
Realized Performance Income Compensation | 317,178 |
| | 5,493 |
| | — |
| | — |
| | 322,671 |
|
Unrealized Performance Income Compensation | (47,377 | ) | | (1,347 | ) | | — |
| | — |
| | (48,724 | ) |
Total Compensation and Benefits | 412,301 |
| | 65,339 |
| | 23,374 |
| | 72,689 |
| | 573,703 |
|
Occupancy and Related Charges | 27,212 |
| | 7,252 |
| | 1,901 |
| | 11,121 |
| | 47,486 |
|
Other Operating Expenses | 95,166 |
| | 28,102 |
| | 10,870 |
| | 32,404 |
| | 166,542 |
|
Total Segment Expenses | 534,679 |
| | 100,693 |
| | 36,145 |
| | 116,214 |
| | 787,731 |
|
| | | | | | | | | |
Income (Loss) attributable to noncontrolling interests | — |
| | — |
| | 2,002 |
| | — |
| | 2,002 |
|
| | | | | | | | | |
Economic Net Income (Loss) | $ | 510,610 |
| | $ | 156,559 |
| | $ | 106,067 |
| | $ | (362,060 | ) | | $ | 411,176 |
|
| | | | | | | | | |
Total Assets | $ | 1,835,166 |
| | $ | 1,179,955 |
| | $ | 403,609 |
| | $ | 10,119,919 |
| | $ | 13,538,649 |
|
Reconciliations of Total Segment Amounts
The following tables reconcile the most directly comparable financial measures calculatedSegment Revenues, Segment Operating Earnings, and presentedSegment Assets to their equivalent GAAP measure:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | | | |
| | | | | | | | | |
Total GAAP Revenues | $ | 1,004,017 | | | $ | 4,563,006 | | | | | | | |
Impact of Consolidation and Other | 213,400 | | | 123,448 | | | | | | | |
Asset Management Adjustments: | | | | | | | | | |
Capital Allocation-Based Income (GAAP) | 945,743 | | | (2,684,647) | | | | | | | |
Realized Carried Interest | 579,767 | | | 165,142 | | | | | | | |
Realized Investment Income | 349,354 | | | 461,273 | | | | | | | |
Capstone Fees | (15,485) | | | (20,080) | | | | | | | |
Expense Reimbursements | (41,303) | | | (27,729) | | | | | | | |
Insurance Adjustments: | | | | | | | | | |
Net Premiums | (372,144) | | | (1,176,142) | | | | | | | |
Policy Fees | (318,436) | | | (201,683) | | | | | | | |
Other Income | (34,744) | | | (18,144) | | | | | | | |
Investment Gains and Losses | 167,102 | | | 259,168 | | | | | | | |
Derivative Gains and Losses | 286,721 | | | 220,581 | | | | | | | |
Total Segment Revenues (1) | $ | 2,763,992 | | | $ | 1,664,193 | | | | | | | |
(1)Total Segment Revenues is comprised of (i) Management Fees, (ii) Transaction and Monitoring Fees, Net, (iii) Fee Related Performance Revenues, (iv) Realized Performance Income, (v) Realized Investment Income, and (vi) Net Investment Income.
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | |
| 2022 | | 2021 | | | | | | |
| | | | | | | | | |
Income (Loss) Before Tax (GAAP) | $ | 1,099,436 | | | $ | 4,354,106 | | | | | | | |
Impact of Consolidation and Other | (1,232,320) | | | (1,375,375) | | | | | | | |
Interest Expense | 69,460 | | | 57,545 | | | | | | | |
Equity-based compensation - KKR Holdings | 19,821 | | | 16,434 | | | | | | | |
Asset Management Adjustments: | | | | | | | | | |
Unrealized Carried Interest | 1,290,033 | | | (2,109,018) | | | | | | | |
Net Unrealized (Gains) Losses | 322,269 | | | (1,316,644) | | | | | | | |
Unrealized Carried Interest Compensation (Carry Pool) | (513,987) | | | 896,907 | | | | | | | |
Strategic Corporate Transaction-Related Charges | 19,898 | | | 4,875 | | | | | | | |
Equity-based compensation | 55,111 | | | 49,761 | | | | | | | |
Equity-based compensation - Performance based | 57,953 | | | 14,556 | | | | | | | |
Insurance Adjustments: | | | | | | | | | |
Net (Gains) Losses from Investments and Derivatives | 48,735 | | | 289,235 | | | | | | | |
Strategic Corporate Transaction-Related Charges | 5,007 | | | 4,819 | | | | | | | |
Equity-based and Other Compensation | 31,711 | | | 7,411 | | | | | | | |
Amortization of Acquired Intangibles | 4,412 | | | 2,451 | | | | | | | |
Income Taxes | (34,106) | | | (16,626) | | | | | | | |
Total Segment Operating Earnings | $ | 1,243,433 | | | $ | 880,437 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | |
| As of |
| March 31, 2022 | | March 31, 2021 | | |
Total GAAP Assets | $ | 266,290,981 | | | $ | 216,445,114 | | | |
Impact of Consolidation and Reclassifications | (63,737,743) | | | (54,032,166) | | | |
Carry Pool Reclassifications | (3,138,465) | | | (2,815,328) | | | |
| | | | | |
Total Segment Assets | $ | 199,414,773 | | | $ | 159,597,620 | | | |
22. EQUITY
Stockholders' Equity
Common Stock
The common stock of KKR & Co. Inc. is entitled to vote as provided by its certificate of incorporation, Delaware General Corporation Law and the rules of the NYSE. Subject to preferences that apply to shares of Series C Mandatory Convertible Preferred Stock and any other shares of preferred stock outstanding at the time on which dividends are payable, the holders of common stock are entitled to receive dividends out of funds legally available if the board of directors, in its discretion, determines to declare dividends and then only at the times and in the amounts that the board of directors may determine. The common stock is not entitled to preemptive rights and is not subject to conversion, redemption or sinking fund provisions.
Series I and Series II Preferred Stock
Except for any distribution required by Delaware law to be made upon a dissolution event, the holders of Series I preferred stock and Series II preferred stock do not have any economic rights to receive dividends. Series I preferred stock is entitled to vote on various matters that may be submitted to vote of the stockholders and the other matters as set forth in the certificate of incorporation. For matters on which common stock is entitled to vote, so long as the ratio at which KKR Group Partnership Units are exchangeable for shares of common stock remains on a 1-for-one basis, Series II preferred stock will vote together with common stock as a single class and on an equivalent basis, except Series II preferred stock will vote separately as a class on any amendment to the certificate of incorporation that changes certain terms, rights or preferences of Series II preferred stock. Upon a dissolution event, each holder of Series I preferred stock will be entitled to a payment equal to $0.01 per share of Series I preferred stock and each holder of Series II preferred stock will be entitled to a payment equal to $0.000000001 per share of Series II preferred stock.
The Series II preferred stock will become eliminated upon the closing of the merger transactions contemplated by the Reorganization Agreement, subject to the satisfaction of the conditions to closing. The Series I preferred stock will become eliminated upon the closing of the transactions contemplated to occur on the Sunset Date (as defined in the Reorganization Agreement), which is scheduled to occur not later than December 31, 2026, subject to the closing of the prior merger transactions and the satisfaction of any other conditions to closing.
Series C Mandatory Convertible Preferred Stock
On August 14, 2020, KKR & Co. Inc. issued 23,000,000 shares, or $1.15 billion aggregate liquidation preference, of its 6.00% Series C Mandatory Convertible Preferred Stock (the "Series C Mandatory Convertible Preferred Stock").
Unless converted or redeemed earlier in accordance with GAAPthe terms of the Series C Mandatory Convertible Preferred Stock, each share of Series C Mandatory Convertible Preferred Stock will automatically convert on the mandatory conversion date, which is expected to KKR’s total reportable segments: be September 15, 2023, into between 1.1662 shares and 1.4285 shares of common stock, in each case, subject to customary anti-dilution adjustments described in the certificate of designations related to the Series C Mandatory Convertible Preferred Stock. The number of shares of common stock issuable upon conversion will be determined based on the average volume weighted average price per share of common stock over the 20 consecutive trading day period beginning on, and including, the 21st scheduled trading day immediately prior to September 15, 2023.
Fees and Other
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
Fees and Other | $ | 692,877 |
| | $ | 687,056 |
| | $ | 2,340,617 |
| | $ | 1,426,618 |
|
Plus: Management fees relating to consolidated funds and placement fees | 54,012 |
| | 49,017 |
| | 153,414 |
| | 131,335 |
|
Less: Fee credits relating to consolidated funds | 106 |
| | 417 |
| | 3,752 |
| | 2,766 |
|
Plus: Net realized and unrealized carried interest - consolidated funds | 22,341 |
| | 5,956 |
| | 43,782 |
| | 15,581 |
|
Plus: Total investment income (loss) | 50,095 |
| | 330,497 |
| | 684,722 |
| | (245,846 | ) |
Less: Revenue earned by oil & gas producing entities | 12,441 |
| | 16,191 |
| | 47,096 |
| | 47,977 |
|
Less: Reimbursable expenses | 27,506 |
| | 12,064 |
| | 87,131 |
| | 46,583 |
|
Less: Other | 9,587 |
| | 12,317 |
| | 27,035 |
| | 29,453 |
|
Total Segment Revenues | $ | 769,685 |
| | $ | 1,031,537 |
| | $ | 3,057,521 |
| | $ | 1,200,909 |
|
Dividends on the Series C Mandatory Convertible Preferred Stock will be payable on a cumulative basis when, as and if declared by our board of directors, or an authorized committee thereof, at an annual rate of 6.00% on the liquidation preference of $50.00 per share of Series C Mandatory Convertible Preferred Stock, and may be paid in cash or, subject to certain limitations, in shares of common stock or, subject to certain limitations, any combination of cash and shares of common stock. If declared, dividends on the Series C Mandatory Convertible Preferred Stock will be payable quarterly on March 15, June 15, September 15 and December 15 of each year to, and including, September 15, 2023, commencing on December 15, 2020.
Expenses
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
Total Expenses | $ | 530,247 |
| | $ | 511,117 |
| | $ | 1,699,989 |
| | $ | 1,242,658 |
|
Less: Equity based compensation | 72,250 |
| | 61,552 |
| | 271,226 |
| | 186,032 |
|
Less: Reimbursable expenses and placement fees | 37,508 |
| | 18,255 |
| | 132,491 |
| | 72,887 |
|
Less: Operating expenses relating to consolidated funds, CFEs and other entities | 21,858 |
| | 20,141 |
| | 56,517 |
| | 85,093 |
|
Less: Expenses incurred by oil & gas producing entities | 10,725 |
| | 17,782 |
| | 34,826 |
| | 56,000 |
|
Less: Intangible amortization | 2,473 |
| | 22,112 |
| | 13,901 |
| | 35,640 |
|
Less: Other | 11,744 |
| | 9,764 |
| | 31,067 |
| | 19,275 |
|
Total Segment Expenses | $ | 373,689 |
| | $ | 361,511 |
| | $ | 1,159,961 |
| | $ | 787,731 |
|
Net Income (Loss) AttributableUpon KKR & Co. Inc.’s voluntary or involuntary liquidation, winding-up or dissolution, each holder of the Series C Mandatory Convertible Preferred Stock would be entitled to receive a liquidation preference in the amount of $50.00 per share of Series C Mandatory Convertible Preferred Stock, plus an amount equal to accumulated and unpaid dividends on such shares, whether or not declared, to, but excluding, the date fixed for liquidation, winding-up or dissolution, to be paid out of KKR & Co. Inc.’s assets legally available for distribution to its stockholders after satisfaction of debt and other liabilities owed to KKR & Co. L.P. Common UnitholdersInc.’s creditors and holders of shares of its stock ranking senior to the Series C Mandatory Convertible Preferred Stock and before any payment or distribution is made to holders of any stock ranking junior to the Series C Mandatory Convertible Preferred Stock, including, without limitation, common stock.
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
Net Income (Loss) Attributable to KKR & Co. L.P. Common Unitholders | $ | 153,563 |
| | $ | 352,152 |
| | $ | 818,552 |
| | $ | 116,103 |
|
Plus: Preferred Distributions | 8,341 |
| | 8,201 |
| | 25,023 |
| | 13,894 |
|
Plus: Net income (loss) attributable to noncontrolling interests held by KKR Holdings L.P. | 115,434 |
| | 284,834 |
| | 637,146 |
| | 86,659 |
|
Plus: Non-cash equity-based charges | 78,728 |
| | 61,552 |
| | 277,704 |
| | 186,032 |
|
Plus: Amortization of intangibles, placement fees and other, net (1) | 20,464 |
| | (48,299 | ) | | 57,825 |
| | (10,273 | ) |
Plus: Income tax (benefit) | 18,420 |
| | 10,826 |
| | 77,500 |
| | 18,761 |
|
Economic Net Income (Loss) | $ | 394,950 |
| | $ | 669,266 |
| | $ | 1,893,750 |
| | $ | 411,176 |
|
(1) Other primarily representsIn connection with the statement of operations impactissuance of the accounting convention differences for (i) direct interests in oil & natural gas properties outside of investment funds and (ii) certain interests in consolidated CLOs and other entities. On a segment basis, direct interests in oil & natural gas properties outside of investment funds are carried at fair value with changes in fair value recorded in Economic Net Income (Loss) and certain interests in consolidated CLOs and other entities are carried at cost. See Note 2 "Summary of Significant Accounting Policies" forSeries C Mandatory Convertible Preferred Stock, the GAAP accounting for these direct interests in oil and natural gas producing properties outside investment funds and interests in consolidated CLOs and other entities.
The items that reconcile KKR’s total reportable segments to the corresponding consolidated amounts calculated and presented in accordance with GAAP for net income (loss) attributable to redeemable noncontrolling interests and income (loss) attributable to noncontrolling interests are primarily attributable to the impactlimited partnership agreement of KKR Holdings L.P., KKR's consolidated funds and certain other entities.Group Partnership was amended to provide for preferred units with economic terms designed to mirror those of the Series C Mandatory Convertible Preferred Stock.
Assets
|
| | | | | | | |
| As of September 30, |
| 2017 | | 2016 |
Total Assets | $ | 44,305,639 |
| | $ | 37,984,599 |
|
Less: Impact of consolidation of funds and other entities (1) | 27,524,641 |
| | 23,013,503 |
|
Less: Carry pool reclassification from liabilities | 1,131,071 |
| | 1,121,510 |
|
Less: Impact of KKR Management Holdings Corp. | 301,928 |
| | 310,937 |
|
Total Segment Assets | $ | 15,347,999 |
| | $ | 13,538,649 |
|
| | | |
(1) Includes accounting basis difference for oil & natural gas properties of $19,358 and $5,966 as of September 30, 2017 and 2016, respectively. |
15. EQUITY
Reorganization of India Capital Markets and Corporate NBFC
On March 30, 2017, KKR reorganized KKR’s Indian capital markets and credit asset management businesses, to create KKR India Financial Investments Pte. Ltd. or “KIFL”. KKR owns 60% of KIFL. This reorganization transaction was accounted for as a transfer of interests under common control, and the difference between KKR’s carrying value before and after the transaction was treated as a reallocation of equity interests, and no gain or loss was recognized in the consolidated financial statements. This reallocation amounted to an increase to KKR’s equity of $10.3 million and to KKR Holdings of $7.9 million.
UnitShare Repurchase Program
Since October 27, 2015, KKR has authorized a total of $750.0 million to repurchase its common units, of which $459.0 million has been spent to repurchase 31.7 million common units as of October 23, 2017. Under this common unitKKR's repurchase program, shares of common unitsstock of KKR & Co. Inc. may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing, manner, price and amount of any unit repurchases will be determined by KKR in its discretion and will depend on a variety of factors, including legal requirements, price and economic and market conditions. In addition to the repurchases of common stock, the repurchase program will be used for the retirement (by cash settlement or the payment of tax withholding amounts upon net settlement) of equity awards granted pursuant to our Equity Incentive Plans representing the right to receive common stock. KKR expects that the program, which has no expiration date, will be in effect until the maximum approved dollar amount has been used to repurchase common units.used. The program does not require KKR to repurchase or retire any specific number of shares of common units,stock or equity awards, respectively, and the program may be suspended, extended, modified or discontinued at any time. See condensedAs of April 29, 2022, the remaining amount available under the repurchase program was approximately $108 million.
The following table presents KKR & Co. Inc. common stock that has been repurchased or equity awards retired under the repurchase program:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | | | | | 2022 | | 2021 | | | | |
Shares of common stock repurchased | | | | | | | | | 5,191,174 | | | 1,501,558 | | | | | |
Equity awards for common stock retired | | | | | | | | | — | | | 1,325,853 | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Noncontrolling Interests
Noncontrolling interests represent (i) noncontrolling interests in consolidated statementsentities and (ii) noncontrolling interests held by KKR Holdings.
Noncontrolling Interests in Consolidated Entities and Other
Noncontrolling interests in consolidated entities represent the non-redeemable ownership interests in KKR that are held primarily by:
(i)third party fund investors in KKR's consolidated funds and certain other entities;
(ii)third parties entitled to up to 1% of the carried interest received by certain general partners of KKR's funds that have made investments on or prior to December 31, 2015;
(iii)certain former principals and their designees representing a portion of the carried interest received by the general partners of KKR's private equity funds that was allocated to them with respect to private equity investments made during such former principals' tenure with KKR prior to October 1, 2009;
(iv)certain current and former principals representing all of the capital invested by or on behalf of the general partners of KKR's private equity funds prior to October 1, 2009 and any returns thereon;
(v)third parties in KKR's Capital Markets business line;
(vi)holders of other exchangeable securities, which consist of vested restricted holdings units granted under the 2019 Equity Plan that are exchangeable into shares of common stock of KKR & Co. Inc.; and
(vii)third parties in KKR's insurance business including GA Rollover Investors, GA Co-Investors and third party investors in Global Atlantic's consolidated renewable energy entities and certain other entities.
Noncontrolling Interests held by KKR Holdings
Noncontrolling interests held by KKR Holdings consist of economic interests held by principals indirectly in KKR Group Partnership Units. Such principals receive financial benefits from KKR's business in the form of distributions received from KKR Holdings and through their direct and indirect participation in the value of KKR Group Partnership Units held by KKR Holdings. These financial benefits are not paid by KKR & Co. Inc. and are borne by KKR Holdings.
The following tables present the calculation of total noncontrolling interests:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| Noncontrolling Interests in Consolidated Entities and Other | | Noncontrolling Interests Held by KKR Holdings | | Total Noncontrolling Interests |
Balance at the beginning of the period | $ | 32,043,699 | | | $ | 8,430,866 | | | $ | 40,474,565 | |
Net income (loss) attributable to noncontrolling interests (1) | 1,206,337 | | | (47,152) | | | 1,159,185 | |
Other comprehensive income (loss), net of tax (2) | (1,291,083) | | | (629,986) | | | (1,921,069) | |
| | | | | |
Equity-based and other non-cash compensation | 63,571 | | | 19,821 | | | 83,392 | |
Capital contributions | 3,579,591 | | | — | | | 3,579,591 | |
Capital distributions | (1,831,897) | | | (41,976) | | | (1,873,873) | |
| | | | | |
| | | | | |
Balance at the end of the period | $ | 33,770,218 | | | $ | 7,731,573 | | | $ | 41,501,791 | |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2021 |
| | Noncontrolling Interests in Consolidated Entities and Other | | Noncontrolling Interests Held by KKR Holdings | | Total Noncontrolling Interests |
Balance at the beginning of the period | | $ | 20,570,716 | | | $ | 6,512,382 | | | $ | 27,083,098 | |
Net income (loss) attributable to noncontrolling interests (1) | | 1,241,877 | | | 1,003,654 | | | 2,245,531 | |
Other comprehensive income (loss), net of tax (2) | | (581,154) | | | (298,234) | | | (879,388) | |
Exchange of KKR Holdings Units to Common Stock (3) | | — | | | (56,903) | | | (56,903) | |
Equity-based and other non-cash compensation | | 19,882 | | | 16,434 | | | 36,316 | |
Capital contributions | | 4,009,967 | | | 25 | | | 4,009,992 | |
Capital distributions | | (987,066) | | | (40,768) | | | (1,027,834) | |
Impact of Acquisition (4) | | 190,405 | | | — | | | 190,405 | |
Changes in consolidation | | (66,488) | | | — | | | (66,488) | |
Balance at the end of the period | | $ | 24,398,139 | | | $ | 7,136,590 | | | $ | 31,534,729 | |
(1)Refer to the table below for calculation of net income (loss) attributable to noncontrolling interests held by KKR Holdings.
(2)With respect to noncontrolling interests held by KKR Holdings, calculated on a pro rata basis based on the weighted average KKR Group Partnership Units held by KKR Holdings during the reporting period.
(3)Calculated based on the proportion of KKR Holdings units exchanged for KKR & Co. Inc. common stock. The exchange agreement with KKR Holdings provides for the exchange of KKR Group Partnership Units held by KKR Holdings for KKR & Co. Inc. common stock.
(4)Represents other noncontrolling interests at the GA Acquisition Date.
Net income (loss) attributable to each of KKR & Co. Inc. common stockholders, KKR Holdings and holders of other exchangeable securities, with the exception of certain tax assets and liabilities that are directly allocable to KKR & Co. Inc., is attributed based on the percentage of the weighted average KKR Group Partnership Units directly or indirectly held by them. However, primarily because of the (i) contribution of certain expenses borne entirely by KKR Holdings and holders of other exchangeable securities, (ii) the periodic exchange of KKR Holdings units and other exchangeable securities for KR & Co. Inc. common stock pursuant to the exchange agreement and (iii) the contribution of certain expenses borne entirely by KKR associated with the Equity Incentive Plans, equity allocations shown in the consolidated statement of changes in equity fordiffer from their respective pro rata ownership interests in KKR's net assets.
The following table presents net income (loss) attributable to noncontrolling interests held by KKR Holdings:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, | | |
| | | | | | | | 2022 | | 2021 | | | | |
Net income (loss) | | | | | | | | $ | 1,102,602 | | | $ | 3,915,367 | | | | | |
(-) Net income (loss) attributable to Redeemable Noncontrolling Interests | | | | | | | | (63) | | | — | | | | | |
(-) Net income (loss) attributable to Noncontrolling Interests in consolidated entities and other | | | | | | | | 1,206,337 | | | 1,241,877 | | | | | |
(-) Series A and B Preferred Stock Dividends | | | | | | | | — | | | 8,341 | | | | | |
(-) Series C Mandatory Convertible Preferred Stock Dividends | | | | | | | | 17,250 | | | 17,250 | | | | | |
(+) Income tax expense (benefit) attributable to KKR & Co. Inc. | | | | | | | | (34,144) | | | 462,930 | | | | | |
| | | | | | | | | | | | | | |
Net income (loss) attributable to KKR & Co. Inc. Common Stockholders and KKR Holdings | | | | | | | | $ | (155,066) | | | $ | 3,110,829 | | | | | |
| | | | | | | | | | | | | | |
Net income (loss) attributable to Noncontrolling Interests held by KKR Holdings | | | | | | | | $ | (47,152) | | | $ | 1,003,654 | | | | | |
23. REDEEMABLE NONCONTROLLING INTERESTS
Global Atlantic has redeemable non-controlling interests related to renewable energy entities of approximately $81.8 million and $82.5 million as of March 31, 2022 and December 31, 2021 as determined by the amounthypothetical liquidation book value ("HLBV") method, respectively. The estimated redemption value of common units repurchased duringredeemable non-controlling interests is calculated as the nine months ended September 30, 2016. There were no common units repurchaseddiscounted cash flows subsequent to the expected flip date of the respective renewable energy entity. The flip date represents the date at which the allocation of income and cash flows among the investors in the entity is adjusted, pursuant to this program during the nine months ended September 30, 2017.
Distribution Policy
Under KKR's distribution policy for its common units, KKR intendsredeemable non-controlling interest investors having achieved an agreed-upon return. The flip date of renewable energy partnerships determines when the redeemable non-controlling interests are eligible to make equal quarterly distributionsbe redeemed. Eligible redemption dates range from 2022 to holders2027. For the redeemable non-controlling interests outstanding as of its common units in an amount of $0.17 per common unit per quarter. The declarationboth March 31, 2022 and payment of any distributions are subject to the discretion of the board of directors of the general partner of KKR and the terms of its limited partnership agreement. There can be no assurance that distributions will be made as intended or at all, that unitholders will receive sufficient distributions to satisfy payment of their tax liabilities as limited partners of KKR or that any particular distribution policy will be maintained.
16. GOODWILL AND INTANGIBLE ASSETS
Goodwill
As of December 31, 2016,2021, the carryingestimated redemption value of goodwill was $89.0 million, which was allocated to Public Markets and Principal Activities inthat would be due at the amounts of $59.0 million and $30.0 million, respectively. As part of the PAAMCO Prisma transaction that occurred on June 1, 2017, goodwill of $5.5 million was included in determining the gain on the contribution of Prisma to PAAMCO Prisma. In accordance with ASC 350, the amount of goodwill included in the gain calculation was based on the relative fair values of Prisma, which was integrated in Public Markets, and the remaining portion of Public Markets. Subsequent to this transaction the remaining carrying value of goodwill in Public Markets and Principal Activitiesrespective redemption dates is $53.5 million and $30.0 million, respectively, as of September 30, 2017.$5.3 million.
Goodwill is recorded in Other Assets in the condensed consolidated statements of financial condition. All of the goodwill is currently expected to be deductible for tax purposes. See Note 8 “Other Assets and Accounts Payable, Accrued Expenses and Other Liabilities.”
Intangible Assets
Intangible Assets, Net consists of the following:
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Finite-Lived Intangible Assets | $ | 74,524 |
| | $ | 251,768 |
|
Accumulated Amortization | (57,086 | ) | | (116,744 | ) |
Intangible Assets, Net | $ | 17,438 |
| | $ | 135,024 |
|
Changes in Intangible Assets, Net consists of the following:
|
| | | |
| Nine Months Ended |
| September 30, 2017 |
Balance, Beginning of Period | $ | 135,024 |
|
Amortization Expense | (13,891 | ) |
Foreign Exchange | 1,938 |
|
Other (1) | (105,633 | ) |
Balance, End of Period | $ | 17,438 |
|
| |
(1) Represents the removal of intangible assets in connection with the PAAMCO Prisma transaction. |
17.24. COMMITMENTS AND CONTINGENCIES
Debt Covenants
Borrowings of KKR contain various debt covenants. These covenants do not, in management’s opinion, materially restrict KKR’s operating business or investment strategies as of September 30, 2017. KKR is in compliance with its debt covenants in all material respects as of September 30, 2017.
Funding Commitments
and Others
As of September 30, 2017,March 31, 2022, KKR had unfunded commitments consisting of $2,937.4 million$11.3 billion to its active private equityinvestment funds and othervehicles. KKR has also agreed for certain of its investment vehicles. vehicles to fund or otherwise be liable for a portion of their investment losses (up to a maximum of approximately $116 million) and/or to provide them with liquidity upon certain termination events (the maximum amount of which is unknown until the scheduled termination date of the investment vehicle).
In addition to thethese uncalled commitments and funding obligations to KKR's investment funds and vehicles, KKR has entered into contractual commitments primarily with respect to (i) the purchase of investments and other assets in its Principal Activities segment, and (ii) underwriting transactions, debt financing, revolving credit facilities, and syndications in KKR's Capital Markets segment.business line. As of September 30, 2017,March 31, 2022, these commitments amounted to $93.4 million and $255.7 million, respectively.$1.5 billion. Whether these amounts are actually funded, in whole or in part, depends on the contractual terms of such commitments, including the satisfaction or waiver of any conditions to closing or funding. The unfunded commitments shown for KKR's Capital Markets segment are shown without reflectingcapital markets business has arrangements that maywith third parties, which reduce the actual amount of contractual commitments shown. Our capital market business entered into an arrangement that reduces ourits risk when underwriting certain debt transactions.transactions, and thus our unfunded commitments as of March 31, 2022 have been reduced to reflect the amount to be funded by such third parties. In the case of purchases of investments or assets in our Principal Activities segment,business line, the amount to be funded includes amounts that are intended to be syndicated to third parties, and the actual amounts to be funded may be less than shown.less.
Global Atlantic has commitments to purchase or fund investments of $2.6 billion and $2.0 billion as of March 31, 2022 and December 31, 2021, respectively. These commitments include those related to commercial mortgage loans, other lending facilities and other investments. For those commitments that represent a contractual obligation to extend credit, Global Atlantic has recorded a liability of $14.9 million for current expected credit losses as of March 31, 2022.
In addition, Global Atlantic has entered into certain forward flow agreements to purchase loans. Global Atlantic's obligations under these agreements are subject to change, curtailment, and cancellation based on various provisions including repricing mechanics, due diligence reviews, and performance or pool quality, among other factors.
Non-cancelable Operating Leases
KKR's non-cancelable operating leases consist of leases of office space around the world. There are no material rent holidays, contingent rent, rent concessions or leasehold improvement incentives associated with any of these property leases. In addition to base rentals, certain lease agreements are subject to escalation provisions and rent expense is recognized on a straight‑line basis over the term of the lease agreement.
Global Atlantic also enters into land leases for its consolidated investments in renewable energy.
Contingent Repayment Guarantees
The partnership documents governing KKR’sKKR's carry-paying investment funds including funds relating to private equity, infrastructure, energy, real estate, mezzanine, direct lending and special situations investments,vehicles generally include a “clawback”"clawback" provision that, if triggered, may give rise to a contingent obligation requiring the general partner to return amounts to the fund for distribution to the fund investors at the end of the life of the fund. Under a clawback obligation, upon the liquidation of a fund, the general partner is required to return, typically on an after-tax basis, previously distributed carry to the extent that, due to the diminished performance of later investments, the aggregate amount of carry distributions received by the general partner during the term of the fund exceed the amount to which the general partner was ultimately entitled, including the effects of any performance thresholds. Excluding carried interest received by the general partners
As of funds that were not contributed to KKR in the acquisition of the assets and liabilities of KKR & Co. (Guernsey) L.P. (formerly known as KKR Private Equity Investors, L.P.) on October 1, 2009 (the “KPE Transaction”), as of September 30, 2017, $47.3March 31, 2022, approximately $400 million of carried interest was subject to this clawback obligation, assuming that all applicable carry payingcarry-paying funds and their alternative investment vehicles were liquidated at their September 30, 2017March 31, 2022 fair values. HadAlthough KKR would be required to remit the entire amount to fund investors that are entitled to receive the clawback payment, KKR would be entitled to seek reimbursement of approximately $160 million of that amount from KKR Associates Holdings L.P., which is not a KKR subsidiary. As of March 31, 2022, KKR Associates Holdings L.P. had access to cash reserves sufficient to reimburse the full $160 million that would be due to KKR. If the investments in suchall carrying-paying funds beenwere to be liquidated at zero value the clawback obligation would have been $1,990.7 million. approximately $2.7 billion, and KKR would be entitled to seek reimbursement of approximately $1.1 billion of that amount from KKR Associates Holdings L.P. KKR will acquire control of KKR Associates Holdings L.P. when a subsidiary of KKR becomes its general partner upon the closing of the transactions contemplated to occur on the Sunset Date (as defined in the Reorganization Agreement), which is scheduled to occur not later than December 31, 2026, subject to the closing of the mergers contemplated by the Reorganization Agreement and the satisfaction of the other conditions to closing.
Carried interest is recognized in the statementconsolidated statements of operations based on the contractual conditions set forth in the agreements governing the fund as if the fund were terminated and liquidated at the reporting date and the fund’sfund's investments were realized at the then estimated fair values. Amounts earned pursuant to carried interest are earned by the general partner of those funds to the extent that cumulative investment returns are positive and where applicable, preferred return thresholds have been met. If these investment amounts earned decrease or turn negative in subsequent periods, recognized carried interest will be reversed and to the extent that the aggregate amount of carry distributions received by the general partner during the term of the fund exceed the amount to which the general partner was ultimately entitled, a clawback obligation would be recorded. For funds that are consolidated, this clawback obligation, if any, is reflected as an increase in noncontrolling interests in the consolidated statements of financial condition. For funds that are not consolidated, this clawback obligation, if any, is reflected as a reduction of KKR’sKKR's investment balance as this is where carried interest is initially recorded.
Prior to the KPE Transaction in 2009, certain principals who received carried interest distributions with respect to certain private equity funds contributed to KKR had personally guaranteed, on a several basis and subject to a cap, the contingent obligations of the general partners of such private equity funds to repay amounts to fund investors pursuant to the general partners’ clawback obligations. The terms of the KPE Transaction require that principals remain responsible for any clawback obligations relating to carry distributions received prior to the KPE Transaction, up to a maximum of $223.6 million. Through investment realizations, the principals' potential exposure has been reduced to $72.2 million as of September 30, 2017. Using valuations as of September 30, 2017, $19.7 million would be due with respect to the clawback obligation required to be funded by principals. Carry distributions arising subsequent to the KPE Transaction may give rise to clawback obligations that may be allocated generally to KKR and persons who participate in the carry pool. In addition, guarantees of or similar arrangements relating to clawback obligations in favor of third party investors in an individual investment partnership by entities KKR owns may limit distributions of carried interest more generally.
Indemnifications and Other Guarantees
KKR may incur contingent liabilities for claims that may be made against it in the future. KKR enters into contracts that contain a variety of representations, warranties and covenants, including indemnifications. For example, KKR (including KFN) and certain of KKR’sKKR's investment funds and KFN have provided and provide certain indemnities relating to environmental and other matters and have provided nonrecourseand provide non-recourse carve-out guarantees for fraud, willful misconduct and other customary wrongful acts, each in connection with the financing of KKR's corporate real estate and certain real estate investments and for certain investment vehicles that KKR has made. In addition,manages. KKR's maximum exposure under these arrangements is currently unknown and KKR's liabilities for these matters would require a claim to be made against KKR has also providedin the future.
KKR provides credit support to certain of its subsidiaries’subsidiaries' obligations in connection with a limited number of investment vehicles that KKR manages. For example, KKR has guaranteed the obligations of a general partner to post collateral on behalf of its investment vehicle in connection with such vehicle’svehicle's derivative transactions, andtransactions. KKR has also agreed to be liable for certain investment losses and/or for providing liquidity in the events specified in the governing documents of another investment vehicle. KKR has also provided(i) provides credit support regarding repayment and funding obligations to third partythird-party lenders to certain of its employees, excluding its executive officers, in connection with their personal investments in KKR investment funds and in an investment vehicle that includes third party investors and invests in KKR funds and alongside KKR funds and (ii) provides credit support to a strategic partner regarding the ownershiphedge fund partnership. KKR is not a guarantor for any borrowings, credit facilities or debt securities of its business. Indian debt financing company.
KKR may also may become liable for certain fees payable to sellers of businesses or assets if a transaction does not close, subject to certain conditions, if any, specified in the acquisition agreements for such businesses or assets. KKR’s maximum exposure under these arrangements
The Global Atlantic business was formerly owned by The Goldman Sachs Group, Inc. (together with its subsidiaries, "Goldman Sachs"). In connection with the separation of Global Atlantic from Goldman Sachs in 2013, Global Atlantic entered into a tax benefit payment agreement with Goldman Sachs. Under the tax benefit payment agreement, Global Atlantic (Fin) Company ("GA FinCo") is currently unknown and KKR's liabilities for these matters would require a claimobligated to make annual payments out of available cash, guaranteed by Global Atlantic Financial Group Limited ("GAFG"), to Goldman Sachs over an approximately 25-year period totaling $214 million. As of March 31,
2022, the present value of the remaining amount to be made against KKRpaid is $64.9 million. Although these payments are subordinated and deferrable, deferral of these payments would result in restrictions on distributions by GA FinCo and GAFG.
In lieu of funding certain investments in loan facilities to third party borrowers in cash, Global Atlantic has arranged or participated in letters of credit issued by third-party banks on behalf of the borrowers in the future.
amount of $39.7 million, as of March 31, 2022, with expiration dates between October 2022 to December 2024. Global Atlantic has available lines of credit that would allow for additional letters of credit to be issued on behalf of certain borrowers, up to $225.3 million, as of March 31, 2022. For accounting purposes, these letters of credit are considered guarantees of certain obligations of the borrowers. If a letter of credit were to be drawn, Global Atlantic would be obligated to repay the issuing third-party bank, and Global Atlantic would recognize a loan receivable from the borrowers on the consolidated statements of financial condition. Global Atlantic monitors the likelihood of these letters of credit being drawn, and any related contingent obligation. As of both March 31, 2022 and December 31, 2021, the expected credit loss on the contingent liability associated with these letters of credit was not material.
Litigation
From time to time, KKR (including Global Atlantic) is involved in various legal proceedings, lawsuits, arbitration and claims incidental to the conduct of KKR’s business. KKR’s business isKKR's businesses. KKR's asset management and insurance businesses are also subject to extensive regulation, which may result in regulatory proceedings against it.them.
In December 2017, KKR & Co. L.P. (which is now KKR & Co. Inc.) and its then Co-Chief Executive Officers were named as defendants in a lawsuit filed in Kentucky state court alleging, among other things, the violation of fiduciary and other duties in connection with certain separately managed accounts that Prisma Capital Partners LP, a former subsidiary of KKR, manages for the Kentucky Retirement Systems. Also named as defendants in the lawsuit are certain current and former trustees and officers of the Kentucky Retirement Systems, Prisma Capital Partners LP, and various other service providers to the Kentucky Retirement Systems and their related persons. KKR and other defendants’ motions to dismiss were denied by the trial court in November 2018, but in April 2019 the Kentucky Court of Appeals vacated the trial court's opinion and order denying the motions to dismiss the case for lack of standing. The decision of the Court of Appeals was appealed by plaintiffs to the Supreme Court of Kentucky. On July 9, 2020, the Supreme Court of Kentucky reversed the trial court's order and remanded the case to the trial court with direction to dismiss the complaint for lack of constitutional standing. On July 20, 2020, the Office of the Attorney General, on behalf of the Commonwealth of Kentucky, filed a motion to intervene as a plaintiff in the lawsuit and on July 21, 2020 filed a new lawsuit in the same Kentucky trial court making essentially the same allegations against the defendants, including KKR & Co. Inc. and Messrs. Kravis and Roberts. On July 29, 2020, certain private plaintiffs in the original lawsuit filed a motion to further amend their original complaint and to add new plaintiffs. On July 30, 2020, KKR and other defendants filed objections to the Attorney General’s motion to intervene. On December 28, 2020, the trial court dismissed the complaint filed by the original plaintiffs and denied their motion to amend their original complaint and add new plaintiffs, but granted the Office of the Attorney General’s motion to intervene. In January 2021, some of the attorneys for the private plaintiffs in the original lawsuit filed a new lawsuit, and a motion to intervene in the original lawsuit, on behalf of a new set of plaintiffs, who claim to be "Tier 3" members of Kentucky Retirement Systems, alleging substantially the same allegations as in the original lawsuit. The motion to intervene in the original lawsuit was denied. These "Tier 3" plaintiffs appealed the denial of their motion to intervene but then voluntarily dismissed their appeal on January 31, 2022. In addition, the Kentucky Retirement Systems had commissioned an investigation into certain matters alleged in the Attorney General's complaint. The trial court ordered that this investigation be completed by May 17, 2021, and the Attorney General was permitted to amend its complaint after reviewing the investigation's report within ten days of the Attorney General's receipt of it. On May 24, 2021, the Attorney General filed a First Amended Complaint on behalf of the Commonwealth of Kentucky. This complaint continues to name KKR & Co. L.P. and its then Co-Chief Executive Officers, as defendants, and makes similar allegations against them. KKR and the other defendants moved to dismiss the First Amended Complaint on July 30, 2021. The court held oral argument on these motions to dismiss on December 14, 2021. On July 9, 2021, the individual plaintiffs served an amended complaint, which purports to assert, on behalf of a class of beneficiaries of Kentucky Retirement Systems, direct claims for breach of fiduciary duty and civil violations under the Racketeer Influenced and Corrupt Organizations Act ("RICO"). This complaint was removed to the U.S. District Court for the Eastern District of Kentucky, which has entered an order staying this case until the completion of the Attorney General’s lawsuit on behalf of the Commonwealth. On August 20, 2021, the same and other individual plaintiffs filed a second complaint in Kentucky state court, purportedly on behalf of Kentucky Retirement Systems' funds, alleging the same claims against KKR & Co. Inc. and Messrs. Kravis and Roberts as in the July 9th amended complaint but without the RICO or class action allegations. KKR and the other defendants have moved to dismiss the August 20th complaint. On March 24, 2022, in a separate declaratory judgment action brought by the Commonwealth of Kentucky regarding the enforceability of certain indemnification provisions available to KKR & Co. Inc. and Prisma Capital Partners LP, the Kentucky state court found that it has personal jurisdiction over KKR & Co. Inc., and this finding is currently being appealed by KKR.
KKR (including Global Atlantic) currently is and expects to continue to become, from time to time, subject to examinations, inquiries and investigations by various U.S. and non U.S.non-U.S. governmental and regulatory agencies, including but not limited to the SEC, Department of Justice, U.S. state attorney generals, Financial Industry Regulatory Authority or FINRA, and("FINRA"), the U.K. Financial Conduct Authority, Central Bank of Ireland, Monetary Authority of Singapore, U.S. state insurance regulatory authorities, and the Bermuda Monetary Authority. Such examinations, inquiries and investigations may result in the commencement of civil, criminal or administrative proceedings or fines against KKR or its personnel.
Moreover, in the ordinary course of business, KKR (including Global Atlantic) is and can be both the defendant and the plaintiff in numerous lawsuits with respect to acquisitions, bankruptcy, insolvency and other types of proceedings.events. Such lawsuits may involve claims that adversely affect the value of certain investments owned by KKR’s funds.
KKR's funds and Global Atlantic's insurance companies.
KKR establishes an accrued liability for legal proceedings only when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. No loss contingency is recorded for matters where such losses are either not probable or reasonably estimable (or both) at the time of determination. Such matters may be subject to many uncertainties, including among othersothers: (i) the proceedings may be in early stages; (ii) damages sought may be unspecified, unsupportable, unexplained or uncertain; (iii) discovery may not have been started or is incomplete; (iv) there may be uncertainty as to the outcome of pending appeals or motions; (v) there may be significant factual issues to be resolved;resolved or (vi) there may be novel legal issues or unsettled legal theories to be presented or a large number of parties. Consequently, management is unable to estimate a range of potential loss, if any, related to these matters. In addition, loss contingencies may be, in part or in whole, subject to insurance or other payments such as contributions and/or indemnity, which may reduce any ultimate loss.
KKR has included in its financial statements the reserve for regulatory, litigation and related matters that Global Atlantic includes in its financial statements, including with respect to matters arising from the conversion of life insurance policies from systems previously managed by Athene Holdings Limited to the platform of one of Global Atlantic's third party service providers, Alliance-One, a subsidiary of DXC Technology Company.
It is not possible to predict the ultimate outcome of all pending legal proceedings, and some of the matters discussed above seek or may seek potentially large and/or indeterminate amounts. As of such date, basedBased on information known by management, management has not concluded that the final resolutions of the matters above will have a material effect upon the financial statements. However, given the potentially large and/or indeterminate amounts sought or may be sought in certain of these matters and the inherent unpredictability of investigations and litigations, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on KKR’sKKR's financial results in any particular period.
Other Financing Arrangements
18. REGULATORY CAPITAL REQUIREMENTS
KKRGlobal Atlantic has registered broker-dealer subsidiaries whichfinancing arrangements with unaffiliated third parties to support the reserves of its affiliated captive reinsurers. Total fees expensed associated with these financing arrangements were $4.5 million and $4.0 million for the three months ended March 31, 2022 and 2021, respectively, and are subject toincluded in insurance expenses in the minimum net capital requirementsconsolidated statements of operations. As of both March 31, 2022 and December 31, 2021, the total capacity of the SECfinancing arrangements with third parties was $2.0 billion.
Other than the matters disclosed above, there were no outstanding or unpaid balances from the financing arrangements with unaffiliated third parties as of both March 31, 2022 and the FINRA. Additionally, KKR entities based in London and Dublin are subject to the regulatory capital requirements of the U.K. Financial Conduct Authority and the Central Bank of Ireland, respectively. In addition, KKR has an entity based in Hong Kong which is subject to the capital requirements of the Hong Kong Securities and Futures Ordinance, an entity based in Tokyo subject to the capital requirements of Financial Services Authority of Japan, and two entities based in Mumbai which are subject to capital requirements of the Reserve Bank of India and the Securities and Exchange Board of India. All of these entities have continuously operated in excess of their respective minimum regulatory capital requirements.December 31, 2021.
The regulatory capital requirements referred to above may restrict KKR’s ability to withdraw capital from its registered broker-dealer entities. At September 30, 2017, approximately $141.6 million of cash at KKR’s registered broker-dealer entities may be restricted as to the payment of cash dividends and advances to KKR.
19.25. SUBSEQUENT EVENTS
Common Unit Distribution
Stock Dividend
A distributiondividend of $0.17$0.155 per share of common stock of KKR & Co. L.P. common unitInc. has been declared and was announced on October 26, 2017, andMay 3, 2022. This dividend will be paid on November 21, 2017May 31, 2022 to common unitholdersstockholders of record as of the close of business on November 6, 2017.May 16, 2022. KKR Holdings will receive its pro rata share of the distribution from the KKR Group Partnerships.
Partnership.
Preferred Unit Distributions
Stock Dividends
A distributiondividend of $0.421875$0.75 per share of Series AC Mandatory Convertible Preferred UnitStock has been declared asand was announced on October 26, 2017May 3, 2022 and set aside for paymentpayment. This dividend will be paid on DecemberJune 15, 20172022 to holders of record of Series AC Mandatory Convertible Preferred UnitsStock as of the close of business on DecemberJune 1, 2017.2022.
Yen Senior Notes
On April 26, 2022, KKR Group Finance Co. XI LLC, an indirect subsidiary of $0.406250 per Series B Preferred Unit has been declared as announced on October 26, 2017KKR & Co. Inc., completed the offering of (i) ¥36.4 billion aggregate principal amount of its 1.054% Senior Notes due 2027 (the “2027 Yen Notes”), (ii) ¥4.9 billion aggregate principal amount of its 1.244% Senior Notes due 2029 (the “2029 Yen Notes”), (iii) ¥6.2 billion aggregate principal amount of its 1.437% Senior Notes due 2032 (the “2032 Yen Notes”), (iv) ¥7.5 billion aggregate principal amount of its 1.553% Senior Notes due 2034 (the “2034 Yen Notes”), and set aside for payment on December 15, 2017 to holders(v) ¥5.5 billion aggregate principal amount of record of Series B Preferred Units as ofits 1.795% Senior Notes due 2037 (the “2037 Yen Notes” and, together with the close of business on December 1, 2017.
Investment in Marshall Wace
Due to2027 Yen Notes, the exercise of one of2029 Yen Notes, the options agreed to between Marshall Wace2032 Yen Notes and the 2034 Yen Notes, the “Yen Notes”). The Yen Notes are guaranteed by KKR & Co. Inc. and KKR KKR expectsGroup Partnership. The Yen Notes were issued pursuant to acquire an additional 5.0% interest in Marshall Wace in the fourth quarterindenture, dated April 26, 2022, as supplemented by a first supplemental indenture, dated April 26, 2022.
ITEM 2. MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements of KKR & Co. L.P.Inc., together with its consolidated subsidiaries, and the related notes included elsewhere in this report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2021, filed with the Securities and Exchange CommissionSEC on February 24, 201728, 2022 (our "Annual Report"), including the audited consolidated financial statements and the related notes and “Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations”Operations" contained therein. The historical condensed consolidated financial data discussed below reflects the historical results and financial position of KKR. In addition, this discussion and analysis contains forward lookingforward-looking statements and involves numerous risks and uncertainties, including those described under “Cautionary"Cautionary Note Regarding Forward-looking Statements”Statements" and “Risk Factors""Business Environment" in this report and our Annual Report and "Risk Factors" in our Annual Report, and our other quarterly reports.filings with the SEC. Actual results may differ materially from those contained in any forward lookingforward-looking statements.
The unaudited condensed consolidated financial statements and the related notes included elsewhere in this report are hereafter referred to as the "financial statements." Additionally, the condensed consolidated statements of financial condition are referred to herein as the "consolidated statements of financial condition"; the condensed consolidated statements of operations are referred to herein as the "consolidated statements of operations"; the condensed consolidated statements of comprehensive income (loss) are referred to herein as the "consolidated statements of comprehensive income (loss)"; the condensed consolidated statements of changes in equity are referred to herein as the "consolidated statements of changes in equity"; and the condensed consolidated statements of cash flows are referred to herein as the "consolidated statements of cash flows."
References herein to "KKR," "we," "us" and "our" refer to KKR & Co. Inc. and its subsidiaries, including The Global Atlantic Financial Group LLC ("TGAFG" and, together with its subsidiaries, "Global Atlantic"), unless the context requires otherwise.
Overview
We are a leading global investment firm that manages multipleoffers alternative asset classes including private equity, energy, infrastructure, real estate, growth equity, creditmanagement as well as capital markets and through our strategic manager partnerships, hedge funds.insurance solutions. We aim to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and drivingsupporting growth and value creation in our portfolio companies.companies and communities. We sponsor investment funds that invest our own capital alongsidein private equity, credit and real assets and have strategic partners that manage hedge funds. Our insurance subsidiaries offer retirement, life and reinsurance products under the capital we manage for fund investors and provide financing solutions and investment opportunities through our capital markets business.management of Global Atlantic.
Our asset management business offers a broad range of investment management services to our fund investors and provides capital markets services toaround the world. As of March 31, 2022, we manage $479 billion of assets for our firm, our portfolio companies and third parties.clients. Throughout our history, we have consistently been a leader in the private equity industry, having completed more than 310650 private equity investments in portfolio companies with a total transaction value in excess of $555$675 billion as of September 30, 2017. We have grownMarch 31, 2022. Since the inception of our firm by expandingin 1976, we have expanded our geographical presenceinvestment strategies and building businesses inproduct offerings from traditional private equity to areas such as leveraged credit, alternative credit, hedge funds, capital markets, infrastructure, energy, real estate, growth equity, core and growth equity.impact investments. We also provide capital markets services for our firm, our portfolio companies and third parties. Our balance sheet has providedprovides a significant source of capital in the growth and expansion of our business, and it has allowed us to further align our interests with those of our fund investors. TheseBuilding on these efforts build onand leveraging our core principles and industry expertise allowing us to leverage theand intellectual capital and synergies in our businesses, andhave allowed us to capitalize on a broader range of the opportunities we source. Additionally,
Our insurance business is operated by Global Atlantic, in which we acquired a majority controlling interest on February 1, 2021. Global Atlantic is a leading U.S. retirement and life insurance company that provides a broad suite of protection, legacy and savings products and reinsurance solutions to clients across individual and institutional markets. Global Atlantic primarily offers individuals fixed-rate annuities, fixed-indexed annuities and targeted life products through a network of banks, broker-dealers and independent marketing organizations. Global Atlantic provides its institutional clients customized reinsurance solutions, including block, flow and pension risk transfer reinsurance, as well as funding agreements. Global Atlantic primarily generates income by earning a spread between its investment income and the cost of policyholder benefits. As of March 31, 2022, Global Atlantic served approximately three million policyholders.
Asset Management
In our asset management business, we have increased our focus on meeting the needs of our existing fund investorsfour business lines: (1) Private Markets, (2) Public Markets, (3) Capital Markets, and in developing relationships with new investors in our funds.
We conduct our business with offices throughout the world, providing us with a pre-eminent global platform for sourcing transactions, raising capital and carrying out capital markets activities. Our growth has been driven by value that we have created through our operationally focused investment approach, the expansion of our existing businesses, our entry into new lines of business, innovation in the products that we offer investors in our funds, an increased focus on providing tailored solutions to our clients and the integration of capital markets distribution activities.(4) Principal Activities.
As a global investmentan asset management firm, we earn management, monitoring, transaction,fees, including incentive fees, and carried interest for providing investment management monitoring and other services to our funds, vehicles, CLOs, managed accounts and portfolio companies, and we generate transaction-specific income from capital markets transactions. We earn additional investment income fromby investing our own capital alongside that of our fund investors and from other assets on our balance sheet and from the carriedsheet. Carried interest we receive from our funds and certain of our other investment vehicles. A carried interestvehicles entitles the sponsor of a fundus to a specified percentage of investment gains that are generated on third-party capital that is invested.
Our investment teams have deep industry knowledge and are supported by a substantial and diversified capital base,base; an integrated global investment platform,platform; the expertise of operating consultants,professionals, senior advisors and other advisorsadvisors; and a worldwide network of business relationships that provide a significant source of investment opportunities, specialized knowledge during due diligence and substantial resources for creating and realizing value for stakeholders. These teams invest capital, a substantial portion of which is of a long duration andor not subject to redemption.predetermined redemption requirements, which provides us with significant flexibility to grow investments and select exit opportunities. As of September 30, 2017,March 31, 2022, approximately 78%90% of our fee paying assets under management areAUM consists of capital that is not subject to redemption for at least 8 years from inception providing us with significant flexibilityand what we refer to grow investmentsas perpetual capital. For more information about the limitations of perpetual capital, please see "Risks Related to Our Business—AUM referred to as perpetual capital is subject to material reduction, including through withdrawal, redemption, or dividends, and select exit opportunities.termination" in our Annual Report. We believe that these aspects of our business will help us continue to expand and grow our asset management business and deliver strong investment performance in a variety of economic and financial conditions.
Business Segments
Asset Management - Private Markets
Through our Private Markets segment,business line, we manage and sponsor a group of private equity funds and co-investment vehicles that invest capital for long-term appreciation, either through controlling ownership of a company or strategic minority positions. OurIn addition to our traditional private equity funds that invest in large and mid-sized companies, we sponsor investment strategies include traditional privatefunds that invest in core equity, growth equity, and core private equity.impact investments. We also manage and sponsor investment funds and co-investment vehiclescompanies that invest capital in real assets, such as infrastructure, energyreal estate, and energy. Our Private Markets business line includes separately managed accounts that invest in multiple strategies, which may include our credit strategies as well as our private equity and real estate.assets strategies. These funds vehicles and accounts are managed by Kohlberg Kravis Roberts & Co. L.P., an SEC registeredSEC-registered investment adviser.adviser, or one of its subsidiaries. As of September 30, 2017, the segmentMarch 31, 2022, our Private Markets business line had $87.6$268.2 billion of AUM, and FPAUM of $61.7 billion, consisting of $47.5$152.9 billion in private equity (including growth equity, impact and $14.2core investments), $93.8 billion in real assets (including real estate, infrastructure energy and real estate)energy) and $21.5 billion in other related strategies.
