Good afternoon. I'm Patrick Davitt, U.S. Asset Manager Analyst here at Autonomous. It's my pleasure to welcome KKR's Co-CEO, Scott Nuttall, back to the conference after having Joe here for the last couple of years. Welcome back, Scott.
It's great to be back.
As a reminder, if you want to try to get one of your questions in, I have the iPad right here. You can put them into Pigeonhole, and I'll try to work them in or at the end if we have time. Scott, since we have most of the major large alternative managers here, I'm starting all of these discussions with some similar higher-level questions so we can compare and contrast easier across the group. It's obviously been a crazy couple of months. I think we all have a lot of whiplash. I still sense there's still a lot of concern around sticky inflation, higher-for-longer rates, potential for slowing economic growth, even stagflation. What is your latest thinking on these concerns, and what's the kind of internal House view on inflation rates in the economy at this point?
Sure. Happy to share. Thanks, everybody, for joining. Thanks again, Patrick, for having us back. Look, I think let's isolate that's a very, I think, a U.S.-focused question. We're a very global firm, which I'll come back to. In the U.S. context, in the first instance, I think our base case is likely inflation and rates a bit higher for longer. For us, that doesn't strike us as a big surprise. KKR has been around 49 years. If you look at the numbers over that 49-year period, average 10-year Treasury yields have been high fives. Average inflation has been 3.7%. We did this chart a few years ago at one of our investor conferences for our LPs and just showed the entire history from 1976 to then and what those two statistics look like.
The strange period was this 10-year period where rates and inflation were virtually zero. The rest of the time KKR has been around, it has been a very, very different space. To some extent, I know it feels very different than what we all got used to. It is almost kind of getting to a return to normalcy or closer to normal from our standpoint as you look at the history of the firm. We build portfolios for the very long term. It is much easier to think five, 10, 15 years out, especially right now, than it is five, 10, 15 weeks out. This is a period of time where we really enjoy that aspect of our business model. Long-term locked-up capital, $116 billion to dry powder.
When you invest in companies or assets and you think you're going to be in them for 5 to 10 years plus, you think about how the world's going to evolve. For the last several years, we've been investing with a view that we are going to own assets through a period of time where we're going to see rates go up and have higher inflation. Back to that chart where we circled that 10 years where it was zero. That was the strange period. We knew we weren't going to stay there. We've been constructing portfolios with that mindset. From the U.S. standpoint, even though we think rates and inflation a bit higher for longer, it's entirely consistent with how we've been deploying.
We've been investing in companies that have more of an ability to protect their margins as you would if you thought inflation was going to go up. There's a dynamic of this is not an unexpected outcome for us, and our portfolio is performing as expected through it. That is the U.S. That is very much a U.S. answer. It's also a global answer. As you know, 20 of our 28 offices are outside the United States. A majority of our deployment this year is outside the United States. We have tools that we've built that we've talked about in the past around how we create value post-investment in companies and assets. We have the ability to make our own luck and actually execute the investment thesis. We're just plugging away doing that.
None of this is, I would put, in the unexpected or concerning category from our standpoint.
Helpful. Thanks. With that in mind, you noted on your earnings call minimal direct exposure to tariffs and the trade war. I think most people are more worried about second and third-order impacts. What are you seeing real-time in the portfolios? Any signs of contraction or stress emerging across?
Not really. We've seen very consistent trends. Part of that is because what I mentioned around portfolio construction. We lived through Trump 1.0. That got us trained as to how to think about tariffs. We kept investing with that as part of the investment process, what would tariffs do to a business or an asset as we looked at it. We also obviously experienced COVID. You get really smart, really fast on supply chains and diversifying your sourcing. We also kept applying those lessons. As we look at our portfolio, we actually feel quite good. We haven't seen the sorts of things that you'd be more worried about, I think, like consumer pullback in the U.S. We have not seen that as of yet. Feels like people are hanging in there just fine.
Part of that is how we constructed the portfolio. We're actually exposed to the trends and themes we want to be. I think this is going to be a period of time you're going to have a lot of dispersion. There are going to be some industries, some areas that do quite well and are reasonably well protected. There are going to be some that are much more significantly impacted. We think we're on the right side of that, at least as we sit here right now.
One more on the macro track. I think KKR has been one of the more optimistic on the realization outlook of the other alts. Many more sounded a little bit more cautious. Obviously, things have improved since the earnings call. What about your portfolio has you feeling seemingly more constructive than others? Secondly, given your visible pipeline of realizations, how has that evolved since the markets have recovered from Liberation Day?
