UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Transition period from to .
Commission File Number 001-34820
KKR & CO. INC.
(Exact name of Registrant as specified in its charter)
| Delaware | 26-0426107 | |||||||
| (State or other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) | |||||||
30 Hudson Yards
New York, New York 10001
Telephone: (212) 750-8300
(Address, zip code, and telephone number, including
area code, of registrant's principal executive office.)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock | KKR | New York Stock Exchange | ||||||
6.00% Series C Mandatory Convertible Preferred Stock | KKR PR C | New York Stock Exchange | ||||||
| 4.625% Subordinated Notes due 2061 of KKR Group Finance Co. IX LLC | KKRS | New York Stock Exchange | ||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||
| Emerging growth company | ☐ | |||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of common stock of the registrant held by non-affiliates as of June 30, 2021, was approximately $33.1 billion. As of February 24, 2022, the registrant had 591,145,410 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
KKR & CO. INC.
FORM 10-K
For the Year Ended December 31, 2021
INDEX
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| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 1B. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
| Item 7. | ||||||||
| Item 7A. | ||||||||
| Item 8. | ||||||||
| Item 9. | ||||||||
| Item 9A. | ||||||||
| Item 9B. | ||||||||
| Item 9C. | ||||||||
| Item 10. | ||||||||
| Item 11. | ||||||||
| Item 12. | ||||||||
| Item 13. | ||||||||
| Item 14. | ||||||||
| Item 15. | ||||||||
| Item 16. | ||||||||
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as "outlook," "believe," "think," "expect," "potential," "continue," "may," "should," "seek," "approximately," "predict," "intend," "will," "plan," "estimate," "anticipate," the negative version of these words, other comparable words or other statements that do not relate strictly to historical or factual matters. Without limiting the foregoing, statements regarding the declaration and payment of dividends on common or preferred stock of KKR & Co. Inc.; the timing, manner and volume of repurchase of common stock pursuant to its repurchase program; expansion and growth opportunities and other synergies resulting from acquisitions, reorganizations or strategic partnerships; and the timing and completion of the transactions contemplated by the Reorganization Agreement (as defined below) may constitute forward-looking statements. Forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements or cause the anticipated benefits and synergies from transactions to not be realized. We believe these factors include those described under the section entitled "Risk Factors" in this report. These factors should be read in conjunction with the other cautionary statements that are included in this report and in our other filings with the U.S. Securities and Exchange Commission (the "SEC"). We do not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.
CERTAIN TERMS USED IN THIS REPORT
In this report, references to "KKR," "we," "us" and "our" refer to KKR & Co. Inc. and its subsidiaries, including The Global Atlantic Financial Group LLC ("TGAFG" and, together with its subsidiaries, "Global Atlantic"), unless the context requires otherwise. On February 1, 2021, KKR completed its acquisition of Global Atlantic. KKR holds all of the voting interests in Global Atlantic and owns 61.5% of the economic equity interests in Global Atlantic, following the completion of certain post-closing purchase price adjustments in the second quarter of 2021. Accordingly, the results of Global Atlantic included in our consolidated results of operations are from February 1, 2021 through December 31, 2021. Global Atlantic conducts its insurance business through its subsidiaries that are regulated insurance companies.
For periods between July 1, 2018 and December 31, 2019, references to “common stock” refer to Class A common stock of KKR & Co. Inc., and references to “Series I preferred stock” and “Series II preferred stock” refer to Class B common stock and Class C common stock of KKR & Co. Inc., respectively. Prior to July 1, 2018, KKR & Co. Inc. was a limited partnership named KKR & Co. L.P. References to the “Series I preferred stockholder” or “KKR Management” are to KKR Management LLP, the holder of the sole outstanding share of our Series I preferred stock. References to our “senior principals” are to our senior employees who hold interests in the Series I preferred stockholder, including Mr. Henry Kravis and Mr. George Roberts (our "Co-Founders"). References to “non-employee operating consultants” for periods prior to January 1, 2020 refer to employees of KKR Capstone Americas LLC and its affiliates (“KKR Capstone”), which were then owned and controlled by their senior management and not subsidiaries or affiliates of KKR.
Unless otherwise indicated, references to equity interests in KKR’s business, or to percentage interests in KKR’s business, reflect the aggregate equity interests in KKR Group Partnership L.P. ("KKR Group Partnership"), which is the intermediate holding company that owns the entirety of KKR’s business, and are net of amounts that have been allocated to the holders of certain minority interests, including our principals and carry pool participants (who are explained further below). References to “KKR Group Partnership” for periods prior to January 1, 2020 refer to KKR Fund Holdings L.P., KKR Management Holdings L.P. and KKR International Holdings L.P., collectively, which were combined on that date to form KKR Group Partnership. References to a “KKR Group Partnership Unit” refer to (i) one Class A partner interest in each of KKR Fund Holdings L.P., KKR Management Holdings L.P. and KKR International Holdings L.P., collectively, for periods prior to prior to January 1, 2020, and (ii) one Class A partner interest in KKR Group Partnership for periods on and after January 1, 2020.
References to “principals” are to current and former employees who hold interests in KKR’s business through KKR Holdings L.P. (“KKR Holdings”). As of December 31, 2021, KKR Holdings owned, as a limited partner, 258,726,163 Group Partnership Units representing 30.2% of the then outstanding Group Partnership Units. References to “principals” also includes our current employees who hold interests in KKR’s business through KKR Holdings II L.P. KKR Holdings II L.P. is a subsidiary of KKR & Co. Inc. but has an equity ownership in KKR Group Partnership similar to KKR Holdings. As of December 31, 2021, KKR Holdings II L.P. owned, as a limited partner, less than 0.2% of the outstanding Group Partnership Units. References to “carry pool participants” are to our current and former employees who hold interests in our “carry pool,” which refers to the carried interest generated by KKR’s business that is allocated to KKR Associates Holdings L.P. (“KKR Associates Holdings”), in which carry pool participants are limited partners. Neither KKR Holdings nor KKR Associates Holdings is currently a subsidiary of KKR & Co. Inc.
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On October 8, 2021, KKR entered into a Reorganization Agreement (the "Reorganization Agreement") with KKR Holdings, KKR Management, KKR Associates Holdings, and the other parties thereto. Pursuant to the Reorganization Agreement, the parties agreed to undertake a series of integrated transactions to effect a number of transformative structural and governance changes, including (a) the acquisition by KKR of KKR Holdings and all of the KKR Group Partnership Units held by it, (b) the future elimination of voting control by KKR Management and the Series I preferred stock held by it, (c) the future establishment of voting rights for all common stock on a one vote per share basis, including with respect to the election of directors, and (d) the future control of the carry pool by KKR. For more information about the Reorganization Agreement, see "Certain Relationships and Related Transactions, and Director Independence—Reorganization Agreement" in this report.
In this report, the term "GAAP" refers to accounting principles generally accepted in the United States of America.
We disclose certain financial measures in this report that are calculated and presented using methodologies other than in accordance with GAAP, including after-tax distributable earnings, distributable operating earnings, fee related earnings ("FRE"), asset management segment revenues, book value and book value per adjusted share. We believe that providing these performance measures on a supplemental basis to our GAAP results is helpful to stockholders in assessing the overall performance of KKR's businesses. These non-GAAP financial measures should not be considered as a substitute for similar financial measures calculated in accordance with GAAP. We caution readers that these non-GAAP financial measures may differ from the calculations of other investment managers, and as a result, may not be comparable to similar measures presented by other investment managers. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP, where applicable, are included under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Reconciliations to GAAP Measures." This report also uses the terms assets under management ("AUM"), fee paying assets under management ("FPAUM") and capital invested. You should note that our calculations of these and other operating metrics may differ from the calculations of other investment managers and, as a result, may not be comparable to similar metrics presented by other investment managers. These non-GAAP and operating metrics are defined in the section "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Non-GAAP Performance Measures and Other Operating Measures."
References to our "funds" or our "vehicles" refer to investment funds, vehicles and accounts that are advised, managed or sponsored by one or more subsidiaries of KKR, including collateralized loan obligations ("CLOs") and commercial real estate mortgage-backed securities ("CMBS") vehicles, unless the context requires otherwise. They do not include investment funds, vehicles or accounts of any hedge fund or other manager with which we have formed a strategic partnership where we have acquired an ownership interest. References to “strategic investor partnerships” refers to separately managed accounts with certain investors, which have investment periods longer than our traditional funds and typically provide for investments across different investment strategies. References to “hedge fund partnerships” refers to strategic partnerships with third-party hedge fund managers in which KKR owns a minority stake.
Unless otherwise indicated, references in this report to our outstanding common stock on a fully exchanged and diluted basis reflect (i) actual shares of common stock outstanding, (ii) shares of common stock into which KKR Group Partnership Units held by KKR Holdings are exchangeable pursuant to the terms of the exchange agreement described elsewhere in this report, (iii) shares of common stock into which all outstanding shares of Series C Mandatory Convertible Preferred Stock are convertible, and (iv) shares of common stock issuable pursuant to any equity awards actually granted from the Amended and Restated KKR & Co. Inc. 2010 Equity Incentive Plan (the "2010 Equity Incentive Plan") or the Amended and Restated KKR & Co. Inc. 2019 Equity Incentive Plan (the "2019 Equity Incentive Plan" and, together with the 2010 Equity Incentive Plan, our "Equity Incentive Plans"), including equity awards comprised of units in KKR Holdings II L.P. Our outstanding common stock on a fully exchanged and diluted basis does not include shares of common stock available for issuance pursuant to the Equity Incentive Plans for which equity awards have not yet been granted.
The use of any defined term in this report to mean more than one entity, person, security or other item collectively is solely for convenience of reference and in no way implies that such entities, persons, securities or other items are one indistinguishable group. For example, notwithstanding the use of the defined terms "KKR," "we" and "our" in this report to refer to KKR & Co. Inc. and its subsidiaries, each subsidiary of KKR & Co. Inc. is a standalone legal entity that is separate and distinct from KKR & Co. Inc. and any of its other subsidiaries. Any KKR entity (including any Global Atlantic entity) referenced herein is responsible for its own financial, contractual and legal obligations.
4
SUMMARY RISK FACTORS
The following is a summary of the risk factors associated with investing in our securities. You should read this summary together with a more detailed description of these risks in the "Risk Factors" section of this report and in other filings that we make from time to time with the SEC.
We are subject to risks related to our business, including risks involving:
•difficult market and economic conditions;
•disruptions caused by the COVID-19 pandemic;
•changes in the debt financing markets;
•transition away from the London interbank offered rate ("LIBOR") as a benchmark reference for interest rates;
•significant liquidity requirements and sources of liquidity;
•"clawback" provisions in our governing agreements;
•increased risks related to strategic investor partnerships;
•use of the term perpetual capital;
•high variability in our earnings and cash flow;
•decline in the pace or size of investment by our funds;
•inability to raise additional or successor funds at all or at a comparable size to predecessor funds;
•less favorable economic terms of our future funds;
•intense competition in the investment management business;
•increasing focus by stakeholders on environmental, social and governance matters;
•changes in relevant tax laws, regulations and treaties or adverse interpretations by tax authorities;
•our dependence on our founders and other key personnel;
•recruiting, retaining and motivating our employees and other key personnel;
•operational risks, cyber-security failures and data security breaches;
•entering into new lines of business and expansion into new investment strategies, geographic markets and businesses;
•complexities of new investment strategies, markets and businesses;
•sponsoring a special purpose acquisition company ("SPAC");
•ability to syndicate the securities or indebtedness and realize returns on investments financed with our balance sheet;
•extensive regulation of our businesses;
•increased regulatory focus or legislative or regulatory change;
•complex regulations affecting capital raising activities;
•federal, state and foreign anti-corruption and trade sanctions laws;
•litigation allegations and negative publicity;
•certain types of investment vehicles with increased risk of litigation and regulatory scrutiny;
•misconduct of our employees, consultants or sub-contractors or by our portfolio companies;
•our capital markets activities; and
•use of third-party service providers.
