Okay, good. Okay, thank you very much. All right. Good morning, everyone. My name is Bill Katz. I cover the asset managers and retail brokers for Credit Suisse. Thank you all for coming out today. On behalf of Credit Suisse, I'd like to welcome the management team of KKR. With us today is Rob Lewin, who is the CFO, and I believe Craig Larson from the IR team is here as well. Welcome both of you. At the end of 2022, AUM was sitting about $500 billion of assets just north of that. Fee-paying AUM were about $400 billion. Perpetual capital is now approaching $200 billion, and you're sitting on north of $100 billion of dry powder.
For many, you know, Rob has been the CFO, and prior to that ran a bunch of things, including helping develop the, you know, very differentiated Asia footprint. Welcome Rob and Craig in the audience. Thank you guys so much for coming in this morning. Maybe to kick off a little bit, and there will be a microphone going around, so if anyone would like to ask a question a little bit later on, please feel free to get your hand up. It's a little hard to see, but I'll make sure and try and accommodate that. You've laid out, you and the management team have laid out six core drivers to growth here as we look out over the next several years. Maybe we go through them a little bit one by one.
Maybe the more timely one might be, the most timely one might be what you're doing in real assets, which includes infrastructure and real estate. Can you give us a sense of how you think about that growth path from here?
Yep. First, Bill, thank you for having us this morning. Good morning, everyone. Thanks for teeing it up. We've talked about six key growth areas for us that we think we can achieve really outsized growth over the next number of years. The commonality really across all six of them, we've got real momentum in each of them today and a lot of conviction as a management team that we're gonna be really successful here. The first one you mentioned, Bill, is around real assets. That is principally for us today, our infrastructure and real estate business. We also manage a relatively small permanent capital vehicle on the energy side of our business. We have just a ton of momentum here.
If you look back, three years ago, so not that long ago, we had about $30 billion of assets under management and real assets. Today that number is $120 billion, so four times growth, in a three-year period of time. We really do feel like in a lot of ways we're just getting started. The addressable markets here are huge, and our market share is still relatively small. There's a lot more for us to do to be able to leverage the global teams that we've put in place, really to take advantage of a number of different opportunities we're seeing across the real estate and infrastructure spectrums, that, you know, we're confident we've got teams in place that can go take advantage of that.
Great. Great. Just the second one I was thinking about was APAC, and I know you were very instrumental in building that platform up a number of years ago. If my number is right, you've got $65 billion of assets. You've been very early there, and you've been diversifying the footprint, if you will. I think, and this may have been a little stab, but I think you've spoken, you and management have spoken about the possibility of the APAC footprint being as large as the then rest of the business. Obviously, things have changed a little bit since that statement, if you will. As you look ahead, what's the roadmap to success there? Maybe if you could help us just understand the diversification argument, both geographically and the product opportunity.
Yeah, sure. We started our Asia business in 2005. Bill, as you noted, I moved out there around that time and spent 5 years on the ground. We were principally building our private equity franchise during those early years. You know, really spent much of our first decade plus there focused on building, you know, what has become a best- in- class franchise on private equity. Today we manage a $15 billion pool of capital there in PE.
What we've seen over the last few years, is really leveraging our, I think, best- in- class country teams, and we've got nine offices today across all of Asia-Pacific, and the brand that we've built up in that part of the term, and marrying that up with our global capabilities across infrastructure, real estate, credit, and now growth equity. What that's translated to, you know, 3 years ago, we had about $20 billion of AUM. Today, that number is right around $60 billion, so three times growth in AUM in a 3-year period of time.
Part of the reason why we're so, excuse me, so excited about that part of the world, and Bill, you mentioned it, we've said a number of times our expectation is that our Asia business one day, you know, could be bigger than our US business. Part of that is secularly. You know, we expect over the next 10 years for more than half of global GDP growth to come from that part of the world. That's point 1. Point 2, alternatives in Asia are still well under-penetrated versus the rest of the world. If you look at alternatives as a percentage of GDP, it's about 25% of what it is in the US. We see lots of secular growth opportunities for the industry.