No, we feel quite good. Again, it's a little bit back to the theme from the first answer. We have tried to be thoughtful about building portfolios and our firm to navigate through different cycles. That is absolutely the case as we've built portfolios. I think most of this question is usually around private equity and infrastructure where the monetization question comes up. One of the things that we learned a long time ago was just if you have five years to invest a vehicle or a fund, do about 20% per year. Don't try to be too smart. It's not a good idea to try to time the market. We know that because, candidly, we look back and we made mistakes pre-financial crisis.
We overdeployed in 2006 and 2007 and did not have the dry powder we wanted to have as we headed into the GFC. We changed the way we invest. We got much more of a macro portfolio construction overlay that is married with the micro work that we do. We are looking at what look-through risks we are actually taking. As a result of that, when it gets to a year like 2020 where our industry deploys very little because everyone is in COVID, we stayed on that linear line. A year like 2021 where the industry deployment went up dramatically in a high-valuation environment, we stayed on that linear line. In areas like private equity, deployment was flat that year relative to 2020. We find it is a great discipline. What that results in is a very mature, consistent portfolio.
As you look, for example, at our private equity portfolio right now, over 60% of it is marked at more than 1.5x our cost. Our public names on average are marked at 4x our cost. We have, as I mentioned before, a highly global portfolio. We have been busy exiting investments in Japan. We have been selling infrastructure investments. We sold not long ago an industrials company in the U.S. We have a mature portfolio. That is why the line of sight is as strong for us as it is. I think what you pick up if you read the news, the business media, there is kind of this broader narrative around less monetization, not as much money going back. I think there is probably some truth to that for the industry. Back to my dispersion point, there is a very, very different answer by firm.
Just take our America's private equity, which is usually the locus of where this question comes from, is can you get out of stuff in the U.S., especially right now? For the last eight years, we have given more money back than we've called in that business every single one of those eight years. The ratio of money back to money called is 2 to 1. The reason that we're very comfortable is we can see it in what we have today. We've been delivering it for our LPs, which of course feeds through to fundraising conversations.
Maybe one last one. You have, to your point, a lot of large public positions with high MOICs. Do you think we need more visibility on the trade situation for the strategic side of the realization equation to get better?
No, I think it kind of depends on the strategic. Most strategics are in very good shape from a balance sheet standpoint. As we've seen, and you noted, the market's recovered. If they want to use their currency, those conversations are continuing.
Great. Obviously, people are always super focused on realizations with KKR. Strategic holdings is a newer part of your business that could theoretically create a lot more ballast to the volatility around realizations. For those less familiar with KKR, can you explain how that segment came to be, why it is in your model, and how it differs from what your peers are doing?
Oh, absolutely. A lot of the way that KKR has evolved, it came out of observing opportunities that we could not action and that we were frustrated by. The backstory there is we were finding that as we looked at opportunities, in particular in private equity, there are a number of investments that probably had a little bit lower risk, but we thought really attractive reward for that risk. Think of businesses that are more recession resistant, that could navigate a cycle, a lot of recurring revenue, but did not model out to a 20%+ return because maybe there were not enough improvement opportunities. Much of what we do is you have got to create the value post-investment.
These are really nice investments where if we all looked at it, you'd say, boy, if I could get a 15% compounded return on that risk profile, I would take that all day long. We kept having to pass on those because we did not have a place to put them. That is where this came from. We said, this is kind of dumb because we realized that there was money waking up in the world, whether it was mezzanine or distressed, trying to find a mid-teens return. There was not change of control private equity investing targeting mid-teens in long-hold assets. We looked at that and said, this does not make a lot of sense. We really like these. This is also informed by the fact that when Joe, my co-CEO, Joe and I got to KKR, Berkshire Hathaway's market cap was $41 billion.
It's now, last I looked, a trillion one. That's just 12.5% for 29 years, which is how long the two of us have been at the firm. These businesses have those attributes. What we said is, you know what? We really like this. We've already sourced it. Let's have an ability to say yes instead of keep saying no. That's where it came from. We were talking to a couple of friends, including Chubb. We have a close relationship with Evan Greenberg and his senior team. We were just talking about this observation of what we're doing. They said, hey, can we do that with you? It's like, great. We worked with them. They've been fantastic partners throughout. We've been building this portfolio together with them and one other party.
That's the portfolio that's now the 19 companies that we talk about as part of strategic holdings. We've been building this portfolio of companies that really have those attributes. That's the backstory. What shows up in strategic holdings today is our balance sheet investment in those companies. What we have that shows up in our asset management business is the fact that we have third-party capital alongside us investing in those companies that pays us fee and carry. That's how it's built. It's got both elements to the business model.
