KKR & Co. Inc. — 2022 Form 10-K Summary
Business context and reporting period. Annual report for the fiscal year ended December 31, 2022. KKR operates asset management and insurance businesses; insurance is conducted through Global Atlantic, in which KKR held a 63.3% economic interest at year-end. GAAP statements consolidate certain investment funds and vehicles, so reported assets, liabilities and cash flows include amounts attributable to third parties.
Key financial and operating metrics
| Metric | 2022 | 2021 |
|---|---|---|
| GAAP revenue | $5.72 billion | $16.24 billion |
| Net income (loss) attributable to KKR common stockholders | $(910) million; diluted EPS $(1.21) | $4.56 billion; diluted EPS $7.31 |
| Fee-related earnings (non-GAAP) | $2.17 billion | $1.97 billion |
| Asset management segment operating earnings | $3.99 billion | $4.24 billion |
| Insurance segment operating earnings | $545 million | $653 million |
| After-tax distributable earnings (non-GAAP) | $3.45 billion | $3.92 billion |
| AUM / fee-paying AUM | $503.9 billion / $411.9 billion | $470.6 billion / $357.4 billion |
| Capital invested | $71.4 billion | $73.3 billion |
Cash flow and liquidity. GAAP net cash used in operating activities was $5.28 billion and investing activities used $13.65 billion; financing activities provided $22.06 billion. Year-end cash and cash equivalents were $12.82 billion, plus $562 million of restricted cash. These consolidated cash-flow figures include fund and insurance activity and should not be read as cash freely available to KKR. Reported debt obligations were $40.60 billion in asset management and $2.13 billion in insurance; the former includes debt of consolidated funds and CLOs, generally supported by their own assets. Insurance policy liabilities were $141.2 billion.
Material changes versus the prior year
- GAAP revenue fell 65% and KKR reported a common-stockholder loss, primarily reflecting a reversal from $6.84 billion of capital-allocation income in 2021 to a $2.50 billion loss in 2022, alongside lower investment gains.
- Asset management capital-allocation losses reflected depreciation in underlying funds, notably Americas Fund XII, Asian Fund II and Asian Fund III. Asset management investment activities recorded $1.30 billion of realized gains but $2.96 billion of unrealized losses.
- Fee-related earnings increased about 10%, supported by higher management fees and fee-related performance revenues, partly offset by lower transaction and monitoring fees and higher operating costs. Capital markets transactions declined to 240 from 358.
- Insurance net investment income increased, but insurance segment operating earnings declined. GAAP insurance results included $1.32 billion of net investment-related losses, versus $204 million of gains in 2021, reflecting market movements and credit-loss allowances.
- AUM rose 7% while fee-paying AUM grew 15%, including new fundraising and the acquisition of Japanese real estate manager KJRM. Private Equity AUM declined to $165.1 billion; Real Assets rose to $118.6 billion and Credit and Liquid Strategies to $220.2 billion.
- Book value per adjusted share declined to $26.73 from $28.77. KKR cites lower unrealized carried interest, Global Atlantic available-for-sale securities losses, dividends and the annual loss as contributing factors.
Outlook, commentary, risks and unusual items
- KKR says earnings and cash flow are highly variable and generally does not intend to provide regular earnings guidance. Management expected more than $250 million of realized performance income and realized investment income in Q1 2023 from completed or pending sales, subject to closing conditions; completion was not assured.
- Management described a challenging 2022 environment of high inflation, sharp interest-rate increases, weaker equity and credit markets, geopolitical uncertainty and slower growth. These conditions affected valuations, financing, exits and fundraising. KKR reported no material direct portfolio exposure to Russia, Ukraine or Belarus.
- Global Atlantic adopted new long-duration insurance accounting guidance effective January 1, 2023, with a January 1, 2021 transition date. KKR expects increased financial-statement volatility, particularly from remeasurement of certain insurance liabilities.
- KKR completed the May 2022 reorganization, acquiring KKR Holdings and issuing 266.8 million common shares to principals. The Series I preferred stock and its control rights, one-share-one-vote common stock and KKR control of the carry pool are scheduled to change on the Sunset Date, no later than December 31, 2026.
- Carry clawback exposure was approximately $520 million assuming liquidation at year-end fair values; it would be approximately $2.9 billion if relevant investments were liquidated at zero. The tax receivable agreement was terminated for future exchanges, but an estimated $420.6 million payable remained for prior exchanges.
- Key risks include market and valuation volatility, leverage and refinancing, fundraising and redemption risk, carry clawbacks, insurance policyholder behavior and interest-rate exposure, regulatory change, cyber and operational risks, and conflicts of interest. KKR disclosed ongoing DOJ antitrust and SEC business-communications inquiries and litigation, including Kentucky-related proceedings; management said it could not estimate a range of loss for certain matters.
- KKR declared a $0.155-per-share common dividend for the fourth quarter of 2022. In February 2023 it announced an intended annualized common dividend of $0.66 per share beginning with the first-quarter 2023 dividend, subject to board discretion. No common shares were repurchased in Q4; 0.7 million equity awards were retired.
Important facts for investors to verify
- Reconcile GAAP losses and the large year-over-year revenue swing with recurring fee-related earnings and distributable earnings; these non-GAAP measures are not substitutes for GAAP results or liquidity.
- Review debt by legal entity and distinguish KKR corporate obligations from fund/CLO and Global Atlantic obligations, including collateral, recourse and maturities.
- Assess Global Atlantic’s investment marks, credit-loss allowances, unrealized losses, surrender behavior, reserve assumptions, capital position and exposure to rate changes.
- Evaluate the quality and realization prospects of carried interest and Level III valuations, alongside the clawback exposure and fund netting requirements.
- Track the status and potential costs of the disclosed regulatory inquiries and litigation, and the execution and governance consequences of the planned 2026-or-earlier Sunset Date changes.
The filing reports that the independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded disclosure controls and internal controls were effective as of December 31, 2022.