Chief Financial Officer, KKR
KKR CFO Sees Challenging Environment for Capital Deployment
Jun.24 -- KKR CFO Robert Lewin says capital deployment is “up substantially” from a year earlier but the environment remains challenging. He speaks with Bloomberg's Alix Steel and Guy Johnson on "Bloomberg Markets: European Close."
About Robert Lewin
In a June 2021 interview, KKR CFO Robert Lewin described the environment for capital deployment as challenging, though he noted that the firm's capital deployment was up 70% relative to the prior period. Lewin stated that KKR announced a record intra-quarter monetization, generating over $900 million in revenue, which he said was more than 100% of the average of prior quarters. He said the firm expects to more than double its earnings per share from about $2 to between $4 and $5 over the next few years through increased fee-related earnings and monetization of its investment portfolio. Lewin discussed KKR's international investment activity, noting that the firm's Asia business has $30 billion in assets under management, up nearly 100% year-over-year, with a focus on healthcare and corporate carve-outs in markets like Japan and Korea. In Europe, he cited telecom as a key theme, mentioning investments in fiber-to-the-home in Italy and a broadband platform in the Netherlands. Regarding the U.S., Lewin said the firm was seeing opportunities requiring more creativity and that office capacity was at 50-60%, with an expectation that most U.S. employees would return by mid-July. On tax policy, Lewin stated that KKR is focused on factors within its control and that any increase in corporate tax rates would affect KKR alongside other corporations.
Transcript (13 segments)
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Robert Lewin0:11
Having me on today. And as you mentioned, we announced our intra-quarter monetization today. It's a record number for us. Just to put that into a little bit of context, last year we generated about two dollars per share of earnings, and what we've told our investors is to expect over the next few years that we could more than double our earnings to four to five dollars per share. And we think we're going to get there really in two ways. The first way is by increasing our fee-related earnings, and that's principally going to happen through our fundraising activities. The second way that we think we can drive earnings is through monetizing our existing investment portfolio, and that's really what our announcement today was about. And our 900 plus million dollars of revenue, it's more than 100% of the average of prior quarters, so really gives you a sense of our conviction and our ability to really be able to deploy that money effectively into deals that are going to turn out to be good.
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Interviewer1:12
How convinced are you that your visibility over that term that you're talking about is going to be spot on?
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Robert Lewin1:25
Yeah, it's a totally fair question, Guy. So if you look back over the last 12 months, our capital deployment is actually up 70% relative to the prior period. And to be fair, a lot of that happened, most of that capital was committed in the first half of 2020 when the markets were really dislocated, so we feel really good about that capital that we've put to work. In terms of go-forward capital deployment, it is obviously a challenging environment, but we think we've got a few competitive advantages here at KKR. Number one, we're a global organization. We've got deep relationships across all of our strategies. And then lastly, we've spent decades here at KKR building up capabilities that we think make the businesses we invest in better. And by virtue of having all three of those competitive advantages, we think we're going to be able to find, continue to find opportunities that generate really good returns for our investors for the risk that we're taking.
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Interviewer2:29
So broad stroke on that, how quickly can you deploy capital right now?
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Robert Lewin2:34
Our teams are really active across the globe and across different asset classes, and so there's a fair bit of activity. And as I mentioned, our capital deployment is up substantially on a year-over-year basis. So our teams are seeing a lot of deal flow in the market today across a lot of what we do.
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Interviewer2:50
Alex, okay. Let's talk about that deal flow. Let's get a little bit more granular. You talk about it being global. Break it down for me.
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Robert Lewin3:10
Yeah, absolutely. So we are spending a ton of time internationally from a deployment perspective, and we can go market by market. In Asia, as you noted, our Asia business, a big part of KKR, we've got 30 billion dollars of AUM dedicated to the region, that's up almost 100% year-over-year. Wow. We're seeing lots of opportunity to play capital in Asia. Of course, there's an overriding theme of the rising middle class in a number of the more growth-oriented markets. We're trying to break that down into subsectors. So a big subsector to take advantage of that theme that we've been deploying capital against is healthcare in Asia. We've been spending a lot of time in corporate carve-outs across northern Asia in markets like Japan and Korea. And then in Europe as well, a big theme for us that we recently backed.
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Interviewer4:10
Oh, interesting. The market in general is doing much more value, say, in Europe than in the U.S. Are you still as active deploying capital in the U.S. as you might have been, say, a year ago?
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Robert Lewin4:24
Well, at this stage a year ago, when the markets were really dislocated, we were very active from a deployment perspective, but I would say it was a different kind of deployment. That was probably more middle-down in the middle of the fairway. And the thematic approach that we've been taking, we see a lot of things that were mispriced in the market, and we're really happy that we pursued those investments because we think they're going to inure to the benefit of our shareholders for a long period of time. The stuff we're seeing in the U.S. today, I would say, we've got to be more creative, we've got to be more thoughtful about putting capital to work, but we continue to see opportunities that take advantage of the broader investment platform that we have.
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Interviewer5:10
Working from home going. A lot of financials in New York are talking about requiring vaccinations. Is that something you're going to be asking for as well? Can you just walk me through what your processes look like?
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Robert Lewin5:22
Yeah, for sure. And so in the U.S. today, we're probably about 50 to 60% capacity, and that's been going up every week over the last few months. In parts of Asia, it's probably similar. Europe, as you know, is probably a little bit further behind. But our expectation, as we get into the middle of July, is that most of our people, at least in the U.S., are going to be back to work. And we're excited about that. As I mentioned, we thrive on having a collaborative and connected culture here, so getting everyone back to the office is really important for us.
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Interviewer5:48
Last question, Rob. You can't avoid it. You're the CFO of KKR, and that's on carried interest. So it feels like the attack on carried interest from D.C. is just continuing.
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Robert Lewin6:11
Not one of them. But I would say around carried interest, corporate taxation. KKR is a corporate taxpayer regardless of the income that we receive. And so my focus on KKR's P&L: to the extent that corporate tax rates increase, KKR's tax is going to increase alongside all of corporate America. So that's really what my focus is on, is on our own P&L.