Given our market position in that part of the world right now, our brand, our more than 400 people on the ground, we feel like we're really well situated to be able to take more than our fair share of that addressable market as it matures over the next several years. That's why we're so excited about what we can create in that part of the world. As I look forward over the next 5 years, to me, it continues to be, you know, building out our private equity business as well as adjacencies next to private equity. Again, really marrying up those global capabilities in areas like infrastructure, real estate, credit, growth equity, impact. We see lots of opportunity to really grow in those asset classes in that part of the world.
Yeah. This came up a little bit last night. One of the themes that we talked a little about was just the, and maybe you said it, and I was just thinking about the questions here a little bit. In terms of you're relatively diversified within the footprint. Wonder if you could just walk us through a little bit around the Mainland China opportunity versus maybe some of the other regions, and just given some of the geopolitical crosswinds out there, how should we think about any kind of exposure?
Yeah. First thing is we are well diversified across Asia Pac. It's obviously a very large place. If you look at our AUM as a firm, you know, we are roughly $500 billion of AUM, a little bit more than 1%, just a bit above 1% is exposed to China. Most of what we've done in China to date is really focused around domestic consumption. If you look through Asia Pac and you look where our assets are most heavily concentrated, it's more in the developed APAC markets, so places like Japan, Korea and Australia. That's about 60% of our assets in that part of the world.
The other 40% of our assets in Asia Pac are more around the emerging parts, whether that's in parts of Southeast Asia, India, China, where we've got large presences across each of those markets. Listen, geopolitical risks in that part of the world are real. I don't think they're just concentrated to that part of the world. They're, of course, more global in nature. I think there's also some pluses to that.
As you think about the institutional investor who feels like they need to allocate capital to that part of the world, given where global GDP growth is going, I think we are viewed very much as the leader in that area, a real safe pair of hands. That should inure, I think, to our advantage, relative to that incremental dollar of capital going to an upstart competitor in the region. I think the more established players with brands and track records and, you know, significant resources on the ground, are gonna be better positioned to take that, you know, share of capital. I think there's pluses and minuses to the geopolitical risks on the ground there, Bill.
Gotcha. Gotcha. Okay. I see a hands up. Just keep going down the list. The other one's intriguing. I think you've been spending a little more time with that with the Street at your teach-in earlier in the year, which was a tremendous presentation, by the way, so thank you for that. You've been mentioning Core PE as maybe even underappreciated asset and an underappreciated strategic opportunity. Can you maybe just sort of, for everyone, just help us understand where that sits, how it flows through, and then you and I were talking a little bit last night about how to think about, like, the late earnings power that sits within that opportunity.
Sure. For those a little bit less familiar with KKR, core private equity is an asset class that I think about as a private equity, but tends to be a little bit lower on the risk spectrum, more modest volatility, potential volatility of earnings, typically a little bit lower leverage than traditional private equity, and importantly, investments that we intend to hold for 10 to 15+ years. Six years ago, six to seven years ago , we weren't in the asset class. Some of our competitors were. The reason why we entered the core private equity asset class was really 2 reasons. The first was the addressable market there is just really significant in size.
Secondarily and most important, we also really believed that we have the business model, we've got the industry expertise, the geographic depth. We've got real capabilities in building businesses over a long period of time, such that we had confidence that we could be the best in the world at this asset class. You know, that's started to play out in the numbers. We manage about $18 billion of third-party capital. I think that's the largest in our space. We also have a balance sheet portfolio that is exposed to these same investments, which today is about $5.4 billion in size. It can impact our P&L in any number of ways. From the third-party capital we manage, we can generate management fees, we can generate carried interest.
We also believe that these businesses that we're gonna hold for 10-15+ years will be very active issuers in debt and equity capital markets, should be synergistic with our capital markets business and drive transaction revenue. Over time, as they mature, should drive realized balance sheet earnings as well. Bill, you referenced this point about latent earnings power of the firm, and we had put some measures of that in our teach-in document in early January that's on our website. Maybe I just can spend a minute on that right now, because I think it's an important part of the KKR story.
