Earnings Call: Q2 2021

Aug 3, 2021

Good morning, everyone, and welcome to our Q2 2021 earnings call. I'm joined this morning by Scott Nuttall, our Co President and Co COO and by Rob Lewin, our CFO. We would like to remind everyone that we'll refer to non GAAP measures is on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at at kkr.com. The call will contain forward looking statements, which do not guarantee future events or performance. Please refer to our earnings release as well as our SEC filings for cautionary factors related to these statements. Turning to our results. This quarter really was an exceptional quarter with record fundraising, deployment of Activity alongside continued strong investment performance. Fee related earnings per share as well as after tax distributable earnings and Per Share were both record quarterly figures for us coming in at $0.53 $1.05 respectively. Management This increased over 40% year over year to $480,000,000 helping drive the 68% increase you see of the Infillated Earnings. And our monetization activities drove the after tax DE figure, which is 2.5 times the number we reported in the second quarter of last year. Our assets under management are now $429,000,000,000 up over 90% from 1 year ago and up 17% just since last quarter. This reflects both record fundraising in the quarter as well as strong portfolio appreciation. And our book value per share, which is mark to market every quarter is now $27.03 Net accrued carry on the balance She increased 13% since March 31, strong growth even after all of Q2's realization activity. And net cash and investments totaled $17 per share compared to $12 1 year ago. So in terms of today's call, I will kick things off with an overview of our fundraising activity before turning things over to Rob to walk through this quarter's results, and Scott will provide a few closing remarks before we head into Q and A. So turning to fundraising, we had an exceptionally A strong quarter with $59,000,000,000 of new capital raised on an organic basis. To help put This compares to $44,000,000,000 of new capital raised for all of 2020, which itself was a record year for KKR. Differentiated investment performance on behalf of our limited partners, continued scaling across our businesses and creativity and innovation all contributed to the fundraising results you're seeing, which exceeded our expectations. A few highlights. First, we held initial closes across of our North America Private Equity, Global Infrastructure and Core Private Equity Strategies raising over $40,000,000,000 collectively in the quarter. Let me give a few more details here. With the 14,300,000,000 First close, North America 13 is already larger than its predecessor and together with our Asia and Europe Private Equity Funds, total committed capital across our 3 active PE funds on a global basis now exceeds 35,000,000,000 and Infra. With just the first close already totaling $14,200,000,000 Infrastructure 4 is almost twice the size of its predecessor of Fund. And together with the success we've had in Asia infra and core infra over the last 12 months, total AUM across of Structured Platform now stands at $38,000,000,000 and that $38,000,000,000 compares to $14,500,000,000 a year ago. And in terms of core private equity, we held the first close on our most recent flagship at $12,000,000,000 including $8,000,000,000 of third party capital. AUM and Core Private Equity is now $28,000,000,000 and that $28,000,000,000 compares to $12,000,000,000 a year ago. The second fundraising highlight is the continued progress we've seen in perpetual capital with activity in this quarter across infrastructure, Real Estate as Well as Credit. This quarter, we raised an incremental $5,000,000,000 in our open ended core infrastructure strategy, bringing AUM here to $7,000,000,000 We launched Crest, a 40 Act vehicle with re taxation that's focused on individual investors. In credit, our 2 publicly traded BDCs, FSK and FSKR completed their merger to form 1 of the 2 largest BDC platforms with $16,000,000,000 of AUM. And in July, Global Atlantic announced 2 reinsurance ERIS Block Transactions. We expect these two transactions to add approximately $10,500,000,000 of perpetual AUM in the 3rd quarter and the pipeline here continues to be strong. Perpetual capital is now 30% of AUM and inclusive of long dated strategic partnerships and that includes a new multi asset class partnership we closed this quarter. That figure is 43%. And remember, we have $21,000,000,000 of cash and investments on our balance sheet. The 3rd fundraising highlight is our real estate platform's continued scaling. Focusing first on our opportunistic funds, We held a final close at REPEAT 2, our 2nd European fund in the quarter. At $2,100,000,000 REPEAT 2 is 3 at times the size of REPA 1. And with continued fundraising at our 3rd Americas Fund, REPA 3 is now at 3,000,000,000 more than 50% larger than RIPA 2 and we have yet to hold a final close. With these closes, we are now a clear top 5 and Istik Real Estate Manager when you aggregate our 3 regional funds. Looking at the real estate platform more broadly, We now have 10 strategies focused across equity and credit on a global basis in a variety of different fund structures targeting both institutional and