You're not the only large alternative manager that throws Berkshire out as a potential comparable model. The market doesn't appear to be treating the alternative managers saying that the same. What do you think is missing there in terms of closing that gap with how people perceive somebody like a Berkshire Hathaway and somebody like a?
Yeah, I think it's just performance. I mean, this is a segment that we just started talking about and reporting separately starting last year at our Investor Day in April. This is relatively new. We started this effort eight years ago. We need to make the investments. They need to deliver, perform, mature. Those companies are now paying us dividends. We had been talking about it for a long time. As soon as we said it's a segment, there's dividends attached, it's going into our earnings, and people needed to put it in a model, the conversation changed. Now people are spending more time thinking about it. In fairness, it's a relatively small part of our earnings today. It will be dramatically more 5-10 years from now. I think that will continue to have the conversation evolve.
What we have said is next year, think $350 million-plus of dividends going to $700 million-plus by 2028, going to $1.1 billion-plus by 2030. To put even the next year $350 million in context, for Q2, it is probably mid-$20 million just for the quarter. It is going to go hockey stick up. As that happens, I am betting the discussion on this topic continues to increase and be more relevant.
Is there upside to these targets? Or are they pretty set in stone in your view?
We put plus against it.
Got it.
We use the plus a lot.
We'll leave it there. You pointed to KKR's higher non-U.S. businesses as a potential ballast to U.S. stress and/or capital movement away from the U.S. Are you seeing any noticeable gapping in non-U.S. versus U.S. trends? In particular, the client conversations, any change in where LPs want to be allocated within your ecosystem?
No, not dramatically. This is where it's really nice to be as global as we are. I mentioned that more than half of our deployment this year is outside the U.S. I mean, take an asset class like infrastructure for us, more than 70% of our deployment the last five years in aggregate is outside the United States. We're able to have a very global conversation. I think in terms of how our investors are thinking about it, there's been a really dramatic shift. If you went back to January, February, and pre-Liberation Day, there was a conversation that was, maybe I need even more U.S. If there were 60%-65% exposed to the United States, maybe they want to take that number up. More anxiety about Europe, trying to think about where to get the right exposures in Asia. That was the sentiment in February.
That's changed. If they were thinking about putting more money in the United States, at a minimum, they've kind of said, you know what? I'm at a minimum happy with where I am. In some cases, in some places, thinking about actually maybe Europe, I wasn't paying enough attention. Maybe there's more I can do there. Asia, what are you doing in Japan again? Like 40% of our portfolio in Asia is in Japan, which we think is a massive opportunity across virtually everything that we do. We're having a much more global conversation. It had become a little bit U.S. centric. I would put it now in the category of more balanced in terms of the discussions we're having around the world.
Great. Let's move to retail and wealth, which has obviously been probably one of the biggest topics in alternative asset management over the last couple of years, obviously a big piece of your growth algorithm. Firstly, do you have any updated thoughts on how client demand and redemption requests have tracked through the post-Liberation Day volatility? As I sense, a lot of investors are worried that that piece of the puzzle could be more volatile than the institutional flows.
On the redemption side, we have not really seen much of anything. Part of it, it is early. One of the things we built into a number of our structures was there is like a soft lock penalty. If you want to leave early, you have to pay a fee. Not to us. It goes to the people that stay in the vehicle. I do not think we would expect to see anything at this stage. We certainly have not. We mentioned on our call that we were pleased. I think we got the numbers the night before our earnings call because we did not quite know what to expect in April because this is, as you point out, relatively new for us. Just to orient everybody, I think the first three months of the year, we averaged about $1.3 billion inflows per month. April was $1.1 billion.
That surprised me to the upside because you would have thought on the margin, people would have been more hesitant given what was going on in the world. We just did not see that. We are seeing very significant adoption in a bunch of these platforms. And remember, just take our private equity product as an example. We have only had that launched for two years. We are still getting on more platforms, then you have infrastructure, real estate, credit, U.S., Europe, Asia, 40% of our flows. This number usually surprises people coming from outside the United States. We have focused on building a very global distribution effort to try to make sure that we approach this in the same manner we approach everything else we do.
Have you heard anecdotally from any of your distributors that wealthier people are looking at alternative products as a place to park money when things are more volatile, like pull your money out of the equity market and put it in these products? Or is it too early to kind of?
I think it's a little early. There is a beginning of a narrative of when the public markets dislocate and people see the volatility, especially in the traded equity markets, that private markets on the balance are probably going to have less volatility in terms of what they experience in terms of marks. There has been a little bit of that. I'm not sure there's been enough data to really tell you that that's something that we think is going to have a big impact. We have heard that from people that have been allocating to our asset classes for a long while, though. It wouldn't surprise me if high net worth had the same observation and perspective.