Distributable earnings is really the core profitability measure that the alternative asset management industry has migrated around as a core profitability measure in a non-GAAP basis. I think on a non-GAAP basis, that is the best profitability measure undoubtedly. I do think the one thing it does is that it understates earnings potential for a growing alternative asset management firm. That's because the investments that you're realizing today that are generating monetization-related revenue today come from deals that were probably done five, six, seven years ago when funds were smaller, deal sizes were smaller, you just had less capital on the ground. I think for KKR in particular, it probably understates it even more versus our competitors for two reasons. One, we just have a higher percentage of our AUM as carry-eligible.
Two, really it's our balance sheet strategy and principally our Core Private Equity strategy, which by design is generating a very negligible amount of DE today from the investments that sit on our balance sheet. We put together what I think is both simplistic but very supportable set of assumptions to look at what latent earnings power is inside of KKR today. We use actuals as it relate to our fee-related earnings and insurance earnings. We just look at our capital on the ground today, put some re-return assumptions on those numbers, which is in line or below history for those asset classes. It would suggest that resident inside of KKR today is around $6 of earnings power.
That compares to the $3.90 per share of TDE we generated in 2022. That's without growing KKR dollar from here, that's without deploying another dollar of capital. We think that is what is resident inside the firm today in terms of earnings power. In part, certainly not wholly, but in part, that is what gives us confidence in being able to achieve our longer- term profitability targets, which include, you know, generating north of $7 per share of TDE in 2026.
Okay. Another driver that has been coming up certainly at this conference and in our conversation with investors, over the last several months intensifying, is the opportunity in global wealth. You've been building that platform up. I think there's about $66 billion of assets there at the end of the year, but only about $6 billion or so in quote unquote, democratized products. It's been about 15% of your flows, and I think you've stated intention of getting somewhere 30%, 50% over time.
Yep.
As you think about the roadmap from here to there, can you maybe walk us through how you start to increasingly scale the assets and the share of overall flow?
Sure. Well, I think let's start with the market. The individual investor today has somewhere around 1% allocation of their wealth to alternatives. If the individual investor's allocation to alternative migrates up to the mid-single digits, that could be the equivalent of $10 trillion of additional addressable market. The opportunity set is very significant. Now, if you look at our sophisticated institutional investors, their allocation to alternatives could be 30%-50%. We definitely don't think that's appropriate for the individual investor, but we do believe that with the right product creation, with the right managers, that their allocation to alternatives should go up.
The addressable market here is one that is really significant, and we are, as a firm, investing for the long term to make sure we're really becoming a partner of choice for the private wealth community to be able to invest their dollars of liquidity. No timetable as it relates, Bill, on getting to 30%-50% of our capital base coming from the individual investor other than to say, you know, over the next couple of quarters, our expectations that we're gonna have products across our core four investing verticals, so that's private equity, infrastructure, credit, and real estate, are focused on as you call them, democratized vehicles. Like a lot of what we do at KKR, the expectation shouldn't be that we're gonna have multitude different vehicles.
We wanna have a small number of vehicles that we can create that deliver best- in- class returns and an excellent client experience for a client base that will be new to alternatives and new to KKR. This is very much a long-term opportunity for us. We think that we have what it takes to be successful in the channel. Certainly, brand is important. Track record, we've got a 45+ year track record. You know, relationships with distribution has the scale of the firms incredibly important because it is a big upfront investment to be able to be successful in this space. Those are all things that we're focused on. Product creation is another one. Innovation on the product side.
We think we've got the right ingredients and the right level of investment such that we will be a winner in this space over the coming years, and for sure over the long term. But the interesting thing here too, Bill, is from an industry perspective, you know, in fighting for the, or competing for the marginal dollar of capital in the institutional business, we compete against 50 to 100+ firms. There's not that many firms out there that have the brand, the length of track record, frankly, the scale to invest in the kind of resources that it takes to be successful in the channel. While there's a lot of competition from a small number of firms, our expectation is that there's not gonna be competition from 50 to 100 firms over time here.
Our ambition is not to try to come to number 6 in the space over time. That's not how we set our business up or what our expectations are. But I do think that the level of competition here is just one that's naturally gonna be more narrow than what you would see across.
Mm-hmm
the institutional allocation of alternative dollars.