The table below presents information as of September 30, 2017March 31, 2022, relating to our current private equity, growth equity and real asset funds and other investment vehicles in our Private Markets business line for which we have the ability to earn carried interest. This data does not reflect acquisitions or disposals of investments, changes in investment values, or distributions occurring after September 30, 2017.March 31, 2022.
|
| | | | | | | | | | | | | | | | | | | | | | |
| Investment Period (1) | | Amount ($ in millions) |
| Start Date | End Date | | Commitment (2) | Uncalled Commitments | Percentage Committed by General Partner | Invested | Realized | Remaining Cost (3) | Remaining Fair Value |
Private Markets | | | | |
| |
| | |
| |
| |
| |
|
| | | | | | | | | | |
Private Equity and Growth Equity | | | | |
| |
| | |
| |
| |
| |
|
Asian Fund III (4) | 4/2017 | 4/2023 | | $ | 9,000.0 |
| $ | 9,000.0 |
| 5.6% | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Americas Fund XII (4) | 1/2017 | 1/2023 | | 13,500.0 |
| 13,500.0 |
| 7.2% | — |
| — |
| — |
| 5.6 |
|
Health Care Strategic Growth Fund (4) | 12/2016 | 12/2021 | | 1,214.9 |
| 1,214.9 |
| 12.3% | — |
| — |
| — |
| — |
|
Next Generation Technology Growth Fund (4) | 3/2016 | 3/2021 | | 658.9 |
| 431.3 |
| 22.5% | 227.6 |
| — |
| 227.6 |
| 325.1 |
|
European Fund IV (4) | 12/2014 | 12/2020 | | 3,537.4 |
| 1,507.5 |
| 5.6% | 2,059.6 |
| 29.2 |
| 2,038.7 |
| 2,629.8 |
|
Asian Fund II (4) | 4/2013 | 4/2017 | | 5,825.0 |
| 1,012.7 |
| 1.3% | 5,782.0 |
| 1,469.1 |
| 4,749.0 |
| 7,070.8 |
|
North America Fund XI (4) | 9/2012 | 1/2017 | | 8,718.4 |
| 874.2 |
| 2.9% | 9,268.2 |
| 4,344.4 |
| 6,743.5 |
| 11,525.2 |
|
China Growth Fund | 11/2010 | 11/2016 | | 1,010.0 |
| — |
| 1.0% | 1,010.0 |
| 565.0 |
| 665.3 |
| 801.4 |
|
E2 Investors (Annex Fund) | 8/2009 | 11/2013 | | 195.8 |
| — |
| 4.9% | 195.8 |
| 195.7 |
| 18.1 |
| 1.7 |
|
European Fund III | 3/2008 | 3/2014 | | 6,165.5 |
| 838.2 |
| 4.6% | 5,327.3 |
| 6,989.1 |
| 2,029.3 |
| 3,427.6 |
|
Asian Fund | 7/2007 | 4/2013 | | 3,983.3 |
| — |
| 2.5% | 3,945.9 |
| 7,681.6 |
| 813.8 |
| 917.2 |
|
2006 Fund | 9/2006 | 9/2012 | | 17,642.2 |
| 337.7 |
| 2.1% | 17,304.5 |
| 26,586.4 |
| 4,957.8 |
| 6,960.9 |
|
European Fund II | 11/2005 | 10/2008 | | 5,750.8 |
| — |
| 2.1% | 5,750.8 |
| 8,467.3 |
| — |
| 58.4 |
|
Millennium Fund | 12/2002 | 12/2008 | | 6,000.0 |
| — |
| 2.5% | 6,000.0 |
| 13,305.4 |
| 444.9 |
| 610.6 |
|
Total Private Equity and Growth Equity | | | | 83,202.2 |
| 28,716.5 |
| | 56,871.7 |
| 69,633.2 |
| 22,688.0 |
| 34,334.3 |
|
| | | | | | | | | | |
Co-Investment Vehicles and Other (4) | Various | Various | | 6,674.1 |
| 1,830.0 |
| Various | 5,042.9 |
| 2,712.0 |
| 3,686.4 |
| 4,848.5 |
|
| | | |
|
|
|
| |
|
|
|
|
|
|
|
|
Total Private Equity and Growth Equity | | | | 89,876.3 |
| 30,546.5 |
| | 61,914.6 |
| 72,345.2 |
| 26,374.4 |
| 39,182.8 |
|
| | | | |
| |
| | |
| |
| |
| |
|
Real Assets | | | | | | | | | | |
Energy Income and Growth Fund (4) | 9/2013 | 9/2018 | | 1,974.2 |
| 667.7 |
| 12.9% | 1,336.5 |
| 284.1 |
| 1,072.6 |
| 1,132.7 |
|
Natural Resources Fund | Various | Various | | 887.4 |
| 2.8 |
| Various | 884.6 |
| 113.4 |
| 794.9 |
| 151.9 |
|
Global Energy Opportunities (4) | Various | Various | | 979.2 |
| 613.2 |
| Various | 405.5 |
| 59.0 |
| 291.0 |
| 315.0 |
|
Global Infrastructure Investors (4) | 9/2011 | 10/2014 | | 1,040.2 |
| 59.9 |
| 4.8% | 1,011.3 |
| 844.8 |
| 604.2 |
| 775.9 |
|
Global Infrastructure Investors II (4) | 10/2014 | 10/2020 | | 3,045.4 |
| 1,820.2 |
| 4.1% | 1,412.3 |
| 192.9 |
| 1,221.0 |
| 1,532.5 |
|
Real Estate Partners Americas (4) | 5/2013 | 5/2017 | | 1,229.1 |
| 363.3 |
| 16.3% | 993.7 |
| 776.0 |
| 562.2 |
| 631.9 |
|
Real Estate Partners Americas II (4) | 5/2017 | (5) | | 782.7 |
| 782.7 |
| 19.2% | — |
| — |
| — |
| — |
|
Real Estate Partners Europe (4) | 9/2015 | 6/2020 | | 721.2 |
| 594.7 |
| 9.2% | 132.6 |
| 12.0 |
| 125.4 |
| 158.1 |
|
Real Estate Credit Opportunity Partners (4) | 2/2017 | 2/2019 | | 1,090.0 |
| 918.0 |
| 4.6% | 172.0 |
| — |
| 172.0 |
| 184.4 |
|
Co-Investment Vehicles and Other | Various | Various | | 1,401.9 |
| 11.8 |
| Various | 1,390.1 |
| 511.9 |
| 1,387.7 |
| 1,799.8 |
|
| | | | | | | | | | |
Real Assets | | | | $ | 13,151.3 |
| $ | 5,834.3 |
| | $ | 7,738.6 |
| $ | 2,794.1 |
| $ | 6,231.0 |
| $ | 6,682.2 |
|
| | | | | | | | | | |
Unallocated Commitments | | | | 3,041.1 |
| 3,041.1 |
| Various | — |
| — |
| — |
| — |
|
| | | | | |
| | | | |
Private Markets Total | | | | $ | 106,068.7 |
| $ | 39,421.9 |
| | $ | 69,653.2 |
| $ | 75,139.3 |
| $ | 32,605.4 |
| $ | 45,865.0 |
|
95
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Investment Period (1) | Amount ($ in millions) | | | |
| Start Date | End Date | Commitment (2) | Uncalled Commitments | Percentage Committed by General Partner | Invested | Realized | Remaining Cost (3) | Remaining Fair Value | Gross Accrued Carried Interest | | |
| | | | | | | | | | | | |
Private Equity and Growth Equity Funds | | | | | | | | | | | | |
North America Fund XIII | 6/2021 | 6/2027 | $ | 18,400 | | $ | 18,400 | | 3% | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | |
Americas Fund XII | 1/2017 | 6/2021 | 13,500 | | 1,701 | | 6% | 12,275 | | 4,712 | | 11,219 | | 23,039 | | 2,183 | | | |
North America Fund XI | 9/2012 | 1/2017 | 8,718 | | 425 | | 3% | 9,752 | | 17,183 | | 3,453 | | 8,098 | | 920 | | | |
2006 Fund (4) | 9/2006 | 9/2012 | 17,642 | | 247 | | 2% | 17,309 | | 35,093 | | 1,483 | | 2,371 | | 230 | | | |
Millennium Fund (4) | 12/2002 | 12/2008 | 6,000 | | — | | 3% | 6,000 | | 14,123 | | — | | 6 | | 1 | | | |
European Fund VI | 3/2022 | 3/2028 | 7,063 | | 7,063 | | 14% | — | | — | | — | | — | | — | | | |
European Fund V | 3/2019 | 3/2022 | 6,357 | | 1,637 | | 2% | 4,789 | | 732 | | 4,640 | | 6,330 | | 340 | | | |
European Fund IV | 12/2014 | 3/2019 | 3,514 | | 66 | | 6% | 3,577 | | 4,990 | | 1,838 | | 2,751 | | 173 | | | |
European Fund III (4) | 3/2008 | 3/2014 | 5,509 | | 149 | | 5% | 5,360 | | 10,604 | | 669 | | 152 | | (24) | | | |
European Fund II (4) | 11/2005 | 10/2008 | 5,751 | | — | | 2% | 5,751 | | 8,507 | | — | | 34 | | — | | | |
Asian Fund IV | 7/2020 | 7/2026 | 14,735 | | 12,056 | | 4% | 2,679 | | — | | 2,679 | | 3,060 | | 1 | | | |
Asian Fund III | 4/2017 | 7/2020 | 9,000 | | 2,010 | | 6% | 7,393 | | 3,671 | | 6,660 | | 13,477 | | 1,217 | | | |
Asian Fund II | 4/2013 | 4/2017 | 5,825 | | 34 | | 1% | 6,839 | | 5,946 | | 3,794 | | 3,284 | | (316) | | | |
Asian Fund (4) | 7/2007 | 4/2013 | 3,983 | | — | | 3% | 3,974 | | 8,728 | | 110 | | 22 | | 4 | | | |
China Growth Fund (4) | 11/2010 | 11/2016 | 1,010 | | — | | 1% | 1,010 | | 1,056 | | 330 | | 279 | | 3 | | | |
Next Generation Technology Growth Fund II | 12/2019 | 12/2025 | 2,088 | | 597 | | 7% | 1,688 | | 259 | | 1,544 | | 2,459 | | 162 | | | |
Next Generation Technology Growth Fund | 3/2016 | 12/2019 | 659 | | 4 | | 22% | 666 | | 810 | | 359 | | 1,285 | | 101 | | | |
Health Care Strategic Growth Fund II | 5/2021 | 5/2027 | 3,789 | | 3,657 | | 4% | 132 | | — | | 132 | | 139 | | — | | | |
Health Care Strategic Growth Fund | 12/2016 | 5/2021 | 1,331 | | 429 | | 11% | 1,032 | | 196 | | 924 | | 1,384 | | 66 | | | |
Global Impact Fund | 2/2019 | 3/2022 | 1,242 | | 485 | | 8% | 907 | | 155 | | 813 | | 1,381 | | 106 | | | |
Private Equity and Growth Equity Funds | | | 136,116 | | 48,960 | | | 91,133 | | 116,765 | | 40,647 | | 69,551 | | 5,167 | | | |
| | | | | | | | | | | | |
Co-Investment Vehicles and Other | Various | Various | 14,236 | | 4,995 | | Various | 9,559 | | 7,289 | | 6,245 | | 9,051 | | 1,318 | | | |
Core Investment Vehicles | Various | Various | 24,237 | | 13,310 | | 31% | 11,627 | | 712 | | 11,323 | | 18,825 | | 112 | | | |
| | | | | | | | | | | | |
Total Private Equity, Growth Equity and Core Funds | | | 174,589 | | 67,265 | | | 112,319 | | 124,766 | | 58,215 | | 97,427 | | 6,597 | | | |
| | | | | | | | | | | | |
Real Assets | | | | | | | | | | | | |
Energy Income and Growth Fund II | 6/2018 | 3/2022 | 994 | | — | | 20% | 1,187 | | 193 | | 1,024 | | 1,393 | | 24 | | | |
Energy Income and Growth Fund | 9/2013 | 6/2018 | 1,974 | | — | | 13% | 1,974 | | 932 | | 1,156 | | 880 | | — | | | |
Natural Resources Fund (4) | Various | Various | 887 | | — | | Various | 887 | | 123 | | 193 | | 63 | | — | | | |
Global Energy Opportunities | Various | Various | 915 | | 62 | | Various | 519 | | 166 | | 324 | | 221 | | — | | | |
Global Infrastructure Investors IV | 6/2021 | 6/2027 | 16,709 | | 16,709 | | 2% | — | | — | | — | | — | | 10 | | | |
Global Infrastructure Investors III | 6/2018 | 6/2021 | 7,176 | | 1,820 | | 4% | 5,621 | | 1,175 | | 5,026 | | 5,567 | | 139 | | | |
Global Infrastructure Investors II | 10/2014 | 6/2018 | 3,040 | | 124 | | 4% | 3,163 | | 4,246 | | 1,281 | | 1,813 | | 53 | | | |
Global Infrastructure Investors | 9/2011 | 10/2014 | 1,040 | | — | | 5% | 1,050 | | 2,228 | | — | | — | | — | | | |
Asia Pacific Infrastructure Investors | 1/2020 | 1/2026 | 3,792 | | 2,753 | | 7% | 1,324 | | 285 | | 1,161 | | 1,291 | | 33 | | | |
Diversified Core Infrastructure Fund | 12/2020 | (5) | 7,240 | | 4,599 | | 7% | 2,649 | | 77 | | 2,641 | | 2,730 | | — | | | |
Real Estate Partners Americas III | 12/2020 | 1/2025 | 4,253 | | 2,843 | | 5% | 1,410 | | 11 | | 1,399 | | 1,703 | | 43 | | | |
Real Estate Partners Americas II | 5/2017 | 12/2020 | 1,921 | | 266 | | 8% | 1,892 | | 1,994 | | 813 | | 1,226 | | 160 | | | |
Real Estate Partners Americas | 5/2013 | 5/2017 | 1,229 | | 139 | | 16% | 1,020 | | 1,405 | | 111 | | 61 | | 1 | | | |
Real Estate Partners Europe II | 12/2019 | 4/2024 | 2,082 | | 766 | | 10% | 1,316 | | — | | 1,316 | | 1,618 | | 33 | | | |
Real Estate Partners Europe | 9/2015 | 12/2019 | 710 | | 136 | | 10% | 652 | | 598 | | 283 | | 364 | | 21 | | | |
Asia Real Estate Partners | 6/2019 | 6/2023 | 1,682 | | 1,326 | | 15% | 356 | | 3 | | 356 | | 486 | | 11 | | | |
Real Estate Credit Opportunity Partners II | 4/2019 | 6/2022 | 950 | | 413 | | 5% | 560 | | 91 | | 560 | | 563 | | 10 | | | |
Real Estate Credit Opportunity Partners | 2/2017 | 4/2019 | 1,130 | | 122 | | 4% | 1,008 | | 347 | | 1,008 | | 1,034 | | 9 | | | |
Property Partners Americas | 12/2019 | (5) | 2,463 | | 241 | | 20% | 2,222 | | 89 | | 2,222 | | 2,981 | | 32 | | | |
Co-Investment Vehicles and Other | Various | Various | 5,141 | | 754 | | Various | 4,134 | | 1,602 | | 3,618 | | 3,887 | | 14 | | | |
Total Real Assets | | | 65,328 | | 33,073 | | | 32,944 | | 15,565 | | 24,492 | | 27,881 | | 593 | | | |
| | | | | | | | | | | | |
Other | | | | | | | | | | | | |
Unallocated Commitments (6) | | | 3,011 | | 3,011 | | Various | — | | — | | — | | — | | — | | | |
| | | | | | | | | | | | |
Private Markets Total | | | $ | 242,928 | | $ | 103,349 | | | $ | 145,263 | | $ | 140,331 | | $ | 82,707 | | $ | 125,308 | | $ | 7,190 | | | |
| |
(1) | The start date represents the date on which the general partner of the applicable fund commenced investment of the fund’s capital or the date of the first closing. The end date represents the earlier of (i) the date on which the general partner of the applicable fund was or will be required by the fund’s governing agreement to cease making investments on behalf of the fund, unless extended by a vote of the fund investors or (ii) the date on which the last investment was made. |
| |
(2) | The commitment represents the aggregate capital commitments to the fund, including capital commitments by third-party fund investors and the general partner. Foreign currency commitments have been converted into U.S. dollars based on (i) the foreign exchange rate at the date of purchase for each investment and (ii) the exchange rate that prevailed on September 30, 2017, in the case of uncalled commitments. |
(1)The start date represents the date on which the general partner of the applicable fund commenced investment of the fund's capital or the date of the first closing. The end date represents the earlier of (i) the date on which the general partner of the applicable fund was or will be required by the fund's governing agreement to cease making investments (other than reserved amounts) on behalf of the fund, unless extended by a vote of the fund investors, and (ii) the date on which the last investment was made.
| |
(3) | The remaining cost represents the initial investment of the general partner and limited partners, with the limited partners’ investment reduced for any return of capital and realized gains from which the general partner did not receive a carried interest. |
(2)The commitment represents the aggregate capital commitments to the fund, including capital commitments by third-party fund investors and the general partner. Foreign currency commitments have been converted into U.S. dollars based on (i) the foreign exchange rate at the date of purchase for each investment and (ii) the exchange rate that prevailed on March 31, 2022, in the case of uncalled commitments.
| |
(4) | The “Invested” and “Realized” columns include the amounts of any realized investments that restored the unused capital commitments of the fund investors, if any. |
(3)The remaining cost represents the initial investment of the general partner and limited partners, reduced for returns of capital.
| |
(5) | Three years from final closing date. |
(4)The "Invested" and "Realized" columns do not include the amounts of any realized investments that restored the unused capital commitments of the fund investors, if any.
(5)Open ended fund.
(6)"Unallocated Commitments" represent unallocated commitments from our strategic investor partnerships.
The tablestable below presentpresents information as of September 30, 2017March 31, 2022, relating to the historical performance of certain of our Private Markets investment vehicles since inception, which we believe illustrates the benefits of our investment approach. The information presented under Total Investments includes all of the investments made by the specified investment vehicle, while the information presented under Realized/Partially Realized Investments includes only those investments that have been disposed of or have otherwise generated disposition proceeds or current income including dividends that have been distributed by the relevant fund. This data does not reflect additional capital raised since September 30, 2017March 31, 2022, or acquisitions or disposals of investments, changes in investment values or distributions occurring after that date. However, the information presented below is not intended to be representative of any past or future performance for any particular period other than the period presented below. Past performance is no guarantee of future results.
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| Amount | | Fair Value of Investments | | | | | | | | |
Private Markets Investment Funds | Commitment (2) | Invested | | Realized (4) | Unrealized | | Total Value | | Gross IRR (5) | Net IRR (5) | | | Gross Multiple of Invested Capital (5) |
($ in millions) |
Legacy Funds (1) | | | | | | | | | | | | | |
1976 Fund | $ | 31 | | $ | 31 | | | $ | 537 | | $ | — | | | $ | 537 | | | 39.5 | % | 35.5 | % | | | 17.1 | |
1980 Fund | 357 | | 357 | | | 1,828 | | — | | | 1,828 | | | 29.0 | % | 25.8 | % | | | 5.1 | |
1982 Fund | 328 | | 328 | | | 1,291 | | — | | | 1,291 | | | 48.1 | % | 39.2 | % | | | 3.9 | |
1984 Fund | 1,000 | | 1,000 | | | 5,964 | | — | | | 5,964 | | | 34.5 | % | 28.9 | % | | | 6.0 | |
1986 Fund | 672 | | 672 | | | 9,081 | | — | | | 9,081 | | | 34.4 | % | 28.9 | % | | | 13.5 | |
1987 Fund | 6,130 | | 6,130 | | | 14,949 | | — | | | 14,949 | | | 12.1 | % | 8.9 | % | | | 2.4 | |
1993 Fund | 1,946 | | 1,946 | | | 4,143 | | — | | | 4,143 | | | 23.6 | % | 16.8 | % | | | 2.1 | |
1996 Fund | 6,012 | | 6,012 | | | 12,477 | | — | | | 12,477 | | | 18.0 | % | 13.3 | % | | | 2.1 | |
Subtotal - Legacy Funds | 16,475 | | 16,475 | | | 50,269 | | — | | | 50,269 | | | 26.1 | % | 19.9 | % | | | 3.1 | |
Included Funds | | | | | | | | | | | | | |
European Fund (1999) | 3,085 | | 3,085 | | | 8,758 | | — | | | 8,758 | | | 26.9 | % | 20.2 | % | | | 2.8 | |
Millennium Fund (2002) | 6,000 | | 6,000 | | | 14,123 | | 6 | | | 14,129 | | | 22.0 | % | 16.1 | % | | | 2.4 | |
European Fund II (2005) | 5,751 | | 5,751 | | | 8,507 | | 34 | | | 8,541 | | | 6.1 | % | 4.5 | % | | | 1.5 | |
2006 Fund (2006) | 17,642 | | 17,309 | | | 35,093 | | 2,371 | | | 37,464 | | | 11.9 | % | 9.3 | % | | | 2.2 | |
Asian Fund (2007) | 3,983 | | 3,974 | | | 8,728 | | 22 | | | 8,750 | | | 18.9 | % | 13.7 | % | | | 2.2 | |
European Fund III (2008) | 5,509 | | 5,360 | | | 10,604 | | 152 | | | 10,756 | | | 16.5 | % | 11.4 | % | | | 2.0 | |
E2 Investors (Annex Fund) (2009) | 196 | | 196 | | | 200 | | — | | | 200 | | | 0.6 | % | 0.5 | % | | | 1.0 | |
China Growth Fund (2010) | 1,010 | | 1,010 | | | 1,056 | | 279 | | | 1,335 | | | 6.7 | % | 2.6 | % | | | 1.3 | |
Natural Resources Fund (2010) | 887 | | 887 | | | 123 | | 63 | | | 186 | | | (24.0) | % | (25.7) | % | | | 0.2 | |
Global Infrastructure Investors (2011) | 1,040 | | 1,050 | | | 2,228 | | — | | | 2,228 | | | 17.6 | % | 15.6 | % | | | 2.1 | |
North America Fund XI (2012) | 8,718 | | 9,752 | | | 17,183 | | 8,098 | | | 25,281 | | | 24.3 | % | 19.7 | % | | | 2.6 | |
Asian Fund II (2013) | 5,825 | | 6,839 | | | 5,946 | | 3,284 | | | 9,230 | | | 8.6 | % | 6.8 | % | | | 1.3 | |
Real Estate Partners Americas (2013) | 1,229 | | 1,020 | | | 1,405 | | 61 | | | 1,466 | | | 16.4 | % | 11.6 | % | | | 1.4 | |
Energy Income and Growth Fund (2013) | 1,974 | | 1,974 | | | 932 | | 880 | | | 1,812 | | | (2.9) | % | (5.3) | % | | | 0.9 | |
Global Infrastructure Investors II (2014) | 3,040 | | 3,163 | | | 4,246 | | 1,813 | | | 6,059 | | | 20.1 | % | 17.4 | % | | | 1.9 | |
European Fund IV (2015) | 3,514 | | 3,577 | | | 4,990 | | 2,751 | | | 7,741 | | | 25.3 | % | 19.8 | % | | | 2.2 | |
Real Estate Partners Europe (2015) | 710 | | 652 | | | 598 | | 364 | | | 962 | | | 15.2 | % | 10.6 | % | | | 1.5 | |
Next Generation Technology Growth Fund (2016) | 659 | | 666 | | | 810 | | 1,285 | | | 2,095 | | | 38.9 | % | 33.3 | % | | | 3.1 | |
Health Care Strategic Growth Fund (2016) | 1,331 | | 1,032 | | | 196 | | 1,384 | | | 1,580 | | | 29.1 | % | 18.3 | % | | | 1.5 | |
Americas Fund XII (2017) | 13,500 | | 12,275 | | | 4,712 | | 23,039 | | | 27,751 | | | 40.1 | % | 33.1 | % | | | 2.3 | |
Real Estate Credit Opportunity Partners (2017) | 1,130 | | 1,008 | | | 347 | | 1,034 | | | 1,381 | | | 9.8 | % | 8.5 | % | | | 1.4 | |
Core Investment Vehicles (2017) | 24,237 | | 11,627 | | | 712 | | 18,825 | | | 19,537 | | | 25.8 | % | 24.4 | % | | | 1.7 | |
Asian Fund III (2017) | 9,000 | | 7,393 | | | 3,671 | | 13,477 | | | 17,148 | | | 45.0 | % | 35.9 | % | | | 2.3 | |
Real Estate Partners Americas II (2017) | 1,921 | | 1,892 | | | 1,994 | | 1,226 | | | 3,220 | | | 32.8 | % | 27.4 | % | | | 1.7 | |
Global Infrastructure Investors III (2018) | 7,176 | | 5,621 | | | 1,175 | | 5,567 | | | 6,742 | | | 12.9 | % | 9.1 | % | | | 1.2 | |
Global Impact Fund (2019) | 1,242 | | 907 | | | 155 | | 1,381 | | | 1,536 | | | 50.2 | % | 37.0 | % | | | 1.7 | |
European Fund V (2019) | 6,357 | | 4,789 | | | 732 | | 6,330 | | | 7,062 | | | 36.5 | % | 28.8 | % | | | 1.5 | |
Energy Income and Growth Fund II (2019) | 994 | | 1,187 | | | 193 | | 1,393 | | | 1,586 | | | 27.4 | % | 24.5 | % | | | 1.3 | |
Asia Real Estate Partners (2019) | 1,682 | | 356 | | | 3 | | 486 | | | 489 | | | 44.2 | % | 19.0 | % | | | 1.4 | |
Next Generation Technology Growth Fund II (2019) | 2,088 | | 1,688 | | | 259 | | 2,459 | | | 2,718 | | | 52.7 | % | 41.9 | % | | | 1.6 | |
Real Estate Credit Opportunity Partners II (2019) | 950 | | 560 | | | 91 | | 563 | | | 654 | | | 13.9 | % | 12.5 | % | | | 1.2 | |
Asia Pacific Infrastructure Investors (2020) | 3,792 | | 1,324 | | | 285 | | 1,291 | | | 1,576 | | | 27.2 | % | 15.3 | % | | | 1.2 | |
Asian Fund IV (2020) (3) | 14,735 | | 2,679 | | | — | | 3,060 | | | 3,060 | | | — | | — | | | | — | |
Real Estate Partners Americas III (2021) (3) | 4,253 | | 1,410 | | | 11 | | 1,703 | | | 1,714 | | | — | | — | | | | — | |
Real Estate Partners Europe II (2021) (3) | 2,082 | | 1,316 | | | — | | 1,618 | | | 1,618 | | | — | | — | | | | — | |
Health Care Strategic Growth Fund II (2021) (3) | 3,789 | | 132 | | | — | | 139 | | | 139 | | | — | | — | | | | — | |
Global Infrastructure Investors IV (2021) (3) | 16,709 | | — | | | — | | — | | | — | | | — | | — | | | | — | |
North America Fund XIII (2021) (3) | 18,400 | | — | | | — | | — | | | — | | | — | | — | | | | — | |
European Fund VI (2022) (3) | 7,063 | | — | | | — | | — | | | — | | | — | | — | | | | — | |
Subtotal - Included Funds | 213,203 | | 129,461 | | | 140,066 | | 106,438 | | | 246,504 | | | 17.0 | % | 13.2 | % | | | 1.9 | |
| | | | | | | | | | | | | |
All Funds | $ | 229,678 | | $ | 145,936 | | | $ | 190,335 | | $ | 106,438 | | | $ | 296,773 | | | 25.6 | % | 18.9 | % | | | 2.1 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount | | Fair Value of Investments | | | | | | | |
Private Markets Investment Funds | Commitment | Invested (5) | | Realized (5) | Unrealized | | Total Value | | Gross IRR (5) | Net IRR (5) | | Multiple of Invested Capital (5) |
($ in millions) | | |
Total Investments | |
| |
| | |
| |
| | |
| | |
| |
| | |
|
Legacy Funds (1) | |
| |
| | |
| |
| | |
| | |
| |
| | |
|
1976 Fund | $ | 31.4 |
| $ | 31.4 |
| | $ | 537.2 |
| $ | — |
| | $ | 537.2 |
| | 39.5 | % | 35.5 | % | | 17.1 |
|
1980 Fund | 356.8 |
| 356.8 |
| | 1,827.8 |
| — |
| | 1,827.8 |
| | 29.0 | % | 25.8 | % | | 5.1 |
|
1982 Fund | 327.6 |
| 327.6 |
| | 1,290.7 |
| — |
| | 1,290.7 |
| | 48.1 | % | 39.2 | % | | 3.9 |
|
1984 Fund | 1,000.0 |
| 1,000.0 |
| | 5,963.5 |
| — |
| | 5,963.5 |
| | 34.5 | % | 28.9 | % | | 6.0 |
|
1986 Fund | 671.8 |
| 671.8 |
| | 9,080.7 |
| — |
| | 9,080.7 |
| | 34.4 | % | 28.9 | % | | 13.5 |
|
1987 Fund | 6,129.6 |
| 6,129.6 |
| | 14,949.2 |
| — |
| | 14,949.2 |
| | 12.1 | % | 8.9 | % | | 2.4 |
|
1993 Fund | 1,945.7 |
| 1,945.7 |
| | 4,143.3 |
| — |
| | 4,143.3 |
| | 23.6 | % | 16.8 | % | | 2.1 |
|
1996 Fund | 6,011.6 |
| 6,011.6 |
| | 12,476.9 |
| — |
| | 12,476.9 |
| | 18.0 | % | 13.3 | % | | 2.1 |
|
Subtotal - Legacy Funds | 16,474.5 |
| 16,474.5 |
| | 50,269.3 |
| — |
| | 50,269.3 |
| | 26.1 | % | 19.9 | % | | 3.1 |
|
Included Funds | |
| |
| | |
| |
| | |
| | |
| |
| | |
|
European Fund (1999) (2) | 3,085.4 |
| 3,085.4 |
| | 8,757.7 |
| — |
| | 8,757.7 |
| | 26.9 | % | 20.2 | % | | 2.8 |
|
Millennium Fund (2002) | 6,000.0 |
| 6,000.0 |
| | 13,305.4 |
| 610.6 |
| | 13,916.0 |
| | 21.9 | % | 16.0 | % | | 2.3 |
|
European Fund II (2005) (2) | 5,750.8 |
| 5,750.8 |
| | 8,467.3 |
| 58.4 |
| | 8,525.7 |
| | 6.1 | % | 4.5 | % | | 1.5 |
|
2006 Fund (2006) | 17,642.2 |
| 17,304.5 |
| | 26,586.4 |
| 6,960.9 |
| | 33,547.3 |
| | 11.5 | % | 8.9 | % | | 1.9 |
|
Asian Fund (2007) | 3,983.3 |
| 3,945.9 |
| | 7,681.6 |
| 917.2 |
| | 8,598.8 |
| | 19.0 | % | 13.7 | % | | 2.2 |
|
European Fund III (2008) (2) | 6,165.5 |
| 5,327.3 |
| | 6,989.1 |
| 3,427.6 |
| | 10,416.7 |
| | 16.9 | % | 11.6 | % | | 2.0 |
|
E2 Investors (Annex Fund) (2009) (2) | 195.8 |
| 195.8 |
| | 195.7 |
| 1.7 |
| | 197.4 |
| | 0.2 | % | (0.5 | )% | | 1.0 |
|
China Growth Fund (2010) | 1,010.0 |
| 1,010.0 |
| | 565.0 |
| 801.4 |
| | 1,366.4 |
| | 11.5 | % | 5.9 | % | | 1.4 |
|
Natural Resources Fund (2010) | 887.4 |
| 884.6 |
| | 113.4 |
| 151.9 |
| | 265.3 |
| | (31.2 | )% | (33.7 | )% | | 0.3 |
|
Global Infrastructure Investors (2011) (2) | 1,040.2 |
| 1,011.3 |
| | 844.8 |
| 775.9 |
| | 1,620.7 |
| | 14.5 | % | 12.5 | % | | 1.6 |
|
North America Fund XI (2012) | 8,718.4 |
| 9,268.2 |
| | 4,344.4 |
| 11,525.2 |
| | 15,869.6 |
| | 26.5 | % | 20.7 | % | | 1.7 |
|
Asian Fund II (2013) | 5,825.0 |
| 5,782.0 |
| | 1,469.1 |
| 7,070.8 |
| | 8,539.9 |
| | 25.9 | % | 18.7 | % | | 1.5 |
|
Real Estate Partners Americas (2013) | 1,229.1 |
| 993.7 |
| | 776.0 |
| 631.9 |
| | 1,407.9 |
| | 21.1 | % | 15.7 | % | | 1.4 |
|
Energy Income and Growth Fund (2013) | 1,974.2 |
| 1,336.5 |
| | 284.1 |
| 1,132.7 |
| | 1,416.8 |
| | 3.0 | % | 0.4 | % | | 1.1 |
|
Global Infrastructure Investors II (2014) (2) | 3,045.4 |
| 1,412.3 |
| | 192.9 |
| 1,532.5 |
| | 1,725.4 |
| | 18.5 | % | 14.0 | % | | 1.2 |
|
European Fund IV (2015) (2) | 3,537.4 |
| 2,059.6 |
| | 29.2 |
| 2,629.8 |
| | 2,659.0 |
| | 26.5 | % | 19.3 | % | | 1.3 |
|
Real Estate Partners Europe (2015) (2) (3) | 721.2 |
| 132.6 |
| | 12.0 |
| 158.1 |
| | 170.1 |
| | — |
| — |
| | — |
|
Next Generation Technology Growth Fund (2016) (3) | 658.9 |
| 227.6 |
| | — |
| 325.1 |
| | 325.1 |
| | — |
| — |
| | — |
|
Health Care Strategic Growth Fund (2016) (3) | 1,214.9 |
| — |
| | — |
| — |
| | — |
| | — |
| — |
| | — |
|
Americas Fund XII (2017) (3) | 13,500.0 |
| — |
| | — |
| 5.6 |
| | 5.6 |
| | — |
| — |
| | — |
|
Real Estate Credit Opportunity Partners (2017) (3) | 1,090.0 |
| 172.0 |
| — |
| — |
| 184.4 |
| | 184.4 |
| | — |
| — |
| | — |
|
Asian Fund III (2017) (3) | 9,000.0 |
| — |
| | — |
| — |
| | — |
| | — |
| — |
| | — |
|
Real Estate Partners Americas II (2017) (3) | 782.7 |
| — |
| — |
| — |
| — |
| | — |
| | — |
| — |
| | — |
|
Subtotal - Included Funds | 97,057.8 |
| 65,900.1 |
| | 80,614.1 |
| 38,901.7 |
| | 119,515.8 |
| | 15.7 | % | 11.5 | % | | 1.8 |
|
| | | | | | | | | | | | |
All Funds | $ | 113,532.3 |
| $ | 82,374.6 |
| | $ | 130,883.4 |
| $ | 38,901.7 |
| | $ | 169,785.1 |
| | 25.6 | % | 18.8 | % | | 2.1 |
|
| | | | | | | | | | | | |
(1)These funds were not contributed to KKR as part of the acquisition of the assets and liabilities of KKR & Co. (Guernsey) L.P. (formerly known as KKR Private Equity Investors, L.P.) on October 1, 2009.
(2)Where commitments are euro-denominated, such amounts have been converted into U.S. dollars based on (i) the foreign exchange rate at the date of purchase for each investment and (ii) the exchange rate prevailing on March 31, 2022, in the case of unfunded commitments.
(3)The gross IRR, net IRR and gross multiple of invested capital are calculated for our investment funds that made their first investment at least 24 months prior to March 31, 2022. We therefore have not calculated gross IRRs, net IRRs and gross multiples of invested capital with respect to these funds. |
| | | | | | | | | | | | | | | | | | | | |
| Amount | | Fair Value of Investments | | | | |
Private Markets Investment Funds | Commitment | Invested (5) | | Realized (5) | Unrealized | | Total Value | | Multiple of Invested Capital (5) |
($ in millions) | |
Realized/Partially Realized Investments (4) | |
| |
| | |
| |
| | |
| | |
|
Legacy Funds (1) | |
| |
| | |
| |
| | |
| | |
|
1976 Fund | $ | 31.4 |
| $ | 31.4 |
| | $ | 537.2 |
| $ | — |
| | $ | 537.2 |
| | 17.1 |
|
1980 Fund | 356.8 |
| 356.8 |
| | 1,827.8 |
| — |
| | 1,827.8 |
| | 5.1 |
|
1982 Fund | 327.6 |
| 327.6 |
| | 1,290.7 |
| — |
| | 1,290.7 |
| | 3.9 |
|
1984 Fund | 1,000.0 |
| 1,000.0 |
| | 5,963.5 |
| — |
| | 5,963.5 |
| | 6.0 |
|
1986 Fund | 671.8 |
| 671.8 |
| | 9,080.7 |
| — |
| | 9,080.7 |
| | 13.5 |
|
1987 Fund | 6,129.6 |
| 6,129.6 |
| | 14,949.2 |
| — |
| | 14,949.2 |
| | 2.4 |
|
1993 Fund | 1,945.7 |
| 1,945.7 |
| | 4,143.3 |
| — |
| | 4,143.3 |
| | 2.1 |
|
1996 Fund | 6,011.6 |
| 6,011.6 |
| | 12,476.9 |
| — |
| | 12,476.9 |
| | 2.1 |
|
Subtotal - Legacy Funds | 16,474.5 |
| 16,474.5 |
| | 50,269.3 |
| — |
| | 50,269.3 |
| | 3.1 |
|
Included Funds | |
| |
| | |
| |
| | |
| | |
|
European Fund (1999) (2) | 3,085.4 |
| 3,085.4 |
| | 8,757.7 |
| — |
| | 8,757.7 |
| | 2.8 |
|
Millennium Fund (2002) | 6,000.0 |
| 5,599.4 |
| | 13,305.4 |
| 610.6 |
| | 13,916.0 |
| | 2.5 |
|
European Fund II (2005) (2) | 5,750.8 |
| 5,245.4 |
| | 8,467.3 |
| 58.4 |
| | 8,525.7 |
| | 1.6 |
|
2006 Fund (2006) | 17,642.2 |
| 15,439.7 |
| | 26,586.4 |
| 5,159.9 |
| | 31,746.3 |
| | 2.1 |
|
Asian Fund (2007) | 3,983.3 |
| 3,118.2 |
| | 7,681.6 |
| 344.8 |
| | 8,026.4 |
| | 2.6 |
|
European Fund III (2008) (2) | 6,165.5 |
| 3,897.0 |
| | 6,989.1 |
| 1,933.8 |
| | 8,922.9 |
| | 2.3 |
|
E2 Investors (Annex Fund) (2009) (2) | 195.8 |
| 94.8 |
| | 195.7 |
| — |
| | 195.7 |
| | 2.1 |
|
China Growth Fund (2010) | 1,010.0 |
| 427.5 |
| | 565.0 |
| 179.5 |
| | 744.5 |
| | 1.7 |
|
Natural Resources Fund (2010) | 887.4 |
| 886.9 |
| | 113.4 |
| 151.9 |
| | 265.3 |
| | 0.3 |
|
Global Infrastructure Investors (2011) (2) | 1,040.2 |
| 1,011.2 |
| | 844.8 |
| 775.9 |
| | 1,620.7 |
| | 1.6 |
|
North America Fund XI (2012) | 8,718.4 |
| 5,164.7 |
| | 4,344.4 |
| 5,905.4 |
| | 10,249.8 |
| | 2.0 |
|
Asian Fund II (2013) | 5,825.0 |
| 2,738.7 |
| | 1,469.1 |
| 3,940.7 |
| | 5,409.8 |
| | 2.0 |
|
Real Estate Partners Americas (2013) | 1,229.1 |
| 800.9 |
| | 776.0 |
| 440.1 |
| | 1,216.1 |
| | 1.5 |
|
Energy Income and Growth Fund (2013) | 1,974.2 |
| 1,336.5 |
| | 284.1 |
| 1,132.7 |
| | 1,416.8 |
| | 1.1 |
|
Global Infrastructure Investors II (2014) (2) | 3,045.4 |
| 599.6 |
| | 192.9 |
| 538.1 |
| | 731.0 |
| | 1.2 |
|
European Fund IV (2015) (2) | 3,537.4 |
| — |
| | — |
| — |
| | — |
| | — |
|
Real Estate Partners Europe (2015) (2) (3) (4) | 721.2 |
| — |
| | — |
| — |
| | — |
| | — |
|
Next Generation Technology Growth Fund (2016) (3) (4) | 658.9 |
| — |
| | — |
| — |
| | — |
| | — |
|
Health Care Strategic Growth Fund (2016) (3) (4) | 1,214.9 |
| — |
| | — |
| — |
| | — |
| | — |
|
Americas Fund XII (2017) (3) (4) | 13,500.0 |
| — |
| | — |
| — |
| | — |
| | — |
|
Real Estate Credit Opportunity Partners (2017) (3) (4) | 1,090.0 |
| — |
| | — |
| — |
| | — |
| | — |
|
Asian Fund III (2017) (3) (4) | 9,000.0 |
| — |
| | — |
| — |
| | — |
| | — |
|
Real Estate Partners Americas II (2017) (3) (4) | 782.7 |
| — |
| | — |
| — |
| | — |
| | — |
|
Subtotal - Included Funds | 97,057.8 |
| 49,445.9 |
| | 80,572.9 |
| 21,171.8 |
| | 101,744.7 |
| | 2.1 |
|
| | | | | | | | | |
All Realized/Partially Realized Investments | $ | 113,532.3 |
| $ | 65,920.4 |
| | $ | 130,842.2 |
| $ | 21,171.8 |
| | $ | 152,014.0 |
| | 2.3 |
|
(4)An investment is considered realized when it has been disposed of or has otherwise generated disposition proceeds or current income that has been distributed by the relevant fund.
(5)IRRs measure the aggregate annual compounded returns generated by a fund's investments over a holding period. Net IRRs are calculated after giving effect to the allocation of realized and unrealized carried interest and the payment of any applicable management fees and organizational expenses. Gross IRRs are calculated before giving effect to the allocation of realized and unrealized carried interest and the payment of any applicable management fees and organizational expenses.
| |
(1) | These funds were not contributed to KKR as part of the KPE Transaction. |
| |
(2) | The capital commitments of the European Fund, European Fund II, European Fund III, E2 Investors (Annex Fund), European Fund IV, Global Infrastructure Investors, Global Infrastructure Investors II and Real Estate Partners Europe include euro-denominated commitments of €196.5 million, €2,597.5 million, €2,882.8 million, €55.5 million, €1,626.1 million, €30.0 million, €243.8 million and €276.6 million, respectively. Such amounts have been converted into U.S. dollars based on (i) the foreign exchange rate at the date of purchase for each investment and (ii) the exchange rate prevailing on September 30, 2017 in the case of unfunded commitments. |
| |
(3) | The gross IRR, net IRR and multiple of invested capital are calculated for our investment funds that made their first investment at least 24 months prior to September 30, 2017. None of the Real Estate Partners Europe, Next Generation Technology Growth Fund, Health Care Strategic Growth Fund, Americas Fund XII, Real Estate Credit Opportunity Partners,Asian Fund III or Real Estate Partners Americas IIhas invested for at least 24 months as of September 30, 2017. We therefore have not calculated gross IRRs, net IRRs and multiples of invested capital with respect to those funds. |
| |
(4) | An investment is considered partially realized when it has been disposed of or has otherwise generated disposition proceeds or current income that has been distributed by the relevant fund. In periods prior to the three months ended September 30, 2015, realized proceeds excluded current income such as dividends and interest. Realizations have not been shown for those investment funds that have either made their first investment more recently than 24 months prior to September 30, 2017 or have otherwise not had any realizations. We therefore have not calculated gross IRRs, net IRRs and multiples of invested capital with respect to the investments of those funds. |
| |
(5) | IRRs measure the aggregate annual compounded returns generated by a fund’s investments over a holding period. Net IRRs are calculated after giving effect to the allocation of realized and unrealized carried interest and the payment of any applicable management fees. Gross IRRs are calculated before giving effect to the allocation of carried interest and the payment of any applicable management fees. |
The multiples of invested capital measure the aggregate value generated by a fund’sfund's investments in absolute terms. Each multiple of invested capital is calculated by adding together the total realized and unrealized values of a fund’sfund's investments and dividing by the total amount of capital invested by the fund. Such amounts do not give effect to the allocation of any realized and unrealized returns on a fund’s investments to the fund’s general partner pursuant to a carried interest or the payment of any applicable management fees.fees or organizational expenses.
KKRKKR's Private Markets funds may utilize third partythird-party financing facilities to provide liquidity to such funds. In such eventThe above net and gross IRRs are calculated from the time capital contributions are due from fund investors to the time fund investors receive a related distribution from the fund, and the use of such financing facilities generally decreases the amount of invested capitaltime that would otherwise be used to calculate IRRs, and multiples of invested capital, which tends to increase IRRs and multiples when fair value grows over time and decrease IRRs and multiples when fair value decreases over time. KKRKKR's Private Markets funds also generally provide in certain circumstances, which vary depending on the relevant fund documents, for a portion of capital returned to investors to be restored to unused commitments as recycled capital. For KKR's Private Markets funds that have a preferred return, we take into account recycled capital in the calculation of IRRs and multiples of invested capital because the calculation of the preferred return includes the effect of recycled capital. For KKR's Private Markets funds that do not have a preferred return, we do not take recycled capital into account in the calculation of IRRs and multiples of invested capital. The inclusion of recycled capital generally causes invested and realized amounts to be higher and IRRs and multiples of invested capital to be lower than had recycled capital not been included. The inclusion of recycled capital would reduce the composite net IRR of all Included Funds by 0.1% and the composite net IRR of all Legacy Funds by 0.5%, and would reduce the composite multiple of invested capital of Included Funds by less than 0.1 and the composite multiple of invested capital of Legacy Funds by 0.4.
Asset Management - Public Markets
We operate andThrough our Public Markets business line, we report our combined credit and hedge funds businesses through the Public Markets segment. platforms on a combined basis.
Our credit business advises funds, collateralized loan obligation vehicles, or CLOs, separately managed accounts, and investment companies registered under the Investment Company Act of 1940, or the Investment Company Act, including business development companies or BDCs, and alternative investments funds or AIFs, which investinvests capital in (i) leveraged credit strategies, including leveraged loans, high yield bondsa broad range of corporate debt and opportunistic credit,collateral-backed investments across asset classes and (ii) alternative credit strategies, including special situations and private credit strategies such as private credit opportunities, direct lending and revolving credit investment strategies. The funds, accounts, registered investment companies, BDCs and CLOs in our leveraged credit and alternative credit strategies, including special situations and privatecapital structures. Our credit strategies are managed by KKR Credit Advisors (US) LLC, which is an SEC‑registeredSEC-registered investment adviser, KKR Credit Advisors (Ireland) Unlimited Company, which is regulated by the Central Bank of Ireland (“CBI”), KKR Credit Advisors (EMEA) LLP, which is regulated by the Financial Conduct Authority, and KKR Credit Advisors (UK) LLP,(Singapore) Pte. Ltd., which is regulated by the United Kingdom Financial ConductMonetary Authority or FCA. Our Public Markets segmentof Singapore and also includes ourregistered with the SEC. We also jointly own with a third party FS/KKR Advisor, LLC, which is the investment adviser for FS KKR Capital Corp. (NYSE: FSK), a publicly listed business development company (a “BDC”).
Our hedge funds business whichplatform consists of strategic manager partnerships with third partythird-party hedge fund managers in which KKR owns a minority stakes.stake. Our hedge fund strategic manager partnerspartnerships offer a varietyrange of alternative investment strategies, including long/short equity, hedge fund-of-funds equity hedge funds,and energy credit hedge funds, and funds focused on natural catastrophe and weather risks.investments.
As of September 30, 2017, this segment had $65.7 billion of AUM, comprised of $21.5 billion of assets managedCredit
Our credit business pursues investments in ourtwo principal investment strategies: leveraged credit strategies, $7.6 billionand alternative credit.
Leveraged Credit. Our leveraged credit strategy is principally directed at investing in leveraged loans, high-yield bonds, opportunistic credit, structured credit and revolving credit investments. Our opportunistic credit strategy seeks to deploy capital across investment themes that take advantage of assets managedcredit market dislocations, spanning asset types and liquidity profiles. Our revolving credit strategy invests in our special situationssenior secured revolving credit facilities.
Alternative Credit. Our alternative credit strategy $11.2 billionconsists of assets managed in our private credit strategies $24.4 billion of assets managed throughand debt and equity investments sourced by our hedge fund business and $1.0 billion of assets managed in other strategies.strategic investments group (“SIG”).
•Private Credit. Our private credit strategies focus on privately or directly originated and negotiated transactions. These strategies include $3.2 billion of assets managed in our private opportunistic credit strategy, $7.0 billion of assets managed indirect lending, mezzanine debt and asset-based finance. Through our direct lending strategy, we seek to make investments in primarily senior debt financings for middle-market companies. Through our mezzanine debt strategy, investments typically consist of subordinated debt, which generates a current yield, coupled with marginal equity exposure for additional upside potential. Our asset-based finance strategy focuses on portfolios of financial loans and $1.0 billionloans backed by hard assets.
• SIG. Our SIG strategy seeks to pursue investments in our revolvingcorporate credit strategy.
On June 1, 2017, KKR completed its previously announced transactionand asset or real estate-backed credit where market volatility or other investment themes have created the opportunity to combine Pacific Alternative Asset Management Company, LLC,generate outsized returns with downside-protected securities. These investments may include stressed or PAAMCO, with Prisma Capital Partners LP, formerly known as KKR Prisma,distressed investments (including post-restructuring equity), control-oriented opportunities, rescue financing (debt or equity investments made to create PAAMCO Prisma Holdings LLC. PAAMCO Prisma is a leading liquid alternatives investment firm, which operates independently of KKR. KKR owns 39.9% of PAAMCO Prismaaddress covenant, maturity or liquidity issues), debtor-in-possession or exit financing, and receives certain other payments from PAAMCO Prisma.
Creditevent-driven investments in debt or equity.
Performance
We generally review our performance in our credit business by investment strategy. Our leveraged credit strategies principally invest in leveraged loans and high yield bonds, or a combination of both. In certain cases, these strategies have meaningful track records and may be compared to widely-known indices. The following table presents information regarding the larger leveraged credit strategies managed by KKR from inception to September 30, 2017.March 31, 2022. The information presented below is not intended to be representative of any past or future performance for any particular period other than the period presented below. Past performance is no guarantee of any future results.result.
Leveraged Credit Strategies: Inception-to-Date Annualized Gross Performance vs. Benchmark by Strategy
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Leveraged Credit Strategy | | Inception Date | | | | Gross Returns | | Net Returns | | Benchmark (1) | | Benchmark Gross Returns |
Bank Loans Plus High Yield | | Jul 2008 | | | | 7.12 | % | | 6.52 | % | | 65% S&P/LSTA Loan Index, 35% BoAML HY Master II Index (2) | | 5.68 | % |
Opportunistic Credit (3) | | May 2008 | | | | 11.00 | % | | 9.30 | % | | 50% S&P/LSTA Loan Index, 50% BoAML HY Master II Index (3) | | 5.92 | % |
Bank Loans | | Apr 2011 | | | | 5.22 | % | | 4.64 | % | | S&P/LSTA Loan Index (4) | | 4.16 | % |
High-Yield | | Apr 2011 | | | | 6.43 | % | | 5.85 | % | | BoAML HY Master II Index (5) | | 5.69 | % |
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European Leveraged Loans (6) | | Sep 2009 | | | | 4.54 | % | | 4.02 | % | | CS Inst West European Leveraged Loan Index (7) | | 3.54 | % |
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European Credit Opportunities (6) | | Sept 2007 | | | | 5.86 | % | | 5.00 | % | | S&P European Leveraged Loans (All Loans) (8) | | 4.06 | % |
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($ in millions) | | Inception Date | | Gross Returns | | Net Returns | | Benchmark (1) | | Benchmark Gross Returns |
Bank Loans Plus High Yield | | Jul 2008 | | 8.04 | % | | 7.40 | % | | 65% S&P/ LSTA, 35% BoAML HY Master II Index (2) | | 6.47 | % |
Opportunistic Credit (3) | | May 2008 | | 13.18 | % | | 11.14 | % | | BoAML HY Master II Index (3) | | 6.79 | % |
Bank Loans | | Apr 2011 | | 5.49 | % | | 4.87 | % | | S&P/ LSTA Loan Index (4) | | 4.24 | % |
High Yield | | Apr 2011 | | 7.28 | % | | 6.69 | % | | BoAML HY Master II Index (5) | | 6.80 | % |
Bank Loans Conservative | | Apr 2011 | | 4.80 | % | | 4.19 | % | | S&P/ LSTA BB-B Loan Index (6) | | 4.24 | % |
European Leveraged Loans (7) | | Sep 2009 | | 5.60 | % | | 5.07 | % | | CS Inst West European Leveraged Loan Index (8) | | 4.88 | % |
High Yield Conservative | | Apr 2011 | | 6.65 | % | | 6.08 | % | | BoAML HY BB-B Constrained | | 6.69 | % |
European Credit Opportunities (7) | | Sept 2007 | | 5.80 | % | | 4.89 | % | | S&P LSTA European Leveraged Loans (All Loans) | | 4.44 | % |
(1)The benchmarks referred to herein include the S&P/LSTA Leveraged Loan Index (the "S&P/LSTA Loan Index"), S&P/LSTA U.S. B/BB Ratings Loan Index (the "S&P/LSTA BB-B Loan Index"), the Bank of America Merrill Lynch High Yield Master II Index (the "BoAML HY Master II Index"), the BofA Merrill Lynch BB-B US High Yield Index (the "BoAML HY BB-B Constrained"), the Credit Suisse Institutional Western European Leveraged Loan Index (the "CS Inst West European Leveraged Loan Index"), and S&P European Leveraged Loans (All Loans). The S&P/LSTA Loan Index is a daily tradable index for the U.S. loan market that seeks to mirror the market-weighted performance of the largest institutional loans that meet certain criteria. The BoAML HY Master II Index is an index for high-yield corporate bonds. It is designed to measure the broad high-yield market, including lower-rated securities. The CS Inst West European Leveraged Loan Index contains only institutional loan facilities priced above 90, excluding TL and TLa facilities and loans rated CC, C or are in default. The S&P European Leveraged Loan Index reflects the market-weighted performance of institutional leveraged loan portfolios investing in European credits. While the returns of our leveraged credit strategies reflect the reinvestment of income and dividends, none of the indices presented in the chart above reflect such reinvestment, which has the effect of increasing the reported relative performance of these strategies as compared to the indices. Furthermore, these indices are not subject to management fees, incentive allocations, or expenses.(2)Performance is based on a blended composite of Bank Loans Plus High Yield strategy accounts. The benchmark used for purposes of comparison for the Bank Loans Plus High Yield strategy is based on 65% S&P/LSTA Loan Index and 35% BoAML HY Master II Index.
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(1) | The Benchmarks referred to herein include the S&P/LSTA Leveraged Loan Index (the “S&P/LSTA Loan Index”), S&P/LSTA U.S. B/BB Ratings Loan Index (the '"S&P/ LSTA BB-B Loan Index"), the Bank of America Merrill Lynch High Yield Master II Index (the “BoAML HY Master II Index”), the BofA Merrill Lynch BB-B US High Yield Index (the “BoAML HY BB-B Constrained"), the Credit Suisse Institutional Western European Leveraged Loan Index (the “CS Inst European Leveraged Loan Index"), and S&P LSTA European Leveraged Loans (All Loans). The S&P/LSTA Loan Index is a daily tradable index for the U.S. loan market that seeks to mirror the market-weighted performance of the largest institutional loans that meet certain criteria. The S&P/ LSTA BB-B Loan Index is comprised of loans in the S&P/LSTA Loan Index, whose rating is BB+, BB, BB-, B+, B or B-. The BoAML HY Master II Index is an index for high yield corporate bonds. It is designed to measure the broad high yield market, including lower-rated securities. The BOAML HY BB-B Constrained is a subset of the BoAML HY Master II Index including all securities rated BB1 through B3, inclusive. The CS Inst European Leveraged Loan Index contains only institutional loan facilities priced above 90, excluding TL and TLa facilities and loans rated CC, C or are in default. The S&P European Leveraged Loan Index reflects the market-weighted performance of institutional leveraged loan portfolios investing in European credits. While the returns of these strategies reflect the reinvestment of income and dividends, none of the indices presented in the chart above reflect such reinvestment, which has the effect of increasing the reported relative performance of these strategies as compared to the indices. Furthermore, these indices are not subject to management fees, incentive allocations or expenses.
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(2) | Performance is based on a blended composite of Bank Loans Plus High Yield strategy accounts. The Benchmark used for purposes of comparison for the Bank Loans Plus High Yield strategy is based on 65% S&P/LSTA Loan Index and 35% BoAML HY Master II Index.
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(3) | The Opportunistic Credit strategy invests in high yield securities and corporate loans with no preset allocation. The Benchmark used for purposes of comparison for the Opportunistic Credit strategy presented herein is based on the BoAML HY Master II Index. Funds within this strategy may utilize third party financing facilities to enhance investment returns. In cases where financing facilities are used, the amounts drawn on the facility are deducted from the assets of the fund in the calculation of net asset value, which tends to increase returns when net asset value grows over time and decrease returns when net asset value decreases over time. |
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(4) | (3)The Opportunistic Credit strategy invests in high-yield securities and corporate loans with no preset allocation. The benchmark used for purposes of comparison for the Opportunistic Credit strategy presented herein is based on 50% S&P/LSTA Loan Index and 50% BoAML HY Master II Index. Funds within this strategy may utilize third-party financing facilities to enhance investment returns. In cases where financing facilities are used, the amounts drawn on the facility are deducted from the assets of the fund in the calculation of net asset value, which tends to increase returns when net asset value grows over time and decrease returns when net asset value decreases over time. (4)Performance is based on a composite of portfolios that primarily invest in leveraged loans. The Benchmark used for purposes of comparison for the Bank Loans strategy is based on the S&P/LSTA Loan Index. |
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(5) | Performance is based on a composite of portfolios that primarily invest in high yield securities. The Benchmark used for purposes of comparison for the High Yield strategy is based on the BoAML HY Master II Index. |
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(6) | Performance is based on a composite of portfolios that primarily invest in leveraged loans rated B-/Baa3 or higher. The Benchmark used for purposes of comparison for the Bank Loans strategy is based on the S&P/LSTA BB/B Loan Index. |
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(7) | The returns presented are calculated based on local currency. |
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(8) | Performance is based on a composite of portfolios that primarily invest in higher quality leveraged loans. The Benchmark used for purposes of comparison for the European Senior Loans strategy is based on the CS Inst West European Leveraged Loan Index. |
Our alternative credit strategies primarily invest in more illiquid instruments through private investment funds, BDCs and separately managed accounts. leveraged loans. The benchmark used for purposes of comparison for the Bank Loans strategy is based on the S&P/LSTA Loan Index.
(5)Performance is based on a composite of portfolios that primarily invest in high-yield securities. The benchmark used for purposes of comparison for the High Yield strategy is based on the BoAML HY Master II Index.
(6)The returns presented are calculated based on local currency.
(7)Performance is based on a composite of portfolios that primarily invest in higher quality leveraged loans. The benchmark used for purposes of comparison for the European Leveraged Loans strategy is based on the CS Inst West European Leveraged Loan Index.
(8)Performance is based on a composite of portfolios that primarily invest in European institutional leveraged loans. The benchmark used for purposes of comparison for the European Credit Opportunities strategy is based on the S&P European Leveraged Loans (All Loans) Index.
The following table presents information regarding our Public Markets alternative credit commingledinvestment funds where investors are subject to capital commitments from inception to September 30, 2017. SomeMarch 31, 2022. The information presented below is not intended to be representative of these funds have been investingany past or future performance for lessany particular period other than 24 months, and thus their performance is less meaningful and not includedthe period presented below. Past performance is no guarantee of any future results.result.
Alternative Credit Strategies: Fund Performance
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| | | | Amount | | Fair Value of Investments | | | | | | | | | | | | |
Public Markets Investment Funds | | Inception Date | | Commitment | | Invested (1) | | Realized (1) | | Unrealized | | Total Value | | Gross IRR (2) | | Net IRR (2) | | | | Multiple of Invested Capital (3) | | Gross Accrued Carried Interest |
($ in Millions) |
Dislocation Opportunities Fund | | May 2020 | | $ | 2,967 | | | $ | 2,056 | | | $ | 177 | | | $ | 2,231 | | | $ | 2,408 | | | N/A | | N/A | | | | N/A | | $ | 49 | |
Special Situations Fund II | | Dec 2014 | | 3,525 | | | 3,241 | | | 1,911 | | | 2,182 | | | 4,093 | | | 6.8 | % | | 4.9 | % | | | | 1.3 | | | — | |
Special Situations Fund | | Dec 2012 | | 2,274 | | | 2,273 | | | 1,658 | | | 474 | | | 2,132 | | | (1.5) | % | | (3.4) | % | | | | 0.9 | | | — | |
Mezzanine Partners | | Mar 2010 | | 1,023 | | | 990 | | | 1,097 | | | 203 | | | 1,300 | | | 9.2 | % | | 6.0 | % | | | | 1.3 | | | (20) | |
Private Credit Opportunities Partners II | | Dec 2015 | | 2,245 | | | 1,738 | | | 621 | | | 1,471 | | | 2,092 | | | 7.2 | % | | 5.6 | % | | | | 1.2 | | | — | |
Lending Partners III | | Apr 2017 | | 1,498 | | | 741 | | | 301 | | | 819 | | | 1,120 | | | 15.8 | % | | 13.0 | % | | | | 1.5 | | | 29 | |
Lending Partners II | | Jun 2014 | | 1,336 | | | 1,179 | | | 1,149 | | | 134 | | | 1,283 | | | 3.2 | % | | 1.8 | % | | | | 1.1 | | | — | |
Lending Partners | | Dec 2011 | | 460 | | | 419 | | | 451 | | | 19 | | | 470 | | | 3.5 | % | | 1.9 | % | | | | 1.1 | | | — | |
Lending Partners Europe II | | Jun 2019 | | 837 | | | 467 | | | 47 | | | 491 | | | 538 | | | 23.2 | % | | 17.1 | % | | | | 1.2 | | | 2 | |
Lending Partners Europe | | Mar 2015 | | 848 | | | 662 | | | 375 | | | 258 | | | 633 | | | (1.5) | % | | (4.1) | % | | | | 1.0 | | | — | |
Other Alternative Credit Vehicles | | Various | | 14,588 | | | 6,560 | | | 4,696 | | | 4,179 | | | 8,875 | | | N/A | | N/A | | | | N/A | | 122 | |
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All Funds | | | | $ | 31,601 | | | $ | 20,326 | | | $ | 12,483 | | | $ | 12,461 | | | $ | 24,944 | | | | | | | | | | | $ | 182 | |
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| | | | Amount | | Fair Value of Investments | | | | | | | | |
Public Markets Investment Funds | | Inception Date | | Commitment | | Invested (1) | | Realized (1) | | Unrealized | | Total Value | | Gross IRR (2) | | Net IRR (2) | | Multiple of Invested Capital (3) |
($ in Millions) | | |
Special Situations Fund | | Dec-12 | | $ | 2,274.3 |
| | $ | 2,231.6 |
| | $ | 690.1 |
| | $ | 2,024.7 |
| | $ | 2,714.8 |
| | 7.0 | % | | 4.9 | % | | 1.2 |
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Special Situations Fund II | | Dec-14 | | 3,285.8 |
| | 1,347.6 |
| | — |
| | 1,320.1 |
| | 1,320.1 |
| | (1.2 | )% | | (4.2 | )% | | 1.0 |
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Mezzanine Partners | | Mar-10 | | 1,022.8 |
| | 921.9 |
| | 812.5 |
| | 488.6 |
| | 1,301.1 |
| | 12.8 | % | | 8.0 | % | | 1.4 |
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Private Credit Opportunities Partners II | | Dec-15 | | 732.9 |
| | 105.8 |
| | — |
| | 137.4 |
| | 137.4 |
| | N/A |
| | N/A |
| | N/A |
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Lending Partners | | Dec-11 | | 460.2 |
| | 405.3 |
| | 321.0 |
| | 195.7 |
| | 516.7 |
| | 7.7 | % | | 6.3 | % | | 1.3 |
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Lending Partners II | | Jun-14 | | 1,335.9 |
| | 1,136.7 |
| | 258.9 |
| | 1,158.6 |
| | 1,417.5 |
| | 15.2 | % | | 12.8 | % | | 1.2 |
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Lending Partners III | | Apr-17 | | 795.8 |
| | 35.8 |
| | — |
| | 41.9 |
| | 41.9 |
| | N/A |
| | N/A |
| | N/A |
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Lending Partners Europe | | Mar-15 | | 847.6 |
| | 324.1 |
| | 42.3 |
| | 344.7 |
| | 387.0 |
| | 22.3 | % | | 14.7 | % | | 1.2 |
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Revolving Credit Partners | | May-15 | | 510.0 |
| | — |
| | 27.6 |
| | (12.0 | ) | | 15.6 |
| | (4) |
| | (4) |
| | (4) |
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Other Alternative Credit Vehicles | | Various | | 5,093.1 |
| | 3,421.0 |
| | 1,945.4 |
| | 2,696.7 |
| | 4,642.1 |
| | N/A |
| | N/A |
| | N/A |
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Unallocated Commitments | | Various | | 1,400.0 |
| | — |
| | — |
| | — |
| | — |
| | N/A |
| | N/A |
| | N/A |
|
All Funds | | | | $ | 17,758.4 |
| | $ | 9,929.8 |
| | $ | 4,097.8 |
| | $ | 8,396.4 |
| | $ | 12,494.2 |
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(1)Recycled capital is excluded from the amounts invested and realized.
(2)These credit funds utilize third partythird-party financing facilities to provide liquidity to such funds, and in such event IRRs are calculated from the time capital contributions are due from fund investors to the time fund investors receive a related distribution from the fund. The use of such financing facilities generally decreases the amount of invested capital that would otherwise be used to calculate IRRs, which tends to increase IRRs when fair value grows over time and decrease IRRs when fair value decreases over time. IRRs measure the aggregate annual compounded returns generated by a fund’sfund's investments over a holding period and are calculated taking into account recycled capital. Net IRRs presented are calculated after giving effect to the allocation of realized and unrealized carried interest and the payment of any applicable management fees. Gross IRRs are calculated before giving effect to the allocation of carried interest and the payment of any applicable management fees.
(3)The multiples of invested capital measure the aggregate value generated by a fund’sfund's investments in absolute terms. Each multiple of invested capital is calculated by adding together the total realized and unrealized values of a fund’sfund's investments and dividing by the total amount of capital invested by the investors. The use of financing facilities generally decreases the amount of invested capital that would otherwise be used to calculate multiples of invested capital, which tends to increase multiples when fair value grows over time and decrease multiples when fair value decreases over time. Such amounts do not give effect to the allocation of any realized and unrealized returns on a fund’sfund's investments to the fund’sfund's general partner pursuant to a carried interest or the payment of any applicable management fees and are calculated without taking into account recycled capital.
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(4) | The Revolving Credit Partners fund has been investing for over 24 months. However, the fund has not called any capital to date. As a result, the gross IRR, net IRR and multiple of invested capital performance measures are not meaningful and are not included above. |
Hedge Funds
Our hedge fund platform consists of strategic partnerships with third-party hedge fund managers in which KKR owns a minority stake. This principally consists of a 39.6% interest in Marshall Wace LLP (together with its affiliates, "Marshall Wace"), a global alternative investment manager specializing in long/short equity products. We also own (i) a 39.9% interest in PAAMCO Prisma Holdings, LLC ("PAAMCO Prisma"), an investment manager focused on liquid alternative investment solutions, including hedge fund-of-fund portfolios, and (ii) a 24.9% interest in BlackGold Capital Management L.P. ("BlackGold"), a credit-oriented investment manager focused on energy and hard asset investments.
Public Markets Vehicle StructuresAUM
The table below presents information as As of September 30, 2017, based on the investment funds, vehicles or accounts offered byMarch 31, 2022, our Public Markets segment.business line had $210.8 billion of AUM, comprised of $102.2 billion of assets managed in our leveraged credit strategies, $71.3 billion of assets managed in our private credit strategy, and $8.7 billion of assets managed in our SIG strategy, $27.0 billion of assets managed through our hedge fund platform, and $1.6 billion of assets managed in other Public Markets strategies. We manage $96.1 billion of credit investments for our Global Atlantic insurance companies, which are included in the amounts described in the preceding sentence. Our BDC has approximately $17.4 billion in assets under management, which is reflected in the AUM of our leveraged credit and private credit strategies above. We report all of the assets under management of our BDC in our AUM, but we report only a pro rata portion of the assets under management of our hedge fund partnerships based on our percentage ownership in them.