Now, you said that the K suite of products, the more established K suite of products probably covers all the asset class or strategy bases you need to tackle the higher net worth channels, but have recently launched more products for the mass affluent channel with Capital Group. For those that are less familiar with KKR's story, I think it would be helpful to get a quick overview of how these newer products are structured and any early view of how distribution and client demand is tracking. I know it's early.
Yeah, sure. The background more broadly, the K- Series, the K suite, as we call it, that's in effect taking what we do every day at KKR across those four asset classes, PE, Infra, Real Estate, Credit. Think of it as those same deals that are going to institutional investors in fund or separate account format. This is just a wrapper that allows individual investors to invest in them. In the U.S., it's a million plus of net worth. It's accredited investors. It's largely sold through platforms and increasingly RIAs, so wirehouses, RIAs, and some independent broker dealers. That's what that is. When we talk about the $22 billion or so we've raised, which we think has a lot of upside because keep in mind that's $22 billion out of $650 billion plus of assets.
It is young and new, but growing rapidly. What we also observed, though, is there is something like 5%-7% of U.S. households have a million plus of net worth. That K suite is getting to a very small percentage of individual investors in pick your market, but use the U.S. in this example. That means there is 93%-95% of the investing universe that could not invest with us. That is where the Capital Group partnership comes in. Capital Group has a significant relationship and platform. That is the American Funds. We are partnered with Capital. They have significant relationships with advisors all around the world, but in particular in the United States. Just to size it, there are roughly 300,000 financial advisors in the United States. Capital has existing relationships with 219,000 of the 290,000. We have created product with them.
We're calling public-private solutions that in effect take some of what they do, some of what we do, and we're able to sell this to the other 93%. That's the background. We just launched the first two of those a few weeks ago. We're working on new products with them. We're going to be out with an equity product that has private and public equity in one wrapper. That will be followed by a real assets product.
Any early thoughts on the uptake or demand?
Wait, wait. I mean, it just got started. It is the same program we are seeing with the K-Series. We are now getting on platforms. They have an army of salespeople that we are spending time with and presented to talking about this. We are very optimistic, but it is going to take time. Do not ask me to size it because I do not know how to yet. This is all new.
On that, where do you think we are in terms of building the U.S. and global distribution base for all of these products?
For the firm itself?
Yeah, for KKR, yeah.
Yeah. I think we've made good headway. We're still building. We're still hiring people, in particular with a focus on the K suite in the U.S., Europe, and Asia. This is a ground game. You need to have people in the advisors' offices. We are running education sessions for advisors all around the world to explain to them what it is that we actually do, how these products are structured. We're trying to make sure they have what they need to do the job for their client base. Underway, I'd say we're more than halfway done, but not three quarters of the way yet.
Yeah, got it. Beyond the K- Series and these new Capital products, is there a broader pipeline of new products for Wealth Channel? Or do you think you're getting close to having the right?
Yeah, I mentioned a few on the Capital Group. I think that project pipeline is very, very clear. We're spending time also on other areas. Like are there things that we could be doing around asset-based finance as an example? We're spending time thinking about what else could come down the road. A lot of what we're doing is just executing what's in front of us. I also think there's an interesting nexus. We've talked in the past about our insurance company and our insurance capabilities. Remember, we're issuing insurance policies every week, tens of billions of dollars a year. An insurance-wrapped K- Series, that type of solution sold through third-party distribution and our own. That's also another new product area that we're exploring.
Lastly, on this topic, I think one of the more interesting comments you made over the last year was that you were seeing K- Series demand on the institutional side. Can you update us on that trend? What kind of clients are you talking about here? Could this be a big incremental pool of AUM? Or is this just cannibalizing from existing wrappers you already have?
I think it's just expanding ways for people to work with us. To be clear, I mean, we have some high net worth, like family offices and even high net worth individuals. They like to invest in the traditional fund format. They like to invest in what the institutions have historically invested in. We also distribute our traditional flagship funds, as an example, and others through private wealth platforms. Individuals invest in that in size. There are also some of those individuals who are saying, well, wait a second. In the K- Series, you guys manage the liquidity. That's how it works, right? They can invest in an existing portfolio. The liquidity is managed inside the vehicle. We manage it. They say, well, that's easier for me. I don't have to do the admin.