Right. What been a lot of mixed dynamics in the last few months and quarters, if you will. Interest rates are a bit higher. It's easy for a retail investor to just get e-equivalent type of yields to many of the legacy products that are in the market right now without taking on the illiquidity premium, if you will. Market volatility, there's been liquidity limitations enforced, broadly speaking, across products, whether it be non-traded REITs, non-traded BDCs. What are you hearing from your distribution team in terms of the financial advisor behavior? Is he or she, you know, head down, just continuing to migrate that 1% up? Are they taking a little bit of a pause? Are they shifting the winners, and, or the product demand? I know a lot in there, I apologize.
No. all good questions and all part of the equation and the variables that go into how we're approaching the marketplace. I think we continue to see flows from the individual investors into alternatives. Obviously the paceSlow down in the second half of 2022. I think that happens during, you know, periods of volatility. I think that was, you know, I think it was an also an interesting education moment, particularly for us. We're still a very small part of our business today. You mentioned we've got $6 billion in democratized vehicles today at a $500 billion of AUM. It's really upside for us from here.
I think it allowed us to take a step back and make sure that the products that we were creating were tailored for the right way for this environment. These products are gonna, by their nature, be more semi-liquid, and that's why I don't think that the individual investors should have 30% allocation to alts. I do think there is a pocket that can continue to migrate up over time with these semi-liquid products if sold in the right way with the right education, which we're very focused on as a firm. That should be an important part of many individual investors' portfolios over time.
In terms of expectations on returns, we continue to feel as a firm across everything we do, that we are set up in a way to continue to beat our benchmarks in a way that's consistent with how we've beaten them in the past. While the risk-free rate has gone up, you know, effectively then so has our benchmarks and our confidence in beating those higher benchmarks, remains there across everything we do.
Just one more. I'm sorry to belabor this discussion. As you think about product evolution, right? I think the standard fare has been 2% monthly withdrawals on some funds, 5% quarterly withdrawals for many of the funds. You know, some of those have had to put up with limitations, whether it be the distributors, the gatekeepers, whether it be any early-stage conversation with the regulators that might just be looking at the holistic ecosystem, if you will. Not suggesting there's anything wrong, but just in terms of, you know, any kind of increased scrutiny. How do you see the product evolution?
Is it as leverageable if you were to have to have more look down the liberty of leading question, a little bit more liquidity, capability for the client at the end of the day, if that's the right answer?
I think it's too early to say whether or not that's the right answer. As I said, I think some of these historical products were created in a way that is very consistent with what we think the individual investor wants. Do I think that it allows us a moment where we might be able to think about how we tweak product creation? I do. But I think there's different flavors of it that ultimately will appeal to the private wealth community, if it's been done in a way that is tailored properly to them, it's done with institutional quality. I think that's, you know, if you go back and look at history, you would have seen a lot of these products created pre-financial crisis that sold well into the private wealth community.
I think the issue there was that it didn't have the same institutional quality. It had very high fee loads, so ultimately it didn't generate returns. I think, if you look at what's being created in our industry today, it is really of institutional quality. I've got conviction. I can speak, you know, certainly for what we're creating at KKR. Our belief is we're gonna be able to deliver the returns that offset not having as much liquidity as you would have in potentially other products that generate less returns. Is there a place in somebody's portfolio for a product that's got less liquidity with higher return potential? I think there is.
We certainly believe that as a firm, and that, you know, you're gonna continue to see a migration of market share and alts over time to those asset classes.
I'm not managing the clock well. I apologize. I feel like there's so much good stuff going on here. It's hard to cover everything in 40 minutes. Let's just maybe shift around a little bit within the growth opportunity and speak to the balance sheet.
Yeah.
KKR was very early on in adopting use of the balance sheet to accelerate spend, accelerate growth, scale more quickly, develop businesses that, you know, you didn't have previously, right? Very efficiently, while compounding book value. As you grow in size and you're scaling all these other businesses effectively as you are, how do you see the evolution of the balance sheet in the strategy and then maybe the capital, free cash flow that would kick off the balance sheet?