We are subject to risks related to assets we manage, including risks involving:
•historical returns not being indicative of future results;
•valuation methodologies;
•various economic conditions and events outside our control;
•dependence on significant leverage in investments;
•limitation inherent in the due diligence process;
•investments in relatively high-risk, illiquid assets;
•risks inherent in our investments including risks specific to real assets and growth equity investments;
•investments in real assets, such as real estate, infrastructure and energy, and emerging and less established companies;
•failure to protect intellectual property rights;
•investments in high-yield, below investment grade or unrated debt or in companies in distress;
•investments involving business, regulatory, legal or other complexities;
•large size of our private equity and real assets investments;
•investments in companies that we do not control;
•investments in companies that are based outside of the United States;
•third-party investors' contractual obligation to fund capital calls;
•ranking of our equity and debt investments compared to investments made by others;
•hedging transactions and other risk management activities undertaken by us;
•concentration of investments by our funds or by our balance sheet;
5
•conflicts of interest between our businesses and our clients;
•redemption by fund investors in certain of our real asset funds;
•termination of our investment advisory arrangements; and
•our hedge fund partnerships.
We are subject to risks related to our common stock, including risks involving:
•significant voting power held by the Series I preferred stockholder;
•exemptions available to us as a "controlled company" under the NYSE corporate governance rules;
•exemptions from proxy rules under U.S. securities laws;
•provisions in our certificate of incorporation limiting the obligation and liability of the Series I preferred stockholder;
•exclusive forum provision included in our certificate of incorporation;
•volatility of market price and trading volume of our common stock;
•assets and revenues of our funds not being directly available to us or our common stockholders;
•large number of shares eligible for future sale or for exchange and issuable as grants or in acquisitions;
•ability to issue preferred stock may cause the price of our common stock to decline; and
•our right to repurchase all outstanding shares of common stock under specific circumstances.
We are subject to risks related to our organizational structure, including risks involving:
•potential conflicts of interest among the Series I preferred stockholder and our common stockholders;
•certain actions by our board of directors requiring the approval of the Series I preferred stockholder;
•limitations on our ability to pay periodic dividends;
•our obligations to pay under tax receivable agreement;
•potential application of restrictions under the Investment Company Act of 1940 (the "Investment Company Act");
•reorganizations undertaken by us; and
•anti-takeover provisions in our organizational documents.
We are subject to risks related to Global Atlantic, including risks involving:
•possibility of not achieving the intended benefit of the acquisition;
•inclusion of Global Atlantic as our consolidated subsidiary;
•interest rate fluctuations and sustained periods of low or high interest rates;
•use of derivative financial instruments in risk management strategy;
•competitiveness of the insurance industry;
•dependence on third-party service providers, including distribution partners and agents;
•guarantees within certain of Global Atlantic's products;
•volatility in its net income under GAAP;
•acceleration of amortization of deferred revenues and expenses;
•difference between policyholder behavior estimates, reserve assumptions and actual claim experience;
•estimates used in preparation of financial statements and models for insurance products;
•ability to execute Global Atlantic's growth strategies successfully;
•any gaps in Global Atlantic's risk management policies and procedures;
•Global Atlantic's actual or perceived financial strength and ratings of Global Atlantic and its insurance subsidiaries;
•failure to comply with covenants in credit facilities or agreements;
•lack of captive or proprietary distribution or direct sale;
•businesses Global Atlantic reinsures and business it cedes to reinsurers;
•natural and man-made disasters and other catastrophes;
•protection of confidentiality of client information;
•changes in accounting standards;
•ability to cover policyholder benefits, withdrawals, recaptures or collateralization requirements;
•reinsurance assets held in trust, which limits Global Atlantic's ability to invest those assets;
•reinsurance agreements that permit the reinsurance client to recapture some or all of the reinsurance portfolio;
•determination of the amount of impairments and allowances for credit losses;
•Global Atlantic's membership in Federal Home Loan Banks;
•repurchase and reverse repurchase transactions that subject Global Atlantic to liquidity risks;
•applicability of the U.S. federal income taxes, changes to U.S. tax laws or Global Atlantic's tax status in Bermuda; and
•insurance and other regulations, including those related to statutory accounting rules, reserves, guaranty association laws and licensing requirements, that apply to Global Atlantic and its insurance subsidiaries.
6
PART I
ITEM 1. BUSINESS
Overview
We are a leading global investment firm that offers alternative asset management as well as capital markets and insurance solutions. We aim to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and supporting growth in our portfolio companies and communities. We sponsor investment funds that invest in private equity, credit and real assets and have strategic partners that manage hedge funds. Our insurance subsidiaries offer retirement, life and reinsurance products under the management of Global Atlantic.
Our asset management business offers a broad range of investment management services to fund investors around the world. Throughout our history, we have consistently been a leader in the private equity industry, having completed more than 650 private equity investments in portfolio companies with a total transaction value in excess of $675 billion as of December 31, 2021. Since the inception of our firm in 1976, we have expanded our investment strategies and product offerings from traditional private equity to areas such as leveraged credit, alternative credit, infrastructure, energy, real estate, growth equity, core and impact investments. We also provide capital markets services for our firm, our portfolio companies and third parties. Our balance sheet provides a significant source of capital in the growth and expansion of our business, and it has allowed us to further align our interests with those of our fund investors. Building on these efforts and leveraging our industry expertise and intellectual capital have allowed us to capitalize on a broader range of the opportunities we source.
Our insurance business is operated by Global Atlantic, in which we acquired a majority controlling interest on February 1, 2021. Global Atlantic is a leading U.S. retirement and life insurance company that provides a broad suite of protection, legacy and savings products and reinsurance solutions to clients across individual and institutional markets. Global Atlantic primarily offers individuals fixed-rate annuities, fixed-indexed annuities and targeted life products through a network of banks, broker-dealers and independent marketing organizations. Global Atlantic provides its institutional clients customized reinsurance solutions, including block, flow and pension risk transfer reinsurance, as well as funding agreements. Global Atlantic primarily generates income by earning a spread between its investment income and the cost of policyholder benefits. As of December 31, 2021, Global Atlantic served approximately three million policyholders.
Our Firm
We seek to work proactively and collaboratively across business lines, departments, and geographies, as appropriate, to achieve what we believe are the best investment results for our clients and the firm. Through our offices around the world, we have a pre-eminent global integrated platform for sourcing transactions, raising capital and carrying out capital markets activities. We have multilingual and multicultural investment teams with local market knowledge and significant business, investment and operational experience in the countries in which we invest. We believe that our global capabilities and one-firm philosophy have helped us to raise capital, capture a greater number of investment opportunities, and assist our portfolio companies in their increasing reliance on global markets and sourcing, while enabling us to diversify our operations.
Though our operations span multiple continents and asset classes, our investment professionals are supported by an integrated infrastructure and operate under a common set of principles and business practices that are monitored by a variety of committees. Our investment teams operate with a single culture that rewards investment discipline, creativity, determination and patience and emphasizes the sharing of information, resources, expertise and best practices across offices and asset classes. When appropriate, we staff investment transactions across multiple offices and businesses in order to take advantage of the industry-specific expertise of our investment professionals, and we hold regular meetings in which investment professionals throughout our offices share their knowledge and experiences. We believe that the ability to draw on the local cultural fluency of our investment professionals while maintaining a centralized and integrated global infrastructure distinguishes us from other investment firms and has been a substantial contributing factor to our ability to raise funds, invest internationally and expand our businesses.
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Our Business
We operate in two segments, our asset management business and, beginning in the first quarter of 2021, our insurance business.
Asset Management
In our asset management business, we have four business lines: (1) Private Markets, (2) Public Markets, (3) Capital Markets, and (4) Principal Activities. Information about our business lines below should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included elsewhere in this report.
As an asset management firm, we earn fees, including incentive fees, and carried interest for providing investment management and other services to our funds, vehicles, CLOs, managed accounts and portfolio companies, and we generate transaction-specific income from capital markets transactions. We earn additional investment income by investing our own capital alongside that of our fund investors and from other assets on our balance sheet. Carried interest we receive from our funds and certain other investment vehicles entitles us to a specified percentage of investment gains that are generated on third-party capital that is invested.
Our investment teams have deep industry knowledge and are supported by a substantial and diversified capital base; an integrated global investment platform; the expertise of operating professionals, senior advisors and other advisors; and a worldwide network of business relationships that provide a significant source of investment opportunities, specialized knowledge during due diligence and substantial resources for creating and realizing value for stakeholders. These teams invest capital, a substantial portion of which is of a long duration or not subject to predetermined redemption requirements, which provides us with significant flexibility to grow investments and select exit opportunities. As of December 31, 2021, approximately 90% of our AUM consists of capital that is not subject to redemption for at least 8 years from inception and what we refer to as perpetual capital. For more information about the limitations of perpetual capital, please see "Risks Related to Our Business—AUM referred to as perpetual capital is subject to material reduction, including through withdrawal, redemption, or dividends, and termination." We believe that these aspects of our business help us continue to grow our asset management business and deliver strong investment performance in a variety of economic and financial conditions.
Since our inception, one of our fundamental investment philosophies has been to align the interests of the firm and our employees with the interests of our fund investors, portfolio companies and other stakeholders. We achieve this by putting our own capital behind our ideas. As of December 31, 2021, we and our employees and other personnel have approximately $26.9 billion invested in or committed to our own funds and portfolio companies, including $11.1 billion of capital funded from our balance sheet, $11.9 billion of additional capital committed by our balance sheet to our investment funds, $2.8 billion funded from personal investments, and $1.1 billion of additional capital commitments from personal investments.
Private Markets
Through our Private Markets business line, we manage and sponsor a group of private equity funds that invest capital for long-term appreciation, either through controlling ownership of a company or strategic minority positions. In addition to our traditional private equity funds that invest in large and mid-sized companies, we sponsor investment funds that invest in core equity, growth equity, and impact investments. We also manage and sponsor investment funds that invest capital in real assets, such as infrastructure, real estate, and energy. Our Private Markets business line includes separately managed accounts that invest in multiple strategies, which may include our credit strategies as well as our private equity and real assets strategies. These funds and accounts are managed by Kohlberg Kravis Roberts & Co. L.P., an SEC-registered investment adviser. As of December 31, 2021, our Private Markets business line had $257.0 billion of AUM, consisting of $153.3 billion in private equity (including growth equity, core and impact investments), $83.3 billion in real assets (including infrastructure, real estate, and energy) and $20.4 billion in other related strategies.
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The following chart presents the growth in the AUM of our Private Markets business line from December 2005 through December 31, 2021.