The capital calls, the distributions, they do not have to worry about that. Some of them are saying, you know what? I will do that instead of the flagship. Some are saying, I like the flagship, and I am happy to take the admin burden myself. The comment that you are referring to is me saying that sometimes smaller institutions just do not have much of a staff, and it may be hard for them to deal with the episodic funds. Remember, we have eight or nine strategies in private equity alone. What we are doing in the K- Series for PE is we are putting all of that in one easy-to-use product. Some of those smaller institutions may say, you know what? I do not have the ability to invest across everything you are doing, but I will do that. We are starting to see that on the smaller institution side.
The real point of this is let's give people a choice and make it easier to invest in what we do. Then each individual investor can decide what's best for them. As an industry, as a company, we did not make it that easy to invest with us for a very long time. We did very little in product innovation. A lot of this is catch-up. Making it easier for individuals to invest with KKR, it shouldn't be as new a concept as it is. That is what's going on right now.
There's a question from the audience that I think dovetails with this kind of a broader question about allocations and how your clients are thinking about allocations. Pension funds, ultra-high net worth, are said to be reducing direct private equity exposure. Do you think this is an example of lower-performing funds getting removed? Or do you think there's a shift away from the asset class?
We're not seeing a shift away from the asset class. I think what we are seeing is consolidation. I think what happened is there was a period of time. Remember, you had 10 years. Remember the little chart I referenced when rates were virtually zero, inflation was virtually zero, multiples were expanding, everything, everybody looked smart. There was a while there that if you weren't making money investing in levered assets, there might be something wrong with you. We kept telling our firm, do not confuse a bull market with a brain. You've got to be able to invest through cycles. I think during this period of time, there are some investors globally that diversified who they give their capital to. Now performance is starting to have more of a range to it.
Instead of everybody winning together, there's some that are starting to stand out more than others. What we're hearing really weakly is investors saying, you know, I want to do more with fewer partners. They are eliminating GPs that they work with from their list and telling them, I'm not going to re-up in your next fund. They're coming to folks like us and others where they're pleased with the performance and saying, can I do more with you? Can I do more across asset classes? That is definitely happening. That consolidation trend is something that we're seeing and feeling in our business. I think that is really the big pools of capital. Most of them we talk to, if there's one trend theme that I would point to, that's the one that stands out.
Helpful, thanks. Let's move to private credit. The press seems to be kind of, once again, seemingly hyper-focused on that being the center of potential problems in the world for whatever reason. I think it'd be helpful to get an update on your thoughts on the trends there, to what extent you are seeing problematic pockets there across the various strategies that could be called private credit.
No, we're not seeing any credit deterioration as of yet. I know people are worried about it. I think it's probably because it's grown so much during this period of this benign economic environment. We don't worry about that as a systemic risk, which sometimes people talk about. It's a trillion seven, trillion eight market. In the grand scheme of things, it's not that big. Also, these assets are matched funded in terms of how the asset liability matching works. They're senior in the capital structure. There's no doubt you've had defaults probably below what I would call normal, given the economic environment we've been in. We're not losing a lot of sleep around that, creating big issues for the industry. If we have a recession in the U.S., as an example, I'm sure there's going to be more defaults there to manage.
That is where actually having a private equity firm connected to a credit firm actually works out quite nicely because we are comfortable taking the keys. There just has not been much of that that has shown up as of yet. For us, as a reminder, the bigger part of that business for us is the asset-based finance business, not the direct lending business. The more it gets written about direct lending, our ABF business is a lot bigger.
We'll get to that next. I have one quick one on direct lending. Feels like the broadly syndicated market's open again after being closed for a few weeks. Is that what you're seeing? How is direct lending competing with this kind of stop and start of the BSL market being open and closed?
I think it's a pretty healthy market. When the leveraged credit, the leveraged syndication market closes, the private credit market's there and has available capital. When it opens back up, the private credit market is still there with available capital. It has allowed, I think, the industry to get deals done, even if the banks don't feel comfortable taking underwriting and syndication risk. I think it's really, I think, quite healthy, more healthy than it was when it was kind of more of an on-off market. I think those two markets help each other. You're right. This week, both are available.
Do you think that direct lending deployment can still be meaningfully better this year with the liquid markets kind of taking some share back?
Yeah. Because what tends to happen is the pie gets bigger. And the percentage of the pie that direct lending has gets smaller, but it is still more pie. For us, we deployed roughly $20 billion, no, $16 billion last year in direct lending, $4.3 billion in the first quarter. It is still tracking.
Great. Now to asset-based, obviously a big part of your private credit growth story, KKR probably has among the broadest origination capabilities in the group. First, could you update us on how that annual origination pie has tracked this year? To what extent volume can start taking on more third-party insurance AUM versus just funding Global Atlantic?