Sure. If you go back and look at the last 5 years at KKR, our net deployment as a firm has really been concentrated in 4 big strategic areas. First is core private equity, which we've talked about. It's an area where we really do think we're set up to be the best at what we do. We haven't talked about insurance yet today, but again, very synergistic with the rest of our business model, and we've allocated a lot of capital to date to insurance, principally through our partnership with Global Atlantic. Number 3 is inorganic M&A. Strategic M&A for the firm. Number 4, share buybacks. As we look at our balance sheet strategy, you know, we've got roughly about $25 billion of cash and investments when you include Global Atlantic, net number today.
For those that follow KKR, you would have heard me say this before, there's not a corporate that I know that doesn't wish they had more capital available to right now in this moment of time. We really feel the luxury of that. As you look forward, you know, our expectation is that our capital from here is gonna continue to go build to those four areas, all of which provide additional levers for us to be able to generate per share profitability for our shareholders over a long period of time. That's why we're focused on those four areas.
Our expectation is that our net deployment will continue to be concentrated there, and that we'll be able to move our capital around across those four areas based on the opportunity sets that are in front of us. We really do feel like it's a core capability of ours at KKR to move marginal dollar of liquidity to the highest ROE opportunity for the firm, and ultimately, what will deliver the highest per share profitability for us over a long period of time. You know, right now we're continuing to see a lot of opportunity to be able to deploy our balance sheet capital into any number of opportunities that fit those four areas to drive real profitability per share.
Okay. Within that, I wouldn't call them a direct competitor of yours, but Drawbridge, which is a real estate niche player, actually, acquired a small PE secondary platform. Maybe we could just zero in a little bit on M&A.
Yep.
It seems like you have a lot of good things going on, a lot of things to keep you busy during your day job. How do you think about when you look at the footprint holistically, what else do you need? Are secondaries a natural adjacency for you to think about? As you're having conversations with potential sellers out there, what is the bid-ask dynamic that's going on?
Let me first start with maybe, you know, what KKR looks like strategically, and then I'll go into your question as it relates to M&A more specifically. We've been very consistent now for a long period of time. We're not gonna enter anything new unless, you know, two things are true. It's a very large addressable market, and we've got conviction that we're able to build a top- three world-class franchise. And we don't have a ambition to be all things to all people and believe that there is more than enough growth in front of us at KKR if all we're doing is scaling what we've already started as a firm.
That's where our principal focus in is, and we've talked about, if you follow us, that we believe that 50% of our AUM today is not yet, you know, at scale. There's real opportunities across, and we've talked about them already today, across real assets, infrastructure and real estate, what we're doing with parts of the credit world, what we can build in Asia Pacific to really drive a lot of meaningful growth for the firm over the next several years in the things that we've already started and where we've got these core capabilities. As it relates to, other areas of opportunity, certainly the secondary space is one that of course, we've spent a lot of time looking at, and there's been a lot of M&A activity in that space.
It has not been a need to do from our perspective for the reasons I just went through, but we'll continue to look. It's a big addressable space, and if we feel like we can partner with the right group at the right price, importantly, where we've got conviction where it can be world-class, then it's certainly something that we'd pursue. Your question more specifically around how we think about inorganic growth in M&A, you know, a lot of things need to check the box for us to take on M&A. It is a hard thing to do in our space. Some of the things we look at, of course, is does it fill a strategic void that we couldn't otherwise build on our own in a reasonable period of time?
It's a big piece of it, is the strategic piece. We also look at other things. Will it be culturally compatible? If you go look at a lot of the M&A that we've done over the last several years, we haven't integrated a lot of people into KKR, and that's been very intentional. We wanna make sure, and we've really set up our business model around being able to continue to grow and scale the firm without having to add a ton of people over time, because we're very conscious in making sure that we can maintain our culture. If you looked at many financial services firms, as they've scaled over time, they've lost that culture, what really made them special.
A lot of the M&A that we've done, you look KJRM, Global Atlantic, Marshall Wace, FSK, have been all things that have not added a lot of people to KKR. In fact, across those four areas, I think we added about 30 people total to KKR directly as part of those acquisitions. The other thing we look at is does it diversify our funding base? Does it create, you know, different types or forms of capital than what we already have? You look at the case of KJRM, which is our Japanese REIT manager we bought last year, or FSK. They was managed permanent capital vehicles, so clearly diversifying our funding base. What we did with Global Atlantic, you know, $140 billion of insurance-related capital today that we manage on behalf of them. Again, diversifying our funding base.