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($ in millions) | | AUM | | FPAUM | | Typical Management Fee Rate | | Incentive Fee / Carried Interest | | Preferred Return | | Duration of Capital |
Leveraged Credit: | | | | | | | | | | | | |
Leveraged Credit SMAs/Funds | | $ | 77,825 | | | $ | 75,906 | | | 0.15% - 1.10% | | Various (1) | | Various (1) | | Subject to redemptions |
CLOs | | 22,730 | | | 22,730 | | | 0.40% - 0.50% | | Various (1) | | Various (1) | | 10-14 Years (2) |
Total Leveraged Credit | | 100,555 | | | 98,636 | | | | | | | | | |
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Alternative Credit: (3) | | | | | | | | | | | | |
Private Credit | | 57,015 | | | 51,520 | | | 0.30% - 1.50% (4) | | 10.00 - 20.00% | | 5.00 - 8.00% | | 8-15 Years (2) |
SIG | | 8,818 | | | 4,517 | | | 0.50% - 1.75% | | 10.00 - 20.00% | | 7.00 - 12.00% | | 7-15 Years (2) |
Total Alternative Credit | | 65,833 | | | 56,037 | | | | | | | | | |
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Hedge Funds (5) | | 27,008 | | | 27,008 | | | 0.50% - 2.00% | | Various (1) | | Various (1) | | Subject to redemptions |
BDCs (6) | | 17,423 | | | 17,423 | | | 0.60% | | 8.00% | | 7.00% | | Indefinite |
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Total | | $ | 210,819 | | | $ | 199,104 | | | | | | | | | |
(1)Certain funds and CLOs are subject to a performance fee in which the manager or general partner of the funds share up to 20% of the net profits earned by investors in excess of performance hurdles (generally tied to a benchmark or index) and subject to a provision requiring the funds and vehicles to regain prior losses before any performance fee is earned.
(2)Duration of capital is measured from inception. Inception dates for CLOs were between 2013 and 2022 and for separately managed accounts and funds investing in alternative credit strategies from 2009 through 2022.
(3)Our alternative credit funds generally have been sorted based uponinvestment periods of two to five years and our newer alternative credit funds generally earn management fees on invested capital throughout their primary investment strategies. However, thelifecycle.
(4)Lower fees on uninvested capital in certain vehicles.
(5)Hedge Funds represent KKR's pro rata portion of AUM and FPAUM presented for each lineof our hedge fund partnerships.
(6)Consists of FS KKR Capital Corp. (NYSE: FSK). We report all of the assets under management of this BDC in the table includes certain investments from non-primary investment strategies, which is permitted by their investment mandates, for purposes of presenting the feesour AUM and other terms for such funds, vehicles and accounts.FPAUM.
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| | | | | | | | | | | | | | | | |
($ in millions) | | AUM | | FPAUM | | Typical Management Fee Rate | | Incentive Fee / Carried Interest | | Preferred Return | | Duration of Capital |
Leveraged Credit: | | |
| | |
| | | | | | | | |
Leveraged Credit SMAs/Funds | | $ | 10,394 |
| | $ | 9,719 |
| | 0.35%-1.50% | | Various (1) | | Various (1) | | Subject to redemptions |
CLO’s | | 9,803 |
| | 9,803 |
| | 0.40%-0.50% | | Various (1) | | Various (1) | | 10-14 Years (2) |
Total Leveraged Credit | | 20,197 |
| | 19,522 |
| | | | | | | | |
| | | | | | | | | | | | |
Alternative Credit: (3) | | | | | | | | | | | | |
Special Situations | | 8,080 |
| | 4,574 |
| | 0.90%-1.75% (4) | | 10.00-20.00% | | 8.00-12.00% | | 8-15 Years (2) |
Private Credit | | 8,764 |
| | 4,728 |
| | 0.50%-1.50% | | 10.00-20.00% | | 5.00-8.00% | | 8-15 Years (2) |
Total Alternative Credit | | 16,844 |
| | 9,302 |
| | | | | | | | |
| | | | | | | | | | | | |
Hedge Funds (5) | | 24,438 |
| | 18,942 |
| | 0.50%-2.00% | | Various (1) | | Various (1) | | Subject to redemptions |
Business Development Companies (6) | | 4,251 |
| | 4,251 |
| | 1.00% | | 10.00% | | 7.00% | | 7 years |
Total | | $ | 65,730 |
| | $ | 52,017 |
| | | | | | | | |
| |
(1) | Certain funds and CLOs are subject to a performance fee in which the manager or general partner of the funds share in up to 20% of the net profits earned by investors in excess of performance hurdles (generally tied to a benchmark or index) and subject to a provision requiring the funds and vehicles to regain prior losses before any performance fee is earned. |
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(2) | Duration of capital is measured from inception. Inception dates for CLOs were between 2005 and 2016 and for separately managed accounts and funds investing in alternative credit strategies from 2009 through 2017. |
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(3) | Our alternative credit funds generally have investment periods of 3 to 5 years and our newer alternative credit funds generally earn fees on invested capital during the investment period. |
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(4) | Lower fees on uninvested capital in certain vehicles. |
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(5) | Hedge Funds represent KKR's pro-rata portion of AUM and FPAUM of our strategic manager partnerships, which consist of minority stakes in other hedge fund managers. |
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(6) | Consists of Corporate Capital Trust ("CCT") and Corporate Capital Trust II, which are BDCs sub-advised by KKR. These vehicles invest in both leveraged credit and private credit strategies. On September 21, 2017, CCT shareholders approved, among other things, a proposal for KKR Credit Advisors (US) LLC to become CCT’s sole investment adviser subject to the listing of CCT’s shares on a national securities exchange, which is pending. |
Asset Management - Capital Markets
Our Capital Markets business line is comprised of our global capital markets business, supportswhich is integrated with KKR's other asset management business lines, and serves our firm, our funds, our portfolio companies and third-party clients by developing and implementing both traditional and non-traditional capital solutions for investments or companies seeking financing. These services include arranging debt and equity financing, placing and underwriting securities offerings, and providing other types of capital markets services.services that may result in the firm receiving fees, including underwriting, placement, transaction and syndication fees, commissions, underwriting discounts, interest payments and other compensation, which may be payable in cash or securities, in respect of the activities described above.
Our capital markets business underwrites credit facilities and arranges loan syndications and participations. When we are sole arrangers of a credit facility, we may advance amounts to the borrower on behalf of other lenders, subject to repayment. When we underwrite an offering of securities or a loan on a firm commitment basis, we commit to buy and sell an issue of securities or indebtedness and generate revenue by purchasing the securities or indebtedness at a discount or for a fee. When we act in an agency capacity or best efforts basis, we generate revenue for arranging financing or placing securities or debt with capital markets investors. We may also provide issuers with capital markets advice on security selection, access to markets, marketing considerations, securities pricing, and other aspects of capital markets transactions in exchange for a fee. When we are sole arrangersOur capital markets business also provides syndication services in respect of co-investments in transactions participated in by KKR funds or third-party clients, which may entitle the firm to receive syndication fees, management fees and/or a credit facility, we generally advance amounts to the borrower on behalf of other lenders, for which such lenders are expected to repay us promptly. KKR Capital Markets LLC is an SEC-registered broker-dealercarried interest.
The capital markets business has a global footprint, with local presence and a FINRA member, and we are also registered or authorizedlicenses to carry out certain broker-dealer activities in various countries in North America, Europe, Asia-Pacific and the Middle East. Our flagship capital markets subsidiary is KKR Capital Markets LLC, an SEC-registered broker-dealer and a member of the Financial Industry Regulatory Authority ("FINRA").
Asset Management - Principal Activities
Through our Principal Activities segment,business line, we manage the firm’s own assets on our firm’s balance sheet and deploy capital to support and grow our businesses. Our Principal Activities segment uses our balance sheet assets to support our investment managementPrivate Markets, Public Markets and capital markets businesses. Credit Markets business lines.
Typically, the funds in our Private Markets and Public Markets businessesbusiness lines contractually require us, as general partner of the funds, to make sizable capital commitments from time to time.commitments. We believe ourmaking general partner commitments are indicative of the conviction we have in a given fund’s strategy, which assists us in raising new funds from limited partners.partners by demonstrating our conviction in a given fund’s strategy. Our commitments to fund capital also occurs where we are the holder of the subordinated notes or the equity tranche of investment vehicles that we sponsor, including structured transactions. We also use our balance sheet to acquirebridge investment activity during fundraising, for example by funding investments in orderfor new funds and acquiring investments to help establish a track record for fundraising purposes in new investment strategies. We may also use our own capital to seed investments for new funds, to bridge capital selectively for our funds’ investments or finance strategic acquisitions and partnerships,transactions, although the financial results of an acquired business or strategic partnership may be reported in our other segments.business lines.
Our Principal Activities segmentbusiness line also provides the required capital to fund the various commitments of our Capital Markets business line when underwriting or syndicating securities, or when providing term loan commitments for transactions involving our portfolio companies and for third parties. Our Principal Activities segmentbusiness line also holds assets that may beare utilized to satisfy regulatory requirements for our Capital Markets business line and risk retention requirements for our CLO business.certain investment vehicles.
We also make opportunistic investments through our Principal Activities segment,business line, which include co-investments alongside our Private Markets and Public Markets funds as well as make Principal Activities investments that do not involve our Private Markets or Public Markets funds.
We endeavor to use our balance sheet strategically and opportunistically to generate an attractive risk-adjusted return on equity in a manner that is consistent with our fiduciary duties, and in compliance with applicable laws.laws, and consistent with our one-firm approach.
The chart below presents the holdings of our Principal Activities segmentbusiness line by asset class as of September 30, 2017.March 31, 2022.
Holdings by Asset Class (1)(1)General partner commitments in our funds are included in the various asset classes shown above. Assets and revenues of other asset managers with which KKR has formed strategic partnerships where KKR does not hold more than 50% ownership interest are not included in our Principal Activities segmentbusiness line but are reported in the financial results of our other segments.business lines. Private Equity and Other Equity includes KKRour investments in private equity funds, co-investments alongside such KKR sponsoredKKR-sponsored private equity funds, certain core private equity co-investments,investments, and other opportunistic investments. However, equityEquity investments in other asset classes, such as real estate, special situations and energy appear in these other asset classes. Other Credit consists of liquidcertain leveraged credit and specialty finance strategies.
Insurance
Our insurance business is operated by Global Atlantic, which we acquired on February 1, 2021. As of March 31, 2022, KKR owns a 61.5% economic interest in Global Atlantic with the balance of Global Atlantic owned by third-party investors and Global Atlantic employees. Following the Global Atlantic acquisition, Global Atlantic continues to operate as a separate business with its existing brands and management team. Since the first quarter of 2021, we have presented Global Atlantic's financial results as a separate reportable segment.
Global Atlantic is a leading U.S. retirement and life insurance company that provides a broad suite of protection, legacy and savings products to customers and reinsurance solutions to clients across individual and institutional markets. Global Atlantic focuses on target markets that it believes supports issuing products that have attractive risk and return characteristics. These markets allow Global Atlantic to leverage its strength in distribution and to deploy capital opportunistically across market conditions.
Global Atlantic primarily offers individual customers fixed-rate annuities, fixed-indexed annuities, and targeted life products through a network of banks, broker-dealers, and insurance agencies. Global Atlantic provides its institutional clients customized reinsurance solutions, including block, flow and pension risk transfer ("PRT") reinsurance, as well as funding agreements. Subject to changes in asset values, Global Atlantic's assets generally increase when individual market sales and reinsurance transactions exceed run-off of in-force policies. Global Atlantic primarily generates income by earning a spread between its investment income and the cost of policyholder benefits. As of March 31, 2022, Global Atlantic served approximately three million policyholders.
The following table represents Global Atlantic’s new business volumes by business and product for the three months ended March 31, 2022 and 2021:
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2021(1) |
($ in millions) | | | | |
Individual channel: | | | | |
Fixed-rate annuities | | $ | 1,039 | | | $ | 1,038 | |
Fixed-indexed annuities | | 904 | | | 595 | |
Variable annuities | | 11 | | | 8 | |
Total retirement products | | $ | 1,954 | | | $ | 1,641 | |
| | | | |
Life insurance products | | $ | 7 | | | $ | 6 | |
| | | | |
Preneed life | | $ | 65 | | | $ | 38 | |
| | | | |
Institutional channel: | | | | |
Block | | $ | 2,777 | | | $ | 1,079 | |
Flow & pension risk transfer | | 1,699 | | | 764 | |
Funding agreements | | 1,100 | | | — | |
Total institutional channel | | $ | 5,576 | | | $ | 1,843 | |
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Note: In Global Atlantic's individual channel, sales of annuities include all money paid into new and existing contracts. Individual channel sales of traditional life products are based on commissionable premium and individual channel sales for preneed life are based on the face amount of insurance. Traditional life sales do not include the recurring premiums that policyholders may pay over time. New business volume from our institutional channel is based on the assets assumed, net of any ceding commission, and is before any retrocession to investment vehicles that participate in qualifying reinsurance transactions sourced by Global Atlantic.
(1)For the three month period ended March 31, 2021, the results of Global Atlantic's insurance operations included in our condensed consolidated results of operations are from February 1, 2021 through March 31, 2021.
The table below represents a breakdown of Global Atlantic’s policy liabilities by business and product type as of March 31, 2022, separated by reserves originated through its individual and institutional markets.
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| Reserves as of March 31, 2022 |
| Individual market | | Institutional market(4) | | Total | | Ceded | | Total, net | | Percentage of total |
| ($ in thousands, except percentages, if applicable) |
Fixed-rate annuity | $ | 22,196,835 | | | $ | 43,022,317 | | | $ | 65,219,152 | | | $ | (15,416,304) | | | $ | 49,802,848 | | | 47.9 | % |
Fixed-indexed annuity | 21,199,795 | | | 7,222,995 | | | 28,422,790 | | | (3,454,255) | | | 24,968,535 | | | 20.9 | % |
Variable annuity | 3,086,313 | | | 3,715,421 | | | 6,801,734 | | | (643,895) | | | 6,157,839 | | | 5.0 | % |
Indexed universal life | 12,188,443 | | | — | | | 12,188,443 | | | (72,575) | | | 12,115,868 | | | 9.0 | % |
Preneed life | 2,857,392 | | | — | | | 2,857,392 | | | — | | | 2,857,392 | | | 2.1 | % |
Other life insurance(1) | 2,039,329 | | | 10,361,283 | | | 12,400,612 | | | (3,771,018) | | | 8,629,594 | | | 9.1 | % |
Funding agreements(2) | 2,205,897 | | | 4,730,611 | | | 6,936,508 | | | — | | | 6,936,508 | | | 5.1 | % |
Closed block | — | | | 1,271,351 | | | 1,271,351 | | | (1,219,024) | | | 52,327 | | | 0.9 | % |
Other corporate(3) | — | | | 48,447 | | | 48,447 | | | (48,088) | | | 359 | | | — | % |
Total reserves | $ | 65,774,004 | | | $ | 70,372,425 | | | $ | 136,146,429 | | | $ | (24,625,159) | | | $ | 111,521,270 | | | 100.0 | % |
| | | | | | | | | | | |
Total general account | $ | 62,976,938 | | | $ | 68,099,749 | | | $ | 131,076,687 | | | $ | (24,625,159) | | | $ | 106,451,528 | | | 96.3 | % |
Total separate account | 2,797,066 | | | 2,272,676 | | | 5,069,742 | | | — | | | 5,069,742 | | | 3.7 | % |
Total reserves | $ | 65,774,004 | | | $ | 70,372,425 | | | $ | 136,146,429 | | | $ | (24,625,159) | | | $ | 111,521,270 | | | 100.0 | % |
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(1)“Other life products” includes universal life, term and whole life insurance products.
(2)"Funding agreements” includes funding agreements associated with Federal Home Loan Bank borrowings and under our funding-agreement backed-notes program .
(3)“Other corporate” primarily includes accident & health reserves that Global Atlantic assumed as part of a reinsurance transaction in 2009.
(4)Institutional market reserves are sourced using customized reinsurance solutions such as block, flow and PRT. As of March 31, 2022, reserves sourced through for block, flow and PRT transactions were $51.1 billion, $6.8 billion, and $4.1 billion, respectively.
Business Environment
Economic and Market Conditions
Global Impact of COVID-19. The outbreak of COVID-19 continues to impact various countries throughout the world. For a description of the impact that COVID-19 had and may in the future have on our business, see "Risk Factors—Risks Related to Our Business—COVID-19 continues to impact the United States and other countries throughout the world, and it has caused and may further cause disruptions to our business and adversely affect our financial results" and "Risk Factors—Risks Related to the Assets We Manage—Our investments are impacted by various economic conditions and events outside of our control that are difficult to quantify or predict, which may have a significant impact on the valuation of our investments and, therefore, on the investment income we realize and our results of operations and financial condition" in our Annual Report.
Economic Conditions. As a global investment firm, we are affected by financial and economic conditions globally. Global and regional economic conditions, including those caused by the COVID-19 pandemic, have a substantial impact on our financial condition and results of operations, impacting the values of the investments we make, our ability to exit these investments profitably, our ability to raise capital from investors, and our ability to make new investments. Financial and economic conditions in the United States, the European Union, China, Japan, and other major economies are significant contributors to the global economy. According to Bloomberg consensus forecasts as of September 30, 2017, real GDP in
During the period ended March 31, 2022, the United States showed signs of continued domestic economic momentum, supported by strong consumer demand. Global trade, however, was a headwind for the United States, as exports fell by 5.9% at an annualized rate during the first quarter, hindered by ongoing supply chain tensions (including those due to COVID-19 and the Russian invasion of Ukraine) and more halting demand recoveries in Europe and Asia. Inflation also presented an economic
headwind during the period, as it continued to accelerate from already elevated levels, spurred by multiple factors including high commodity prices, a tight labor market, and low residential vacancy rates. The U.S. Federal Reserve has signaled its intention to tighten monetary conditions in response to higher inflation, and in March 2022 raised interest rates for the first time since December 2018, leading to increased market volatility. The ongoing conflict in Ukraine has also contributed to higher market volatility globally. In the United States, real GDP contracted at a seasonally adjusted-1.4% seasonally-adjusted annualized rate of 2.3% forin the quarter ended September 30, 2017 compared to 3.1% forMarch 31, 2022, after expanding at a 6.9% seasonally-adjusted annualized rate in the quarter ended June 30, 2017. According to the Bureau of Labor Statistics,December 31, 2021; the U.S. unemployment rate was 4.2%3.6% as of September 30, 2017,March 31, 2022, down from 4.4%3.9% as of June 30, 2017. KeyDecember 31, 2021; the U.S. core consumer price index rose 6.5% on a year-over-year basis as of March 31, 2022, up from 5.5% on a year-over-year basis as of December 31, 2021; and the effective federal funds rate set by the U.S. Federal Reserve was 0.3% as of March 31, 2022, up from 0.1% as of December 31, 2021.
During the period ended March 31, 2022, the euro area (also known as the eurozone) economy continued to expand despite headwinds from higher energy prices and the Russian invasion of Ukraine, which are expected to weigh increasingly on the outlook for European economic growth. The economic uncertainty caused by the ongoing conflict in Ukraine is significant. The reliability of future supplies of Russian oil and financial issuesgas to Europe is under question. Importantly, a sudden disruption of energy flows could spur a contraction in European economic activity. Euro area real GDP rose by 0.2% on a seasonally-adjusted quarter-over-quarter basis in the quarter ended March 31, 2022, down from the 0.3% increase recorded in the quarter ended December 31, 2021. In addition, euro area unemployment was 6.8% as of March 31, 2022, down from 7.0% as of December 31, 2021; euro area core inflation was 2.9% on a year-over-year basis as of March 31, 2022, up from 2.6% on a year-over-year basis as of December 31, 2021; and the short-term benchmark interest rate set by the European Central Bank was 0.0% as of March 31, 2022, unchanged from December 31, 2021. As of March 31, 2022, we have no investments in any portfolio companies whose executive headquarters are located in Russia or Ukraine, and we believe that the direct exposure of our investment portfolio to Russia and Ukraine is insignificant.
During the period ended March 31, 2022, the Chinese economy faced serious headwinds from an ongoing slowdown in China’s property sector, as well as from the government’s zero-COVID policies. The government’s measures to contain COVID-19 outbreaks in Chinese cities are likely to weigh on Chinese growth throughout 2022. Furthermore, demand for China’s exports is beginning to slow, as manufacturing recovers in other parts of the world, particularly in areas with higher baseline levels of COVID-19 vaccinations and prior infections. Real GDP in China grew by 1.3% on a seasonally adjusted quarter-over-quarter basis in the quarter ended March 31, 2022, compared to growth of 1.5% reported for the United States include, but are not limitedquarter ended December 31, 2021. Estimated core inflation in China was 1.1% on a year-over-year basis as of March 31, 2022, down from 1.2% on a year-over-year basis as of December 31, 2021.
In Japan, the economic recovery from COVID-19 has slowed recently, with higher energy costs and a weaker currency presenting headwinds to whether or notGDP growth in the U.S. government will enact its proposed fiscal stimulus through tax cuts or infrastructure spending,near term. In Japan, real GDP growth for the pace and levels at whichquarter ended March 31, 2022 is estimated to have been -0.1% on a seasonally-adjusted quarter-over-quarter basis, down from 1.1% in the Federal Reserve raises interest rates and reduces its balance sheet, the U.S. debt ceilingquarter ended December 31, 2021; core inflation fell to -1.6% on a year-over-year basis as of March 31, 2022, down from -1.3% as of December 31, 2021; and the abilityshort-term benchmark interest rate set by the Bank of the U.S. government to pay its debt when due. Japan was -0.1% as of March 31, 2022, unchanged from December 31, 2021.
These and other key issues could have adverse repercussions across regional and global financial markets, which could adversely affect the valuations of our investments. For the quarter ended September 30, 2017, Bloomberg estimates suggest that Euro Area real GDP growth was 0.5% on a quarter over quarter basis, compared to actual quarter over quarter growth of 0.6% as of June 30, 2017. Euro Area core inflation was 1.1% on a year over year basis as of September 30, 2017, unchanged relative to June 30, 2017. In March 2017, the United Kingdom triggered Article 50 to formally begin the process to exit from the European Union. Continuing controversy and uncertainty surrounding key issues such as immigration, austerity, and globalization and risk of countries exiting the European Union, as well as the activities of the European Central Bank, could impair economic growth in the region and lead to financial market volatility. These and other key issues, such as heightened geopolitical risk, could have adverse repercussions across regional and global financial markets, which could adversely affect the valuations of our investments. In particular, in response to persistent inflationary pressure and central bank policy designed to combat inflation, short- and medium-term interest rates may rise, which may adversely impact equity and credit markets and in turn both increase volatility in equity and debt markets and reduce economic growth. As noted above, the U.S. Federal Reserve has recently raised interest rates and has indicated that it is prepared to take further action to manage inflation, including raising interest rates further and shrinking the size of its balance sheet. In addition, commodity prices are generally expected to rise in inflationary environments, and foreign exchange rates are often affected by countries’ monetary and fiscal responses to inflationary trends. The Russia-Ukraine conflict, including the sanctions imposed in response to Russia's invasion of Ukraine, have exacerbated and are likely to further exacerbate these issues and trends. Other key issues include (i) further developments regarding COVID-19, including the spread of variants such as Delta and Omicron, which may prolong the adverse economic impact of the pandemic on a quarter over quarter, seasonally adjusted basis, China’s real GDP grew 1.7%the U.S. and global economies, including supply chain disruptions that promote cost inflation for critical goods and labor shortages, (ii) geopolitical uncertainty such as U.S.-China relations, (iii) political uncertainty caused by, among other things, economic nationalist sentiments, tensions surrounding socioeconomic inequality issues, and partisan sentiments in the quarter ended September 30, 2017, slightly slower than the 1.8% reportedUnited States, all of which have potentially global ramifications with regards to policy, (iv) regulatory changes regarding, for the quarter ended June 30, 2017. A slowdownexample, taxation, international trade, cross-border investments, immigration, stimulus programs and rising levels of debt, (v) increased volatility and/or downturn in China's economic growth could adversely impact the valuations of our investmentsequity or credit markets, (vi) unexpected shifts in Chinacentral banks' monetary policies, and could also adversely impact the global economy, particularly other emerging markets.(vii) technological advancements and innovations that may disrupt marketplaces and businesses. For a further discussion of how market conditions may affect our businesses, see “Risk Factors- "Risk Factors—Risks Related to Our Business - Business—Difficult market and economic conditions can adversely affect our business in many ways, including by reducing the value or performance of the investments that we manage or by reducing the ability of our funds to raise or deploy capital, each of which could negatively impact our net income and cash flow and adversely affect our financial condition”condition" in our Annual Report on Form 10-K.Report. In addition, the U.S. Congress is proposing (and after the date of this report may propose other) various significant changes in tax law, including significant changes in the way U.S. corporations like ourselves and many of our U.S. portfolio companies are taxed. If enacted, these changes could materially increase the amount of taxes we and our portfolio
companies are required to pay. See “Risk Factors—Risks Related to Our Business—Changes in relevant tax laws, regulations or treaties or an adverse interpretation of these items by tax authorities could adversely impact our effective tax rate and tax liability” in our Annual Report.
Equity and Credit Markets. Global equity and credit markets have a substantial effect on our financial condition and results of operations. In general, a climate of reasonable interest rates and high levels of liquidity in the debt and equity capital markets provide a positive environment for us to generate attractive investment returns, which also impacts our ability to generate incentive fees and carried interest. Periods of volatility and dislocation in the capital markets presentraise substantial risks, but also can present us with opportunities to invest at reduced valuations that position us for future growth and investment returns. Low interest rates related to monetary stimulus and economic stagnation may negatively impact expected returns on all types of investments. Higher interest rates in conjunction with slower growth or weaker currencies in some emerging market economies have caused, and may further cause, the default risk of these countries to increase, and this could impact the operations or value of our investments that operate in these regions. Areas that have ongoing central bank quantitative easing campaigns and comparatively low interest rates relative to the United States could potentially experience further currency volatility and weakness relative to the U.S. dollar.
ManyWith respect to our insurance business, fluctuations in market interest rates can expose Global Atlantic to the risk of reduced income in respect of its investment portfolio, increases in the cost of acquiring or maintaining its insurance liabilities, increases in the cost of hedging, or other fluctuations in Global Atlantic's financial, capital and operating profile which materially and adversely affect the business. Higher interest rates, periods of changes in rates and lower rates each may result in differing impacts on Global Atlantic’s business. See "Risk Factors—Risks Related to Global Atlantic— Interest rate fluctuations and sustained periods of low or high interest rates could adversely affect Global Atlantic’s business, financial condition, liquidity, results of operations, cash flows and prospects" in our Annual Report.
In our asset management business, many of our investments are in equities, so a change in global equity prices or in market volatility directly impacts the value of our investments and our profitability as well as our ability to realize investment gains and the receptiveness of fund investors to our investment products. For the quarter ended September 30, 2017,March 31, 2022, global equity markets were positive,negative, with the S&P 500 Index up 4.5%down 4.6% and the MSCI World Index updown 5.0% on a total return basis including dividends. Equity market volatility as evidenced by the Chicago Board Options Exchange Market Volatility Index or the VIX,(VIX), a measure of volatility, ended at 9.520.6 as of September 30, 2017 decreasingMarch 31, 2022, increasing from 11.217.2 as of JuneDecember 31, 2021. For the period between March 31, 2022 and April 30, 2017.2022, global equity markets were negative, with the S&P 500 down 8.7% and the MSCI World Index down 8.3% on a total return basis including dividends. Equity market volatility as evidenced by VIX, ended at 33.4 as of April 30, 2022, increasing from 20.6 as of March 31, 2022. For a further discussion of our valuation methods, see “Risk Factors-RisksFactors—Risks Related to the Assets We Manage - Manage—Our investments are impacted by various economic conditions and events outside of our control that are difficult to quantify or predict, andwhich may have a significant impact on the valuation of our investments and, therefore, on the investment income we realize and our financial condition and results of operations” in our Annual Report on Form 10-Koperations and “-Criticalfinancial condition” and see also “—Critical Accounting Policies-FairPolicies—Fair Value Measurements-LevelMeasurements—Level III Valuation Methodologies” in this report.our Annual Report. In our insurance business, a change in equity prices also impacts Global Atlantic’s equity-sensitive annuity and life insurance products, including with respect to hedging costs related to and fee-income earned on those products.
Many of our investments, particularly in asset management, are also in non-investment grade credit instruments, and, ourparticularly in insurance, in investment grade credit instruments. Our funds, and our portfolio companies and Global Atlantic also rely on credit financing and the ability to refinance existing debt. Consequently, any decrease in the value of credit instruments that we have invested in or any increase in the cost of credit financing reduces our returns and decreases our net income. In particular due
Due in part to holdings of credit instruments such as CLOs on our balance sheet, the performance of the credit markets has had an amplified impact on our financial results, as we directly bear the full extent of losses from credit instruments on our balance sheet. Credit markets can also impact valuations because a discounted cash flow analysis is generally used as one of the methodologies used to ascertain the fair value of our investments that do not have readily observable market prices. In addition, with respect to our credit instruments, tightening credit spreads are generally expected to
lead to an increase, and widening credit spreads are generally expected to lead to a decrease, in the value of these credit investments, if not offset by hedging or other factors. In addition, the significant widening of credit spreads is also typically expected to negatively impact equity markets, which in turn would negatively impact our portfolio and us as noted above. Conversely, widening credit spreads may have a positive impact on our insurance business, as the margin Global Atlantic is able to earn between crediting rates offered on its insurance products and the investment income it earns from its credit investments should increase, and tightening credit spreads may negatively impact the pricing and therefore competitiveness of Global Atlantic’s products, adversely impacting sales and growth, or may negatively impact the margins that Global Atlantic earns on sales and transactions.
During the quarter ended September 30, 2017, US Investment GradeMarch 31, 2022, U.S. investment grade corporate bond spreads (BofAML(BofA Merrill Lynch US Corporate Index) tightenedwidened by 924 basis points and US High-YieldU.S. high-yield corporate bond spreads (BofAML HY Master II Index) tightenedwidened by 2333 basis points. The non-investment grade credit indices were down during the quarter ended March 31, 2022, with the S&P/LSTA Leveraged Loan Index down 0.1% and the BAML US High Yield Index down 4.5%. During the quarter ended March 31, 2022, 10-year government bond yields rose 83 basis points in the United States, rose 64 basis points in the United Kingdom, rose 73 basis points in Germany, rose 1 basis point in China, and rose 15 basis points in Japan. In the period between March 31, 2022 and April 30, 2022, U.S. investment grade corporate bond spreads (BofA Merrill Lynch US Corporate Index) widened by 19 basis points and U.S. high-yield corporate bond spreads (BofAML HY Master II Index) widened by 54 basis points. The non-investment grade credit indices were mixed in the period between March 31, 2022 and April 30, 2022, with the S&P/LSTA Leveraged Loan Index up 0.2% and the BAML US High Yield Index down 3.6%. In the period between March 31, 2022 and April 30, 2022, 10-year government bond yields rose 60 basis points in the United States, rose 30 basis points in the United Kingdom, rose 39 basis points in Germany, rose 5 basis points in China, and rose 1 basis point in Japan. For a further discussion of how market conditions may affect our businesses, see “Risk Factors- Factors—Risks Related to Our Business - Business—Difficult market and economic conditions can adversely affect our business in many ways, including by reducing the value or performance of the investments that we manage or by reducing the ability of our funds to raise or deploy capital, each of which could negatively impact our net income and cash flow and adversely affect our financial condition"condition” and "Risks“Risk Factors—Risks Related to the Assets We Manage - Manage—Our investments are impacted by various economic conditions and events outside of our control that are difficult to quantify or predict, andwhich may have a significant impact on the valuation of our investments and, therefore, on the investment income we realize and our financial condition and results of operations"operations and financial condition” in our Annual Report on Form 10-K.Report.
The non-investment grade credit indices rose during the quarter ended September 30, 2017, with the S&P/LSTA Leveraged Loan Index up 1.0% and the BofAML HY Master II Index up 2.0%. For the quarter ended September 30, 2017, 10-year government bond yields rose 3 basis points in the United States, rose 6 basis points in China, fell 2 basis points in Japan and stayed flat in Germany. For further discussion of the impact of global credit markets on our financial condition and results of operations, see “Risk Factors - "Risk Factors—Risks Related to the Assets We Manage -ChangesManage—Changes in the debt financing markets may negatively impact the ability of our investment funds, their portfolio companies and strategies pursued with our balance sheet assets to obtain attractive financing for their investments or to refinance existing debt and may increase the cost of such financing or refinancing if it is obtained, which could lead to lower-yielding investments and potentially decrease our net income,” “- " "Risk Factors—Risks Related to the Assets We Manage—Our investments are impacted by various economic conditions and events outside of our control that are difficult to quantify or predict, andwhich may have a significant impact on the valuation of our investments and, therefore, on the investment income we realize and our results of operations and financial condition," "Risk Factors—Risks Related to the Assets We Manage—Our funds and our firm through our balance sheet may make a limited number of investments, or investments that are concentrated in certain issuers, geographic regions or asset types, which could negatively affect our performance or the performance of our funds to the extent those concentrated assets perform poorly" and "Risk Factors—Risks Related to Global Atlantic—Interest rate fluctuations and sustained periods of low or high interest rates could adversely affect Global Atlantic’s business, financial condition, andliquidity, results of operations”operations, cash flows and “- Because we hold interests in some of our portfolio companies both through our management of private equity funds as well as through separate investments in those funds and direct co-investments, fluctuation in the fair values of these portfolio companies may have a disproportionate impact on the investment income earned by us”prospects" in our Annual Report on Form 10-K and “-CriticalReport. For a further discussion of our valuation methods, see "—Critical Accounting Policies-FairPolicies—Fair Value Measurements-LevelMeasurements—Level III Valuation Methodologies” in this report.Methodologies."
Foreign Exchange Rates. Foreign exchange rates have a substantial impact on the valuations of our investments that are denominated in currencies other than the U.S. dollar. Currency volatility can also affect our businesses and investments whichthat deal in cross‑bordercross-border trade. The appreciation or depreciation of the U.S. dollar is expected to contribute to a decrease or increase, respectively, in the U.S. dollar value of our non‑U.S.non-U.S. investments to the extent unhedged. In addition, an appreciating U.S. dollar would be expected to make the exports of U.S. based companies less competitive, which may lead to a decline in their export revenues, if any, while a depreciating U.S. dollar would be expected to have the opposite effect. Moreover, when selecting investments for our investment funds that are denominated in U.S. dollars, an appreciating U.S. dollar may create opportunities to invest at more attractive U.S. dollar prices in certain countries outside of the U.S.,United States, while a depreciating U.S. dollar would be expected to have the opposite effect. For our investments denominated in currencies other than the U.S. dollar, the depreciation in such currencies will generally contribute to the decrease in the valuation of such investments, to the extent unhedged, and adversely affect the U.S. dollar equivalent revenues of portfolio companies with substantial revenues denominated in such currencies, while the appreciation in such currencies would be expected to have the opposite effect. For the quarter ended September 30, 2017,March 31, 2022, the euro rose 3.4%fell 2.7%, the British pound fell 2.9%, the Japanese yen fell 5.4%, and the Chinese renminbi rose 1.9%, and the British pound rose 2.9%0.3%, respectively, relative to the U.S. dollar. See “Risk Factors- Risks Related to Our Business - Difficult market conditions can adversely affect our business in many ways, including by reducing the value or performance of the investments that we manage or by reducing the ability of our funds to raise or deploy capital, each of which could negatively impact our net income and cash flow and adversely affect our financial condition” in our Annual Report on Form 10-K. For additional information regarding our foreign exchange rate risk, see “-Quantitative“Quantitative and Qualitative Disclosure About Market Risk - Risk—Exchange Rate Risk” in our Annual Report.
LIBOR Transition. On March 15, 2022, the Consolidated Appropriations Act of 2022, which includes the Adjustable Interest Rate (LIBOR) Act of 2021, was signed into law in the United States. This legislation establishes a uniform benchmark replacement mechanic for financial contracts that mature after June 30, 2023 which do not contain either clearly defined or practicable fallback provisions or are contractually silent on a benchmark replacement rate. The legislation also creates a safe harbor that shields involved parties from liability if they choose to utilize a replacement rate recommended by the Board of Governors of the Federal Reserve. For a discussion of the LIBOR transition that will impact certain debt obligations, see Note 2 "Summary of Significant Accounting Policies – Adoption of new accounting pronouncements—Reference rate reform" in our financial statements and for a discussion of the risks related to the LIBOR transition, see "Risk Factors – Risks Related to Our Business – Transition away from LIBOR as a benchmark reference for interest rates may affect the cost of capital and requires
amending or restructuring existing debt instruments and related hedging arrangements for us, our investment funds and our portfolio companies, and may impact the value of floating rate securities or loans based on LIBOR that we or our investment funds have held, all of which may result in additional costs or adversely affect our or our funds’ liquidity, results of results of operations and financial condition" in our Annual Report on Form 10-K.10-K for the year ended December 31, 2021.
Commodity Markets. Our Private Markets portfolio contains energy real asset investments, and certain of our other Private Markets and Public Markets strategies and products, including private equity, direct lending, special situations and CLOs, also have meaningful investments in or related to the energy sector. The value of these investments is heavily influenced by the price of natural gas and oil. As noted above, the actions taken by Russia in the Ukraine starting in February 2022 have also caused volatility in the commodities markets. During the quarter ended September 30, 2017,March 31, 2022, the long-term3-year forward price of WTI crude oil increased approximately 2%16%, whileand the long-term3-year forward price of natural gas was relatively stable.increased approximately 21%. The long-term3-year forward price of WTI crude oil increased from approximately $49$63 per barrel to $50$73 per barrel, and the long-term3-year forward price of natural gas decreasedincreased from approximately $2.85$3.13 per mcf to $2.84$3.77 per mcf as of June 30, 2017December 31, 2021 and September 30, 2017,March 31, 2022, respectively.
When commodity prices decline or if a decline is not offset by other factors, we would expect the value of our energy real asset investments to be adversely impacted.impacted, to the extent unhedged. In general, we expect downward price movements to have a negative impact on the fair value of our energy portfolio, all other things being equal, given those commodity prices are an input in our valuation models. The reverse is true for upward price movements. However, because we typically use near-term commodity derivative transactions to hedge our exposures, we expect long-term oil and natural gas prices to be a more significant driver of the valuation of our energy investments in asset management than spot prices. In addition, because we hold certainto the extent energy assets onreal asset investments are directly held by our balance sheet, which had a fair value of $0.5 billion as of September 30, 2017, these price movements wouldcan have an amplified impact on our financial results, as we would directly bear the full extent of such gains or losses.losses, subject to hedging. However, as of March 31, 2022, energy investments in oil and gas assets made up only approximately 1% of our assets under management, 1% of our total GAAP assets and 1% of our total segment assets. For additional information regarding our energy real assets, see “-Critical"—Critical Accounting Policies-FairPolicies—Fair Value Measurements-LevelMeasurements—Level III Valuation Methodologies-RealMethodologies—Real Asset Investments” in this reportInvestments" and “Risk Factors - see also "Risk Factors—Risks Related to the Assets We Manage - Because we hold interestsManage—Our funds and our firm through our balance sheet may make a limited number of investments, or investments that are concentrated in somecertain issuers, geographic regions or asset types, which could negatively affect our performance or the performance of our portfolio companies both through our management of private equity funds as well as through separate investments into the extent those funds and direct co-investments,
fluctuation in the fair values of these portfolio companies may have a disproportionate impact on the investment income earned by us”concentrated assets perform poorly" in our Annual Report on Form 10-K.10-K for the year ended December 31, 2021.
Business Conditions
Our operating revenues consist of fees, performance income and investment income.
Our ability to grow our revenues depends in part on our ability to attract new capital and investors, our successful deployment of capital including from our balance sheet and our ability to realize investments at a profit.
Our ability to attract new capital and investors. Our ability to attract new capital and investors in our funds is driven, in part, by the extent to which they continue to see the alternative asset management industry generally, and our investment products specifically, as attractive means for capital appreciation or income. In addition, our ability to attract new capital and investors in our insurance business is driven, in part, by the extent to which they continue to see the life and annuity insurance industry generally, and in certain cases our re-insurance vehicles, as attractive means for capital appreciation or income. Since 2010, we have expanded into strategies such as real assets, credit, core, impact and, through hedge fund partnerships, hedge funds, and insurance. In several of our asset management strategies, our first time funds have begun raising successor funds, and we expect the cost of raising such successor funds to be lower. We have also reached out to new fund investors, including retail and high net worth investors. However, fundraising continues to be competitive. While our Asian Fund IV, European Fund V, North America Fund XIII, Real Estate Partners Americas III, Real Estate Partners Europe II, Global Infrastructure Investors IV, Next Generation Technology Growth Fund II and Health Care Strategic Growth Fund II exceeded the size of their respective predecessor funds, there is no assurance that fundraises for our other flagship investment funds or vehicles or for our newer strategies and their successor funds will experience similar success. If we are unable to successfully raise comparably sized or larger funds, our AUM, FPAUM, and associated fees attributable to new capital raised in future periods may be lower than in prior years. See "Risk Factors—Risks Related to Our Business—Our inability to raise additional or successor funds (or raise successor funds of a comparable size as our predecessor funds) could have a material adverse impact on our business" in our Annual Report on Form 10-K for the year ended December 31, 2021.
Our ability to successfully deploy capital. Our ability to maintain and grow our revenue base is dependent upon our ability to successfully deploy the capital available to us as well as our participation in capital markets transactions. Greater competition, high valuations, increased overall cost of credit and other general market conditions may impact our ability to identify and execute attractive investments. Additionally, because we seek to make investments that have an ability to achieve our targeted returns while taking on a reasonable level of risk, we may experience periods of reduced investment activity. We
have a long-term investment horizon and the capital deployed in any one quarter may vary significantly from the capital deployed in any other quarter or the quarterly average of capital deployed in any given year. Reduced levels of transaction activity also tends to result in reduced potential future investment gains, lower transaction fees and lower fees for our capital markets business line, which may earn fees in the syndication of equity or debt. In our insurance business, we deploy capital by investing in assets that are anticipated to generate net investment income in excess of the net cost of insurance. If we are unable to originate or source attractive investments, the success and growth in revenues of our insurance business will be adversely impacted. See “Risk Factors—Risks Related to the Assets We Manage—Changes in the debt financing markets may negatively impact the ability of our investment funds, their portfolio companies and strategies pursued with our balance sheet assets to obtain attractive financing for their investments or to refinance existing debt and may increase the cost of such financing or refinancing if it is obtained, which could lead to lower-yielding investments and potentially decrease our net income” in our Annual Report on Form 10-K for the year ended December 31, 2021.
Our ability to realize investments. Challenging market and economic conditions may adversely affect our ability to exit and realize value from our investments and result in lower-than-expected returns. Although the equity markets are not the only means by which we exit investments from our funds, the strength and liquidity of the U.S. and relevant global equity markets generally, and the initial public offering market specifically, affect the valuation of, and our ability to successfully exit, our equity positions in the portfolio companies of our funds in a timely manner. We may also realize investments through strategic sales. When financing is not available or becomes too costly, it may be more difficult to find a buyer that can successfully raise sufficient capital to purchase our investments. In addition, volatile debt and equity markets may also make the exit of our investments more difficult to execute. In our insurance business, we depend on the ability of our investments to generate their anticipated returns, through the payment of interest and dividends and interest as well as return of principal, in the amounts and at the times that we expect them to be made in order to manage our obligations to make payments to our policyholders. If policyholder behavior differs from our expectations, we may be forced to sell our investments earlier than we anticipated and during market conditions where we may realize losses on the investment. In addition, material delays in payments or impairments to our anticipated investment returns could have material adverse effects to our results of operations. For additional information about how business environment and market conditions affect Global Atlantic, see "—Global Atlantic's Investment Portfolio."
Basis of Accounting
We consolidate the financial results of the KKR Group PartnershipsPartnership and theirits consolidated subsidiaries,entities, which include the accounts of our investment management and capital marketsadvisers, broker-dealers, Global Atlantic’s insurance companies, the general partners of certain unconsolidated investment funds, and vehicles, general partners of certainconsolidated investment funds that are consolidated and their respective consolidated investment funds and certain other entities including certain consolidated CLOs and commercial real estate mortgage-backed securities, or "CMBS". We refer to CLOs and CMBS as collateralized financing entities or CFEs.("CFEs").
When an entity is consolidated, we reflect the accounts of the consolidated entity, including its assets, liabilities, fees,revenues, expenses, investment income, cash flows and other amounts, on a gross basis. While the consolidation of a consolidatedan investment fund or entity does not have an effect on the amounts of Net Income Attributable to KKR or KKR's partners' capitalstockholders' equity that KKR reports, the consolidation does significantly impact the financial statement presentation under GAAP. This is due to the fact that the accounts of the consolidated entities are reflected on a gross basis while the allocable share of those amounts that are attributable to third parties are reflected as single line items. The single line items in which the accounts attributable to third parties are recorded are presented as noncontrolling interests on the consolidated statements of financial condition and net income (loss) attributable to noncontrolling interests on the consolidated statements of operations.
The presentation in the financial statements reflect the significant industry diversification of KKR by its acquisition of Global Atlantic. Global Atlantic operates an insurance business, and KKR operates an asset management business, each of which possess distinct characteristics. As a result, KKR developed a two-tiered presentation approach for the financial statements in this Management's Discussion and Analysis. KKR believes that these separate presentations provide a more informative view of the consolidated financial position and results of operations than traditional aggregated presentations. KKR believes that reporting Global Atlantic’s insurance operations separately is appropriate given, among other factors, the relative significance of Global Atlantic’s policy liabilities, which are not obligations of KKR (other than the insurance companies that issued them). If a traditional aggregated presentation were to be used, KKR would expect to eliminate or combine several identical or similar captions, which would condense the presentations but would reduce transparency. KKR also believes that using a traditional aggregated presentation would result in no new line items compared to the two-tier presentation included in the financial statements in this report. We acquired Global Atlantic on February 1, 2021; accordingly, the results of Global Atlantic's insurance operations included in our consolidated results of operations for the three months ended March 31, 2021 are from February 1, 2021 (the closing date of the acquisition) through March 31, 2021.
All the intercompany transactions have been eliminated.
The summary of the significant accounting policies has been organized considering the two-tiered approach described above and includes a section for common accounting policies and an accounting policy section for each of the two tiers when a policy is specific to one of the tiers.
For a further discussion ofabout our consolidationcritical accounting policies, see "Item 1. Condensed Consolidated“Management’s Discussion and Analysis of Financial Statements (Unaudited)--SummaryCondition and Results of Operations—Critical Accounting Policies” in the 2021 Form 10-K and Note 2 "Summary of Significant Accounting Policies."Policies" in our financial statements.
Key Financial Measures Under GAAP - Asset Management
The following discussion of key financial measures under GAAP is based on KKR's asset management business as of March 31, 2022.
Revenues
Fees and Other
Fees and other consist primarily of (i) transaction fees earned in connection with successful investment transactions and from capital markets activities, (ii) management and incentive fees from providing investment management services to unconsolidated funds, CLOs, other vehicles, and separately managed accounts,accounts; (ii) transaction fees earned in connection with successful investment transactions and from capital markets activities; (iii) monitoring fees from providing services to portfolio companies,companies; (iv) carried interest allocations to general partners of unconsolidatedexpense reimbursements from certain investment funds and portfolio companies; (v) revenue earned by oil and gas-producinggas entities that are consolidatedconsolidated; and (vi) consulting fees earned by entities that employ non-employee operating consultants.fees. These fees are based on the contractual terms of the governing agreements and are recognized when earned, which coincides with the period during which the related services are performed and in the case of transaction fees, upon closing of the transaction. Monitoring fees may provide for a termination payment following an initial public offering or change of control. These termination payments are recognized in the period when the related transaction closes. Monitoring fees also include certain expense reimbursements
Capital Allocation-Based Income (Loss)
Capital allocation-based income (loss) is earned from certain portfolio companiesthose arrangements whereby KKR serves as general partner and unconsolidated funds.
Forincludes income or loss from KKR's capital interest as well as "carried interest" which entitles KKR to a further discussiondisproportionate allocation of our fee policies, see "Item 1. Condensed Consolidated Financial Statements (Unaudited)--Summary of Significant Accounting Policies."
investment income or loss from an investment fund's limited partners.
Expenses
Compensation and Benefits
Compensation and benefitsBenefits expense includes (i) base cash compensation consisting of salaries bonuses, and wages, (ii) benefits, as well as(iii) carry pool allocations, (iv) equity-based compensation, consisting of charges associated with the vesting of equity-based awards,and (v) discretionary cash bonuses.
To supplement base cash compensation, benefits, carry pool allocations, and other performance-based income compensation. All employees and employees of certain consolidated entities receive a base salary that is paid by KKR or its consolidated entities, and is accounted for asequity-based compensation, and benefits expense. These employees are also eligible to receivewe typically pay discretionary cash bonuses, which are included in Compensation and Benefits expense in the consolidated statements of operations, based principally on performance, overall profitabilitythe level of (i) management fees and other matters. Whilefee revenues (including incentive fees), (ii) realized carried interest and (iii) realized investment income earned during the year. The amounts paid as discretionary cash bonuses, paidif any, are at our sole discretion and vary from individual to most employees are borne by KKRindividual and certain consolidated entities and result in customary compensation and benefits expense,from period to period, including having no cash bonus. We accrue discretionary cash bonuses that are paidwhen payment becomes probable and reasonably estimable which is generally in the period when we make the decision to certain employees are currently borne by KKR Holdings. Thesepay discretionary cash bonuses have historically been funded with distributions that KKR Holdings receives on KKR Group Partnership Units held by KKR Holdings but are not then passed on to holdersand is based upon a number of unvested unitsfactors, including the recognition of KKR Holdings. Because employees are not entitled to receive distributions on units that are unvested, any amounts allocated to employeesfee revenues, realized carried interest, realized investment income and other factors determined during the year.
Beginning in excess of an employee's vested equity interests are reflected as employee compensation and benefits expense. These compensation charges are currently recorded based on the amount of cash expected to be paid by KKR Holdings. Because KKR makes only fixed quarterly distributions, the distributions made on KKR Group Partnership Units underlying any unvested KKR Holdings units are generally insufficient to fund annual cash bonus compensation to the same extent as in periods prior to the fourth quarter of
2015. In addition, substantially all units in KKR Holdings have been allocated and will vest over a 5 year period, thus decreasing the amount of distributions received by KKR Holdings that are available for annual cash bonus compensation. We, therefore,2021, we expect to pay our employees by assigning a percentage range to each component of asset management segment revenues. Based on the current components and blend of our asset management segment revenues on an increasing portionannual basis, we expect to use approximately: (i) 20‐25% of fee related revenues, (ii) 60‐70% of realized carried interest and eventually allincentive fees not included in fee related performance revenues or earned from our hedge fund partnerships, and (iii) 10‐20% of realized investment income and hedge fund partnership incentive fees to pay our asset management employees. Because these ranges are applied to applicable distributable revenue components independently, and on an annual basis, the amount paid as a percentage of total distributable revenues will vary and will, for example, likely be higher in a period with relatively higher realized carried interest and lower in a period with relatively lower realized carried interest. We decide whether to pay a discretionary cash bonus and determine the percentage of applicable revenue components to pay compensation only upon the
occurrence of the realization event. There is no contractual or other binding obligation that requires us to pay a discretionary cash bonus payments currently borneto the asset management employees, except in limited circumstances.
Assuming that we had accrued compensation of (i) 65% of the unrealized carried interest earned by KKR Holdings from other sources, including cash from our operations,the funds that allocate 40% and 43% to the carry pool and other performance-based income compensation as described below. See "Risks Related to Our Business - If we cannot retain and motivate our principals and other key personnel and recruit, retain and motivate new principals and other key personnel, our business, results and financial condition could be adversely affected"(ii) 15% of the unrealized net gains in our Annual ReportPrincipal Activities business line (in each case at the mid-point of the ranges above), KKR & Co. Inc. Stockholders’ Equity – Series I and II Preferred, Common Stock as of March 31, 2022 would have been reduced by approximately $2.33 per share, compared to our reported $24.72 per share on Form 10-K regarding the adequacysuch date, and our book value as of March 31, 2022 would have been reduced by approximately $2.26 per adjusted share, compared to our reported book value of $28.45 per adjusted share on such distributions to fund future discretionary cash bonuses.date.
Carry Pool Allocation
KKR uses three different methods, which are designed to yield comparable results, to allocate carried interest and other performance income compensation. With respect to KKR’s investmentour funds that provide for carried interest, withoutwe allocate a preferred return, KKR allocates 40% of the carried interest received from such funds to its carry pool for employees and non-employee operating consultants. In addition, for investment funds that provide for incentive fees rather than carried interest, our carry pool is supplemented by allocating 40% of the incentive fees earned from such funds to performance income compensation. Beginning with the quarter ended September 30, 2016, for investment funds that provide for carried interest with a preferred return and have accrued carried interest as of June 30, 2017, KKR also includes 40% of the management fees that would have been subject to a management fee refund as performance income compensation. Because of the different ways management fees are refunded in preferred return and non-preferred return funds that provide for carried interest, this calculation of 40% of the portion of the realized and unrealized carried interest that we earn to a carry pool established at KKR Associates Holdings L.P., which is not a KKR subsidiary, from which our asset management fees subjectemployees and certain other carry pool participants are eligible to refund for funds that havereceive a preferred returncarried interest allocation. The allocation is designeddetermined based upon a fixed arrangement between KKR Associates Holdings and us, and we do not exercise discretion on whether to allocate to compensationmake an amount comparable to the amount that would have been allocatedallocation to the carry pool hadupon a realization event. These amounts are accounted for as compensatory profit sharing arrangements in Accrued Expenses and Other Liabilities within the fund not had a preferred return. Beginningaccompanying consolidated statements of financial condition in conjunction with the quarter ending September 30, 2017, for future and current carry generating funds with no or minimal accruedrelated carried interest income and are recorded as compensation expense. Upon a reversal of June 30, 2017, KKR will allocate 43% of the carried interest income, the related carry pool allocation, if any, is also reversed. Accordingly, such compensation expense is subject to both positive and negative adjustments.
In February 2021, with the approval of a majority of our independent directors, KKR amended the percentage of carried interest that is allocable to the carry pool instead of 40%to 65% for (i) current investment funds for which no or de minimis amounts of carried interest. The incremental 3% replacesinterest was accrued as of December 31, 2020 and (ii) all future funds. For all other funds, the allocationpercentage of management fee refunds that would have been calculated for those funds and is designed, based on a historical financial analysis of certain investment funds, to allocate an amount for preferred return funds that is comparable to the management fee refunds that would have been allocatedcarried interest remains 40% or 43%, as performance income compensation for those funds.applicable. The percentage of carried interest management fee refunds, and incentive fees allocable to the carry pool may be increased above 65% only with the approval of a majority of our independent directors. To account for the difference in the carry pool allocation percentages, we expect to use a portion of realized carried interest from the older funds equal to the difference between 65% and 40% or 43%, as performance incomeapplicable, to supplement the carry pool and to pay amounts as discretionary cash bonus compensation is subjectas described above to changeour asset management employees. The amounts paid as discretionary cash bonuses, if any, are at our discretion and vary from timeindividual to time. For a discussion of how management fees are refundedindividual and from period to period, including having no cash bonus at all for preferred return funds and non-preferred funds see "--Fair Value Measurements--Recognitioncertain employees. See "—Critical Accounting Policies - Asset Management—Recognition of Carried Interest in the Statement of Operations". and "—Key Financial Measures Under GAAP - Asset Management—Expenses—Compensation and Benefits."
The amounts allocatedOn the Sunset Date (as defined in the Reorganization Agreement), KKR will acquire control of KKR Associates Holdings and will commence making decisions regarding the allocation of carry proceeds pursuant to the limited partnership agreement of KKR Associates Holdings. Until the Sunset Date, our Co-Founders will continue to make decisions regarding the allocation of carry proceeds to themselves and others, pursuant to the limited partnership agreement of KKR Associates Holdings, provided that any allocation of carry proceeds to the Co-Founders will be on a percentage basis consistent with past practice.
Equity-based Compensation
In addition to the cash-based compensation and carry pool allocations as described above, employees receive equity awards under our Equity Incentive Plans, most of which are subject to service-based vesting typically over a three to five-year period from the date of grant, and other performance-based income compensationsome of which are accounted for as compensatory profit-sharing arrangementsalso subject to the achievement of market-based conditions. Certain of these awards are subject to post-vesting transfer restrictions and recorded as compensation and benefits expense for KKR employees and general, administrative and other expense for certain non-employee consultants and service providers in the consolidated statements of operations prepared in accordance with U.S. GAAP.
minimum retained ownership requirements.
General, Administrative and Other
General, administrative and other expense consists primarily of professional fees paid to legal advisors, accountants, advisors and consultants, insurance costs, travel and related expenses, communications and information services, depreciation and amortization charges, changes in fair value of contingent consideration, expenses incurred by oil and gas-producinggas entities, (including impairment charges)CLOs and investment funds that are consolidated, and other general and operating expenses which are not borne by fund investors and are not offset by credits attributable to fund investors' noncontrolling interests in consolidated funds. General, administrative and other expense also consists of costs incurred in connection with pursuing potential investments that do not result in completed transactions a substantial("broken-deal expenses"), expense reimbursements, placement fees and other general operating expenses. A portion of whichthese general administrative and other expenses, in particular broken-deal expenses, are borne by fund investors.
Investment Income (Loss)
Net Gains (Losses) from Investment Activities
Net gains (losses) from investment activities consist of realized and unrealized gains and losses arising from our investment activities. A large portion of our net gains (losses)activities as well as income earned from investment activities are related to our privatecertain equity method investments. Fluctuations in net gains (losses) from investment activities between reporting periods is driven primarily by changes in the fair value of our investment portfolio as well as the realization of investments. The fair value of, as well as the ability to recognize gains from, our private equity and other investments is significantly impacted by the global financial markets, which, in turn, affects the net gains (losses) from investment activities recognized in any given period. Upon the disposition of an investment, previously recognized unrealized gains and losses are reversed and an offsetting realized gain or loss is recognized in the current period. Since our investments are carried at fair value, fluctuations between periods could be significant due to changes to the inputs to our valuation process over time. For a further discussion of our fair value measurements and fair value of investments, see "—Critical Accounting Policies—Policies - Combined—Fair Value Measurements."
Dividend Income
Dividend income consists primarily of distributions that we and our consolidated investment funds receive from portfolio companies or real assets investments in which theywe and our consolidated investment funds invest. Dividend income is recognized primarily in connection with (i) dispositions of operations by portfolio companies, (ii) distributions of excess cash generated from operations from portfolio companiesinvestments or real assets investments, and (iii) other significant refinancings undertaken by portfolio companies.investments.
Interest Income
Interest income consists primarily of interest that is received on our credit instruments in which we and our consolidated investment funds, CLOs and other entities invest as well as interest on our cash balances and other investments.
Interest Expense
Interest expense is incurred from (i) debt issued by KKR, including debt issued by KFN, which was consolidated upon completion of the acquisition of KFN,(ii) credit facilities entered into by KKR, (iii) debt securities issued by consolidated CFEs, (iv) financing arrangements at our majority owned investment vehicles that have been funded with borrowings that are collateralized by the investments and assets they own and (v) financing arrangements at our consolidated funds entered into primarily with the objective of managing cash flow. KFN's debt obligations are non-recourse to KKR beyond the assets of KFN. Debt securities issued by consolidated CFEs are supported solely by the investments held at the CFE and are not collateralized by assets of any other KKR entity. Our obligations under financing arrangements at our consolidated investment funds are generally limited to our pro-ratapro rata equity interest in such funds. However, in some circumstances, we may provide limited guarantees of the obligations of our general partners in an amount equal to its pro rata equity interest in such funds. Our management companies bear no obligations with respect to financing arrangements at our consolidated funds. We also may provide other kinds of guarantees. See "—Liquidity"Liquidity."
Key Financial Measures Under GAAP - Insurance
The following discussion of key financial measures under GAAP is based on KKR's insurance business as conducted by Global Atlantic as of March 31, 2022.
Revenues
Premiums
Premiums primarily relate to payout annuities with life contingencies and whole life and term life insurance policies, recognized when due from the policyholders. Premiums are reported net of premiums ceded under reinsurance agreements.
Policy fees
Policy fees include charges assessed against policyholder account balances for mortality, administration, separate account, benefit rider and surrender fees.
Net investment income
Net investment income reflects the income earned on our investments, net of any associated investment expenses (including management fees charged by the asset management segment) and net of ceded amounts under reinsurance agreements. Net investment income includes, amongst other things (i) interest earned on our fixed income available-for-sale and fixed-income trading investments, (ii) interest income and other related fees from our mortgage and other loan receivables, (iii) interest on funds withheld at interest receivables, (iv) proportional share of income from equity-method investments and (v) income from physical assets, such as renewable energy plants, railcars, and airplanes (net of depreciation and operating expenses).
Net investment-related gains
Net investment-related gains primarily consists of (i) realized gains and losses from the disposal of investments, including realized gains and losses on the disposal of investments not related to asset/liability matching strategies (“variable investment income”), (ii) unrealized gains and losses from investments held for trading, real estate investments accounted under investment company accounting, and investments with fair value re-measurements recognized in earnings as a result of the election of a fair-value option, (iii) unrealized gains and losses on funds withheld at interest receivable and payable, (iv) unrealized gains and losses from derivatives not designated in an hedging relationship and (v) allowances for credit losses, and other impairments of investments.
Other income
Other income is primarily comprised of expense allowances on ceded reinsurance, administration, management fees and distribution fees.
Expenses
Policy benefits and claims
Policy benefits and claims represent the current period expense associated with providing insurance benefits to policyholders, including claims and benefits paid, interest credited to policyholders, changes in policy liability reserves (including fair value reserves), amortization of cost of reinsurance liabilities, and amortization of deferred sales inducements.
Amortization of policy acquisition costs
Amortization of policy acquisition costs primarily consist of amortization of value of business acquired and deferred policy acquisition costs.
Insurance expense
Insurance expenses are primarily comprised of commissions expense, net of amounts capitalized, reinsurance ceding allowances, premium taxes, amortization of acquired intangibles and captive financing charges.
Interest expense
Interest expense is incurred from insurance segment debt issued, including related interest rate swaps, credit facilities and other financing agreements.
General, administrative and other
General, administrative and other expenses are primarily comprised of employee compensation and benefit expenses, third-party administrator ("TPA") policy servicing fees, administrative and professional services, and other operating expenses.