Private Markets
Assets Under Management (1)
($ in billions)
(1) For the years 2006 through 2008, AUM are presented pro forma for the acquisition of the assets and liabilities of KKR & Co. (Guernsey) L.P. (formerly known as KKR Private Equity Investors, L.P.) on October 1, 2009, and therefore exclude the net asset value of that vehicle and its former commitments to our investment funds. In 2015 our definition of AUM was amended to include (i) KKR's pro rata portion of AUM managed by strategic partners in which KKR holds a minority stake and (ii) capital commitments for which we are eligible to receive fees or carried interest upon deployment of capital. AUM for all prior periods has been adjusted to include such changes.
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The table below presents information as of December 31, 2021, relating to our current private equity and real asset funds and other investment vehicles in our Private Markets business line for which we have the ability to earn carried interest. This data does not reflect acquisitions or disposals of investments, changes in investment values, or distributions occurring after December 31, 2021.
Investment Period (1) | Amount ($ in millions) | |||||||||||||||||||||||||||||||
| Start Date | End Date | Commitment (2) | Uncalled Commitments | Percentage Committed by General Partner | Invested | Realized | Remaining Cost (3) | Remaining Fair Value | Gross Accrued Carried Interest | |||||||||||||||||||||||
| Private Equity Funds | ||||||||||||||||||||||||||||||||
| North America Fund XIII | 6/2021 | 6/2027 | $ | 17,749 | $ | 17,749 | 6% | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| Americas Fund XII | 1/2017 | 6/2021 | 13,500 | 1,937 | 6% | 12,039 | 4,198 | 10,986 | 26,586 | 2,816 | ||||||||||||||||||||||
| North America Fund XI | 9/2012 | 1/2017 | 8,718 | 422 | 3% | 9,752 | 16,367 | 3,693 | 8,659 | 983 | ||||||||||||||||||||||
2006 Fund (4) | 9/2006 | 9/2012 | 17,642 | 247 | 2% | 17,309 | 34,744 | 1,649 | 2,781 | 278 | ||||||||||||||||||||||
Millennium Fund (4) | 12/2002 | 12/2008 | 6,000 | — | 3% | 6,000 | 14,123 | — | 6 | 1 | ||||||||||||||||||||||
| European Fund V | 3/2019 | 7/2025 | 6,356 | 2,597 | 2% | 3,828 | 361 | 3,707 | 5,225 | 257 | ||||||||||||||||||||||
| European Fund IV | 12/2014 | 3/2019 | 3,515 | 66 | 6% | 3,577 | 4,519 | 1,935 | 3,103 | 220 | ||||||||||||||||||||||
European Fund III (4) | 3/2008 | 3/2014 | 5,509 | 150 | 5% | 5,360 | 10,604 | 669 | 175 | (20) | ||||||||||||||||||||||
European Fund II (4) | 11/2005 | 10/2008 | 5,751 | — | 2% | 5,751 | 8,507 | — | 34 | — | ||||||||||||||||||||||
| Asian Fund IV | 7/2020 | 7/2026 | 14,735 | 12,056 | 7% | 2,679 | — | 2,679 | 2,937 | — | ||||||||||||||||||||||
| Asian Fund III | 4/2017 | 7/2020 | 9,000 | 2,156 | 6% | 7,248 | 3,633 | 6,541 | 13,671 | 1,273 | ||||||||||||||||||||||
| Asian Fund II | 4/2013 | 4/2017 | 5,825 | 34 | 1% | 6,839 | 5,946 | 3,796 | 3,833 | 152 | ||||||||||||||||||||||
Asian Fund (4) | 7/2007 | 4/2013 | 3,983 | — | 3% | 3,974 | 8,728 | 110 | 23 | 4 | ||||||||||||||||||||||
China Growth Fund (4) | 11/2010 | 11/2016 | 1,010 | — | 1% | 1,010 | 1,056 | 330 | 249 | (3) | ||||||||||||||||||||||
| Next Generation Technology Growth Fund II | 12/2019 | 12/2025 | 2,088 | 796 | 7% | 1,489 | 259 | 1,352 | 2,218 | 157 | ||||||||||||||||||||||
| Next Generation Technology Growth Fund | 3/2016 | 12/2019 | 659 | 4 | 22% | 666 | 810 | 359 | 1,529 | 128 | ||||||||||||||||||||||
| Health Care Strategic Growth Fund II | 5/2021 | 5/2027 | 3,789 | 3,789 | 4% | — | — | — | — | — | ||||||||||||||||||||||
| Health Care Strategic Growth Fund | 12/2016 | 5/2021 | 1,331 | 522 | 11% | 939 | 196 | 834 | 1,261 | 62 | ||||||||||||||||||||||
| Global Impact Fund | 2/2019 | 2/2025 | 1,242 | 429 | 8% | 904 | 96 | 849 | 1,364 | 94 | ||||||||||||||||||||||
| Private Equity Funds | 128,402 | 42,954 | 89,364 | 114,147 | 39,489 | 73,654 | 6,402 | |||||||||||||||||||||||||
| Co-Investment Vehicles and Other | Various | Various | 16,999 | 7,898 | Various | 9,524 | 7,144 | 6,228 | 9,260 | 1,434 | ||||||||||||||||||||||
| Total Private Equity Funds | 145,401 | 50,852 | 98,888 | 121,291 | 45,717 | 82,914 | 7,836 | |||||||||||||||||||||||||
| Core Investment Vehicles | Various | Various | 24,239 | 13,379 | 31% | 11,361 | 516 | 11,163 | 18,343 | 345 | ||||||||||||||||||||||
| Real Assets | ||||||||||||||||||||||||||||||||
| Energy Income and Growth Fund II | 6/2018 | 8/2022 | 994 | 415 | 20% | 772 | 193 | 610 | 814 | 13 | ||||||||||||||||||||||
| Energy Income and Growth Fund | 9/2013 | 6/2018 | 1,974 | — | 13% | 1,974 | 912 | 1,174 | 670 | — | ||||||||||||||||||||||
Natural Resources Fund (4) | Various | Various | 887 | — | Various | 887 | 123 | 193 | 46 | — | ||||||||||||||||||||||
| Global Energy Opportunities | Various | Various | 915 | 62 | Various | 519 | 165 | 326 | 190 | — | ||||||||||||||||||||||
| Global Infrastructure Investors IV | 6/2021 | 6/2027 | 15,778 | 15,778 | 3% | — | — | — | — | — | ||||||||||||||||||||||
| Global Infrastructure Investors III | 6/2018 | 6/2021 | 7,169 | 2,924 | 4% | 4,511 | 979 | 4,022 | 4,211 | — | ||||||||||||||||||||||
| Global Infrastructure Investors II | 10/2014 | 6/2018 | 3,040 | 124 | 4% | 3,163 | 4,239 | 1,281 | 1,757 | 47 | ||||||||||||||||||||||
| Global Infrastructure Investors | 9/2011 | 10/2014 | 1,040 | — | 5% | 1,050 | 2,228 | — | — | — | ||||||||||||||||||||||
| Asia Pacific Infrastructure Investors | 1/2020 | 1/2026 | 3,792 | 2,738 | 7% | 1,311 | 258 | 1,161 | 1,302 | 33 | ||||||||||||||||||||||
| Diversified Core Infrastructure Fund | 12/2020 | (5) | 6,939 | 5,054 | 7% | 1,889 | 54 | 1,885 | 1,931 | — | ||||||||||||||||||||||
| Real Estate Partners Americas III | 12/2020 | 1/2025 | 4,253 | 3,167 | 5% | 1,086 | — | 1,086 | 1,196 | — | ||||||||||||||||||||||
| Real Estate Partners Americas II | 5/2017 | 12/2020 | 1,921 | 266 | 8% | 1,892 | 1,973 | 816 | 1,096 | 140 | ||||||||||||||||||||||
| Real Estate Partners Americas | 5/2013 | 5/2017 | 1,229 | 142 | 16% | 1,016 | 1,405 | 142 | 67 | 2 | ||||||||||||||||||||||
| Real Estate Partners Europe II | 12/2019 | 4/2024 | 2,083 | 1,117 | 10% | 966 | — | 966 | 1,107 | — | ||||||||||||||||||||||
| Real Estate Partners Europe | 9/2015 | 12/2019 | 710 | 141 | 10% | 648 | 576 | 292 | 360 | 15 | ||||||||||||||||||||||
| Asia Real Estate Partners | 6/2019 | 6/2023 | 1,682 | 1,415 | 15% | 267 | — | 267 | 343 | 1 | ||||||||||||||||||||||
| Real Estate Credit Opportunity Partners II | 4/2019 | 6/2022 | 950 | 507 | 5% | 443 | 65 | 443 | 479 | 8 | ||||||||||||||||||||||
| Real Estate Credit Opportunity Partners | 2/2017 | 4/2019 | 1,130 | 122 | 4% | 1,008 | 323 | 1,008 | 1,004 | 1 | ||||||||||||||||||||||
| Property Partners Americas | 12/2019 | (5) | 2,463 | 460 | 20% | 2,003 | 60 | 2,003 | 2,474 | 20 | ||||||||||||||||||||||
| Co-Investment Vehicles and Other | Various | Various | 4,880 | 715 | Various | 3,912 | 1,579 | 3,436 | 3,515 | 14 | ||||||||||||||||||||||
| Real Assets | 63,829 | 35,147 | 29,317 | 15,132 | 21,111 | 22,562 | 294 | |||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
Unallocated Commitments (6) | 1,994 | 1,994 | Various | — | — | — | — | — | ||||||||||||||||||||||||
| Private Markets Total | $ | 235,463 | $ | 101,372 | $ | 139,566 | $ | 136,939 | $ | 77,991 | $ | 123,819 | $ | 8,475 | ||||||||||||||||||
(1)The start date represents the date on which the general partner of the applicable fund commenced investment of the fund's capital or the date of the first closing. The end date represents the earlier of (i) the date on which the general partner of the applicable fund was or will be required by the fund's governing agreement to cease making investments (other than reserved amounts) on behalf of the fund, unless extended by a vote of the fund investors, and (ii) the date on which the last investment was made.
(2)The commitment represents the aggregate capital commitments to the fund, including capital commitments by third-party fund investors and the general partner. Foreign currency commitments have been converted into U.S. dollars based on (i) the foreign exchange rate at the date of purchase for each investment and (ii) the exchange rate that prevailed on December 31, 2021, in the case of uncalled commitments.
(3)The remaining cost represents the initial investment of the general partner and limited partners, reduced for returns of capital.
(4)The "Invested" and "Realized" columns do not include the amounts of any realized investments that restored the unused capital commitments of the fund investors, if any.
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(5)Open-ended fund.
(6)"Unallocated Commitments" represent unallocated commitments from our strategic investor partnerships.
Performance
We take a long-term approach to Private Markets investing and measure the success of our investments over a period of years rather than months. Given the duration of these investments, the firm focuses on realized multiples of invested capital and internal rates of return ("IRRs") when deploying capital in these transactions. We have doubled the value of capital that we have invested in our Private Markets investment funds, turning $141.5 billion of invested capital into $293.6 billion of value from our inception in 1976 to December 31, 2021.