Yeah, we're funding both. Just to size it, to the credit business real quick, credit, $250 billion of our $650 billion, give or take. You break that $250 billion down, $130 billion is going to be leveraged credit, so think high yield and loans. You've got pushing $75 billion in asset-based finance, and call it low to mid-$40 billion in direct lending. Then there's some other stuff, opportunistic investing, et cetera. That is how that business breaks down overall. Within the asset-based finance business, that is a business where you need to have a lot of capabilities, and the barriers to entry, I think, are quite high. We have pushing 20 platforms, 7,500 employees in those platforms, and they're out originating for everything that KKR does. To your question about insurance companies, our own and third-party, Global Atlantic, roughly $200 billion of assets now.
That's our insurance company. Our third-party insurance clients, somewhere between $70 billion and $75 billion of AUM, last I looked. We are growing both. The origination platforms in ABF and direct lending are feeding both GA and third-party insurers. We see a lot of opportunity that keeps scaling the third-party business. When we announced the GA deal, the third-party AUM was something like $25 billion of AUM. Now we're pushing $75 billion. The fact that we are originating for ourselves has made us that much better a partner for third parties.
Helpful, thanks. Away from insurance, I've heard kind of counterintuitively from other alternative executives that the education process on ABF for pension funds, other institutional clients has been longer than it was for direct lending, which I find interesting. Where do you think we are in that client education process on ABF at those other client bases?
Look, I think it's a really astute question. We have, if you think about the direct lending market, and I mentioned the trillion eight or whatever the number is these days, just to put it in context, the asset-based finance market we think is close to $6 trillion on its way to $9 trillion. From our seats, one of the things you get to see is kind of how asset classes become asset classes. We came out of the GFC, virtually nobody had an allocation to infrastructure. Sure enough, now that's become regular way. Private credit direct lending starts around the same time. It was a new thing. Now virtually everybody has an allocation. ABF is one of those up-and-comers. It's early innings. I think we are less than 50% of the way through the education process.
We have some early adopters that have had great experience. That is going to lead to more flows. It is still early, just in an absolute sense relative to direct lending. Relative to the size of the end market, it is very early. We think there is a significant amount of opportunity here to scale.
I think that dovetails nicely with another concern we've been hearing on the deregulation front, that the new administration plans for bank deregulation could derail, particularly this ABF opportunity. What is your updated thinking on that opportunity through the lens of potential bank deregulation?
I do not think it is going to impact our business much. Yeah, maybe there are some capital relief trades that are less necessary, but that is a pretty small amount of the activity. No, we are not expecting that to have a big impact because some of the asset classes we are involved in, because it is not just things the banks used to do. We do not think they are going to start kind of financing some of the rail cars and airplanes and some of the things they used to do. Remember, we are also doing some of these larger scale deals. Like we did a big portfolio deal with Discover on the student lending side. We bought a big consumer receivables portfolio from PayPal. There is this theme of the public markets like companies that are capital light.
Whenever a company that is supposed to be capital light starts to accumulate assets, that tends to be an opportunity for us. It is not just the bank angle that matters. It is also this move to capital light that matters with corporates. I do not think it is going to have a big impact.
I imagine a lot of, particularly after the deposit crisis a couple of years ago, that still do not want this stuff on their balance sheet regardless of what happens with the capital chart.
Correct. Yeah, they don't.
All right, let's move to insurance. On the one Q call, you got it down on spread earnings growth this year. Could you help us better understand the moving parts in there? What's restraining the earnings growth at Global Atlantic? And when you expect earnings growth to resume in that part of your earnings?
Sure. Just context for everybody. We report in three segments. We have asset management. We have insurance. Then we have Strategic Holdings, which is that longer term hold discussion we had earlier. What you are referring to is the earnings that show up in the insurance segment themselves. What we tried to lay out in this last call is actually how we look at it. We do not look at it just as that one segment of earnings. We look at the totality of the impact that Global Atlantic has on KKR. That is part of it. The earnings that we make in the insurance segment. Remember, Global Atlantic is a $200 billion AUM client to KKR in the asset management context. You think about the management fees that we are able to be paid by Global Atlantic. That is meaningful.
We also have a third-party business. So roughly speaking, GA has $140 billion-$150 billion of assets on its balance sheet. We also have third-party capital alongside. That is the other $50 billion that gets to the $200 billion. So we've created these sidecar structures. So we have funds that sit alongside the balance sheet investment in GA. Those funds pay us fee and carry. That fee and carry also shows up in asset management. Then we collect capital markets fees from activities and investments that we make in GA from time to time. That shows up. So there's a series of things that actually show up in asset management. We look at the total return on our insurance efforts as the combination of the two, because we wouldn't have this if it wasn't for this. That's how we look at it.