Other Key Financial Measures Under GAAP
Income Taxes
The KKR Group Partnerships and certain of their subsidiaries operate in the United States as partnerships for U.S. federal income tax purposes and as corporate entities in non-U.S. jurisdictions. Accordingly, these entities, in some cases, are subject to New York City unincorporated business taxes, or non-U.S. income taxes. Furthermore, we hold our interest in one of the KKR Group Partnerships through KKR Management Holdings Corp., which& Co. Inc. is treated as a domestic corporation for U.S. federal income tax purposes and is subject to U.S. federal, state and local income taxes at the entity level on its share of taxable income. In addition, KKR Group Partnership and certain otherof its subsidiaries operate as partnerships for U.S. federal tax purposes but as taxable entities for certain state, local or non-U.S. tax purposes. Moreover, certain corporate subsidiaries of the KKR, Group Partnershipsincluding certain Global Atlantic subsidiaries, are treated asdomestic corporations for U.S. federal income tax purposes. Accordingly, certain subsidiaries of KKR, including KKR Management Holdings Corp.,purposes and are subject to U.S. federal, state, and local corporate income taxes at the entity level and the related tax provision attributable to KKR's share of this income is reflected in the financial statements. We also generate certain interest income to our unitholders and interest deductions to KKR Management Holdings Corp.
We use the asset and liability method to account for income taxes in accordance with GAAP. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using currently enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that all or a portion of the deferred tax assets will not be realized.
taxes.
Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining tax expense and in evaluating tax positions including evaluating uncertainties. We review our tax positions quarterly and adjust our tax balances as new information becomes available.
For a further discussion of our income tax policies, see Note 18 "Income Taxes" in our financial statements.
Net Income (Loss) Attributable to Noncontrolling Interests
Net income (loss) attributable to noncontrolling interests primarily represents the ownership interests that certain third parties hold in entities that are consolidated in the financial statements as well as the ownership interests in our KKR Group PartnershipsPartnership that are held by KKR Holdings.Holdings (and holders of other exchangeable securities). The allocable share of income and expense attributable to these interests is accounted for as net income (loss) attributable to noncontrolling interests. Given the consolidation of certain of our investment funds and the significant ownership interests in our KKR Group PartnershipsPartnership held by KKR Holdings, we expect a portion of net income (loss) will continue to be attributed to noncontrolling interests in our business.
For a further discussion of our noncontrolling interests policies, see "Item 1. Condensed Consolidated Financial Statements (Unaudited)--Summary of Significant Accounting Policies."Note 22 "Equity" in the financial statements.
KeySegment Operating and Non-GAAP Performance Measures
The following key segment keyand non-GAAP performance measures that follow are used by management in making operatingoperational and resource deployment decisions as well as assessing the overall performance of each of KKR's reportable business segments. The reportable segments for KKR's businessbusinesses. They include certain financial measures that are calculated and presented using methodologies other than in accordance with GAAP. These performance measures as described below are presented prior to giving effect to the allocation of income (loss) between KKR & Co. L.P.Inc. and KKR Holdings L.P. (and holders of other exchangeable securities) and as such represent the entire KKR business in total. In addition, KKR's reportable segmentsthese performance measures are presented without giving effect to the consolidation of the investment funds and CFEscollateralized financing entities (“CFEs”) that KKR manages as well as other consolidated entities that are not subsidiaries of KKR & Co. L.P.manages.
We disclose the following financial measures in this report that are calculated and presented using methodologies other than in accordance with GAAP. We believe that providing these segment and non-GAAP performance measures on a supplemental basis to our GAAP results is helpful to unitholdersstockholders in assessing the overall performance of KKR's businesses.business. These financialnon-GAAP measures should not be considered as a substitute for similar financial measures calculated in accordance with GAAP, if available. We caution readers that these non-GAAP financial measures may differ from the calculations of other investment managers, and as a result, may not be comparable to similar measures presented by other investment managers.GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP, where applicable are included within "Financial Statements and Supplementary Data — Note 14. Segment Reporting" and later in this report under "—Segment Balance Sheet.Reconciliations to GAAP Measures."
Adjusted Units
Adjusted units are used as a measure of the total common equity ownership of KKR that is held by KKR & Co. L.P. (including equity awards issued under the KKR & Co. L.P. 2010 Equity Incentive Plan (the "Equity Incentive Plan"), but excluding preferred units), KKR Holdings and other holders of securities exchangeable into common units of KKR & Co. L.P. and represent the fully diluted common unit count using the if-converted method. We believe this measure is useful to unitholders as it provides an indication of the total common equity ownership of KKR as if all outstanding KKR Holdings units, equity awards issued under the Equity Incentive Plan and other exchangeable securities had been exchanged for common units of KKR & Co. L.P. The Series A and Series B Preferred Units are not exchangeable for common units of KKR & Co. L.P.
Adjusted Units Eligible for Distribution
Adjusted units eligible for distribution represents the portion of total adjusted units that is eligible to receive a distribution. We believe this measure is useful to unitholders as it provides insight into the calculation of amounts available for distribution on a per unit basis. Adjusted units eligible for distribution is used in the calculation of after-tax distributable earnings per unit.
After-TaxAfter-tax Distributable Earnings
After-tax distributable earnings is used by management as an operatinga non-GAAP performance measure of theKKR’s earnings, excluding mark-to-market gains (losses) of KKR. KKR believes this measurewhich is useful to unitholders as it provides a supplemental measure to assess performance, excluding the impact of mark-to-market gains (losses).derived from KKR’s reported segment results. After-tax distributable earnings excludes certain realized investment lossesis used to assess the performance of KKR’s business operations and measures the earnings potentially available for distribution to its equity holders or reinvestment into its business. After-tax distributable earnings is equal to Distributable Operating Earnings less Interest Expense, Series A and B Preferred Stock dividends (which have been redeemed), Net Income Attributable to Noncontrolling Interests and Income Taxes Paid. Series C Mandatory Convertible Preferred Stock dividends have been excluded from After-tax Distributable Earnings, because the definition of Adjusted Shares used to calculate After-tax Distributable Earnings per Adjusted Share assumes that all shares of Series C Mandatory Convertible Preferred Stock have been converted to shares of common stock. Income Taxes Paid represents the implied amount of income taxes that would be paid assuming that all pre-tax distributable earnings were allocated to KKR & Co. Inc. and taxed at the same effective rate, which assumes that all units in KKR Holdings L.P. and other exchangeable securities were exchanged for common stock of KKR & Co. Inc. Income Taxes Paid includes amounts paid pursuant to the extent unrealized losses on these investments were recognized priortax receivable agreement and the benefit of tax deductions arising from equity-based compensation, which
reduces income taxes paid or payable during the period. Equity-based compensation expense is excluded from After-tax Distributable Earnings, because (i) KKR believes that the cost of equity awards granted to employees does not contribute to the combination with KPE on October 1, 2009.earnings potentially available for distributions to its equity holders or reinvestment into its business and (ii) excluding this expense makes KKR’s reporting metric more comparable to the corresponding metric presented by other publicly traded companies in KKR’s industry, which KKR believes enhances an investor’s ability to compare KKR’s performance to these other companies. If tax deductions from equity-based compensation were to be excluded from Income Taxes Paid, KKR’s After-tax distributableDistributable Earnings would be lower and KKR’s effective tax rate would appear to be higher, even though a lower amount of income taxes would have actually been paid or payable during the period. KKR separately discloses the amount of tax deduction from equity-based compensation for the period reported and the effect of its inclusion in After-tax Distributable Earnings for the period. KKR makes these adjustments when calculating After-tax Distributable Earnings in order to more accurately reflect the net realized earnings that are expected to be or become available for distribution to KKR’s equity holders or reinvestment into KKR’s business. However, After-tax Distributable Earnings does not represent and is not used to calculate actual distributionsdividends under KKR’s distribution policy.
The following tables present our calculations of distributable segment revenues,dividend policy, which is a fixed amount per period, and After-tax Distributable Earnings should not be viewed as a measure of KKR’s liquidity.
Book Value
Book Value is a non‐GAAP performance measure of the net assets of KKR and is used by management primarily in assessing the unrealized value of KKR’s net assets presented on a basis that (i) deconsolidates KKR’s investment funds and CFEs that KKR manages, (ii) includes the net assets that are attributable to KKR Holdings L.P., and (iii) includes KKR’s ownership of the net assets of Global Atlantic. We believe this measure is useful to stockholders as it provides additional insight into the net assets of KKR excluding those net assets that are allocated to the investors of KKR funds and other noncontrolling interest holders and to the holders of preferred stock. KKR's book value includes (x) the net impact of KKR's tax assets and liabilities as prepared under GAAP and (y) the implied amount of (1) tax assets and liabilities attributable to KKR Holdings L.P. as if it was subject to corporate income taxes and (2) the recognition of deferred tax liabilities relating to certain assets of KKR Group Partnership L.P. that is expected to occur upon the completion of the mergers contemplated by the Reorganization Agreement. Series C Mandatory Convertible Preferred Stock has been included in book value, because the definition of adjusted shares used to calculate book value per adjusted share assumes that all shares of Series C Mandatory Convertible Preferred Stock have been converted to shares of common stock. To calculate Global Atlantic book value and to make it more comparable with the corresponding metric presented by other publicly traded companies in Global Atlantic’s industry, Global Atlantic book value excludes (i) accumulated other comprehensive income and (ii) accumulated change in fair value of reinsurance balances and related assets, net of income tax.
Distributable Operating Earnings
Distributable operating earnings is a non-GAAP performance measure that KKR believes is useful to stockholders as it provides a supplemental measure of our totaloperating performance without taking into account items that KKR does not believe arise from or relate directly to KKR's operations. Distributable Operating Earnings is presented prior to giving effect to the allocation of income (loss) among KKR & Co. Inc., KKR Holdings L.P. and other exchangeable securities, and the consolidation of the investment funds, vehicles and accounts that KKR advises, manages or sponsors (including collateralized financing entities). Distributable Operating Earnings excludes: (i) equity-based compensation charges, (ii) amortization of acquired intangibles, (iii) strategic corporate transaction-related charges and (iv) non-recurring items, if any. Strategic corporate transaction-related items arise from corporate actions and consist primarily of (i) impairments, (ii) non-monetary gains or losses on divestitures, (iii) transaction costs from strategic acquisitions, and (iv) depreciation on real estate that KKR owns and occupies. Inter-segment transactions are not eliminated from segment revenues excludingresults when management considers those transactions in assessing the results of the respective segments. These transactions include (i) management fees earned by KKR as the investment adviser for Global Atlantic insurance companies and (ii) interest income and expense based on lending arrangements where one or more KKR subsidiaries borrow from a Global Atlantic insurance subsidiary. Inter-segment transactions are recorded by each segment based on the definitive documents that contain arms’ length terms and comply with applicable regulatory requirements. Distributable Operating Earnings represents operating earnings of KKR’s Asset Management and Insurance segments, which are comprised of the following:
•Asset Management Segment Operating Earnings is the segment profitability measure used to make operating decisions and to assess the performance of the Asset Management segment and is comprised of: (i) Fee Related Earnings, (ii) Realized Performance Income, (iii) Realized Performance Income Compensation, (iv) Realized Investment Income, and (v) Realized Investment Income Compensation. Asset Management Segment Operating Earnings excludes (i) unrealized carried interest, (ii) net unrealized gains (losses) on investments, and (iii) related unrealized performance income compensation. Management fees earned by KKR as the adviser, manager or sponsor for its investment funds, vehicles and accounts, including management fees paid to KKR by Global Atlantic's insurance companies and
management fees paid to Global Atlantic by reinsurance investment vehicles, are included in Asset Management Segment Operating Earnings.
•Insurance Segment Operating Earnings is the segment profitability measure used to make operating decisions and to assess the performance of the Insurance segment and is comprised of: (i) Net Investment Income, (ii) Net Cost of Insurance, (iii) General, Administrative, and Other Expenses, (iv) Income Taxes, and (v) Net Income Attributable to Noncontrolling Interests. The non-operating adjustments made to derive Insurance Segment Operating Earnings eliminate the impact of mark-to-market gains (losses), distributable segment expenses, which is our total segment expenses excluding the impact of mark-to-market gains (losses), and after-tax distributable earnings on common units for the three and nine months ended September 30, 2017 and 2016. Additionally, the individual components of our calculations of after-tax distributable earnings are reconciledof: (i) realized (gains) losses related to the most directly comparable GAAP measureasset/liability matching investments strategies, (ii) unrealized investment (gains) losses, (iii) changes in the tables below.
The following table presents our calculationfair value of distributable segment revenuesderivatives, embedded derivatives, and fair value liabilities for fixed-indexed annuities, indexed universal life contracts and variable annuities, and (iv) the three and nine months ended September 30, 2017 and 2016.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
($ in thousands) | | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
Distributable Segment Revenues | | | | | | | | |
Fees and Other, Net | | | | | | | | |
Management Fees | | $ | 232,954 |
| | $ | 201,508 |
| | $ | 670,807 |
| | $ | 599,725 |
|
Monitoring Fees | | 14,342 |
| | 11,091 |
| | 58,072 |
| | 52,126 |
|
Transaction Fees | | 179,167 |
| | 111,354 |
| | 578,667 |
| | 276,003 |
|
Fee Credits | | (70,747 | ) | | (47,392 | ) | | (211,148 | ) | | (109,272 | ) |
Total Fees and Other, Net | | 355,716 |
| | 276,561 |
| | 1,096,398 |
| | 818,582 |
|
| | | | | | | | |
Realized Performance Income (Loss) | | | | | | | | |
Incentive Fees | | 4,074 |
| | 3,659 |
| | 8,384 |
| | 9,897 |
|
Carried Interest | | 419,438 |
| | 350,469 |
| | 890,310 |
| | 753,032 |
|
Total Realized Performance Income (Loss) | | 423,512 |
| | 354,128 |
| | 898,694 |
| | 762,929 |
|
| | | | | | | | |
Realized Investment Income (Loss) | | | | | | | | |
Net Realized Gains (Losses) | | 76,053 |
| | 170,078 |
| | 162,684 |
| | 370,594 |
|
Interest Income and Dividends | | 70,557 |
| | 71,185 |
| | 195,275 |
| | 253,756 |
|
Interest Expense | | (45,613 | ) | | (47,506 | ) | | (134,348 | ) | | (144,497 | ) |
Total Realized Investment Income (Loss) | | 100,997 |
| | 193,757 |
| | 223,611 |
| | 479,853 |
|
Total Distributable Segment Revenues | | $ | 880,225 |
| | $ | 824,446 |
| | $ | 2,218,703 |
| | $ | 2,061,364 |
|
The following table presents our calculationassociated income tax effects of distributable segment expensesall exclusions from Insurance Segment Operating Earnings except for the three and nine months ended September 30, 2017 and 2016.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
($ in thousands) | | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
Distributable Segment Expenses | | | | | | | | |
Compensation and Benefits | | | | | | | | |
Cash Compensation and Benefits | | $ | 130,621 |
| | $ | 101,967 |
| | $ | 405,578 |
| | $ | 299,756 |
|
Performance Income Compensation | | 177,705 |
| | 159,151 |
| | 377,689 |
| | 322,671 |
|
Total Compensation and Benefits | | 308,326 |
| | 261,118 |
| | 783,267 |
| | 622,427 |
|
Occupancy and Related Charges | | 14,672 |
| | 15,877 |
| | 42,448 |
| | 47,486 |
|
Other Operating Expenses | | 70,517 |
| | 55,123 |
| | 177,084 |
| | 166,542 |
|
Total Distributable Segment Expenses | | $ | 393,515 |
| | $ | 332,118 |
| | $ | 1,002,799 |
| | $ | 836,455 |
|
| | | | | | | | |
The following table presents our calculation of after-tax distributable earnings for the three and nine months ended September 30, 2017 and 2016.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
($ in thousands except per unit data) | | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
After-tax Distributable Earnings | | | | | | | | |
Distributable Segment Revenues | | $ | 880,225 |
| | $ | 824,446 |
| | $ | 2,218,703 |
| | $ | 2,061,364 |
|
Distributable Segment Expenses | | 393,515 |
| | 332,118 |
| | 1,002,799 |
| | 836,455 |
|
Income (Loss) attributable to Noncontrolling Interests | | 1,046 |
| | 760 |
| | 3,810 |
| | 2,002 |
|
Income taxes paid | | 12,869 |
| | 21,869 |
| | 54,228 |
| | 71,191 |
|
Preferred distributions | | 8,341 |
| | 8,201 |
| | 25,023 |
| | 13,894 |
|
After-tax Distributable Earnings | | $ | 464,454 |
| | $ | 461,498 |
| | $ | 1,132,843 |
| | $ | 1,137,822 |
|
| | | | | | | | |
Per Adjusted Unit Eligible for Distribution | | $ | 0.57 |
| | $ | 0.57 |
| | $ | 1.39 |
| | $ | 1.41 |
|
For a discussion of the components that drove the changes in our after-tax distributable earnings, see discussion ofequity-based compensation expense. Insurance Segment Operating Earnings includes (i) management, monitoring and transaction fees, (ii) realized performance income, (iii) realized gains and net interestlosses not related to asset/liability matching investments strategies, and dividends within(ii) the investment income and (iv)management fee expenses excluding unrealized performance income compensation, within “—Segment Analysis.”
The followingthat are reconciliationsearned by KKR as the investment adviser of the individual componentsGlobal Atlantic insurance companies.
Fee Related Earnings ("FRE")
Fee related earnings is a performance measure used to assess the Asset Management segment’s generation of profits from revenues that are measured and received on a recurring basis and are not dependent on future realization events. KKR believes this measure is useful to stockholders as it provides additional insight into the profitability of KKR’s fee generating asset management and capital markets businesses and other recurring revenue streams. FRE equals (i) Management Fees, including fees paid by the Insurance segment to the Asset Management segment and fees paid by certain insurance co-investment vehicles, (ii) Transaction and Monitoring Fees, Net and (iii) Fee Related Performance Revenues, less (x) Fee Related Compensation, and (y) Other Operating Expenses.
•Fee Related Performance Revenues refers to the realized portion of Incentive Fees from certain AUM that has an indefinite term and for which there is no immediate requirement to return invested capital to investors upon the realization of investments. Fee-related performance revenues consists of performance fees (i) to be received from our investment funds, vehicles and accounts on a recurring basis, and (ii) that are not dependent on a realization event involving investments held by the investment fund, vehicle or account.
•Fee Related Compensation refers to the compensation expense, excluding equity-based compensation, paid from (i) Management Fees, (ii) Transaction and Monitoring Fees, Net, and (iii) Fee Related Performance Revenues.
•Other Operating Expenses represents the sum of (i) occupancy and related charges and (ii) other operating expenses.
Other Terms and Capital Metrics
Adjusted Shares
Adjusted shares represents shares of common stock of KKR & Co. Inc. outstanding under GAAP adjusted to include shares issuable upon exchange of all units of KKR Holdings L.P. and other exchangeable securities and the number of shares of common stock assumed to be issuable upon conversion of the Series C Mandatory Convertible Preferred Stock. Weighted average adjusted shares is used in the calculation of after-tax distributable earnings toAfter-tax Distributable Earnings per Adjusted Share, and Adjusted Shares is used in the most directly comparable GAAP measure.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
($ in thousands) | | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
| | | | | | | | |
Fees and Other | | $ | 692,877 |
| | $ | 687,056 |
| | $ | 2,340,617 |
| | $ | 1,426,618 |
|
Plus: Management fees relating to consolidated funds and placement fees | | 54,012 |
| | 49,017 |
| | 153,414 |
| | 131,335 |
|
Less: Fee credits relating to consolidated funds | | 106 |
| | 417 |
| | 3,752 |
| | 2,766 |
|
Plus: Net realized and unrealized carried interest - consolidated funds | | 22,341 |
| | 5,956 |
| | 43,782 |
| | 15,581 |
|
Plus: Total investment income (loss) | | 50,095 |
| | 330,497 |
| | 684,722 |
| | (245,846 | ) |
Less: Revenue earned by oil & gas producing entities | | 12,441 |
| | 16,191 |
| | 47,096 |
| | 47,977 |
|
Less: Reimbursable expenses | | 27,506 |
| | 12,064 |
| | 87,131 |
| | 46,583 |
|
Less: Other | | 9,587 |
| | 12,317 |
| | 27,035 |
| | 29,453 |
|
Total Segment Revenues | | $ | 769,685 |
| | $ | 1,031,537 |
| | $ | 3,057,521 |
| | $ | 1,200,909 |
|
Less: Unrealized Carried Interest | | (59,638 | ) | | 70,351 |
| | 377,707 |
| | (134,756 | ) |
Less: Net Unrealized Gains (Losses) | | (50,902 | ) | | 136,740 |
| | 461,111 |
| | (725,699 | ) |
Total Distributable Segment Revenues | | $ | 880,225 |
| | $ | 824,446 |
| | $ | 2,218,703 |
| | $ | 2,061,364 |
|
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
($ in thousands) | | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
| | | | | | | | |
Total Expenses | | $ | 530,247 |
| | $ | 511,117 |
| | $ | 1,699,989 |
| | $ | 1,242,658 |
|
Less: Equity based compensation | | 72,250 |
| | 61,552 |
| | 271,226 |
| | 186,032 |
|
Less: Reimbursable expenses and placement fees | | 37,508 |
| | 18,255 |
| | 132,491 |
| | 72,887 |
|
Less: Operating expenses relating to consolidated funds, CFEs and other entities | | 21,858 |
| | 20,141 |
| | 56,517 |
| | 85,093 |
|
Less: Expenses incurred by oil & gas producing entities | | 10,725 |
| | 17,782 |
| | 34,826 |
| | 56,000 |
|
Less: Intangible amortization | | 2,473 |
| | 22,112 |
| | 13,901 |
| | 35,640 |
|
Less: Other | | 11,744 |
| | 9,764 |
| | 31,067 |
| | 19,275 |
|
Total Segment Expenses | | $ | 373,689 |
| | $ | 361,511 |
| | $ | 1,159,961 |
| | $ | 787,731 |
|
Less: Unrealized Performance Income Compensation | | (19,826 | ) | | 29,393 |
| | 157,162 |
| | (48,724 | ) |
Total Distributable Segment Expenses | | $ | 393,515 |
| | $ | 332,118 |
| | $ | 1,002,799 |
| | $ | 836,455 |
|
| | | | | | | | |
calculation of Book Value per Adjusted Share.
Assets Under Management ("AUM")
Assets under management ("AUM") represent the assets managed, advised or advisedsponsored by KKR from which KKR is entitled to receive management fees or a carried interest (either currentlyperformance income (currently or upon deployment of capital)a future event), general partner capital, and assets managed, advised or advisedsponsored by our strategic manager partnershipsBDC partnership and the hedge fund and other managers in which KKR holds a minorityan ownership interest. We believe this measure is useful to unitholdersstockholders as it provides additional insight into the capital raising activities of KKR and its strategic manager partnershipshedge fund and other managers and the overall activity in their investment funds and other managed or sponsored capital. KKR calculates the amount of AUM as of any date as the sum of: (i) the fair value of the investments of KKR's investment funds;funds and the Global Atlantic insurance companies; (ii) uncalled capital commitments from these funds, including uncalled capital commitments from which KKR is currently not earning management fees or carried interest;performance income; (iii) the fair value of investments in KKR's co-investment vehicles; (iv) the par value of outstanding CLOs (excluding CLOs wholly-owned by KKR);CLOs; (v) KKR's pro-ratapro rata portion of the AUM of strategic manager partnershipshedge fund and other managers in which KKR holds a minorityan ownership interest,interest; (vi) all AUM of KKR's strategic BDC partnership; and (vi)(vii) the fair value of other assets managed or sponsored by KKR. The pro-ratapro rata portion of the
AUM of strategic manager partnershipshedge fund and other managers is calculated based on KKR’s percentage ownership interest in such entities multiplied by such entity’s respective AUM. KKR's definition of AUM (i) is not based on any definition of AUM that may be set forth in the agreements governing documents of the investment funds, vehicles, accounts or accounts that it manages orother entities whose capital is included in this definition, (ii) includes assets for which KKR does not act as an investment adviser, and (iii) is not calculated pursuant to any regulatory definitions.
Book Value
Book value is a measure of the net assets of KKR’s reportable segments and is used by management primarily in assessing the unrealized value of KKR’s investments and other assets, including carried interest. We believe this measure is useful to unitholders as it provides additional insight into the assets and liabilities of KKR excluding the assets and liabilities that are allocated to noncontrolling interest holders and to the holders of the Series A and Series B Preferred Units.
Capital Invested
Capital invested is the aggregate amount of capital invested by (i) KKR’s investment funds and Global Atlantic's insurance companies, (ii) KKR's Principal Activities segmentbusiness line as a co-investment, if any, alongside KKR’s investment funds, and (iii) theKKR's Principal Activities segmentbusiness line in connection with a syndication transaction conducted by KKR's Capital Markets segment,business line, if any. Capital invested is used as a measure of investment activity at KKR during a given period. We believe this measure is useful to unitholdersstockholders as it provides a measure of capital deployment across KKR’s business segments.lines. Capital invested includes investments made using investment financing arrangements like credit facilities, as applicable. Capital invested excludes (i) investments in liquidcertain leveraged credit strategies, (ii) capital invested by KKR’s Principal Activities segmentbusiness line that is not a co-investment alongside KKR’s investment funds, and (iii) capital invested by theKKR’s Principal Activities segmentbusiness line that is not invested in connection with a syndication transaction by KKR’s Capital Markets segment.business line. Capital syndicated by ourKKR's Capital Markets segmentbusiness line to third parties other than KKR’s investment funds or Principal Activities segmentbusiness line is not included in capital invested. See also syndicated capital. In the fourth quarter of 2016, the capital invested metric was changed to include capital invested by KKR's Principal Activities segment and all prior periods in this report have been adjusted.
Economic Net Income (Loss) (“ENI”)
Economic net income (loss) is a measure of profitability for KKR’s reportable segments and is used by management as an alternative measurement of the operating and investment earnings of KKR and its business segments. We believe this measure is useful to unitholders as it provides additional insight into the overall profitability of KKR’s businesses inclusive of carried interest, incentive fees and related carry pool allocations and investment income. ENI is comprised of total segment revenues less total segment expenses and certain economic interests in KKR’s segments held by third parties. Pre-tax Economic Net Income (Loss) represents Economic Net Income (Loss) after equity-based compensation. After-tax Economic Net Income (Loss) represents Economic Net Income (Loss) after equity-based compensation, provision for income taxes and preferred distributions.
Fee Paying AUM ("FPAUM")
Fee paying AUM ("FPAUM") represents only the AUM from which KKR receivesis entitled to receive management fees. We believe this measure is useful to unitholdersstockholders as it provides additional insight into the capital base upon which KKR earns management fees. FPAUM is the sum of all of the individual fee bases that are used to calculate KKR's and its strategic manager partnerships'hedge fund and BDC partnership management fees and differs from AUM in the following respects: (i) assets and commitments from which KKR doesis not entitled to receive a management fee are excluded (i.e.(e.g., assets and commitments with respect to which it receivesis entitled to receive only carried interestperformance income or is otherwise not currently receivingentitled to receive a management fee) and (ii) certain assets, primarily in its private equity funds, are reflected based on capital commitments and invested capital as opposed to fair value because fees are not impacted by changes in the fair value of underlying investments.
Uncalled Commitments
Fee Related Earnings ("FRE")
Fee related earnings Uncalled commitments is a measure of the operating earnings of KKR and its business segments before performance income, related performance income compensation and investment income. KKR believes this measure may be useful to unitholders as it provides additional insight into the operating profitability of KKR's fee generating management companies and capital markets businesses.
Outstanding Adjusted Units
Outstanding adjusted units represents the portion of total adjusted units that would receive assets of KKR if it were to be liquidated as of a particular date. Outstanding adjusted units is used to calculate book value per outstanding adjusted unit, which we believe is useful to unitholders as it provides a measure of net assets of KKR’s reportable segments on a per unit basis.
Syndicated Capital
Syndicated capital is generally the aggregate amount of capital in transactions originated by KKR and its investment funds and carry-yielding co-investment vehicles, which has been distributed to third parties in exchange for a fee. It does not include (i) capital invested in such transactions by KKR investment funds and carry-yielding co-investment vehicles, which is instead reported in capital invested and (ii) debt capital that is arranged as part of the acquisition financing of transactions originated by KKR investment funds and (iii) debt capital that is either underwritten or arranged on a best efforts basis. Syndicated capital is used as a measure of investment activity for KKR during a given period, and we believe that this measure is useful to unitholders as it provides additional insight into levels of syndication activity in KKR's Capital Markets segment and across its investment platform.
Uncalled Commitments
Uncalled commitments are used as a measure of unfunded capital commitments that KKR’s investment funds and carry-paying co-investment vehicles have received from partners to contribute capital to fund future investments. We believe this measure is useful to unitholdersstockholders as it provides additional insight into the amount of capital that is available to KKR’s investment funds and carry paying co-investment vehicles to make future investments. Uncalled commitments are not reduced for investments completed using fund-level investment financing arrangements.arrangements or investments we have committed to make but remain unfunded at the reporting date.
A reconciliation
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
($ in thousands) | | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
Net Income (Loss) Attributable to KKR & Co. L.P. Common Unitholders | | $ | 153,563 |
| | $ | 352,152 |
| | $ | 818,552 |
| | $ | 116,103 |
|
Plus: Preferred Distributions | | 8,341 |
| | 8,201 |
| | 25,023 |
| | 13,894 |
|
Plus: Net income (loss) attributable to noncontrolling interests held by KKR Holdings L.P. | | 115,434 |
| | 284,834 |
| | 637,146 |
| | 86,659 |
|
Plus: Non-cash equity-based charges | | 78,728 |
| | 61,552 |
| | 277,704 |
| | 186,032 |
|
Plus: Amortization of intangibles, placement fees and other, net | | 20,464 |
| | (48,299 | ) | | 57,825 |
| | (10,273 | ) |
Plus: Income tax (benefit) | | 18,420 |
| | 10,826 |
| | 77,500 |
| | 18,761 |
|
Economic Net Income (Loss) | | 394,950 |
| | 669,266 |
| | 1,893,750 |
| | 411,176 |
|
Plus: Income attributable to segment noncontrolling interests | | 1,046 |
| | 760 |
| | 3,810 |
| | 2,002 |
|
Less: Total investment income (loss) | | 50,095 |
| | 330,497 |
| | 684,722 |
| | (245,846 | ) |
Less: Net performance income (loss) | | 205,995 |
| | 235,935 |
| | 741,550 |
| | 354,226 |
|
Plus: Expenses of Principal Activities Segment | | 51,974 |
| | 38,659 |
| | 156,938 |
| | 116,214 |
|
Fee Related Earnings | | 191,880 |
| | 142,253 |
| | 628,226 |
| | 421,012 |
|
Plus: Net interest and dividends | | 24,944 |
| | 23,679 |
| | 60,927 |
| | 109,259 |
|
Less: Expenses of Principal Activities Segment | | 51,974 |
| | 38,659 |
| | 156,938 |
| | 116,214 |
|
Plus: Realized performance income (loss), net | | 245,807 |
| | 194,977 |
| | 521,005 |
| | 440,258 |
|
Plus: Net realized gains (losses) | | 76,053 |
| | 170,078 |
| | 162,684 |
| | 370,594 |
|
Less: Income taxes paid | | 12,869 |
| | 21,869 |
| | 54,228 |
| | 71,191 |
|
Less: Preferred distributions | | 8,341 |
| | 8,201 |
| | 25,023 |
| | 13,894 |
|
Less: Income attributable to segment noncontrolling interests | | 1,046 |
| | 760 |
| | 3,810 |
| | 2,002 |
|
After-tax Distributable Earnings | | $ | 464,454 |
| | $ | 461,498 |
| | $ | 1,132,843 |
| | $ | 1,137,822 |
|
| | | | | | | | |
Unaudited Condensed Consolidated Results of Operations (GAAP Basis - Unaudited)
The following is a discussion of our condensed consolidated results of operations for the three and nine months ended September 30, 2017March 31, 2022 and 2016.2021. You should read this discussion in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this report. For a more detailed discussion of the factors that affected theour segment results of operations of our four business segments in these periods, see “—"—Analysis of Segment Analysis.”Operating Results." See "—Business Environment" for more information about factors that may impact our business, financial performance, operating results and valuations.
Three monthsThe presentation of our consolidated results of operations that follows reflects the significant industry diversification of KKR by its acquisition of Global Atlantic. Global Atlantic operates an insurance business, and KKR operates an asset management business, each of which possess distinct characteristics. As a result, KKR developed a two-tiered presentation approach, where Global Atlantic's insurance business is presented separately from KKR's asset management business. Additionally, for the quarter ended September 30, 2017 compared to three months ended September 30, 2016March 31, 2021 the results of Global Atlantic's insurance operations included in our consolidated results of operations are from February 1, 2021 (closing date of the acquisition) through March 31, 2021.
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
| March 31, 2022 | | March 31, 2021 | | Change |
| ($ in thousands) |
Revenues | | | | | |
Asset Management | | | | | |
Fees and Other | $ | 780,511 | | | $ | 493,311 | | | $ | 287,200 | |
Capital Allocation-Based Income (Loss) | (945,743) | | | 2,684,647 | | | (3,630,390) | |
| (165,232) | | | 3,177,958 | | | (3,343,190) | |
Insurance | | | | | |
Net Premiums | 372,144 | | | 1,176,142 | | | (803,998) | |
Policy Fees | 318,436 | | | 201,683 | | | 116,753 | |
Net Investment Income | 812,605 | | | 444,781 | | | 367,824 | |
Net Investment-Related Gains (Losses) | (368,680) | | | (455,702) | | | 87,022 | |
Other Income | 34,744 | | | 18,144 | | | 16,600 | |
| 1,169,249 | | | 1,385,048 | | | (215,799) | |
Total Revenues | 1,004,017 | | | 4,563,006 | | | (3,558,989) | |
| | | | | |
Expenses | | | | | |
Asset Management | | | | | |
Compensation and Benefits | 283,672 | | | 1,306,797 | | | (1,023,125) | |
Occupancy and Related Charges | 18,149 | | | 15,200 | | | 2,949 | |
General, Administrative and Other | 234,665 | | | 166,997 | | | 67,668 | |
| 536,486 | | | 1,488,994 | | | (952,508) | |
Insurance | | | | | |
Policy Benefits and Claims | 726,060 | | | 1,485,318 | | | (759,258) | |
Amortization of Policy Acquisition Costs | (7,733) | | | (20,478) | | | 12,745 | |
Interest Expense | 13,219 | | | 10,672 | | | 2,547 | |
Insurance Expenses | 116,743 | | | 52,084 | | | 64,659 | |
General, Administrative and Other | 167,214 | | | 79,955 | | | 87,259 | |
| 1,015,503 | | | 1,607,551 | | | (592,048) | |
Total Expenses | 1,551,989 | | | 3,096,545 | | | (1,544,556) | |
| | | | | |
Investment Income (Loss) - Asset Management | | | | | |
Net Gains (Losses) from Investment Activities | 914,261 | | | 2,696,200 | | | (1,781,939) | |
Dividend Income | 662,350 | | | 75,746 | | | 586,604 | |
Interest Income | 352,556 | | | 367,455 | | | (14,899) | |
Interest Expense | (281,759) | | | (251,756) | | | (30,003) | |
Total Investment Income (Loss) | 1,647,408 | | | 2,887,645 | | | (1,240,237) | |
| | | | | |
Income (Loss) Before Taxes | 1,099,436 | | | 4,354,106 | | | (3,254,670) | |
| | | | | |
Income Tax Expense (Benefit) | (3,166) | | | 438,739 | | | (441,905) | |
| | | | | |
|
| | | | | | | | | | | |
| Three Months Ended |
| September 30, 2017 | | September 30, 2016 | | Change |
| ($ in thousands) |
Revenues | |
| | |
| | |
Fees and Other | $ | 692,877 |
| | $ | 687,056 |
| | $ | 5,821 |
|
| | | | | |
Expenses | |
| | |
| | |
Compensation and Benefits | 368,513 |
| | 358,161 |
| | 10,352 |
|
Occupancy and Related Charges | 15,267 |
| | 16,405 |
| | (1,138 | ) |
General, Administrative and Other | 146,467 |
| | 136,551 |
| | 9,916 |
|
Total Expenses | 530,247 |
| | 511,117 |
| | 19,130 |
|
| | | | | |
Investment Income (Loss) | |
| | |
| | |
Net Gains (Losses) from Investment Activities | 108,779 |
| | 735,144 |
| | (626,365 | ) |
Dividend Income | 20,774 |
| | 73,105 |
| | (52,331 | ) |
Interest Income | 317,134 |
| | 256,505 |
| | 60,629 |
|
Interest Expense | (211,959 | ) | | (255,105 | ) | | 43,146 |
|
Total Investment Income (Loss) | 234,728 |
| | 809,649 |
| | (574,921 | ) |
| | | | | |
Income (Loss) Before Taxes | 397,358 |
| | 985,588 |
| | (588,230 | ) |
| | | | | |
Income Taxes | 18,420 |
| | 10,826 |
| | 7,594 |
|
| | | | | |
Net Income (Loss) | 378,938 |
| | 974,762 |
| | (595,824 | ) |
| | | | | |
Net Income (Loss) Attributable to Redeemable Noncontrolling Interests | 20,876 |
| | 3,121 |
| | 17,755 |
|
Net Income (Loss) Attributable to Noncontrolling Interests | 196,158 |
| | 611,288 |
| | (415,130 | ) |
| | | | | |
Net Income (Loss) Attributable to KKR & Co. L.P. | 161,904 |
| | 360,353 |
| | (198,449 | ) |
| | | | | |
Less: Net Income Attributable to Series A Preferred Unitholders | 5,822 |
| | 5,822 |
| | — |
|
Less: Net Income Attributable to Series B Preferred Unitholders | 2,519 |
| | 2,379 |
| | 140 |
|
| | | | | |
Net Income (Loss) Attributable to KKR & Co. L.P. Common Unitholders | $ | 153,563 |
| | $ | 352,152 |
| | $ | (198,589 | ) |
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
| March 31, 2022 | | March 31, 2021 | | Change |
| ($ in thousands) |
| | | | | |
Net Income (Loss) | 1,102,602 | | | 3,915,367 | | | (2,812,765) | |
Net Income (Loss) Attributable to Redeemable Noncontrolling Interests | (63) | | | — | | | (63) | |
Net Income (Loss) Attributable to Noncontrolling Interests | 1,159,185 | | | 2,245,531 | | | (1,086,346) | |
Net Income (Loss) Attributable to KKR & Co. Inc. | (56,520) | | | 1,669,836 | | | (1,726,356) | |
| | | | | |
Series A Preferred Stock Dividends | — | | | 5,822 | | | (5,822) | |
Series B Preferred Stock Dividends | — | | | 2,519 | | | (2,519) | |
Series C Mandatory Convertible Preferred Stock Dividends | 17,250 | | | 17,250 | | | — | |
| | | | | |
Net Income (Loss) Attributable to KKR & Co. Inc. Common Stockholders | $ | (73,770) | | | $ | 1,644,245 | | | $ | (1,718,015) | |
Fees and Other
Condensed Consolidated Results of Operations (GAAP Basis - Unaudited) - Asset Management
Revenues
For the three months ended September 30, 2017March 31, 2022 and 2016, fees and other2021, revenues consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change |
| | ($ in thousands) |
Management Fees | | $ | 398,046 | | | $ | 276,181 | | | $ | 121,865 | |
Fee Credits | | (187,745) | | | (35,398) | | | (152,347) | |
Transaction Fees | | 466,966 | | | 165,893 | | | 301,073 | |
Monitoring Fees | | 39,400 | | | 35,388 | | | 4,012 | |
Incentive Fees | | 7,057 | | | 3,438 | | | 3,619 | |
Expense Reimbursements | | 41,303 | | | 27,729 | | | 13,574 | |
| | | | | | |
Consulting Fees | | 15,484 | | | 20,080 | | | (4,596) | |
Total Fees and Other | | 780,511 | | | 493,311 | | | 287,200 | |
| | | | | | |
Carried Interest | | (783,688) | | | 2,140,426 | | | (2,924,114) | |
General Partner Capital Interest | | (162,055) | | | 544,221 | | | (706,276) | |
Total Capital Allocation-Based Income (Loss) | | (945,743) | | | 2,684,647 | | | (3,630,390) | |
| | | | | | |
Total Revenues - Asset Management | | $ | (165,232) | | | $ | 3,177,958 | | | $ | (3,343,190) | |
|
| | | | | | | | | | | | |
| | Three Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change |
Management Fees | | $ | 178,942 |
| | $ | 152,491 |
| | $ | 26,451 |
|
Transaction Fees | | 181,280 |
| | 113,056 |
| | 68,224 |
|
Monitoring Fees | | 41,848 |
| | 23,367 |
| | 18,481 |
|
Fee Credits | | (70,641 | ) | | (46,975 | ) | | (23,666 | ) |
Carried Interest | | 337,459 |
| | 414,864 |
| | (77,405 | ) |
Incentive Fees | | 2,519 |
| | 3,800 |
| | (1,281 | ) |
Oil and Gas Revenue | | 12,441 |
| | 16,191 |
| | (3,750 | ) |
Consulting Fees | | 9,029 |
| | 10,262 |
| | (1,233 | ) |
Total Fees and Other | | $ | 692,877 |
| | $ | 687,056 |
| | $ | 5,821 |
|
Fees and Other
Management fees, transaction fees, monitoring feesTotal Fees and fee credits all increased inOther for the three months ended September 30, 2017March 31, 2022 increased compared to the three months ended September 30, 2016. March 31, 2021 primarily as a result of the increase in transaction fees and management fees.
For a more detailed discussion of the factors that affected our management fees, transaction fees monitoring fees and fee credits during the period, see “—"—Analysis of Asset Management Segment Analysis.”Operating Earnings."
The increase in management fees was primarily due to management fees earned from North America Fund XIII, Global Infrastructure Investors IV, and Health Care Strategic Growth Fund II, each of which entered its investment period in the second quarter of 2021. These increases were partially offset primarily by a decrease in carried interestmanagement fees earned during the three months ended September 30, 2017 was due primarily to an overall lower levelfrom Americas Fund XII as a result of appreciationentering its post-investment period in the valuesecond quarter of our private equity portfolio as compared2021, which now earns fees based on capital invested rather than capital committed and at a lower fee rate.
Management fees due from consolidated investment funds and other vehicles are eliminated upon consolidation under GAAP. However, because these amounts are funded by, and earned from, noncontrolling interests, KKR's allocated share of the net income from the consolidated investment funds and other vehicles is increased by the amount of fees that are eliminated. Accordingly, the elimination of these fees does not impact the net income (loss) attributable to the prior period.KKR or KKR stockholders' equity. For a more detailed discussion ofon the factors that affectedaffect our management fees during the period including the fees earned from unconsolidated investment funds and other vehicles see "—Analysis of Asset Management Segment Operating Earnings."
Fee credits increased compared to the prior period as a result of a higher level of transaction fees in our Private Markets and Public Markets carried interest duringbusiness lines. Fee credits owed to consolidated investment funds and other vehicles are eliminated upon consolidation under GAAP. However, because these amounts are owed to noncontrolling interests, KKR's allocated share of the period, see “—Segment Analysis -- Private Markets -- Segment Revenues -- Performance Income”net income from the consolidated investment funds and “—Segment Analysis -- Public Markets -- Segment Revenues -- Performance Income.”
Compensation and Benefits Expenses
The increase was primarily due to increased cash compensation and benefits as compared toother vehicles is decreased by the prior period as well as increased equity-based compensation relatingamount of fee credits that are eliminated. Accordingly, the elimination of these fee credits does not impact the net income (loss) attributable to KKR Holdings Units. Partially offsetting this increase wasor KKR stockholders' equity.
Transaction and monitoring fees are earned from KKR portfolio companies and are not eliminated upon consolidation because these fees are earned from companies which are not consolidated. Furthermore, transaction fees earned in our Capital Markets business line are not shared with fund investors. Accordingly, certain transaction fees are reflected in revenues without a decrease in carry pool allocations reflecting a lower level of appreciation in the value of our private equity portfolio duringcorresponding fee credit.
Capital Allocation-Based Income (Loss)
Capital Allocation-Based Income (Loss) for the three months ended September 30, 2017 comparedMarch 31,2022 was negative primarily due to net depreciation of the underlying investments at certain of our carry earning investment funds, most notably Americas Fund XII and Asian Fund II. Capital Allocation-Based Income (Loss) for the three months ended September 30, 2016.
General Administrative and Other Expenses
The increaseMarch 31, 2021 was primarilypositive due to the net appreciation of the underlying investments at our carry earning investment funds, most notably Americas Fund XII, North America Fund XI and 2006 Fund.
KKR generally calculates the carried interest that would be due to KKR for each investment fund, pursuant to the fund agreements, as if the fair value of the underlying investments were realized as of such date, irrespective of whether such amounts have been realized. As the fair value of underlying investments varies between reporting periods, it is necessary to make adjustments to amounts recorded as carried interest to reflect either (a) positive performance resulting in an increase in (i) expensesthe carried interest allocated to the general partner or (b) negative performance that are creditablewould cause the amount due to our investment funds and (ii) professional fees and other expenses incurred asKKR to be less than the amount previously recognized, resulting in a negative adjustment to carried interest allocated to the general partner. In each case, it is necessary to calculate the carried interest on cumulative results compared to the prior period. These increases were partially offset by (i)carried interest recorded to date and to make the write offrequired positive or negative adjustments. Additionally, unrealized carried interest and general partner capital interest reverse upon a realization, and unrealized carried interest and general partner capital interest can be negative if the amount of intangible assets duringrealized carried interest exceeds total unrealized carried interest generated in the three months ended September 30, 2016 in connection with the termination of management contracts for certain credit funds that were wound down while no such charge was incurred during the current period and (ii) a decrease in depreciation, depletion and amortization of our consolidated oil and gas producing entities primarily caused by a lower cost basis due to previously recorded impairments, resulting in a lower unit of production depletion rate compared to the prior period.
Investment Income (Loss) - Asset Management
Net Gains (Losses) from Investment Activities
The following is a summary ofFor additional information about net gains (losses) from investment activities:activities, see Note 5 "Net Gains (Losses) from Investment Activities - Asset Management" in our financial statements.
|
| | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 |
| ($ in thousands) |
Private Equity Investments | $ | 151,782 |
| | $ | 209,855 |
|
Credit & Other Investments | (11,064 | ) | | (6,689 | ) |
Investments of Consolidated CFE's | (39,892 | ) | | 21,352 |
|
Real Assets Investments | 80,696 |
| | 99,503 |
|
Debt Obligations | 20,959 |
| | 174,625 |
|
Other Net Gains (Losses) from Investment Activities | (93,702 | ) | | 236,498 |
|
Net Gains (Losses) from Investment Activities | $ | 108,779 |
| | $ | 735,144 |
|
| | | |
Net Gains (Losses) from Investment Activities for the three months ended March 31, 2022
The net gains from investment activities for the three months ended September 30, 2017March 31, 2022 were comprised of net realized gains of $279.6 million and net unrealized gains of $156.2 million$634.6 million.
Investment gains and net realized losses relating to our general partner capital interest in our unconsolidated funds are not reflected in our discussion and analysis of $(47.4) million. Net Gains (Losses) from Investment Activities. Our economics associated with these gains and losses are reflected in Capital Allocation-Based Income (Loss) as described above.
Realized Gains and Losses from Investment Activities
For the three months ended September 30, 2017,March 31, 2022, net realized gains related primarily to the sales of our investments in Fiserv Inc. (NASDAQ: FISV) and Söderberg & Partners (financial services sector). Partially offsetting these realized gains were realized losses primarily relating to a real estate equity investment in one of our consolidated US real estate funds and certain investments held in our consolidated SIG funds.
Unrealized Gains and Losses from Investment Activities
For the three months ended March 31, 2022, net unrealized gains were driven primarily by (i) mark-to-market gains in certain consolidated entities, the most significant of which were unrealized gains in The Hut Group (retail sector) andfrom (i) Crescent Energy Company (NYSE: CRGY), (ii) the reversal of previously recognized unrealized losses relating to the sale of investments held by consolidated CLOs. Partially offsetting these unrealized gains were unrealized losses, the most significant of which were unrealized losses relating to (i) the reversal of unrealized gains on the partial sale of First Data Corporation (NYSE: FDC), PRA Health Sciences, Inc. (NASDAQ: PRAH) and US Foods Holding Corp. (NYSE: USFD)Viridor Limited (infrastructure), and (ii) losses on alternative credit assets(iii) investments held in our consolidated special situations funds and held directlyreal estate equity funds. These unrealized gains were partially offset by KKR. For the three months ended September 30, 2017, net realizedmark-to-market losses were comprised primarily of realized losses onrelated to (i) the sale ofcertain investments held byin our consolidated CLOs and SIG funds, (ii) losses on alternative credit assets in our consolidated special situations fundsOutSystems Holdings S.A (technology sector) and other consolidated credit funds. Partially offsetting these realized losses were realized gains, the most significant of which were realized gains on the partial sale of PRA Health Sciences,(iii) BridgeBio Pharma, Inc., First Data Corporation and US Foods Holding Corp. (NASDAQ: BBIO).
For a discussion of other factors that affected KKR's realized investment income for the three months ended March 31, 2022, see "--Segment Analysis."—Analysis of Asset Management Segment Operating Results."
Net Gains (Losses) from Investment Activities for the three months ended March 31, 2021
The net gains from investment activities for the three months ended September 30, 2016March 31, 2021 were comprised of net realized gains of $288.6$584.4 million and net unrealized gains of $446.5$2,111.8 million.
Realized Gains and Losses from Investment Activities
For the three months ended September 30, 2016,March 31, 2021, net realized gains were comprisedrelated primarily to the (i) sale of the net impactour investment in Flutter Entertainment PLC (LON: FLTR), (ii) partial sale of (i)our investment in BridgeBio Pharma, Inc., and (iii) sale of our investment in American Equity Investment Life Holding Company (NYSE: AEL). Partially offsetting these realized gains on sales of private equitywere realized losses primarily relating to certain investments held directly by KKR, including the partial sales of Walgreens Boots Alliance, Inc. (NASDAQ: WBA)in our consolidated special situations funds.
Unrealized Gains and Zimmer Biomet Holdings, Inc. (NYSE: ZBH) and (ii) realized gains on debt held at consolidated CLOs. Losses from Investment Activities
For the three months ended September 30, 2016,March 31, 2021, net unrealized gains were driven primarily by (i) mark-to-market gains in ourfrom private equity, portfoliogrowth equity and core investments held directly by KKR and certain consolidated funds, the most significant of which includes unrealized gains in First Data Corporationwere OutSystems Holdings S.A, PetVet Care Centers, LLC (healthcare sector), and USI, Inc. (financial services sector) and (ii) mark-to-market gains in assetsfor certain investments held in our consolidated energy funds, special situations funds and real assets funds.CLOs. These unrealized gains arewere partially offset by (i) mark-to-market losses from our investment in BridgeBio Pharma, Inc. and (ii) the reversal of previously recognized unrealized gains onrelating to the partial salesrealization activity described above.
For a discussion of Walgreens Boots Alliance, Inc. and Zimmer Biomet Holdings, Inc.
other factors that affected KKR's realized investment income for the three months ended March 31, 2022, see "—Analysis of Asset Management Segment Operating Results."
Dividend Income
During the three months ended September 30, 2017,March 31, 2022, the most significant dividends received included $6.7approximately $299.0 million from real estate, credit and other investments held directly by KKR, $5.4 million from KFN, and $4.8 million fromin our consolidated real estate funds.core plus and opportunistic equity funds and $86.6 million from our investment in Exact Group B.V. (technology sector) held in our consolidated core vehicles. During the three months ended September 30, 2016,March 31, 2021, the most significant dividends received included $36.5$26.6 million from our consolidated special situations funds, $17.8 million from credit and real estate investments held directly by KKR and $10.4 million fromin our consolidated real estate funds. funds and a dividend of $17.7 million from our investment in US Foods Holding Corp. (NYSE: USFD), which is held by a consolidated fund.
Significant dividends from portfolio companies and consolidated funds are generally not recurring quarterly dividends, and while they may occur in the future, their size and frequency are variable. For a discussion of other factors that affected KKR's dividend income, see "--Segment Analysis."—Analysis of Asset Management Segment Operating Results."
Interest Income
The increasedecrease in interest income during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to the deconsolidation of KKR Real Estate Finance Trust Inc. (NYSE: KREF) ("KREF") in the fourth quarter of 2021, partial offset by (i) the impact of closing additional CLOs that are consolidated subsequent to March 31, 2021 and (ii) a higher level of interest earnedincome from investments held in certain of our consolidated alternative credit funds, primarily related to (i) an increase in the amount of investments held by KKR Real Estate Finance Trust Inc., our real estate investment trust or REIT, compared to the prior period, (ii) an increase in the amount of investments held at our India debt financing company, (iii) an increase in the amount of investments in our consolidated special situations funds and (iv) the impact of the consolidation of three additional CLOs subsequent to the three months ended September 30, 2016. These increases were partially offset by a decrease in interest
income at KFN primarily due to a smaller portfolio generating recurring income.capital deployed. For a discussion of other factors that affected KKR's interest income, see "--Segment Analysis."—Analysis of Asset Management Segment Operating Results."
Interest Expense
The decreaseincrease in interest expense was primarily due to interest expense associated with certain notes issued by consolidated CLOs during the three months ended September 30, 2016 being called for redemption. Third party CLO subordinated note holders receive the residual interest after all other payments have been made and as a result of a paydown made in August 2016, KKR recorded interest expense of $59.9 million and an incremental $8.7 million of accelerated accretion of debt discounts during the three months ended September 30, 2016. This decrease was partially offset by an increase in interest expense primarily due to (i) increased borrowings at our India debt financing company and (ii) the impact of the consolidation of three additional CLOs subsequentMarch 31, 2022 compared to the three months ended September 30, 2016.March 31, 2021 was primarily due to the (i) increase in the amount of borrowings outstanding from consolidated funds and other vehicles, (ii) impact of closing additional CLOs that are consolidated subsequent to March 31, 2021, and (iii) the impact of issuances of our senior notes subsequent to March 31, 2021. Partially offsetting these increases was the deconsolidation of KREF in the fourth quarter of 2021. For a discussion of other factors that affected KKR's interest expense, see "--Segment Analysis."—Analysis of Non-GAAP Performance Measures."
Income (Loss) Before Taxes
Expenses - Asset Management
Compensation and Benefits Expense
The decrease in income (loss) before taxes was due primarily to a lower level of net gains from investment activities as described above.
Income Taxes
The increase in income taxes is due primarily to a higherlevel of fees earned by our management companiescompensation and capital markets companies, partially offset by a lower level of carried interest gains accrued by certain general partner entities subject to corporate income taxbenefits expense during the three months ended September 30, 2017March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to the reversal of previously recognized accrued carried interest compensation, partially offset by (i) higher equity-based compensation charges and (ii) a higher level of discretionary cash compensation accrued resulting from a higher level of fee revenue and realized performance income in the current period.
General, Administrative and Other
The increase in general, administrative and other expenses during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to a higher level of (i) expenses at our consolidated funds and investment vehicles, (ii) strategic corporate transaction-related charges, (iii) expenses reimbursable by our investment funds, (iv) placement fees incurred related to capital raising activities for various private markets funds and (v) professional fees, information technology and other administrative costs in connection with the overall growth of the firm.
Condensed Consolidated Results of Operations (GAAP Basis - Unaudited) - Insurance
As discussed above, our Insurance segment consists solely of the operations of Global Atlantic, which was acquired on February 1, 2021. Accordingly, prior periods have been excluded for Insurance segment results. For the three month period ended March 31, 2021, the results of Global Atlantic's insurance operations included in our condensed consolidated results of operations are from February 1, 2021 through March 31, 2021.
Revenues
For the three months ended March 31, 2022, revenues consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, 2022 | | March 31, 2021 | | Change | | | | | | |
| ($ in thousands) |
Net Premiums | $ | 372,144 | | | $ | 1,176,142 | | | $ | (803,998) | | | | | | | |
Policy Fees | 318,436 | | | 201,683 | | | 116,753 | | | | | | | |
Net Investment Income | 812,605 | | | 444,781 | | | 367,824 | | | | | | | |
Net Investment-Related Losses | (368,680) | | | (455,702) | | | 87,022 | | | | | | | |
Other Income | 34,744 | | | 18,144 | | | 16,600 | | | | | | | |
Total Insurance Revenues | $ | 1,169,249 | | | $ | 1,385,048 | | | $ | (215,799) | | | | | | | |
Net Premiums
Net premiums decreased for the three months ended March 31, 2022 as compared to the prior period primarily due to lower initial premiums related to fewer new reinsurance transactions with life contingencies assumed in the three months ended March 31, 2022 as compared to the prior period. These initial premiums are offset by a comparable increase in policy reserves reported within policy benefits and claims (as discussed below).
Policy fees
Policy fees increased for the three months ended March 31, 2022 as compared to the prior period primarily due to (i) one less month of activity reported in the prior period as a result of the acquisition of Global Atlantic by KKR (the “GA Acquisition”) on February 1, 2021.
Net investment income
Net investment income increased for the three months ended March 31, 2022 as compared to the prior period primarily due to (i) one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021 and (ii) increased average assets under management due to growth in our Institutional segment assets as a result of new reinsurance transactions and Individual sales.
Net investment-related losses
The components of net investment-related losses were as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
| March 31, 2022 | | March 31, 2021 | | Change |
| ($ in thousands) |
Equity index options | $ | (223,366) | | | $ | 104,021 | | | $ | (327,387) | |
Funds withheld payable at interest embedded derivatives | 1,180,435 | | | 313,230 | | | 867,205 | |
Funds withheld receivable embedded derivatives | (33,980) | | | 55,883 | | | (89,863) | |
Equity future contracts | 79,796 | | | (69,583) | | | 149,379 | |
Interest rate contracts | (150,176) | | | (266,731) | | | 116,555 | |
Foreign currency forwards | 8,557 | | | 1,810 | | | 6,747 | |
Credit risk contracts | (1,532) | | | (36) | | | (1,496) | |
Other | — | | | 9,938 | | | (9,938) | |
Net gains on derivative instruments | 859,734 | | | 148,532 | | | 711,202 | |
Net other investment gains (losses) | (1,228,414) | | | (604,234) | | | (624,180) | |
Net investment-related gains (losses) | $ | (368,680) | | | $ | (455,702) | | | $ | 87,022 | |
Net losses on derivative instruments
The increase in the fair value of embedded derivatives on funds withheld at interest payable was primarily driven by the change in fair value of the underlying investments in the funds withheld payable at interest portfolio, which is primarily comprised of fixed maturity securities (designated as trading for accounting purposes).
The increase in the fair value of equity futures and interest rate contracts were driven primarily by the performance of equity markets and interest rates. Global Atlantic purchases equity futures primarily to hedge the market risk in our variable annuity products which are accounted for in policy benefits and claims. The majority of Global Atlantic's equity futures are based on the S&P 500 Index, which decreased during the three months ended March 31, 2022, as compared to an increase during the three months ended March 31, 2021, resulting in respectively, a gain, and a loss, on equity futures contracts in the respective periods. Market interest rates increased during both the three months ended March 31, 2022 and the three months ended March 31, 2021, resulting in a loss on interest rate contracts.
The decrease in the fair value of equity index options was primarily driven by the performance of the indexes upon which call options are based. Global Atlantic purchases equity index options to hedge the market risk of embedded derivatives in indexed universal life and fixed-indexed annuity products (the change in which is accounted for in policy benefits and claims). The majority of Global Atlantic's equity index call options are based on the S&P 500 index, which decreased during the three months ended March 31, 2022, as compared to the increase during the three months ended March 31, 2021.
The decrease in the fair value of embedded derivatives on funds withheld at interest receivable was primarily due to widening of credit spreads during the three months ended March 31, 2022, as compared to the tightening of credit spreads during three months ended March 31, 2021.
Net other investment losses
The components of net other investment losses were as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
| March 31, 2022 | | March 31, 2021 | | Change |
| ($ in thousands) |
Realized gains (losses) on investments not supporting asset-liability matching strategies | $ | 14,964 | | | $ | — | | | $ | 14,964 | |
Realized gains (losses) on equity investments | — | | | 2,243 | | | (2,243) | |
Realized gains (losses) on available-for-sale fixed maturity debt securities | (243,350) | | | (45,640) | | | (197,710) | |
Credit loss allowances | (29,897) | | | (219,601) | | | 189,704 | |
Unrealized gains (losses) on fixed maturity securities classified as trading | (1,038,446) | | | (317,052) | | | (721,394) | |
Unrealized gains (losses) on investments classified as trading or accounted under a fair-value option | (2,493) | | | (12,166) | | | 9,673 | |
Unrealized gains (losses) on real estate investments recognized at fair value under investment company accounting | 77,692 | | | — | | | 77,692 | |
Realized gains (losses) on funds withheld at interest payable portfolio | (26,387) | | | (7,378) | | | (19,009) | |
Realized gains (losses) on funds withheld at interest receivable portfolio | 25,600 | | | 354 | | | 25,246 | |
Other | (6,097) | | | (4,994) | | | (1,103) | |
Net other investment gains (losses) | $ | (1,228,414) | | | $ | (604,234) | | | $ | (624,180) | |
The increase in net other investment losses were due to (i) the increase in unrealized losses on fixed maturity securities classified as trading is primarily driven by an increase in interest rates and widening credit spreads in the current period, and (ii) the increase in realized losses on available-for-sale fixed maturity debt securities is primarily due to portfolio rotations in a higher interest rate environment.
Offsetting these losses were (i) a higher credit loss allowance on mortgage and other loan receivables in the prior period primarily due to the recognition of an initial credit loan loss allowance upon the adoption of the current expected credit loss accounting standard concurrent with the GA Acquisition, and (ii) unrealized gains on real estate investments recognized at fair value under investment company accounting.
Other income
Other income increased for the three months ended March 31, 2022 as compared to the prior period primarily due to (i) one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021 and (ii) increased administration, management and distribution fees earned from an increase in the volume of ceded reinsurance.
