Ladies and gentlemen, thank you for standing by. Welcome to KKR's fourth quarter 2023 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following management's prepared remarks, the conference will be open for questions. If you'd like to ask a question at that time, please press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. So that we may address questions from as many participants as possible, we ask that you limit yourself to one question. If you have additional questions, you may re-queue, and time permitting, those questions will be addressed.
If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note, this conference is being recorded. I'll now hand the call over to Craig Larson, Partner and Head of Investor Relations for KKR. Craig, please go ahead.
Thank you, operator. Good morning, everyone, and welcome to our fourth quarter 2023 earnings call. This morning, as usual, I'm joined by Rob Lewin, our Chief Financial Officer, and Scott Nuttall, our Co-Chief Executive Officer. We'd like to remind everyone that we will refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the investor center section at kkr.com. And as a reminder, we report our segment numbers on an adjusted share basis. This call will contain forward-looking statements which do not guarantee future events or performance. Please refer to our earnings release and our SEC filings precautionary factors about these statements. And as a reminder, our earnings release and our financial reporting for Q4 is consistent with past quarters.
Beginning in Q1 of 2024, our earnings release will reflect the segment and financial metric changes we announced on November 29. Turning now to our numbers for the quarter. We're pleased to be reporting strong fourth quarter results with fee-related earnings per share of $0.76. This is a record figure for KKR of 21% from Q3 2023, as well as Q4 of 2022. After-tax distributable earnings came in at $1 per share. New capital raised in the quarter was $31 billion, which is also particularly strong. So overall, a really solid quarter for us. I'll begin this morning by walking through our financials in a little more detail. Management fees in the quarter are $785 million. That's up 3.4% compared to just last quarter, with growth across all of our business lines.
Comparing full year 2023 to 2022, management fees grew 14%. We reported double-digit percentage annual growth in our management fees for several consecutive years now. Net transaction and monitoring fees were $264 million in the quarter. Capital markets transaction fees, in particular, were quite, quite strong in Q4, with $225 million of revenue. That was driven by an increase in investment activity and financing transactions at several of our PE and core PE portfolio companies. So in total, fee-related revenues for the quarter were $1.1 billion, up 17% on a year-over-year basis, so compared to Q4 of 2022. Turning to expenses. Fee-related compensation, as usual, was at the midpoint of our guided range at 22.5% of fee-related revenues for the quarter as well as for the year.
Other operating expenses were $156 million. So in total, fee-related earnings were $675 million or $0.76 per share. As I mentioned just a moment ago, this was a record FRE quarter for us, and this growth really highlights, in our view, the continued strength as well as the diversification that you're seeing across the firm. Our FRE margin in the quarter came in at 63%, and on a per-share basis, FRE was $2.68 for the year. Turning now to realization activity. For the quarter, we generated $411 million of realized performance income. This was driven by multiple successful sales across our traditional private equity and core businesses, with realized incentive fees driven by Marshall Wace in the fourth quarter. Realized investment income in the quarter was $147 million.
So together, monetizations were $558 million. In total, asset management operating earnings were $970 million. Moving to our insurance segment, performance continued to be strong in the quarter, with $231 million of pretax earnings. That's up 10% quarter-over-quarter. This was the result of stronger net inflows across both the institutional and individual channels, as well as variable investment income from the sale of a solar developer that generated $16 million of insurance segment pretax operating earnings. So in total, after-tax DE was $888 million or $1 per share. In comparison with the prior quarter, that figure was up 14%. Next, turning to investment performance. You can see this on page seven of the earnings release. The private equity portfolio appreciated 3% in the quarter and 16% in the year.
In real assets, the opportunistic real estate portfolio was down 1% in the quarter and down 2% for the year. Infrastructure was up 5% in the quarter and up 18% for the year. Very strong broad performance across our infrastructure platforms. In credit, the leverage credit composite was up 3%, and the alternative credit composite was up 2%. Over the year, performance year was up 14% and 10% respectively. Finally, consistent with our historical practice, we are intending to increase our annual dividend from $0.66- $0.70 per share, which we anticipate will go into effect alongside first quarter 2024 earnings. With that, I'm pleased to turn the call over to Rob.
Thanks a lot, Craig, and good morning, everyone. First, looking at our key operating metrics. New capital raised totaled $31 billion for the quarter. These results are quite strong and encouraging for us as we head into 2024. Credit and liquid strategies made up about 2/3s of the capital we raised this quarter, as our business has grown with Global Atlantic as a significant partner. GA, in particular, had record inflows in the quarter, both overall and specifically from the individual channel. So activity here continues to be very strong. Block activity at GA is also active. As you know, the MetLife block closed in the quarter, and the Manulife block transaction is expected to close sometime in the first half of 2024.
Similar to prior blocks, GA continues to be very capital efficient here, contributing approximately 25% of the equity in both transactions, with 75% of the capital coming from Ivy vehicles and additional co-investors. So 75% from third parties where we can earn management fees and have the opportunity for performance income as well. Over the past year, new capital raised totaled right around $70 billion. Looking post-12/31, we just announced the final close in Asia Infrastructure two at approximately $6.4 billion, over 65% larger than the previous fund. Of note, more than half of the capital came from new investors to the Asia infrastructure platform. With this successful fundraise, we are clearly the largest infrastructure fund in the region, enhancing our Asia positioning more broadly.