Amount Invested and Total Value for
Private Markets Investment Funds
As of December 31, 2021
From our inception in 1976 through December 31, 2021, our investment funds with at least 24 months of investment activity generated a cumulative gross IRR of 25.6%, compared to the 12.1% and 9.5% gross IRR achieved by the S&P 500 Index and MSCI World Index, respectively, over the same period, despite the cyclical and sometimes challenging environments in which we have operated. The S&P 500 Index and MSCI World Index are unmanaged indices and their returns assume reinvestment of distributions and do not reflect any fees or expenses. Our past performance, however, may not be representative of performance in any period other than the period discussed above and is not a guarantee of future results. For additional information regarding impact of market conditions on the value and performance of our investments, see "Risk Factors—Risks Related to Our Business—Difficult market and economic conditions can adversely affect our business in many ways, including by reducing the value or performance of the investments that we manage or by reducing the ability of our funds to raise or deploy capital, each of which could negatively impact our net income and cash flow and adversely affect our financial prospects and condition" and "Risk Factors—Risks Related to the Assets We Manage—The historical returns attributable to our funds, including those presented in this report, should not be considered as indicative of the future results of our funds, our insurance subsidiaries or our balance sheet investments, of our future results or the performance of our common stock."
The tables below present information as of December 31, 2021, relating to the historical performance of certain of our Private Markets investment vehicles since inception, which we believe illustrates the benefits of our investment approach. This data does not reflect additional capital raised since December 31, 2021, or acquisitions or disposals of investments, changes in investment values, or distributions occurring after that date. The information presented below is not intended to be representative of any past or future performance for any particular period other than the period presented below. Past performance is no guarantee of future results.
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| Amount | Fair Value of Investments | ||||||||||||||||||||||||||||||||||
| Private Markets Investment Funds | Commitment (2) | Invested | Realized (4) | Unrealized | Total Value | Gross IRR (5) | Net IRR (5) | Gross Multiple of Invested Capital (5) | |||||||||||||||||||||||||||
| ($ in millions) | |||||||||||||||||||||||||||||||||||
| Total Investments | |||||||||||||||||||||||||||||||||||
Legacy Funds (1) | |||||||||||||||||||||||||||||||||||
| 1976 Fund | $ | 31 | $ | 31 | $ | 537 | $ | — | $ | 537 | 39.5 | % | 35.5 | % | 17.1 | ||||||||||||||||||||
| 1980 Fund | 357 | 357 | 1,828 | — | 1,828 | 29.0 | % | 25.8 | % | 5.1 | |||||||||||||||||||||||||
| 1982 Fund | 328 | 328 | 1,291 | — | 1,291 | 48.1 | % | 39.2 | % | 3.9 | |||||||||||||||||||||||||
| 1984 Fund | 1,000 | 1,000 | 5,964 | — | 5,964 | 34.5 | % | 28.9 | % | 6.0 | |||||||||||||||||||||||||
| 1986 Fund | 672 | 672 | 9,081 | — | 9,081 | 34.4 | % | 28.9 | % | 13.5 | |||||||||||||||||||||||||
| 1987 Fund | 6,130 | 6,130 | 14,949 | — | 14,949 | 12.1 | % | 8.9 | % | 2.4 | |||||||||||||||||||||||||
| 1993 Fund | 1,946 | 1,946 | 4,143 | — | 4,143 | 23.6 | % | 16.8 | % | 2.1 | |||||||||||||||||||||||||
| 1996 Fund | 6,012 | 6,012 | 12,477 | — | 12,477 | 18.0 | % | 13.3 | % | 2.1 | |||||||||||||||||||||||||
| Subtotal - Legacy Funds | 16,475 | 16,475 | 50,269 | — | 50,269 | 26.1 | % | 19.9 | % | 3.1 | |||||||||||||||||||||||||
| Included Funds | |||||||||||||||||||||||||||||||||||
| European Fund (1999) | 3,085 | 3,085 | 8,758 | — | 8,758 | 26.9 | % | 20.2 | % | 2.8 | |||||||||||||||||||||||||
| Millennium Fund (2002) | 6,000 | 6,000 | 14,123 | 6 | 14,129 | 22.0 | % | 16.1 | % | 2.4 | |||||||||||||||||||||||||
| European Fund II (2005) | 5,751 | 5,751 | 8,507 | 34 | 8,541 | 6.1 | % | 4.5 | % | 1.5 | |||||||||||||||||||||||||
| 2006 Fund (2006) | 17,642 | 17,309 | 34,744 | 2,781 | 37,525 | 12.0 | % | 9.4 | % | 2.2 | |||||||||||||||||||||||||
| Asian Fund (2007) | 3,983 | 3,974 | 8,728 | 23 | 8,751 | 18.9 | % | 13.7 | % | 2.2 | |||||||||||||||||||||||||
| European Fund III (2008) | 5,509 | 5,360 | 10,604 | 175 | 10,779 | 16.5 | % | 11.4 | % | 2.0 | |||||||||||||||||||||||||
| E2 Investors (Annex Fund) (2009) | 196 | 196 | 200 | — | 200 | 0.6 | % | 0.5 | % | 1.0 | |||||||||||||||||||||||||
| China Growth Fund (2010) | 1,010 | 1,010 | 1,056 | 249 | 1,305 | 6.3 | % | 2.2 | % | 1.3 | |||||||||||||||||||||||||
| Natural Resources Fund (2010) | 887 | 887 | 123 | 46 | 169 | (27.3) | % | (29.2) | % | 0.2 | |||||||||||||||||||||||||
| Global Infrastructure Investors (2011) | 1,040 | 1,050 | 2,228 | — | 2,228 | 17.6 | % | 15.6 | % | 2.1 | |||||||||||||||||||||||||
| North America Fund XI (2012) | 8,718 | 9,752 | 16,367 | 8,659 | 25,026 | 24.5 | % | 19.9 | % | 2.6 | |||||||||||||||||||||||||
| Asian Fund II (2013) | 5,825 | 6,839 | 5,946 | 3,833 | 9,779 | 10.3 | % | 7.2 | % | 1.4 | |||||||||||||||||||||||||
| Real Estate Partners Americas (2013) | 1,229 | 1,016 | 1,405 | 67 | 1,472 | 16.6 | % | 11.8 | % | 1.4 | |||||||||||||||||||||||||
| Energy Income and Growth Fund (2013) | 1,974 | 1,974 | 912 | 670 | 1,582 | (6.6) | % | (9.3) | % | 0.8 | |||||||||||||||||||||||||
| Global Infrastructure Investors II (2014) | 3,040 | 3,163 | 4,239 | 1,757 | 5,996 | 20.2 | % | 17.5 | % | 1.9 | |||||||||||||||||||||||||
| European Fund IV (2015) | 3,515 | 3,577 | 4,519 | 3,103 | 7,622 | 25.4 | % | 20.0 | % | 2.1 | |||||||||||||||||||||||||
| Real Estate Partners Europe (2015) | 710 | 648 | 576 | 360 | 936 | 14.9 | % | 10.4 | % | 1.4 | |||||||||||||||||||||||||
| Next Generation Technology Growth Fund (2016) | 659 | 666 | 810 | 1,529 | 2,339 | 44.6 | % | 38.6 | % | 3.5 | |||||||||||||||||||||||||
| Health Care Strategic Growth Fund (2016) | 1,331 | 939 | 196 | 1,261 | 1,457 | 31.6 | % | 19.7 | % | 1.6 | |||||||||||||||||||||||||
| Americas Fund XII (2017) | 13,500 | 12,039 | 4,198 | 26,586 | 30,784 | 50.1 | % | 41.9 | % | 2.6 | |||||||||||||||||||||||||
| Real Estate Credit Opportunity Partners (2017) | 1,130 | 1,008 | 323 | 1,004 | 1,327 | 9.1 | % | 8.0 | % | 1.3 | |||||||||||||||||||||||||
| Core Investment Vehicles (2017) | 24,239 | 11,361 | 516 | 18,343 | 18,859 | 27.5 | % | 26.0 | % | 1.7 | |||||||||||||||||||||||||
| Asian Fund III (2017) | 9,000 | 7,248 | 3,633 | 13,671 | 17,304 | 50.3 | % | 40.4 | % | 2.4 | |||||||||||||||||||||||||
| Real Estate Partners Americas II (2017) | 1,921 | 1,892 | 1,973 | 1,096 | 3,069 | 31.4 | % | 26.0 | % | 1.6 | |||||||||||||||||||||||||
| Global Infrastructure Investors III (2018) | 7,169 | 4,511 | 979 | 4,211 | 5,190 | 9.3 | % | 6.6 | % | 1.2 | |||||||||||||||||||||||||
| Global Impact Fund (2019) | 1,242 | 904 | 96 | 1,364 | 1,460 | 56.2 | % | 41.1 | % | 1.6 | |||||||||||||||||||||||||
| European Fund V (2019) | 6,356 | 3,828 | 361 | 5,225 | 5,586 | 35.5 | % | 27.5 | % | 1.5 | |||||||||||||||||||||||||
| Energy Income and Growth Fund II (2019) | 994 | 772 | 193 | 814 | 1,007 | 20.1 | % | 17.5 | % | 1.3 | |||||||||||||||||||||||||
| Asia Real Estate Partners (2019) | 1,682 | 267 | — | 343 | 343 | 31.5 | % | 8.6 | % | 1.3 | |||||||||||||||||||||||||
| Next Generation Technology Growth Fund II (2019) | 2,088 | 1,489 | 259 | 2,218 | 2,477 | 64.7 | % | 51.5 | % | 1.7 | |||||||||||||||||||||||||
| Real Estate Credit Opportunity Partners II (2019) | 950 | 443 | 65 | 479 | 544 | 14.3 | % | 12.8 | % | 1.2 | |||||||||||||||||||||||||
Asia Pacific Infrastructure Investors (2020) (3) | 3,792 | 1,311 | 258 | 1,302 | 1,560 | — | — | — | |||||||||||||||||||||||||||
Asian Fund IV (2020) (3) | 14,735 | 2,679 | — | 2,937 | 2,937 | — | — | — | |||||||||||||||||||||||||||
Real Estate Partners Americas III (2021) (3) | 4,253 | 1,086 | — | 1,196 | 1,196 | — | — | — | |||||||||||||||||||||||||||
Real Estate Partners Europe II (2021) (3) | 2,083 | 966 | — | 1,107 | 1,107 | — | — | — | |||||||||||||||||||||||||||
Health Care Strategic Growth Fund II (2021) (3) | 3,789 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Global Infrastructure Investors IV (2021) (3) | 15,778 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
North America Fund XIII (2021) (3) | 17,749 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Subtotal - Included Funds | 204,554 | 125,000 | 136,895 | 106,449 | 243,344 | 17.2 | % | 13.4 | % | 2.0 | |||||||||||||||||||||||||
| All Funds | $ | 221,029 | $ | 141,475 | $ | 187,164 | $ | 106,449 | $ | 293,613 | 25.6 | % | 18.9 | % | 2.1 | ||||||||||||||||||||
(1)These funds were not contributed to KKR as part of the acquisition of the assets and liabilities of KKR & Co. (Guernsey) L.P. (formerly known as KKR Private Equity Investors, L.P.) on October 1, 2009.
(2)Where commitments are euro-denominated, such amounts have been converted into U.S. dollars based on (i) the foreign exchange rate at the date of purchase for each investment and (ii) the exchange rate prevailing on December 31, 2021, in the case of unfunded commitments.
(3)The gross IRR, net IRR and gross multiple of invested capital are calculated for our investment funds that made their first investment at least 24 months prior to December 31, 2021. We therefore have not calculated gross IRRs, net IRRs and gross multiples of invested capital with respect to these funds.
(4)An investment is considered realized when it has been disposed of or has otherwise generated disposition proceeds or current income that has been distributed by the relevant fund.
(5)IRRs measure the aggregate annual compounded returns generated by a fund's investments over a holding period. Net IRRs are calculated after giving effect to the allocation of realized and unrealized carried interest and the payment of any applicable management fees and organizational expenses. Gross IRRs are calculated before giving effect to the allocation of realized and unrealized carried interest and the payment of any applicable management fees and organizational expenses.