What we said on the call is the return on capital that we look at on that basis is approaching 20% already. We are in the midst of transitioning the business model now that we own 100% of the business. We think there is upside to that approaching 20% combined number. Part of that will be raising more third-party capital. You want to keep it simple. Today, we probably get roughly approaching $9 billion-$10 billion of equity in the business itself and probably $5 billion or so of third-party. I think that is going to go from roughly a third to more than half as we raise the third fund alongside GA, IV3, plus other partnerships we have created. We have talked in the past about Japan Post Insurance. I think you are going to see the mix shift continue.
That'll continue to drive the ROE up in addition to what we're doing in terms of investing in alternatives and shifting to more long duration. There's a lot happening with this story. You're going to see the insurance and earnings kind of continue to tick up. You're also going to see the asset management implications of that go up as well. We'll share the combined, because that's how we think about it.
As we think about the various pipelines to kind of growing Global Atlantic specifically, M&A comes up a lot. There's obviously a well-reported large asset available for sale. Understanding you can't address that deal specifically, but what is your appetite for large scale M&A at Global Atlantic?
We're in the market. We're happy to look. I think that the key for us is making sure we can understand the liability side. That was one of the attractions of Global Atlantic, it is very straightforward, simple liabilities where we knew that we could add value on the asset side. You did not have a big range of outcomes on the liability end of things. We're looking all the time. I think for us, probably the first choice, Patrick, would be something outside the United States, if I had to guess.
Okay, that's helpful. One from the audience on the insurance model. There's obviously a lot of concern around the balance sheet heavy approach through the lens of credit going from benign to potentially not benign. How would you defend against those concerns, which appear to be kind of feeding into a discounted valuation for you and others?
In terms of, is it a balance sheet question?
Yeah, a balance sheet question.
Yeah.
Credit, yeah.
Yeah. I do not have a lot of, I think if you are worried about credit exposure in the context of a firm like ours, you probably should not own the space. Because if you are worried about losing money in senior loans or investment grade, which is a lot of what sits on the balance sheet, then you should be really worried about the equity that sits below in a highly levered capital structure. A lot of this comes down to what do you actually think is going to happen? Does the person that you are backing, do they know how to invest in different parts of the market, in different asset classes, in different places? If you are worried about that, you probably should not want to own us if it was all third-party AUM or if we have some on balance sheet.
If you think about what our job is, and Joe and I were really clear, we are focused on compounding long-term recurring earnings. We gave a 10-year EPS projection. I've been told that is fairly rare. We said, this was last April, we said we would get earnings per share to $15 plus inside of 10 years. I think we said 10 years or less. That's what we're focused on achieving. What we believe is with this combination of asset management plus insurance plus strategic holdings, we can do that. Because we have to create a lot of net income. We have to have it continue to compound at a really attractive rate. We're the biggest shareholders. People at KKR own 30% of the stock. We're in it with you in a huge way. That's the path we're on.
As you think about how we're getting from here to there, it's really a bet on our own ability to perform through a cycle across asset classes. Let's have an ability to monetize that origination in a bunch of different ways for all of us as shareholders participating in that. Asset Management, we get a fee and a carry for doing it. Insurance, we in effect have 100% carry over a fixed hurdle that we all own together. Strategic Holdings, that's our capital that's compounding and earning cash dividends out of great companies with high market shares that you'd like to own for 10 to 20 years. That's the model. All of it monetizing the investment capability that we have as a firm. That's how I look at that question in that context.
If you do not feel good about our ability to originate and then actually make money through a cycle, then I am sure there are other presentations that are interesting for you. That is what we are focused on doing. All of us have virtually all of our net worth in what I just said. That is the dynamic that we set up.
Thanks. Let's move to FRE growth, Fee-Related Earnings growth, for better or worse, kind of the core of how everyone values these stocks. Obviously talked about a lot of good stuff that feeds into your 20% Fee-Related Earnings growth target. For those that might not be as familiar with the story, could you quickly unpack what you think the biggest building blocks to that view are?
Sure. Yeah, we have been clear. We put out targets for next year's FRE per share. We said $4.50 plus per share and still feel really good about that. The building blocks are really simple. First is Management Fees. If you go back to that Investor Day deck or virtually any deck we do, we show you kind of the aging. We have a bunch of businesses that are still maturing. In our business, and I'm sure like yours, it takes 10 years to create a 10-year track record. In our business, take Infrastructure, Fund One is $1 billion, Fund Two is $3 billion, then $7 billion, then $17 billion. You have this asymptotic thing that happens in our business. We have a whole bunch of businesses that we started 2010 to 2015 that are just getting to that part of the curve.