As we look out over the next 12 months and into 2025, a number of our flagship funds will be raising capital as well. We continue to expect an acceleration in our fundraising from here. Turning to capital invested, we've deployed $16 billion in the quarter and $44 billion for the year. Capital invested was really diversified across private equity, real assets, and credit and liquid strategies in the year, as U.S. private equity and Core Private Equity deployment rebounded in the quarter. Of particular note, we made investments in three take-private transactions in Q4. With almost $100 billion of uncalled capital, we continue to be well-positioned for the deployment opportunities that are ahead. I wanted to briefly shift now to a reflection on our progress through the course of 2023.
Our assets under management now total $553 billion. That's up 10% compared to the end of 2022, with sizable capital raised in the past year. Fee-paying AUM now stands at almost $450 billion. Given our consistent growth in fee-paying AUM, management fees increased 14% in 2023, with line of sight of future growth from approximately $40 billion of committed capital that becomes fee paying as it's invested or when it enters its investment period. That's at a weighted average rate of just over 90 basis points. While realized performance and investment income was more muted in 2023, given the environment, our forward visibility has increased meaningfully year-over-year. Total embedded gains were $12.3 billion at year-end.
That reflects embedded gains on our balance sheet plus gross unrealized carried interest. This was up almost 40% compared to Q4 of 2022. The opportunity for future investing revenue remains robust. And strategically, we made a lot of progress in 2023. As you likely know, we announced four key initiatives towards the end of November. As an update, on January 2nd, we closed on our acquisition of the remaining stake in Global Atlantic for approximately $2.6 billion in cash. We believe this acquisition will create more value for policyholders and shareholders and are excited to unlock future potential together. Concurrent with the closing of GA, we have created a new strategic holding segment, which you will see in our Q1 2024 earnings release.
Here, the segment operating earnings will be driven by cash dividends from our core PE portfolio. We also revised our compensation ratios, which similarly will be reflected in our Q1 financials, delivering more FRE to our shareholders and driving even more alignment between our compensation model and the outcomes of our clients. Combining these aspects, we will be introducing a new reporting framework that will better highlight our business model. This will include a new financial metric, Total Operating Earnings, which represents our more recurring forms of income. Prior to our next earnings call, we will provide recast financials to help you further understand the various key metrics.
As a reminder, we do expect these announcements to be accretive to all of our per share metrics, and together with the confidence and current visibility we have, it is what allowed us to increase our 2026 FRE per share target to $4.50+ per share. In 2023, we generated $2.68 per share of FRE, so our expectation is for a lot of growth from here. Given these four announcements, paired with the existing growth engines we have, we believe that we are well set up to drive meaningful scale. ... The opportunities we have across Asset Management, Insurance, and Strategic Holdings are multifold. Turning first to our Asset Management business, there remains a lot of upside here, with multiple drivers of growth. We have a lot of younger strategies that are just beginning to scale.
We started 25 or so investing businesses through the past decade alone, and many are now starting to inflect. We are in asset classes and geographies with massive end markets. Asia, infrastructure, including climate, and credit are all great examples. As a reminder, we only want to be competing in areas with large addressable markets and where we have conviction that we can be a top three player. We are in the early days of tapping into the private wealth end market. We've had early success in our K-Series suite of products, with a tremendous amount of opportunity that is still in front of us. With these growth avenues, along with our strong track record, talent, and the trust that we've built with our clients, we feel that we could double our asset management business from here, and that's without starting anything new.
Second, we have a meaningful opportunity in insurance with our partnership with Global Atlantic. Insurance is a very powerful contributor to our business. GA has already created a lot of value, going from $72 billion of assets under management at our announcement of the initial transaction in July 2020, to over $170 billion of assets under management today, including the pending Manulife block deal. We have a strong opportunity to unlock even more value together in investing, product development, global expansion, private wealth distribution, and capital markets. We are still in the very early stages of our partnership. Finally, number three, strategic holdings, where our opportunity is highly differentiated. This segment leverages all of our people, capabilities, and our collaborative culture.
As a result, we are uniquely positioned to capitalize on what we believe is a huge addressable market, and that's in addition to the current visibility we already have to drive net dividends in this segment of $300+ million by 2026, and $600+ million by 2028. In summary, we are incredibly well positioned as a firm, and we really don't think there are many companies in our industry or others, that have the type of visibility that we have for long-term growth. We have a high level of confidence that we can meaningfully grow all three of our business segments: asset management, insurance, and strategic holdings. With that, we are excited to announce we are going to host an Investor Day in New York on April tenth.
Given the November strategic announcements and all of the opportunities across our firm, we thought it'd be timely for you to hear directly from our senior leaders. We will provide additional detail in the coming months and hope that you will join our broader team as we discuss our outlook and these opportunities. With that, Scott, Craig, and I are happy to take your questions.
Thank you. We'll now be conducting the question and answer session. If you'd like to ask a question, please press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. So that we may address questions for as many participants as possible, we ask you please limit yourself to one question. If you have additional questions, you may re-queue, and time permitting, those questions will be addressed. One moment, please, while we pull for questions. Thank you. And our first question today will be from the line of Craig Siegenthaler with Bank of America. Please proceed with your question.
Good morning, Scott, Rob. Hope you're both doing well.
Good morning, Craig.
We were looking for an update on fundraising for your three largest flagships. So we have Global Infra V, with Global Infra IV that's already 60% invested. It's higher when you look at the committed, and Asia V and North America XIV, which are both over 40% now. So how should we think about the timing of these fundraisers, given the commitment levels, and AUM targets, given the sizes of prior funds? They're all large funds. And more importantly, how should we think about the FRE ramp from these new funds, less step downs from the last five years?