retail clients. Real Estate AUM in total is now 30 $2,000,000,000 and that $32,000,000,000 compares to $11,000,000,000 12 months ago with tremendous room for continued growth. And finally, as you think about your models of future management fees, we now have $42,000,000,000 of committed capital with a weighted average management fee rate of just over 100 basis that becomes payable when the capital is invested or enters its investment period. Last quarter that amount was a little over $20,000,000,000 So all in all, we had an excellent quarter. And importantly, as we look forward over the next 12 months, We continue to have a robust fundraising pipeline across strategies as well as across geographies. So with that, let me I'll turn it over to Rob. Thanks a lot, Craig. I'll start off with our segment financial results for the quarter. Management fees came in at 480,000,000 and Investor Relations. That's up 9% from Q1 and up over 40% from this time last year. The investment periods for Americas 13 and Infra4 both commenced in the quarter. So you saw partial quarter's impact from these funds. Healthcare Growth too and European Real Estate were also additive and CEO of Management fees in the quarter. Our Capital Markets business had an excellent quarter with $219,000,000 in fees. Transaction activity here was really diversified. At We actually only had one fee event that was larger than $20,000,000 and 50% of our revenues came from activity outside of the U. And S. It was also a strong quarter for our 3rd party capital markets business with $61,000,000 of revenues. We continue to get really good traction in this part of our of Business. Fee related compensation came in at $170,000,000 a 22.5% compensation ratio. And our other operating expenses were $115,000,000 modestly elevated with almost $20,000,000 of placement fees recognized this quarter given all of our fundraising activities. All of this brings us to record fee related earnings of $470,000,000 or $0.53 per share for the quarter. That is up 68 and CEO of the company's business. Turning to realizations. And Company. Carried interest came in at just over $600,000,000 while realized investment income was approximately $370,000,000 bringing total realization activity to just under $1,000,000,000 for the quarter. Realization spend multiple funds, products and Geographies. The diversification of our model really contributes to this broad based performance. In terms of our expenses, and Investor Relations. Realized performance comp was $413,000,000 and realized investment comp was 55 and on a year to date basis, our total compensation margin within our Asset Management segment, including equity based comp, is currently 36%. Moving on to our Insurance segment. This quarter was the 1st full quarter of operating earnings from Global Atlantic, and Company management that helped bolster net investment income by $47,000,000 ROE for the quarter was 17% or 14% and Company. Putting it all together, our after tax distributable earnings came in at 926,000,000 and Investor Relations for $1.05 per share. On a year to date basis, our after tax DE is $1.80 per share. These results are up 143 and 98% from the same time last year, really highlighting the momentum that we are seeing across the firm today. And Investor Relations. Our book value per share came in at $27.03 this quarter. The embedded gains in our balance and Chief Financial Officer of Finance and Exchange Commission are currently $6,600,000,000 as of June 30, which is up approximately $1,000,000,000 from Q1 and up over $5,000,000,000 from the same point last and CEO, despite our high levels of realization activity over the corresponding periods. And our net cash and investments per share increased 12% from March 31 to $17 per share. Turning to our investment performance, which continues to be a real differentiator for and SG and A. We saw strong results again this quarter. Our PE portfolio appreciated 9%, while our mature flagships appreciated 13%. Real estate continued to show strength increasing by 10% for the quarter. Our infrastructure business was relatively flat for the quarter, and Company. And our credit funds are similarly performing well. And Shifting to deployment. We had an extremely active quarter with total capital invested of approximately $19,000,000,000 In Private Markets, Deployment was diversified with $7,000,000,000 invested quite equally across private equity, infrastructure and real of the United States with the remaining $1,000,000,000 in growth and core strategies. And in public markets, we deployed over and DRI powder now stands at $112,000,000,000 which is up 63% from last quarter. And before I hand it off Scott, I wanted to spend just a minute on our fundraising in Q2. While Craig mentioned that this was a record quarter for us, I think just as and CEO of the Capital that we raised. To give you a few stats, 98% of the capital we raised and Q2 has a contractual life of over 8 years. Once turned on, the fee paying capital is a blended fee rate of just under 100 and Management. And finally, 88% of the capital is either carry or an incentive fee eligible. So what we have accomplished over the last few months is going to have a very meaningful impact on our financial results for several years to come. And with that, let