KKR & Co. Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 29, 2024. The filing is an annual report, not a standalone fourth-quarter report. Unless noted, amounts below are U.S. dollars. KKR operates alternative asset management, capital markets and insurance businesses. GAAP results consolidate certain funds and entities, so consolidated revenue, assets, debt and cash flows include amounts attributable to third parties and are not equivalent to parent-company resources.
Financial and operating results
| Metric | FY 2023 | FY 2022 | Change / context |
|---|---|---|---|
| GAAP total revenue | $14.50bn | $5.70bn | Increase largely reflected the reversal from asset-management investment and carry losses to gains. |
| GAAP net income (loss) | $5.36bn | ($0.42bn) | KKR common-stockholder net income was $3.68bn, versus a $0.59bn loss. |
| Diluted EPS | $4.09 | ($0.79) | GAAP diluted EPS. |
| Asset-management fees and other | $2.96bn | $2.82bn | Management fees rose; lower transaction fees partly offset the increase. |
| Asset-management capital allocation income (loss) | $2.84bn | ($2.50bn) | Reflects investment-value changes and accrued carried interest, including unrealized amounts. |
| Fee-related earnings (FRE) | $2.38bn | $2.17bn | Higher management fees outweighed lower net transaction and monitoring fees and higher expenses. |
| Asset-management segment operating earnings | $3.37bn | $3.99bn | Lower realized performance income and investment income more than offset FRE growth. |
| Insurance segment operating earnings | $0.82bn | $0.72bn | Higher investment income, partly offset by higher insurance costs and expenses. |
| After-tax distributable earnings (non-GAAP) | $3.04bn | $3.51bn | Down 13%; not a GAAP measure or a measure of liquidity. |
| Assets under management | $552.8bn | $503.9bn | Up $48.9bn. |
| Fee-paying AUM | $446.4bn | $411.9bn | Up $34.5bn. |
| Uncalled commitments | $98.6bn | $107.7bn | Down $9.1bn. |
| Capital invested | $44.0bn | $71.4bn | Down $27.4bn across the reported strategies. |
Profitability and margins: The filing does not present a directly comparable consolidated operating margin; consolidated revenue and expenses include substantial insurance and consolidated-fund activity, while investment marks and accrued carry can materially affect GAAP results. KKR’s FRE and segment operating earnings are supplemental non-GAAP measures.
Cash flow, balance sheet and liquidity
- GAAP cash flows were $(1.49)bn from operations, $(3.88)bn from investing and $12.77bn from financing. Cash, cash equivalents and restricted cash increased $7.42bn to $20.81bn. These consolidated cash flows include investment funds, CLOs and insurance entities; they should not be read as cash available to KKR Inc.
- At year-end, GAAP cash and cash equivalents were $8.39bn in asset management and $11.95bn in insurance. Some cash and assets are restricted or belong to funds, insurers or other entities.
- Reported debt obligations were $44.89bn for asset management and $2.59bn for insurance. Asset-management debt includes consolidated-fund and CLO financing; $36.7bn of consolidated-fund/CFE debt obligations were reported separately in contractual commitments and are generally supported by those entities’ assets, not other KKR entities. Global Atlantic debt is non-recourse to KKR beyond Global Atlantic’s assets.
- Total assets were $317.29bn and total liabilities $258.92bn, both on a consolidated basis. KKR common-stockholder equity per outstanding share was $25.83, up from $20.55.
- KKR reported $7.67bn of uncalled commitments to its active funds and $0.28bn of capital-markets commitments; Global Atlantic separately had $4.2bn of investment commitments. The filing notes that fund commitments are expected to be called over time.
Material changes and notable items
- Asset-management AUM increased in private equity, real assets and credit. Credit and Liquid Strategies AUM rose to $245.5bn, including new capital raised, while redemptions and distributions partly offset growth.
- Capital deployment slowed: capital invested fell across private equity, real assets and credit strategies. Net transaction and monitoring fees declined to $720.7m from $775.9m, principally due to lower capital-markets transaction fees.