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The gross multiples of invested capital measure the aggregate value generated by a fund's investments in absolute terms. Each multiple of invested capital is calculated by adding together the total realized and unrealized values of a fund's investments and dividing by the total amount of capital invested by the fund. Such amounts do not give effect to the allocation of realized and unrealized carried interest or the payment of any applicable management fees or organizational expenses.
KKR's Private Markets funds may utilize third-party financing facilities to provide liquidity to such funds. The above net and gross IRRs are calculated from the time capital contributions are due from fund investors to the time fund investors receive a related distribution from the fund, and the use of such financing facilities generally decreases the amount of time that would otherwise be used to calculate IRRs, which tends to increase IRRs when fair value grows over time and decrease IRRs when fair value decreases over time. KKR's Private Markets funds also generally provide in certain circumstances, which vary depending on the relevant fund documents, for a portion of capital returned to investors to be restored to unused commitments as recycled capital. For KKR's Private Markets funds that have a preferred return, we take into account recycled capital in the calculation of IRRs and multiples of invested capital because the calculation of the preferred return includes the effect of recycled capital. For KKR's Private Markets funds that do not have a preferred return, we do not take recycled capital into account in the calculation of IRRs and multiples of invested capital. The inclusion of recycled capital generally causes invested and realized amounts to be higher and IRRs and multiples of invested capital to be lower than had recycled capital not been included. The inclusion of recycled capital would reduce the composite net IRR of all Included Funds by 0.1% and the composite net IRR of all Legacy Funds by 0.5% and would reduce the composite multiple of invested capital of Included Funds by less than 0.1 and the composite multiple of invested capital of Legacy Funds by 0.4.
For more information, see "Risk Factors—Risks Related to the Assets We Manage—The historical returns attributable to our funds, including those presented in this report, should not be considered as indicative of the future results of our funds, our insurance subsidiaries or our balance sheet investments, of our future results or the performance of our common stock."
Private Equity
We are a world leader in private equity, having raised over 30 private equity funds (including growth equity, core and impact investments). We invest in industry-leading franchises and attract world-class management teams. Our investment approach leverages our capital base, sourcing advantage, global network and industry knowledge. It also leverages a sizable team of operating professionals, as well as senior advisors and other advisors, many of whom are former chief executive officers and leaders of the business community.
Traditional Private Equity. Our traditional private equity investment strategy typically seeks to engage in management buyouts, build-ups, or other investments with a view to acquire control or have significant influence. We believe that the combination of our industry knowledge, investment experience and operational expertise provides KKR with the ability to identify and create value in investment opportunities. Through our portfolio company board oversight, we work closely and cooperatively with the management of our portfolio companies, which are assisted by having access to the resources of our global platform.
Growth Equity. Since 2016, we have offered growth equity funds that pursue growth equity investment opportunities in the technology, media and telecommunications (TMT) sector, primarily in the United States, Canada, Europe and Israel. Through this strategy, we focus on emerging, high-growth companies and invest across a variety of sub-sectors including software, security, semiconductors, consumer electronics, internet of things (IoT), information services, business services, internet, digital media, content and communications. Also since 2016, we have offered growth equity funds to pursue growth equity investment opportunities in the health care sector, primarily in the United States and Europe. Our health care growth strategy targets opportunities across various health care sub-sectors, including biopharmaceuticals, medical devices, diagnostics, life science tools, health care providers, healthcare information technology and other services.
Core Investments. Our core investments strategy targets investments with a longer holding period and a lower anticipated risk profile than our traditional private equity investments. Our core equity investments are made in companies that, among other things, we believe are more stable, and typically with lower average leverage over our holding period, than those in our traditional private equity funds. We closed our first core equity investment in 2017. Our core investment strategy also includes investments in infrastructure and real estate investments. See “ –Real Assets” below.
Global Impact. Since 2019, we have offered global impact funds, which are focused on identifying and investing behind opportunities across the Americas, Europe and Asia where financial performance and societal impact are intrinsically aligned. Our global impact funds aim to generate private equity-like risk-adjusted returns by investing in small to medium-sized companies that contribute toward one or more of the United Nations Sustainable Development Goals. From time to time, we refer to our growth equity strategy to include the investments from our impact strategy.
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Portfolio
The following chart presents information concerning the remaining value of traditional private equity funds by geography through December 31, 2021. We believe that this data illustrates the benefits of our business approach and our ability to source and invest in deals in multiple geographies.
As of December 31, 2021, our traditional private equity portfolio consisted of 109 companies with approximately $265 billion of annual revenues. These companies are headquartered in over 20 countries and operate in 20 general industries, which take advantage of our broad and deep industry and operating expertise. Many of these companies are leading franchises with global operations, strong management teams and attractive growth prospects, which we believe will provide benefits through a broad range of business conditions.
Investment Approach
Our approach to making private equity investments focuses on achieving multiples of invested capital and attractive risk-adjusted IRRs by selecting high-quality investments that may be made at attractive prices, applying rigorous standards of due diligence when making investment decisions, implementing strategic and operational changes that drive growth and value creation in acquired businesses, carefully monitoring investments, and making informed decisions when developing investment exit strategies.
We believe that we have achieved a leading position in the private equity industry by applying a disciplined investment approach and by building strong partnerships with highly motivated management teams who put their own capital at risk. When making private equity investments, we seek out strong business franchises, attractive growth prospects, leading market positions and the ability to generate attractive returns. In our private equity funds, we do not effect transactions that are "hostile," meaning a target company's board of directors makes an unfavorable recommendation with respect to the transaction or publicly opposes the consummation of the transaction.
Sourcing and Selecting Investments
We have access to significant opportunities for making private equity investments as a result of our sizable capital base, global platform, and relationships with leading executives from major companies, commercial and investment banks, and other investment and advisory institutions. Members of our global network contact us with new investment opportunities, including a substantial number of exclusive investment opportunities and opportunities that are made available to only a limited number of
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other firms. We also proactively pursue business development strategies that are designed to generate deals internally based on the depth of our industry knowledge and our reputation as a leading financial sponsor.
Due Diligence and the Investment Decision
When an investment team determines that an investment proposal is worth consideration, the proposal is formally presented to the applicable investment committee and the due diligence process commences, if appropriate. The objective of the due diligence process is to identify attractive investment opportunities based on the facts and circumstances surrounding an investment and to prepare a framework that may be used from the date of an acquisition to drive operational improvement and value creation. When conducting due diligence, investment teams evaluate a number of important business, financial, tax, accounting, environmental, social, governance, legal and regulatory issues in order to determine whether an investment is suitable. While the due diligence process differs depending on the type of investment we make, generally, in connection with the private equity due diligence process, investment professionals spend significant amounts of time meeting with a company's management and operating personnel, visiting plants and facilities, and where appropriate, speaking with other stakeholders interested in and impacted by the investment in order to understand the opportunities and risks associated with the proposed investment. Our investment professionals may also use the services of outside accountants, consultants, lawyers, investment banks and industry experts as appropriate to assist them in this process. Investment committees or portfolio managers, as applicable, monitor our due diligence practices and approve an investment before it is made.
Building Successful and Competitive Businesses
Portfolio management committees are responsible for working with our investment professionals from the date on which a private equity investment is made until the time it is exited in order to ensure that strategic and operational objectives are accomplished and that the performance of the investment is closely monitored. When investing in a private equity portfolio company, we partner with management teams to execute on our investment thesis, and we rigorously track performance through regular monitoring of detailed operational and financial metrics as well as appropriate environmental, social and governance issues. We have developed a global network of experienced managers and operating professionals who assist the private equity portfolio companies in making operational improvements and achieving growth. We augment these resources with operational guidance from operating professionals at KKR Capstone, senior advisors, other advisors and investment teams, and with "100-Day Plans" that focus the firm's efforts and drive our strategies. We seek to emphasize efficient capital management, top-line growth, R&D spending, geographical expansion, cost optimization and investment for the long-term.
Realizing Investments
We have developed substantial expertise for realizing private equity investments. From our inception through December 31, 2021, the firm has generated approximately $173.9 billion of cash proceeds from the sale of our private equity portfolio companies in initial public offerings and secondary offerings, dividends, and sales to strategic and financial buyers. When exiting private equity investments, our objective is to structure the exit in a manner that optimizes returns for fund investors and, in the case of publicly traded companies, minimizes the impact that the exit has on the trading price of the company's securities. We believe that our ability to successfully realize investments is attributable in part to the strength and discipline of our portfolio management committees and capital markets business, as well as the firm's longstanding relationships with corporate buyers and members of the investment banking and investing communities.
Private Equity Fund Structures
The private equity funds that we sponsor and manage typically have finite lives and investment periods. Each fund is typically organized as one or more partnerships, and each partnership is controlled by a general partner. Private equity fund investors are limited partners who agree to contribute a specified amount of capital to the fund from time to time for use in qualifying investments during the investment period, which generally lasts up to six years depending on how quickly capital is deployed. The investment period for certain funds may be terminated upon supermajority vote (based on capital commitment) of the fund's limited partners or by the fund's advisory committee. The term of our private equity funds generally last for 10 to 12 years and may last up to 15 years from the date of the fund's first or last investment, subject to a limited number of extensions with the consent of the limited partners or the applicable advisory committee. Given the length of the investment periods and terms of our private equity funds and the limited conditions under which such periods can be terminated and commitments may be withdrawn, the AUM of our private equity funds provide a long-term stable capital base.
Each private equity fund's general partner is generally entitled to a carried interest that allocates to it 20% of the net profits realized by the limited partners from the fund's investments. Our private equity funds since 2012 generally have a performance hurdle which requires that we return 7%, compounded annually, to limited partners in the fund prior to receiving our 20% share of net profits realized by limited partners. Such performance hurdles are subject to a catch-up allocation to the general partner after the hurdle has been reached. Our earlier private equity funds do not include a performance hurdle. The timing of receipt of
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carried interest in respect of investments of our private equity funds is dictated by the terms of the partnership agreements that govern such funds, and is distributed to the general partner of a private equity fund only after all of the following are met: (i) a realization event has occurred (e.g., sale of a portfolio company, dividend, etc.); (ii) the vehicle has achieved positive overall investment returns since its inception, in excess of performance hurdles where applicable, and is accruing carried interest; and (iii) with respect to investments with a fair value below cost, cost has been returned to fund investors in an amount sufficient to reduce remaining cost to the investments' fair value. For a fund that has a fair value above cost, overall, and is otherwise accruing carried interest, but has one or more investments where fair value is below cost, the shortfall between cost and fair value for such investments is referred to as a "netting hole." See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity—Sources of Liquidity" for a discussion of netting holes. Net realized profit or loss is not netted between or among funds. In addition, the agreements governing our private equity funds generally include a "clawback" provision that, if triggered, may give rise to a contingent obligation that may require the general partner to return or contribute amounts to the fund for distribution to fund investors at the end of the life of the fund. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Recognition of Carried Interest in the Statement of Operations" and "Risk Factors—The 'clawback' provisions in our governing agreements may give rise to a contingent obligation that may require us to return or contribute amounts to our funds and fund investors."
