We got to wake these guys up, guys. Come on. It's good to be here. Milken Global Conference is always a vibe, as you know. Mike Milken has been trying to chase you guys down to do this for a long time. Our thanks to him for having this conversation. We're going to talk a lot about the state of the world. Maybe do a little bit of history. But I wanted to sort of set the stage if we could for these two gentlemen and to let you know this is a rare conversation with the two of them in front of an audience like this. They probably talk more than any partners in the history of investment management talk. They've known each other longer than any partners in the history of investment management have known each other. 7 years old, there was an incident with a bike. Maybe we'll get into that. But this firm started 2 years old was when you...
The bike was 7 years old.
Okay. All right, good. Good fact-checking. Real-time fact-checking here. But what started as a dinner between two cousins at Joe and Rose in New York City almost 50 years ago is today a firm that has assets under management of $664 billion, 4,400 employees across the world. It's listed on the S&P 500 and suffice to say one of the most influential investment firms in the history of the world. And so, let's go straight to today and talk about what is happening in the world. One of the most interesting things about a firm like yours, Henry and George, is that you have these inputs that very few people have. I want to start with you, Henry, and talk about some of those inputs. You talk to CEOs every day. You talk to investors. Distill down in this world of turbulence, what are CEOs saying to you? What's the crux of their message to you?
Well, I think first of all, I want to thank all of you for being here to listen to George and me. This is a treat for us to be here with all of you and thank you for that. You have to divide because you mentioned CEOs and you mentioned investors. Two different perspectives, I would imagine.
And so, on the CEOs, obviously tariffs right at the top of everyone's agenda, concern about what does that mean and how do I navigate all of this that's going on. Secondly, very concerned about regulation. What will the regulations be going forward? And three is the uncertainty because there's been an enormous amount of change week to week. A lot of CEOs in the audience and I'm sure that like George and myself, you need certainty. Is the table going to be round? Is the table going to be square? Whatever it is, but leave it at that and then we can operate accordingly. The unfortunate thing is it's been changing and it constantly changes. And so, as a result, what we're hearing, although we're not seeing it that much in our portfolio companies but in Europe and particular in some other places, we're seeing them just sit on their hands right now and they're saying, you know, we'll just wait and see where this all shakes out and hopefully in another whatever 30 or so days, it will start to show where is this all going. On the investor side, the biggest concern that we hear obviously are tariffs, but what about monetizations? And a real concern is, well, I have a lot of money in the alternative investment space. Am I going to get any of it back? And I can't talk for any of the other firms, but I can talk for KKR. And in our case, what we've always done is we try to invest in a linear fashion. We don't pick highs and we don't try to pick lows in markets, but we're always putting money to work. For example, since the beginning of the year, we put over $30 billion to work. The good part is our monetizations over the last 10 years, we've been able to give $2 back for every dollar that we've invested over the last 10-year period. So, we're constantly focused on how to get money back and at the same time think about when things look difficult and there's real uncertainty, that's been our sweet spot of leaning in.
Yeah. All right. So, you tee your cousin up perfectly, George. Let's talk about the investing playbook here. You've been doing this for a long time. You've been doing this for a long time. What are the areas of your business you're leaning into especially and where are you spending less time when you look across the KKR empire?
Well, look, I think today pretty much everything we do is really, really attractive. Obviously private equity and that's around the world. So, year to date, we've invested $11 billion in private equity and it's been in Asia, the United States and in Europe. Infrastructure, there's probably no better time to invest right now. Interest rates are high and there's a lot of good quality assets out there and by the way, we have a lot less competition in infrastructure than we do in private equity. And in credit, credit spreads have widened. We have over 1,900 positions in credit. We've been in the business for a long period of time. I think you have to be very selectively aggressive really in credit. And you've got to really look at that on the basis would you want to own the company if the credit investment didn't work out for you? You know, real estate, I don't think it's there yet in terms of what the returns that we need to see to be able to do it. And then we've got three really good growth businesses. Our health care growth business, a technology growth business and an impact business. And those are all performing well and you know, with the objectives they have. So, I think this is a time for us not to be afraid. We've got the luxury of long-dated capital anywhere from 5 to 15 years. And the way we've been able to earn good returns is to create more value in the business than we found it when we bought it. So, we have the time. We have operating capabilities. We have a global footprint to be able to do that. So, we've got the luxury of time.
And so, George, you know, having been in this business for nearly 50 years, you're on your 50th anniversary next year. Is this reminiscent of any other time of disruption? Are there historical analogs here that you look at?
Yes, sure it is. I mean, you know, when I sort of get worried about what's going on, I always refer to history a little bit. Obviously we weren't around for the Great Depression, but we've certainly studied it. And then you look at the early '70s where we actually had wage price controls put in by a Republican president and you look at what transpired in the '80s with 11% unemployment and 21% prime rate and a massive recession. You know, you go to '93, the savings and loan crisis. '87 when we had the market meltdown. And then obviously the financial crisis we had in 2008. Those to Henry and me were much scarier than what we have now. So, what we have now is disruption in international trade and tariffs and with no real outcome of what that's going to be. So, you know, I think that there'll be trade deals made. They have to be. You can sort of see the administration walking back some of the more novel ideas they've come up with. Whether our country is going to be better off or not, the voters will have a chance to vote. And politicians do listen to when the voters vote. So, whatever needs to be rectified in all this will take place. So, to quote Queen Elizabeth, just stay calm and carry on.