me hand it off Scott? Thank you, Rob, and thank you, everyone, for joining our call. As Rob and Craig just explained, and Company. We had an exceptional quarter. Investment performance and capital raising are at record levels and broad based across strategies and geographies. And Investor Relations. Capital Markets had its 2nd best quarter ever with significant activity across KKR and Third Party Business. On the insurance front, the Global Atlantic integration is proceeding well and we continue to win new blocks and Corporate Growth. And on top of all of this, we continue to launch new efforts and expand our product offerings, including in the retail market, providing even greater growth opportunities down the road. And Investor Relations. This quarter shows an outcomes what we discussed at our April Investor Day. And CEO. We are at an inflection point in a number of our businesses and see multiple ways for the firm to continue and CEO of AUM, revenues and profits. Let me highlight two examples from this quarter. First, and Company. We raised $8,000,000,000 of third party capital for core PE, bringing AUM in that strategy to $28,000,000,000 and Chief Financial Officer. As a reminder, this business was created less than 5 years ago. And second, and CEO of the company. We've raised $7,000,000,000 for core infrastructure, a strategy that was launched less than a year ago. We are off to a great start here and on our way to being a market leader in this large and growing space. These are just two examples of how we are innovating and creating adjacent strategies to further scale our businesses in a highly efficient fashion. And Investor Relations. So there's a lot of good to talk about this quarter. Within all the good, and Investor Relations. We are particularly proud of our investment performance. Our flagship private equity funds are up 86% and Company. Real assets are up 21% and alternative credit is up 30%. And Investor Relations. The combination of this broad based and strong investment performance, a growing client base across and multiple maturing businesses, plus the launching of new strategies and raising more permanent capital and Global Atlantic and Capital Markets scaling significantly is incredibly powerful. You saw this power and CEO of the company. The firm is executing at a high level and we have a lot of road ahead of and Investor Relations. With that, we're happy to take your questions. Thank you. And and and CEO. Our first question comes from the line of Alex Blostein with Goldman Sachs. Please proceed with your question. Great. Good morning. Thanks everybody for taking the question. So maybe starting with a bit of an obvious fundraising and the management fee and here clearly very impressive start to the fundraising cycle. As you mentioned, was $59,000,000,000 in the second quarter and really and Investor Day targets. So it's open with so much momentum in the business. Can you give us an update on and CEO of the Flex Ship fundraisers to be relative to the first close figures that you mentioned? And how should we ultimately think about the $100,000,000,000 plus and I'll take a look at the progress we made in the quarter. Good morning, Alex. It's Rob. Thanks for the question. We can't get into fundraising side of the private placement rules, but let me just spend a minute on your question as it relates to how we're thinking about fundraising. And S. We said at the time that we saw a clear path to comfortably exceeding $2 per share of FRE next year. And Investor Relations. Now at our Investor Day in April, Avi referenced the $100 plus 1,000,000,000 figure. We thought it'd be helpful for our investors to understand some of the building blocks and Company. So we noted that we expected to raise north of $100,000,000,000 of capital over the next couple of years. And Company. Part of the reason why we decided to give that statistic was that 2020 in itself was a record fundraising year at $44,000,000,000 and Company. And so what we wanted to ensure people took away is that we didn't think that that was a peak result for us. As it relates to this quarter, the fundraising that we announced exceeded our expectations. And what we saw this quarter was more than just the pulling forward, I think, of fundraising and Investor Relations. I expect in the future quarters. Across several strategies, we really have exceeded the expectations that we set for ourselves at the beginning of the year. And Company. So I think it is fair to say that we feel a lot better about our outlook for new capital raised over the next couple of years, and that will be and Company. Certainly north of that $100 plus 1,000,000,000 number that we put out there a couple of months ago. And I also think it's fair to say that we feel even better about achieving or exceeding the FRD targets that we put out at the beginning of this year given all of the momentum that we have across our business today. And Company. Our next question comes from the line of Glenn Schorr with Evercore ISI. Please proceed with your question. Hi, thanks very much. I'm curious with all the growth across both core PE and core infra that you just noted, and Company. I wonder what you could tell us about the LP base and how much overlap there is with your opportunistic funds, Meaning are