Morning, Craig. It's Craig. Why don't I start on that? First, one—look, one of the things that runs through our mind as it relates to the trajectory of new capital raised, and you would have heard this in the prepared remarks from Rob, relates to the topic exactly as it relates to our flagship strategies. So when you look at the largest fund complexes within our firm, so Americas, Europe, Asia PE, Core PE, Infrastructure, less than $1 billion of the capital that we raised last year, we raised $70 billion in total. Less than $1 billion of that came from those strategies. And if you look over 2022 and 2023, we raised round numbers, $150 billion of new capital, and around $6 billion came from those flagships.
And so as we think about 2024 and 2025, we think that that's going to look different. We are actively fundraising for our infrastructure strategy and do expect to launch fundraising for our Americas private equity strategy later in the year, with Asia likely a 2025 initiative for us. On the deployment numbers you mentioned, those numbers are always a little understated. Remember, if we have platform investments, et cetera, that capital is going to be spoken for.
... Or if there happens to be capital drawn under the line, that's going to be paid back inside of 180 days. Again, that capital will be additive. So those deployment numbers always look a little more understated relative to how we think of that positioning. And then I think there's a couple of other points here. The next one would relate to scaling. You know, we mentioned in our press release that we had the final closes on our NextGen Tech III and Impact strategies. We had nice scaling in those strategies compared to their prior vintages. Again, Rob talked about the good news as it relates to Asia infrastructure for us. We do expect scaling in our wealth strategies alongside of that.
And then finally, we feel like we have a lot of momentum at Global Atlantic, both in the individual as well as the institutional channels. So I think the opportunities that we see for new capital raised and in turn, management fee growth, is really an attractive part of our positioning, with the flagship certainly being an important part of that.
Hey, good morning, Craig. It's Rob. I'll pick up as it relates to your question on FRE. You know, when you look at some of these big flagships that'll be in the market and their predecessor funds, they don't have big step downs in fee rates, you know, as they transition to post-investment period. In addition to that, when you think about the runoff, a lot of the runoff from investment is probably going to come from two funds prior and three funds prior, those funds close out.
But maybe taking it up a level, if you, you think about, where we are today and where we're going, and I hit this in the prepared remarks, you know, we're at $2.68 of FRE per share, and we've guided three years from now, we have an expectation of being at $4.50+ per share. And so in order to get there, our expectation is we're going to have a lot of management fee growth, and the flagships, on a net basis, will be a part of that story.
Yeah. The only thing I would add, Craig, is I think our overall view on fundraising is quite optimistic. I mean, Craig Larson mentioned it, but with $150 billion we raised for 4% of that to have come from flagships is a pretty low number, speaks to how we've been scaling the diversification of the firm. And as you know, a number of our strategies are kind of in this nice part of the inflection curve, funds II, III, IV, where we can see a significant amount of growth. So you're absolutely right to point out the flagships are coming back at what we think is going to be a really good time. But we also have 22 of our 30 strategies that are coming to market in the next 12-18 months.
We'd put in that younger category, fund I, II, III, open-ended, these newer strategies, and you can see it. Asia Infra up 66%. Tech Growth was up 30%. Our impact fund was doubled, even in the environment that we saw over the last couple of years. Yet on top of that, Private Wealth, GA, Asia, speaks to the optimism that we see, kind of, regardless of, what's happening with the backdrop.
Thank you.
Our next question is from the line of Alex Blostein with Goldman Sachs. Please proceed with your question.
Hey, good morning, everybody. Thanks for the question as well. I was hoping we could start with just building on your prior comments around expansion in the wealth channel. You mentioned you're seeing quite a bit of success, early days, only, you know, a couple of quarters in some of these platforms. So maybe talk a little bit about what products you expect to be out in the market with over the course of this year, how many platforms you're on, et cetera. But also, I guess more importantly, I believe in the past, your targets for 2026 and FRE indeed really did not include a whole lot of contribution from these initiatives. So maybe just kinda confirm that, and what do you think those initiatives could ultimately contribute over time?
Hey, Alex, it's Craig. Why don't I start? Thanks for that. Just stepping back and level setting for everyone. So as of 12/31, around $75 billion of our assets under management are from individuals, and that number does not include policyholders at Global Atlantic. So you could argue that that $75 billion, if anything, is understated, as it relates to the presence and the activities we have with individuals broadly. Now, most of that $75 billion are from high net worth and ultrahigh net worth individuals, as well as family offices that have invested in our funds and strategies. In terms of our fundraising, in total, a double-digit percentage of our new capital raised historically has typically come from individuals. So it's been a healthy part of that fundraising activity.
Now, back to your question, most specifically, most recently, we've introduced what we call our K-Series, suite of products. So these are funds and strategies that are really designed and tailored specifically for wealth investors. So K-INFRA and KIF are the U.S. and non-U.S. vehicles focused on infrastructure. K-PRIME and K-PEC are the U.S. and non-U.S. vehicles focused on private equity. We launched both private equity and infrastructure only midway through 2023. And with those products in real estate and credit on top of that, as well as our private BDC, soon to be launched, of around. Of that $75 billion of wealth, around $6.5 billion of that is from these K-Series suite of products. Now, a year ago, that was $2.4 billion. So we're in the early days, but we feel really good about the progress from here.
And as we look at some of the underlying statistics, that's particularly true as it relates to infrastructure and private equity, which are newer asset classes, for more mass affluent investors. As we've mentioned, historically, we're raising about $500 million a month as we look at the K-Series suite. And so it feels like reception and interest in our momentum continues to feel really good. And to your point, we do expect to see an acceleration in the number of platforms in the first half of 2024. So it's great progress, but I think to us, even more, the more interesting part is really that long-term secular dynamic, because mass affluent individual investors historically have not had an easy way to access these types of products and strategies...