Expenses
Policy benefits and claims
Policy benefits and claims decreased for the three months ended March 31, 2022 as compared to the prior period primarily due to (i) lower initial reserves related to fewer new reinsurance transactions with life contingencies in the three months ended March 31, 2022 as compared to the prior period, and (ii) a decrease in the value of embedded derivatives in our indexed universal life and fixed indexed annuity products, as a result of lower equity market returns (as discussed above under "–Net investment-related losses–Gains on derivatives," Global Atlantic purchases equity index options in order to hedge this risk, the fair value changes of which are accounted for in gains on derivative instruments, and generally offsetting the change in embedded derivative fair value reported in policy benefits and claims). This decrease was offset by (i) one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021, (ii) an increase in net flows from both individual and institutional channel sales, and (iii) an increase in variable annuity reserves primarily due to lower equity market returns.
Amortization of policy acquisition costs
Amortization of policy acquisition costs increased for the three months ended March 31, 2022 as compared to the prior period primarily due to (i) a decrease in the net benefit (that is, a reduction to expense) from the amortization of the net negative insurance intangibles recognized as part of purchase accounting of the GA Acquisition, as the underlying business runs off, and (ii) growth in our individual markets channel. Offsetting these increases in expense was (i) a decrease of amortization due to realized investment losses and (ii) the impact of one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021.
Interest expense
Interest expense increased for the three months ended March 31, 2022 as compared to the prior period primarily due to (i) a net increase in debt outstanding due to the issuance of new senior and subordinated notes, partially offset by the pay-down of other debt and (ii) the impact of one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021.
Insurance expenses
Insurance expenses increased for the three months ended March 31, 2022 as compared to the prior period primarily due to (i) one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021, (ii) increased commission expense related to increased sales in our individual market and increased reinsurance transactions and (iii) increased reinsurance ceding expense allowances paid for policy administration services as a result of an increase in reinsurance transactions.
General, administrative and other
General, administrative and other expenses increased for the three months ended March 31, 2022 as compared to the prior period primarily due to (i) one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021, (ii) increased employee compensation and benefits-related expenses, (iii) increased professional service fees, (iv) increased third-party administrator ("TPA") policy servicing fees, all due to growth of the business, and (v) travel returning to pre-pandemic levels.
Other Condensed Consolidated Results of Operations (GAAP Basis - Unaudited)
Income Tax Expense (Benefit)
For the three months ended March 31, 2022, income tax benefit was $3.2 million compared to an income tax expense of $438.7 million in the prior period. In the current period, a deferred tax benefit was generated primarily due to a net operating loss driven by net capital allocation-based losses. Our effective tax rate under GAAP for the three months ended March 31, 2022 was (0.3)%. For a discussion of factors that impacted KKR's tax provision, see Note 18 "Income Taxes" to the financial statements included elsewhere in this report. The amount of U.S. corporate income taxes we pay in future periods may be materially increased if adverse tax laws become enacted. See “—Business Environment— Economic and Market Conditions” in this report.
Net Income (Loss) Attributable to Noncontrolling Interests
Net incomeIncome (Loss) attributable to noncontrolling interests for the three months ended September 30, 2017March 31, 2022 relates primarily to net income (loss) attributable to (i) interests of KKR Holdings L.P.and other exchangeable securities representing its ownership interests in the KKR Group Partnerships as well as third partyPartnership, (ii) third-party limited partner interests in thoseconsolidated investment funds and (iii) interests that we consolidate. The decrease fromco-investors and rollover investors hold in Global Atlantic. Net income (loss) attributable to noncontrolling interests for the three months ended March 31, 2022 decreased compared to the prior period isprimarily due primarily to (i) a lower level of net income recorded by certaingenerated during the current period allocable to the holders of the noncontrolling interests in our consolidated fund entities that isfunds and (ii) a net loss attributable to third party limited partners as well as lower amounts attributed tointerests of KKR Holdings L.P.and other exchangeable securities in connection with a lower level of income as compared to the priorcurrent period.
Net Income (Loss) Attributable to KKR & Co. L.P.Inc.
The decrease Net Loss attributable to KKR & Co. Inc. for the three months ended September 30, 2017, was due primarily to a lower level of investment and carried interest gains in the current period as compared to the prior period.
Nine months ended September 30, 2017 compared to nine months ended September 30, 2016
|
| | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2017 | | September 30, 2016 | | Change |
| ($ in thousands) |
Revenues | |
| | |
| | |
Fees and Other | $ | 2,340,617 |
| | $ | 1,426,618 |
| | $ | 913,999 |
|
| | | | | |
Expenses | |
| | |
| | |
Compensation and Benefits | 1,234,317 |
| | 780,062 |
| | 454,255 |
|
Occupancy and Related Charges | 44,150 |
| | 49,159 |
| | (5,009 | ) |
General, Administrative and Other | 421,522 |
| | 413,437 |
| | 8,085 |
|
Total Expenses | 1,699,989 |
| | 1,242,658 |
| | 457,331 |
|
| | | | | |
Investment Income (Loss) | |
| | |
| | |
Net Gains (Losses) from Investment Activities | 1,085,655 |
| | 9,089 |
| | 1,076,566 |
|
Dividend Income | 100,144 |
| | 167,987 |
| | (67,843 | ) |
Interest Income | 893,832 |
| | 753,194 |
| | 140,638 |
|
Interest Expense | (597,403 | ) | | (607,812 | ) | | 10,409 |
|
Total Investment Income (Loss) | 1,482,228 |
| | 322,458 |
| | 1,159,770 |
|
| | | | | |
Income (Loss) Before Taxes | 2,122,856 |
| | 506,418 |
| | 1,616,438 |
|
| | | | | |
Income Taxes | 77,500 |
| | 18,761 |
| | 58,739 |
|
| | | | | |
Net Income (Loss) | 2,045,356 |
| | 487,657 |
| | 1,557,699 |
|
| | | | | |
Net Income (Loss) Attributable to Redeemable Noncontrolling Interests | 64,196 |
| | 4,616 |
| | 59,580 |
|
Net Income (Loss) Attributable to Noncontrolling Interests | 1,137,585 |
| | 353,044 |
| | 784,541 |
|
| | | | | |
Net Income (Loss) Attributable to KKR & Co. L.P. | 843,575 |
| | 129,997 |
| | 713,578 |
|
| | | | | |
Less: Net Income Attributable to Series A Preferred Unitholders | 17,466 |
| | 11,515 |
| | 5,951 |
|
Less: Net Income Attributable to Series B Preferred Unitholders | 7,557 |
| | 2,379 |
| | 5,178 |
|
| | | | | |
Net Income (Loss) Attributable to KKR & Co. L.P. Common Unitholders | $ | 818,552 |
| | $ | 116,103 |
| | $ | 702,449 |
|
Fees and Other
For the nine months ended September 30, 2017 and 2016, fees and other consisted of the following:
|
| | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change |
Management Fees | | $ | 517,393 |
| | $ | 468,390 |
| | $ | 49,003 |
|
Transaction Fees | | 581,410 |
| | 277,776 |
| | 303,634 |
|
Monitoring Fees | | 145,203 |
| | 99,388 |
| | 45,815 |
|
Fee Credits | | (207,396 | ) | | (106,506 | ) | | (100,890 | ) |
Carried Interest | | 1,224,235 |
| | 602,695 |
| | 621,540 |
|
Incentive Fees | | 3,637 |
| | 6,045 |
| | (2,408 | ) |
Oil and Gas Revenue | | 47,096 |
| | 47,977 |
| | (881 | ) |
Consulting Fees | | 29,039 |
| | 30,853 |
| | (1,814 | ) |
Total Fees and Other | | $ | 2,340,617 |
| | $ | 1,426,618 |
| | $ | 913,999 |
|
Management fees, transaction fees, monitoring fees and fee credits all increased in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. For a more detailed discussion of the factors that affected our management fees, transaction fees, monitoring fees and fee credits during the period, see “—Segment Analysis.”
The increase in carried interest gains earned during the nine months ended September 30, 2017 was due primarily to an overall higher level of appreciation in the value of our private equity and credit portfolios. For a more detailed discussion of the factors that affected our Private Markets and Public Markets carried interest during the period, see “—Segment Analysis -- Private Markets -- Segment Revenues -- Performance Income and —Segment Analysis -- Public Markets -- Segment Revenues -- Performance Income."
Compensation and Benefits Expenses
The increaseMarch 31, 2022 was primarily due to (i) net capital allocation-based losses partially offset by a higher level of carry pool allocations reflecting higher appreciation in the value of our private equityfees and credit portfolios, (ii) an increase in cash compensation and benefits and (iii) an increase in equity-based compensation relating to KKR Holdings units during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.
General Administrative and Other Expenses
The increase was primarily due to (i) an increase in placement fees incurred in connection with capital raising activity, the most significant of which relates to Asia Fund III and Lending Partners III and (ii) an increase in expenses that are creditable to investment funds. These increases were partially offset by (i) a lower level of financing costs incurred relating to debt at new consolidated CLOs for which the fair value option has been elected, (ii) the write off of intangible assets during the three months ended September 30, 2016 in connection with the termination of management contracts for certain credit funds that were wound down while no such charge was incurred during the current period and (iii) a decrease in depreciation, depletion and amortization of our consolidated oil and gas producing entities primarily caused by a lower cost basis due to previously recorded impairments, resulting in a lower unit of production depletion rate compared to the prior period.
Net Gains (Losses) from Investment Activities
The following is a summary of net gains (losses) from investment activities:
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
| ($ in thousands) |
Private Equity Investments | $ | 574,884 |
| | $ | (42,037 | ) |
Credit & Other Investments | 107,354 |
| | (389,020 | ) |
Investments of Consolidated CFE's | (16,725 | ) | | 307,597 |
|
Real Assets Investments | 199,400 |
| | 108,085 |
|
Debt Obligations | (7,190 | ) | | (167,566 | ) |
Other Net Gains (Losses) from Investment Activities | 227,932 |
| | 192,030 |
|
Net Gains (Losses) from Investment Activities | $ | 1,085,655 |
| | $ | 9,089 |
|
| | | |
The net gains from investment activities for the nine months ended September 30, 2017 were comprised of net unrealized gains of $1,088.3 million and net realized losses of $(2.7) million. For the nine months ended September 30, 2017, net unrealized gains were driven primarily by (i) mark-to-market gains in our private equity portfolio held directly by KKR, the most significant of which were unrealized gains in First Data Corporation, (ii) mark-to-market gains in certain consolidated entities, the most significant of which were unrealized gains in The Hut Group, (iii) mark-to-market gains on alternative credit assets in our consolidated special situations funds and KFN and (iv) mark-market gains and the reversal of unrealized losses on the sale of investments in our consolidated energy funds and infrastructure portfolios held directly by KKR. Offsetting these unrealized gains were unrealized losses, the most significant of which were unrealized losses relating to (i) the reversal of unrealized gains on the final sales of Galenica AG (VTX: GALN) and HCA Holdings, Inc. (NYSE: HCA) and the partial sale of US Foods Holding Corp. For the nine months ended September 30, 2017, realized losses were comprised primarily of realized losses related to (i) the sale of investments in our energy portfolio held directly by KKR, (ii) alternative credit assets in our consolidated special situations funds and (iii) the sale of investments held by our consolidated CLOs. Partially offsetting these realized losses were realized gains on sales of private equity investments held directly by KKR, including the final sale of Galenica AG and HCA Holdings, Inc. and partial sales of First Data Corporation and US Foods Holding Corp. For a discussion of other factors that affected KKR's investment income, see "--Segment Analysis."
The net gains from investment activities for the nine months ended September 30, 2016 were comprised of net realized gains of $354.1 million and net unrealized losses of $(345.0) million. For the nine months ended September 30, 2016, net realized gains were comprised primarily of the net impact of (i) realized gains on sales of private equity investments held directly by KKR, including the partial sales of Walgreens Boots Alliance, Inc., Zimmer Biomet Holdings, Inc. and HCA Holdings, Inc., (ii) realized losses on assets held at consolidated CLOs and (iii) realized gains on debt held at consolidated CLOs. For the nine months ended September 30, 2016, net unrealized losses were driven primarily by (i) mark-to-market losses in our private equity portfolio held directly by KKR including unrealized losses in First Data Corporation, (ii) mark-to-market losses on assets in our consolidated special situations funds, (iii) mark-to-market losses on debt held through consolidated CMBS and (iv) the reversal of unrealized gains on the partial sales of Walgreens Boots Alliance, Inc., Zimmer Biomet Holdings, Inc. and HCA Holdings, Inc., as well as the reversal of unrealized gains on debt realizations at our consolidated CLOs. Partially offsetting these unrealized losses were unrealized gains, the most significant of which were unrealized gains relating to investments held through consolidated CMBS structures and reversals of unrealized losses on asset realizations in our consolidated CLOs.
Dividend Income
During the nine months ended September 30, 2017, the most significant dividends received included $45.5 million from our consolidated special situations funds, $18.1 million from investments across multiple strategies held directly by KKR, $16.0 million from our consolidated real estate funds and $11.1 million from KFN. During the nine months ended September 30, 2016, the most significant dividends received included $49.0 million from our consolidated special situations funds and dividends from US Foods Holding Corp. of $23.4 million, Sedgwick Claims Management Services (financial services sector) of $12.7 million and PRA Health Sciences, Inc. of $4.1 million. Significant dividends from portfolio companies are generally not recurring quarterly dividends, and while they may occur in the future, their size and frequency are variable. For a discussion of other factors that affected KKR's dividend income, see "--Segment Analysis."
Interest Income
The increase in interest income was primarily due to a higher level of interest earned related to (i) an increase in the amount of investments held by our REIT compared to the prior period, (ii) an increase in the amount of investments held at our India debt financing company, (iii) an increase in the amount of investments in our consolidated special situations funds and (iv) the impact of the consolidation of three additional CLOs subsequent to the nine months ended September 30, 2016. These increases were partially offset by a decrease in interest income at KFN associated with the paydown of CLO 2007-1 in the second quarter of 2016. For a discussion of other factors that affected KKR's interest income, see "--Segment Analysis."
Interest Expense
The decrease in interest expense was primarily due to lower interest expense associated with certain notes issued by consolidated CLOs during the three months ended September 30, 2016 being called for redemption. Third party CLO subordinated note holders receive the residual interest after all other payments have been made and as a result of a paydown made in August 2016, KKR recorded interest expense of $59.9 million and an incremental $8.7 million of accelerated accretion of debt discounts during the three months ended September 30, 2016. The paydown of CLO 2007-1 in the second quarter of 2016 also contributed to the decrease. These decreases were partially offset by an increase in interest expense associated with (i) increased CMBS issuances by our REIT, (ii) increased borrowings at our India debt financing company and (iii) the impact of the consolidation of three additional CLOs subsequent to the nine months ended September 30, 2016. For a discussion of other factors that affected KKR's interest expense, see "--Segment Analysis."
Income (Loss) Before Taxes
The increase in income (loss) before taxes was due primarily to higherpreviously recognized accrued carried interest gains accrued in our private equity and credit portfolios and higher net gains from investment activities, partially offset by an increase in expenses, in each casecompensation as described above.
Income Taxes
The increase in income taxes is due primarily to a higherlevel of fees earned by our management companies and capital markets companies and carried interest gains accrued by certain general partner entities subject to corporate income tax during the nine months ended September 30, 2017 compared to the prior period.
Net Income (Loss) Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests for the nine months ended September 30, 2017 relates primarily to net income attributable to KKR Holdings L.P. representing its ownership interests in the KKR Group Partnerships as well as third party limited partner interests in those investment funds that we consolidate. The increase from the prior period is due primarily to a higher level of income recorded by certain consolidated fund entities that is attributable to third party limited partners as well as higher amounts attributed to KKR Holdings L.P. in connection with higher income recognized for the nine months ended September 30, 2017 as compared to the prior period.
Net Income (Loss) Attributable to KKR & Co. L.P.
The increase in Net income attributable to KKR & Co. L.P. was primarily due to higher carried interest gains and higher net investment gains from investment activities in the current period as compared to the prior period and to a lesser extent, increased fee income.
Condensed Consolidated Statements of Financial Condition (GAAP Basis - Unaudited)
The following table provides the condensed consolidated statementsCondensed Consolidated Statements of financial conditionFinancial Condition on a GAAP Basisbasis as of September 30, 2017March 31, 2022 and December 31, 2016.2021.
| | | | | | | | | | | | | | |
(Amounts in thousands, except per share amounts) |
| | As of | | As of |
| | March 31, 2022 | | December 31, 2021 |
| | | | |
Assets | | | | |
Asset Management | | | | |
Cash and Cash Equivalents | | $ | 8,324,897 | | | $ | 6,699,668 | |
Investments | | 88,770,480 | | | 88,775,514 | |
Other Assets | | 3,789,249 | | | 4,244,894 | |
| | 100,884,626 | | | 99,720,076 | |
Insurance | | | | |
Cash and Cash Equivalents | | 4,590,032 | | | 3,391,934 | |
Investments | | 122,799,871 | | | 123,763,675 | |
Other Assets | | 38,016,452 | | | 37,409,755 | |
| | 165,406,355 | | | 164,565,364 | |
Total Assets | | $ | 266,290,981 | | $ | 264,285,440 |
| | | | |
Liabilities and Equity | | | | |
Asset Management | | | | |
Debt Obligations | | $ | 36,112,872 | | | $ | 36,669,755 | |
Other Liabilities | | 7,699,454 | | | 8,359,619 | |
| | 43,812,326 | | | 45,029,374 | |
Insurance | | | | |
Debt Obligations | | 2,029,769 | | | 1,908,006 | |
Other Liabilities | | 163,151,015 | | | 159,208,840 | |
| | 165,180,784 | | | 161,116,846 | |
Total Liabilities | | $ | 208,993,110 | | | $ | 206,146,220 | |
| | | | |
Redeemable Noncontrolling Interests | | 81,793 | | | 82,491 | |
| | | | |
Stockholders' Equity | | | | |
KKR & Co. Inc. Stockholders' Equity - Series A and B Preferred Stock | | — | | | — | |
KKR & Co. Inc. Stockholders' Equity - Series C Mandatory Convertible Preferred Stock | | 1,115,792 | | | 1,115,792 | |
KKR & Co. Inc. Stockholders' Equity - Series I and II Preferred Stock, Common Stock | | 14,598,495 | | | 16,466,372 | |
Noncontrolling Interests | | 41,501,791 | | | 40,474,565 | |
Total Equity | | 57,216,078 | | | 58,056,729 | |
Total Liabilities and Equity | | $ | 266,290,981 | | | $ | 264,285,440 | |
| | | | |
KKR & Co. Inc. Stockholders' Equity - Common Stock Per Outstanding Share of Common Stock | | $ | 24.72 | | | $ | 27.64 | |
| | | | |
KKR & Co. Inc. Stockholders’ Equity - Common Stock per Outstanding Share of Common Stock was $24.72 as of March 31, 2022, down from $27.64 as of December 31, 2021. The decrease was primarily due to the (i) unrealized losses on available-for-sale-securities from Global Atlantic that are recorded in other comprehensive income, (ii) repurchases of common stock, (iii) dividends to common stockholders and (iv) net loss attributable to KKR & Co. Inc. common stockholders during the three months ended March 31, 2022.
|
| | | | | | | | |
(Amounts in thousands, except common unit and per common unit amounts) |
| | As of | | As of |
| | September 30, 2017 | | December 31, 2016 |
| | | | |
Assets | | | | |
Cash and Cash Equivalents | | $ | 2,436,566 |
| | $ | 2,508,902 |
|
Investments | | 37,251,837 |
| | 31,409,765 |
|
Other | | 4,617,236 |
| | 5,084,230 |
|
Total Assets | | 44,305,639 |
| | 39,002,897 |
|
| | | | |
Liabilities and Equity | | | | |
Debt Obligations | | 20,290,714 |
| | 18,544,075 |
|
Other Liabilities | | 4,149,491 |
| | 3,340,739 |
|
Total Liabilities | | 24,440,205 |
| | 21,884,814 |
|
| | | | |
Redeemable Noncontrolling Interests | | 570,134 |
| | 632,348 |
|
| | | | |
Equity | | | | |
Series A Preferred Units | | 332,988 |
| | 332,988 |
|
Series B Preferred Units | | 149,566 |
| | 149,566 |
|
KKR & Co. L.P. Capital - Common Unitholders | | 6,380,654 |
| | 5,457,279 |
|
Noncontrolling Interests | | 12,432,092 |
| | 10,545,902 |
|
Total Equity | | 19,295,300 |
| | 16,485,735 |
|
Total Liabilities and Equity | | $ | 44,305,639 |
| | $ | 39,002,897 |
|
| | | | |
KKR & Co. L.P. Capital Per Outstanding Common Unit - Basic | | $ | 13.49 |
| | $ | 12.06 |
|
| | | | |
Condensed Consolidated Statements of Cash Flows (GAAP Basis - Unaudited)
The accompanying condensedfollowing is a discussion of our consolidated cash flows for the three months ended March 31, 2022 and 2021. You should read this discussion in conjunction with the financial statements and related notes included elsewhere in this report.
The consolidated statements of cash flows include the cash flows of our consolidated entities, which include certain consolidated investment funds, CLOs and CFEscertain variable interest entities formed by Global Atlantic notwithstanding the fact that we may hold only a minority economic interest in those investment funds and CFEs.
The assets of our consolidated investment funds and CFEs, on a gross basis, can be substantially larger than the assets of our business and, accordingly, could have a substantial effect on the cash flows reflected in our condensed consolidated statements of cash flows. The primary cash flow activities of our consolidated funds and CFEs involve: (i) capital contributions from fund investors; (ii) using the capital of fund investors to make investments; (iii) financing certain investments with indebtedness; (iv) generating cash flows through the realization of investments; and (v) distributing cash flows from the realization of investments to fund investors. Because our consolidated funds and CFEs are treated as investment companies for accounting purposes, certain of these cash flow amounts are included in our cash flows from operations.
Net Cash Provided (Used) by Operating Activities
Our net cash provided (used) by operating activities was $(2.2)$0.9 billion and $(0.6)$(0.1) billion during the ninethree months ended September 30, 2017March 31, 2022 and 2016,2021, respectively. These amounts primarily included: (i) investments purchased (asset management), net of proceeds from salesinvestments (asset management) of investments net of purchases of investments of $(3.5)$(0.6) billion and $(0.8)$(1.3) billion during the ninethree months ended September 30, 2017March 31, 2022 and 2016, respectively;2021, respectively, (ii) net realized gains (losses) on asset management investments of $(2.7)$279.6 million and $354.1$584.4 million during the nine monthsthree ended September 30, 2017March 31, 2022 and 2016, respectively;2021, respectively, (iii) change in unrealized gains (losses) on asset management investments of $1,088.3$0.6 billion and $2.1 billion during the three months ended March 31, 2022 and 2021, respectively, (iv) capital allocation-based income (loss) of $(0.9) billion and $2.7 billion during the three months ended March 31, 2022 and 2021, respectively and (v) net realized gains (losses) on insurance operations of $75.0 million and $(345.0)$(441.6) million during the ninethree months ended September 30, 2017March 31, 2022 and 2016, respectively; and (iv) carried interest allocated as a result of changes in fund fair value of $1,224.2 million and $602.7 million during the nine months ended September 30, 2017 and 2016, respectively.2021. Investment funds are for GAAP purposes, investment companies under GAAP and reflect their investments and other financial instruments at fair value.
Net Cash Provided (Used) by Investing Activities
Our net cash provided (used) by investing activities was $96.1 million$(2.0) billion and $23.2 million$(0.4) billion during the ninethree months ended September 30, 2017March 31, 2022 and 2016,2021, respectively. Our investing activities included: (i) a change in restrictedinvestments purchased (insurance), net of proceeds from investments (insurance) of $(2.0) billion and $(.04) billion during the three months ended March 31, 2022 and 2021, (ii) acquisitions, net of cash and cash equivalents (that primarily funds collateral requirements)acquired of $168.0 million and $33.0$(415.6) million during the ninethree months ended September 30, 2017March 31, 2021 and 2016, respectively; (ii)(iii) the purchase of fixed assets of $(70.8)$(11.9) million and $(8.2)$(27.7) million during the ninethree months ended September 30, 2017March 31, 2022 and 2016, respectively; and (iii) development of oil and natural gas properties of $(1.0) million and $(1.6) million for the nine months ended September 30, 2017 and 2016,2021, respectively.
Net Cash Provided (Used) by Financing Activities
Our net cash provided (used) by financing activities was $2.1$4.1 billion and $1.7$4.5 billion during the ninethree months ended September 30, 2017March 31, 2022 and 2016,2021, respectively. Our financing activities primarily included: (i) distributions to,contributions by, net of contributions by,distributions to, our noncontrolling and redeemable noncontrolling interests of $1.1$1.6 billion and $0.8$2.1 billion during the ninethree months ended September 30, 2017March 31, 2022 and 2016, respectively;2021, respectively, (ii) proceeds received net of repayment of debt obligations of $1.3$0.03 billion and $1.6 billion during the three months ended March 31, 2022 and 2021, respectively, (iii) additions to, net of withdrawals from contractholder deposit funds of $2.4 billion and $1.0 billion during the ninethree months ended September 30, 2017March 31, 2022 and 2016, respectively; (iii) distributions to our partners2021, (iv) common stock dividends of $(230.8)$(85.7) million and $(213.5)$(77.8) million during the ninethree months ended September 30, 2017March 31, 2022 and 2016,2021, respectively; (iv) unit repurchases(v) net delivery of $(291.9)common stock of $(55.9) million during the ninethree months ended September 30, 2016; (v) issuanceMarch 31, 2021, respectively; (vi) repurchases of Preferred Unitscommon stock of $482.6$(346.7) million and $(71.4) million during the ninethree months ended September 30, 2016;March 31, 2022 and (vi)2021, respectively; (vii) Series A and B Preferred Units distributionsStock dividends of $(25.0) million and $(13.9)$(8.3) million during the ninethree months ended September 30, 2017March 31, 2021; (viii) Series C Mandatory Convertible Preferred Stock dividends of $(17.3) million, during the three months ended March 31, 2022 and 2016.2021, respectively; and (ix) private placement share issuance of $38.5 million during three months ended March 31, 2021.
Analysis of Segment AnalysisOperating Results
The following is a discussion of the results of our four reportable business segmentson a segment basis for the three and nine months ended September 30, 2017March 31, 2022 and 2016.2021. You should read this discussion in conjunction with the information included under “—Basis of Financial Presentation—"—Key Segment and Non-GAAP Performance Measures and Other Terms and Operating and Performance Measures”Metrics" and the condensed consolidated financial statements and related notes included elsewhere in this report. See "—Business Environment" for more information about factors that may impact our business, financial performance, operating results and valuations.
Expense Allocations
Certain expenses are allocated amongIn connection with our acquisition of Global Atlantic on February 1, 2021, management reevaluated the manner in which we manage and assess the performance of our business and allocate resources. As a result, we introduced a new Insurance segment in 2021 and report segment results for two operating segments. Specifically, as described below, (i) a portion of expenses, except for broken deal expenses, originatingand reportable segments: Asset Management and Insurance. See Note 21 "Segment Reporting" in our Private Markets, Public Markets and Capital Markets segments are reflected infinancial statements.
For the Principal Activities segment and (ii) corporate expenses are allocated across all segments.
Expenses Allocated to Principal Activities
KKR allocates certain expenses to its Principal Activities segment. The Principal Activities segments incurs its own direct costs, and an allocation fromquarter ended March 31, 2021 the other segments is also made to reflect the estimated amount of costs that are necessary to operate our Principal Activities segment, which are incremental to those costs incurred directly by the Principal Activities segment. These allocable expenses consist of a portionresults of our cash compensation and benefits, occupancy and related charges and other operating expenses thatInsurance segment are initially recognized within our Private Markets, Public Markets and Capital Markets segments. Consistent with prior years, the total amount of expenses (other than its direct costs) that is allocated to Principal Activities is based on the proportion of revenue earned by Principal Activities, relative to other operating segments revenue, over the preceding four calendar years. Beginning in 2017, however, KKR has determined that this allocation percentage will not be less than the allocation percentage calculated using the cumulative amount of such revenues since 2009 (the year we completed the KPE transaction). For 2017, KKR determined that this allocation percentage is 25.7%. This allocation percentage is expected to be updated annually or more frequently if there are material changes to our business.
Below is a summaryfrom February 1, 2021 (closing date of the allocation to Principal Activities, relative to other operating segments, for the 2017 and 2016 periods.acquisition) through March 31, 2021.
2017 Allocation: 25.7%, based on cumulative revenues earned since 2009
2016 Allocation: 22.6%, based on revenues earned in 2015, 2014, 2013 and 2012Analysis of Asset Management Segment Operating Results
The 2016 allocation to Principal Activities was based on revenues earned by Principal Activities, relative to other operating segments revenue, over the preceding four calendar years. Had the allocation for 2016 been based on cumulative revenues earned by Principal Activities since 2009, consistent with our allocation methodology adopted in 2017, the expense allocation to Principal Activities would have been 28.7% and would have had the following impact on Economic Net Income across each of our reporting segments:
|
| | | | | | | | |
| | Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2016 |
| | | | |
Private Markets | | $ | 4,856 |
| | $ | 14,515 |
|
Public Markets | | 3,400 |
| | 10,103 |
|
Capital Markets | | 739 |
| | 2,188 |
|
Principal Activities | | (8,995 | ) | | (26,806 | ) |
Total Economic Net Income | | $ | — |
| | $ | — |
|
Once the total amount of expense to be allocated to the Principal Activities segment is estimated for each reporting period, the amount of this expense will be allocated from the Private Markets, Public Markets and Capital Markets segments based on the proportion of headcount in each of these three segments.
Allocations of Corporate Expenses
Corporate expenses are allocated to each of the Private Markets, Public Markets, Capital Markets and Principal Activities segments based on the proportion of revenues earned by each segment over the preceding four calendar years. However, to the extent that expenses allocated to Principal Activities, as described above, is based on the cumulative amount of such revenues since 2009, corporate expenses will be allocated in the same manner.
Below is a summary of the allocations percentages used for corporate expenses to each of our operating segments for the 2017 and 2016 periods.
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| | | | | | |
| | | | |
| | Expense Allocation |
Segment | | 2017 | | 2016 |
| | | | |
Private Markets | | 59.6 | % | | 61.6 | % |
Public Markets | | 9.0 | % | | 10.1 | % |
Capital Markets | | 5.7 | % | | 5.7 | % |
Principal Activities | | 25.7 | % | | 22.6 | % |
Total Reportable Segments | | 100.0 | % | | 100.0 | % |
| | | | |
Allocation basis | | Cumulative revenue since 2009 | | Revenue earned in 2015, 2014, 2013 & 2012 |
| | | | |
Private Markets Segment
The following tables set forth information regarding theKKR's Asset Management segment operating results of operations and certain key operatingcapital metrics for our Private Markets segment for the three and nine months ended September 30, 2017March 31, 2022 and 2016.2021:
Three months ended September 30, 2017 compared to three months ended September 30, 2016 | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | |
| | Three Months Ended | |
| | March 31, 2022 | | March 31, 2021 | | Change | |
| | ($ in thousands) | |
Management Fees | | $ | 624,928 | | | $ | 439,740 | | | $ | 185,188 | | |
Transaction and Monitoring Fees, Net | | 306,038 | | | 135,677 | | | 170,361 | | |
Fee Related Performance Revenues | | 12,051 | | | 10,296 | | | 1,755 | | |
Fee Related Compensation | | (212,220) | | | (131,785) | | | (80,435) | | |
Other Operating Expenses | | (125,875) | | | (90,161) | | | (35,714) | | |
Fee Related Earnings | | 604,922 | | | 363,767 | | | 241,155 | | |
Realized Performance Income | | 609,207 | | | 171,309 | | | 437,898 | | |
Realized Performance Income Compensation | | (383,635) | | | (109,986) | | | (273,649) | | |
Realized Investment Income | | 349,354 | | | 461,273 | | | (111,919) | | |
Realized Investment Income Compensation | | (52,403) | | | (69,191) | | | 16,788 | | |
Asset Management Segment Operating Earnings | | $ | 1,127,445 | | | $ | 817,172 | | | $ | 310,273 | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | |
| Three Months Ended |
| September 30, 2017 | | September 30, 2016 | | Change |
| ($ in thousands) |
Segment Revenues | |
| | |
| | |
Management, Monitoring and Transaction Fees, Net | |
| | |
| | |
Management Fees | $ | 153,841 |
| | $ | 117,795 |
| | $ | 36,046 |
|
Monitoring Fees | 14,342 |
| | 11,091 |
| | 3,251 |
|
Transaction Fees | 82,258 |
| | 53,223 |
| | 29,035 |
|
Fee Credits | (59,854 | ) | | (37,127 | ) | | (22,727 | ) |
Total Management, Monitoring and Transaction Fees, Net | 190,587 |
| | 144,982 |
| | 45,605 |
|
| | | | | |
Performance Income | |
| | |
| | |
Realized Incentive Fees | — |
| | — |
| | — |
|
Realized Carried Interest | 419,438 |
| | 350,469 |
| | 68,969 |
|
Unrealized Carried Interest | (96,571 | ) | | 53,339 |
| | (149,910 | ) |
Total Performance Income | 322,867 |
| | 403,808 |
| | (80,941 | ) |
| | | | | |
Investment Income (Loss) | |
| | |
| | |
Net Realized Gains (Losses) | — |
| | — |
| | — |
|
Net Unrealized Gains (Losses) | — |
| | — |
| | — |
|
Total Realized and Unrealized | — |
| | — |
| | — |
|
Interest Income and Dividends | — |
| | — |
| | — |
|
Interest Expense | — |
| | — |
| | — |
|
Net Interest and Dividends | — |
| | — |
| | — |
|
Total Investment Income (Loss) | — |
| | — |
| | — |
|
| | | | | |
Total Segment Revenues | 513,454 |
| | 548,790 |
| | (35,336 | ) |
| | | | | |
Segment Expenses | |
| | |
| | |
Compensation and Benefits | |
| | |
| | |
Cash Compensation and Benefits | 63,482 |
| | 47,858 |
| | 15,624 |
|
Realized Performance Income Compensation | 176,075 |
| | 157,688 |
| | 18,387 |
|
Unrealized Performance Income Compensation | (36,379 | ) | | 22,588 |
| | (58,967 | ) |
Total Compensation and Benefits | 203,178 |
| | 228,134 |
| | (24,956 | ) |
Occupancy and related charges | 8,537 |
| | 9,248 |
| | (711 | ) |
Other operating expenses | 42,376 |
| | 32,031 |
| | 10,345 |
|
Total Segment Expenses | 254,091 |
| | 269,413 |
| | (15,322 | ) |
| | | | | |
Income (Loss) attributable to noncontrolling interests | — |
| | — |
| | — |
|
| | | | | |
Economic Net Income (Loss) | $ | 259,363 |
| | $ | 279,377 |
| | $ | (20,014 | ) |
| | | | | |
Assets Under Management | $ | 87,609,800 |
| | $ | 75,181,600 |
| | $ | 12,428,200 |
|
Fee Paying Assets Under Management | $ | 61,706,500 |
| | $ | 44,010,300 |
| | $ | 17,696,200 |
|
Capital Invested | $ | 2,972,300 |
| | $ | 2,370,600 |
| | $ | 601,700 |
|
Uncalled Commitments | $ | 39,421,900 |
| | $ | 31,839,100 |
| | $ | 7,582,800 |
|
Segment Revenues
Management Monitoring and Transaction Fees Net
The net increase was primarily due to an increase infollowing table presents management fees and transaction fees. by business line:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change |
| | ($ in thousands) |
Management Fees | | | | | | |
Private Markets | | $ | 435,997 | | | $ | 286,967 | | | $ | 149,030 | |
Public Markets | | 188,931 | | | 152,773 | | | 36,158 | |
Total Management Fees | | $ | 624,928 | | | $ | 439,740 | | | $ | 185,188 | |
The increase in Private Markets management fees was primarily due to (i) Americas Fund XII entering its investment period in the first quarter of 2017, in which it earns management fees on a larger pool of capital than its predecessor fundearned from North America Fund XI,XIII, Global Infrastructure Investors IV, and Health Care Strategic Growth Fund II, each of which entered its post investment period, (ii) Asian Fund III entering its investment period in the second quarter of 2017, in which it earns management fees on a larger pool of capital than its predecessor fund Asian Fund II, which entered its post investment period and (iii) new capital raised in our Health Care Strategic Growth Fund. This net increase was2021. These increases were partially offset by decreases due to (i) North Americaa decrease in management fees earned by Americas Fund XIXII and AsianEuropean Fund II entering their post investment periods, during which they earn fees at a lower rate and based on invested capital rather than committed capital, and (ii) lower invested capitalV as a result of realizations primarilyentering their post-investment periods in our 2006 Fund, Asian Fundthe second quarter of 2021 and China Growth Fund. As investments held in our funds that pay managementthe first quarter of 2022, respectively, and now earns fees based on capital invested rather than capital are sold, ourcommitted and at a lower fee rate.
The increase in Public Markets management fees was primarily attributable to greater overall FPAUM at (i) Global Atlantic, (ii) our opportunistic credit, private credit and dislocation opportunities strategies and (iii) our hedge fund partnership, Marshall Wace.
Transaction and Monitoring Fees, Net
The following table presents transaction and monitoring fees, net by business line:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change |
| | ($ in thousands) |
Transaction and Monitoring Fees, Net | | | | | | |
Private Markets | | $ | 40,686 | | | $ | 22,462 | | | $ | 18,224 | |
Public Markets | | 10,096 | | | 1,030 | | | 9,066 | |
Capital Markets | | 255,256 | | | 112,185 | | | 143,071 | |
Total Transaction and Monitoring Fees, Net | | $ | 306,038 | | | $ | 135,677 | | | $ | 170,361 | |
Our Capital Markets business line earns transaction fees, which are expected to decline unless offset by new fee-paying capital raised.not shared with fund investors. The increase in transaction fees was primarily due to an increase in the number and average size of capital markets transactions for the three months ended March 31, 2022, compared to the three months ended March 31, 2021. Overall, we completed 87 capital markets transactions for the three months ended March 31, 2022, of which 11 represented equity offerings and 76 represented debt offerings, as compared to 57 transactions for the three months ended March 31, 2021, of which 11 represented equity offerings and 46 represented debt offerings. We earned fees in connection with underwriting, syndication and other capital markets services. While each of the capital markets transactions that we undertake in this business line is separately negotiated, our fee rates are generally higher with respect to underwriting or syndicating equity offerings than with respect to debt offerings, and the amount of fees that we earn for similar transactions generally correlates with overall transaction sizes.
Our capital markets fees are generated in connection with our Private Markets and Public Markets business lines as well as from third-party companies. For the three months ended March 31, 2022, approximately 19% of our transaction fees in our Capital Markets business line were earned from unaffiliated third parties as compared to approximately 26% for the three months ended March 31, 2021. Our transaction fees are comprised of fees earned from North America, Europe, and the Asia-Pacific region. For the three months ended March 31, 2022, approximately 37% of our transaction fees were generated outside of North America as compared to approximately 32% for the three months ended March 31, 2021. Our Capital Markets business line is dependent on the overall capital markets environment, which is influenced by equity prices, credit spreads, and market volatility. Our Capital Markets business line does not generate monitoring fees.
Our Private Markets and Public Markets business lines separately earn transaction and monitoring fees from portfolio companies, and under the terms of the management agreements with certain of our investment funds, we are required to share all or a portion of such fees with our fund investors.
The increase in Private Markets transaction and monitoring fees, net, was primarily attributable to an increase in both the number and size ofnet transaction fee-generating investments.fees. During the three months ended September 30, 2017,March 31, 2022, there were 1428 transaction fee-generating investments that paid an average fee of $5.9$7.3 million compared to 1319 transaction fee-generating investments payingthat paid an average fee of $4.1$2.0 million during the three months ended September 30, 2016. The majorityMarch 31, 2021. For the three months ended March 31, 2022, approximately 47% of these transaction fees were paid by companies located in North America.America, 31% were paid from companies in the Asia-Pacific region, and 22% were paid from companies in Europe. Transaction fees vary by investment based upon a number of factors, the most significant of which are transaction size, the particular discussionsagreements as to the amount of the fees, the complexity of the transaction, and KKR’sKKR's role in the transaction. Additionally, transaction fees are generally not earned with respect to energy and real estate investments.
Fee Related Performance Revenues
The following table presents fee related performance revenues by business line:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change |
| | ($ in thousands) |
Fee Related Performance Revenues | | | | | | |
Private Markets | | $ | 2,317 | | | $ | 1,552 | | | $ | 765 | |
Public Markets | | 9,734 | | | 8,744 | | | 990 | |
Total Fee Related Performance Revenues | | $ | 12,051 | | | $ | 10,296 | | | $ | 1,755 | |
Fee related performance revenues earned in our Private Markets and Public Markets business lines represent realized incentive fees that (i) are measured and received from an investment fund, vehicle or account on a recurring basis, and (ii) do not require the realization of the investments held by the investment fund, vehicle or account. These incentive fees are primarily earned from our BDC and our investment in KKR Real Estate Select Trust Inc. ("KREST"). Fee related performance revenues were higher for the three months ended March 31, 2022 compared to the prior period primarily due to investment performance.
Fee Related Compensation
The increase in fee credits isrelated compensation for the three months ended March 31, 2022 compared to the prior period was primarily due primarily to a higher level of transaction fees. Recurring monitoring fees increased $3.3 million, which was primarilycompensation recorded in connection with the resulthigher level of anrevenues included within fee related earnings.
Other Operating Expenses
The increase in the number of portfolio companies paying fees. For the three months ended September 30, 2017 we had 50 portfolio companies paying an average monitoring fee of $0.3 million compared to 42 portfolio companies paying an average monitoring fee of $0.3 millionother operating expenses for the three months ended September 30, 2016. There were no termination paymentsMarch 31, 2022 compared to the prior period was primarily due to a higher level of (i) professional fees, information technology and other administrative costs in connection with the overall growth of the firm and (ii) placement fees related to capital raising activities.
Fee Related Earnings
The increase in fee related earnings for the three months ended September 30, 2017 and 2016. These termination payments may occur in the future; however, they are infrequent in nature and are generally correlated with the initial public offering ("IPO") and other realization activity in our private equity portfolio, and may be smaller in size and number in the future compared to current and prior periods.
Performance Income
The net decrease is attributable to a lower level of carried interest primarily reflecting a lower level of net appreciation in value of our private equity portfolio in the current periodMarch 31, 2022 compared to the prior period.period was primarily due to a higher level of management fees and transaction fees, partially offset by a higher level of fee related compensation and other operating expenses, as described above.
Realized carried interest for the three months ended September 30, 2017, consisted primarily of realized gains from the sale of Capsugel (manufacturing sector) and partial sales of PRA Health Sciences, Inc. and US Foods Holding Corp.Performance Income
Realized carried interest for the three months ended September 30, 2016 consisted primarily of realized gains from the sale or partial sale of Walgreens Boots Alliance, Inc., Alliance Tire Group B.V. (manufacturing sector) and Zimmer Biomet Holdings, Inc.
The following table presents realized performance income by investment vehicle for the three months ended September 30, 2017 and 2016:business line:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change |
| | ($ in thousands) |
Realized Performance Income | | | | | | |
Private Markets | | $ | 603,823 | | | $ | 166,418 | | | $ | 437,405 | |
Public Markets | | 5,384 | | | 4,891 | | | 493 | |
Total Realized Performance Income | | $ | 609,207 | | | $ | 171,309 | | | $ | 437,898 | |
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 |
| | | ($ in thousands) | | |
| Realized Carried Interest | Unrealized Carried Interest | Total Carried Interest | | Realized Carried Interest | Unrealized Carried Interest | Total Carried Interest |
North America Fund XI | $ | 90,394 |
| $ | 48,982 |
| $ | 139,376 |
| | $ | 14,845 |
| $ | 139,705 |
| $ | 154,550 |
|
Co-Investment Vehicles and Other | 16,255 |
| 51,948 |
| 68,203 |
| | 705 |
| 25,985 |
| 26,690 |
|
European Fund III | 4,500 |
| 38,143 |
| 42,643 |
| | — |
| 22,529 |
| 22,529 |
|
European Fund IV | — |
| 24,365 |
| 24,365 |
| | — |
| 1,339 |
| 1,339 |
|
Asian Fund II | — |
| 21,801 |
| 21,801 |
| | — |
| 86,365 |
| 86,365 |
|
Asian Fund | — |
| 21,268 |
| 21,268 |
| | 95,883 |
| (71,490 | ) | 24,393 |
|
Global Infrastructure Investors II | — |
| 7,155 |
| 7,155 |
| | — |
| — |
| — |
|
Next Generation Technology Growth | — |
| 5,885 |
| 5,885 |
| | — |
| 943 |
| 943 |
|
Global Infrastructure Investors | — |
| 3,145 |
| 3,145 |
| | 16,845 |
| (10,383 | ) | 6,462 |
|
Real Estate Partners Americas | 10,365 |
| (7,439 | ) | 2,926 |
| | — |
| 1,970 |
| 1,970 |
|
Millennium Fund | — |
| 2,370 |
| 2,370 |
| | — |
| (15,889 | ) | (15,889 | ) |
E2 Investors | — |
| — |
| — |
| | — |
| (234 | ) | (234 | ) |
European Fund | — |
| — |
| — |
| | — |
| (2,102 | ) | (2,102 | ) |
European Fund II | 2,142 |
| (2,146 | ) | (4 | ) | | 63,721 |
| (62,304 | ) | 1,417 |
|
2006 Fund | 295,782 |
| (301,978 | ) | (6,196 | ) | | 155,612 |
| (64,174 | ) | 91,438 |
|
China Growth Fund | — |
| (7,597 | ) | (7,597 | ) | | 2,858 |
| 5,265 |
| 8,123 |
|
Management Fee Refunds | — |
| (2,473 | ) | (2,473 | ) | | — |
| (4,186 | ) | (4,186 | ) |
Total (1) | $ | 419,438 |
| $ | (96,571 | ) | $ | 322,867 |
| | $ | 350,469 |
| $ | 53,339 |
| $ | 403,808 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change |
| | ($ in thousands) |
Private Markets | | | | | | |
Core Investment Vehicles | | $ | 262,219 | | | $ | 80,937 | | | $ | 181,282 | |
North America Fund XI | | 119,942 | | | 44,881 | | | 75,061 | |
Americas Fund XII | | 83,016 | | | — | | | 83,016 | |
European Fund IV | | 68,688 | | | — | | | 68,688 | |
2006 Fund | | 33,458 | | | 19,960 | | | 13,498 | |
Co-Investment Vehicles and Other | | 12,444 | | | 15,533 | | | (3,089) | |
Real Estate Partners Europe | | — | | | 3,478 | | | (3,478) | |
European Fund III | | — | | | 353 | | | (353) | |
Total Realized Carried Interest (1) | | 579,767 | | | 165,142 | | | 414,625 | |
| | | | | | |
Incentive Fees | | 24,056 | | | 1,276 | | | 22,780 | |
Total Realized Performance Income | | $ | 603,823 | | | $ | 166,418 | | | $ | 437,405 | |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change |
| | ($ in thousands) |
Public Markets | | | | | | |
| | | | | | |
| | | | | | |
Total Realized Carried Interest (1) | | $ | — | | | $ | — | | | $ | — | |
| | | | | | |
Incentive Fees | | 5,384 | | | 4,891 | | | 493 | |
Total Realized Performance Income | | $ | 5,384 | | | $ | 4,891 | | | $ | 493 | |
(1)The above table excludestables exclude any funds for which there was no realized carried interest during eitherboth of the periods presented.
UnrealizedRealized performance income includes (i) realized carried interest reflectsfrom our carry earning funds and (ii) incentive fees not included in Fee Related Performance Revenues.
Realized carried interest in our Private Markets business line for the difference between totalthree months ended March 31, 2022 consisted primarily of (i) realized performance income from our core investment vehicles and (ii) realized proceeds from dividends received from our investment in Internet Brands, Inc. (technology sector) and sales of our investments in Hensoldt AG (FRA: HAG) and Resource Environmental Solutions, LLC (energy sector).
Realized carried interest in our Private Markets business line for the three months ended March 31, 2021 consisted primarily of (i) realized performance income from our core investment vehicles, (ii) dividends received from our investment in Internet Brands, Inc. and (iii) realized gains from the partial sale of our investments in BridgeBio Pharma, Inc. and Academy Sports & Outdoors Inc. (NASDAQ: ASO).
During the three months ended March 31, 2022 and March 31, 2021, there was no realized carried interest earned in our Public Markets business line.
Incentive fees earned in our Private Markets and Public Markets business lines consist of incentive fees earned from (i) our hedge fund partnerships, (ii) investment management agreements with KKR sponsored investment vehicles and (iii) investment management agreements involving third party asset management firm not involving a hedge fund partnership. In Private Markets, the increase in incentive fees for the three months ended March 31, 2022 compared to the prior period was primarily attributable to incentive fees earned this period from certain levered multi-asset investment vehicles.
Realized Performance Income Compensation
The increase in realized performance income compensation for the three months ended March 31, 2022 compared to the prior period was primarily due to a higher level of compensation recorded in connection with the higher level of realized performance income.
Realized Investment Income
The following table presents realized investment income in our Principal Activities business line:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change |
| | ($ in thousands) |
Realized Investment Income | | | | | | |
Net Realized Gains (Losses) | | $ | 76,136 | | | $ | 373,120 | | | $ | (296,984) | |
Interest Income and Dividends | | 273,218 | | | 88,153 | | | 185,065 | |
Total Realized Investment Income | | $ | 349,354 | | | $ | 461,273 | | | $ | (111,919) | |
The decrease in realized investment income is primarily due to a lower level of net realized gains partially offset by a higher level of interest income and dividends. The amount of realized investment income depends on the transaction activity of our funds and balance sheet, which can vary from period to period.
For the three months ended March 31, 2022, net realized gains were comprised of realized gains primarily from the sale of our Private Markets investments in Fiserv, Inc. and Hensoldt AG. Partially offsetting these realized gains were realized losses, the most significant of which was a realized loss of an alternative credit investment and real estate equity investment.
For the three months ended March 31, 2021, net realized gains were comprised of realized gains primarily from the partial sales of our Private Markets investments in Flutter Entertainment PLC and BridgeBio Pharma Inc. Partially offsetting these realized gains were realized losses, the most significant of which was a realized loss on the sale of an investment in our special situations funds.
For the three months ended March 31, 2022, interest income and dividends were comprised of (i) $218.9 million of dividend income primarily from levered multi-asset investment vehicles and our investments in Exact Holdings B.V. and Internet Brands, Inc., and (ii) $54.3 million of interest income, primarily from our investments in CLOs.
For the three months ended March 31, 2021, interest income and dividends were comprised primarily of (i) $44.5 million of dividend income primarily from our investments in Internet Brands, Inc. and US Foods Holding Corp. as well as distributions received from our real estate investments including our investment in KREF and (ii) $43.7 million of interest income primarily from our investments in CLOs. See "—Analysis of Non-GAAP Performance Measures—Non-GAAP Balance Sheet Measures."
We expect realized performance income and realized investment income to be greater than $600 million in the second quarter of 2022 relating to realized carried interest and realized carried interest. investment income from completed, or signed and expected to be completed sales, partial sales or secondary sales subsequent to March 31, 2022 with respect to certain private equity portfolio companies and other investments. Some of these transactions are not complete, and are subject to the satisfaction of closing conditions, including but not limited to regulatory approvals; there can be no assurance if or when any of these transactions will be completed.
Prior to the acquisition of KKR Capstone on January 1, 2020, (i) KKR Capstone's financial results were consolidated with KKR's financial results in accordance with GAAP, and as such the fees and expenses attributable to KKR Capstone were included in KKR's consolidated revenues and expenses, and (ii) KKR Capstone's financial results were excluded from KKR's non-GAAP financial measures, because KKR presented its non-GAAP financial measures prior to the effect to the consolidation of certain entities that were not subsidiaries of KKR. Following the acquisition of KKR Capstone on January 1, 2020, after-tax distributable earnings includes the net income (loss) from KKR Capstone within realized investment income (loss).
For the quarter ended March 31, 2022, total fees attributable to KKR Capstone were $15.5 million, total expenses attributable to KKR Capstone were $18.7 million and income taxes and other income attributable to Capstone were $(0.2) million. For KKR Capstone-related adjustments in reconciling Asset Management segment revenues to GAAP revenues see "—Analysis of Non-GAAP Performance Measures—Reconciliations to GAAP Measures".
Realized Investment Income Compensation
The recognitiondecrease in realized investment income compensation for the three months ended March 31, 2022 compared to the prior period is primarily due to a lower level of compensation recorded in connection with the lower level of realized carried interest resultsinvestment income.
Other Operating and Capital Measures
The following table presents certain key operating and capital metrics as of March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
| | As of |
| | March 31, 2022 | | December 31, 2021 | | Change |
| | ($ in millions) |
Assets Under Management | | $ | 479,032 | | | $ | 470,555 | | | $ | 8,477 | |
Fee Paying Assets Under Management | | $ | 371,176 | | | $ | 357,389 | | | $ | 13,787 | |
Uncalled Commitments | | $ | 114,836 | | | $ | 111,822 | | | $ | 3,014 | |
The following table presents one of our key capital metrics for the three months ended March 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change |
| | ($ in millions) |
Capital Invested | | $ | 21,376 | | | $ | 6,892 | | | $ | 14,484 | |
Assets Under Management
Private Markets
The following table reflects the changes in our Private Markets AUM from December 31, 2021 to March 31, 2022:
| | | | | |
| ($ in millions) |
December 31, 2021 | $ | 257,048 | |
New Capital Raised | 17,295 | |
| |
Distributions and Other | (4,283) | |
Change in Value | (1,847) | |
March 31, 2022 | $ | 268,213 | |
AUM for the reversalPrivate Markets business line was $268.2 billion at March 31, 2022, an increase of accumulated unrealized carried interest, generally resulting$11.2 billion, compared to $257.0 billion at December 31, 2021.
The increase was primarily attributable to new capital raised by Global Atlantic, European Fund VI, and IndiGrid, an asset management firm that KKR owns in minimal impact on total performance income. Additionally, because unrealized carried interest can be reversed uponIndia. Partially offsetting these increases were distributions to fund investors, primarily as a realization event,result of realized proceeds, most notably from North America Fund XI, Americas Fund XII, and European Fund IV and to a lesser extent a decrease in periods where there is significant realized carried interest, unrealized carried interest can be negative even in periods of portfolio appreciation.
investment value from Americas Fund XII, Global Atlantic under our investment management agreements with Global Atlantic's insurance companies, and Asian Fund II.
For the three months ended September 30, 2017,March 31, 2022, the value of our traditional private equity investment portfolio increased 3.9%decreased 5%. This was comprised of a 2.6% increase26% decrease in the share prices of various publicly held or publicly indexed investments and a 4.6%3% increase in value of our privately held investments. Additionally,investments, as discussed further below. See "—Business Environment" for more information about certain factors that impact our infrastructure investment portfolio, which is comprised predominately of private investments, increased 6.6%. business, financial performance, operating results and valuations.
The most significant increasesdecreases in share prices of various publicly held or publicly indexed investments were gainsdecreases in Gardner DenverApplovin Corporation (NASDAQ: APP), Max Healthcare Institute Limited (NSE: MAXHEALTH), and PHC Holdings Inc. (NYSE: GDI), China International Capital Corporation Limited (HK: 3908) and Pets At Home Group Plc (LSE: PETS)(TYO: 6523). These increasesdecreases were partially offset by decreasedincreases in share prices of various publicly held investments, the most significant of which were losseswas an increase in Laureate Education, Inc. (NASDAQ: LAUR), First Data CorporationCrescent Energy Company, Hensoldt AG and Beijing Capital Grand Limited (HK: 1329). Our privatelyUS Foods Holdings Corp. The prices of publicly held investments contributedor publicly indexed companies may experience volatile changes following the remainderreporting period.
The most significant increases in value the most significant of which were gains relating to Internet Brands, Inc. (technology sector), Colonial Pipeline Company (infrastructure sector) and United Group (telecom sector). The unrealized gains on our privately held investments related to Internet Brands, Inc., Viridor Limited, and Wella Co. (consumer products sector). These increases in value were partially offset by unrealized lossesdecreases in value relating primarily to Optiv Inc. (technologyMagnetti Marelli (industrial sector), AcademyOutsystems Holdings S.A., and Koki Holdings Co., Ltd. (retail sector) and Sundrop Farms Holding Ltd. (agriculture(industrial sector). The increased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) individual company performance, (ii) an increase in the value of market comparables, and (ii) individual company performance.with respect to Internet Brands, an increase in valuation reflecting an agreement to monetize a portion of the company. The decreased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) an unfavorable business outlook and (ii) a decrease in the value of market comparables, both influenced by economic outlook and market environment.
For the three months ended March 31, 2021, the value of our traditional private equity investment portfolio increased 19%. This was comprised of a 21% increase in value of our privately held investments and a 10% increase in share prices of various publicly held or publicly indexed investments.
The most significant increases in value of our privately held investments related to AppLovin Corporation, OneStream Software, LLC (technology sector), and OutSystems Holdings S.A. These increases in value were partially offset by decreases in value relating primarily to Colonial Enterprises, Inc. (infrastructure), Goodpack Limited (packaging sector), and Channel Control Merchants (retail sector). The increased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) individual company performance or, in certain cases, an unfavorable business outlook and (ii) a decrease in the value of market comparables.
Subsequent to September 30, 2017, realization activity such as dividends and agreements to sell, including partial sales and secondary sales, are expected, with respect to certain private equity portfolio companies, the most significant of which are
Alliant Insurance Services (financial services sector), Gland Pharma (manufacturing sector), Visma AS (technology sector) and Groupe SMCP S.A.S. (retail sector). These transactions have been consummated subsequent to September 30, 2017, and represent distributable earnings of approximately $130 million. Some or all of these transactions are subject to the satisfaction of closing conditions prior to their completion, and there can be no assurance if or when any of these transactions will be completed.
For the three months ended September 30, 2016, the value of our private equity investment portfolio increased 5.8%. This was comprised of a 7.0% increase in the share prices of various publicly held or publicly indexed investments and a 5.1% increase in the value of our privately held investments. The most significant increase in share prices of various publicly held or publicly indexed investments were gains in First Data Corporation, PRA Health Sciences, Inc. and Qingdao Haier Co., Ltd. (CH: 600690). These increases were partially offset by decreased share prices of various publicly held investments, the most significant of which were Walgreens Boots Alliance, Inc., US Foods Holding Corp. and Fujian Sunner Development Co. Ltd. (SZ:002299). Our privately held investments contributed the remainder of the change in value, the most significant of which were gains relating to Sedgwick Claims Management Services (financial services sector), Panasonic Healthcare Co., Ltd. (healthcare sector), and GenesisCare (healthcare sector). The unrealized gains on our privately held investments were partially offset by unrealized losses the most significant of which were Aricent Inc. (technology sector), Crosby and Acco Material Handling Solutions (manufacturing sector) and OEG Management Partners (energy sector). The increased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) in the case of Sedgwick Claims Management Services and GenesisCare, valuations that reflect agreements to sell all or a portion of these investments, (ii) an increase in the value of market comparables and (iii) individual company performance.transactional activity in the quarter related to new rounds of funding. The decreased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) individual company performance or, in certain cases, an unfavorable business outlook and (ii) a decrease in the value of market comparables.comparables, both influenced from the impact of COVID-19 on the economic outlook and overall market environment.
Segment Expenses
Compensation and Benefits
The net decrease was due primarily to lower performance income compensation resulting from a lower levelmost significant increases in share prices of carried interest gainsvarious publicly held or publicly indexed investments were increases in our private equity portfolio in the current period as described above as well as a greater amount of compensationMax Healthcare Institute Limited, Fiserv, Inc. and benefits expense allocated to Principal Activities as a result of an increase in the proportion of revenue earned by Principal Activities relative to other operating segments.Academy Sports & Outdoor Inc. These decreasesincreases were partially offset by increased cash compensationdecreases in share prices of various publicly held investments, the most significant of which were decreases in BridgeBio Pharma, Inc. and benefits.Laureate Education, Inc. (NASDAQ: LAUR).
Occupancy and Other Operating Expenses
The increase is primarily due to an increase in professional fees and expenses that are creditable to our investment funds which include expenses for unconsummated transactions, also known as broken-deal expenses. Partially offsetting these increases was a decrease relating to a greater amount of other operating expenses allocated to Principal Activities as a result of an increase in the proportion of revenue earned by Principal Activities relative to other operating segments.
Economic Net Income (Loss)
The decrease was primarily due to lower levels of performance income gains in the current period compared to the prior period, partially offset by higher management and transaction fees and a decrease in compensation and benefits in the current period.
Assets Under Management
The following table reflects the changes in our Private Markets AUM from June 30, 2017 to September 30, 2017:
|
| | | |
| ($ in thousands) |
June 30, 2017 | $ | 84,984,000 |
|
New Capital Raised | 4,287,200 |
|
Distributions | (3,798,300 | ) |
Change in Value | 2,136,900 |
|
September 30, 2017 | $ | 87,609,800 |
|
AUM for the Private Markets segment was $87.6 billion at September 30, 2017, an increase of $2.6 billion, compared to $85.0 billion at June 30, 2017. The increase was primarily attributable to new capital raised primarily in two new strategic investor partnerships and our Real Estate Credit Opportunity Partners fund, and to a lesser extent, an increase in the value of our Private Markets portfolio. Our strategic investor partnerships include separately managed accounts that provide for investments to be made in multiple funds and across investment strategies and for the reinvestment or recycling of investment proceeds. Those strategic investor partnerships also generally provide for the netting of investment returns over negotiated periods of time among funds and other investments, which may give rise to the clawback of previously recognized carried interest or incentive fees. These increases were offset by distributions to Private Markets fund investors primarily as a result of realizations, most notably in our 2006 Fund, North America Fund XI and certain carry co-investment vehicles.
The increase in the value of our Private Markets portfolio was driven primarily by net gains of $0.8 billion in our North America Fund XI and $0.3 billion in each of our European Fund III and European Fund IV. The drivers of the overall change in value for Private Markets were consistent with those noted in the Performance Income commentary above. See “-- Private Markets - Segment Revenues - Performance Income.”