We enter into management agreements with our private equity funds pursuant to which we receive management fees in exchange for providing the funds with management and other services. Gross management fees for our private equity funds generally range from 1% to 2% of committed capital during the fund's investment period and are generally 0.75% to 1.25% of invested capital after the expiration of the fund's investment period with subsequent reductions over time, which causes the fees to be reduced as investments are liquidated. In addition, in connection with the expiration of the investment period, a private equity fund may establish a reserve on its fund investors' capital commitments on which no fee is paid unless such capital is invested. Management fees are paid by private equity fund investors, who generally contribute capital to the fund in order to allow the fund to pay the fees to us. Our private equity funds generally require that the amount of management fees be subtracted from gains allocable to fund investors before a carried interest may be paid.
We also enter into monitoring agreements with our portfolio companies pursuant to which we receive periodic monitoring fees in exchange for providing them with management, consulting and other services, and we typically receive transaction fees for providing portfolio companies with financial, advisory and other services in connection with specific transactions. Monitoring agreements may provide for a termination payment following an initial public offering or change of control, if certain criteria are satisfied. In some cases, we may be entitled to other fees that are paid by an investment target upon closing of a transaction or when a potential investment is not consummated. Since 2014, our private equity fund agreements typically require us to share 100% of any monitoring, transaction and other fees that are allocable to a fund (after reduction for expenses incurred allocable to a fund from unconsummated transactions) with fund investors.
In addition, the agreements governing our private equity funds enable investors in those funds to reduce their capital commitments available for further investments, on an investor-by-investor basis, in the event one or more "key persons" (for example, investment professionals who are named as "key executives" for certain geographically or product focused funds) cease to be actively involved in the management of the fund. While these provisions do not allow investors in our funds to withdraw capital that has been invested or cause a fund to terminate, the occurrence of a "key person" event could cause disruption in our business, reduce the amount of capital that we have available for future investments, and make it more challenging to raise additional capital in the future.
Because private equity fund investors typically are unwilling to invest their capital in a fund unless the fund's manager also invests its own capital in the fund's investments, our private equity fund documents generally require the general partners of the funds to make minimum capital commitments to the funds. The amounts of these commitments, which are negotiated by fund investors, generally range from 2% to 8% of a fund's total capital commitments at final closing, but may be greater for certain funds (i) where we are pursuing newer strategies, (ii) where third party investor demand is limited, and (iii) where a larger commitment is consistent with our firm's asset allocation strategy. When investments are made, the general partner contributes capital to the fund based on its fund commitment percentage and acquires a capital interest in the investment that is not subject to a carried interest or management fees.
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Real Assets
Infrastructure
Our infrastructure platform seeks to achieve returns including current income through the acquisition and operational improvement of assets important to the functioning of the economy. We believe that the global infrastructure market provides an opportunity for the firm's private investment, operational improvement capabilities and stakeholder engagement. Through this platform we have made investments in power and utilities, midstream, alternative energy, transportation, asset leasing, water and wastewater, and telecommunications infrastructure. Our traditional infrastructure funds pursue infrastructure investment opportunities with an emphasis on investments in existing assets and businesses located in North America, Western Europe and Asia-Pacific. Our core infrastructure strategy seeks core infrastructure and infrastructure-related investment opportunities with a focus on investments with predominantly contracted or regulated cash flows in existing securities, properties and other assets principally located in North America and Western Europe.
Real Estate
Our real estate equity platform targets real estate investment opportunities globally, across the United States, Western Europe and Asia-Pacific. Our opportunistic equity investments include direct investments in real property, debt, special situations transactions and businesses with significant real estate holdings that can benefit from KKR's involvement and expertise. We seek to partner with real estate owners, lenders, operators, and developers to provide flexible capital to respond to transaction-specific needs, including the outright purchase or financing of existing assets or companies and the funding of future development or acquisition opportunities. Through this strategy, we have made real estate equity investments in residential and commercial assets. In addition, we have a core plus real estate strategy that seeks to pursue real estate primarily in the United States, primarily with the intent of influencing the real estate assets or companies in which it invests.
Our real estate credit platform also provides capital solutions for real estate transactions with a focus on commercial mortgage-backed securities, whole loans and subordinated debt. Our real estate credit platform includes KKR Real Estate Finance Trust Inc. (NYSE: KREF), a listed U.S. real estate investment trust ("KREF"), and our real estate credit funds which focus on commercial real estate lending and the risk retention tranches of CMBS transactions.
We also source real estate investments for our Global Atlantic insurance companies and KKR Real Estate Select Trust Inc., a closed-end investment company that is structured to qualify as a U.S. real estate investment trust ("KREST").
Energy
Our energy platform seeks attractive risk-adjusted investment returns and predictable cash flows across cycles with a focus on operated oil and gas assets and complemented by non‐operated assets, mineral and royalty interests and midstream infrastructure. Our energy platform targets real asset investment opportunities in key proven basins across the lower 48 U.S. states. Our first dedicated energy fund was launched in 2010. In addition, Crescent Energy Company (NYSE: CRGY), a publicly listed energy company (“Crescent Energy”), was formed in December 2021 to become KKR’s primary platform for pursuing upstream oil and natural gas opportunities.
Real Asset Investment Process
Our infrastructure real estate and energy vehicles have a similar investment process as that described under "—Private Equity." Investment teams for a particular real asset strategy formally present potential investments to the applicable strategy oriented investment committee or the portfolio manager, as applicable, which monitors our due diligence practices and approves an investment before it is made. Our real asset strategies also typically have a portfolio management team that works with our investment professionals from the date on which an investment is made until the time it is exited in order to ensure that strategic and operational objectives are accomplished and that the performance of the investment is closely monitored. In addition to leveraging the resources of the firm, our energy, infrastructure and real estate investment teams typically partner with technical experts and operators to manage our real asset investments.
Real Asset Fund Structures
Our traditional, infrastructure and real estate funds generally have investment periods of up to 6 years and generally have a fund term of up to 13 years. Management fees for such funds generally range from 0.75% to 1.5% on committed capital, invested capital or net asset value during the investment period and on invested capital or net asset value for investments thereafter, subject to certain adjustments. These funds generally have performance hurdles of 8% to 10% subject to a catch-up
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allocation to the general partner after the hurdle has been reached. Thereafter the general partners of such funds generally share in 10% to 20% of net profits realized by limited partners.
Our core real estate and infrastructure funds are open-ended and do not have a fixed termination date. They also do not have a specified termination date for making investments. Management fees for such funds generally range from 0.5% to 1.1% of net asset value, subject to certain adjustments. The general partners of such funds are also entitled to incentive fees ranging generally from 5% to 10% of cash flow or net asset value appreciation, subject to performance hurdles. We also provide investment management services to the publicly available entities in our real assets strategy, including KREF, KREST and Crescent Energy. These services are pursuant to a management agreement with specific KKR subsidiaries, which provide for the payment of management fees, generally ranging from 1.25% to 1.50% of their equity value or similar metric, as well as incentive fees.
Public Markets
Through our Public Markets business line, we report our credit and hedge funds platforms on a combined basis.
Our credit platform invests capital in a broad range of corporate debt and collateral-backed investments across asset classes and capital structures. Our credit strategies are managed by KKR Credit Advisors (US) LLC, which is an SEC-registered investment adviser, KKR Credit Advisors (Ireland) Unlimited Company, which is regulated by the Central Bank of Ireland (“CBI”), KKR Credit Advisors (EMEA) LLP, which is regulated by the Financial Conduct Authority, and KKR Credit Advisors (Singapore) Pte. Ltd., which is regulated by the Monetary Authority of Singapore and also registered with the SEC. We also jointly own with a third party FS/KKR Advisor, LLC, which is the investment adviser for FS KKR Capital Corp. (NYSE: FSK), a publicly listed business development company (a “BDC”).
Our hedge funds platform consists of strategic partnerships with third-party hedge fund managers in which KKR owns a minority stake. Our hedge fund partnerships offer a range of alternative investment strategies, including long/short equity, hedge fund-of-funds and energy credit investments.
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The following chart presents the growth in the AUM of our Public Markets business line from the commencement of its operations in August 2004 through December 31, 2021.
Public Markets
Assets Under Management (1)
($ in billions)
(1) For years 2006 through 2008, AUM are presented pro forma for the acquisition of the assets and liabilities of KKR & Co. (Guernsey) L.P. (formerly known as KKR Private Equity Investors, L.P.) on October 1, 2009, and, therefore, exclude the net asset value of that vehicle and its former commitments to our investment funds. AUM of acquired businesses and pro rata AUM of hedge fund partnerships in which KKR has made an investment are included in the years on and after the completion of the respective acquisitions or transactions, as applicable. In 2015 our definition of AUM was amended to include (i) KKR's pro rata portion of AUM managed by third-party hedge fund managers in which KKR holds a minority stake and (ii) capital commitments for which we are eligible to receive fees or carried interest upon deployment of capital. AUM for all prior periods has been adjusted to include such changes.
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Credit
Our credit business pursues investments in two principal investment strategies: leveraged credit and alternative credit.
Leveraged Credit. Our leveraged credit strategy is principally directed at investing in leveraged loans, high-yield bonds, opportunistic credit, structured credit and revolving credit investments. Our opportunistic credit strategy seeks to deploy capital across investment themes that take advantage of credit market dislocations, spanning asset types and liquidity profiles. Our revolving credit strategy invests in senior secured revolving credit facilities.
Alternative Credit. Our alternative credit strategy consists of our private credit strategies and investments sourced by our credit platform’s strategic investments group (“SIG”).
•Private Credit. Our private credit strategies focus on privately or directly originated and negotiated transactions. These strategies include direct lending, mezzanine debt and asset-based finance. Through our direct lending strategy, we seek to make investments in primarily senior debt financings for middle-market companies. Through our mezzanine debt strategy, investments typically consist of subordinated debt, which generates a current yield, coupled with marginal equity exposure for additional upside potential. Our asset-based finance strategy focuses on portfolios of financial loans and loans backed by hard assets.
•SIG. Our SIG strategy seeks to pursue investments in corporate credit and asset or real estate-backed credit where market volatility or other investment themes have created the opportunity to generate outsized returns with downside-protected securities. These investments may include stressed or distressed investments (including post-restructuring equity), control-oriented opportunities, rescue financing (debt or equity investments made to address covenant, maturity or liquidity issues), debtor-in-possession or exit financing, and other event-driven investments in debt or equity.
Performance
The following table presents information regarding larger leveraged credit strategies managed by KKR from inception to December 31, 2021. The information presented below is not intended to be representative of any past or future performance for any particular period other than the period presented below. Past performance is no guarantee of any future result.