That's kind of the first answer to your question. Part of that will be Insurance scaling. This kind of maturation of a bunch of businesses we started post-GFC is going to be the biggest contributor. You have the capital markets opportunity. That was $1 billion plus in revenues for us last year. We think can continue to grow both for what we're doing in terms of investing and more third-party because there's a third-party element to that business as well. You get Expense Management. We think we can continue to scale our margins. We're focused on monetizing everything we do, which means we can do it with fewer people. I'd say there's OpEx and comp leverage that we expect to get over the long term as well. You put those together and we see a lot of FRE growth.
On that, can you point to any areas you think this view might be overly conservative? Through that lens, specific products that you think have the potential to suddenly start growing much faster than what you currently expect?
The first one that comes to mind is Private Wealth. I think that's definitely on the list. I think Insurance, now that we own 100%, monetizing that machine we've built in a more thoughtful way, now that we can use all of KKR, despite the name Global Atlantic wasn't doing much outside the United States, we're going to remedy that. There is quite a bit of opportunity there. I think Infrastructure has a lot of room to run. It will be a much bigger asset class for us down the road. It's at $80 billion. Our Private Equity business is $200 billion. I don't see any reason that Infrastructure can't be at least as big as Private Equity someday. Take Asia, where we have nine offices and approaching 600 people, not a single expat. You got to be really local.
$70 billion-$80 billion of AUM, I think that number is going to be dramatically bigger. So said another way, we got a lot of places we think we can grow very meaningfully. I'm not sure the market appreciates all of those the way that they might. And I think what the market doesn't appreciate really much at all, especially lately, is the durability of everything I've just talked about. Because we also remember changed the way that we present ourselves. So we take Fee-Related Earnings plus insurance plus strategic holdings. We created a new metric last year called total operating earnings, TOE. We love three-letter acronyms at KKR. So TOE is meant to be those recurring highly modelable forms of earnings that you can just count on and look to.
Below the line, you have got carry, which is going to be a little more volatile, and then balance sheet gains and income. The TOE line we have said is going to be 70% plus of the pre-tax earnings of the firm. It has been lately closer to 80%. We expect that number to continue to scale and will be more durable. When you get to down markets and the R squared in our space gets to like 96% because everybody gets scared at the same time and sells, I think this is a great opportunity for us as a firm to prove the durability point. That is why you heard such optimism on the call the other day, because we see that as a big opportunity.
To the monetization point, we said we had line of sight to $800 million of monetizations already, $250 million of that in the quarter. We were only four weeks into the quarter at the time. We are optimistic that we can kind of prove the durability point with performance.
Let's finish on capital, which is always a key focus for investors given your larger balance sheet. I sensed at Investor Day, last day, one of the most exciting takeaways from investors was the idea that you have $25 billion of excess capital generation over the next five years. How do you see the priorities of deploying that $25 billion?
Yeah, we're going to look at every dollar, probably the way all of you would, what's going to create the most significant bottom line per share impact. How are we going to allocate it so we can grow that durable earnings per share on a recurring basis at a really attractive rate? It goes to four places. There's insurance, investing more into GA so we can scale the insurance earnings plus critically the asset management earnings. There's strategic holdings, the core private equity, these long-term holds I mentioned, paying us dividends with a lot of consistency and a lot of visibility. There's strategic M&A that we'll look at from time to time. We've done some of that. I think the premium would be on perpetual capital. We don't like paying a multiple for things that run off.
Perpetual capital, relatively few people, ability for us to monetize it by plugging it into everything that we do. Then we always have stock buybacks as another way that we can do it. We have bought back, since we created our buyback program, 15% of the free float at a stock price, last I looked, somewhere between $28-$29 per share. That is another way that we can express views. It would be those four.
Just a quick follow-up on the M&A. What would be the white space from a strategy standpoint? I understand that you'd like more perpetual capital, but what strategies would you see the most white space?
I'd say insurance outside the U.S. could be something that we would think about. We spend time thinking about life sciences. I think you could see us do something there over time. Maybe things in real assets, in particular outside the U.S. It's hard to find opportunities that meet our criteria because we're so focused on keeping the culture of the firm intact and focused on this perpetual capital point. As you know, we like to have that number increase as a percentage of the total. It just speaks to the durability of the business. Few and far between, but those would be a few areas that come to mind.
Great. Thanks so much, Scott. Very helpful.