Certain investments included in our AUM are denominated in currencies other than the U.S. dollar. Those investments expose our AUM to the risk that the value of the investments will be affected by changes in exchange rates between the currency in which the investments are denominated and the currency in which the investments are made. Our policy isWe generally seek to minimizereduce these risks in certain cases by employing hedging techniques,transactions in connection with certain investments, including using foreign currency options and foreign exchange forward contracts to reduce exposure to changes in exchange rates when a meaningful amount of capital has been invested in currencies other than the currencies in which the investments are denominated. We do not, however, hedge our currency exposure in all currencies or for all investments. See “-Quantitative"Quantitative and Qualitative Disclosures about Market Risk -- Risk—Exchange Rate Risk”Risk" and “Risk Factors-Risks"Risk Factors—Risks Related to the Assets We Manage--WeManage—We make investments in companies that are based outside of the United States, which may expose us to additional risks not typically associated with investing in companies that are based in the United States” ofStates" in our Annual Report on Form 10-K for the year ended December 31, 2016.2021.
Public Markets
Fee-PayingThe following table reflects the changes in our Public Markets AUM from December 31, 2021 to March 31, 2022:
| | | | | |
| ($ in millions) |
December 31, 2021 | $ | 213,507 | |
New Capital Raised | 8,935 | |
| |
| |
| |
Distributions and Other | (4,280) | |
Redemptions | (1,933) | |
Change in Value | (5,410) | |
March 31, 2022 | $ | 210,819 | |
| |
| |
| |
AUM in our Public Markets business line totaled $210.8 billion at March 31, 2022, a decrease of $2.7 billion compared to $213.5 billion at December 31, 2021.
The decrease was primarily attributable to (i) a decline in investment value in assets managed across our credit portfolio, including for Global Atlantic under our investment management agreements with Global Atlantic's insurance companies, (ii) distributions to fund investors at certain liquid and alternative credit funds, (iii) payments to Global Atlantic policyholders and (iv) redemptions at our hedge fund partnerships. Partially offsetting these decreases was new capital raised by our hedge fund partnerships, Global Atlantic and across various liquid and alternative credit funds.
Fee Paying Assets Under Management
Private Markets
The following table reflects the changes in our Private Markets FPAUM from June 30, 2017December 31, 2021 to September 30, 2017:March 31, 2022:
| | | | | |
| ($ in millions) |
December 31, 2021 | $ | 154,855 | |
New Capital Raised | 22,907 | |
| |
Distributions and Other | (2,813) | |
Net Changes in Fee Base of Certain Funds | (1,318) | |
Change in Value | (1,559) | |
March 31, 2022 | $ | 172,072 | |
|
| | | |
| ($ in thousands) |
June 30, 2017 | $ | 62,008,900 |
|
New Capital Raised | 1,202,900 |
|
Distributions and Other | (1,968,700 | ) |
Change in Value | 463,400 |
|
September 30, 2017 | $ | 61,706,500 |
|
FPAUM in our Private Markets segmentbusiness line was $61.7$172.1 billion at September 30, 2017, a decreaseMarch 31, 2022, an increase of $0.3$17.2 billion, compared to $62.0$154.9 billion at June 30, 2017. December 31, 2021.
The decreaseincrease was due primarily attributable to new capital raised by European Fund VI, Global Atlantic, and IndiGrid, an asset management firm that KKR owns in India. Partially offsetting this increase were (i) distributions to fund investors, primarily related to realizations in our 2006 Fund andas a result of realized proceeds, most notably from North America Fund XI. These decreases were partially offset by newXI, (ii) payments to Global Atlantic policyholders (iii) a decrease in investment value for Global Atlantic under our investment management agreements with Global Atlantic's insurance companies and (iv) net change in fee base of European Fund V as a result of entering its post investment period, during which we earn fees on invested capital raised in our Americas Fund XII (relating to one of our strategic investor partnerships) and Health Care Strategic Growth Fund, and capital deployed in our North America Fund XI. rather than committed capital.
Uncalled capital commitments from Private Markets investment funds from which KKR is currently not earning management fees amounted to approximately 9.0$28.7 billion at September 30, 2017,March 31, 2022, which includes capital commitments reserved for follow-on investments for funds that have completed their investment periods. This capital will generally begin to earn management fees upon deployment of the capital or upon the commencement of the fund's investment period. The average annual management fee rate associated with this capital is approximately 1.0%. We will not begin earning fees on this capital until it is deployed or the related investment period commences, neither of which is guaranteed to occur and which may not occur for an extended period of time. If and when such management fees are earned, a portion of existing FPAUM may cease paying fees or pay lower fees, thus offsetting a portion of any new management fees earned.
Public Markets
The following table reflects the changes in our Public Markets FPAUM from December 31, 2021 to March 31, 2022:
| | | | | |
| ($ in millions) |
December 31, 2021 | $ | 202,534 | |
New Capital Raised | 7,445 | |
| |
| |
| |
Distributions and Other | (3,591) | |
Redemptions | (1,933) | |
Change in Value | (5,351) | |
March 31, 2022 | $ | 199,104 | |
| |
| |
| |
FPAUM in our Public Markets business line was $199.1 billion at March 31, 2022, a decrease of $3.4 billion, compared to $202.5 billion at December 31, 2021.
The decrease was primarily attributable to (i) a decline in investment value in assets managed across our credit portfolio, including for Global Atlantic under our investment management agreements with Global Atlantic's insurance companies, (ii) distributions to fund investors at certain alternative credit funds, (iii) payments to Global Atlantic policyholders and (iv) redemptions at our hedge fund partnerships. Partially offsetting these decreases was new capital raised by our hedge fund partnerships, Global Atlantic and across various liquid and alternative credit funds.
Uncalled capital commitments from Public Markets investment funds from which KKR is currently not earning management fees amounted to approximately $7.3 billion at March 31, 2022. This capital will generally begin to earn management fees upon deployment of the capital or upon the commencement of the fund's investment period. The average annual management fee rate associated with this capital is approximately 0.9%. We will not begin earning fees on this capital until it is deployed or the related investment period commences, neither of which is guaranteed.guaranteed to occur. If and when such management fees are earned, which will occur over an extended period of time, a portion of existing FPAUM may cease paying fees or pay lower fees, thus offsetting a portion of any new management fees earned.
Uncalled Commitments
Private Markets
As of March 31, 2022, our Private Markets business line had $103.5 billion of remaining uncalled capital commitments that could be called for investments in new transactions as compared to $101.5 billion as of December 31, 2021. The increase was primarily attributable to new commitments from fund investors, which was partially offset by capital called from fund investors to make investments during the period.
Public Markets
As of March 31, 2022, our Public Markets business line had $11.4 billion of remaining uncalled capital commitments that could be called for investments in new transactions as compared to $10.3 billion as of December 31, 2021. The increase was primarily attributable to new commitments from fund investors, which was partially offset by capital called from fund investors to make investments during the period.
Capital Invested
Private Markets
For the three months ended March 31, 2022, Private Markets had $13.4 billion of capital invested as compared to $4.0 billion for the three months ended March 31, 2021. The increase was driven primarily by a $0.4$6.9 billion increase in capital invested in our real assets strategies and a $2.5 billion increase in capital invested in our private equity platformstrategies (including core and a $0.2 billion increase in capital invested in our real assets and other platforms.growth equity (including impact) investments). Generally, the portfolio companies acquired through our private equity funds have higher transaction values and result in higher capital invested relative to transactions in our real assets funds. The number of large private equity investments made in any quarter is volatile and consequently, a significant amount of capital invested in one quarter or a few quarters may not be indicative of a similar level of capital deployment in future quarters. During the three months ended September 30, 2017, 64%March 31, 2022, 36% of capital deployed in private equity (including core and growth equity (including impact) investments) was in
transactions in North America, 27%34% was in the Asia-Pacific region, and 9%30% was in Europe. As of October 26, 2017, our Private
Public Markets business had announced transactions that were subject to closing conditions which aggregated approximately $3.1 billion. Some or all of these transactions are subject to the satisfaction of closing conditions prior to their completion, and there can be no assurance if or when any of these transactions will be completed.
Uncalled Commitments
As of September 30, 2017, our Private Markets segment had $39.4 billion of remaining uncalled capital commitments that could be called for investments in new transactions. The increase from September 30, 2016 is due primarily to new capital raised in our Asian Fund III, two new strategic investor partnerships and Americas Fund XII, partially offset by capital called from fund investors to fund investments during the period.
Nine months ended September 30, 2017 compared to nine months ended September 30, 2016
|
| | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2017 | | September 30, 2016 | | Change |
| ($ in thousands) |
Segment Revenues | |
| | |
| | |
Management, Monitoring and Transaction Fees, Net | |
| | |
| | |
Management Fees | $ | 419,606 |
| | $ | 354,376 |
| | $ | 65,230 |
|
Monitoring Fees | 58,072 |
| | 52,126 |
| | 5,946 |
|
Transaction Fees | 237,392 |
| | 114,021 |
| | 123,371 |
|
Fee Credits | (177,254 | ) | | (93,042 | ) | | (84,212 | ) |
Total Management, Monitoring and Transaction Fees, Net | 537,816 |
| | 427,481 |
| | 110,335 |
|
| | | | | |
Performance Income | |
| | |
| | |
Realized Incentive Fees | — |
| | — |
| | — |
|
Realized Carried Interest | 890,310 |
| | 749,194 |
| | 141,116 |
|
Unrealized Carried Interest | 305,945 |
| | (131,386 | ) | | 437,331 |
|
Total Performance Income | 1,196,255 |
| | 617,808 |
| | 578,447 |
|
| | | | | |
Investment Income (Loss) | |
| | |
| | |
Net Realized Gains (Losses) | — |
| | — |
| | — |
|
Net Unrealized Gains (Losses) | — |
| | — |
| | — |
|
Total Realized and Unrealized | — |
| | — |
| | — |
|
Interest Income and Dividends | — |
| | — |
| | — |
|
Interest Expense | — |
| | — |
| | — |
|
Net Interest and Dividends | — |
| | — |
| | — |
|
Total Investment Income (Loss) | — |
| | — |
| | — |
|
| | | | | |
Total Segment Revenues | 1,734,071 |
| | 1,045,289 |
| | 688,782 |
|
| | | | | |
Segment Expenses | |
| | |
| | |
Compensation and Benefits | |
| | | | |
Cash Compensation and Benefits | 183,943 |
| | 142,500 |
| | 41,443 |
|
Realized Performance Income Compensation | 374,335 |
| | 317,178 |
| | 57,157 |
|
Unrealized Performance Income Compensation | 126,677 |
| | (47,377 | ) | | 174,054 |
|
Total Compensation and Benefits | 684,955 |
| | 412,301 |
| | 272,654 |
|
Occupancy and related charges | 24,174 |
| | 27,212 |
| | (3,038 | ) |
Other operating expenses | 97,255 |
| | 95,166 |
| | 2,089 |
|
Total Segment Expenses | 806,384 |
| | 534,679 |
| | 271,705 |
|
| | | | | |
Income (Loss) attributable to noncontrolling interests | — |
| | — |
| | — |
|
| | | | | |
Economic Net Income (Loss) | $ | 927,687 |
| | $ | 510,610 |
| | $ | 417,077 |
|
| | | | | |
Assets Under Management | $ | 87,609,800 |
| | $ | 75,181,600 |
| | $ | 12,428,200 |
|
Fee Paying Assets Under Management | $ | 61,706,500 |
| | $ | 44,010,300 |
| | $ | 17,696,200 |
|
Capital Invested | $ | 11,079,800 |
| | $ | 5,475,300 |
| | $ | 5,604,500 |
|
Uncalled Commitments | $ | 39,421,900 |
| | $ | 31,839,100 |
| | $ | 7,582,800 |
|
Segment Revenues
Management, Monitoring and Transaction Fees, Net
The net increase was primarily due to an increase in transaction fees, partially offset by a corresponding increase in fee credits and an increase in management fees. The increase in transaction fees was primarily attributable to an increase in both the number and size of transaction fee-generating investments. During the nine months ended September 30, 2017, there were 38 transaction fee-generating investments that paid an average fee of $6.2 million compared to 33 transaction fee-generating investments paying an average fee of $3.5 million during the nine months ended September 30, 2016. Approximately 44% of these transaction fees were paid by companies located in North America, 37% were paid from companies located in the Asia-Pacific region and 19% were paid from companies in Europe. Transaction fees vary by investment based upon a number of factors, the most significant of which are transaction size, the particular discussions as to the amount of the fees, the complexity of the transaction and KKR’s role in the transaction. The increase in fee credits is due primarily to a higher level of transaction fees. The increase in management fees was primarily due to (i) Americas Fund XII entering its investment period in the first quarter of 2017, in which it earns management fees on a larger pool of capital than its predecessor fund North America Fund XI, which entered its post investment period, (ii) Asian Fund III entering its investment period in the second quarter of 2017, in which it earns management fees on a larger pool of capital than its predecessor fund Asian Fund II, which entered its post investment period and (iii) new capital raised in our Health Care Strategic Growth Fund. This net increase was partially offset by decreases due to (i) North America Fund XI and Asian Fund II entering their post investment periods during the first nine months of 2017, in which they earn fees at a lower rate and based on invested capital rather than committed capital, and (ii) lower invested capital as a result of realizations primarily in our 2006 Fund, China Growth Fund and Asian Fund. Recurring monitoring fees increased $5.3 million which was primarily the result of an increase in the number of portfolio companies paying fees. For the nine months ended September 30, 2017, we had 53 portfolio companies that were paying an average monitoring fee of $0.8 million compared with 49 portfolio companies that were paying an average monitoring fee of $0.8 million for the nine months ended September 30, 2016. For the nine months ended September 30, 2017, we also received termination payments of $16.0 million in connection with the IPO of Gardner Denver Holdings, Inc. compared to $15.3 million of termination payments received in the nine months ended September 30, 2016, in connection with the IPO of US Foods Holding Corp. These termination payments may occur in the future; however, they are infrequent in nature and are generally correlated with the IPO and other realization activity in our private equity portfolio, and may be smaller in size and number in the future compared to current and prior periods.
Performance Income
The net increase is attributable to a higher level of net carried interest gains in the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, primarily reflecting a higher level of appreciation in the value of our private equity portfolio in the current period compared to the prior period.
Realized carried interest for the nine months ended September 30, 2017, consisted primarily of realized gains from the sale of Capsugel (manufacturing sector) and the partial sales of US Foods Holding Corp. and PRA Health Sciences, Inc.
Realized carried interest for the nine months ended September 30, 2016 consisted primarily of realized gains from the sale or partial sale of Walgreens Boots Alliance, Inc., Alliance Tire Group B.V. and HCA Holdings, Inc.
The following table presents performance income by investment vehicle for the nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
| | | ($ in thousands) | | |
| Realized Carried Interest | Unrealized Carried Interest | Total Carried Interest | | Realized Carried Interest | Unrealized Carried Interest | Total Carried Interest |
North America Fund XI | $ | 129,576 |
| $ | 333,354 |
| $ | 462,930 |
| | $ | 61,898 |
| $ | 146,192 |
| $ | 208,090 |
|
2006 Fund | 511,935 |
| (347,899 | ) | 164,036 |
| | 351,115 |
| (329,865 | ) | 21,250 |
|
Co-Investment Vehicles and Other | 23,088 |
| 137,510 |
| 160,598 |
| | 7,245 |
| 6,829 |
| 14,074 |
|
European Fund III | 83,045 |
| 42,260 |
| 125,305 |
| | 35,231 |
| 92,783 |
| 128,014 |
|
Asian Fund II | 29,351 |
| 93,419 |
| 122,770 |
| | — |
| 168,145 |
| 168,145 |
|
European Fund IV | — |
| 68,274 |
| 68,274 |
| | — |
| (197 | ) | (197 | ) |
Asian Fund | 17,846 |
| 15,771 |
| 33,617 |
| | 126,820 |
| (41,251 | ) | 85,569 |
|
Global Infrastructure Investors II | — |
| 25,453 |
| 25,453 |
| | — |
| (272 | ) | (272 | ) |
Global Infrastructure Investors | 14,772 |
| 9,012 |
| 23,784 |
| | 16,845 |
| 7,079 |
| 23,924 |
|
Real Estate Partners Americas | 12,050 |
| (60 | ) | 11,990 |
| | — |
| 5,035 |
| 5,035 |
|
Next Generation Technology Growth | — |
| 8,165 |
| 8,165 |
| | — |
| 943 |
| 943 |
|
Millennium Fund | 28,266 |
| (22,140 | ) | 6,126 |
| | 59,707 |
| (84,129 | ) | (24,422 | ) |
European Fund | — |
| — |
| — |
| | 1,503 |
| (4,395 | ) | (2,892 | ) |
E2 Investors | — |
| (306 | ) | (306 | ) | | — |
| 1,328 |
| 1,328 |
|
China Growth Fund | 20,130 |
| (23,315 | ) | (3,185 | ) | | 2,858 |
| 9,845 |
| 12,703 |
|
European Fund II | 20,251 |
| (25,940 | ) | (5,689 | ) | | 85,972 |
| (98,410 | ) | (12,438 | ) |
Management Fee Refunds | — |
| (7,613 | ) | (7,613 | ) | | — |
| (11,046 | ) | (11,046 | ) |
Total (1) | $ | 890,310 |
| $ | 305,945 |
| $ | 1,196,255 |
| | $ | 749,194 |
| $ | (131,386 | ) | $ | 617,808 |
|
(1)The above table excludes any funds for which there was no carried interest during either of the periods presented.
Unrealized carried interest reflects the difference between total carried interest and realized carried interest. The recognition of realized carried interest results in the reversal of accumulated unrealized carried interest, generally resulting in minimal impact on total performance income. Additionally, because unrealized carried interest can be reversed upon a realization event, in periods where there is significant realized carried interest, unrealized carried interest can be negative even in periods of portfolio appreciation.
For the ninethree months ended September 30, 2017,March 31, 2022, Public Markets had $8.0 billion of capital invested as compared to $2.9 billion for the value of our private equity investment portfolio increased 15.9%. This was comprised of a 24.9% increase in the share prices of various publicly held or publicly indexed investments and an 11.2% increase in value of our privately held investments. Additionally, our infrastructure investment portfolio, which is comprised predominately of private investments, increased 20.0%. The most significant increases in share prices of various publicly held or publicly indexed investments were gains in Gardner Denver Holdings, Inc., First Data Corporation and Qingdao Haier Co., Ltd. These increases were partially offset by decreased share prices of various publicly held investments, the most significant of which were losses in Fujian Sunner Development Co. Ltd., Laureate Education, Inc. and US Foods Holding Corp. Our privately held investments contributed the remainder of the change in value, the most significant of which were gains relating to Internet Brands, Inc. (technology sector), Weld North (education sector) and Colonial Pipeline Company (infrastructure sector). The unrealized gains on our privately held investments were partially offset by unrealized losses relating primarily to Academy Ltd. (retail sector), Toys R Us, Inc. (retail sector) and Santanol Pty Ltd (forestry sector). The increased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) an increase in the value of market comparables and (ii) individual company performance. The decreased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) individual company performance or, in certain cases, an unfavorable business outlook and (ii) a decrease in the value of market comparables.
For the ninethree months ended September 30, 2016, the value of our private equity investment portfolio increased 8.9%. This was comprised of a 1.7% increase in the share prices of various publicly held or publicly indexed investments and a 14.5% increase in value of our privately held investments. The most significant increases in share prices of various publicly held or
publicly indexed investments were gains in US Foods Holding Corp., PRA Health Sciences, Inc. and HCA Holdings, Inc. These increases were partially offset by decreased share prices of various publicly held investments, the most significant of which were losses in First Data Corporation, Walgreens Boots Alliance, Inc. and Qingdao Haier Co., Ltd. Our privately held investments contributed the remainder of the change in value, the most significant of which were gains relating to Panasonic Healthcare Co., Ltd., Sedgwick Claims Management Services and Alliance Tire Group B.V. (manufacturing sector). The unrealized gains on our privately held investments were partially offset by unrealized losses relating primarily to Aricent Group (technology sector), OEG Management Partners Limited (energy sector) and MMI Holdings Limited (technology sector). The increased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) in the case of Sedgwick Claims Management Services and Alliance Tire Group B.V., valuations that reflect agreements to sell all or a portion of these investments, (ii) an increase in the value of market comparables and (iii) individual company performance. The decreased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) individual company performance or, in certain cases, an unfavorable business outlook and (ii) a decrease in the value of market comparables.
Segment Expenses
Compensation and Benefits
The net increase was due primarily to higher performance income compensation resulting from a higher level of gains in our private equity portfolio in the current period compared to the prior period as described above as well as increased cash compensation and benefits. These increases were partially offset by a greater amount of compensation and benefits expense allocated to Principal Activities as a result of an increase in the proportion of revenue earned by Principal Activities relative to other operating segments.
Occupancy and Other Operating Expenses
The decrease is primarily due to a decrease in expenses that are creditable to our investment funds, which includes broken-deal expenses, as well as a decrease relating to a greater amount of other operating expenses allocated to Principal Activities as a result of an increase in the proportion of revenue earned by Principal Activities relative to other operating segments. These decreases were partially offset by an increase in professional fees.
Economic Net Income (Loss)
March 31, 2021. The increase was primarily due to a higher level of performance income in the current period compared to the prior period and higher fees partially offset by an increase in compensation and benefits as described above.
Assets Under Management
The following table reflects the changes in(i) capital deployed under our Private Markets AUM from December 31, 2016 to September 30, 2017:
|
| | | |
| ($ in thousands) |
December 31, 2016 | $ | 73,815,500 |
|
New Capital Raised | 15,367,500 |
|
Distributions and Other | (9,166,800 | ) |
Change in Value | 7,593,600 |
|
September 30, 2017 | $ | 87,609,800 |
|
AUM for the Private Markets segment was $87.6 billion at September 30, 2017, an increase of $13.8 billion, compared to $73.8 billion at December 31, 2016. The increase was primarily attributable to (i) new capital raised primarily in our Asian Fund III, two new strategic investor partnerships and our Real Estate Credit Opportunity Partners fundinvestment management agreements with Global Atlantic's insurance companies and (ii) to a lesser extent, an increase in the value of our Private Markets portfolio. These increases were partially offset by (i) distributions to Private Markets fund investors primarily as a result of realizations most notably in our 2006 Fund, North America Fund XI and European Fund III and (ii) a decrease of $0.8 billion reflecting expired commitments that are no longer eligible to be called for investments. Our flagship private equity funds like our Asian Fund III, which represents $9.0 billion of AUM at September 30, 2017, are raised only episodically toward the end of the investment period of their predecessor funds or when their predecessor funds' capital becomes largely invested or allocated for investment.
The increase in the value of our Private Markets portfolio was driven primarily by net gains of $2.4 billion in our North America Fund XI, $0.9 billion in each of our 2006 Fund and European Fund III and $0.6 billion in each of our Asian Fund II and European Fund IV. The drivers of the overall change in value for Private Markets were consistent with those noted in the Performance Income commentary above. See “-- Private Markets - Segment Revenues -Performance Income.”
Fee-Paying Assets Under Management
The following table reflects the changes in our Private Markets FPAUM from December 31, 2016 to September 30, 2017:
|
| | | |
| ($ in thousands) |
December 31, 2016 | $ | 52,204,800 |
|
New Capital Raised | 14,653,000 |
|
Distributions and Other | (3,719,400 | ) |
Net Changes in Fee Base of Certain Funds | (2,418,800 | ) |
Change in Value | 986,900 |
|
September 30, 2017 | $ | 61,706,500 |
|
FPAUM in our Private Markets segment was $61.7 billion at September 30, 2017, an increase of $9.5 billion, compared to $52.2 billion at December 31, 2016. The increase was primarily attributable to new capital raised in our Asian Fund III (which reached its $8.5 billion limit on fee paying limited partner capital during the second quarter of 2017) and capital invested in our Asian Fund II and North America Fund XI. These increases were partially offset by (i) distributions and other activity primarily relating to realizations in our 2006 Fund and European Fund III and (ii) net changes in the fee base of our Asian Fund II as a result of it entering into its post investment period, during which it earns fees based on invested capital rather than committed capital.
Capital Invested
The increase was driven primarily by a $4.1 billion increase in capital invested indeployed across our private equity platform, which includes an increase in core private equity of $1.0 billion consisting of an investment in USI, Inc. made by us and one of our investment funds, and a $1.5 billion increase in capital invested in our real assets and other platforms. Generally,credit strategies. During the portfolio companies acquired through our private equity funds have higher transaction values and result in higher capital invested relative to transactions in our real assets funds. The number of large private equity investments made in any quarter is volatile and consequently, a significant amountthree months ended March 31, 2022, 86% of capital invested in one quarter or a few quarters may not be indicative of a similar level of capital deployment in future quarters. During the nine months ended September 30, 2017, 38% of capital deployed in private equity, excluding core private equity, was in transactions in North America, 9% was in Europe, and 5% was in the Asia-Pacific region, 38% was in North America and 24% was in Europe.region.
Analysis of September 30, 2017, our Private Markets segment had $39.4 billion of remaining uncalled capital commitments that could be called for investments in new transactions. The increase from September 30, 2016 is due primarily to new capital raised in our Asian Fund III, two new strategic investor partnerships and Americas Fund XII, partially offset by capital called from fund investors to fund investments during the period. Insurance Segment Operating Results
Public Markets Segment
The following tables set forth information regarding theKKR's insurance segment operating results of operations and certain key operating metrics for our Public Markets segment for the threeas of and nine months ended September 30, 2017 and 2016.
Three months ended September 30, 2017 compared to three months ended September 30, 2016
|
| | | | | | | | | | | | |
| | Three Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change |
| | ($ in thousands) |
Segment Revenues | | | | | | |
Management, Monitoring and Transaction Fees, Net | | |
| | |
| | |
Management Fees | | $ | 79,113 |
| | $ | 83,713 |
| | $ | (4,600 | ) |
Monitoring Fees | | — |
| | — |
| | — |
|
Transaction Fees | | 11,469 |
| | 10,748 |
| | 721 |
|
Fee Credits | | (10,893 | ) | | (10,265 | ) | | (628 | ) |
Total Management, Monitoring and Transaction Fees, Net | | 79,689 |
| | 84,196 |
| | (4,507 | ) |
| | | | | | |
Performance Income | | |
| | |
| | |
Realized Incentive Fees | | 4,074 |
| | 3,659 |
| | 415 |
|
Realized Carried Interest | | — |
| | — |
| | — |
|
Unrealized Carried Interest | | 36,933 |
| | 17,012 |
| | 19,921 |
|
Total Performance Income | | 41,007 |
| | 20,671 |
| | 20,336 |
|
| | | | | | |
Investment Income (Loss) | | |
| | |
| | |
Net Realized Gains (Losses) | | — |
| | — |
| | — |
|
Net Unrealized Gains (Losses) | | — |
| | — |
| | — |
|
Total Realized and Unrealized | | — |
| | — |
| | — |
|
Interest Income and Dividends | | — |
| | — |
| | — |
|
Interest Expense | | — |
| | — |
| | — |
|
Net Interest and Dividends | | — |
| | — |
| | — |
|
Total Investment Income (Loss) | | — |
| | — |
| | — |
|
| | | | | | |
Total Segment Revenues | | 120,696 |
| | 104,867 |
| | 15,829 |
|
| | | | | | |
Segment Expenses | | |
| | |
| | |
Compensation and Benefits | | |
| | |
| | |
Cash Compensation and Benefits | | 16,257 |
| | 22,022 |
| | (5,765 | ) |
Realized Performance Income Compensation | | 1,630 |
| | 1,463 |
| | 167 |
|
Unrealized Performance Income Compensation | | 16,553 |
| | 6,805 |
| | 9,748 |
|
Total Compensation and Benefits | | 34,440 |
| | 30,290 |
| | 4,150 |
|
Occupancy and related charges | | 1,535 |
| | 2,570 |
| | (1,035 | ) |
Other operating expenses | | 7,672 |
| | 8,894 |
| | (1,222 | ) |
Total Segment Expenses | | 43,647 |
| | 41,754 |
| | 1,893 |
|
| | | | | | |
Income (Loss) attributable to noncontrolling interests | | — |
| | — |
| | — |
|
| | | | | | |
Economic Net Income (Loss) | | $ | 77,049 |
| | $ | 63,113 |
| | $ | 13,936 |
|
| | |
| | |
| | |
Assets Under Management | | $ | 65,729,700 |
| | $ | 55,920,200 |
| | $ | 9,809,500 |
|
Fee Paying Assets Under Management | | $ | 52,016,500 |
| | $ | 49,143,500 |
| | $ | 2,873,000 |
|
Capital Invested | | $ | 1,639,200 |
| | $ | 1,484,400 |
| | $ | 154,800 |
|
Uncalled Commitments | | $ | 7,828,600 |
| | $ | 6,428,200 |
| | $ | 1,400,400 |
|
Segment Revenues
Management, Monitoring and Transaction Fees, Net
The net decrease was primarily due to a decrease in management fees. The decrease in management fees was primarily due to a reduction in management fees from KKR Prisma as a result of the PAAMCO Prisma transaction that closed in the second quarter of 2017. KKR reports its investment in PAAMCO Prisma using the equity method of accounting, and on a segment basis, KKR reflects its allocation of the net income of PAAMCO Prisma as management fees and realized incentive fees. Accordingly, the management fees and other revenues and expenses of Prisma that had been reported on a gross basis prior to the closing of the transaction on June 1, 2017 are reflected on a net basis as part of our allocation of the net income of PAAMCO Prisma after June 1, 2017 resulting in a decrease in our reported gross management fees when compared to the prior period. See "-- Business Segments - Public Markets." This decrease was partially offset by capital invested in our Special Situations Fund II, Lending Partners II Fund, Lending Partners III Fund and Lending Partners Europe Fund as well as an increase in management fees from our strategic manager partnerships.
Performance Income
The net increase was primarily attributable to a higher level of net carried interest gains in the three months ended September 30, 2017, compared to the three months ended September 30, 2016. The carried interest gains in the current period were primarily the result of net increases in the value of our credit portfolio, the most significant of which was in our mezzanine strategy.
Segment Expenses
Compensation and Benefits
The increase was primarily due to higher net performance income compensation in connection with a higher level of net carried interest gains for the three months ended September 30, 2017, as compared to three months ended September 30, 2016, as described above, partially offset by decreased cash compensationMarch 31, 2022 and benefits due primarily to the PAAMCO Prisma transaction which closed on June 1, 2017. KKR reports its investment in PAAMCO Prisma using the equity method of accounting. Accordingly, the compensation expenses of Prisma that had been reported on a gross basis prior to the closing of the transaction on June 1, 2017 are reflected as part of our allocation of the net income of PAAMCO Prisma after June 1, 2017 resulting in a decrease in our reported cash compensation and benefits expense when compared to the prior period. See "-- Business Segments - Public Markets."2021:
Occupancy and Other Operating Expenses | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| March 31, 2022 | | March 31, 2021 | | Change |
| ($ in thousands) |
Net Investment Income | $ | 862,414 | | | $ | 445,898 | | | $ | 416,516 | |
Net Cost of Insurance | (493,649) | | | (250,219) | | | (243,430) | |
General, Administrative and Other | (146,002) | | | (75,489) | | | (70,513) | |
Pre-tax Insurance Operating Earnings | 222,763 | | | 120,190 | | | 102,573 | |
Income Taxes | (34,106) | | | (16,626) | | | (17,480) | |
Net Income Attributable to Noncontrolling Interests | (72,669) | | | (40,299) | | | (32,370) | |
Insurance Segment Operating Earnings | $ | 115,988 | | | $ | 63,265 | | | $ | 52,723 | |
The decrease was primarily driven by lowerInsurance segment operating expenses as a result of having transferred certain leased office space and otherearnings
Insurance segment operating expenses as part of the PAAMCO Prisma transaction. See "-- Business Segments - Public Markets."
Economic Net Income (Loss)
The increase is primarily attributable to the increase in performance income, partially offset by the increase in compensation and benefits expense as described above.
Assets Under Management
The following table reflects the changes in our Public Markets AUM from June 30, 2017 to September 30, 2017:
|
| | | |
| ($ in thousands) |
June 30, 2017 | $ | 63,499,000 |
|
New Capital Raised | 3,392,200 |
|
Distributions | (1,273,400 | ) |
Redemptions | (559,500 | ) |
Change in Value | 671,400 |
|
September 30, 2017 | $ | 65,729,700 |
|
AUM in our Public Markets segment totaled $65.7 billion at September 30, 2017, an increase of $2.2 billion compared to AUM of $63.5 billion at June 30, 2017. The increase was primarily due to new capital raised across multiple strategies, most
notably $1.4 billion in two new strategic investor partnerships, $0.7 billion in our CLOs and $0.7 billion with our strategic manager partnerships. The increases due to change in value were driven primarily by $0.2 billion in our European CLOs, $0.1 billion with our strategic manager partnerships and $0.1 billion in our European liquid credit mandates. Partially offsetting these increases were redemptions and distributions from certain investment vehicles, most notably with our strategic manager partnerships and our CLOs. For the three months ended September 30, 2017, new capital raised has outpaced redemptions with our strategic manager partnerships.
Fee-Paying Assets Under Management
The following table reflects the changes in our Public Markets FPAUM from June 30, 2017 to September 30, 2017:
|
| | | |
| ($ in thousands) |
June 30, 2017 | $ | 50,637,300 |
|
New Capital Raised | 2,950,000 |
|
Distributions | (1,752,100 | ) |
Redemptions | (559,500 | ) |
Change in Value | 740,800 |
|
September 30, 2017 | $ | 52,016,500 |
|
FPAUM in our Public Markets segment was $52.0 billion at September 30, 2017, an increase of $1.4 billion compared to FPAUM of $50.6 billion at June 30, 2017. The increase was primarily due to new capital raised across multiple strategies most notably $0.7 billion with our strategic manager partnerships, $0.7 billion in our CLOs, $0.5 billion in our Special Situations II Fund and $0.2 billion in our Lending Partners III Fund. New capital raised includes capital that was raised in previous periods but began earning fees upon deployment of capital. Partially offsetting these increases were redemptions and distributions from certain investment vehicles including $1.1 billion across multiple alternative credit strategies, $0.5 billion at our strategic manager partnerships and $0.4 billion from our CLOs. For the three months ended September 30, 2017, new capital raised has outpaced redemptions with our strategic manager partnerships. Uncalled capital commitments from investment funds from which KKR is currently not earning management fees amounted to approximately $5.4 billion. This capital will generally begin to earn management fees upon deployment of the capital or upon the commencement of the fund's investment period. The average annual management fee rate associated with this capital is approximately 1.1%. We will not begin earning fees on this capital until it is deployed or the related investment period commences, neither of which is guaranteed. If and when such management fees are earned, which will occur over an extended period of time, a portion of existing FPAUM may cease paying fees or pay lower fees, thus offsetting a portion of any new management fees earned.
Capital Invested
Capital investedearnings increased for the three months ended September 30, 2017,March 31, 2022 as compared to the prior period primarily due to (i) one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021, and (ii) higher net investment income resulting from an increase in average assets under management due to growth of the business. The increase was offset in part by (i) higher net cost of insurance, primarily due to the growth in both our individual market and institutional market channels, (ii) corresponding increase in general and administrative expenses and (iii) an increase in income tax expense.
Net investment income
Net investment income increased for the three months ended September 30, 2016. March 31, 2022 as compared to the prior period primarily due to (i) one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021, (ii) increased average assets under management due to growth in our Institutional segment assets as a result of new reinsurance transactions and new Individual sales, and (iii) increased variable investment income from net realized gains from the sale of real estate investments.
Net cost of insurance
Net cost of insurance increased for the three months ended March 31, 2022 as compared to the prior period primarily due to (i) one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021, (ii) growth in our Institutional segment as a result of new reinsurance transactions and (iii) new Individual sales.
General, administrative and other expenses
General and administrative expenses increased for the three months ended March 31, 2022 as compared to the prior period primarily due to (i) one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021, (ii) increased employee compensation and benefits related expenses, (iii) increased professional service fees, (iv) increased third-party administrator ("TPA") policy servicing fees, all due to growth of the business, and (v) travel returning to pre-pandemic levels.
Income taxes
Insurance segment income tax expense reflects the annual estimated effective tax rate for the insurance segment on an operating basis, including the benefit of investment tax credits.
Net income (loss) attributable to non-controlling interests
Net income (loss) attributable to non-controlling interests increased for the three months ended March 31, 2022 as compared to the prior period proportional to the increase in insurance segment operating earnings for the comparable period. Net income (loss) attributable to non-controlling interests represent the proportionate interest in the insurance segment operating earnings attributable to rollover and other co-investors in Global Atlantic.
Analysis of Non-GAAP Performance Measures
The following is a discussion of our Non-GAAP performance measures for the three months ended March 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | Three Months Ended | |
| | March 31, 2022 | | March 31, 2021 | | Change | |
| | ($ in thousands) | |
Asset Management Segment Operating Earnings | | $ | 1,127,445 | | | $ | 817,172 | | | $ | 310,273 | | |
Insurance Segment Operating Earnings | | 115,988 | | | 63,265 | | | 52,723 | | |
Distributable Operating Earnings | | 1,243,433 | | | 880,437 | | | 362,996 | | |
| | | | | | | |
Interest Expense | | (69,460) | | | (57,545) | | | (11,915) | | |
Preferred Dividends | | — | | | (8,341) | | | 8,341 | | |
Net Income Attributable to Noncontrolling Interests | | (7,616) | | | (3,192) | | | (4,424) | | |
Income Taxes Paid | | (197,842) | | | (151,120) | | | (46,722) | | |
After-tax Distributable Earnings | | $ | 968,515 | | | $ | 660,239 | | | $ | 308,276 | | |
| | | | | | | |
For the quarter ended March 31, 2021 the results of our Insurance Segment above are from February 1, 2021 (closing date of the acquisition) through March 31, 2021.
Distributable Operating Earnings
The increase in distributable operating earnings for the three months ended March 31, 2022 compared to the prior period is primarily due to a higher level of net capital deployed primarily in our direct lending strategy.Asset Management segment operating earnings and Insurance segment operating earnings. For a discussion of the Asset Management and Insurance segment operating earnings, see "—Analysis of Asset Management Segment Operating Results and Analysis of Insurance Segment Operating Results."
Uncalled CommitmentsInterest Expense
As of September 30, 2017, our Public Markets segment had $7.8 billion of uncalled capital commitments that could be called for investments in new transactions. The increase from September 30, 2016in interest expense for the three months ended March 31, 2022 compared to the prior period is due primarily to new capital raised primarilydebt issuances by KKR's financing subsidiaries subsequent to March 31, 2021.
Income Taxes Paid
The increase in two new strategic investor partnerships and Lending Partners III Fund, partially offset by capital called from limited partners to fund investments duringincome taxes paid for the period.
Ninethree months ended September 30, 2017March 31, 2022 compared to nine months ended September 30, 2016
|
| | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change |
| | ($ in thousands) |
Segment Revenues | | | | | | |
Management, Monitoring and Transaction Fees, Net | | |
| | |
| | |
Management Fees | | $ | 251,201 |
| | $ | 245,349 |
| | $ | 5,852 |
|
Monitoring Fees | | — |
| | — |
| | — |
|
Transaction Fees | | 41,040 |
| | 17,768 |
| | 23,272 |
|
Fee Credits | | (33,894 | ) | | (16,230 | ) | | (17,664 | ) |
Total Management, Monitoring and Transaction Fees, Net | | 258,347 |
| | 246,887 |
| | 11,460 |
|
| | | | | | |
Performance Income | | |
| | |
| | |
Realized Incentive Fees | | 8,384 |
| | 9,897 |
| | (1,513 | ) |
Realized Carried Interest | | — |
| | 3,838 |
| | (3,838 | ) |
Unrealized Carried Interest | | 71,762 |
| | (3,370 | ) | | 75,132 |
|
Total Performance Income | | 80,146 |
| | 10,365 |
| | 69,781 |
|
| | | | | | |
Investment Income (Loss) | | |
| | |
| | |
Net Realized Gains (Losses) | | — |
| | — |
| | — |
|
Net Unrealized Gains (Losses) | | — |
| | — |
| | — |
|
Total Realized and Unrealized | | — |
| | — |
| | — |
|
Interest Income and Dividends | | — |
| | — |
| | — |
|
Interest Expense | | — |
| | — |
| | — |
|
Net Interest and Dividends | | — |
| | — |
| | — |
|
Total Investment Income (Loss) | | — |
| | — |
| | — |
|
| | | | | | |
Total Segment Revenues | | 338,493 |
| | 257,252 |
| | 81,241 |
|
| | | | |
| | |
Segment Expenses | | |
| | | | |
Compensation and Benefits | | |
| | | | |
Cash Compensation and Benefits | | 58,991 |
| | 61,193 |
| | (2,202 | ) |
Realized Performance Income Compensation | | 3,354 |
| | 5,493 |
| | (2,139 | ) |
Unrealized Performance Income Compensation | | 30,485 |
| | (1,347 | ) | | 31,832 |
|
Total Compensation and Benefits | | 92,830 |
| | 65,339 |
| | 27,491 |
|
Occupancy and related charges | | 5,140 |
| | 7,252 |
| | (2,112 | ) |
Other operating expenses | | 24,244 |
| | 28,102 |
| | (3,858 | ) |
Total Segment Expenses | | 122,214 |
| | 100,693 |
| | 21,521 |
|
| | | | | | |
Income (Loss) attributable to noncontrolling interests | | — |
| | — |
| | — |
|
| | | | | | |
Economic Net Income (Loss) | | $ | 216,279 |
| | $ | 156,559 |
| | $ | 59,720 |
|
| | |
| | |
| | |
Assets Under Management | | $ | 65,729,700 |
| | $ | 55,920,200 |
| | $ | 9,809,500 |
|
Fee Paying Assets Under Management | | $ | 52,016,500 |
| | $ | 49,143,500 |
| | $ | 2,873,000 |
|
Capital Invested | | $ | 3,825,900 |
| | $ | 3,049,400 |
| | $ | 776,500 |
|
Uncalled Commitments | | $ | 7,828,600 |
| | $ | 6,428,200 |
| | $ | 1,400,400 |
|
Segment Revenues
Management, Monitoring and Transaction Fees, Net
The net increasethe prior period was primarily due to an increase in transaction fees, partially offset by a corresponding increase in fee credits, and an increase in management fees. the higher level of Asset Management segment operating earnings.
After-tax Distributable Earnings
The increase in transaction fees was driven primarily by a $18.5 million breakup fee received inafter-tax distributable earnings for the ninethree months ended September 30, 2017 in connection with a terminated transaction, compared to no such breakup fees in the nine months ended September 30, 2016. The net amount of this fee attributable to us after credits to our limited partners was $4.6 million. The increase in management fees related primarily to capital invested in our Special Situations Fund II, Lending Partners II Fund, and Lending Partners Europe Fund as well as an increase in management fees with our strategic manager partnerships. These increases were partially offset by a reduction in management fees from KKR Prisma as a result of the PAAMCO Prisma transaction that closed in the second quarter of 2017. KKR reports its investment in PAAMCO Prisma using the equity method of accounting, and on a segment basis, KKR reflects its allocation of the net income of PAAMCO Prisma as management fees and realized incentive fees. Accordingly, the management fees and other revenues and expenses of Prisma that had been reported on a gross basis prior to the closing of the transaction on June 1, 2017 are reflected on a net basis as part of our allocation of the net income of PAAMCO Prisma after June 1, 2017 resulting in a decrease in our reported gross management fees whenMarch 31, 2022 compared to the prior period.
Performance Income
The net increaseperiod was primarily attributable to higher net carried interest gains in the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016. The carried interest gains in the current period were primarily the result of increases in the value of our private credit portfolio, with the most significant carried interest gains arising in our mezzanine and direct lending strategies. In the prior period, net carried interest losses were experienced in our mezzanine strategy.
Segment Expenses
Compensation and Benefits
The increase was primarily due to higher net performance income compensation in connection with higher net carried interest gains for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, as described above. These increases were partially offset by decreased cash compensation and benefits due primarily to (i) a greater amounthigher level of compensation and benefits expense allocated to Principal Activities as a result of an increase in the proportion of revenue earned by Principal Activities relative to otherdistributable operating segments and (ii) the PAAMCO Prisma transaction which closed on June 1, 2017. KKR reports its investment in PAAMCO Prisma using the equity method of accounting. Accordingly, the compensation expenses of Prisma that had been reported on a gross basis prior to the closing of the transaction on June 1, 2017 are reflected as part of our allocation of the net income of PAAMCO Prisma after June 1, 2017 resulting in a decrease in our reported cash compensation and benefits expense when compared to the prior period.
Occupancy and Other Operating Expenses
The decrease was primarily driven by lower operating expenses as a result of having transferred certain leased office space and other operating expenses as part of the PAAMCO Prisma transaction. See "-- Business Segments - Public Markets."
Economic Net Income (Loss)
The increase is primarily attributable to the increase in performance income and transaction and management fees,earnings, partially offset by an increase in compensationincome taxes paid and benefitsinterest expense, as described above.
Assets Under Management
The following table reflects the changesamount of tax benefit from equity-based compensation included in our Public Markets AUM from December 31, 2016 to September 30, 2017:
|
| | | |
| ($ in thousands) |
December 31, 2016 | $ | 55,740,200 |
|
New Capital Raised | 7,608,900 |
|
Impact of Other Transactions | 3,811,400 |
|
Distributions | (2,516,200 | ) |
Redemptions | (2,029,600 | ) |
Change in Value | 3,115,000 |
|
September 30, 2017 | $ | 65,729,700 |
|
AUM in our Public Markets segment totaled $65.7 billion at September 30, 2017, an increase of $10.0 billion compared to AUM of $55.7 billion at December 31, 2016. The increase for the period was primarily due to new capital raised across multiple strategies most notably $1.4 billion in two new strategic investor partnerships, $1.3 billion in our liquid credit strategies, $1.9 billion with our strategic manager partnerships, $1.3 billion in our CLOs and $0.8 billion in our Lending Partners III Fund. The "Impact of Other Transactions" represents the closing of the PAAMCO Prisma transaction. This resulted in a net increase of approximately $3.8 billion reflecting the excess of our pro-rata portion of the AUM of PAAMCO Prisma over the historical AUM of Prisma Capital Partners, our former hedge funds solutions platform. For the nine months ended September 30, 2017, new capital raised outpaced our redemptions with our strategic manager partnerships. The increases due to change in value were driven primarily by our strategic manager partnerships, our domestic private credit strategies and our European liquid credit and European CLOs. Partially offsetting these increases were redemptions and distributions from certain investment vehicles across multiple strategies, primarily with our strategic manager partnerships, our private credit strategies and our CLOs.
Fee-Paying Assets Under Management
The following table reflects the changes in our Public Markets FPAUM from December 31, 2016 to September 30, 2017:
|
| | | |
| ($ in thousands) |
December 31, 2016 | $ | 49,268,600 |
|
New Capital Raised | 7,630,100 |
|
Impact of Other Transactions | (1,600,000 | ) |
Distributions | (3,794,600 | ) |
Redemptions | (2,029,600 | ) |
Change in Value | 2,542,000 |
|
September 30, 2017 | $ | 52,016,500 |
|
FPAUM in our Public Markets segment was $52.0 billion at September 30, 2017, an increase of $2.7 billion compared to FPAUM of $49.3 billion at December 31, 2016. The increase was primarily due to new capital raised across multiple strategies, most notably $1.9 billion with our strategic manager partnerships, $1.3 billion in our liquid credit strategies, $1.3 billion in our CLOs, $0.8 billion in our Special Situations Fund II and $0.5 billion in our Lending Partners Fund III. New capital raised includes capital that was raised in previous periods but began earning fees upon deployment of capital. For the nine months ended September 30, 2017, new capital raised has outpaced redemptions with our strategic manager partnerships. Change in value was driven primarily by $0.9 billion with our strategic manager partnerships, $0.6 billion in our liquid credit strategies and $0.5 billion in our European CLOs. Partially offsetting these increases were redemptions and distributions from certain investment vehicles across multiple strategies driven by $1.4 billion with our strategic manager partnerships, $2.3 billion from our private credit strategies and $1.0 billion from our CLOs. The "Impact of Other Transactions" represents the closing of the PAAMCO Prisma transaction. This resulted in a net decrease of approximately $1.6 billion reflecting the excess of our historical FPAUM of Prisma Capital Partners, our former hedge funds solutions platform, over our pro-rata portion of the FPAUM of PAAMCO Prisma. FPAUM excludes assets under advisement of PAAMCO Prisma.
Capital Invested
Capital invested increased for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2017. The increase is primarily due to a higher level of net capital deployed in our direct lending and special situations strategies.
Uncalled Commitments
As of September 30, 2017, our Public Markets segment had $7.8 billion of uncalled capital commitments that could be called for investments in new transactions. The increase from September 30, 2016 is due to new capital raised primarily in two new strategic investor partnerships and Lending Partners III Fund, partially offset by capital called from limited partners to fund investments during the period.
Capital Markets
The following tables set forth information regarding the results of operations and certain key operating metrics for our Capital Markets segment for the three and nine months ended September 30, 2017 and 2016.
Three months ended September 30, 2017 compared to three months ended September 30, 2016
|
| | | | | | | | | | | | |
| | Three Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change |
| | ($ in thousands) |
Segment Revenues | | | | | | |
Management, Monitoring and Transaction Fees, Net | | |
| | |
| | |
Management Fees | | $ | — |
| | $ | — |
| | $ | — |
|
Monitoring Fees | | — |
| | — |
| | — |
|
Transaction Fees | | 85,440 |
| | 47,383 |
| | 38,057 |
|
Fee Credits | | — |
| | — |
| | — |
|
Total Management, Monitoring and Transaction Fees, Net | | 85,440 |
| | 47,383 |
| | 38,057 |
|
| | | | | | |
Performance Income | | |
| | |
| | |
Realized Incentive Fees | | — |
| | — |
| | — |
|
Realized Carried Interest | | — |
| | — |
| | — |
|
Unrealized Carried Interest | | — |
| | — |
| | — |
|
Total Performance Income | | — |
| | — |
| | — |
|
| | | | | | |
Investment Income (Loss) | | |
| | |
| | |
Net Realized Gains (Losses) | | — |
| | — |
| | — |
|
Net Unrealized Gains (Losses) | | — |
| | — |
| | — |
|
Total Realized and Unrealized | | — |
| | — |
| | — |
|
Interest Income and Dividends | | — |
| | — |
| | — |
|
Interest Expense | | — |
| | — |
| | — |
|
Net Interest and Dividends | | — |
| | — |
| | — |
|
Total Investment Income (Loss) | | — |
| | — |
| | — |
|
| | | | | | |
Total Segment Revenues | | 85,440 |
| | 47,383 |
| | 38,057 |
|
| | | | | | |
Segment Expenses | | |
| | |
| | |
Compensation and Benefits | | |
| | |
| | |
Cash Compensation and Benefits | | 16,924 |
| | 7,803 |
| | 9,121 |
|
Realized Performance Income Compensation | | — |
| | — |
| | — |
|
Unrealized Performance Income Compensation | | — |
| | — |
| | — |
|
Total Compensation and Benefits | | 16,924 |
| | 7,803 |
| | 9,121 |
|
Occupancy and related charges | | 760 |
| | 330 |
| | 430 |
|
Other operating expenses | | 6,293 |
| | 3,552 |
| | 2,741 |
|
Total Segment Expenses | | 23,977 |
| | 11,685 |
| | 12,292 |
|
| | | | | | |
Income (Loss) attributable to noncontrolling interests | | 1,046 |
| | 760 |
| | 286 |
|
| | | | | | |
Economic Net Income (Loss) | | $ | 60,417 |
| | $ | 34,938 |
| | $ | 25,479 |
|
| | | | | | |
Syndicated Capital | | $ | 533,300 |
| | $ | 537,000 |
| | $ | (3,700 | ) |
| | | | | | |
Segment Revenues
Management, Monitoring and Transaction Fees, Net
Transaction fees increased due primarily to an increase in both the number and size of capital markets transactionsincome taxes paid for the three months ended September 30, 2017, comparedMarch 31, 2022 and 2021 was $11.8 million and $43.0 million, respectively, and its inclusion in after-tax distributable earnings had the effect of increasing this measure by 1% and 7%, respectively.
Non-GAAP Balance Sheet Measures
Book Value
The following table presents our calculation of book value as of March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | |
| | | | | |
| | | As of |
| | | March 31, 2022 | | December 31, 2021 |
| | | ($ in thousands) |
| | | | | |
(+) | Cash and Short-term Investments | | $ | 4,830,014 | | | $ | 4,869,203 | |
(+) | Investments | | 17,987,229 | | | 17,763,542 | |
(+) | Net Unrealized Carried Interest (1) | | 4,194,193 | | | 4,967,401 | |
| | | | | |
(+) | Other Assets (2) | | 4,910,373 | | | 4,706,108 | |
(+) | Global Atlantic Book Value | | 3,425,241 | | | 3,372,498 | |
| | | | | |
(-) | Debt Obligations - KKR (excluding KFN and Global Atlantic) | | 5,804,287 | | | 5,836,267 | |
(-) | Debt Obligations - KFN | | 948,517 | | | 948,517 | |
(-) | Tax Liabilities, Net | | 2,583,489 | | | 2,697,317 | |
(-) | Other Liabilities | | 1,020,430 | | | 774,711 | |
(-) | Noncontrolling Interests | | 29,950 | | | 33,058 | |
| | | | | |
| Book Value | | $ | 24,960,377 | | | $ | 25,388,882 | |
| | | | | |
| Book Value Per Adjusted Share | | $ | 28.45 | | | $ | 28.77 | |
| Adjusted Shares | | 877,397,862 | | | 882,589,036 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| |
|
(1)The following table provides net unrealized carried interest by business line:
| | | | | | | | | | | | | | |
| | As of |
| | March 31, 2022 | | December 31, 2021 |
| | ($ in thousands) |
Private Markets Business Line | | $ | 4,088,533 | | | $ | 4,856,843 | |
Public Markets Business Line | | 105,660 | | | 110,558 | |
Total | | $ | 4,194,193 | | | $ | 4,967,401 | |
(2)Other Assets include KKR's ownership interest in FS/KKR Advisor and minority ownership interests in hedge fund partnerships.
Book value per adjusted share decreased (1)% from December 31, 2021. The decrease was primarily attributable to (i) a reduction in net unrealized carried interest from our carried interest eligible investment funds, most notably Americas Fund XII and Asian Fund II, (ii) repurchases of our common stock, and (iii) payment of dividends during the period. Partially offsetting these decreases was the positive impact of our after-tax distributable earnings recognized during the period.
With respect to book value relating to the three months ended September 30, 2016. Overall, we completed 48 capital markets transactionsAsset Management business, for the three months ended September 30, 2017, of which 2 represented equity offerings and 46 represented debt offerings, as compared toMarch 31, transactions for2022, the three months ended September 30, 2016, of which 2 represented equity offerings and 29 represented debt offerings. We earned fees in connection with underwriting, syndication and other capital markets services. While eachvalue of the capital markets transactionsAsset Management segment balance sheet portfolio remained flat and KKR's traditional private equity portfolio decreased by 5%. For a further discussion, see "—Unaudited Consolidated Results of Operations (GAAP Basis) - Asset Management—Unrealized Gains and Losses from Investment Activities." For a discussion of the changes in KKR's private equity portfolio, see "—Analysis of Asset Management Segment Operating Results—Assets Under Management." For a discussion of factors that we undertakeimpacted KKR's after-tax distributable earnings, see "—Analysis of Non-GAAP Performance Measures— After-tax Distributable Earnings" and for more information about the factors that may impact our business, financial performance, operating results and valuations, see "—Business Environment."
The following table presents the holdings of our investments in thisthe Asset Management segment is separately negotiated, our fee ratesby asset class as of March 31, 2022. To the extent investments are generally higher with respect to underwriting or syndicating equity offerings than with respect to debt offerings, andrealized at values below their cost in future periods, after-tax distributable earnings would be adversely affected by the amount of fees that we collect for like transactions generally correlates with overall transaction sizes. Our capital markets fees are sourced from our Private Markets and Public Markets businesses as well as third party companies. For the three months ended September 30, 2017, approximately 38% of our transaction fees were earned from unaffiliated third parties as compared to approximately 11% for the three months ended September 30, 2016. Our transaction fees are comprised of fees earned from North America, Europe, and Asia-Pacific, including India. For the three months ended September 30, 2017, approximately 21% of our transaction fees were sourced outside of the United States as compared to approximately 11% for the three months ended September 30, 2016. Our capital markets business is dependent on the overall capital markets environment, which is influenced by equity prices, credit spreads and volatility. Our capital markets business does not generate management or monitoring fees.
Segment Expenses
Compensation and Benefits and Other Operating Expenses
Segment expenses have increased compared to the prior period primarily due to higher compensation and benefits expense as a result of higher transactions fees. The increase in other operating expenses as compared to the prior period is primarily attributable to increased professional fees in connection with increased transaction costs.
Economic Net Income (Loss)
The increase is primarily attributable to the increase in transaction fees, partially offset by the increase in compensation and benefits expense as described above.
Syndicated Capital
Syndicated capital for the three months ended September 30, 2017 is essentially flat as compared to the three months ended September 30, 2016. Overall, we completed one syndication transaction for the three months ended September 30, 2017, as compared to two syndication transactions for the three months ended September 30, 2016.
Nine months ended September 30, 2017 compared to nine months ended September 30, 2016
|
| | | | | | | | | | | | |
| | | | | | |
| | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change |
| | ($ in thousands) |
Segment Revenues | | | | | | |
Management, Monitoring and Transaction Fees, Net | | |
| | |
| | |
Management Fees | | $ | — |
| | $ | — |
| | $ | — |
|
Monitoring Fees | | — |
| | — |
| | — |
|
Transaction Fees | | 300,235 |
| | 144,214 |
| | 156,021 |
|
Fee Credits | | — |
| | — |
| | — |
|
Total Management, Monitoring and Transaction Fees, Net | | 300,235 |
| | 144,214 |
| | 156,021 |
|
| | | | | | |
Performance Income | | |
| | |
| | |
Realized Incentive Fees | | — |
| | — |
| | — |
|
Realized Carried Interest | | — |
| | — |
| | — |
|
Unrealized Carried Interest | | — |
| | — |
| | — |
|
Total Performance Income | | — |
| | — |
| | — |
|
| | | | | | |
Investment Income (Loss) | | |
| | |
| | |
Net Realized Gains (Losses) | | — |
| | — |
| | — |
|
Net Unrealized Gains (Losses) | | — |
| | — |
| | — |
|
Total Realized and Unrealized | | — |
| | — |
| | — |
|
Interest Income and Dividends | | — |
| | — |
| | — |
|
Interest Expense | | — |
| | — |
| | — |
|
Net Interest and Dividends | | — |
| | — |
| | — |
|
Total Investment Income (Loss) | | — |
| | — |
| | — |
|
| | | | | | |
Total Segment Revenues | | 300,235 |
| | 144,214 |
| | 156,021 |
|
| | | | | | |
Segment Expenses | | |
| | |
| | |
Compensation and Benefits | | |
| | |
| | |
Cash Compensation and Benefits | | 57,053 |
| | 23,374 |
| | 33,679 |
|
Realized Performance Income Compensation | | — |
| | — |
| | — |
|
Unrealized Performance Income Compensation | | — |
| | — |
| | — |
|
Total Compensation and Benefits | | 57,053 |
| | 23,374 |
| | 33,679 |
|
Occupancy and related charges | | 2,052 |
| | 1,901 |
| | 151 |
|
Other operating expenses | | 15,320 |
| | 10,870 |
| | 4,450 |
|
Total Segment Expenses | | 74,425 |
| | 36,145 |
| | 38,280 |
|
| | | | | | |
Income (Loss) attributable to noncontrolling interests | | 3,810 |
| | 2,002 |
| | 1,808 |
|
| | | | | | |
Economic Net Income (Loss) | | $ | 222,000 |
| | $ | 106,067 |
| | $ | 115,933 |
|
| | | | | | |
Syndicated Capital | | $ | 2,167,600 |
| | $ | 1,213,500 |
| | $ | 954,100 |
|
| | | | | | |
Segment Revenues
Management, Monitoring and Transaction Fees, Net
Transaction fees increased due to an increase in both the number and size of capital markets transactions for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Overall, we completed 144 capital markets transactions for the nine months ended September 30, 2017 of which 20 represented equity offerings and 124 represented debt offerings, as compared to 82 transactions for the nine months ended September 30, 2016 of which 11 represented equity offerings and 71 represented debt offerings. We earned fees in connection with underwriting, syndication and other capital markets services. While each of the capital markets transactions that we undertake in this segment is separately negotiated, our fee rates are generally higher with respect to underwriting or syndicating equity offerings than with respect to debt offerings, and the amount of fees that we collect for like transactions generally correlates with overall transaction sizes. Our capital markets fees are sourced from our Private Markets and Public Markets businesses as well as third party companies. For the nine months ended September 30, 2017 approximately 28% of our transaction fees were earned from third parties as compared to approximately 15% for the nine months ended September 30, 2016. Our transaction fees are comprised of fees earned from North America, Europe, Asia-Pacific and India. For the nine months ended September 30, 2017 approximately 36% of our transaction fees were sourced outside of the United States as compared to approximately 31% for the nine months ended September 30, 2016. Our capital markets business is dependent on the overall capital markets environment, which is influenced by equity prices, credit spreads and volatility. Our capital markets business does not generate management or monitoring fees.
Segment Expenses
Compensation and Benefits and Other Operating Expenses
Segment expenses have increased compared to the prior period primarily due to higher compensation and benefits expense as a result of higher transactions fees. The increase in other operating expenses as compared to the prior period is primarily attributable to increased professional fees in connection with increased transaction costs.
Economic Net Income (Loss)
The increase is primarily attributable to the increase in transaction fees, which is partially offset by the increase in compensation and benefits expense as described above.
Syndicated Capital
The increase is primarily due to an increase in both the number and average size of syndication transactions in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. Overall, we completed ten syndication transactions for the nine months ended September 30, 2017 as compared to eight syndications for the nine months ended September 30, 2016.
Principal Activities
The following tables set forth information regarding the results of operations and certain key operating metrics for our Principal Activities segment for the three and nine months ended September 30, 2017 and 2016.