the same clients that buy into the opportunistic funds buying into core PE or is this an expanding client base? Glenn, it's Craig. Why don't I start on that? And I think you're right. It is interesting on the topic of core more broadly. When you look at core PE, core infra, core real estate, we now have around $37,000,000,000 of AUM across these strategies and we're seeing real interests. Longer dated lower risk reward profile compared to opportunistic and importantly, those that have a yield that's attached. So We think the end markets are massive, really are for these core strategies, huge opportunity for us, really pleased with the first steps that you've seen. I think in terms of those first steps, we have seen the bigger investors, so I'd say, sovereign wealth funds, pension plans, insurance companies, They've been particularly active as the long dated nature of the investments in these strategies is in line with their long dated liabilities. And And I think importantly on the last part of your question, they view these strategies as a complement to the regular way opportunistic strategies and not in lieu of these strategies. And I think in the long term or I should not even say the long term, look, you should expect us to explore the best ways for us to package and bring these types of products also to the retail market as again the end markets here are massive. Yes. The only thing I'd add Glenn, it's Scott, is if you look at by dollars, to answer your question, there's not that much overlap and Company. Our next question comes from the line of Scott Nuttall, our Co President and Company. Our Our next question comes from the line of William Katz with Citi. Please proceed with your question. And Company. Okay. Thank you very much. I'm going to sort of try to squeeze a 2 part question in, so I'm sorry to cheat the rules a little bit. First, just sort of tying back to the FRE discussion, you've also sort of laid out That you felt like you could get the $4 to $5 of DE somewhere between $23 $0.24 Obviously, if you analyze this quarter, you're already there. So I just want to question How to think about that from here? And then secondly, a broader question for you. It seems like there is a very fast land grab going and CEO of the Retail channel. You seem to have terrific momentum. Is there any risk of or opportunity here where scale will win out quicker, Such that if I'm a retail distributor, they may only be willing to work with 5 or 10 players, and CEO, including KKR and some of the branded players. So wondering how the dialogue is going on that score. Thank you. Hey, Bill, it's Rob. I'll take the first part of and A Good question around the DE guidance that we put out a couple of months ago. So we don't have any updated guidance For this call and obviously we'll consider providing updated guidance in the future, but not for today. I would say that and Company. I think it's very fair to acknowledge that we are ahead of where we thought we would be. We are well ahead of expectation across most of our fundraising activity. And Investor Relations. The assets that we manage on behalf of Pope Atlantic are ahead of expectations. The momentum in our Capital Markets business is really good right now, maybe as good as it's ever been. And we've got a lot of momentum across our performance, which has generated a lot of embedded gains that sit across and Company. Our carried interest in our balance sheet. And so we feel really good about the potential to drive meaningful additional revenue growth from here as well as profitability growth. The one other thing I would say, Bill, which is tangential, I suppose, to your question and CEO of the company. That we often get is where we are from a monetization perspective in Q3. We already have really good visibility here into meaningful revenue and monetization As of right now, we have line of sight of approximately $650,000,000 plus of performance and investment income. And Company. As a reminder, this is from deals that are already closed or have been signed up and we expect to close in the Q3. In terms of the split, which I know is important from a comp ratio and Company. Probably around 50% carry right now and 50% weighted towards investment income. The last thing I'd say here is that I'd underscore that all of these are really approximations at this stage. But this is our best view right now from all the identified deal activity we expect to close in the upcoming quarter. And Company. And Bill, on the second part of your question on the retail channel, we're really encouraged. And CEO of the company. We've been investing aggressively in that space and we've doubled the size of the team in the last 12 months and we're continuing to invest in that build out. And Company. Part of the reason we're encouraged is even as we're doing that build out in the U. S, we're also investing to build out of Europe and Asia. And we're seeing significant engagement across private wealth and retail. We're already at kind of mid teens and CEO of our fundraising coming from that channel. So as an example, in the Q2, about 14% of the money we raised was actually from retail and we don't think we're anywhere near our potential yet. So there's a lot of opportunity ahead of us. And in terms of the question about