Leveraged Credit Strategies: Inception-to-Date Annualized Gross Performance vs. Benchmark by Strategy
| ($ in millions) | Inception Date | Gross Returns | Net Returns | Benchmark (1) | Benchmark Gross Returns | |||||||||||||||||||||||||||
| Bank Loans Plus High Yield | Jul 2008 | 7.38 | % | 6.78 | % | 65% S&P/LSTA Loan Index, 35% BoAML HY Master II Index (2) | 5.92 | % | ||||||||||||||||||||||||
Opportunistic Credit (3) | May 2008 | 11.35 | % | 9.62 | % | 50% S&P/LSTA Loan Index, 50% BoAML HY Master II Index (3) | 6.21 | % | ||||||||||||||||||||||||
| Bank Loans | Apr 2011 | 5.33 | % | 4.75 | % | S&P/LSTA Loan Index (4) | 4.27 | % | ||||||||||||||||||||||||
| High-Yield | Apr 2011 | 7.00 | % | 6.42 | % | BoAML HY Master II Index (5) | 6.28 | % | ||||||||||||||||||||||||
European Leveraged Loans (6) | Sep 2009 | 4.67 | % | 4.14 | % | CS Inst West European Leveraged Loan Index (7) | 3.64 | % | ||||||||||||||||||||||||
European Credit Opportunities (6) | Sept 2007 | 5.98 | % | 5.11 | % | S&P European Leveraged Loans (All Loans) (8) | 4.17 | % | ||||||||||||||||||||||||
(1)The benchmarks referred to herein include the S&P/LSTA Leveraged Loan Index (the "S&P/LSTA Loan Index"), S&P/LSTA U.S. B/BB Ratings Loan Index (the "S&P/LSTA BB-B Loan Index"), the Bank of America Merrill Lynch High Yield Master II Index (the "BoAML HY Master II Index"), the BofA Merrill Lynch BB-B US High Yield Index (the "BoAML HY BB-B Constrained"), the Credit Suisse Institutional Western European Leveraged Loan Index (the "CS Inst West European Leveraged Loan Index"), and S&P European Leveraged Loans (All Loans). The S&P/LSTA Loan Index is a daily tradable index for the U.S. loan market that seeks to mirror the market-weighted performance of the largest institutional loans that meet certain criteria. The BoAML HY Master II Index is an index for high-yield corporate bonds. It is designed to measure the broad high-yield market, including lower-rated securities. The CS Inst West European Leveraged Loan Index contains only institutional loan facilities priced above 90, excluding TL and TLa facilities and loans rated CC, C or are in default. The S&P European Leveraged Loan Index reflects the market-weighted performance of institutional leveraged loan portfolios investing in European credits. While the returns of our leveraged credit strategies reflect the reinvestment of income and dividends, none of the indices presented in the chart above reflect such reinvestment, which has the effect of increasing the reported relative performance of these strategies as compared to the indices. Furthermore, these indices are not subject to management fees, incentive allocations, or expenses.
(2)Performance is based on a blended composite of Bank Loans Plus High Yield strategy accounts. The benchmark used for purposes of comparison for the Bank Loans Plus High Yield strategy is based on 65% S&P/LSTA Loan Index and 35% BoAML HY Master II Index.
(3)The Opportunistic Credit strategy invests in high-yield securities and corporate loans with no preset allocation. The benchmark used for purposes of comparison for the Opportunistic Credit strategy presented herein is based on 50% S&P/LSTA Loan Index and 50% BoAML HY Master II Index. Funds within this strategy may utilize third-party financing facilities to enhance investment returns. In cases where financing facilities are used, the amounts drawn on the facility are deducted from the assets of the fund in the calculation of net asset value, which tends to increase returns when net asset value grows over time and decrease returns when net asset value decreases over time.
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(4)Performance is based on a composite of portfolios that primarily invest in leveraged loans. The benchmark used for purposes of comparison for the Bank Loans strategy is based on the S&P/LSTA Loan Index.
(5)Performance is based on a composite of portfolios that primarily invest in high-yield securities. The benchmark used for purposes of comparison for the High Yield strategy is based on the BoAML HY Master II Index.
(6)The returns presented are calculated based on local currency.
(7)Performance is based on a composite of portfolios that primarily invest in higher quality leveraged loans. The benchmark used for purposes of comparison for the European Leveraged Loans strategy is based on the CS Inst West European Leveraged Loan Index.
(8)Performance is based on a composite of portfolios that primarily invest in European institutional leveraged loans. The benchmark used for purposes of comparison for the European Credit Opportunities strategy is based on the S&P European Leveraged Loans (All Loans) Index.
The following table presents information regarding our credit investment funds where investors are subject to capital commitments from inception to December 31, 2021. The information presented below is not intended to be representative of any past or future performance for any particular period other than the period presented below. Past performance is no guarantee of any future result.
Alternative Credit Strategies: Fund Performance
| Amount | Fair Value of Investments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Public Markets Investment Funds | Inception Date | Commitment | Invested (1) | Realized (1) | Unrealized | Total Value | Gross IRR (2) | Net IRR (2) | Multiple of Invested Capital (3) | Gross Accrued Carried Interest | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| ($ in Millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dislocation Opportunities Fund | May 2020 | $ | 2,967 | $ | 1,990 | $ | 177 | $ | 2,202 | $ | 2,379 | N/A | N/A | N/A | $ | 46 | ||||||||||||||||||||||||||||||||||||||||||||||
| Special Situations Fund II | Dec 2014 | 3,525 | 3,241 | 1,590 | 2,492 | 4,082 | 7.0 | % | 5.1 | % | 1.3 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Situations Fund | Dec 2012 | 2,274 | 2,273 | 1,628 | 542 | 2,170 | (1.1) | % | (3.0) | % | 1.0 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Mezzanine Partners | Mar 2010 | 1,023 | 990 | 1,097 | 248 | 1,345 | 10.0 | % | 6.9 | % | 1.4 | (20) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Private Credit Opportunities Partners II | Dec 2015 | 2,245 | 1,658 | 621 | 1,417 | 2,038 | 8.1 | % | 6.5 | % | 1.2 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Lending Partners III | Apr 2017 | 1,498 | 741 | 301 | 807 | 1,108 | 16.3 | % | 13.5 | % | 1.5 | 28 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Lending Partners II | Jun 2014 | 1,336 | 1,179 | 1,149 | 138 | 1,287 | 3.3 | % | 1.9 | % | 1.1 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Lending Partners | Dec 2011 | 460 | 419 | 451 | 19 | 470 | 3.5 | % | 1.9 | % | 1.1 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Lending Partners Europe II | Jun 2019 | 837 | 346 | 40 | 377 | 417 | 29.5 | % | 22.0 | % | 1.2 | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Lending Partners Europe | Mar 2015 | 848 | 664 | 375 | 265 | 640 | (1.2) | % | (3.8) | % | 1.0 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Alternative Credit Vehicles | Various | 13,021 | 6,425 | 4,590 | 4,150 | 8,740 | N/A | N/A | N/A | 134 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| All Funds | $ | 30,034 | $ | 19,926 | $ | 12,019 | $ | 12,657 | $ | 24,676 | $ | 190 | ||||||||||||||||||||||||||||||||||||||||||||||||||
(1) Recycled capital is excluded from the amounts invested and realized.
(2) These credit funds utilize third-party financing facilities to provide liquidity to such funds, and in such event IRRs are calculated from the time capital contributions are due from fund investors to the time fund investors receive a related distribution from the fund. The use of such financing facilities generally decreases the amount of invested capital that would otherwise be used to calculate IRRs, which tends to increase IRRs when fair value grows over time and decrease IRRs when fair value decreases over time. IRRs measure the aggregate annual compounded returns generated by a fund's investments over a holding period and are calculated taking into account recycled capital. Net IRRs presented are calculated after giving effect to the allocation of realized and unrealized carried interest and the payment of any applicable management fees. Gross IRRs are calculated before giving effect to the allocation of carried interest and the payment of any applicable management fees.
(3) The multiples of invested capital measure the aggregate value generated by a fund's investments in absolute terms. Each multiple of invested capital is calculated by adding together the total realized and unrealized values of a fund's investments and dividing by the total amount of capital invested by the investors. The use of financing facilities generally decreases the amount of invested capital that would otherwise be used to calculate multiples of invested capital, which tends to increase multiples when fair value grows over time and decrease multiples when fair value decreases over time. Such amounts do not give effect to the allocation of any realized and unrealized returns on a fund's investments to the fund's general partner pursuant to a carried interest or the payment of any applicable management fees and are calculated without taking into account recycled capital.
For additional information regarding impact of market conditions on the value and performance of our investments, see "Risk Factors—Risks Related to Our Business—Difficult market and economic conditions can adversely affect our business in many ways, including by reducing the value or performance of the investments that we manage or by reducing the ability of our funds to raise or deploy capital, each of which could negatively impact our net income and cash flow and adversely affect our financial prospects and condition" and "Risk Factors—Risks Related to the Assets We Manage—The historical returns attributable to our funds, including those presented in this report, should not be considered as indicative of the future results of our funds, our insurance subsidiaries or our balance sheet investments, of our future results or the performance of our common stock."
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Investment Approach
Our approach to making credit investments focuses on creating investment portfolios that seek to generate attractive risk-adjusted returns by selecting investments that may be made at attractive prices, subjecting investments to regular monitoring and oversight, and, for more liquid investments, making buy and sell decisions based on relative value parameters. The firm employs both "top-down" and "bottom-up" analyses when making investments. Our top-down analysis involves, as appropriate, a macro analysis of relative asset valuations, long-term industry trends, business cycles, regulatory trends, interest rate expectations, credit fundamentals and technical factors to target specific industry sectors and asset classes in which to invest. From a bottom-up perspective, our investment decision is predicated on an investment thesis that is developed using our proprietary resources and knowledge and due diligence.
Sourcing and Selecting Investments
We source our credit investment opportunities through a variety of channels, including internal deal generation strategies and the firm's global network of contacts at major companies, corporate executives, commercial and investment banks, financial intermediaries, other private equity sponsors and other investment and advisory institutions. We are also provided with opportunities to invest, in certain strategies where appropriate, in the securities of KKR's private equity portfolio companies, though there are limitations across the platform on the availability and maximum size of such KKR-affiliated investments.
Due Diligence and the Investment Decision
Once a potential credit investment has been identified, our investment professionals screen the opportunity and make a preliminary determination concerning whether we should proceed with further diligence. When evaluating the suitability of an investment for our credit vehicles, we typically employ a relative value framework and subject the investment to due diligence. This review considers many factors including, as appropriate, expected returns, capital structure, credit ratings, historical and projected financial data, the issuer's competitive position, the quality and track record of the issuer's management team, margin stability, and industry and company trends. Investment professionals use the services of outside advisors and industry experts as appropriate to assist them in the due diligence process and, when relevant and permitted, leverage the knowledge and experience of our Private Markets investment professionals. Strategy-specific investment committees monitor our due diligence practices.
Monitoring Investments
We monitor our portfolios of investments using, as applicable, daily, quarterly and annual analyses. Daily analyses include morning market meetings, industry and company pricing runs, industry and company reports and discussions with the firm's Private Markets and Capital Markets investment professionals on an as-needed basis. Quarterly analyses include the preparation of quarterly operating results, reconciliations of actual results to projections and updates to financial models (baseline and stress cases). Annual analyses involve conducting internal audits, and testing compliance with monitoring and documentation requirements.
Credit Vehicles
We pursue leveraged credit and alternative credit investments across a range of vehicles, including investment funds and separately managed accounts, for which we receive a fee and in certain cases an incentive fee or carried interest.
We also manage structured credit vehicles in the form of CLOs that hold leveraged loans, high-yield bonds or a combination of both. CLOs are typically structured as special purpose investment vehicles that acquire, monitor and, to varying degrees, manage a pool of credit assets. CLOs generally serve as long-term financing for leveraged credit investments and as a way to reduce refinancing risk, reduce maturity risk and secure a fixed cost of funds over an underlying market interest rate. We typically receive a fee for managing CLOs.
We also serve as the investment adviser to registered investment companies and other vehicles that are available to public investors, including KKR Income Opportunities Fund (NYSE: KIO), KKR Credit Opportunities Portfolio (an interval fund), and KKR Credit Income Fund (an Australian listed investment trust; ASX: KKC) as well as FS KKR Capital Corp. (NYSE: FSK) through our joint ownership of its investment adviser. The management fees we are paid for managing registered investment companies are generally subject to contractual rights that require their board of directors to provide prior notice in order to terminate our investment management services.