That's the lens at which we look at M&A. Does it fill a strategic void? Is it culturally compatible with what we're trying to create at KKR over a long period of time? You know, how might it impact positively our overall funding base, whether diversifying our funding base or elongating our funding base? That's really, you know, how we think about strategic acquisitions, but they're very hard in our space, and figuring out how to make the economics work is a tricky thing. We've had some success certainly over the last number of years and we'll continue to look.
Great. Maybe one or two more on growth, and we'll come back to maybe margins in a moment. Insurance, you mentioned that you have about $140 billion, and I think if I read the last disclosure, you're up to 63% ownership now of Global Atlantic. When you think about growth from here, what's some of the major drivers, if you will? The other question I've been thinking about is, by being aligned with the Global Atlantic, does that preclude you from growth elsewhere versus a more distribution-agnostic competitors that are out there?
Sure. A couple questions in there. I'll take them in turn. The first, as it relates to our partnership with Global Atlantic, we couldn't be more pleased we're 2 and a half years into that partnership. When we announced the deal, they managed $72 billion of capital. 2 and a half years later, they now oversee $140 billion of capital. They've delivered for their shareholders as it relates to operating earnings. They've delivered for their policy holders, and it's just a great management team led by Allan Levine. We're incredibly pleased with that partnership. Any time you've got a great platform and a great management team, and you can invest more behind that, we certainly would look there first.
That's a big area of potential growth for us, is to continue to find ways to accelerate Global Atlantic's growth. We see a real opportunity around product creation there on the individual side of their business. Their pipeline remains very robust in the institutional side of their business. I think importantly, I think one of the upsides of the combination between Global Atlantic and KKR is our presence in Europe, especially our presence in Asia, I think it has accelerated their ability to either grow or think about growth in those parts of the world. We're excited about that combination as an additional growth lever for the business. So far, that partnership has gone very well, we remain very excited around investing behind it.
Your second question was, are other insurance companies more hesitant to invest with us? That is not what we found. The numbers don't play that out. If you look, might have these numbers a little bit off, when we announced the Global Atlantic acquisition, we were managing, you know, roughly $25 billion to $26 billion for third-party insurance clients. Today, 2 and a half years later, that number is around $55 billion to $56 billion . We've more than doubled our exposure with third-party insurance clients. Today we have relationships with over 150 different insurance clients around the world. I can't say, Bill, that when we announced the acquisition, we weren't nervous about that dynamic. It was certainly on our risk watch- out page.
In reality, what happened is, as we developed capability and product that fit for Global Atlantic, what we found is that the deep insurance relationships that we had around the rest of the world also wanted access to that product. That risk that we were concerned about didn't play out. In fact, it's been the opposite of that, where you've seen, you know, more than 2 times growth in our assets with our insurance clients.
Great. Let's just give us a little bit more. We'll talk about maybe the capital markets platform. Again, relatively early in terms of building that out. A bunch of competitors are trying to replicate that in their own ways. Seems like there's a couple opportunities here, maybe just even tactically, what you're seeing in the marketplace right now. As you think about your increasing diversified footprint, both globally and across the verticals, how do you see that marrying up with the capital markets opportunity?
Sure. Maybe just some history on our capital markets business. Bill, you've covered for us and worked with us now for a long time.
Don't say how long, please.
You'll be familiar. We started that business more than 15 years ago, principally we started capital markets business to make sure that we were delivering best- in- class execution, deriving distribution of our capital structures to the market ourselves. We had control over that. Today, you know, we've got, I think, north of 70 people globally focused on capital markets opportunities. Certainly that core capability of making everything we do at KKR better continues to play out and is the primary driver of that business. It's never more important to have that capability than in moments like this when it's tough to access capital in the debt and equity capital markets.