Landgraf, we are finding that and Company. We have an engaged set of partners as we continue to build out distribution in this space. We're already on a number of platforms, and Co President, adding products to those and then developing new relationships all around the world. So we haven't run into any resistance. If anything, we're finding a significant growing interest in all things alternatives and a lot of interest in the registered funds in particular. And Company. Our next question comes from the line of Robert Lee with KBW. Please proceed with your question. Great. Good morning. Thanks I'm just curious with I mean fundraising going so well ahead of target and fund sizes increasing substantially maybe even more than you originally anticipated. How is this changing your commitments to the funds? I mean, are you reducing and CEO of the company. Meaningfully how much you're committing in order to maintain capacity for 3rd party investors. I mean how is this kind of shaping how you think of and your capital commitments. Yes. We're obviously very meaningful investors in our funds. And Chief Financial Officer. We like that positioning on our balance sheet. But when you look at our balance sheet capital relative to our fund capital, it's a fairly small percentage. And Company. And so it really doesn't need into capacity and it hasn't impacted in a material way how we thought about committing capital to our strategies, Rob. It's a good question. But that is but that's We do separate out those 2 things. Our next question comes from the line of Patrick Davitt with of Autonomous Research. Please proceed with your question. Hey, guys. Good morning. So you mentioned capital markets didn't really have any of and Company. The chunky kind of numbers we're used to seeing right now a little over $200,000,000 a quarter. So If we assume deal activity remains this high, I think you do have a couple of those chunky ones coming through in the second half that This kind of $200,000,000 plus is kind of a pretty good run rate assuming activity levels stay this high. And Company. Hey, Patrick, it's Rob. So the way we think about our Capital Markets business really isn't quarter to quarter. And Company. You've heard from us quite a bit, especially more recently that we see a lot of growth in that business, both secularly and then ability for us to be able to and Market share on a global basis. We really think about that from an annual perspective and over multi year period of time. And Company. But I think as you look at the first half of twenty twenty one, roughly $330,000,000 of Fees. I think our LTM is about 680 in our Capital Markets business with a healthy amount of deal activity around the world. We Those are the types of numbers that hopefully should be achievable for us and off of that base, our expectation over the next number of years is we should really be able to scale that business going forward. Our next question comes from the line of Chris Kotowski with Oppenheimer. Please proceed with your question. And Investor Relations. Yes, good morning. Thanks for taking my question. You flagged the 3 funds, North America 13, Global Infra 4 and and Healthcare 2, as having been turned on in the quarter. And I wonder if you could talk about how much of an impact that had on base management fees. And And I guess I'm also the second part of it is a little I'm surprised that you would have turned the funds on so and Investor Relations. Early in that like Americas 12 and Infra3 both still have around like $4,000,000,000 of uncalled commitments in them. So I wonder if you can flush all those things out a bit. Yes. Hey, Chris, it's Rob. So a couple of things. When you look at our investment Vehicle summary. I guess you're looking at Pages 20 21 of our earnings release. The uncalled commitments there represent what's On calls from the fund, what they exclude is the amount of committed capital that we have and Company. Two different strategies there that has not been called yet as well as reserves in those funds. And so as an example, our Americas 12 Fund and on an adjusted basis be closer to $1,300,000,000 And so I think that would be much more in line with how you would think about and Company. And as it relates to your the first part of your question on management fees, and You're right. Those funds turned on, I think about 2 thirds of the way, the big ones through the quarter. And Company. And so we'd expect a little bit of an additional ramp up in Q3 as those funds get going and we turn to post investment period on the predecessor funds as they run off. I think a management fee number there that could be in the range of $40,000,000 plus and Chief Financial Officer for the Q3, more of on a run rate basis, I think is something that would be an approximation that I think and Company. Our next question comes from the line of Arnaud Giblatt with Exane BNP. Please proceed with your question. Yeah, good morning. Thanks for taking my question. I was wondering if you could give us an update on how you view opportunities to deploy capital, specifically What target returns are being discussed with investors? Have these been are these the same targeted returns That's used to have or have they been scaled back given current market levels? Sure. Arnaud, it's Craig. Why