Three months ended September 30, 2017 compared to three months ended September 30, 2016
|
| | | | | | | | | | | | |
| | Three Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change |
| | ($ in thousands) |
Segment Revenues | | | | | | |
Management, Monitoring and Transaction Fees, Net | | |
| | |
| | |
Management Fees | | $ | — |
| | $ | — |
| | $ | — |
|
Monitoring Fees | | — |
| | — |
| | — |
|
Transaction Fees | | — |
| | — |
| | — |
|
Fee Credits | | — |
| | — |
| | — |
|
Total Management, Monitoring and Transaction Fees, Net | | — |
| | — |
| | — |
|
| | | | | | |
Performance Income | | |
| | |
| | |
Realized Incentive Fees | | — |
| | — |
| | — |
|
Realized Carried Interest | | — |
| | — |
| | — |
|
Unrealized Carried Interest | | — |
| | — |
| | — |
|
Total Performance Income | | — |
| | — |
| | — |
|
| | | | | | |
Investment Income (Loss) | | |
| | |
| | |
Net Realized Gains (Losses) | | 76,053 |
| | 170,078 |
| | (94,025 | ) |
Net Unrealized Gains (Losses) | | (50,902 | ) | | 136,740 |
| | (187,642 | ) |
Total Realized and Unrealized | | 25,151 |
| | 306,818 |
| | (281,667 | ) |
Interest Income and Dividends | | 70,557 |
| | 71,185 |
| | (628 | ) |
Interest Expense | | (45,613 | ) | | (47,506 | ) | | 1,893 |
|
Net Interest and Dividends | | 24,944 |
| | 23,679 |
| | 1,265 |
|
Total Investment Income (Loss) | | 50,095 |
| | 330,497 |
| | (280,402 | ) |
| | | | | | |
Total Segment Revenues | | 50,095 |
| | 330,497 |
| | (280,402 | ) |
| | | | | | |
Segment Expenses | | |
| | |
| | |
Compensation and Benefits | | |
| | |
| | |
Cash Compensation and Benefits | | 33,958 |
| | 24,284 |
| | 9,674 |
|
Realized Performance Income Compensation | | — |
| | — |
| | — |
|
Unrealized Performance Income Compensation | | — |
| | — |
| | — |
|
Total Compensation and Benefits | | 33,958 |
| | 24,284 |
| | 9,674 |
|
Occupancy and related charges | | 3,840 |
| | 3,729 |
| | 111 |
|
Other operating expenses | | 14,176 |
| | 10,646 |
| | 3,530 |
|
Total Segment Expenses | | 51,974 |
| | 38,659 |
| | 13,315 |
|
| | | | | | |
Income (Loss) attributable to noncontrolling interests | | — |
| | — |
| | — |
|
| | | | | | |
Economic Net Income (Loss) | | $ | (1,879 | ) | | $ | 291,838 |
| | $ | (293,717 | ) |
| | | | | | |
Segment Revenues
Investment Income
The net decrease is primarily due to a lower level of net realized and unrealized gainssuch loss, if any, during the three months ended September 30, 2017, compared toperiod in which the prior period.realization event occurs.
For the three months ended September 30, 2017, net realized gains were primarily comprised of gains from the sale of private markets investments including the sales or partial sales of First Data Corporation, Sentio Healthcare Properties (real estate sector), and Capsugel. Net unrealized losses were primarily attributable the reversal of unrealized gains on the sale of the Private Markets investments mentioned above offset by mark-to-market gains on various Private Markets investments including The Hut Group, Veresen Midstream (infrastructure sector) and Gardner Denver Holdings, Inc. | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2022 |
| | ($ in thousands) |
Investments (1) | | Cost | | Fair Value | | Fair Value as a Percentage of Total Investments |
| | | | | | |
Private Equity | | $ | 2,074,296 | | | $ | 4,394,266 | | | 24.4 | % |
Core Private Equity | | 2,699,724 | | | 5,477,426 | | | 30.5 | % |
Growth | | 299,662 | | | 855,865 | | | 4.8 | % |
Private Equity, Core & Growth Total | | 5,073,682 | | | 10,727,557 | | | 59.6 | % |
| | | | | | |
Energy | | 917,409 | | | 977,350 | | | 5.4 | % |
Real Estate | | 2,092,721 | | | 2,523,561 | | | 14.0 | % |
Infrastructure | | 672,591 | | | 838,403 | | | 4.7 | % |
Real Assets Total | | 3,682,721 | | | 4,339,314 | | | 24.1 | % |
| | | | | | |
Leveraged Credit | | 1,079,195 | | | 1,049,791 | | | 5.8 | % |
Alternative Credit | | 838,108 | | | 979,936 | | | 5.4 | % |
Credit Total | | 1,917,303 | | | 2,029,727 | | | 11.3 | % |
| | | | | | |
Other | | 980,869 | | | 890,631 | | | 5.0 | % |
| | | | | | |
Total Investments | | $ | 11,654,575 | | | $ | 17,987,229 | | | 100.0 | % |
| | | | | | |
| | |
| | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
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| | | | | | |
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| | | | | | |
| | | | | | |
As of September 30, 2017, $305.1 million of investments in CLOs and our $325.0 million investment in our REIT, were carried at cost. As of September 30, 2017, the cumulative net unrealized gain or loss relating to changes in fair value for these investments was a $16.9 million loss for CLOs and a $16.9 million gain for the real estate investment trust.
For the three months ended September 30, 2016, net realized gains were comprised primarily of the sales or partial sales of private equity investments, the most significant of which were Walgreens Boots Alliance, Inc. and Zimmer Biomet Holdings, Inc. These gains were partially offset by losses from the sale of certain alternative credit investments. Net unrealized gains were primarily attributable to the mark to market gains on First Data Corporation and certain energy investments offset by the reversal of unrealized gains on the sale or partial sales of Walgreens Boots Alliance, Inc. and Zimmer Biomet Holdings, Inc.
For the three months ended September 30, 2017, net interest and dividends were comprised of (i) $42.6 million of interest income which consists primarily of interest that is received from our Public Markets investments including CLOs and other credit investments and to a lesser extent our capital markets business and our cash balances, (ii) $27.9 million of dividend income from distributions received primarily through our private equity investments and real estate investments including our investment in our REIT and (iii) $45.6 million of interest expense primarily relating to the senior notes outstanding for KKR and KFN.
For the three months ended September 30, 2016, net interest and dividends were comprised of (i) $43.8 million of interest income which consists primarily of interest that is received from our Public Markets investments including CLOs and to a lesser extent our cash balances and other assets, (ii) $27.3 million of dividend income from distributions received primarily through our private equity investments, real estate funds and Public Markets investments and (iii) $47.5 million of interest expense primarily relating to the senior notes outstanding for KKR and KFN.
Segment Expenses
Compensation and Benefits
The increase was primarily due to a greater amount of compensation and benefits expenses allocated from the other operating segments to Principal Activities, as well as a greater amount of corporate compensation allocated to Principal Activities, in each case as a result of an increase in the proportion of revenue earned by Principal Activities relative to other operating segments as well as an increase in the absolute amount of compensation recorded. See "-Segment Analysis" for a discussion of expense allocations among segments.
Occupancy and Other Operating Expenses
The increase was primarily due to a greater amount of other operating expenses allocated from the other operating segments to Principal Activities, as well as a greater amount of corporate other operating expenses allocated to Principal Activities, in each case as a result of an increase in the proportion of revenue earned by Principal Activities relative to other operating segments.
Economic Net Income (Loss)
The decrease in economic net income for the three months ended September 30, 2017 was primarily driven by the decrease in net investment income as described above.
Nine months ended September 30, 2017 compared to nine months ended September 30, 2016
|
| | | | | | | | | | | | |
| | | | | | |
| | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change |
| | ($ in thousands) |
Segment Revenues | | | | | | |
Management, Monitoring and Transaction Fees, Net | | |
| | |
| | |
Management Fees | | $ | — |
| | $ | — |
| | $ | — |
|
Monitoring Fees | | — |
| | — |
| | — |
|
Transaction Fees | | — |
| | — |
| | — |
|
Fee Credits | | — |
| | — |
| | — |
|
Total Management, Monitoring and Transaction Fees, Net | | — |
| | — |
| | — |
|
| | | | | | |
Performance Income | | |
| | |
| | |
Realized Incentive Fees | | — |
| | — |
| | — |
|
Realized Carried Interest | | — |
| | — |
| | — |
|
Unrealized Carried Interest | | — |
| | — |
| | — |
|
Total Performance Income | | — |
| | — |
| | — |
|
| | | | | | |
Investment Income (Loss) | | |
| | |
| | |
Net Realized Gains (Losses) | | 162,684 |
| | 370,594 |
| | (207,910 | ) |
Net Unrealized Gains (Losses) | | 461,111 |
| | (725,699 | ) | | 1,186,810 |
|
Total Realized and Unrealized | | 623,795 |
| | (355,105 | ) | | 978,900 |
|
Interest Income and Dividends | | 195,275 |
| | 253,756 |
| | (58,481 | ) |
Interest Expense | | (134,348 | ) | | (144,497 | ) | | 10,149 |
|
Net Interest and Dividends | | 60,927 |
| | 109,259 |
| | (48,332 | ) |
Total Investment Income (Loss) | | 684,722 |
| | (245,846 | ) | | 930,568 |
|
| | | | | | |
Total Segment Revenues | | 684,722 |
| | (245,846 | ) | | 930,568 |
|
| | | | | | |
Segment Expenses | | |
| | |
| | |
Compensation and Benefits | | |
| | |
| | |
Cash Compensation and Benefits | | 105,591 |
| | 72,689 |
| | 32,902 |
|
Realized Performance Income Compensation | | — |
| | — |
| | — |
|
Unrealized Performance Income Compensation | | — |
| | — |
| | — |
|
Total Compensation and Benefits | | 105,591 |
| | 72,689 |
| | 32,902 |
|
Occupancy and related charges | | 11,082 |
| | 11,121 |
| | (39 | ) |
Other operating expenses | | 40,265 |
| | 32,404 |
| | 7,861 |
|
Total Segment Expenses | | 156,938 |
| | 116,214 |
| | 40,724 |
|
| | | | | | |
Income (Loss) attributable to noncontrolling interests | | — |
| | — |
| | — |
|
| | | | | | |
Economic Net Income (Loss) | | $ | 527,784 |
| | $ | (362,060 | ) | | $ | 889,844 |
|
| | | | | | |
Segment Revenues
Investment Income
The net increase is primarily due to unrealized gains during the nine months ended September 30, 2017, compared to unrealized losses in the prior period, partially offset by a decrease in net interest and dividends of $49.6 million.
For the nine months ended September 30, 2017, net realized gains were primarily comprised of gains from the sale of private equity investments including the sales or partial sales of HCA Holdings, Inc., Galenica AG and First Data Corporation partially offset by losses on the sale of Fortune Creek Partnership (energy sector) and the restructurings of Algeco Scotsman (industrial sector) and Aurora Eaglebine (energy sector). Net unrealized gains were primarily attributable to mark-to-market gains on various Private Markets investments including First Data Corporation, an oil field services investment in our special situations strategy, and Veresen Midstream. These increases were partially offset primarily by unrealized losses due to the reversal of unrealized gains on the sales of private equity investments mentioned above.
As of September 30, 2017, $305.1 million of investments in CLOs and our $325.0 million investment in our REIT, were carried at cost. As of September 30, 2017, the cumulative net unrealized gain or loss relating to changes in fair value for these investments was a $16.9 million loss for CLOs and a $16.9 million gain for our REIT.
For the nine months ended September 30, 2016, net realized gains were primarily comprised of gains from the sale of private equity investments including the sales or partial sales of Walgreens Boots Alliance, Inc., HCA Holdings, Inc. and Zimmer Biomet Holdings, Inc., offset by the loss from the redemption of limited partner interests in a fund managed by BlackGold Capital Management, as well as certain CLOs being called and the sale of certain alternative credit investments. As of September 30, 2016, KKR no longer holds any limited partner interests in BlackGold Capital Management, although we continue to own an interest in the general partner and management company. Net unrealized losses were primarily attributable to mark-to-market losses on various Private Markets investments including First Data Corporation and to a lesser extent Walgreens Boots Alliance, Inc., mark-to-market losses on various alternative credit investments and unrealized losses on energy investments, and reversals of unrealized gains on the sales of private equity investments.
For the nine months ended September 30, 2017, net interest and dividends were comprised of (i) $117.2 million of interest income which consists primarily of interest that is received from our Public Markets investments including CLOs and other credit investments and to a lesser extent our capital markets business and our cash balances, (ii) $78.1 million of dividend income from distributions received primarily through our private equity investments and real estate investments including our investment in our REIT and (iii) $134.4 million of interest expense primarily relating to the senior notes outstanding for KKR and KFN.
For the nine months ended September 30, 2016, net interest and dividends were comprised of (i) $139.8 million of interest income which consists primarily of interest that is received from our Public Markets investments including CLOs and to a lesser extent our cash balances and other assets, (ii) $113.9 million of dividend income from distributions received primarily through our private equity investments, real estate funds and Public Markets investments and (iii) $144.5 million of interest expense primarily relating to the senior notes outstanding for KKR and KFN.
The net decrease in net interest and dividends is due primarily to the lower amount of capital invested in CLOs described above, as well as a lower level of dividends in the 2017 period, partially offset by lower interest expense due to the redemption and paydown of KFN's 8.375% senior notes due 2041 and other debt after the third quarter of 2016, a portion of which was replaced with debt bearing a lower rate of interest.
Segment Expenses
Compensation and Benefits
The increase was primarily due to a greater amount of compensation and benefits expenses allocated from the other operating segments to Principal Activities, as well as a greater amount of corporate compensation allocated to Principal Activities, in each case as a result of an increase in the proportion of revenue earned by Principal Activities relative to other operating segments as well as an increase in the absolute amount of compensation recorded. See "-Segment Analysis" for a discussion of expense allocations among segments.
Occupancy and Other Operating Expenses
The increase was primarily due to a greater amount of other operating expenses allocated from the other operating segments to Principal Activities, as well as a greater amount of corporate other operating expenses allocated to Principal
Activities, in each case as a result of an increase in the proportion of revenue earned by Principal Activities relative to other operating segments.
Economic Net Income (Loss)
The increase in economic net income for the nine months ended September 30, 2017 was primarily driven by the net investment income in the current period as described above.
Segment Balance Sheet
Our segment balance sheet is the balance sheet of KKR & Co. L.P. and its subsidiaries on a segment basis which includes, but is not limited to, our investment management companies, broker-dealer companies, general partners of our investment funds and KFN. Our segment balance sheet excludes the assets and liabilities of our investment funds and CFEs and other consolidated entities that are not subsidiaries of KKR & Co. L.P.
Investments
(1)Investments is a term used solely for purposes of financial presentation of a portion of KKR's balance sheet and includes majority ownership of subsidiaries that operate KKR's asset management and otherinsurance businesses, including the general partner interests of KKR's investment funds. Investments presented are principally the assets measured at fair value that are held by KKR's asset management segment, which, among other things, does not include the underlying investments held by Global Atlantic and Marshall Wace.
Cash and Short-Term Investments
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| | As of March 31, 2022 |
| | ($ in thousands) |
Top 20 Investments: (1) | | Cost | | Fair Value | | |
PetVet Care Centers, LLC | | $ | 243,211 | | | $ | 1,216,055 | | | |
USI, Inc. | | 531,425 | | | 1,094,073 | | | |
Heartland Dental, LLC | | 320,656 | | | 833,705 | | | |
Fiserv, Inc. (NASDAQ: FISV) | | 309,988 | | | 697,578 | | | |
Exact Group B.V. | | 213,362 | | | 478,966 | | | |
Arnott's Biscuits Limited | | 250,841 | | | 452,008 | | | |
Crescent Energy Company (NYSE: CRGY) | | 561,818 | | | 439,388 | | | |
1-800 Contacts Inc. | | 300,178 | | | 360,214 | | | |
Teaching Strategies, LLC | | 307,162 | | | 307,162 | | | |
Resolution Life Group Holdings, L.P. | | 262,191 | | | 304,136 | | | |
Roompot B.V. | | 193,578 | | | 258,973 | | | |
KKR Real Estate Finance Trust Inc. (NYSE: KREF) | | 231,563 | | | 238,625 | | | |
ERM Worldwide Group Limited | | 228,710 | | | 228,710 | | | |
Viridor Limited | | 154,390 | | | 226,392 | | | |
AppLovin Corporation (NASDAQ: APP) | | 15,495 | | | 218,854 | | | |
GenesisCare Pty Ltd. | | 177,059 | | | 177,059 | | | |
Veresen Midstream | | 92,674 | | | 154,228 | | | |
The Bay Clubs Company, LLC | | 139,001 | | | 152,901 | | | |
Atlantic Aviation FBO Inc. | | 127,914 | | | 145,279 | | | |
Kokusai Electric Corporation | | 10,206 | | | 143,540 | | | |
Total Top 20 Investments | | $ | 4,671,422 | | | $ | 8,127,846 | | | |
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Cash and short-term(1)This list of investments represent cash and liquid short-termidentifies the twenty largest companies or assets based on their fair values as of March 31, 2022. It does not deduct fund or vehicle level debt, if any, incurred in connection with funding the investment. This list excludes (i) investments expected to be syndicated, (ii) investments expected to be transferred in connection with a new fundraising, (iii) investments in high-grade, short-duration cash management strategies usedfunds and other entities that are owned by one or more third parties and established for the purpose of making investments and (iv) the portion of any investment that may be held through collateralized loan obligations or levered multi-asset investment vehicles, if any. For additional information about the asset classes of the investments held on KKR's balance sheet see "—Our Business—Principal Activities" for the "Holdings by Asset Class" pie chart. The fair value figures include the co-investment and the limited partner and/or general partner interests held by KKR in the underlying investment, if applicable.
With respect to generate additional yield on our excess liquidity and is used by managementKKR's book value relating to its insurance business, KKR includes Global Atlantic's book value, which consists of KKR's pro rata equity interest in evaluating KKR's liquidity position. We believe this measure is useful to unitholders as it provides additional insight into KKR's available liquidity. Cash and short-term investments differ from cash and cash equivalentsGlobal Atlantic on a GAAP basis, excluding (i) accumulated other comprehensive income and (ii) accumulated change in fair value of reinsurance embedded derivative balances and related assets, net of deferred acquisition costs and income tax. KKR believes this presentation of Global Atlantic's book value is comparable with the corresponding metric presented by other publicly traded companies in Global Atlantic's industry. As of March 31, 2022, KKR's pro rata interest in Global Atlantic's book value was $3.4 billion. For more information about the composition and credit quality of Global Atlantic's investments on a consolidated basis, please see "—Global Atlantic's Investment Portfolio" below.
Global Atlantic's Investment Portfolio
As of March 31, 2022, 96% and 86% of Global Atlantic's AFS fixed maturity securities were considered investment grade under ratings from the Securities Valuation Office of the National Association of Insurance Commissioners ("NAIC") and nationally recognized statistical rating organizations ("NRSROs"), respectively. As of December 31, 2021, 97% and 87% of Global Atlantic's AFS fixed maturity securities were considered investment grade under ratings from NAIC and nationally recognized statistical rating organizations ("NRSROs"), respectively. Securities where a rating by an NRSRO was not available are considered investment grade if they have an NAIC designation of “1” or “2.” The three largest asset categories in Global Atlantic's AFS fixed-maturity security portfolio as of March 31, 2022 were Corporate, RMBS and CMBS securities, comprising 31%, 6% and 5% of Global Atlantic's investment portfolio, respectively. Within these categories, 95%, 97% and 99% of Global Atlantic's Corporate, RMBS and CMBS securities, respectively, were investment grade according to NAIC ratings and 95%, 39% and 52% of its Corporate, RMBS and CMBS securities, respectively, were investment grade according to NRSRO ratings as of March 31, 2022. The three largest asset categories in Global Atlantic's available-for-sale fixed-maturity security portfolio as of December 31, 2021 were Corporate, RMBS and CMBS securities, comprising 34%, 6% and 5% of Global Atlantic's investment portfolio, respectively. Within these categories, 95%, 96% and 99% of Global Atlantic's Corporate, RMBS and
CMBS securities, respectively, were investment grade according to NAIC ratings and 95%, 38% and 62% of its Corporate, RMBS and CMBS securities, respectively, were investment grade according to NRSRO ratings as of December 31, 2021. NRSRO and NAIC ratings have different methodologies. Global Atlantic believes the NAIC ratings methodology, which considers the likelihood of recovery of amortized cost as opposed to the recovery of all contractual payments including the principal at par, as the more appropriate way to view the ratings quality of its AFS fixed maturity portfolio since a large portion of its holdings were purchased at a significant discount to par value. The portion of Global Atlantic's AFS fixed maturity portfolio consisting of floating rate assets was 39% and 36% as of March 31, 2022 and December 31, 2021, respectively.
Within the funds withheld receivable at interest portfolio, 96% of the fixed maturity securities were investment grade by NAIC designation as of both March 31, 2022 and December 31, 2021.
Trading fixed maturity securities back funds withheld payable at interest where the investment performance is ceded to reinsurers under the terms of the respective reinsurance agreements.
Credit quality of AFS fixed maturity securities
The Securities Valuation Office of the NAIC evaluates the AFS fixed maturity security investments of insurers for regulatory reporting and capital assessment purposes and assigns securities to one of six credit quality categories called “NAIC designations.” Using an internally developed rating is permitted by the NAIC if no rating is available. These designations are generally similar to the credit quality designations of NRSROs for marketable fixed maturity securities, except for certain structured securities as described below. NAIC designations of “1,” highest quality, and “2,” high quality, include fixed maturity securities generally considered investment grade by NRSROs. NAIC designations “3” through “6” include fixed maturity securities generally considered below investment grade by NRSROs.
Consistent with the NAIC Process and Procedures Manual, an NRSRO rating was assigned based on the following criteria: (i) the equivalent S&P rating where the security is rated by one NRSRO; (ii) the equivalent S&P rating of the lowest NRSRO when the security is rated by two NRSROs; and (iii) the equivalent S&P rating of the second lowest NRSRO if the security is rated by three or more NRSROs. If the lowest two NRSROs’ ratings are equal, then such rating will be the assigned rating. NRSROs’ ratings available for the periods presented were S&P, Fitch, Moody’s, DBRS, Inc. and Kroll Bond Rating Agency, Inc. If no rating is available from a rating agency, then an internally developed rating is used.
Substantially all of the AFS fixed maturity securities portfolio, 96% and 97% as of March 31, 2022 and December 31, 2021, respectively, were invested in investment grade assets with a NAIC rating of 1 or 2.
The portion of the AFS fixed maturity securities portfolio that was considered below investment grade by NAIC designation was 4% and 3% as of March 31, 2022 and December 31, 2021, respectively. Pursuant to Global Atlantic's investment guidelines, Global Atlantic actively monitors the percentage of its portfolio that is held in investments rated NAIC 3 or lower and must obtain an additional approval from Global Atlantic's management investment committee before making a significant investment in an asset rated NAIC 3 or lower.
As of March 31, 2022 and December 31, 2021, the non-rated AFS fixed-maturity securities include $145.5 million and $118.8 million, respectively, of private placement securities for which Global Atlantic has not sought individual ratings from the NRSROs.
Corporate fixed maturity securities
Global Atlantic maintains a diversified portfolio of corporate fixed maturity securities across industries and issuers. As of March 31, 2022 and December 31, 2021, 58% and 60%, respectively, of the AFS fixed maturity securities portfolio was invested in corporate fixed maturity securities.
As of both March 31, 2022 and December 31, 2021, 95% of the total fair value of corporate fixed maturity securities is rated NAIC investment grade and 95% is rated NRSROs investment grade.
Residential mortgage-backed securities
As of both March 31, 2022 and December 31, 2021, 11% of the AFS fixed maturity securities portfolio was invested in RMBS. RMBS are securities constructed from pools of residential mortgages and backed by payments from those pools. Excluding limitations on access to lending and other extraordinary economic conditions, Global Atlantic would expect prepayments of principal on the underlying loans to accelerate with decreases in market interest rates and diminish with increases in market interest rates.
The NAIC designations for RMBS, including prime, sub-prime, alt-A, and adjustable rate mortgages with variable payment options ("Option ARM"), are based upon a comparison of the bond’s amortized cost to the NAIC’s loss expectation for each security. Accordingly, an investment in the same security at a lower cost may result in a higher quality NAIC designation in recognition of the lower likelihood the investment would result in a realized loss. Prime residential mortgage lending includes loans to the most creditworthy borrowers with high quality credit profiles. Alt-A is a classification of mortgage loans where the risk profile of the borrower is between prime and sub-prime. Sub-prime mortgage lending is the origination of residential mortgage loans to borrowers with weak credit profiles.
As of March 31, 2022 and December 31, 2021, 94% and 93%, respectively, of RMBS securities that are below investment grade as rated by the NRSRO, carry an NAIC 1 ("highest quality") designation.
As of March 31, 2022, Alt-A, Option ARM, Re-Performing and Sub-prime represent 33%, 30%, 14% and 12% of the total RMBS portfolio ($7.2 billion), respectively. As of December 31, 2021, Alt-A, Option ARM, Re-Performing and Sub-prime represent 33%, 30%, 14% and 12% of the total RMBS portfolio ($7.7 billion), respectively.
Unrealized gains and losses for AFS fixed maturity securities
Global Atlantic's investments in AFS fixed maturity securities are reported at fair value with changes in fair value recorded in other comprehensive income as unrealized gains or losses, net of taxes and offsets. Unrealized gains and losses can be created by changes in interest rates or by changes in credit spreads.
As of March 31, 2022 and December 31, 2021, Global Atlantic had gross unrealized losses on below investment grade AFS fixed maturity securities of $222.9 million and $80.3 million based on NRSRO rating and $22.9 million and $13.5 million based on NAIC ratings, respectively.
Mortgage and other loan receivables - Credit quality indicators
Mortgage and other loan receivables consist of commercial and residential mortgage loans, and other loan receivables. As of March 31, 2022 and December 31, 2021, 25% and 23%, respectively, of Global Atlantic's total investments consisted of mortgage and other loan receivables. Global Atlantic invests in U.S. mortgage loans, comprised of first lien and mezzanine real estate loans, residential mortgage loans, consumer loans, and other loan receivables.
Global Atlantic's commercial mortgage loans may also be rated based on NAIC designations, with designations “CM1” and “CM2” considered to be investment grade. As of both March 31, 2022 and December 31, 2021, 96% of the commercial mortgage loan portfolio was rated investment grade based on NAIC designation. 100% of the commercial mortgage loan portfolio is in current status.
As of March 31, 2022, 95% of the residential mortgage loan portfolio is in current status, and approximately $213.1 million is over 90 days past due (representing 2% of the total residential mortgage portfolio).
The loan-to-value ratio is expressed as a resultpercentage of the inclusioncurrent amount of liquid short-term investments inthe loan relative to the value of the underlying collateral. Approximately 84% of the commercial mortgage loans has a loan-to-value ratio of 70% or less and a 0.2% has loan-to-value ratio over 90%.
Changing economic conditions affect Global Atlantic’s valuation of commercial mortgage loans. Changing vacancies and rents are incorporated into the discounted cash flow analysis that Global Atlantic performs for monitored loans and short-term investments. may contribute to the establishment of (or increase or decrease in) a commercial mortgage loan valuation allowance for losses. In addition, Global Atlantic continuously monitors its commercial mortgage loan portfolio to identify risk. Areas of emphasis are properties that have exposure to specific geographic events or have deteriorating credit.
The impactweighted average loan-to-value ratio for residential mortgage loans was 66% and 68% as of March 31, 2022 and December 31, 2021, respectively.
Global Atlantic's residential mortgage loan portfolio is comprised mainly of re-performing loans that these liquid short-term investments have on cashwere purchased at a discount after they were modified and cash equivalents on a GAAP basis is reflectedreturned to performing status, as well as prime jumbo loans and mortgage loans backed by single family rental properties. Global Atlantic has also extended financing to counterparties in the consolidated statementsform of cash flows within cash flows from operating activities. Accordingly, the exclusionrepurchase agreements secured by mortgage loans, including performing and non-performing mortgage loans.
Global Atlantic’s consumer loan portfolio is primarily comprised of these investments from cashhome improvement loans, solar panel loans, student loans and cash equivalents on aauto loans.
Reconciliations to GAAP basis has no impact on cash provided (used) by operating activities, investing activities or financing activities.Measures
The following tables present informationreconcile the most directly comparable financial measures calculated and presented in accordance with respectGAAP to our segment balance sheetKKR's non-GAAP financial measures for the three months ended March 31, 2022 and 2021:
Revenues
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
| March 31, 2022 | | March 31, 2021 | | | | | | | | |
| ($ in thousands) |
Total GAAP Revenues | $ | 1,004,017 | | | $ | 4,563,006 | | | | | | | | | |
Impact of Consolidation and Other | 213,400 | | | 123,448 | | | | | | | | | |
Asset Management Adjustments: | | | | | | | | | | | |
Capital Allocation-Based Income (GAAP) | 945,743 | | | (2,684,647) | | | | | | | | | |
Realized Carried Interest | 579,767 | | | 165,142 | | | | | | | | | |
Realized Investment Income | 349,354 | | | 461,273 | | | | | | | | | |
Capstone Fees | (15,485) | | | (20,080) | | | | | | | | | |
Expense Reimbursements | (41,303) | | | (27,729) | | | | | | | | | |
Insurance Adjustments: | | | | | | | | | | | |
Net Premiums | (372,144) | | | (1,176,142) | | | | | | | | | |
Policy Fees | (318,436) | | | (201,683) | | | | | | | | | |
Other Income | (34,744) | | | (18,144) | | | | | | | | | |
Investment Gains and Losses | 167,102 | | | 259,168 | | | | | | | | | |
Derivative Gains and Losses | 286,721 | | | 220,581 | | | | | | | | | |
Total Segment Revenues (1) | $ | 2,763,992 | | | $ | 1,664,193 | | | | | | | | | |
(1)Total Segment Revenues is comprised of (i) Management Fees, (ii) Transaction and Monitoring Fees, Net, (iii) Fee Related Performance Revenues, (iv) Realized Performance Income, (v) Realized Investment Income, and (vi) Net Investment Income.
Net Income (Loss) Attributable to KKR & Co. Inc. Common Stockholders | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, 2022 | | March 31, 2021 | | | | | | |
| ($ in thousands) |
Net Income (Loss) Attributable to KKR & Co. Inc. Common Stockholders (GAAP) | $ | (73,770) | | | $ | 1,644,245 | | | | | | | |
Preferred Stock Dividends | 17,250 | | | 25,591 | | | | | | | |
Net Income (Loss) Attributable to Noncontrolling Interests | 1,159,122 | | | 2,245,531 | | | | | | | |
Income Tax Expense (Benefit) | (3,166) | | | 438,739 | | | | | | | |
Income (Loss) Before Tax (GAAP) | $ | 1,099,436 | | | $ | 4,354,106 | | | | | | | |
Impact of Consolidation and Other | (1,239,936) | | | (1,378,567) | | | | | | | |
Equity-based Compensation - KKR Holdings | 19,821 | | | 16,434 | | | | | | | |
Preferred Stock Dividends | — | | | (8,341) | | | | | | | |
Income Taxes Paid | (197,842) | | | (151,120) | | | | | | | |
Asset Management Adjustments: | | | | | | | | | |
Unrealized Carried Interest | 1,290,033 | | | (2,109,018) | | | | | | | |
Net Unrealized (Gains) Losses | 322,269 | | | (1,316,644) | | | | | | | |
Unrealized Carried Interest Compensation (Carry Pool) | (513,987) | | | 896,907 | | | | | | | |
Strategic Corporate Transaction-Related Charges | 19,898 | | | 4,875 | | | | | | | |
Equity-based Compensation | 55,111 | | | 49,761 | | | | | | | |
Equity-based Compensation - Performance based | 57,953 | | | 14,556 | | | | | | | |
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Insurance Adjustments: | | | | | | | | | |
Net (Gains) Losses from Investments and Derivatives | 48,735 | | | 289,235 | | | | | | | |
Strategic Corporate Transaction-Related Charges | 5,007 | | | 4,819 | | | | | | | |
Equity-based and Other Compensation | 31,711 | | | 7,411 | | | | | | | |
Amortization of Acquired Intangibles | 4,412 | | | 2,451 | | | | | | | |
Income Taxes | (34,106) | | | (16,626) | | | | | | | |
After-tax Distributable Earnings | $ | 968,515 | | | $ | 660,239 | | | | | | | |
Interest Expense | 69,460 | | | 57,545 | | | | | | | |
Preferred Stock Dividends | — | | | 8,341 | | | | | | | |
Net Income Attributable to Noncontrolling Interests | 7,616 | | | 3,192 | | | | | | | |
Income Taxes Paid | 197,842 | | | 151,120 | | | | | | | |
Distributable Operating Earnings | $ | 1,243,433 | | | $ | 880,437 | | | | | | | |
Insurance Segment Operating Earnings | (115,988) | | | (63,265) | | | | | | | |
Realized Performance Income | (609,207) | | | (171,309) | | | | | | | |
Realized Performance Income Compensation | 383,635 | | | 109,986 | | | | | | | |
Realized Investment Income | (349,354) | | | (461,273) | | | | | | | |
Realized Investment Income Compensation | 52,403 | | | 69,191 | | | | | | | |
Fee Related Earnings | $ | 604,922 | | | $ | 363,767 | | | | | | | |
Insurance Segment Operating Earnings | 115,988 | | | 63,265 | | | | | | | |
Realized Performance Income | 609,207 | | | 171,309 | | | | | | | |
Realized Performance Income Compensation | (383,635) | | | (109,986) | | | | | | | |
Realized Investment Income | 349,354 | | | 461,273 | | | | | | | |
Realized Investment Income Compensation | (52,403) | | | (69,191) | | | | | | | |
Depreciation and Amortization | 7,565 | | | 6,164 | | | | | | | |
Adjusted EBITDA | $ | 1,250,998 | | | $ | 886,601 | | | | | | | |
KKR & Co. Inc. Stockholders' Equity - Common Stock
| | | | | | | | | | | |
| As of |
| March 31, 2022 | | December 31, 2021 |
| ($ in thousands) |
KKR & Co. Inc. Stockholders' Equity - Series I and II Preferred Stock, Common Stock | $ | 14,598,495 | | | $ | 16,466,372 | |
Series C Mandatory Convertible Preferred Stock | 1,115,792 | | | 1,115,792 | |
Impact of Consolidation and Other (1) | (997,841) | | | (1,048,569) | |
KKR Holdings and Other Exchangeable Securities | 7,955,606 | | | 8,595,510 | |
Accumulated Other Comprehensive Income (AOCI) and Other (Insurance) | 2,288,325 | | | 259,777 | |
Book Value | $ | 24,960,377 | | | $ | 25,388,882 | |
(1) Includes an adjustment to book value to reflect the implied amount of (1) tax assets and liabilities attributable to KKR Holdings L.P. as if it was subject to corporate income taxes and (2) the recognition of deferred tax liabilities relating to certain assets of KKR Group Partnership L.P. that is expected to occur upon the completion of the mergers contemplated by the Reorganization Agreement. The impact of this adjustment was a reduction to book value of $1,333 million and $1,396 million as of September 30, 2017March 31, 2022 and December 31, 2016:2021, respectively.
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| | As of | | As of |
| | September 30, 2017 | | December 31, 2016 |
| | ($ in thousands, except per unit amounts) |
Cash and Short-term Investments | | $ | 3,623,773 |
| | $ | 3,387,673 |
|
Investments | | 8,123,514 |
| | 6,958,873 |
|
Unrealized Carry (1) | | 1,474,693 |
| | 1,213,692 |
|
Other Assets | | 1,964,794 |
| | 1,611,678 |
|
Corporate Real Estate | | 161,225 |
| | 161,225 |
|
Total Assets | | $ | 15,347,999 |
| | $ | 13,333,141 |
|
| | | | |
Debt Obligations - KKR (ex-KFN) | | $ | 2,000,000 |
| | $ | 2,000,000 |
|
Debt Obligations - KFN | | 639,767 |
| | 398,560 |
|
Preferred Shares - KFN | | 373,750 |
| | 373,750 |
|
Other Liabilities | | 596,079 |
| | 244,676 |
|
Total Liabilities | | 3,609,596 |
| | 3,016,986 |
|
| | | | |
Noncontrolling Interests | | 20,849 |
| | 19,564 |
|
Preferred Units | | 500,000 |
| | 500,000 |
|
| | | | |
Book Value | | $ | 11,217,554 |
| | $ | 9,796,591 |
|
| | | | |
Book Value Per Outstanding Adjusted Unit | | $ | 13.80 |
| | $ | 12.15 |
|
| | | | |
(1) Unrealized Carry | | | | |
Private Markets | | $ | 1,347,729 |
| | $ | 1,141,610 |
|
Public Markets | | 126,964 |
| | 72,082 |
|
Total | | $ | 1,474,693 |
| | $ | 1,213,692 |
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The following table presents theprovides a reconciliation of KKR's GAAP Shares of Common Stock Outstanding to Adjusted Shares:
| | | | | | | | | | | |
| As of |
| March 31, 2022 | | December 31, 2021 |
GAAP Shares of Common Stock Outstanding | 590,472,444 | | | 595,663,618 | |
Adjustments: | | | |
KKR Holdings Units | 258,726,163 | | | 258,726,163 | |
Other Exchangeable Securities (1) | 1,376,655 | | | 1,376,655 | |
Common Stock - Series C Mandatory Convertible Preferred Stock (2) | 26,822,600 | | | 26,822,600 | |
Adjusted Shares (3) | 877,397,862 | | | 882,589,036 | |
| | | |
| | | |
| | | |
| | | |
Unvested Shares of Common Stock and Other Exchangeable Securities (4) | 39,551,313 | | | 39,000,561 | |
| | | |
(1)Consists of vested restricted holdings units granted under our 2019 Equity Incentive Plan, which are exchangeable for shares of our segment balance sheet by asset class asKKR & Co. Inc. common stock on a one-for-one basis.
(2)Assumes that all shares of September 30, 2017. To the extent investmentsSeries C Mandatory Convertible Preferred Stock have been converted into shares of KKR & Co. Inc. common stock on our segment balance sheet, for example in energy, direct lending, CLOs and specialty finance, are realized at values below their cost, after-tax distributable earnings would be adversely affected by the amount of such loss, if any, during the period in which the realization event occurs.
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| | As of September 30, 2017 |
| | | | | | |
Investments | | Cost | | Carrying Value | | Carrying Value as a Percentage of Total Investments |
| | | | | | |
Private Equity Co-Investments and Other Equity | | $ | 2,281,693 |
| | $ | 2,697,619 |
| | 33.2 | % |
Private Equity Funds | | 1,026,481 |
| | 1,348,599 |
| | 16.6 | % |
Private Equity Total | | 3,308,174 |
| | 4,046,218 |
| | 49.8 | % |
| | | | | | |
Energy | | 933,568 |
| | 549,607 |
| | 6.8 | % |
Real Estate (1) | | 744,935 |
| | 795,042 |
| | 9.8 | % |
Infrastructure | | 285,695 |
| | 370,318 |
| | 4.6 | % |
Real Assets Total | | 1,964,198 |
| | 1,714,967 |
| | 21.2 | % |
| | | | | | |
Special Situations | | 810,251 |
| | 820,148 |
| | 10.1 | % |
Direct Lending | | 100,188 |
| | 97,111 |
| | 1.2 | % |
Mezzanine | | 34,681 |
| | 39,052 |
| | 0.5 | % |
Alternative Credit Total | | 945,120 |
| | 956,311 |
| | 11.8 | % |
CLOs (1) | | 951,194 |
| | 578,587 |
| | 7.1 | % |
Liquid Credit | | 143,349 |
| | 152,699 |
| | 1.9 | % |
Specialty Finance | | 283,898 |
| | 209,755 |
| | 2.6 | % |
Credit Total | | 2,323,561 |
| | 1,897,352 |
| | 23.4 | % |
| | | | | | |
Other | | 439,839 |
| | 464,977 |
| | 5.6 | % |
| | | | | | |
Total Investments | | $ | 8,035,772 |
| | $ | 8,123,514 |
| | 100.0 | % |
| | | | | | |
| | As of September 30, 2017 |
Significant Investments: (2) | | Cost | | Carrying Value | | Carrying Value as a Percentage of Total Investments |
First Data Corporation (NYSE: FDC) | | $ | 956,454 |
| | $ | 1,279,098 |
| | 15.7 | % |
USI, Inc. (financial services sector) | | 500,111 |
| | 503,711 |
| | 6.2 | % |
KKR Real Estate Finance Trust Inc. (NYSE: KREF) | | 324,997 |
| | 325,000 |
| | 4.0 | % |
PortAventura Entertainment S.A. (hotels/leisure sector) | | 233,132 |
| | 255,821 |
| | 3.1 | % |
Natural Gas Midstream Investment (infrastructure sector) | | 150,330 |
| | 209,728 |
| | 2.6 | % |
Total Significant Investments | | 2,165,024 |
| | 2,573,358 |
| | 31.6 | % |
| | | | | | |
Other Investments | | 5,870,748 |
| | 5,550,156 |
| | 68.4 | % |
Total Investments | | $ | 8,035,772 |
| | $ | 8,123,514 |
| | 100.0 | % |
| | | | | | |
(1) Includes approximately $305.1 million and $325.0 million of CLOs and our ownership of KKR Real Estate Finance Trust Inc., respectively, that are not held for investment purposes and are held at cost. |
(2) The significant investments include the top five investments (other than investments expected to be syndicated or transferred in connection with new fundraising) based on their carrying values as of September 30, 2017. The carrying value figures include the co-investment and the limited partner and/or general partner interests held by KKR in the underlying investment, if applicable. |
The following tables provide reconciliations of KKR’s GAAP Condensed Consolidated Statements of Financial Condition to Total Reportable Segments Balance Sheet as of September 30, 2017March 31, 2022 and December 31, 2016.2021.
(3)Amounts exclude unvested equity awards granted under our Equity Incentive Plans. |
| | | | | | | | | | | | | | | | | | | | | | | |
As of September 30, 2017 |
(Amounts in thousands) |
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (GAAP BASIS) | | 1 | | 2 | | 3 | | 4 | | 5 | | TOTAL REPORTABLE SEGMENTS BALANCE SHEET |
| | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | |
Cash and Cash Equivalents | $ | 2,436,566 |
| | — |
| | — |
| | 1,187,207 |
| | — |
| | — |
| | $ | 3,623,773 |
| Cash and Short-term Investments |
Investments | 37,251,837 |
| | (26,522,559 | ) | | (1,131,071 | ) | | (1,474,693 | ) | | — |
| | — |
| | 8,123,514 |
| Investments |
| | | — |
| | — |
| | 1,474,693 |
| | — |
| | — |
| | 1,474,693 |
| Unrealized Carry |
Other Assets | 4,617,236 |
| | (1,002,082 | ) | | — |
| | (1,348,432 | ) | | — |
| | (301,928 | ) | | 1,964,794 |
| Other Assets |
| | | — |
| | — |
| | 161,225 |
| | — |
| | — |
| | 161,225 |
| Corporate Real Estate |
Total Assets | $ | 44,305,639 |
| | (27,524,641 | ) | | (1,131,071 | ) | | — |
| | — |
| | (301,928 | ) | | $ | 15,347,999 |
| |
| | | | | | | | | | | | | | |
Liabilities and Equity | | | | | | | | | | | | | | |
Debt Obligations | $ | 20,290,714 |
| | (17,650,947 | ) | | — |
| | (639,767 | ) | | — |
| | — |
| | $ | 2,000,000 |
| Debt Obligations - KKR (ex-KFN) |
| | | — |
| | — |
| | 639,767 |
| | — |
| | — |
| | 639,767 |
| Debt Obligations - KFN |
| | | — |
| | — |
| | 373,750 |
| | — |
| | — |
| | 373,750 |
| Preferred Shares - KFN |
Other Liabilities | 4,149,491 |
| | (2,245,511 | ) | | (1,131,071 | ) | | — |
| | — |
| | (176,830 | ) | | 596,079 |
| Other Liabilities |
Total Liabilities | 24,440,205 |
| | (19,896,458 | ) | | (1,131,071 | ) | | 373,750 |
| | — |
| | (176,830 | ) | | 3,609,596 |
| |
| | | | | | | | | | | | | | |
Redeemable Noncontrolling Interests | 570,134 |
| | (570,134 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| |
| | | | | | | | | | | | | | |
Equity | | | | | | | | | | | | | | |
Series A Preferred Units | 332,988 |
| | — |
| | — |
| | (332,988 | ) | | — |
| | — |
| | — |
| |
Series B Preferred Units | 149,566 |
| | — |
| | — |
| | (149,566 | ) | | — |
| | — |
| | — |
| |
KKR & Co. L.P. Capital - Common Unitholders | 6,380,654 |
| | 166,480 |
| | — |
| | (17,446 | ) | | 4,812,964 |
| | (125,098 | ) | | 11,217,554 |
| Book Value |
Noncontrolling Interests | 12,432,092 |
| | (7,224,529 | ) | | — |
| | (373,750 | ) | | (4,812,964 | ) | | — |
| | 20,849 |
| Noncontrolling Interests |
| | | — |
| | — |
| | 500,000 |
| | — |
| | — |
| | 500,000 |
| Preferred Units |
Total Liabilities and Equity | $ | 44,305,639 |
| | (27,524,641 | ) | | (1,131,071 | ) | | — |
| | — |
| | (301,928 | ) | | $ | 15,347,999 |
| |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
1 | IMPACT OF CONSOLIDATION OF INVESTMENT VEHICLES AND OTHER ENTITIES |
2 | CARRY POOL RECLASSIFICATION | |
3 | OTHER RECLASSIFICATIONS | |
4 | NONCONTROLLING INTERESTS HELD BY KKR HOLDINGS L.P. AND OTHER | |
5 | EQUITY IMPACT OF KKR MANAGEMENT HOLDINGS CORP. | |
(4)Represents equity awards granted under our Equity Incentive Plans. The issuance of common stock of KKR & Co. Inc. pursuant to equity awards under our Equity Incentive Plans dilutes KKR common stockholders and KKR Holdings pro rata in accordance with their respective ownership interests in the KKR business. Excludes market condition awards that did not meet their market-price based vesting conditions as of March 31, 2022 and December 31, 2021.
|
| | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2016 |
(Amounts in thousands) |
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (GAAP BASIS) | | 1 | | 2 | | 3 | | 4 | | 5 | | TOTAL REPORTABLE SEGMENTS BALANCE SHEET |
| | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | |
Cash and Cash Equivalents | $ | 2,508,902 |
| | — |
| | — |
| | 878,771 |
| | — |
| | — |
| | $ | 3,387,673 |
| Cash and Short-term Investments |
Investments | 31,409,765 |
| | (22,249,206 | ) | | (987,994 | ) | | (1,213,692 | ) | | — |
| | — |
| | 6,958,873 |
| Investments |
| | | — |
| | — |
| | 1,213,692 |
| | — |
| | — |
| | 1,213,692 |
| Unrealized Carry |
Other Assets | 5,084,230 |
| | (2,118,364 | ) | | — |
| | (1,039,996 | ) | | — |
| | (314,192 | ) | | 1,611,678 |
| Other Assets |
| | | — |
| | — |
| | 161,225 |
| | — |
| | — |
| | 161,225 |
| Corporate Real Estate |
Total Assets | $ | 39,002,897 |
| | (24,367,570 | ) | | (987,994 | ) | | — |
| | — |
| | (314,192 | ) | | $ | 13,333,141 |
| |
| | | | | | | | | | | | | | |
Liabilities and Equity | | | | | | | | | | | | | | |
Debt Obligations | $ | 18,544,075 |
| | (16,145,515 | ) | | — |
| | (398,560 | ) | | — |
| | — |
| | $ | 2,000,000 |
| Debt Obligations - KKR (ex-KFN) |
| | | — |
| | — |
| | 398,560 |
| | — |
| | — |
| | 398,560 |
| Debt Obligations - KFN |
| | | — |
| | — |
| | 373,750 |
| | — |
| | — |
| | 373,750 |
| Preferred Shares - KFN |
Other Liabilities | 3,340,739 |
| | (1,945,039 | ) | | (987,994 | ) | | — |
| | — |
| | (163,030 | ) | | 244,676 |
| Other Liabilities |
Total Liabilities | 21,884,814 |
| | (18,090,554 | ) | | (987,994 | ) | | 373,750 |
| | — |
| | (163,030 | ) | | 3,016,986 |
| |
| | | | | | | | | | | | | | |
Redeemable Noncontrolling Interests | 632,348 |
| | (632,348 | ) | | — |
| | — |
| | — |
| | — |
| | | |
| | | | | | | | | | | | | | |
Equity | | | | | | | | | | | | | | |
Series A Preferred Units | 332,988 |
| | — |
| | — |
| | (332,988 | ) | | — |
| | — |
| | | |
Series B Preferred Units | 149,566 |
| | — |
| | — |
| | (149,566 | ) | | — |
| | — |
| | | |
KKR & Co. L.P. Capital - Common Unitholders | 5,457,279 |
| | 118,635 |
| | — |
| | (17,446 | ) | | 4,389,285 |
| | (151,162 | ) | | 9,796,591 |
| Book Value |
Noncontrolling Interests | 10,545,902 |
| | (5,763,303 | ) | | — |
| | (373,750 | ) | | (4,389,285 | ) | | — |
| | 19,564 |
| Noncontrolling Interests |
| | | — |
| | — |
| | 500,000 |
| | — |
| | — |
| | 500,000 |
| Preferred Units |
Total Liabilities and Equity | $ | 39,002,897 |
| | (24,367,570 | ) | | (987,994 | ) | | — |
| | — |
| | (314,192 | ) | | $ | 13,333,141 |
| |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
1 | IMPACT OF CONSOLIDATION OF INVESTMENT VEHICLES AND OTHER ENTITIES | |
2 | CARRY POOL RECLASSIFICATION | |
3 | OTHER RECLASSIFICATIONS | |
4 | NONCONTROLLING INTERESTS HELD BY KKR HOLDINGS L.P. AND OTHER | |
5 | EQUITY IMPACT OF KKR MANAGEMENT HOLDINGS CORP. | |
The following tables provide reconciliations of KKR’s GAAP Common Units Outstanding to Adjusted Units, Adjusted Units Eligible for Distribution and Outstanding Adjusted Units:
|
| | | | |
| As of | As of |
| September 30, 2017 | December 31, 2016 |
GAAP Common Units Outstanding - Basic | 473,134,387 |
| 452,380,335 |
|
Adjustments: | |
| |
|
Unvested Common Units (1) | 31,116,886 |
| 37,519,436 |
|
Other Exchangeable Securities (2) | 3,987,713 |
| 4,600,320 |
|
GAAP Common Units Outstanding - Diluted | 508,238,986 |
| 494,500,091 |
|
Adjustments: | |
| |
|
KKR Holdings Units (3) | 339,845,707 |
| 353,757,398 |
|
Adjusted Units | 848,084,693 |
| 848,257,489 |
|
Adjustments: | | |
Unvested Common Units | (31,116,886 | ) | (37,519,436 | ) |
Adjusted Units Eligible for Distribution | 816,967,807 |
| 810,738,053 |
|
Adjustments: | | |
Vested Other Exchangeable Securities (2) | (3,987,713 | ) | (4,600,320 | ) |
Outstanding Adjusted Units | 812,980,094 |
| 806,137,733 |
|
| |
(1) | Represents equity awards granted under the Equity Incentive Plan. The issuance of common units of KKR & Co. L.P. pursuant to awards under the Equity Incentive Plan dilutes KKR common unitholders and KKR Holdings pro rata in accordance with their respective percentage interests in the KKR business. Year-end 2016 equity awards were granted before December 31, 2016 (except for awards to our named executive officers), rather than, as has been historical practice, after the end of the year. As a result, adjusted units increased in the fourth quarter of 2016, rather than in the first quarter of 2017. |
| |
(2) | Represents securities in a subsidiary of a KKR Group Partnership and of KKR & Co. L.P. that are exchangeable into KKR & Co. L.P. common units issued in connection with the acquisition of Avoca. |
| |
(3) | Common units that may be issued by KKR & Co. L.P. upon exchange of units in KKR Holdings L.P. for KKR common units. |
Liquidity
We manage our liquidity and capital requirements by (i) focusing on our cash flows before the consolidation of our funds and CFEs and the effect of changes in short term assets and liabilities, which we anticipate will be settled for cash within one year.year, and (ii) seeking to maintain access to sufficient liquidity through various sources. The overall liquidity framework and cash management approach of our insurance business are also based on seeking to build an investment portfolio that is cash flow matched, providing cash inflows from insurance assets that meet our insurance companies' expected cash outflows to pay their liabilities. Our primary cash flow activities on a segment basis typically involve: (i) generating cash flow from operations; (ii) generating income from investment activities, by investing in investments that generate yield (namely interest and dividends), as well as through the sale of investments and other assets; (iii) funding capital commitments that we have made to, and advancing capital to, our funds and CLOs; (iv) developing and funding new investment strategies, investment products, and other growth initiatives, including acquisitions of other investments, assets, and businesses; (v) underwriting and funding commitments in our capital markets business; (vi) distributing cash flow to our unitholders, certain holders of certain exchangeable securitiesstockholders and holders of our Series A and Series B Preferred Units;preferred stock; and (vii) paying borrowings, interest payments, and repayments under credit agreements, our senior and subordinated notes, and other borrowing arrangements. See "-Liquidity - "—Liquidity—Liquidity Needs - Distributions.Needs—Dividends."
See "—Business Environment" for more information on factors that may impact our business, financial performance, operating results and valuations.
Sources of Liquidity
Our primary sources of liquidity consist of amounts received from: (i) our operating activities, including the fees earned from our funds, portfolio companies, and capital markets transactions; (ii) realizations on carried interest from our investment funds; (iii) interest and dividends from investments that generate yield, including our investments in CLOs; (iv) in our insurance business, cash inflows in respect of new premiums, policyholder deposits, reinsurance transactions and funding agreements, including through memberships in Federal Home Loan Banks; (v) realizations on and sales of investments and other assets, including the transfers of investments or other assets for fund formations (including CLOs and (v)other investment vehicles); and (vi) borrowings, including advances under our revolving credit facilities, debt offerings, committed repurchase agreements, uncommitted financing, and other borrowing arrangements. In addition, we may generate cash proceeds from salesissuances of our equity securities.
Many of our investment funds provide carried interest. With respect to our private equity funds, carried interest is distributed to the general partner of a private equity fund with a clawback provision only after all of the following are met: (i) a realization event has occurred (e.g., sale of a portfolio company, dividend, etc.); (ii) the vehicle has achieved positive overall investment returns since its inception, in excess of performance hurdles where applicable;applicable, and is accruing carried interest; and (iii) with respect to investments with a fair value below cost, cost has been returned to fund investors in an amount sufficient to reduce remaining cost to the
investments' fair value. As of September 30, 2017,March 31, 2022, certain of our funds had met the first and second criteria, as described above, but did not meet the third criteria. In these cases, carried interest accrues on the consolidated statement of operations, but will not be distributed in cash to us as the general partner of an investment fund upon a realization event. For a fund that has a fair value above cost, overall, and is otherwise accruing carried interest, but has one or more investments where fair value is below cost, the shortfall between cost and fair value for such investments is referred to as a "netting hole." When netting holes are present, realized gains on individual investments that would otherwise allow the general partner to receive carried interest distributions are instead used to return invested capital to our funds' limited partners in an amount equal to the netting hole. Once netting holes have been filled with either (a) return of capital equal to the netting hole for those investments where fair value is below cost or (b) increases in the fair value of those investments where fair value is below cost, then realized carried interest will be distributed to the general partner upon a realization event. A fund that is in a position to pay cash carry refers to a fund for which carried interest is expected to be paid to the general partner upon the next material realization event, which includes funds with no netting holes as well as funds with a netting hole that is sufficiently small in size such that the next material realization event would be expected to result in the payment of carried interest. Strategic investor partnerships with fund investors may require netting across the various funds in which they invest, which may reduce the carried interest we otherwise would have earned if such fund investors were to have invested in our funds without the existence of athe strategic investor partnership. See "Risk Factors—Risks Related to Our Business—Strategic investor partnerships have longer investment periods and invest in multiple strategies, which may increase the possibility of a 'netting hole,' which will result in less carried interest for us, as well as clawback liabilities" in our Annual Report on Form 10-K for the year ended December 31, 2021.
As of September 30, 2017,March 31, 2022, netting holes in excess of $50 million existed at fivenone of our private equity funds, which were our European Fund IV, European Fund III, Millennium Fund, Asian Fund II and North America Fund XI which had netting holes of approximately $149 million, $108 million, $82 million, $63 million and $62 million, respectively.funds. In accordance with the criteria set forth above, other funds currently have and may in the future develop netting holes, and netting holes for those and other funds may otherwise increase or decrease in the future.
We have access to funding under various credit facilities, other borrowing arrangements and other sources of liquidity that we have entered into with major financial institutions or which we receive from the capital markets. The following describes these sources of liquidity.
Revolving Credit Agreements, Senior Notes, KFN Debt Obligations & KFN Securities
For a discussion of KKR'sour debt obligations, including our debt securities, revolving credit agreements senior notes, KFN debt obligations and KFN securities,loans, see Note 1017 "Debt Obligations" to the audited financial statements included in our Annual Report on Form 10-K. The information presented below supplements and updates, and should be read in conjunction with, such information. No amounts were borrowed under our corporate credit agreement with HSBC Bank USA for the three and nine months ended September 30, 2017. With respect to the KCM Credit Agreement, no amounts were borrowed and repaid for the three months ended September 30, 2017. For the nine months ended September 30, 2017, $847 million was borrowed and repaid. Asfinancial statements.
KCM Short-Term Credit Agreement
On June 29, 2017, KKR Capital Markets entered into a 364-day revolving credit agreement (the “KCM Short-Term Credit Agreement”) with a major financial institution for use in KKR’s capital markets business. This financial institution also provides the existing KCM Credit Agreement. The KCM Short-Term Credit Agreement provides for revolving borrowings of up to $750 million, expires on June 28, 2018, and ranks pari passu with the KCM Credit Agreement. Borrowings under the KCM Short-Term Credit Agreement may only be used to facilitate the settlement of debt transactions syndicated by KKR’s capital markets business. Obligations under the KCM Short-Term Credit Agreement are limited solely to entities involved in KKR’s capital markets business, and liabilities under the KCM Short-Term Credit Agreement are non-recourse to other parts of KKR. For the three and nine months ended September 30, 2017, $145 million was borrowed and repaid under the KCM Short-Term Credit Agreement.
Preferred Units
For a discussion of KKR's Series A and Series B Preferred Units, see Note 15 "Equity" to the audited financial statements and "--Liquidity Needs--Preferred Units" in the management's discussion and analysis of financial condition and results of operations, each of which is included in our Annual Report on Form 10-K.
Common Units
On May 16, 2014, KKR & Co. L.P. filed a registration statement with the Securities and Exchange Commission for the sale by us from time to time of up to 5,000,000 common units of KKR & Co. L.P. to generate cash proceeds (a) up to (1) the amount of withholding taxes, social benefit payments or similar payments payable by us in respect of awards granted pursuant to the Equity Incentive Plan, and (2) the amount of cash delivered in respect of awards granted pursuant to the Equity Incentive Plan that are settled in cash instead of common units; and (b) to the extent the net proceeds from the sale of common units exceeds the amounts due under clause (a), for general corporate purposes. This registration statement expired on June 4, 2017 with 4,173,039 common units issued and sold.
Liquidity Needs
We expect that our primary liquidity needs will consist of cash required to:
•continue to support and grow our Asset Management business lines, including seeding new strategies, funding our capital commitments made to existing and future funds, co-investmentspay the costs related to fundraising and any net capital requirementslaunching of our capital markets companiesnew strategies, and otherwise supporting investment vehicles which we sponsor;sponsor
•to grow and expand our businesses generally, including by acquiring or launching new, complementary or adjacent businesses;
warehouse investments in portfolio companies•seed or otherwarehouse investments for the benefit of onenew strategies or more of our funds, vehicles, accounts orincluding CLOs, pending the contribution of committed capital by the investors in such vehicles,funds, and advancing capital to themour funds for operational or other needs;
•pay interest expense;
•service debt obligations, including the payment of obligations upon maturity or redemption, as well as any contingent liabilities that may give rise to future cash payments;payments, including funding requirements to levered investment vehicles or structured transactions;
•fund cash operating expenses and contingencies, including litigation matters; matters and guarantees;
•pay corporate income taxes and other taxes;
•pay policyholders and amounts in our insurance business related to investment, reinvestment, reinsurance or funding agreement activity;
•pay amounts that may become due under our tax receivable agreement with KKR Holdings;
make•pay cash distributionsdividends in accordance with our distributiondividend policy for our common unitsstock or the terms of our preferred units; stock;
•underwrite commitments, advance loan proceeds and fund syndication commitments within our capital markets business;business, and fund any net capital or regulatory requirements of our capital markets companies;
make future purchase price payments•post or return collateral in connection with our proprietary investments, such as our strategic manager partnership with Marshall Wace, to the extent not paid by newly issued common units;respect of derivative contracts;
•support and acquire other assets for our Principal Activities segment,business line, including other businesses, investments and assets;assets, some of which may be required to satisfy risk retention requirements for CLOs (to the extent they may apply); and
•repurchase KKR & Co. L.P.KKR's common unitsstock or retire equity awards pursuant to the unitshare repurchase program announced on October 27, 2015 and subsequently increased on February 9, 2017.or repurchase or redeem other securities issued by KKR.
KKR & Co. L.P. Unit Repurchase Program
On October 27, 2015, KKR announced the authorizationFor a discussion of a program providing for the repurchase by KKR of up to $500 million in the aggregate of its outstanding common units. On February 9, 2017, KKR announced the authorization of an incremental $250 million under this unit repurchase program. Under this unitKKR's share repurchase program, units may be repurchased from time to timesee Note 22 "Equity" in open market transactions, in privately negotiated transactions or otherwise. The timing, manner, price and amountour financial statements.