So over the coming years, if we're correct, and you start to see allocations go from the low single digits to the mid single digits, that literally is trillions of dollars that have the potential to move to alternative products. When we think of how we're positioned, given our brand, our track record, the investments that we've made in distribution and marketing, our ability to product innovate, we feel really well positioned to be a winner in this space over the long term.
Yep. Alex, just as it relates to your question on our 2026 targets, historically, we haven't included much of anything as it relates to private wealth. You know, as we look forward, given some of the early success that Craig just went through, you know, we do see some contribution coming over the next few years, across the number of different investing businesses that we have. But, and Craig just hit on at the end, the real opportunity we see as we do long-term financial modeling is really in that post-2026, you know, area between 2026-2028, as we continue to ramp. That's where you're going to start to see a real inflection and much more material contribution to our P&L.
Yep. Thanks very much.
Thank you.
Our next question comes from the line of Glenn Schorr with Evercore. Please proceed with your question.
Thank you. So question as it relates to the banks, and I see two-way activity. I see right now a little bit more banks coming back into the leveraged loan space, and you see some movement in them getting into providing some services in private credit. Yet at the same time, we know capital requirements are going up in private credit world, and more asset-backed opportunities are coming your way. So I just wondered if you could talk a little bit about that dynamic and what specifically you're doing on the asset-backed side to position for what we all think is a lot of growth ahead. Thanks.
So, Glenn, why don't I start? And thanks for asking, because these are really important secular drivers, really, as it relates to both businesses. So as a reminder, as of year-end, we had around $90 billion of private credit AUM. Almost $50 of that was in asset-based finance and $38 billion in direct lending. So these are big businesses for us, I think probably larger than someone might expect, in the framework of KKR. And you touched on two things. I think first, as it relates to direct lending and overall activity, you know, we are seeing a lot more activity in the leveraged loan and the high yield market, and CLO issuance feels like it's picking up. We actually look at all of that as really good for our businesses.
And as it relates, a lot of that has been refinancing related, so it's been less new dollars in. But as it relates to new deals, we think that's going to be helpful for mid-market M&A. And if the private credit markets end up having a lower market share but have a bigger pie, we think that dynamic is one that can still work really well in the framework of our firm. And in terms of private credit, I think there are lots of advantages that are going to lead to people to continue to use that market. The point on ABF is a really important one, and it relates to the dynamics that you're talking about.
So I think as, as banks pull back from many types of lending, and divest non-core loan portfolios, our opportunity set, we think, is just going to continue, to expand. And you've actually seen this in recent announcements from us. So two weeks ago, we announced an accounts receivable financing, for a barbecue business. I remember you actually sent me an email on this. And as I know, you were hoping that could lead to nice little trinkets at our next Investor Day. In December, we announced a partnership with BMO focused on a $7 billion portfolio of RV loans. In October, Goldman announced the sale of its GreenSky platform to a handful of buyers, of which we were a part of that consortium.
In August and September, we announced the acquisition of a portfolio of prime auto loans from a regional bank in the Southeast. So I think you're seeing lots of opportunities for firms like ours to participate in asset-based finance in a way that you didn't see five years ago, and it's a really important tailwind as we think about the growth and opportunities that we see ahead.
Yeah. The only thing I would add, Glenn, is, we see a lot written about, the direct lending market, rightly so. It's become a very large and important market. I think Craig's right. M&A volumes have been down. Private credit's had a larger share of a smaller amount of volume. And so as the banks come back, our expectation is you'll see M&A volume pick up, and there'll still be plenty for the private credit market to participate in. But this ABF, business, I don't think is that well understood yet. Whereas the direct lending market is probably roughly $1 trillion-$1.5 trillion, the ABF market is probably closer to $5 trillion, on its way to $7 trillion. And it is in my view, becoming an asset class for institutional investors to understand.
A little bit like 10, 12 years ago, infrastructure and direct lending were very new concepts for most investors. We're having more dialogue on asset-based finance, seeing more investors start to create an allocation or a sub-allocation of private credit. It's obviously incredibly synergistic with what we're building at Global Atlantic, and we're seeing interest from third-party insurers as well. And I do think there's a significant amount of growth ahead for that business. We have 20 or so origination platforms around asset-based finance so far, and I'd expect that number to continue to go up. I would guess in April, when we're together for the Investor Day, we'll go deeper on that topic.
Thanks. Look forward to the barbecue.
Thanks, Glenn. Us, too.
Our next question is from the line of Bill Katz with TD Cowen. Please proceed with your question.
... Thank you very much. Good morning, everybody. So maybe flip it over to the insurance platform and just sort of adjusting for the solar gain in the quarter. How we should be thinking about the ROE for the platform, given sort of two parts? One, that now you have 100% of the platform, and two, if interest rates were to go lower, is there enough growth in the business to offset any kind of degradation in net spreads? Thank you.
Yeah. Hey, Bill. All great questions. Thank you. First thing is, we look at Q4 and we look at 2023, a very strong performance from the Global Atlantic business. Management team has done a great job, and it's a big reason, you know, why we're excited to own 100% of the business. You are right that in Q4, as well as through 2023, that the P&L did have some tailwinds, some variable investment income on a gross basis, about $35 million in Q4. At the beginning of the year, we had about, you know, 20% of our book on a net basis exposed to floating rate. Team did a good job making that adjustment, and so got the benefit of rising rates through much of 2023.