don't I start? I'll let Scott on give an update in terms of overall target returns. And I'm glad you asked about deployment because honestly given all we've had to go through today, we probably haven't talked about deployment as much detail as we should. I think the main takeaway is we're continuing to deploy actively. So in terms of private markets first, We continue to invest meaningfully. First half deployment was a little over $12,000,000,000 LTM deployment, a little over 24. So again, that pace has been very healthy. And what you're really seeing there is diversification. So Rob mentioned this in our prepared remarks, Deployment in Q2 was between $2,300,000,000 $2,500,000,000 individually across all of private equity infrastructure and real estate. We've had a really nice balance with the growth strategies and core making up that incremental piece. I think in terms of themes, You're seeing investments in really good companies with strong growth prospects. And I think overall at the moment, there's probably more dislocation in Asia who's leading to better opportunities for us in that region. And in public markets, what you're really seeing is the growth in the overall footprint of the firm. So AUM in our credit business has increased from a little over $70,000,000,000 a year ago to $170,000,000,000 as of June 30. So you're seeing a meaningful increase in deployment in public markets just recognizing, just again the dramatic increase in the footprint of the firm. So in terms of the $10,000,000,000 this quarter, again, that was pretty actively that was actively deployed across a number of strategies, direct lending, opportunistic credit, asset based finance, etcetera. Yes. And Arnaud, on your question around targeted returns, the short answer is that there hasn't really been any change in how we think about it. And we talked about this a bit on prior and Company. But one of the things we've been very focused on the last several years is having the firm get behind some themes that we think will and Company. And frankly, some of those themes have been accelerated by virtue of what we've all just are going through with COVID. And Company. So in Private Equity, if you look at where our deployment has been as an example, a lot of deployment in digital and technology areas like health and wellness, and CEO of the Infrastructure, again, fiber and telecom and Investor Relations. Would be a couple of things we've been investing behind in Renewables, in Real Estate, Industrial, Properties, Multifamily and Credit Asset Based Finance as the banks have pulled back and Housing. And then Global Atlantic is obviously a very big investment behind the thematic of savings, tax deferral, the aging population and people looking to manage their own retirement wealth. And Company. And so what we're finding is if you get behind these big themes, there's a big opportunity to generate outsized returns and there's a lot of dispersion in the market. And CEO of the company. There's going to be some of these areas and themes that we think will be big winners. We're getting behind those. And I think part of the reason you've seen our returns be so strong and Company. As we've in effect been overweight a lot of those sectors that are benefiting those teams that are working and underweight others. So we think by continuing to pursue that effort, We've got an opportunity to continue to generate outsized returns and our targets haven't really changed. And Investor Relations. Our next question comes from the line of Michael Cyprys with Morgan Stanley. Please proceed with your question. And Investor Relations. Hey, good morning. Thanks for taking the question. Wanted to circle back to core PE and core infrastructure. Appreciate those are longer dated strategies with and lower return targets. I was just hoping you can elaborate a bit on the platform that you've built out there, the investment strategy more broadly, what sort of deals can make and Cents. And maybe you can remind us how the economics work for KKR and what's your sense on the timeframe for putting all that capital to work? So Mike, it's Craig. Why don't I start there? And infrastructure is an interesting place to begin. So at our Investor Day, we walked through infrastructure really as a case study in terms of how we look to build and Investment Platform. And so that begins with strong performance of flagship strategies and then you can there's a focus on scaling those flagships and innovating and that innovation can happen geographically. So you've seen that with Asia Infra and can also come through adjacent strategies and you've seen that through Korn. So that's really where We are today. We have a built out infra franchise with 3 distinct market segments, our Global Infra Fund Series, Asia Infra Fund Series and Diversified Core. And in and AppliedCore. And in terms of core and the focus on those investments, CoreInfra is really targeting more mature cash generative assets with a focus on long term predictable cash flows. So, we're looking for simplicity and low execution risk, all in that open ended perpetual vehicle. And so our focus here is we want to buy simplicity and hold simplicity. That's really the focus. In terms of core private equity, that's really an example of innovation where we can't find