George Roberts quoting Queen Elizabeth was not on my bingo card today, but here we are. So, Henry, just further to that point, with that context of history, what are the conversations? What are you saying back to a CEO or an investor? I mean, you guys are in a really interesting position because the firm is now run day-to-day by Scott Nuttall and Joe Bae. You went through a successful succession in that regard. I would imagine, I know your phone is ringing off the hook. You are hyper engaged with a lot of these CEOs. What are you saying back to them?
Well, other than keep calm and carry on. No, I think George is right and that's actually a pretty good quote. Basically, we're saying we will get through this. Okay? We say to everybody at KKR and we'll say it to others, focus on what you can control. Because when we went through the global financial crisis, none of us had seen anything like that. Obviously, it happened in the Great Depression. We weren't around, but we got everybody to quit listening to all the noise. And get your companies in good shape. Take cost out where you can. You're going to get a chance to refinance whatever credit you have at the time. And sure enough, that's exactly what happened. Right now, it's too new and it's too uncertain to know. So, we're saying to people, 'Don't panic.' You know, you have to look at what industry, who's getting hurt? Right. Well, retail's getting hurt a lot. Auto industry is getting hurt a lot. And we have, you know, in our portfolio, we've got over 90% of our companies have no exposure or very limited exposure to tariffs. So, we have 10% roughly, plus or minus, that has some exposure. We also do a lot of investing around the world. So, what we're saying to people is think about other places in the world where we can actually put money to work. And we are. You know, we said we put about 30 billion so far since the beginning of the year. About half of that is offshore. Asia's a big part. We happen to think that Europe right now, what we're saying is Europe is actually a possible very interesting place to invest. I think Chancellor Merz in Germany made a big point by getting before he was even in office officially with a trillion-dollar defense and infrastructure bill that he got through. That's really important. Because what's happened is the Europeans now are saying, and I'm sure many Europeans in this audience, are now saying, 'We've got to take the future into our own hands. We cannot rely on the US anymore like we have.' And I remember at a small meeting I was at when Angela Merkel was in office as Chancellor. And she said, 'Look, there's not a lot that I like about Trump.' This was first Trump one. But she said, 'He's absolutely right that we have to spend more on defense.' We in Europe? Europe, well, Germany in particular she was talking to. And the reality is they didn't do a thing. So, now with Merz, Macron, and others, Meloni, I think you actually have some leadership that will get some things done. And as a result, we're looking at it and saying, 'This is real opportunity right now.' And so, and I'm in Europe almost every month doing something. And I'm starting to see it. I'm getting a different vibe back from Europeans today than what I had seen in the past. They're waking up now.
And so, George, keeping it in sort of the KKR milieu for a second, I know you spend a lot of your time, you have your entire career and certainly you spend a lot of time now mentoring the next generation and sort of the next generation after that within the firm. What's your advice to them? I mean, Henry touched on this a little bit, but when they come and see you and maybe they're coming from the credit business or real estate or infrastructure or private equity, how are you arming them to be successful in this sort of environment, the KKR employees?
Well, I think you need to give them courage to make decisions. I think you really need to push down decision-making to the younger people. They're doing all the work anyway. It's really courage that it's okay to make a mistake. By Lord, we've made lots of them. But to learn from the mistakes that you make. And go out and be aggressive. Just don't sit at your desk or, you know, do the analysis. You know, that's easy. It's easy to do the analysis. But try to develop some emotional intelligence, too. And go out and meet people. And try to come up with ideas. You know, what Henry and I've done all our life, when we've had a meeting, we've pitched an idea. 90% of the time it didn't work. But you always try to come away with some other ideas that you could go do something with. And it's really the softer skills that I try to really encourage young people to do. Don't be afraid. Get out there. Everything's going to be okay. We have your back. We've always had a saying at KKR of if something doesn't work out, it's on Henry and me. Now it's on Joe and Scott. And if something works out, you get all the credit. That's what we want. So, we want to have a culture where people aren't afraid and are willing to take some risk. And it brings out the best in what they're doing. And by the way, they're far happier if they've got their own things to do, their own groups are going out, the relationships they're building, and work across everything that we have in the firm. You know, pick 20 people every year and make sure you meet them and talk to them, whether they be in Tokyo or Berlin or the United States, regardless of the asset they're in. Build those relationships in the firm. You know, I think the one thing that all the technology and media today is it's stifled that a little bit. You know, people are on their phones all the time. I don't even think people know how to make phone calls anymore. Right. They do text. They break up by text. So, you know, it's really for me, it's the emotional intelligence and gathering that and the risk. You know, nobody likes to be rejected, so nobody likes to pick up the phone and make a cold call anymore. So, it's really, you know, for me, that's where I spend a lot of time.