We ended the year at about 16%, and so as we think about interest rates going down in 2024, we're conscious of that. In Q4, too, specifically, we made a modest adjustment to our comp, so effectively had overaccrued a little bit through the course of Q1, Q2, and Q3. So all things that positively impacted the quarter and all things front of mind as it relates to how we plan for 2024. So as we look at Q4, not necessarily replicable in the near term, but as you said, we have so many levers to be able to grow the GA franchise that our expectation, even in a reducing rate environment, is that GA is going to continue to perform.
As it relates to ROE targets, we continue to think the right level to model the business is at that 14%-15% pre-tax ROE. The team has done a nice job being able to beat that and beat that by a healthy margin over the past couple of years. But we are going into an environment here that could be lower interest rates and put a little bit of pressure on the P&L.
Thank you.
Thank you.
Thank you. Our next question is from the line of Brian McKenna with Citizens JMP. Please proceed with your question.
Thanks. Good morning, everyone. So just a question on the capital markets business. You know, I'm curious, how did activity trend throughout the fourth quarter? I'm assuming November and December were better months, just as broader markets rallied quite a bit into year-end. And then, has this momentum carried into the new year? And, you know, I'm just trying to get a sense of the jumping-off point for capital markets activity levels to start 2024.
Yeah, great. Thanks for the question. Obviously, we're really pleased with the performance of our capital markets business in Q4 and really for all of 2023. You look at Q4 specifically, great quarter. Did benefit maybe from a bit of deferral of some fees that could have been in Q3, that ended up in Q4. You're right, as the markets picked up in November, December, that definitely helped as well. But I think the more important point on our capital markets business, really, if you look at 2022 and 2023, through much of both of those years, debt capital markets, equity capital markets were largely shut, and our business still was able to generate, on average, close to $600 million of annual revenue in both of those years.
So we're quite proud of the resilience of the business model, the durability of the business model. So it wasn't that long ago, in very healthy market environments, our capital markets business was generating roughly $400 million a year. And as you also point out, you know, we've got a business that can generate really outsized outcomes when the markets come back. It wasn't that long ago, 2021, where our capital markets business, in very healthy markets, generated $840 million of revenue. Now, despite the strong Q4, we're not back to those healthy levels of capital markets. Deployments is still, you know, relatively muted across the space. Leveraged finance market feels better, but the CLO market has continued to get healthy.
IPO markets, secondary markets, you know, they continue to trend in an upward way, but not back anywhere close to where we were in 2021. Now, as we think about pipelines going into 2024, we're quite constructive as it relates to Q1. You know, still very early in the quarter to give you a read, but our pipelines as we're going into the year, just across the firm from deployment, the engagement we're having with our third-party clients, we're expecting a constructive 2024.
Great. Thanks, Rob.
Our next question is from the line of Finian O'Shea with Wells Fargo Securities. Please proceed with your question.
Hey, everyone. Good morning. Going back to ABF, a lot of color you provided there. Recently in a presentation, you outlined the ABF origination growth in recent years. Seeing if you can touch on the potential for improvement into 2024, and then what that can mean for the credit fee rate and potentially the capital markets opportunity. Thank you.
Hey, Finian, it's Craig. Why don't I start there? So we noted in that presentation that if you look 2018 to 2020, so before the GA acquisition, average annual asset origination was in that $9 billion a year. And if you look post-acquisition, we've averaged $25 billion. Now, that is not just ABF. That includes direct lending, that includes mortgage loans, et cetera. And we also have-
... So, I think as we look how we're positioned in growth and activity from here, we think the opportunity for that is one that's going to be able to expand as it relates from an ABF standpoint, both the insurance relationships that we have, as in addition to the capital that we have, that's more opportunistic in nature. So, I think, again, that outlook for us is one, as we've continued to grow and expand, that we're very positive on, and think it could be a real growth engine within the credit business broadly.
Yeah, the only thing I would add, Finn, is that you're right to ask about the KCM opportunity. As a reminder, when we spoke at the end of November, we talked about all the different positive opportunities we had to unlock more value with GA, including across the rest of the firm from an investing standpoint, creating new product, private wealth distribution, Ivy, which is our third-party fund strategy, and then, you know, global, in particular, Asia. And as part of that list, we did talk about the capital markets opportunity. And we do think that that can be quite meaningful for us. So think of it as in effect, using the model we've already built with KCM, but more across this ABF platform.
We really haven't gotten to that yet, and when we had 37%, ownership from third parties, it was a little bit more challenged to get after that. We think over time, that could be a significant opportunity. Call it, you know, $hundreds of millions, if we can get that right. It's going to take time. We'll keep you posted on it, but we do think that is the next big leg of growth across all things structured finance, structured credit, asset-based finance for KCM.
Our next question is from the line of Patrick Davitt with Autonomous Research. Please proceed with your question.
Hey, good morning, everyone. Questions on margin. The FRE margin came in much better than consensus. So firstly, is that mostly a function of the much better capital markets result? And secondly, if so, if this continues into 2024, as you suggest, should we expect a similar incremental positive operating leverage impact as that light item recovers? Thank you.
Hey, hey, Patrick. You know, for quite some time, we've guided that we feel like we've got a business model that could operate in the low 60s% from an FRE margin perspective, which drove the FRE margin beat in the quarter is a combination of a few things: healthy management fee growth, clearly a very strong capital markets quarter for us, and then also some operating expense leverage as well. As we move into 2024, with our already announced shift in how we're going to form our compensation pool at KKR and reducing the compensation load against our fee-related revenue, you know, our expectation is, going forward, we're going to be sustainably able to operate in the mid-60% FRE margin ZIP code as a firm.
