KKR & Co. Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a quarterly report. KKR is a global alternative-asset manager with capital-markets operations and, following its February 1, 2021 acquisition of Global Atlantic, an insurance business. Global Atlantic’s results are consolidated from the acquisition date; year-over-year comparisons therefore include a substantial change in scope.
Financial and operating performance
| Metric | 2021 | 2020 | Context |
|---|---|---|---|
| GAAP total revenue | $16.24 billion | $4.23 billion | Includes $6.54 billion of Global Atlantic revenue for the post-acquisition period. |
| GAAP net income attributable to common stockholders | $4.56 billion | $1.95 billion | 2021 growth reflected stronger asset-management results and Global Atlantic consolidation. |
| GAAP diluted EPS | $7.31 | $3.37 | Per-share results also reflect dilution from equity awards and convertible preferred stock. |
| After-tax distributable earnings | $3.92 billion | $1.77 billion | Non-GAAP measure; not a substitute for GAAP results or a measure of liquidity. |
| Fee related earnings | $1.97 billion | $1.28 billion | Non-GAAP asset-management measure. |
| Assets under management | $470.6 billion | $251.7 billion | Increase includes Global Atlantic assets, fundraising, investment appreciation and other flows. |
| Fee-paying AUM | $357.4 billion | $186.2 billion | Also includes the acquired insurance-management mandate. |
| Uncalled commitments | $111.8 billion | $67.0 billion | Available to fund future investments; includes commitments across business lines. |
Asset-management GAAP revenue rose to $9.69 billion from $4.23 billion. Capital allocation-based income increased to $6.84 billion from $2.22 billion, principally due to appreciation in carry-earning funds. Asset-management net gains from investment activities were $7.72 billion, including $5.34 billion of unrealized gains and $2.38 billion of realized gains. These valuation- and realization-sensitive items can reverse or vary substantially.
Global Atlantic generated $652.6 million of insurance segment operating earnings for February–December 2021. Its GAAP insurance revenue was $6.54 billion, while policy benefits and claims were $5.06 billion. These figures reflect insurance accounting and should not be interpreted like asset-manager revenue and expenses.
Cash flow and liquidity: GAAP cash from operating activities was negative $7.18 billion, investing activities negative $9.61 billion, and financing activities positive $20.36 billion. These consolidated cash flows include funds, CLOs and insurance entities, so they do not directly represent cash available to KKR’s corporate parent. At year-end, GAAP cash and cash equivalents were $10.09 billion, including $6.70 billion in asset management and $3.39 billion in insurance; total debt obligations were approximately $38.58 billion, including $36.67 billion in asset management and $1.91 billion in insurance. KKR separately reports non-GAAP cash and short-term investments of $4.9 billion and debt of $6.8 billion excluding Global Atlantic and certain consolidated entities. Insurance policy liabilities are obligations of the insurance subsidiaries, not ordinary corporate borrowings.
KKR reported $11.9 billion of its own unfunded commitments to investment funds and vehicles and $1.2 billion of capital-markets commitments at year-end. The filing reports $10.0 billion of GAAP cash and cash equivalents in its liquidity discussion, while the balance sheet presents $10.09 billion; the filing text does not provide a clear reconciliation in the excerpts provided. Consolidated operating cash flow is negative in part because investment purchases and sales are reported gross.
Material changes and transactions
- KKR acquired control of Global Atlantic on February 1, 2021, retaining 61.5% of its economic interests after purchase-price adjustments. The acquisition materially expanded reported assets, liabilities, AUM and revenue; it also added insurance-specific earnings, capital and regulatory exposures.
- Private Markets AUM increased to $257.0 billion from $148.7 billion, and Public Markets AUM to $213.5 billion from $103.0 billion. New fundraising and the Global Atlantic mandate contributed alongside investment appreciation.
- Capital invested rose to $73.3 billion from $29.5 billion. KKR completed 358 capital-markets transactions, compared with 193 in 2020.
- KKR redeemed all Series A and B preferred stock in 2021. Series C mandatory convertible preferred stock remained outstanding, with a $1.15 billion liquidation preference and a 6% stated dividend rate.
- Under the October 2021 Reorganization Agreement, KKR agreed to acquire KKR Holdings and its partnership units, later eliminate Series I voting control, establish one-vote-per-share common-stock voting, and assume control of the carry pool. Merger steps were expected in 2022 subject to regulatory approvals; the governance changes are scheduled no later than December 31, 2026, subject to the agreement’s conditions.
Outlook, risks and unusual items
- KKR generally does not intend to provide earnings guidance. Management described results as highly variable, particularly because carried interest and investment gains depend on valuations, exits and fund hurdles.
- Management highlighted strong 2021 markets and portfolio appreciation, but noted significant volatility after year-end amid expected U.S. monetary tightening and Russia’s invasion of Ukraine. These developments may affect portfolio values, financing, exits, fundraising and insurance assets and liabilities.
- Global Atlantic’s results are exposed to interest rates, credit spreads, equity markets, policyholder behavior, reserve assumptions, reinsurance counterparties, liquidity needs and ratings. The company’s long-duration insurance accounting standard taking effect in 2023 is expected to increase GAAP volatility, particularly through fair-value measurement of market risk benefits.
- Fair values for many private investments rely on Level III estimates and judgment. The independent auditor identified Level III investments, acquisition-date valuation of Global Atlantic’s VOBA, and insurance annuity liabilities as critical audit matters. These matters did not modify the auditor’s overall opinion.
- Carried-interest clawback exposure was $76 million assuming funds were liquidated at year-end fair values; it would have been approximately $2.5 billion if relevant investments were liquidated at zero. A $415 million netting hole existed in Asian Fund II, which may delay cash carry.
- KKR disclosed ongoing litigation, including Kentucky Retirement Systems-related claims, and regulatory scrutiny risks. Management stated it could not estimate potential losses for certain proceedings; it had not concluded that their final resolution would materially affect the financial statements, but adverse outcomes could affect results in a period.
- The board announced an expected annualized common dividend of $0.62 per share beginning with the first-quarter 2022 dividend, up from the prior $0.58 policy. The fourth-quarter 2021 dividend declared was $0.145 per share. Future dividends and buybacks remain discretionary and subject to legal, contractual and regulatory restrictions.
Most important facts for investors to verify
- How much of 2021’s earnings growth came from realized, recurring fee revenue versus unrealized appreciation, carried interest accruals and the partial-year Global Atlantic consolidation?
- How KKR’s non-GAAP distributable earnings reconcile to GAAP results, and what cash is actually available at the parent after fund, insurance, regulatory and debt restrictions.
- Global Atlantic’s statutory capital, liquidity, investment quality, reinsurance exposures and sensitivity to rate, credit-spread and policyholder-behavior changes.
- Progress, regulatory approvals, costs and expected share, tax and governance effects of the Reorganization Agreement; confirm the timetable and final terms.
- Realization prospects and downside exposure for Level III holdings, netting holes and clawbacks, alongside dilution from outstanding and future equity awards and potential KKR Holdings unit exchanges.