Table of any unit repurchases will be determined by KKR in its discretion and will depend on a variety of factors, including legal requirements, price and economic and market conditions. KKR expects that the program, which has no expiration date, will be in effect until the maximum approved dollar amount has been used to repurchase common units. The program does not require KKR to repurchase any specific number of common units, and the program may be suspended, extended, modified or discontinued at any time. Since inception of the unit repurchase program through October 23, 2017, KKR has repurchased and canceled approximately 31.7 million outstanding common units for approximately $459 million. There is $291 million remaining as of October 23, 2017 under the current repurchase program. No units were repurchased during the first nine months of 2017.Contents
In addition to the purchases of common units above, (1) cash may be used to pay the amount of withholding taxes, social benefit payments or similar payments payable by KKR in respect of awards granted pursuant to the Equity Incentive Plan and (2) cash may be delivered in respect of certain awards granted pursuant to the Equity Incentive Plan and Other Exchangeable Securities. During the first nine months of 2017, KKR canceled equity awards representing 3.1 million common units to satisfy tax and cash-settlement obligations of $58.0 million in connection with their vesting. See "--Item 2. Unregistered Sales of Equity Securities and Use of Proceeds."
Capital Commitments
The agreements governing our active investment funds generally require the general partners of the funds to make minimum capital commitments to such funds, which usuallygenerally range from 2% to 8% of a fund's total capital commitments at final closing; however, the size of our general partner commitment toclosing, but may be greater for certain funds (i) where we are pursuing newer strategies, may exceed this range. (ii) where third party investor demand is limited, and (iii) where a larger commitment is consistent with the asset allocation strategy for our Principal Activities business line, including core investments and exposure to the Asia-Pacific region.
The following table presents our uncalled commitments to our active investment funds and other vehicles as of September 30, 2017:March 31, 2022:
| | | | | |
| Uncalled Commitments |
Private Markets | ($ in millions) |
Core Investment Vehicles | $ | 4,196 | |
European Fund VI | 1,000 | |
North America Fund XIII | 500 | |
Global Infrastructure Investors IV | 464 | |
Asian Fund IV | 376 | |
Diversified Core Infrastructure | 250 | |
Asia Real Estate Partners | 196 | |
Asia Pacific Infrastructure Investors | 174 | |
Asian Fund III | 144 | |
Real Estate Partners Americas III | 143 | |
Health Care Strategic Growth Fund II | 137 | |
Americas Fund XII | 93 | |
Global Infrastructure Investors III | 85 | |
Real Estate Partners Europe II | 76 | |
Next Generation Technology Growth Fund II | 57 | |
Health Care Strategic Growth Fund | 49 | |
European Fund V | 42 | |
Global Impact Fund | 39 | |
Real Estate Partners Americas II | 26 | |
Real Estate Credit Opportunity Partners II | 22 | |
| |
| |
Other Private Markets Vehicles | 2,051 | |
Total Private Markets Commitments | 10,120 | |
| |
Public Markets | |
Dislocation Opportunities fund | 123 | |
Special Situations Fund II | 25 | |
Lending Partners Europe II | 24 | |
Lending Partners III | 13 | |
Private Credit Opportunities Partners II | 10 | |
Lending Partners Europe | 9 | |
Other Public Markets Vehicles | 999 | |
Total Public Markets Commitments | 1,203 | |
| |
Total Uncalled Commitments | $ | 11,323 | |
|
| | | |
| Uncalled Commitments |
Private Markets | ($ in thousands) |
Americas Fund XII | $ | 975,000 |
|
Asian Fund III | 500,000 |
|
Health Care Strategic Growth Fund | 150,000 |
|
Real Estate Partners Americas II | 150,000 |
|
Next Generation Technology Growth Fund | 97,100 |
|
Energy Income and Growth | 86,400 |
|
European Fund IV | 79,800 |
|
Global Infrastructure Investors II | 74,200 |
|
Real Estate Partners Europe | 58,300 |
|
Real Estate Credit Opportunity Partners | 45,000 |
|
Other Private Markets Vehicles | 332,500 |
|
Total Private Markets Commitments | 2,548,300 |
|
| |
|
Public Markets | |
|
Special Situations Fund II | 173,700 |
|
Lending Partners Europe | 26,700 |
|
Lending Partners III | 24,700 |
|
Other Public Markets Vehicles | 164,000 |
|
Total Public Markets Commitments | 389,100 |
|
| |
|
Total Uncalled Commitments | $ | 2,937,400 |
|
Other Commitments
In addition to the uncalled commitments to our investment funds as shown above, KKR has entered into contractual commitments primarily with respect to (i) the purchase of investments and other assets in its Principal Activities segment, and (ii) underwriting transactions, debt financing, revolving credit facilities, and equity syndications in our Capital Markets segment.business line. As of September 30, 2017,March 31, 2022, these commitments amounted to $93.4 million and $255.7 million, respectively. $1.5 billion.
Whether these amounts are actually funded, in whole or in part, depends on the contractual terms of such commitments, including the satisfaction or waiver of any conditions to closing or funding. The unfunded commitments shown for our Capital Markets segment are shown without reflecting arrangements that may reduce the actual amount of contractual commitments shown. Our capital marketmarkets business entered into an arrangement that reduceshas arrangements with third parties, which reduce our risk under certain circumstances when underwriting certain debt transactions.transactions, and thus our unfunded commitments as of March 31, 2022 have been reduced to reflect the amount to be funded by such third parties. In the case of purchases of investments or assets in our Principal Activities segment,business line, the amount to be funded includes amounts that are intended to be syndicated to third parties, and the actual amounts to be funded may be less than shown.
Prisma Capital Partners
As of September 30, 2017, no amounts were due underless. For more information about our capital markets business line's risks, see "Risks Related to Our Business—Our capital markets activities expose us to risks, and our risk management strategy may not be effective or sufficient" in our Annual Report on Form 10-K for the contingent consideration arrangement in connection with the acquisition of the equity interests of Prisma on October 1, 2012. The final measurement date for such contingent consideration was June 30, 2017. On June 1, 2017, KKR completed its previously announced transaction to combine Pacific Alternative Asset Management Company, LLC, or PAAMCO, with Prisma Capital Partners LP, formerly known as KKR Prisma. See "--Overview - Business Segments - Public Markets."
Investment in Marshall Wace
On November 2, 2015, KKR entered into a long-term strategic relationship with Marshall Wace and its affiliates and acquired a 24.9% interest in Marshall Wace through a combination of cash and common units. Subject to the exercise of a put option by Marshall Wace or a call option by KKR, at subsequent closings to occur in the second, third and fourth years following the initial closing described above, and subject to satisfaction or waiver of certain closing conditions, including regulatory approvals, KKR may at each such closing subscribe (or be required to subscribe) for an incremental 5% equity interest, for ultimate aggregate ownership of up to 39.9% of Marshall Wace. The exercise of such options would require the use of cash and/or KKR common units. KKR's investment in Marshall Wace is accounted for using the equity method of accounting.
Due to the exercise of one of the options agreed to between Marshall Wace and KKR, KKR expects to acquire an additional 5.0% interest in Marshall Wace in the fourth quarter of 2017. The acquisition is expected to be completed with a combination of cash and common units.
year ended December 31, 2021.
Tax Receivable Agreement
We and certain intermediate holding companies that are taxable corporations for U.S. federal, state and local income tax purposes, may be required to acquire KKR Group Partnership Units from time to time pursuant to our exchange agreement with KKR Holdings. KKR Management Holdings, L.P. made an election under Section 754 of the Internal Revenue Code that will remain in effect for each taxable year in which an exchange of KKR Group Partnership Units for common units occurs, which mayis expected to result in an increase in our intermediate holding companies' share of the tax basis of the assets of the KKR Group PartnershipsPartnership at the time of an exchange of KKR Group Partnership Units. Certain of these exchanges are expected to result in an increase in our intermediate holding companies' share of the tax basis of the tangible and intangible assets of the KKR Group Partnerships, primarily attributable to a portion of the goodwill inherent in our business that would not otherwise have been available. This increase in tax basis may increase depreciation and amortization deductions for tax purposes and therefore reduce the amount of income tax our intermediate holding companies would otherwise be required to pay in the future. This increase in tax basis may also decrease gain (or increase loss) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
We have entered into a tax receivable agreement with KKR Holdings, which requires our intermediate holding companiesus to pay to KKR Holdings, or to current and former principalslimited partners who have exchanged KKR Holdings units for KKRKKR's common unitsstock as transferees of KKR Group Partnership Units, 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that the intermediate holding companieswe realize as a result of the increase in tax basis described above, as well as 85% of the amount of any such savings the intermediate holding companieswe realize as a result of increases in tax basis that arise due to future payments under the tax receivable agreement. We expect our intermediate holding companiesAs of March 31, 2022, an undiscounted payable of $396.1 million has been recorded in due to benefit fromaffiliates in the remaining 15% of cash savings, if any, in income tax that they realize. A terminationfinancial statements representing management's best estimate of the agreement or a change of control could give riseamounts currently expected to similar payments based on tax savings that we would be deemed to realize in connection with such events. In the event that other of our current or future subsidiaries become taxable as corporations and acquire KKR Group Partnership Units in the future, or if we become taxable as a corporation for U.S. federal income tax purposes, we expect that each will become subject to a tax receivable agreement with substantially similar terms.
These payment obligations are obligations of our intermediate holding companies and not the KKR Group Partnerships. As such, cash payments received by common unitholders may vary from those received by holders of KKR Group Partnership Units held by KKR Holdings and its current and former principals to the extent payments are made to those partiesowed under the tax receivable agreement. Payments made under the tax receivable agreement are required to be made within 90 daysAs of the filingMarch 31, 2022, approximately $60.4 million of the tax returns of our intermediate holding companies, which may result in a timing difference between the tax savings received by KKR's intermediate holdings companies and the cash payments made to the selling holders of KKR Group Partnership Units.
For the three and nine months ended September 30, 2017 and 2016, nocumulative cash payments have been made under the tax receivable agreement. As
Following the closing of September 30, 2017, $4.2 millionthe merger transactions contemplated by the Reorganization Agreement, there will be no more exchanges of cumulative incomeKKR Group Partnership Units held by KKR Holdings. Additionally, the tax savings have been realized. See "-Liquidity-Other Liquidity Needs- Contractual Obligations, Commitments and Contingencies"receivable agreement will terminate upon the closing of the mergers contemplated by the Reorganization Agreement, except that the obligations of KKR to make payments under the tax receivable agreement will remain outstanding until paid in full for a discussioncertain exchanges that took place prior to the termination of amounts payable and cumulative cashthe tax receivable agreement. Although our employees who hold restricted holdings units under our 2019 Equity Plan (which includes limited partner interests in KKR Holdings II) will be entitled to exchange those interests for common stock pursuant to the exchange agreement, there will be no payments madedue for any of those exchanges under thisthe tax receivable agreement.
DistributionsDividends
A distributiondividend of $0.17$0.155 per share of our common unitstock has been declared whichand will be paid on November 21, 2017May 31, 2022 to holders of record of our common unitsstock as of the close of business on November 6, 2017. Under KKR's current distribution policy for its common units, KKR intends to make equal quarterly distributions to holdersMay 16, 2022.
A dividend of common units in an amount$0.75 per share of $0.17 per common unit per quarter, beginning with the financial results reported for the first quarter of 2017.
A distribution of $0.421875 per Series AC Mandatory Convertible Preferred UnitStock has been declared and set aside for payment on DecemberJune 15, 20172022 to holders of record of Series AC Mandatory Convertible Preferred UnitsStock as of the close of business on DecemberJune 1, 2017. A distribution2022.
When KKR & Co. Inc. receives distributions from KKR Group Partnership, other equityholders in KKR Group Partnership including KKR Holdings receive their pro rata share of $0.406250 per Series B Preferred Unit has been declared and set aside for payment on December 15, 2017 to holders of record of Series B Preferred Units as of the close of business on December 1, 2017. such distributions from KKR Group Partnership.
The declaration and payment of dividends to our common stockholders will be at the sole discretion of our board of directors, and our dividend policy may be changed at any future distributions on preferred or common units aretime. The declaration of dividends is subject to the discretion of theour board of directors based on a number of factors, including KKR’s future financial performance and other considerations that the general partnerboard deems relevant, and compliance with the terms of KKR & Co. L.P.Inc.'s certificate of incorporation and applicable law. For U.S. federal income tax purposes, any dividends we pay (including dividends on our preferred stock) generally will be treated as qualified dividend income for U.S. individual stockholders to the termsextent paid out of its limited partnership agreement.our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. There can be no assurance that future distributionsdividends will be made as intended or at all that unitholders will receive sufficient distributions to satisfy payment of their tax liabilities as limited partners of KKR & Co. L.P. or that any particular distributiondividend policy for our common unitsstock will be maintained. Furthermore, the declaration and payment of distributions by the KKR Group PartnershipsPartnership and our other subsidiaries may also be subject to legal, contractual and regulatory restrictions, including restrictions contained in our debt agreements and the terms of the preferred units of the KKR Group Partnerships.Partnership.
When KKR & Co. L.P. receives distributions from the KKR Group Partnerships (the holding companies
Other Liquidity Needs
We may also be requiredFrom time to time, we fund various underwriting, syndicationssyndication and fronting commitments in our capital markets business in connection with the arranging or underwriting of loans, securities or other financial instruments, for which has increased in significance in the first nine monthswe may draw all or substantially all of 2017 and may continue to be significant in future quarters.our availability for borrowings under our available credit facilities. We generally expect thatthese borrowings by our Capital Markets business line to be repaid promptly as these commitments will beare syndicated to third parties or otherwise fulfilled or terminated, although we may in some instances elect to retain a portion of the commitments for our own investment.
For more information about our Capital Markets business line's risks, see "Risks Related to Our Business—Our capital markets activities expose us to risks, and our risk management strategy may not be effective or sufficient" in our Annual Report on Form 10-K for the year ended December 31, 2021.
Contractual Obligations, Commitments and Contingencies
In the ordinary course of business, we (including Global Atlantic) and our consolidated funds and CFEs enter into contractual arrangements that may require future cash payments. The following table sets forth information relatingContractual arrangements include (1) commitments to anticipated future cash paymentsfund the purchase of investments or other assets (including obligations to fund capital commitments as the general partner of September 30, 2017 excluding consolidated fundsour investment funds) or to fund collateral for derivative transactions or otherwise, (2) obligations arising under our senior notes, subordinated notes, and CFEsother indebtedness, (3) commitments by our capital markets business to underwrite transactions or to lend capital, (4) obligations arising under insurance policies written, (5) other contractual obligations, including servicing agreements with a reconciliationthird-party administrators for insurance policy administration, and (6) commitments to fund the business, operations or investments of such amounts to the anticipated future cash payments of KKR including consolidated funds and CFEs.our subsidiaries.
|
| | | | | | | | | | | | | | | | | | | | |
| | Payments due by Period |
Types of Contractual Obligations | | <1 Year | | 1-3 Years | | 3-5 Years | | >5 Years | | Total |
| | ($ in millions) |
Uncalled commitments to investment funds (1) | | $ | 2,937.4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,937.4 |
|
Debt payment obligations (2) | | — |
| | 500.0 |
| | — |
| | 2,139.8 |
| | 2,639.8 |
|
Interest obligations on debt (3) | | 143.2 |
| | 282.5 |
| | 218.8 |
| | 2,027.3 |
| | 2,671.8 |
|
Underwriting commitments (4) | | 137.3 |
| | — |
| | — |
| | — |
| | 137.3 |
|
Lending commitments (5) | | 118.4 |
| | — |
| | — |
| | — |
| | 118.4 |
|
Purchase commitments (6) | | 77.6 |
| | 15.5 |
| | 0.3 |
| | — |
| | 93.4 |
|
Lease obligations | | 51.7 |
| | 95.0 |
| | 31.9 |
| | 17.0 |
| | 195.6 |
|
Corporate real estate (7) | | — |
| | 292.5 |
| | — |
| | — |
| | 292.5 |
|
Total Contractual Obligations of KKR | | 3,465.6 |
| | 1,185.5 |
| | 251.0 |
| | 4,184.1 |
| | 9,086.2 |
|
Plus: Uncalled commitments of consolidated funds (8) | | 2,285.1 |
| | — |
| | — |
| | — |
| | 2,285.1 |
|
Plus: Debt payment obligations of consolidated funds and CFEs (9) | | 740.7 |
| | 1,475.2 |
| | 606.4 |
| | 14,101.2 |
| | 16,923.5 |
|
Plus: Interest obligations of consolidated funds and CFEs (10) | | 567.1 |
| | 1,132.6 |
| | 1,054.2 |
| | 2,257.8 |
| | 5,011.7 |
|
Total Consolidated Contractual Obligations | | $ | 7,058.5 |
| | $ | 3,793.3 |
| | $ | 1,911.6 |
| | $ | 20,543.1 |
| | $ | 33,306.5 |
|
| |
(1) | These uncalled commitments represent amounts committed by us to fund a portion of the purchase price paid for each investment made by our investment funds which are actively investing. Because capital contributions are due on demand, the above commitments have been presented as falling due within one year. However, given the size of such commitments and the pace at which our investment funds make investments, we expect that the capital commitments presented above will be called over a period of several years. See "—Liquidity—Liquidity Needs." |
| |
(2) | Amounts include (i) 2020 Senior Notes, 2043 Senior Notes and 2044 Senior Notes of $2.0 billion gross of unamortized discount, (ii) KFN 2032 Senior notes of $0.4 billion gross of unamortized discount and (iii) KFN Junior Subordinated Notes of $0.2 billion, gross of unamortized discount. KFN's debt obligations are non-recourse to KKR beyond the assets of KFN. |
| |
(3) | These interest obligations on debt represent estimated interest to be paid over the maturity of the related debt obligation, which has been calculated assuming the debt outstanding at September 30, 2017 is not repaid until its maturity. Future interest rates are assumed to be those in effect as of September 30, 2017, including both variable and fixed rates, as applicable, provided for by the relevant debt agreements. The amounts presented above include accrued interest on outstanding indebtedness. |
| |
(4) | Represents various commitments in our capital markets business in connection with the underwriting of loans, securities and other financial instruments. These commitments are shown net of amounts syndicated. |
| |
(5) | Represents obligations in our capital markets business to lend under various revolving credit facilities. |
| |
(6) | Represents commitments of KKR and KFN to fund the purchase of various investments. |
| |
(7) | Represents the purchase price due upon delivery of a new KKR office being constructed, all or a portion of which represents construction financing obtained by the developer and may be refinanced upon delivery of the completed office. |
| |
(8) | Represents uncalled commitments of our consolidated funds excluding KKR's portion of uncalled commitments as the general partner of the respective funds. |
| |
(9) | Amounts include (i) financing arrangements entered into by our consolidated funds with the objective of providing liquidity to the funds of $2.5 billion, (ii) debt securities issued by our consolidated CLOs of $9.4 billion and (iii) debt securities issued by our consolidated CMBS entities of $5.0 billion. Debt securities issued by consolidated CLOs and CMBS entities are supported solely by the investments held at the CLO and CMBS vehicles and are not collateralized by assets of any other KKR entity. Obligations under financing arrangements entered into by our consolidated funds are generally limited to our pro-rata equity interest in such funds. Our management companies bear no obligations to repay any financing arrangements at our consolidated funds. |
| |
(10) | The interest obligations on debt of our consolidated funds and CFEs represent estimated interest to be paid over the maturity of the related debt obligation, which has been calculated assuming the debt outstanding at September 30, 2017 is not repaid until its maturity. Future interest rates are assumed to be those in effect as of September 30, 2017, including both variable and fixed rates, as applicable, provided for by the relevant debt agreements. The amounts presented above include accrued interest on outstanding indebtedness. |
The commitment table above excludes contractual amounts owed under the tax receivable agreement because the ultimate amount and timing of the amounts due are not presently known. As of September 30, 2017, a payable of $141.9 million has been recorded in due to affiliates in the condensed consolidated financial statements representing management's best estimate of the amounts currently expected to be owed under the tax receivable agreement. As of September 30, 2017, approximately $24.0 million of cumulative cash payments have been made under the tax receivable agreement. See "—Liquidity Needs—Tax Receivable Agreement."
We may incur contingent liabilities for claims that may be made against us in the future. We enter into contracts that contain a variety of representations, warranties and covenants, including indemnifications. For example, certain of our investment funds and KFNKKR have provided certain indemnities relating to environmental and other matters and have provided nonrecourse carve-out guarantees for violations of bankruptcy remoteness restrictions and for fraud, willful misconduct and other customary wrongful acts, each in connection with the financing of (i) certain real estate investments that we have made.made, including KKR's corporate real estate, and (ii) certain investment vehicles we manage or sponsor. KKR has also (i) provided credit support regarding repayment and funding obligations to third party lenders on behalf of certain employees, excluding executive officers, in connection with their personal investments in KKR investment funds and a levered multi-asset investment vehicle and (ii) provided credit support to one of our hedge fund partnerships. We have also indemnified employees and non-employees against potential liabilities, in connection with their service as described under "Certain Relationships and Related Transactions, and Director Independence—Indemnification of Directors, Officers and Others" in our Annual Report on Form 10-K for the year ended December 31, 2021. In addition, we have also provided credit support to certain of our subsidiaries’subsidiaries' obligations in connection with a limited number ofcertain investment vehicles or partnerships that we manage. For example, KKR has guaranteed the obligations of a general partner to post collateral on behalf of its investment vehicle in connection with such vehicle’svehicle's derivative transactions,transactions. KKR has also agreed to cause various of its general partners to fund their capital commitments to their funds and to be liable for such general partners' compliance with certain covenants, including limitations on their incurrence of certain kinds of indebtedness. We expect to continue to guarantee, from time to time, the obligations of our subsidiaries' funding obligations to our investment vehicles. These include KKR's obligations to fund its capital commitments to various levered multi-asset investment vehicles, which are special purpose entities that invest in various funds and co-investments sponsored by KKR. In addition, we have also agreed for certain of our investment vehicles, including certain levered multi-asset investment vehicles, to fund or otherwise be liable for certaina portion of their investment losses (up to a maximum of approximately $116 million) and/or for providingto provide them with liquidity inupon certain termination events (the maximum amount of which is unknown until the events specified inscheduled termination date of the governing documents of another investment vehicle. Our maximum exposure under these arrangements is currently unknown as our liabilities for these matters would require a claim to be made against us in the future.vehicle).
The partnership documents governing our carry-paying funds including funds and vehicles relating to private equity, mezzanine, infrastructure, energy, direct lending and special situations investments, generally include a "clawback" provision that, if triggered, may give rise to a contingent obligation requiring the general partner to return amounts to the fund for distribution to the fund investors at the end of the life of the fund. Under aSee Note 24 "Commitments and Contingencies—Contingent Repayment Guarantees" to our financial statements included elsewhere in this report for further information on KKR's potential clawback obligation, upon the liquidation of a fund, the general partner is required to return, typically on an after-tax basis, previously distributed carry to the extent that, due to the diminished performance of later investments, the aggregate amount of carry distributions received by the general partner during the term of the fund exceed the amount to which the general partner was ultimately entitled, including the effects of any performance thresholds. Excluding carried interest received by the general partners of funds that were not contributed to us in the KPE Transaction, as of September 30, 2017, $47.3 million of carried interest was subject to this clawback obligation, assuming that all applicable carry paying funds were liquidated at their September 30, 2017 fair values. Had the investments in such funds been liquidated at zero value, the clawback obligation would have been $1,990.7 million. Carried interest is recognized in the statement of operations based on the contractual conditions set forth in the agreements governing the fund as if the fund were terminated and liquidated at the reporting date and the fund's investments were realized at the then estimated fair values. Amounts earned pursuant to carried interest are earned by the general partner of those funds to the extent that cumulative investment returns are positive and where applicable, preferred return thresholds have been met. If these investment amounts earned decrease or turn negative in subsequent periods, recognized carried interest will be reversed and to the extent that the aggregate amount of carry distributions received by the general partner during the term of the fund exceed the amount to which the general partner was ultimately entitled, a clawback obligation would be recorded. For funds that are consolidated, this clawback obligation, if any, is reflected as an increase in noncontrolling interests in the consolidated statements of financial condition. For funds that are not consolidated, this clawback obligation, if any, is reflected as a reduction of our investment balance as this is where carried interest is initially recorded.obligations.
Prior to the KPE Transaction in 2009, certain principals who received carried interest distributions with respect to certain private equity funds contributed to us had personally guaranteed, on a several basis and subject to a cap, the contingent obligations of the general partners of such private equity funds to repay amounts to fund investors pursuant to the general partners' clawback obligations. The terms of the KPE Transaction require that principals remain responsible for any clawback obligations relating to carry distributions received prior to the KPE Transaction, up to a maximum of $223.6 million. Through investment realizations, the principals' potential exposure has been reduced to $72.2 million as of September 30, 2017. Using valuations as of September 30, 2017, $19.7 million would be due with respect to the clawback obligation required to be funded by principals. Carry distributions arising subsequent to the KPE Transaction may give rise to clawback obligations that may be allocated generally to us and to persons who participate in the carry pool. In addition, guarantees of or similar arrangements relating to clawback obligations in favor of third party investors in an individual investment partnership by entities we own may limit distributions of carried interest more generally.
Off Balance Sheet Arrangements
OtherWe do not have any off-balance sheet financings or liabilities other than contractual commitments and other legal contingencies incurred in the normal course of our business, we do not have any off-balance sheet financings or liabilities.business.
Critical Accounting Policies
Estimates
The preparation of our condensed consolidated financial statements in accordance with GAAP requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of fees, expenses and investment income. Our management bases these estimates and judgments on available information, historical experience and other assumptions that we believe are reasonable under the circumstances. However, these estimates, judgments and assumptions are often subjective and may be impacted negatively based on changing circumstances or changes in our analyses. If actual amounts are ultimately different from those estimated, judged or assumed, revisions are included in the condensed consolidated financial statements in the period in which the actual amounts become known. We believe our critical accounting policies could potentially produce materially different results if we were to change underlying estimates, judgments or assumptions.
The followingFor a further discussion details certain ofabout our critical accounting policies. policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in the 2021 Form 10-K and Note 2 "Summary of Significant Accounting Policies" in our financial statements.
Recently Issued Accounting Pronouncements
For a full discussion of all criticalrecently issued accounting policies, pleasepronouncements, see the notes to the condensed consolidated financial statements "--Item 1. Condensed Consolidated Financial Statements (Unaudited)--SummaryNote 2 "Summary of Significant Accounting Policies." Policies" in our financial statements.
Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. Except for certain of KKR's equity method investments and debt obligations, KKR's investments and other financial instruments are recorded at fair value or at amounts whose carrying values approximate fair value. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation techniques are applied. These valuation techniques involve varying levels of management estimation and judgment, the degree of which is dependent on a variety of factors.
GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is affected by a number of factors, including the type ofInvestments and other financial instrument, the characteristics specific to the financial instrument and the state of the marketplace, including the existence and transparency of transactions between market participants. Financial instruments with readily available quoted prices in active markets generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination of fair values, as follows:
Level I
Pricing inputs are unadjusted, quoted prices in active markets for identical assets or liabilities as of the measurement date. The types of financial instruments included in this category are publicly-listed equities, credit investments and securities sold short.
We classified 7.3% of total investments measured and reported at fair value as Level I at September 30, 2017.
Level II
Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the measurement date, and fair value is determined through the use of models or other valuation methodologies. The types of financial instruments included in this category are credit investments, investments and debt obligations of consolidated CLO entities, convertible debt securities indexed to publicly-listed securities, less liquid and restricted equity securities and certain over-the-counter derivatives such as foreign currency option and forward contracts.
We classified 38.3% of total investments measured and reported at fair value as Level II at September 30, 2017.
Level III
Pricing inputs are unobservable for the financial instruments and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. The types of financial instruments generally included in this category are private portfolio companies, real assets investments, credit investments, equity method investments for which the fair value option was elected and investments and debt obligations of consolidated CMBS entities.
We classified 54.4% of total investments measured and reported at fair value as Level III at September 30, 2017. The valuation of our Level III investments at September 30, 2017March 31, 2022 represents management's best estimate of the amounts that we would anticipate realizing on the sale of these investments in an orderly transaction at such date.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset.
A significant decrease in the volume and level of activity for the asset or liability is an indication that transactions or quoted prices may not be representative of fair value because in such market conditions there may be increased instances of transactions that are not orderly. In those circumstances, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value.
The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of instrument, whether the instrument has recently been issued, whether the instrument is traded on an active exchange or in the secondary market, and current market conditions. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level III. The variability and availability of the observable inputs affected by the factors described above may cause transfers between Levels I, II, and III, which we recognize at the beginning of the reporting period.
Investments and other financial instruments that have readily observable market prices (such as those traded on a securities exchange) are stated at the last quoted sales price as of the reporting date. We do not adjust the quoted price for these investments, even in situations where we hold a large position and a sale could reasonably affect the quoted price.
Management’s determination of fair value is based upon the methodologies and processes described below and may incorporate assumptions that are management’s best estimates after consideration of a variety of internal and external factors.
Level II Valuation Methodologies
Credit Investments: These instruments generally have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest price that KKR and others are willing to pay for an instrument. Ask prices represent the lowest price that KKR and others are willing to accept for an instrument. For financial assets and liabilities whose inputs are based on bid-ask prices obtained from third party pricing services, fair value may not always be a predetermined point in the bid-ask range. KKR’s policy is generally to allow for mid-market pricing and adjusting to the point within the bid-ask range that meets KKR’s best estimate of fair value.
Investments and Debt Obligations of Consolidated CLO Vehicles: Investments of consolidated CLO vehicles are valued using the same valuation methodology as described above for credit investments. Under ASU 2014-13, KKR measures CLO debt obligations on the basis of the fair value of the financial assets of the CLO.
Securities indexed to publicly-listed securities: The securities are typically valued using standard convertible security pricing models. The key inputs into these models that require some amount of judgment are the credit spreads utilized and the volatility assumed. To the extent the company being valued has other outstanding debt securities that are publicly-traded, the implied credit spread on the company’s other outstanding debt securities would be utilized in the valuation. To the extent the company being valued does not have other outstanding debt securities that are publicly-traded, the credit spread will be estimated based on the implied credit spreads observed in comparable publicly-traded debt securities. In certain cases, an additional spread will be added to reflect an illiquidity discount due to the fact that the security being valued is not publicly-traded. The volatility assumption is based upon the historically observed volatility of the underlying equity security into which the convertible debt security is convertible and/or the volatility implied by the prices of options on the underlying equity security.
Restricted Equity Securities: The valuation of certain equity securities is based on an observable price for an identical security adjusted for the effect of a restriction.
Derivatives: The valuation incorporates observable inputs comprising yield curves, foreign currency rates and credit spreads.
Level III Valuation Methodologies
Financial assets and liabilities categorized as Level III consist primarily of the following:
Private Equity Investments: We generally employ two valuation methodologies when determining the fair value of a private equity investment. The first methodology is typically a market comparables analysis that considers key financial inputs and recent public and private transactions and other available measures. The second methodology utilized is typically a discounted cash flow analysis, which incorporates significant assumptions and judgments. Estimates of key inputs used in this methodology include the weighted average cost of capital for the investment and assumed inputs used to calculate terminal values, such as exit EBITDA multiples. In certain cases the results of the discounted cash flow approach can be significantly impacted by these estimates. Other inputs are also used in both methodologies. Also, as discussed in greater detail under "—Business Environment" in this report and "Risk Factors—Risks Related to the Assets We Manage—Our investments and financial instruments are impacted by various economic conditions and events outside of our control that are difficult to quantify or predict, butwhich may have a significant adverse impact on the valuevaluation of our investments" in our Annual Reportinvestments and, therefore, on Form 10-K,the carried interest and investment income we realize. Additionally, a change in interest rates could have a significant impact on valuations. In addition, when a definitive agreement has been executed to sell an investment, KKR generally considers a significant determinant
Upon completion of the valuations conducted using these methodologies, a weighting is ascribed to each method, and an illiquidity discount is typically applied where appropriate. The ultimate fair value recorded for a particular investment will generally be within a range suggested by the two methodologies, except that the value may be higher or lower than such range in the case of investments being sold pursuant to an executed definitive agreement.
When determining the weighting ascribed to each valuation methodology, we consider, among other factors, the availability of direct market comparables, the applicability of a discounted cash flow analysis, the expected hold period and manner of realization for the investment, and in the case of investments being sold pursuant to an executed definitive agreement, we estimated probability of such a sale being completed. These factors can result in different weightings among investments in the portfolio and in certain instances may result in up to a 100% weighting to a single methodology. Across the total Level III private equity investment portfolio (including core equity investments), and including investments in both consolidated and unconsolidated investment funds, approximately 78%50% of the fair value is derived from investments that are valued based exactly 50% on market comparables and 50% on a discounted cash flow analysis. Less than 5% of the fair value of this Level III private equity investment portfolio is derived from investments that are valued either based 100% on market comparables or 100% on a discounted cash flow analysis. As of September 30, 2017,March 31, 2022, the overall weights ascribed to the market comparables methodology, the discounted cash flow methodology, and a methodology based on pending sales for this portfolio of Level III private equity investments were 43%36%, 48%51%, and 9%13%, respectively.
When an illiquidity discountThere is to be applied, we seek to take a uniform approach across our portfolio and generally apply a minimum 5% discount to all private equity investments. We then evaluate such private equity investments to determine if
factors exist that could make it more challenging to monetize the investment and, therefore, justify applying a higher illiquidity discount. These factors generally include (i) whether we are unable to freely sell the portfolio company or conduct an initial public offering of the portfolio company due to the consent rights of a third party or similar factors, (ii) whether the portfolio company is undergoing significant restructuring activity or similar factors and (iii) characteristics about the portfolio company regarding its size and/or whether the portfolio company is experiencing, or expected to experience, a significant decline in earnings. These factors generally make it less likely that a portfolio company would be sold or publicly offeredinherent uncertainty involved in the near term at a price indicated by using just a market multiples and/or discounted cash flow analysis,valuation of Level III investments, and these factors tend to reducethere is no assurance that, upon liquidation, KKR will realize the number of opportunities to sell an investment and/or increase the time horizon over which an investment may be monetized. Depending on the applicability of these factors, we determine the amount of any incremental illiquidity discount to be applied above the 5% minimum, and during the time we hold the investment, the illiquidity discount may be increased or decreased, from time to time, based on changes to these factors. The amount of illiquidity discount applied at any time requires considerable judgment about what a market participant would consider and is based on the facts and circumstances of each individual investment. Accordingly, the illiquidity discount ultimately considered by a market participant upon the realization of any investment may be higher or lower than that estimated by usvalues reflected in our valuations.
In the case of growth equity investments, enterprise values Our valuations may be determined using the market comparables analysis and discounted cash flow analysis described above. A scenario analysis may also be conducted to subject the estimated enterprise values to a downside, base and upside case, which involves significant assumptions and judgments. A milestone analysis may also be conducted to assess the current level of progress towards value drivers that we have determined to be important, which involves significant assumptions and judgments. The enterprise value in each case may then be allocated across the investment’s capital structure to reflect the terms of the security and subjected to probability weightings. In certain cases,differ significantly from the values of growth equity investments may be based on recent or expected financings.
Real Assets Investments: Real asset investments in infrastructure, energy and real estate are valued using one or more of the discounted cash flow analysis, market comparables analysis and direct income capitalization, which in each case incorporates significant assumptions and judgments. Infrastructure investments are generally valued using the discounted cash flow analysis. Key inputs used in this methodology can include the weighted average cost of capital and assumed inputs used to calculate terminal values, such as exit EBITDA multiples. Energy investments are generally valued using a discounted cash flow analysis. Key inputs used in this methodology that require estimates include the weighted average cost of capital. In addition, the valuations of energy investments generally incorporate both commodity prices as quoted on indices and long-term commodity price forecasts, which may be substantially different from, and are currently higher than, commodity prices on certain indices for equivalent future dates. Certain energy investments do not include an illiquidity discount. Long-term commodity price forecasts are utilized to capture the value of the investments across a range of commodity prices within the energy investment portfolio associated with future development and to reflect a range of price expectations. Real estate investments are generally valued using a combination of direct income capitalization and discounted cash flow analysis. Key inputs used in such methodologies that require estimates include an unlevered discount rate and current capitalization rate, and certain real estate investments do not include a minimum illiquidity discount. The valuations of real assets investments also use other inputs.
On a segment basis, our energy real asset investments in oil and gas producing properties as of September 30, 2017 had a fair value of approximately $550 million. Based on this fair value, we estimate that an immediate, hypothetical 10% decline in the fair value of these energy investments from one or more adverse movements to the investments' valuation inputs would result in a decline in investment income of $55.0 million and a decline in net income attributable to KKR & Co. L.P. of $32.0 million, after deducting amounts that are attributable to noncontrolling interests held by KKR Holdings L.P. As of September 30, 2017, if we were to value our energy investments using only the commodity prices as quoted on indices and did not use long-term commodity price forecasts, and also held all other inputs to their valuation constant, we estimate that investment income would have been approximately $34 million lower, resulting in a lower amount of net income attributable to KKR & Co. L.P. of approximately 58.2% ofused had an active market for the overall decrease in investment income, after deducting amountsinvestments existed, and it is reasonably possible that are attributable to noncontrolling interests held by KKR Holdings L.P.
These hypothetical declines relate only to investment income. There wouldthe difference could be no currentmaterial. See "—Business Environment" for more information on factors that may impact on KKR's carried interest since all of the investment funds which hold these types of energy investments have investment values that are either below their cost or not currently accruing carried interest. Additionally, there would be no impact on fees since fees earned from investment funds which hold investments in oilour business, financial performance, operating results and gas producing properties are based on either committed capital or capital invested.
For GAAP purposes, where KKR holds energy investments consisting of working interests in oil and gas producing properties directly and not through an investment fund, such working interests are consolidated based on the proportion of the working interests held by us. Accordingly, we reflect the assets, liabilities, revenues, expenses, investment income and cash
flows of the consolidated working interests on a gross basis and changes in the value of these energy investments are not reflected as unrealized gains and losses in the consolidated statements of operations. Accordingly, a change in fair value for these investments does not result in a decrease in net gains (losses) from investment activities, but may result in an impairment charge reflected in general, administrative and other expenses. For segment purposes, these directly held working interests are treated as investments and changes in value are reflected in our segment results as unrealized gains and losses.
Credit Investments: Credit investments are valued using values obtained from dealers or market makers, and where these values are not available, credit investments are generally valued by us based on ranges of valuations determined by an independent valuation firm. Valuation models are based on discounted cash flow analyses, for which the key inputs are determined based on market comparables, which incorporate similar instruments from similar issuers.
Other Investments: With respect to other investments including equity method investments for which the fair value election has been made, we generally employ the same valuation methodologies as described above for private equity investments when valuing these other investments.
Investments and Debt Obligations of Consolidated CMBS Vehicles: Under ASU 2014-13, we measure CMBS investments on the basis of the fair value of the financial liabilities of the CMBS. Debt obligations of consolidated CMBS vehicles are valued based on discounted cash flow analyses. The key input is the expected yield of each CMBS security using both observable and unobservable factors, which may include recently offered or completed trades and published yields of similar securities, security-specific characteristics (e.g. securities ratings issued by nationally recognized statistical rating organizations, credit support by other subordinate securities issued by the CMBS and coupon type) and other characteristics.
valuations.
Key unobservable inputs that have a significant impact on our Level III investment valuations as described above are included in Note 510 "Fair Value Measurements" of thein our financial statements included elsewhere in this report. We utilize several unobservable pricing inputs and assumptions in determining the fair value of our Level III investments. These unobservable pricing inputs and assumptions may differ by investment and in the application of our valuation methodologies. Our reported fair value estimates could vary materially if we had chosen to incorporate different unobservable pricing inputs and other assumptions or, for applicable investments, if we only used either the discounted cash flow methodology or the market comparables methodology instead of assigning a weighting to both methodologies. For valuations determined for periods other than at year end, various inputs may be estimated prior to the end of the relevant period.
statements.
Level III Valuation Process
The valuation process involved for Level III measurements is completed on a quarterly basis and is designed to subject the valuation of Level III investments to an appropriate level of consistency, oversight, and review.
For Private Markets investments classified as Level III, investment professionals prepare preliminary valuations based on their evaluation of financial and operating data, company specific developments, market valuations of comparable companies and other factors. KKR begins its procedures to determine the fair values of its Level III assets approximately one month prior to the end of a reporting period, and KKR follows additional procedures to ensure that its determinations of fair value for its Level III assets are appropriate as of the relevant reporting date. These preliminary valuations are reviewed by an independent valuation firm engaged by KKR to perform certain procedures in order to assess the reasonableness of KKR’sKKR's valuations annually for all Level III investments in Private Markets and quarterly for investments other than certain investments, which have values less than pre-setpreset value thresholds and which in the aggregate comprise less than 5%1% of the total value of KKR’sKKR's Level III Private Markets investments. The valuations of certain real asset investments are determined solely by an independent valuation firmfirms without the preparation of preliminary valuations by our investment professionals, and instead such independent valuation firm reliesfirms rely on valuation information available to it as a broker or valuation firm. For credit investments and debt obligations of consolidated CMBS vehicles,in Public Markets, an independent valuation firm is generally engaged quarterly by KKR to assist with respect tothe valuations of most investments classified as Level III. The valuation firm either provides a value, or provides a valuation range from which KKR’sKKR's investment professionals select a point in the range to determine the preliminary valuation, or performs certain procedures in order to assess the reasonableness and provide positive assurance of KKR’sKKR's valuations. After reflecting any input from the independent valuation firm, the valuation proposals are submitted to their respectivefor review and approval by KKR's valuation sub-committees.committees. As of September 30, 2017,March 31, 2022, less than 6%3% of the total value of our Level III credit investments arewere not valued with the engagement of an independent valuation firm.
For Level III investments in Asset Management, KKR has a global valuation committee comprisedthat is responsible for coordinating and implementing the firm's valuation process to ensure consistency in the application of senior employees including investment professionalsvaluation principles across portfolio investments and professionals from business operations functions, and includes one of our Co-Presidents and Co-Chief Operating Officers and our Chief Financial Officer, General Counsel and Chief Compliance Officer.between periods. The global valuation committee is assisted by the asset class-specific valuation sub-committees and investment professionals for each business strategy. All preliminary Level III valuations are reviewed and approved by the valuation sub-committeescommittees that exist for private equity (including core equity investments and certain impact investments), growth equity (including certain impact investments), real estate, energy, and infrastructure and credit, as applicable. For periods prior to the completion of the PAAMCO Prisma transaction, when Level III valuations were required to be performed on hedge fund investments, acredit. The asset class-specific valuation sub-committee for hedge funds reviewed these valuations. The valuation
sub-committeescommittees are responsible for the review and approval of all preliminary Level III valuations in their respective business linesasset classes on a quarterly basis. The members of thethese valuation sub-committeescommittees are comprised of investment professionals, including the heads of each respective strategy, and professionals from business operations functions such as legal, compliance and finance, who are not primarily responsible for the management of the investments.
The global valuation committee provides general oversight of the valuation sub-committees. The global valuation committee is responsible All Level III valuations for coordinating and implementing the firm’s valuation process to ensure consistencyinvestments in the application of valuation principles across portfolio investments and between periods. All valuationsAsset Management are also subject to approval by the global valuation committee.committee, which is comprised of senior employees including investment professionals and professionals from business operations functions, and includes one of KKR's Co-Chief Executive Officers and its Chief Financial Officer, General Counsel and Chief Compliance Officer. When valuations are approved by the global valuation committee after reflecting any input from it, the valuations of Level III investments, as well as the valuations of Level I and Level II investments, are presented to the audit committeeAudit Committee of the boardBoard of directors of the general partnerDirectors of KKR & Co. L.P.Inc. and are then reported to the boardBoard of directors.Directors.
Level III investments held by Global Atlantic are valued on the basis of pricing services, reputable broker-dealers or internal models. Global Atlantic performs a quantitative and qualitative analysis and review of the information and prices received from independent pricing services as well as broker-dealers to verify that it represents a reasonable estimate of fair value. For all the internally developed models, Global Atlantic seeks to verify the reasonableness of fair values by analyzing the inputs and other assumptions used. As of March 31, 2022, approximately 66% of these investments were priced via external sources, while approximately 34% were valued on the basis of internal models. When valuations are approved by Global Atlantic's management, the valuations of its Level III investments, as well as the valuations of Level I and Level II investments, are presented to the Audit Committee of the Board of Directors of KKR & Co. Inc. and are then reported to the Board of Directors.
As of September 30, 2017,March 31, 2022, upon completion by, where applicable, an independent valuation firmfirms of certain limited procedures requested to be performed by them on certain Level III investments, the independent valuation firmfirms concluded that the fair values, as determined by KKR (including Global Atlantic), of those investments reviewed by them were reasonable. The limited procedures did not involve an audit, review, compilation or any other form of examination or attestation under generally accepted auditing standards and were not conducted on all Level III investments. We are responsible for determining the fair value of investments in good faith, and the limited procedures performed by an independent valuation firm are supplementary to the inquiries and procedures that we are required to undertake to determine the fair value of the commensurate investments.
As described above, Level II and Level III investments were valued using internal models with significant unobservable inputs, and our determinations of the fair values of these investments may differ materially from the values that would have resulted if readily observable inputs had existed. Additional external factors may cause those values, and the values of investments for which readily observable inputs exist, to increase or decrease over time, which may create volatility in our earnings and the amounts of assets and partners' capitalstockholders' equity that we report from time to time.
Changes in the fair value of investments impacts the amount of carried interest that is recognized as well as the amount of investment income that is recognized for investments held directly in Asset Management and through our consolidated funds as described below. We estimate that an immediate 10% decrease in the fair value of investments held directly and through consolidated investment funds generally would result in a commensurate change in the amount of net gains (losses) from investment activities for investments held directly and through investment funds and a more significant impact to the amount of carried interest recognized, regardless of whether the investment was valued using observable market prices or management estimates with significant unobservable pricing inputs. With respect to consolidated investment funds, the impact that the consequential decrease in investment income would have on net income attributable to KKR would generally be significantly less than the amount described above, given that a majority of the change in fair value of our consolidated funds would be attributable to noncontrolling interests and therefore we are only impacted to the extent of our carried interest and our balance sheet investments. With respect to Insurance, a decrease in investment income for certain assets where investment gains and losses are recognized through the statement of operations would impact KKR only to the extent of our economic ownership interest in Global Atlantic.
As of September 30, 2017,March 31, 2022, there were no investments which represented greater than 5%of total investments on a GAAP basis. On a segmentnon-GAAP basis, as of September 30, 2017,March 31, 2022, investments which represented greater than 5% of total reportable segmentsnon-GAAP investments consisted of First Data CorporationPetVet Care Centers, LLC and USI, Inc. (financial services sector) valued at $1,279.1$1,216.1 million and $503.7$1,094.1 million, respectively. Our investment income on a GAAP basis and our book value can be impacted by volatility in the public markets related to our holdings of publicly traded securities, including our sizable holdings of First DataFiserv, Inc., Crescent Energy Company, KREF, and AppLovin Corporation. For the quarter ended September 30, 2017, the reduction in the stock price of First Data Corporation reduced economic net income on a segment basis by approximately $27 million. For the nine months ended September 30, 2017, the increase in the stock price of First Data Corporation increased economic net income on a segment basis by approximately $355 million. See "--Business"—Business Environment" for a discussion onof factors that may impact the impactvaluations of global equity markets on our investments, financial conditionresults, operating results and "--Segmentvaluations, and "—Non-GAAP Balance Sheet"Sheet Measures" for additional information regarding our largest holdings on a segment basis in our Annual Report on Form 10-K.non-GAAP basis.
Investment income consists primarily of the net impact of: (i) realized and unrealized gains and losses on investments, (ii) dividends, (iii) interest income, (iv) interest expense and (v) foreign exchange gains and losses relating to mark-to-market activity on foreign exchange forward contracts, foreign currency options, foreign denominated debt and debt securities issued by consolidated CFEs. Unrealized gains or losses resulting from the aforementioned activities are included in net gains (losses) from investment activities. Upon disposition of an instrument that is marked-to-market, previously recognized unrealized gains or losses are reversed and a realized gain or loss is recognized. While this reversal generally does not significantly impact the
net amounts of gains (losses) that we recognize from investment activities, it affects the manner in which we classify our gains and losses for reporting purposes.
Certain of our investment funds are consolidated. When a fund is consolidated, the portion of our funds' investment income that is allocable to our carried interests and capital investments is not shown in the condensed consolidated financial statements. For funds that are consolidated, all investment income (loss), including the portion of a funds' investment income (loss) that is allocable to KKR's carried interest, is included in investment income (loss) on the consolidated statements of operations. The carried interest that KKR retains in net income (loss) attributable to KKR & Co. L.P. is reflected as an adjustment to net income (loss) attributable to noncontrolling interests. However, because certain of our funds remain consolidated and because we hold a minority economic interest in these funds' investments, our share of the investment income is less than the total amount of investment income presented in the condensed consolidated financial statements for these consolidated funds.
Recognition of Carried Interest in the Statement of Operations
Carried interest entitles the general partner of a fund to a greater allocable share of the fund's earnings from investments relative to the capital contributed by the general partner and correspondingly reduces noncontrolling interests' attributable share of those earnings. Carried interest is earned by the general partner of those funds to the extent that cumulative investment returns are positive and where applicable, preferred return thresholds have been met. If these investment returns decrease or turn negative in subsequent periods, recognized carried interest will be reversed and reflected as losses in the statement of operations. For funds that are not consolidated, amounts earned pursuant to carried interest are included in fees and other in the consolidated statements of operations. Amounts earned pursuant to carried interest at consolidated funds are eliminated from fees and other upon consolidation of the fund and are included as investment income (loss) in net gains (losses) from investment activities along with all of the other investment gains and losses at the consolidated fund.
Carried interest is recognized in the statement of operations based on the contractual conditions set forth in the agreements governing the fund as if the fund were terminated and liquidated at the reporting date and the fund's investments were realized at the then estimated fair values. Due to the extended durations of our private equity funds, we believe that this approach results in income recognition that best reflects our periodic performance in the management of those funds. Amounts earned pursuant to carried interest are earned by the general partner of those funds to the extent that cumulative investment returns are positive and where applicable, preferred return thresholds have been met. If these investment amounts earned decrease or turn negative in subsequent periods, recognized carried interest will be reversed and to the extent that the aggregate amount of carry distributions received by the general partner during the term of the fund exceed the amount to which the general partner was ultimately entitled, a clawback obligation would be recorded. For funds that are not consolidated, this clawback obligation, if any, is reflected as a reduction of our investment balance as this is where carried interest is initially recorded. For funds that are consolidated, this clawback obligation, if any, is reflected as an increase in noncontrolling interests in the consolidated statements of financial condition.
Prior to January 1, 2016, most of our historical private equity funds that provide for carried interest do not have a preferred return. For these funds, the management company is required to refund up to 20% of any management fees earned from its limited partners in the event that the fund recognizes carried interest. At such time as the fund recognizes carried interest in an amount sufficient to cover 20% of the management fees earned or a portion thereof, a liability due to the fund’s limited partners is recorded and revenue is reduced for the amount of the carried interest recognized, not to exceed 20% of the management fees earned. The refunds to the limited partners are paid, and liabilities relieved, at such time that the underlying investment is sold and the associated carried interest is realized. In the event that a fund’s carried interest is not sufficient to cover all or a portion of the amount that represents 20% of the earned management fees, such management fees would be retained and not returned to the funds’ limited partners.
Most of our newer investment funds that provide for carried interest, however, have a preferred return. In this case, the management company does not refund the management fees earned from the limited partners of the fund as described above. Instead, the management fee is effectively returned to the limited partners through a reduction of the realized gain on which carried interest is calculated. To calculate the carried interest, KKR calculates whether a preferred return has been achieved based on an amount that includes all of the management fees paid by the limited partners as well as the other capital contributions and expenses paid by them to date. To the extent the fund has exceeded the preferred return at the time of a realization event, and subject to any other conditions for the payment of carried interest like netting holes, carried interest is distributed to the general partner. Until the preferred return is achieved, no carried interest is recorded. Thereafter, the general partner is entitled to a catch up allocation such that the general partner’s carried interest is paid in respect of all of the fund’s net gains, including the net gains used to pay the preferred return, until the general partner has received the full percentage amount of carried interest that the general partner is entitled to under the terms of the fund. In general, investment funds that entitle the
management company to receive an incentive fee have a preferred return and are calculated on a similar basis that takes into account management fees paid.
Recently Issued Accounting Pronouncements
For a full discussion of recently issued accounting pronouncements, please see the notes to the condensed consolidated financial statements "--Item 1. Condensed Consolidated Financial Statements (Unaudited)--Summary of Significant Accounting Policies."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There was no material change into our market risks during the three and nine months ended September 30, 2017.March 31, 2022. For additional information,a discussion of our market risks in general, please refer to our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 24, 2017.2021. In addition, for a discussion of current market conditions and uncertainties, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Business Environment."
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that the information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’sSEC's rules and forms and such information is accumulated and communicated to management, including the Co-Chief Executive Officers and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired controls.control objectives.
As of the period ended September 30, 2017, weWe carried out an evaluation, under the supervision and with the participation of our management, including the Co-Chief Executive Officers and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.procedures as of March 31, 2022. Based upon that evaluation, our Co-Chief Executive Officers and Chief Financial Officer have concluded that, as of the period ended September 30, 2017,March 31, 2022, our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
No changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) occurred during the three or nine months ended September 30, 2017March 31, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. II —OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The section entitled “Litigation”"Litigation" appearing in Note 17 “Commitments24 "Commitments and Contingencies” ofContingencies" to our financial statements included elsewhere in this report is incorporated herein by reference.
ITEM 1A. RISK FACTORS.
For a discussionOther than as set forth in "Management's Discussion and Analysis of our potential risksFinancial Condition and uncertainties, seeResults of Operations—Business Environment" in this report, there were no material changes to the information under the heading “Risk Factors”risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC on February 24, 2017.2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Common UnitShare Repurchases in the ThirdFirst Quarter of 20172022
As of April 29, 2022, there is approximately $108 million remaining under KKR's share repurchase program.
As announced on October 27, 2015 and February 9, 2017, Under our current repurchase program, KKR is authorized to repurchase up to $750 million in the aggregate of its outstanding common units. Under this unit repurchase program, units may be repurchasedstock from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing, manner, price and amount of any unitcommon stock repurchases will be determined by KKR in its discretion and will depend on a variety of factors, including legal requirements, price and economic and market conditions. KKR expects that the program, which has no expiration date, will continue to be in effect until the maximum approved dollar amount has been used to repurchase common units.used. The program does not require KKR to repurchase any specific number of shares of common units,stock, and the program may be suspended, extended, modified or discontinued at any time.
In addition to the repurchases of common stock described above, subsequent to May 3, 2018, the repurchase program has been used for the retirement (by cash settlement or the payment of tax withholding amounts upon net settlement) of equity awards issued pursuant to our Equity Incentive Plans representing the right to receive shares of common stock. From October 27, 2015 through March 31, 2022, KKR has paid approximately $573 million in cash to satisfy tax withholding and cash settlement obligations in lieu of issuing shares of common stock or its equivalent upon the vesting of equity awards representing 22.5 million shares of common stock. Of these amounts, equity awards representing 11.0 million shares of common stock or its equivalent were retired for $190 million prior to May 3, 2018 and did not count against the amounts remaining under the repurchase program.
The table below sets forth the information with respect to purchasesrepurchases made by or on behalf of KKR & Co. L.P.Inc. or any “affiliated purchaser”"affiliated purchaser" (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common units duringstock for the thirdperiods presented. During the first quarter of 2017.
|
| | | | | | | | | | | | | |
Issuer Purchases of Common Units |
(amounts in thousands, except unit and per unit amounts) |
| | | | | | | |
| Total Number of Units Purchased | | Average Price Paid Per Units | | Cumulative Number of Units Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Units that May Yet Be Purchased Under the Plans or Programs |
Month #1 (July 1, 2017 to July 31, 2017) | — |
| | $ | — |
| | 31,674,162 |
| | $ | 291,225 |
|
Month #2 (August 1, 2017 to August 31, 2017) | — |
| | $ | — |
| | 31,674,162 |
| | $ | 291,225 |
|
Month #3 (September 1, 2017 to September 30, 2017) | — |
| | $ | — |
| | 31,674,162 |
| | $ | 291,225 |
|
Total through September 30, 2017 | — |
| | | | | | |
Purchases subsequent to September 30, 2017: | | | | | | | |
(October 1, 2017 to October 26, 2017) | — |
| | $ | — |
| | 31,674,162 |
| | $ | 291,225 |
|
Total through October 26, 2017 | — |
| | | | | | |
| | | | | | | |
In addition to the purchases2022, 5.2 million shares of common units above, (1) cash may be used to pay the amount of withholding taxes, social benefit payments or similar payments payable by KKR in respect of awards granted pursuant to the Equity Incentive Planstock were repurchased, and (2) cash may be delivered in respect of certain awards granted pursuant to the Equity Incentive Plan and Other Exchangeable Securities. During 2017, KKR canceledno equity awards representing 3.1 million common units to satisfy tax and cash-settlement obligationswere retired. From inception of $58.0 millionthe repurchase program in connection with their vesting, bringing cumulative cancellations of equity awards representing 8.2 million common units to satisfy tax and cash-settlement obligations2015 through March 31, 2022, we have repurchased or retired a total of approximately $136.973.5 million since October 27, 2015.shares of common stock under the program at an average price of approximately $26.51 per share.
| | | | | | | | | | | | | | | | | | | | | | | |
Issuer Purchases of Common Stock |
(amounts in thousands, except share and per share amounts) |
| | | | | | | |
| Total Number of Shares Purchased | | Average Price Paid Per Share | | Cumulative Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
Month #1 (January 1, 2022 to January 31, 2022) | 2,757,477 | | | $ | 68.45 | | | 59,503,848 | | | $ | 301,241 | |
Month #2 (February 1, 2022 to February 28, 2022) | 2,103,042 | | | $ | 65.57 | | | 61,606,890 | | | $ | 163,349 | |
Month #3 (March 1, 2022 to March 31, 2022) | 330,655 | | | $ | 60.49 | | | 61,937,545 | | | $ | 143,349 | |
Total through March 31, 2022 | 5,191,174 | | | | | | | |
| | | | | | | |
(1) Amounts have been reduced by retirements of equity awards occurring after May 3, 2018. On May 6, 2020, KKR announced the increase to the total available amount under the repurchase program to $500 million. On December 27, 2021, KKR announced the increase to the total available amount under the repurchase program to $500 million. |
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Other Equity Securities
During the thirdfirst quarter of 2017, 3,163,2862022, no KKR Group Partnership Units were exchanged by (i) KKR Holdings and (ii) holdersfor shares of other exchangeable securities issuedour common stock. As of May 3, 2022, limited partners of KKR Holdings have elected to exchange their interests in connection with the acquisition of Avoca forKKR Holdings representing approximately 0.5 million KKR Group Partnership Units into an equal number of shares of our common units.stock. This resultedexchange, if it occurs, would result in an increase in our ownership of the KKR Group PartnershipsPartnership and a corresponding decrease in the ownership of the KKR Group PartnershipsPartnership by KKR Holdings andHoldings. There can be no assurance that the other exchangeable security holders. In October 2017, an additional 1,688,292 common units were issued to one or more holdersexchange will occur as requested.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.INFORMATION
Over the last twelve months ending March 31, 2022, new capital raised totaled approximately $132 billion, which is comprised of $41 billion in private equity (including growth equity, impact and core), $47 billion in real assets, $33 billion in credit and $11 billion in other investment strategies.
On November 2, 2017, the conflicts committee of the board of directors of our Managing Partner consented to the allocation by KKR Holdings of 2,500,000 KKR Holdings units to each of our Co-Chief Executive Officers, Henry Kravis and George Roberts. The KKR Holdings units will vest in five equal annual installments, beginning on October 1, 2018, in each case, subject to continued service through each vesting date (including full continued vesting upon death or disability and an additional two years of vesting following retirement). KKR Holdings units are exchangeable for our common units on a one-for-one basis, subject to vesting and minimum retained ownership requirements.
The KKR Holdings units allocated to our Co-Chief Executive Officers are outstanding but previously unallocated units, and consequently these allocations will not increase the number of KKR Holdings units outstanding that can be converted into our common units or outstanding KKR common units on a fully-diluted basis. If and when vested, these KKR Holdings units would not dilute our ownership interests in the KKR Group Partnerships.
ITEM 6. EXHIBITS.
The following is a list of all exhibits filed or furnished as part of this report:
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Exhibit No. | | Description of Exhibit |
31.110.1† | | |
10.2† | | Fifth Amendment, dated as of April 8, 2022, among KKR Capital Markets Holdings L.P., certain subsidiaries ofKKR Capital Markets Holdings L.P., Mizuho Bank, Ltd., as administrative agent, and the one or more lendersparty thereto, to the Third Amended and Restated 5-Year Revolving Credit Agreement dated March 20, 2020(with amended and restated credit agreement annexed thereto). |
31.1 | | |
31.2 | | |
31.3 | | |
32.1 | | |
32.2 | | |
32.3 | | |
101 | | Interactive data files pursuant to Rule 405 of Regulation S-T:S-T, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Financial Condition as of September 30, 2017March 31, 2022 and December 31, 2016,2021, (ii) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017March 31, 2022 and September 30, 2016,March 31, 2021, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017March 31, 2022 and September 30, 2016;March 31, 2021; (iv) the Condensed Consolidated Statements of Changes in Equity for the ninethree months ended September 30, 2017March 31, 2022 and September 30, 2016,March 31, 2021, (v) the Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2017March 31, 2022 and September 30, 2016,March 31, 2021, and (vi) the Notes to the Condensed Consolidated Financial Statements. |
104 | | Cover page interactive data file, formatted in Inline XBRL and contained in Exhibit 101. |
† Certain information contained in this agreement has been omitted because it is not material and is the type that the registrant treats as private or confidential.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | KKR & CO. L.P.INC. |
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| | By: KKR Management LLC |
| | Its General PartnerBy: | /s/ ROBERT H. LEWIN |
| | | Robert H. Lewin |
| | By: | /s/ William J. Janetschek |
| | | William J. Janetschek |
| | | Chief Financial Officer |
| | | (principal financial and accounting officer of KKR Management LLC and authorized signatory)officer) |
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DATE: | November 3, 2017May 6, 2022 | | |