Bloomberg Audio Studios, podcasts, radio news across Mole Street. And we're going to get to some of the things underpinning those goals. But first we're going to start with a big view on where the world stands today. And as we've been talking about Joe in the US, investors are trying to shake off that tariff hangover that exists right now. The markets have been very jittery, investors are digesting how these trade policies could be in the future. How do you view the impact from your seat?
Sure, I think it's obvious to everybody.
That we're in an environment right now where there's a lot of uncertainty around trade tariffs, but it's not necessarily new. Even with the first Trump administration, he was focused on tariffs and trade. Biden kept most of those tariffs in place. So I think in our business, you know, we're very long term investors. We need to be thinking about these
issues over time, not just in one administration. And what it's say is, you know, we have teams at KKR who focus on all these areas of macro risk, whether that's currency risk, tariff and trade, geopolitical risk, regulatory risk in each of the.
Different markets that we're investing in.
I think this issue around supply chain security and resiliency, which relates to tariffs, is obviously front and center for all long term investors, but people are trying to parse through what this all means. The final policies are not in place. The actions of other countries and governments in reaction to what Trump may or may not do is still unknown, so it's very fluid at the moment, and I think that's obviously creating some uncertainty and volatility.
You know, It's interesting in conversation with you, you had mentioned that this was a risk that you should have seen coming in a lot of ways. So from where I'm sitting, it looks like KKR has been preparing for this in a way that many investors have kind of very obviously have not been. So what have you been doing to prepare for all of this uncertainty knowing that there's even more of it ahead?
Yeah, so I think you know, we have over one hundred and fifty companies in our private equity portfolio around the world, so again, supply chain resiliency multiple sourcing avenues for our companies has always been a part of the risk mitigation approach, and we've spent a lot of time really over the last five six seven years understanding that risk and mitigating that risk, and when it comes to new investments, I think a big part of our job
thematically is understanding the risk environment we're in and choosing those themes and sectors and opportunities that really have less exposure to terrorf risk or trade risk. So maybe a couple of examples of that is, you know, healthcare services are very domestic, whether it's in the US, Europe, or Asia. You know, that's an area where we feel like the terrriff risk at least is not a pronounced risk. You
could look at certain services businesses. We've made a number of investments in companies like home services, foundation inspection maintenance companies in the US for an aging housing stock, you look at it services and software investments in different countries. Again, very little terror risk, so you're able to really zero in and target those industries and sectors where you don't think this.
Is going to be a big problem.
When you think about the ripple effects that you might see from the terror strategy, there are a lot of concerns about inflation, sure growth.
How are you.
Thinking about the economic headwinds that the US is facing.
Listen, I think that's one of the big uncertainties out there that people are trying to figure out. Tariffs are inflationary by design, So I think if that leads to an escalated level of inflation in US economy, obviously that's going to slow GDP growth.
It may put some pressure on.
The FED obviously in a more tough economic environment, to lower rates faster over time. But we've always felt that the bigger trends happening in the world, whether that's energy transition, the massive investments into data, a lot of these things are in inflationary by its nature. Putting aside tariffs, Right, so we have a higher resting heart rate for inflation globally today than we've had in the last decade, and you expect that to continue and potentially even get higher inflation.
Right if these tariff and these trade wars continue, it's not an unreasonable expectation that in the near term you can see higher inflation.
Well, it doesn't that mean higher rates or do you think that the FED is going to have to lower rates into.
The face of that.
People are starting to use the words stagflation, an awful lot these days.
I think it's going to be different in different markets, and I think the FED is going to have to be.
Very nimble in how they navigate this risk.
Obviously, if the US is headed towards an economic downturn, cutting rates is probably going to be the policy response.
If rates are high and.
We're not headed down that recession path or deceleration of growth path, then rates could actually be a little bit higher in the near term.
So let's look at this from a global perspective as well. I think one unique view you can bring from KKR is that you are very global in nature. So you see the way that the changes are happening in a teriff strategy, the way that nations are kind of separating in their relationship to each other. You see that on the ground through your portfolio companies. What are then other areas of the worlds that are maybe even more attractive to you than the United States right now?
Well, you know, I think it's not a secret. You had it up on the slide. We're big fans right now of Japan. We think that is a really really underpenetrated opportunity, especially among US investors.
They really haven't figured.
Out how to get the exposure they want in a market like Japan where they're coming out of two and a half decades of deflation. So finally positive wage growth, pricing power, inflation is very modest, but positive inflation right now,
and rates are actually increasing modestly in Japan. That's a completely different macro picture than what we've seen in Japan for the last three decades, and a really exciting time when you marry that with shareholder reform, activism, activism, corporate governance reform in that market outside of the United States, Japan is the largest destination of our.
Capital, so it's interesting. In addition to Japan, KKR has maintained a commitment to China as well. In fact, there are big deals that are in the market that KKR may be involved with at this very moment. So a lot of other investors are very worried about China, the internal economics and the relationship that China has to the United States.
Yeah, how do you view that dynamic?