I think I said this last call or the call before, I don't think that mid-60% level is a cap for us, given the business model that we're employing. You know, we're trying to scale things that we've already started here, and if we're right in our ability to execute on that, we're going to be able to drive revenue growth, fee revenue growth at a level that's well in excess of expense growth over the next several years. So I do think we should be able to, you know, absent a really draconian type of market environment, operate at that mid-60% FRE margin, quarter in, quarter out, with the potential to be able to drive that up over time, assuming we're able to execute as a management team like we think we can.
Our next question is from the line of Steven Chubak with Wolfe Research. Please proceed with your question.
Hey, good morning.
Morning.
Two-parter for me, just on the PE fundraising outlook. The closings for the second NextGen Tech Fund, the Third Global Impact Fund, certainly encouraging meaningful step-ups versus the prior vintages. Does that momentum increase or inform your confidence for the upcoming PE flagship fundraise, or are these simply too niche and sector-specific to offer any sort of read across? And when do you expect to go to market with the funds, given the significant amount of deployment capacity that you still have to work through?
It's Craig Larson, and I start. Look, I think, again, as it relates to the deployment capacity, the numbers are going to be understated, given platforms or platform investments we've made, et cetera. So, I don't think the dynamic is one as it relates to deployment. I think, in particular, as we look at our pipelines, which are building and actually expect across the industry to see deployment increase in 2024 as it relates to 2023. And I think as it relates to your first question in terms of overall tone, look, I think it's, as a starting point, we've seen a nice increase in public markets. We've seen broad markets improve since mid-October, to say the least. High yield indices are up, LSTA is up.
And I think in addition to that, we've also seen the increase in the capital markets. And so I think, given that backdrop, as it relates to fundraising and tone, I think, like, if anything, on balance, it feels like clients are more front-footed. And again, it's tough to draw broad conclusions from one month of activity, and we'll see how things continue to play out from here. But, given our track records, the performance that we've had, in particular, in a business for us, like Americas Private Equity, over a long, long period of time, I think we feel very good about the opportunities that we see as we embark upon fundraising for that strategy.
Hey, Steven, it's Scott. To your question about read across, I don't think it's a stretch to say that, you know, it does inform our broader perspective. Much of the funds that you mentioned were raised at a period of time where the capital markets weren't nearly as robust.
What we've seen is that investors are re-upping the funds where they've seen strong performance. Also, the color from the dialogue we're having is, I think, even more mature programs out there understand these are going to be very good vintage years and don't want to miss out. I think in the past, if you go back to the financial crisis, there's some institutions that pulled back and then had regret. So I think there's an understanding of that in the market, and that's on the more mature programs, which I would say is a minority of the people that we talk to. If you think about, you know, how the industry's expanded across sovereign wealth funds, insurance companies, family offices. Obviously, we talked about the private wealth channel.
We're optimistic, but it's in some part based on those discussions, and in large part based on the great work our team has been doing in terms of keeping the investment performance very strong.
It's great color. Thanks for taking my question.
Thank you.
Our next question is from the line of Brian Bedell with Deutsche Bank. Please proceed with your question.
Great. Thanks. Good morning, folks. Thanks for taking my question also. Maybe just to focus back on capital markets and maybe more of the longer-term view. So if you think about it from more of a structural basis in terms of, you know, your current dry powder, but also the deployment pipeline over the next few years from your flagship fundraising cycle, and then you mentioned the ABF opportunity as well over the long term. So as we think about that and building out to 2026, not to put a number on it, but is it fair to assume you could easily be well over $1 billion in capital markets fees by then, even without a particularly robust capital markets environment?
You know, in terms of your $4.50 per share plus target, should we be thinking of, you know, maybe a more robust environment as you're driving the plus in that equation as opposed to, you know, the baseline of $4.50?
Yeah. Hi, Brian. It's Rob. I'll start off. So we really like our business model, and our approach to market, with our capital markets business and think it's a big reason why there's a lot of upside. And the way we face the market really is, with one team, that represents our private credit pools of capital, where we're one of the largest providers in the world, our capital markets expertise, it's that same team when they're facing a client that can walk across our liquid credit business, which is one of the biggest liquid credit businesses in the world.
We combine three very large aspects of our business, and we think that's a real benefit to our clients, and there's not a lot of firms out there that can match what we do from a coordination perspective. I like our ability to go compete for talent in the capital market space. We've been able to recruit and retain over the past number of years some really talented people at what they do, and especially as we've expanded in product and geography, that's a big part of our story, and I can see more of that. You referenced, you know, what types of upside we have. I think if you look back to 2021, of course, we had $1 billion capital markets at the time.
But KKR does a lot more as a firm today, both from a product perspective, deployment perspective, and geographically than we did then. We think we're going to continue to be able to take share with third-party clients. And Scott just touched on the opportunity to coordinate with Global Atlantic and the opportunity that that can create on the ABF side. And so no specific numbers—excuse me, on the ABF side of KCM. No specific numbers, of course, as it relates to 2026, but we think this is a growth-oriented business, and we think in a really good capital markets environment, we're going to be able to grow off of that $840 million revenue number that we put up in 2021.
Yeah. Brian, it's Scott. Look, I think we'll go deeper on this in April when we're together. But the way we think about it, if you look back five years, it's really not very representative of what KCM is today or where it's going to be, to your point. So we've been globalizing the business across more of what KKR is doing around the world. We've been penetrating more of our own strategies and efforts. So for example, you go back several years, infrastructure wasn't a very big part of the capital markets business. Now it's a very large part of that business. And that informs our perspective on the ABF opportunity, I can't believe the real estate opportunity over time. And then on top of that, our portfolio is larger, so there's more refinancing, there's more exits to do in the public markets.