a home for great investment opportunities. And so this again is a long duration strategy where we expect to hold investments in compound value for 10 to 15 years. But as you noted, again, the risk reward is different than our opportunistic PE funds. We're looking for a mid teens IRR businesses with less disruption risk, Very good cash flows, often consolidation opportunities in fragmented sectors. Again, we've been at this business Longer at this point, we have what we think is a really incredible portfolio of companies. The gross IRR here today since inception is 27%. And I think there's a final point as it relates to core in the business model, because given the participation on our balance sheet, of Core PE has really contributed to the compounding of our book value. So when you look at the core line on Page 14 of our press release, You see $4,200,000,000 of fair value as part of the $17,500,000,000 of investments. That $4,200,000,000 has just under $2,000,000,000 of cost associated with it. So we have over $2,000,000,000 of embedded gains on our balance sheet. So as shareholders, we're participating in the economics from the 3rd party capital management fees and Carey with performance over time. But in addition, that compounding aspect is an additional powerful way that we also can participate in the success here. Hey, Michael, it's Scott. Just a couple of things I'd add. One, important to understand, this is deal flow we were already and Chief Financial Officer. So to Craig's point, I think lower risk, longer duration opportunities that we really like the risk reward, and Company. But did not fit into opportunistic vehicles, but were investments we like nonetheless. We now have homes for those investments we did not before. And Company. And because of the fact that this was Dealfo, we were already seeing it was being sourced by our existing teams. We have not had to build new teams to actually prosecute these strategies. So the existing teams are actually just and Company. So the existing teams are actually just forcing these investments that they don't fit in the opportunistic fund, then they can be considered for Core. And so it's been a highly profitable incremental source of AUM and fees for us. And it's something that we're really monetizing deal flow that was already here. And in terms of deployment period, We have been very actively deploying that. I think our expectation is for core PE that will probably get deployed over a 3 to 5 year period. And for Core Infrastructure with this first pool of capital, we're operating at a current run rate that would be faster than that and we'll continue to add capital to that and Strategy as well over time. Rob, why don't you pick up on economics? Yes. Mike, so the management fees on both these products get paid when the capital is invested. And So this capital is largely in AUM right now and over time gravitate towards fee paying AUM and the capital cost both these strategies are carrying and so we think will be a contributor to performance revenue over the long term. And Mike, it's Craig. One final point is kind of an interesting at Tistic and this actually ties into Glenn's question earlier. But it's interesting when you look at core Inference of the $7,000,000,000 of capital that's been raised, Over 40% of the commitments have come from LPs that are new to KKR. So in terms of how these strategies are helping us really broaden the LP base, Again, it's an interesting statistic. Our next question comes from the line of Robert Lee with KBW. Please and Thanks for taking my follow-up. I guess, I've just on Global Atlantic, is it possible to just get a, Number 1, a sense of what their kind of regular flow is, like if we think about it outside of reinsurance transactions, and Company. What you're seeing is kind of their quarter to quarter regular flow if they don't do a transaction. And then maybe just update us on the amount of capital that they've got available Once they get through the $10,000,000,000 of deals closing this quarter. Great, Rob. I'll take that, Scott. Look, in terms of the way to think about it organic away from block activity, couple of things I'd and Remember, they have a significant distribution presence and are raising money in the individual sector. And so if you want to think about that as $8,000,000,000 to $10,000,000,000 of annual Give or take, that's kind of a good starting number to work with. But on the institutional side, I know that the block activity is the stuff that gets the press release and and Company. There's also a number of other things that we do there. We have flow reinsurance arrangements and Company. There's a pension risk transfer activity, which is incredibly active and is getting more active, especially this year. And Company. We're also active in the funding agreement market. So there's a lot of ways to grow on the institutional side as well. That is significant. And those are also $1,000,000,000 plus opportunities individually. And so we see that as another way to grow. So in terms of the answer to the question, you could think $8,000,000,000 to $10,000,000,000 plus several $1,000,000,000 on top of that from more of the kind of flow related institutional business away from blocks. And Associates. In terms of the capital available