Yeah, listen, I think the geopolitical tensions right now obviously are front and center for us as we think about where to invest in how to invest, and in China in particular, you have to avoid those sectors that have sensitivity on both sides of the ocean, both the US government and the Chinese government. So we have not invested in some of these sensitive sectors like electric vehicles or semiconductors or AI.
That's not the focus of our China investment strategy.
We're really focusing on super high quality domestic businesses that are around domestic and asumption and services. So we in our portfolio today we have one of the largest or the largest Chinese pet food company, again geopolitically not sensitive. We own one of the largest pharmacy chains in China. We own the largest white mushroom grower in China, all geared towards the domestic market, a growing middle class who wants higher quality goods and services and food, you know.
And I think that's the sweet spot of where we're focused to the market today.
That's interesting because even if you're focused on the Chinese consumer that might be a little more insulated to let's say, the global macro challenges. There are a lot of concerns about the Chinese economy.
Why are you seeing through them?
Yeah, listen, I think the overall long term trend in China is the middle class is growing, and the expectations of the middle class are really for higher quality goods and services, safer food, safer services, and that's what these companies that we're investing behind are really catering towards. No doubt, the macro growth China has slowed from a decade ago, right, you were talking about a country growing at double digits GDP. They're targeting four to five percent growth today, right, So
there has been a slow down. There's clearly challenges in terms of the real estate market in China, and you have to factor all that in in terms of the growth rate you're underwriting, and largely the entry multiple. You know, the Chinese stock market today is one of the most interesting value markets in the world in terms of the multiples. So if you know what you're looking for, the type of risk you're trying to mitigate against, you could still find some interesting opportunities.
You know.
Yes, Jay, I asked the question, is American exceptionalism dead?
In addition to that, I ask you, is.
Globalization or diversification play? Is it a safety trade? How do you think about it?
But we are a very very global firm and we have a lot of different ways to participate in those
opportunities private equity, real estate, private credit, and infrastructure. So in really volatile periods like we're in right now, having that flexibility of capital, we could partner with companies management teams as a provider of anything from senior investment grade debt right to non investment grade debt, to structured credit solutions, structured equity solutions, growth equity capital, to buy out capital.
So today it's an interesting market. When volatility spikes, that usually leads to really really interesting deployment opportunities for our firm. You need to be nimble, you need to have the local reach in all these different markets. But we're excited, quite frankly about twenty twenty five.
They're going to be hiccups.
There's going to be some headwinds in terms of some of these macro policies, but our ability to deploy scale capital around the world we think is quite high.
I will still ask you, if not dead, then is American exceptionalism then overblown?
Now listen, I think this notion that the US is going to win alone has never been the case. I think the strength of the United States is really the resiliency of the economy, the strength of our capital markets, to mobilize capitals, to support companies in the private sector, and labor productivity.
Right when you think.
About why the US has grown faster than Europe or faster than Japan, it's really about labor productivity in the United States. A lot of that is technology driven and innovation driven, but a lot of that is our unique mobility of labor in this country. You think about Japan, which is going through this resurgence. Structurally, they've done the best job of any country in terms of women participation in the workforce, people working longer in Japan, right, They've got real demographic challenges.
They've done an excellent.
Job around automation and robotics in their industrial base, but they're not getting the labor productivity because the mobility of labor in Japan is quite constrained, and their investment in software and tech is a fraction of.
What you see in the United States.
So the real superpower of the United States is labor productivity.
At the end of the day, I do want to spend the remaining time here and gear is talking about the future of KKR because it's been fascinating to watch the change from an iconic private equity company to what you are today. There was the full acquisition of your insurance company last year, Global Atlantic, and it's made KKR.
Look more and more like Berkshire Hathaway.
And there's one part of your business that's far less understood that I think makes you look like the most like Berkshire Hathaway, and that's your strategic holdings business. Many people don't know that KKR owns eighteen companies on your own balance sheet at KKR, what is this business going to be in maybe ten years and why is it valuable to you?
Sure?
So when you think about KKR as a business, we really have three core strategic parts of our business. Strategy asset management, I think is well understood. That's what we're known for for the last fifty years. So that's our third party private equity again, real estate and infrastructure, a private credit business, and that's a six hundred and fifty billion dollar business that you mentioned.
At the start.
The second big pillar of our business today is Global Atlantic.
It's one hundred percent.
Owned insurance company in the life and annuity space, roughly one hundred and ninety billion dollars of valuem there and again playing into all of these trends around retirement savings, retirement security, and being able to offer individuals compelling products for their own long term savings. The third piece of it is a segment that we introduced last year at our investor Day, but it's been a segment we've been incubating for well over a decade now at KKR, and
that's Strategic Holdings. So what we're trying to build in Strategic Holdings is, in some ways the mini Berkshire Hathaway. These are companies where we own large stakes, sometimes controlling stakes, sometimes not, but businesses that we think we could own literally forever, Businesses that have the potential to compound in mid teens over a very very long period of time, very defensive, innate, sure. So we have eighteen companies in
that portfolio today. We're going to continue to redeploy our free cash flow at KKR to invest in more of these types of businesses.