As our deployment goes up in our experience and our dry powder goes up, so do our capital markets opportunities. Because we can speak for larger transactions, we need to bring partners alongside. There's just more for us to do. So all of that speaks to the growth opportunity, which is why I think you're seeing this baseline, even in a pretty anemic capital market overall, continue to increase. And I think you'll continue to see that into the future as we execute on all of those fronts.
That's, that's helpful. Thank you.
Thank you.
Our next question is from the line of Benjamin Budish with Barclays. Please proceed with your question.
Hi, good morning. Thanks for taking the question. I just wanted to check, I think you didn't mention in the prepared remarks, but can you share any color on your line of sight towards realization and related revenues into Q1? It sounds like on the capital market side, things are looking pretty strong, but just wondering on the realization side, anything you can share to date. Thank you.
Hey, Ben. So we have a pretty healthy pipeline as we're coming into 2024 from a monetization perspective, but what I'd say is timing is a little bit less certain given some regulatory...
... approvals that are required around some of these monetizations. But taken together, we have, you know, somewhere around $500 million of very high visibility monetization-related revenue. But we currently don't expect all of that to hit in Q1. Obviously, still a couple of months to go in the quarter as well. And as usual, at the end of Q1, we'll provide our standard press release that gives you more detail around the, the monetization-related revenue for the quarter.
You know, maybe while we're on the topic of monetization, one other thing that I think is worth calling out: given the growth across, you know, a number of our businesses and also the strategic announcements that we made in November, including moving our comp down on fees and up on carry, this is just a much smaller part of our business than it used to be at KKR. It's part of the reason why you'll see us introduce this new metric in Q1, total operating earnings. You know, our expectation going forward is north of 70% of our earnings is going to come from total operating earnings. So of course, monetization-related revenue is going to be a big part of where we're going as a firm. It's just a lot smaller on a relative basis than it used to be.
Got it. Very helpful. Thanks, Robert.
Thanks.
Next question is from the line of Mike Brown with KBW. Please proceed with your question.
Great. I just wanted to ask on infrastructure. So strong performance there in the quarter. Can you maybe just expand on some of the key drivers behind that 5% performance in the quarter? And then if we look forward, how do you expect investor demand for this asset class to evolve? And as allocations grow, where are the dollars kind of shifting from? And then specifically on the Asia side, what's kind of making the strategy there so attractive to LPs? If you could maybe just touch on some of the deployment opportunities.
Why don't I begin, Mike? Thanks for the question. Why don't I begin first, just as it relates to the overall framework of the infrastructure platform, because you're right, we've seen wonderful growth. So if we look back three years ago, AUM was $17 billion, and at 12/31, we were at about $60 billion. So we've gone from $17 billion - $60 billion, all organic, and that's as we're again, our infrastructure strategy is a front-burner topic for us as it relates to fundraising. We're also fundraising for a climate strategy, and we also have the wealth products that we've also launched midway through last year that we expect to continue to build and scale.
So I think the growth has been really attractive and a lot of momentum, but there's a lot more for us to do, which is exciting. I think as it relates to Asia, and why don't I touch on that for a moment, and it's again interesting to see the statistics there because I think what you're seeing there is reflects the growth as well as the diversification you're seeing across the platform. So at the end of 2019, we were looking at these stats over the weekend, we had about $21 billion of AUM in Asia. At the end of 2021, we were up to $42 billion, and at the end of 2023, we're at $65 billion. And so again, if you kind of step back, at the end of 2019, we had $21 billion of AUM.
Almost 90% of that was in private equity. At the end of 2023, we're at $65 billion, and 51% of that is in private equity. So you've seen meaningful growth for us in the region, as well as meaningful diversification across the footprint. And I think just as it relates to broad investment performance, I think it's something that the team is really proud of, and we all love to see, obviously, because you've seen strong, consistent results across the flagships in particular. You know, we're seeking mid-teens gross, low teens net returns with a 4%-6% target annualized yield. Infra I and II are mature funds with performance that exceeds those targets. And Infra III and IV are both earlier in their value creation, but are tracking very nicely.
I think our most recent fund is actually ahead of one, two, and three when you look at the returns in that fund relative to when we made that first investment. So I think the team has been wonderfully disciplined as it relates to the investments we've made. We talk a lot about thematic approaches, renewables, digital infrastructure, data centers, fiber networks, all great examples of large, critical, growing markets where we think we can bring differentiated resources to bear. So again, a lot of progress, but a lot of opportunity ahead for us at the same time.
Hey, Mike, it's Scott. Just, I think in terms of your question about performance in the quarter, it was broad-based. There's nothing that we'd point you to specifically. The portfolio has been assembled incredibly thoughtfully, as Craig mentioned, and is performing very nicely and as expected, ahead of expectations. In terms of your question about investor demand, where it's shifting from, I mean, for the most part, we've seen people creating allocations to infrastructure over the last several years. It hasn't really been a shift out of other parts of alternatives. To some extent, where we've seen alternative allocations increase, it's to be able to accommodate an infrastructure allocation.
I think a lot of that is investors have focused on the fact you've got a real asset that is mission-critical, has an attractive yield, and the way we do it is, you know, it has to have that contractual yield, and it is inflation protected, so it's also viewed as an inflation hedge. And I think as people have done the work on the space, you've started to see more and more dollars flow into it. So largely speaking, and none of these comments are universal, but largely speaking, it's been an and as opposed to an or. And I think on Asia, Craig hit it. I mean, our Asia Infra business has gone from a standing start to $10 billion of AUM in four years. We have a great team on the ground.