- Global Atlantic’s GAAP insurance revenue rose to $8.69bn from $5.38bn, and net investment income rose to $5.51bn from $4.12bn. GAAP net investment-related losses narrowed to $235m from $1.32bn in losses; insurance results remain sensitive to market movements and accounting marks.
- Global Atlantic generated $11.4bn of individual retirement-product sales, versus $9.5bn in 2022. Institutional-channel new business volume was $22.1bn, versus $17.3bn. These measures have distinct definitions and are not equivalent to KKR revenue.
- KKR owned 65.2% of Global Atlantic at December 31, 2023. On January 2, 2024, KKR acquired the remaining interests for approximately $2.6bn in cash, subject to post-closing adjustments, making Global Atlantic wholly owned. KKR expects a new Strategic Holdings segment and a new “Total Operating Earnings” reporting framework in 2024; it also announced a change to compensation mix. These are forward-looking plans, not assured outcomes.
- Effective January 1, 2023, KKR adopted long-duration insurance accounting guidance retrospectively to February 1, 2021. Historical insurance results were recast; management says the standard increases reported volatility.
- At December 31, 2023, KKR disclosed $546m of carried interest subject to clawback assuming fund liquidation at reported fair values; the amount would be approximately $3.5bn if applicable investments were liquidated at zero value. KKR remains responsible for any clawback not recovered from recipients.
Outlook, risks and contingencies
- KKR expected at least $500m of realized carried interest and realized investment income in the first half of 2024 from transactions pending or closed after year-end. Some transactions remained subject to closing conditions; actual proceeds could be materially higher or lower.
- KKR announced an annualized common dividend target of $0.70 per share, or $0.175 quarterly, beginning with the first-quarter 2024 dividend. The dividend remains subject to Board discretion, liquidity, legal and contractual limits. A $0.165 dividend for the fourth quarter of 2023 was declared in February 2024.
- Key risks include volatile realizations, investment valuations and carried interest; subjective fair values for illiquid Level III assets; leverage and refinancing risk; fundraising and redemption pressure; insurance interest-rate, credit, policyholder behavior and reserve risks; reinsurance counterparty, recapture and collateral demands; and competition, regulation, conflicts, cybersecurity and geopolitical events.
- KKR disclosed ongoing DOJ antitrust investigations, including matters involving Hart-Scott-Rodino filings and interlocking directorates, and SEC investigations concerning business-related electronic communications. Management said it could not estimate reasonably possible losses for pending matters, but did not believe currently pending matters would materially adversely affect the financial statements based on information available.
- Auditors issued an unqualified opinion on the financial statements and internal control over financial reporting. Critical audit matters included Level III investment valuations, fixed-indexed annuity liabilities and adoption of long-duration contract accounting.
Important facts for investors to verify
- Reconcile GAAP net income and revenue with FRE, segment operating earnings and distributable earnings; assess how much of the 2023 recovery came from unrealized valuation changes and accrued carry.
- Review the valuation assumptions and subsequent realizations for material Level III investments, including KKR’s largest balance-sheet holdings and Global Atlantic’s loan, real-estate and structured-credit exposures.
- Assess liquidity available at the parent level versus consolidated cash, fund/CLO financing, insurance assets, capital commitments and the $2.6bn Global Atlantic buyout payment.
- Track Global Atlantic capital, ratings, policyholder surrenders, reinsurance collateral and recapture exposures, and changes in statutory capital or reserve requirements.
- Monitor the $546m reported clawback exposure, the zero-value stress case, material netting holes, and whether distributions and realizations support future carry receipts.
- Verify progress, costs and results of the 2024 ownership, segment, compensation and reporting changes, alongside the proposed dividend policy and the first-half 2024 realization expectation.
- Follow the DOJ and SEC investigations and other legal proceedings; the filing does not provide a clear estimate of potential losses.