And it's not just private equity.
Over time, it's going to include certain platforms, probably in infrastructure and real assets, maybe certain build ups you know that we're going to do in different sectors. You know, when Scott Knuttell and I, my co CEO, joined KKR. Back in nineteen ninety six, Berkshire Hathaway had a market cap of forty billion dollars and roughly nav balance sheet of forty billion dollars. You fast forward twenty eight years, they have a trillion dollar market cap on the back
of long term compounding of their balance sheet and their investments. Right, some version of that is what we're going to be doing with strategic holdings, but leveraging all of the skills and expertise we have in our private equity teams, our infrastructure teams around the world.
So what's an interesting parallel here?
If you think about Berkshire Hathaway, is it almost like Global Atlantic is your own Geico, and these future infrastructure holdings will be your BNSF and your private equity holdings would be kind of like your stock portfolio.
Yes, it's imperfect analogy, but directionally you are absolutely right. I think listen strategic holdings for us, you got to think about it as a way, how do we think about redeploying our free cash flow as a business back into the most attractive areas.
Some of that might be.
In our traditional third party asset management business. Right, we find great ways to deploy capital across those investments.
We will deploy that capital.
A lot of the capitals reinvested back into Global Atlantic. We acquired our first controlling stake in Global Atlantic in twenty twenty and GA at that time had around seventy billion dollars at AUM. Four years later it has one hundred ninety billion dollars at AUM, so we've supported that
growth with more investment. And then this third segment of strategic holdings, obviously, which is what we're super excited about, is one where we're going to be continuing to invest a lot more of our free cash flow.
As a business.
So our guidance to this treat today is by twenty twenty six, that portfolio will be generating around three hundred and fifty plus million dollars of after tax dividends for US.
That's growing to seven hundred.
Million dollars by twenty twenty eight and one point one billion dollars by twenty thirty. So it is a very very visible, recurring, growing cash flow stream at KKR.
So you essentially have a kind of a future Unicorn of sorts being built inside of KKRE. If you're going to be bringing in a billion dollars over time in this business. Do you think it's built into KKR stock that assumption yet?
I think people are starting to appreciate what we're trying to build. But I think the bigger picture is when you look at our universe in the alt space five years from now, ten years from now, I think many of the public peers in the sector are going to actually take very different approaches to how do they grow their firms.
I think the approach we have was.
With third party asset management, insurance and strategic holdings is quite differentiated and different than the way most of our peers are trying to grow their firms today.
Now, I want to spend a little time talking about not just institutional capital and how you are deploying capital in your own balance sheet. We've been talking so much about how there's been a massive push for retail. When it comes to the world of private assets, everyone is doing it differently. You have a relationship with Capital Group in order to make this available in.
A mutual fund form.
So how available is it to invest in private assets from where you're sitting. What's the minimum amount you would need to put into a fund to.
Start to get access to what you're offering.
Sure.
So the way to think about the bigger picture opportunity is for most of our history at KKR, we were found in nineteen seventy six, our core client base was really large institutional investors, pension funds, insurance companies, sovereign wealth funds around the world. The individual investors who participated with us were really ultra high networth families and family offices who could allocate capital as part of their diversification as
really LPs in our funds. They were willing, they were sophisticated investors, willing to take at ten or twelve year you know, illiquidity risk, just like a pension fund would. So that's a very small percent of the household obviously in.
The United States, but that's how they've accessed and partnered with us historically.
What's relatively new for us in the last two to three years is we've introduced a series of private wealth products for individual investors who are accredited investors. Okay, so those are investors with a net worth of call at one to five million dollars.
These open ended.
Evergreen products have semularquidity of features, so you're not locking up your capital for ten to twelve years, you have the ability if you needed to redeem a portion of.
Your capital every quarter.
So it's a slightly different format, but it's it's investing in exactly the same deals that our flagship funds are investing in, right So that's we're trying to deliver that same institutional quality experience, the same portfolio, the same access to deal flow, whether that's in private equity, real estate, infrastructure,
of private credit to individual accredited investors. Right in that one to five million dollars in net worth, that's around ten percent of the households in the United States in those first two buckets ultra high net worth and accredited investors, and roughly half the AOM in the individual channel. With Capital Group, we have an exciting new partnership which really
addresses the next ninety percent of US households. These are mass affluent individual investors who probably wouldn't be buying our private wealth product and wouldn't be LP's in our traditional fund.
So we're creating.
Hybrid products with Capital Group in a mutual fund format. We're starting with credit in the second quarter, where we're going to be putting a portfolio together where Capitol Group manages the public credit. We will manage the private credit allocation in that mutual fund and deliver a product to the mass affluent that looks very different and from anything they've been able to buy before.
You know, it feels like the holy grail for this industry is making private assets available in four one K plans. Yes, how soon do you think that happens? And if not that soon, what's the biggest barrier?
Well, listen, I think again, at a high level, when you think about some of the societal challenges, we have a big part of that is securing your retirement right as you retire from work.
Kr co Ceo Jove Demographic along with Blue Meg, Shinali Bassek from Bloomberg invest