question, as a reminder, when we actually closed the transaction earlier this year, and Company. We raised an incremental $250,000,000 of primary capital and there is runoff in this business as well. So we're generating new capital by virtue of our earnings. And Company. We're freeing up capital with some of the runoff and we're replacing that with all the aforementioned plus all the block activity. And if the company needs more and Company. Our next question comes from the line of Alex Blostein with Goldman Sachs. And Company. Please proceed with your question. Hi, guys. Thanks for taking the follow-up question here. I had another and Investor Relations. So the question around retail and specifically related to Crest. Looks like AUM there is approaching about 700,000,000 and Not huge in the context of KKR as a whole, but it's an important driver potentially as you think about the sort of the affluent and the mass affluent part of the retail market. Joe, can you maybe walk us through your sort of distributions for Crest specifically, how many platforms and sort of the type of platforms that are contributing to flows here, and Company. Just taking through kind of wirehouses, independent broker dealers, etcetera, and really trying to understand any distinct advantages of having something like this in a and Company. 40 Act wrapper, that sort of really resonates with distribution partners. And I guess lastly here, I think, Craig, you mentioned that there might be other opportunities to bring additional retail product to market maybe in core. So curious if we get some early kind of thoughts on that. And Company. Alex, why don't I begin. So just for those of you less familiar, CREST is an acronym for KKR, Real Estate Select Trust. It's a continuously offered registered closed end fund with re taxation that was created for individual investors and it does It features daily pricing and subscriptions via a ticker. So we're at the very beginning of Crest's evolution, which is exciting for us. We began raising capital on 2 platforms only in June. And over time, we do expect to see an expansion across many platforms globally. So Alex, we don't have a whole ton of details. I think the main takeaways for you are really threefold. 1, the size of the end markets here are massive. 2, it's a big opportunity for us. And 3, we're really pleased with our first steps, and we'll keep you abreast as we move forward from here, both as it relates to this in addition to as other products and strategies are launched, again through those products tailored towards the retail market. And Investor Relations. Our next question comes from the line of William Katz with Citi. Please proceed with your question. Okay. Thanks also for taking the extra questions. So a 2 parter again. Maybe one for Rob. As you think about the FRE margin, 62% this quarter and those weighed down a little bit by placement fees and obviously turning on some of the bigger funds. And Company. Where do we go from here? And then maybe stepping back given what seems to be a step function of earnings power, any thoughts on dividend policy? Thank you. Yes, sure. Bill, thanks for the question. And so we've signaled in the past and we expect to continue to make some near term investments here across distribution and technology. But even with those Investments. We do see a medium opportunity to drive scale efficiencies in our operating expenses. And we think that's going to yield margin expansion over time. And CEO of the Board of Directors. We've been operating generally in the low 60s. We do see a pathway over time to take that up to the mid 60s, and Company. But we're going to work through some of that additional investment over the near term that we flagged that we think is going to pay dividends for us in the long term. And then your question as it relates to dividend policy, nothing's changed as it relates to how we think about returning capital and shareholders, our policy and how we think about that has been consistent for a number of years now. We would expect it to continue to be consistent. Just to say, we'll evaluate it annually. We'll do that at the beginning of the year like we have done in past years. And our expectation as we have done in past years is that We're going to look to modestly increase our dividend on an annual basis. So that should be the expectation going forward. And Company. Our next question comes from the line of Michael Cyprys with Morgan Stanley. Please proceed with your question. Thanks for taking the follow-up here. More of a follow-up question, and I guess for Rob, if you could just maybe help us out with the deployment and realizations off the balance sheet in the quarter, please. Thanks. Sure. The deployment was $800,000,000 off the balance sheet in the quarter and the realizations were just above that at $900,000,000 On an LTM basis, Those numbers, Mike, are 3.1 of deployment and 2.6 of realization. And Investor Relations. This concludes our question and answer session. I'd like to hand it back to Mr. Larson for closing remarks. And Investor Relations. Thank you everybody for your time this morning. We look forward to chatting with you again after next quarter's results. Anything in the interim, please of course feel free to reach out directly. Thank you once again.