Well, I'd say, just to add to what George has said, because George and I have really grown up with this. You know, we were young at one time, hard to believe. But you know, we didn't know what we were doing at 32 when we started KKR, quite honestly, as I look back. And so, but we just dove in. And yeah, we couldn't raise much money, couldn't raise a $25 million fund on terms that made sense. There was nobody doing it at the time. But what we learned over time is just go out and build relationships. And you don't have to have anything to talk to somebody about. Just exchange ideas. And so, we set the firm up in such a way that our culture is that everybody shares in everything we do. And that encourages others to work together within the firm. There's no silos that says, 'Oh, no, that's my idea or my idea.' They really are out there working together. And somebody may go see a CEO and think they're going to try to buy the company. And the guy says, 'Well, I have no interest in that.' But over time, having built like and trust, there may be something else they can do. And that's a very important part of what we're all about. We're a team. That's how we operate. That's how we started 49 years ago. And today it is absolutely no different.
Yeah. So, let's talk about some of the key decisions you've made to sort of put yourself in this position to take advantage, candidly, of this market that we're in right now. As you guys look back, and Henry, I'll start with you, you know, there were some new businesses you got into. You did a reverse merger. A senior private equity executive I was talking to gave you credit for, you know, that was a brilliant move in order to take the firm public and to build it. What are the two or three key decisions that you guys made that put you in a position to be opportunistic in this type of market?
Well, I think number one is the culture, where you get the best of any idea across the board. And that's really important. That's how we operate. We pay everyone off the balance sheet. You're not paid in your silo. You're paid off the balance sheet. So, I'd say that's number one. George and I have always, you know, sort of said, be as innovative as you possibly can. We want people to come to the firm that have our culture, but also are willing to take risk. You know, our scientific approach to investing is throw enough stuff up, something will stick. And so, we're always trying new things. And that is really important. We would never have done the backward merger of KKR into KPE. By the way, KPE was as innovative as it come. We had an idea that could we raise a publicly traded pool of capital that would look like a limited partner, which would be permanent capital for us. And I remember going to see the CEOs at Goldman Sachs and Morgan Stanley and asking them, 'Do you think we could do this?' And they said, 'I don't know. We've never seen anything like that.' I said, 'I know. That's why I'm here to find out if you think we could do it.' And they, I said, 'If we go to do it, how much do you think we could raise?' And they said, 'I don't know. Maybe a billion dollars.' So, George and I said, 'Well, let's try it. If we can get a billion dollars, that's a billion dollars of permanent capital.' At that point, we had no permanent capital. We had no balance sheet. And we said, 'Let's put three teams of two and three people together, eight teams, break out around the world.' And it literally in about 3 weeks or so, we had circled $7 billion. And so, we took five of it, because it was small cap constrained. And then that traded. That was key for us, because then we had permanent capital, the first permanent capital we had. That gave us the opportunity to then have a balance sheet. We priced it at $25 a share and the stock traded during the global financial crisis traded down to under $2 a share. Second thing we did, which was critical for us, was the merger of KKR partnership into that pool of capital. So, on day one, that gave us the capital to do what we needed to do going forward or what we thought we needed. We've got a deal done finally at $6 a share and the stock traded, you know, up to the mid 160 or so. And that was critical because it gave us the balance sheet, it gave us a security that we could then use for other...
Absolutely. Well, and I see another thing that's very important is I think two more here. One is Global Atlantic, our insurance business that we bought. Now we own 100% of it. Really critical for us having that as part of our organization. And lastly is the newest thing, which is Capital Group. And so, with Capital Group, we now have a partnership to be able to bring all of these RIAs on to distribute our product. And those are critical moves on our part.
All right, let's talk about that because, you know, I know that this is of great interest to this audience that spans all across the financial and corporate world. This notion of the retailization, which is not a word, but I just used it, of private equity. Your peers are talking about it, George. What does that look like? Help us understand what the real broadening, the democratization of private equity or private capital into this market looks like and what the opportunity is.
Well, let me give you two numbers. There's $44 trillion in the hands of individuals in savings. A trillion. 44 trillion. There's 10 trillion in the hands of people with 401(k)s. So, let's fast forward 25 years from now when Henry and I probably won't be here, but Joe and Scott will be actually younger than we are. And let's assume that 44 trillion grows at 5%. That'll be $135 trillion in today's dollars. And let's say the 10 trillion, you know, grows at the same 5%. That'll be $34 trillion. And let's assume that we're only able to capture 5% of the 10 trillion dollars today. You can do the math. That's $2 trillion that triples what we have and we certainly don't have to add triple the number of people to do it. So, what do we have to do to do this? First and foremost, we need to keep our culture as we grow. That's no easy task, but we need to do it. We need to provide opportunities for people. I think Raj Agrawal's in this audience. Raj was in our retail group. He actually worked in a Dollar General store for 3 weeks before he bought it. He's now head of all of our infrastructure, which is a $110 billion business. So, providing the opportunities, keeping the connectivity and the culture in the firm, and then being good stewards and trustworthy stewards of people that have entrusted us with their money, and getting them the kind of returns, the fair kind of return with performance, is how we're going to be able to grow the net. And then obviously technology's going to enable us to become even more efficient than what it is today.