As it relates to the revenue opportunity, really, as we thought about the business, that was secondary, but it's become quite a nice revenue and profitability generator for us over time. If you look back 8, 10 years ago, that business probably run-rating about $200 million of annual revenue. 4 or 5, 6 years ago, it was $400 million. Then it crept up to about $600 million. 2021 was not a normal year in a lot of ways, capital markets activity-wise, and our business benefited. We generated $840 million of revenue. And in 2022, obviously a more subdued market environment, we generated $600 million of revenue. Just a little bit of context.
That is a business we continue to feel great about as a long-term growth prospects. We think there's lots of ways for our capital markets business to grow from here. Principally, as KKR does more on the asset management side, different products, different parts of the world, you know, we've positioned our capital markets business to follow suit. We sit on close to record amounts of dry powder. As KKR deploys that dry powder, it will create more opportunities for our capital markets business. As we do more in Asia, it'll create more opportunities for our capital markets business. I talked about our core private equity platform and why it's so synergistic across everything we do. Again, those businesses, we're gonna own them for a long time, and they should be long-term issuers in the debt and equity capital markets.
I also think there's a real opportunity for us to continue to take our business model, and really our access to best-in-class talent there and to be able to drive real growth with third-party capital markets clients. That slowed given the market in 22, it was a big part of our revenue in 2021, where we generated right around $200 million from non-KKR related issuers. That's the long term. We continue to feel great about it. You know, we're in a market where, you know, things are choppy and slow on the capital market side of things.
If you look at Q2 through Q4 of 2022, so as the market really started to slow, we generated roughly $110 million per quarter. As you look here at Q1 and there's still some time to go, you'd probably say that we'd end up on maybe the lighter side of that in terms of the near term. That said, you know, as you look out more, we're starting to see pockets of markets opening up, leveraged finance markets starting to open up a bit. You're seeing CLO formation happen in a way that it didn't happen in 2022. Starting to see, you know, some reduction in volatility in the equity markets that should help IPOs and secondary deals get done.
You know, what shouldn't be lost on our capital markets business is while there's variability from quarter to quarter, and frankly for even year to year, I think you'd be hard pressed to find any capital markets businesses that are as durable as ours in the sense that, you know, historically 80%+ percent of our revenue came from the KKR portfolio of companies. Number two, it's got real growth prospects. We continue to be really excited around the platform.
Great. I have one more topic then I'm gonna ask you any questions. Okay, maybe in the 2 minutes we have left, talk a little bit about margin opportunity. 60% plus margin is already among best- in- class in the industry, and it seems like you're getting opportunity leverage on 2 areas just on the FRE and the scalability of the platform. Also in the fourth quarter, you had some nice operating leverage as you think about some of the other earnings drivers to the business. As you look forward, what's the algebra in terms of that incremental margin?
Yeah. We. Thanks for the question. You're right, we've built a business model that does allow, we think, for best- in- class FRE margins. What we've talked about historically is in reasonable market conditions, you know, we think that we can sustain that low 60% FRE margin. As the investments that we're making back into KKR, as well as those pay off, as well as the additional revenue opportunities that we're seeing, we see an opportunity to generate margins more sustainably in the mid-60s over time. Really do think that's a real opportunity for us. You know, one of the ways that we've got the potential to get there over time is leverage on operating expenses, also leverage as it relates to our comp ratio.
For those who follow us would've seen, you know, we've got ranges of compensation that we apply to our core revenue measures. In Q4, for the first time since we instituted those ranges, operate at the low point of the range. Now we put in place those ranges for a reason, to give us the flexibility we need to make sure we've got the right amount of compensation to recruit, retain, and incent the best people in the world at what they do, across investing, across distribution, across operations. In Q4, we felt we can operate at the low point of the range to be able to achieve that. There could be times in the future where we might need to operate at the higher end of the range to achieve that objective.
Longer- term, if we're able to achieve the growth that we see in front of us and what we've been through, frankly, over the last 40, 45 minutes this morning, we think, we should be able to drive margin expansion through comp leverage as well.
Great. We're out of time for any more questions. Rob, thank you so much for coming this morning and being so patient with all the questions.
Yeah.
Thank you very much.
Yeah, thanks for having us. Thank you, everybody, for joining.
Thank you.