They're leveraging our Pan-Asia presence across our nine offices. And as you know, we run the firm as one firm, so everybody helps each other. I think that's really allowed us to scale very rapidly in that market. There's a significant amount of capital required to develop infrastructure all across Asia, those themes that Craig just walked you through.
... and candidly, on the margin, there's less competition in Asia 'cause fewer firms have built the platform that we've built. So I think large opportunity, fewer competitors, firm well integrated.
Thank you both for all the great color.
Thank you.
Our next question is from the line of Michael Cyprys with Morgan Stanley. Please proceed with your question.
Great, thanks. Good morning. Just wanted to ask about insurance. I was hoping you might be able to talk about the opportunity to expand the organic insurance origination, how much you expect to do annually there. Maybe talk about some of the opportunities around getting on more platforms, how meaningful could that be at this point? And if interest rates were to come down, what sort of impact might that have for customer demand and origination volumes? Maybe you could also speak to some of the pipelines from new blocks, which you guys have been quite active with.
Thanks for the question, Mike. Why don't I start? So over the last few years, our individual business has done on average around $10 billion of production. And you're right, you've seen a step up across the industry, given I think higher rates, but I don't think that tells the full story. I think what we're seeing is a real trend towards retirement products. It's probably somewhat agnostic to where interest rates are. And as we think about Global Atlantic and how we're situated specifically in the individual markets, I think there's a lot of share that we can continue to take there, getting ramped up on some new platforms, as you suggested. Also, historically, Global Atlantic hasn't been as active in the more longer duration fixed annuity market, the seven- to 10-year product.
We think there's some market share gains that we can have there, and we do have an expectation that we could take the individual business over time from $10 billion of production to $15 billion-$20 billion of production. Then on the institutional side of our business, you know, there's three components of it. It's not just the block business, where we've had a lot of success over the last couple of quarters, clearly with MetLife closing in Q4, the Manulife block closing in the first half of the year, and a really strong pipeline of opportunity, both domestically and especially internationally. But there's a couple of other aspects of our institutional business that we're really excited about. We've become a real leader in flow reinsurance in the marketplace. Again, that's both domestic and international.
To date, we have very little market share in the pension risk transfer market, where we think the capabilities of our team will really resonate in that market as well. So it's an opportunity for us to take share in what is a large and growing end market. And so we take it together, it's what gives us the confidence that you would have heard in our November call really working as one firm to be able to accelerate the growth of the Global Atlantic platform over the next several years. Now, an important part of that growth, and, and I referenced it in our prepared remarks, relates to our ability to also be able to access third-party capital. And so our Ivy funds and strategies is a big part of where we're going as an organization.
We've got a lot of momentum there. As I mentioned, earlier, 75% of the capital required in the two block deals that we've got in flight right now, the MetLife one that just closed and Manulife is gonna be funded by third parties, by outside investors, and we think that combination of GA balance sheet capital and third-party investors is really what the optimal structure looks like, especially for the institutional side of our business going forward.
Great. Thank you.
Our next question is a follow-up from the line of Bill Katz of TD Cowen. Please proceed with your question.
Great. Thanks so much. Just want to circle back to capital management for a moment. Certainly appreciate you just raised the dividend by 6%, but if I, if I start doing the math and look out to 450 of earnings power, and, and Rob, to your point that more and more your business is going to be more recurring in nature, and then just sort of think about sort of low single digit type of dividend hikes that's been sort of the more recent past, your dividend payout ratio is gonna drop pretty dramatically, and then the yield on the stock is gonna be relatively negligible. How are you thinking about cap return? I know that was a big discussion point at the November update.
It's a rich man's issue, I presume, but how, how do we think about maybe priorities from here, capital return versus deployment strategically?
Sure. Thanks, Bill. So why don't I start on the dividend policy and then just, I think, more importantly, talk about our overall approach to capital allocation, which is of equal importance. So on dividend policy, we really like our policy a lot. We started with a fixed dividend of $0.50 annually when we converted to a C corp five years ago. And every year, we have increased that dividend, and we believe we've got the visibility going forward to have consistent and stable growth to our dividend. And so we like our dividend policy. Now, big reason why we have the dividend policy that we have is because we see so much opportunity to be able to invest back into KKR's business for growth.
You've heard us talk about our capital allocation policy for some time in a very consistent way, and I don't think there's anything more important from a capital allocation policy than being consistent. Our approach is to optimize for recurring and growth-oriented earnings per share. We've talked about four core areas, strategic areas of deployment from our excess free cash flow back into our business, and those are gonna come in insurance, core private equity, strategic M&A, and share buybacks.
And so we feel very fortunate that because of the business model we have, the brand we have, the access to capital we have, and distribution, that we've got the opportunity to be able to invest back into our business at high levels of ROE that are gonna drive really recurring and growth-oriented earnings per share over a long period of time for our investors. So that's our focus. We feel really good about our approach to capital allocation. I think it's a real core competency of our management team and think that that's what's gonna drive the highest amount of ultimate shareholder accretion for a long period of time. And of course, it's a very much a highly aligned decision since the management team of KKR own, you know, you know, 25%+ of the stock.
Thank you.
Thank you. Excuse me. We've reached the end of our question and answer session, and I'll turn the call over to Craig Larson for closing remarks.
Rob, thanks for your help, and thank you everyone, for joining this call. We know that with our announcements that we made in late November, earnings today, and with Investor Day on the horizon on April tenth, we're asking everyone to spend a healthy amount of time on all things KKR. Just want to thank everybody in advance for investing the time. Look forward again, in particular, to the deep dive on April tenth. And if you have any questions following, this call, please, of course, reach out to us directly. Thank you so much.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.