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Hedge Funds
Our hedge fund platform consists of strategic partnerships with third-party hedge fund managers in which KKR owns a minority stake. This principally consists of a 39.6% interest in Marshall Wace LLP (together with its affiliates, "Marshall Wace"), a global alternative investment manager specializing in long/short equity products. We also own (i) a 39.9% interest in PAAMCO Prisma Holdings, LLC ("PAAMCO Prisma"), an investment manager focused on liquid alternative investment solutions, including hedge fund-of-fund portfolios, and (ii) a 24.9% interest in BlackGold Capital Management L.P. ("BlackGold"), a credit-oriented investment manager focused on energy and hard asset investments.
Public Markets AUM
As of December 31, 2021, our Public Markets business line had $213.5 billion of AUM, comprised of $106.8 billion of assets managed in our leveraged credit strategies, $69.7 billion of assets managed in our private credit strategy, and $8.7 billion of assets managed in our SIG strategy, $26.7 billion of assets managed through our hedge fund platform, and $1.6 billion of assets managed in other Public Markets strategies. We manage $101.3 billion of credit investments for our Global Atlantic insurance companies. Our BDC has approximately $16.6 billion in assets under management, which is reflected in the AUM of our leveraged credit and private credit strategies above. We report all of the assets under management of our BDC in our AUM, but we report only a pro rata portion of the assets under management of our hedge fund partnerships based on our percentage ownership in them.
The table below presents information as of December 31, 2021, based on the investment funds, vehicles or accounts offered by our Public Markets business line. Our funds, vehicles and accounts have been sorted based upon their primary investment strategies. However, the AUM and FPAUM presented for each line in the table includes certain investments from non-primary investment strategies, which are permitted by their investment mandates, for purposes of presenting the fees and other terms for such funds, vehicles and accounts.
| ($ in millions) | AUM | FPAUM | Typical Management Fee Rate | Incentive Fee / Carried Interest | Preferred Return | Duration of Capital | ||||||||||||||||||||||||||||||||
| Leveraged Credit: | ||||||||||||||||||||||||||||||||||||||
| Leveraged Credit SMAs/Funds | $ | 82,932 | $ | 81,169 | 0.15%-1.10% | Various (1) | Various (1) | Subject to redemptions | ||||||||||||||||||||||||||||||
| CLOs | 22,639 | 22,639 | 0.40%-0.50% | Various (1) | Various (1) | 10-14 Years (2) | ||||||||||||||||||||||||||||||||
| Total Leveraged Credit | 105,571 | 103,808 | ||||||||||||||||||||||||||||||||||||
Alternative Credit: (3) | ||||||||||||||||||||||||||||||||||||||
| Private Credit | 55,831 | 50,662 | 0.30%-1.50% | 10.00-20.00% | 5.00-8.00% | 8-15 Years (2) | ||||||||||||||||||||||||||||||||
| SIG | 8,802 | 4,761 | 0.50%-1.75% (4) | 10.00-20.00% | 7.00-12.00% | 7-15 Years (2) | ||||||||||||||||||||||||||||||||
| Total Alternative Credit | 64,633 | 55,423 | ||||||||||||||||||||||||||||||||||||
Hedge Funds (5) | 26,720 | 26,720 | 0.50%-2.00% | Various (1) | Various (1) | Subject to redemptions | ||||||||||||||||||||||||||||||||
BDCs (6) | 16,583 | 16,583 | 0.60% | 8.00% | 7.00% | Indefinite | ||||||||||||||||||||||||||||||||
| Total | $ | 213,507 | $ | 202,534 | ||||||||||||||||||||||||||||||||||
(1)Certain funds and CLOs are subject to a performance fee in which the manager or general partner of the funds share up to 20% of the net profits earned by investors in excess of performance hurdles (generally tied to a benchmark or index) and subject to a provision requiring the funds and vehicles to regain prior losses before any performance fee is earned.
(2)Duration of capital is measured from inception. Inception dates for CLOs were between 2013 and 2021 and for separately managed accounts and funds investing in alternative credit strategies from 2009 through 2021.
(3)Our alternative credit funds generally have investment periods of two to five years and our newer alternative credit funds generally earn management fees on invested capital throughout their lifecycle.
(4)Lower fees on uninvested capital in certain vehicles.
(5)Hedge Funds represent KKR's pro rata portion of AUM and FPAUM of our hedge fund partnerships.
(6)Consists of FS/KKR Capital Corp. (NYSE: FSK). We report all of the assets under management of this BDC in our AUM and FPAUM.
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Fundraising and Composition of Fund Investors
We have a Client & Partner Group that is responsible for raising capital for our asset management business globally across all products, expanding our investment advisory relationships across asset classes and across types of fund investors, developing products to meet our fund investors’ needs, and servicing existing fund investors and products. We also provide customized solutions for investors seeking diversified portfolios of investment funds and direct co-investments in privately negotiated investments. From time to time, we also provide fundraising services to certain third-party fund managers in our hedge fund partnerships. As of December 31, 2021, we had over 150 executives and professionals dedicated to our Client & Partner Group.
As of December 31, 2021, we had approximately 1,445 investors in funds across all our strategies, which reflect the addition of approximately 270 investors during the year. On average, a fund investor is invested in approximately two of our strategies as of December 31, 2021. The following charts detail our investor base by type and geography as of December 31, 2021.
Fund Investor Base by Type (1) Fund Investor Base by Geography (1)
(1) Based on the AUM of our Private Markets investment funds, Private Markets co-investment vehicles, and Public Markets separately managed accounts and Public Markets investment funds. These charts exclude general partner commitments, assets managed through CLOs, and assets managed by other asset managers with which KKR has formed strategic partnerships where KKR does not hold more than a 50% ownership interest. Allocations are assigned to a type or geographic region according to subscriptions received from a limited partner.
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Capital Markets
Our Capital Markets business line is comprised of our global capital markets business, which is integrated with KKR’s asset management business lines, and serves our firm, our portfolio companies and third-party clients by developing and implementing both traditional and non-traditional capital solutions for investments or companies seeking financing. These services include arranging debt and equity financing, placing and underwriting securities offerings, and providing other types of capital markets services that result in the firm receiving fees, including underwriting, placement, transaction and syndication fees, commissions, underwriting discounts, interest payments and other compensation, which may be payable in cash or securities, in respect of the activities described above.
Our capital markets business underwrites credit facilities and arranges loan syndications and participations. When we are sole arrangers of a credit facility, we may advance amounts to the borrower on behalf of other lenders, subject to repayment. When we underwrite an offering of securities on a firm commitment basis, we commit to buy and sell an issue of securities and generate revenue by purchasing the securities at a discount or for a fee. When we act in an agency capacity or best efforts basis, we generate revenue for arranging financing or placing securities with capital markets investors. We may also provide issuers with capital markets advice on security selection, access to markets, marketing considerations, securities pricing, and other aspects of capital markets transactions in exchange for a fee. Our capital markets business also provides syndication services in respect of co-investments in transactions participated in by KKR funds or third-party clients, which may entitle the firm to receive syndication fees, management fees and/or a carried interest.
The capital markets business has a global footprint, with local presence and licenses to carry out certain broker-dealer activities in various countries in North America, Europe, Asia-Pacific and the Middle East. Our flagship capital markets subsidiary is KKR Capital Markets LLC, an SEC-registered broker-dealer and a member of the Financial Industry Regulatory Authority ("FINRA").
Principal Activities
Through our Principal Activities business line, we manage the firm’s own assets on our firm’s balance sheet and deploy capital to support and grow our Private Markets, Public Markets and Credit Markets business lines.
Typically, the funds in our Private Markets and Public Markets business lines contractually require us, as general partner of the funds, to make sizable capital commitments. We believe making general partner commitments assists us in raising new funds from limited partners by demonstrating our conviction in a given fund’s strategy. Our commitments to fund capital also occurs where we are the holder of the subordinated notes or the equity tranche of investment vehicles that we sponsor, including structured transactions. We also use our balance sheet to bridge investment activity during fundraising, for example by funding investments for new funds and acquiring investments to establish a track record for new investment strategies. We also use our own capital to bridge capital selectively for our funds’ investments or finance strategic transactions, although the financial results of an acquired business may be reported in our other business lines.
Our Principal Activities business line also provides the required capital to fund the various commitments of our Capital Markets business line when underwriting or syndicating securities, or when providing term loan commitments for transactions involving our portfolio companies and for third parties. Our Principal Activities business line also holds assets that are utilized to satisfy regulatory requirements for our Capital Markets business line and risk retention requirements for certain investment vehicles.
We also make opportunistic investments through our Principal Activities business line, which include co-investments alongside our Private Markets and Public Markets funds as well as Principal Activities investments that do not involve our Private Markets or Public Markets funds.
We endeavor to use our balance sheet strategically and opportunistically to generate an attractive risk-adjusted return on equity in a manner that is consistent with our fiduciary duties, in compliance with applicable laws, and consistent with our one-firm approach.
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The chart below presents the holdings of our Principal Activities business line by asset class as of December 31, 2021.
Holdings by Asset Class (1)
(1)General partner commitments in our funds are included in the various asset classes shown above. Assets and revenues of other asset managers with which KKR has formed strategic partnerships where KKR does not hold more than 50% ownership interest are not included in our Principal Activities business line but are reported in the financial results of our other business lines. Private Equity includes KKR private equity funds, co-investments alongside such KKR-sponsored private equity funds, certain core equity investments, and other opportunistic investments. Equity investments in other asset classes, such as real estate, special situations and energy appear in these other asset classes. Other Credit consists of certain leveraged credit and specialty finance strategies.
Insurance
Our insurance business is operated by Global Atlantic, which we acquired on February 1, 2021. As of December 31, 2021, KKR owns a 61.5% economic interest in Global Atlantic with the balance of Global Atlantic owned by third-party investors and Global Atlantic employees. Following the Global Atlantic acquisition, Global Atlantic continues to operate as a separate business with its existing brands and management team. Since the first quarter of 2021, we have presented Global Atlantic's financial results as a separate reportable segment.
Global Atlantic is a leading retirement and life insurance company that provides a broad suite of protection, legacy and savings products to customers and reinsurance solutions to clients across individual and institutional markets. Global Atlantic focuses on target markets that it believes support issuing products that have attractive risk and return characteristics. These markets allow Global Atlantic to leverage its strength in distribution and to deploy shareholder capital opportunistically across various market environments.
Global Atlantic primarily offers individual customers fixed-rate annuities, fixed-indexed annuities, and targeted life products through a network of banks, broker-dealers, and insurance agencies. Global Atlantic provides its institutional clients customized reinsurance solutions, including block, flow and pension risk transfer ("PRT") reinsurance, as well as funding agreements. Global Atlantic’s assets generally increase when individual markets sales and reinsurance transactions exceed run-off of in-force policies. Global Atlantic primarily generates income by earning a spread between its investment income and the cost of policyholder benefits. As of December 31, 2021, Global Atlantic served approximately three million policyholders.
Global Atlantic operates in the following two complementary markets: individual and institutional.
Individual Markets. Global Atlantic seeks to reach individuals in the United States who are planning for, or are already in, retirement. Global Atlantic’s annuity products are distributed primarily through a network of distribution partners, including over 200 banks, broker-dealers and independent marketing organizations. Global Atlantic generated $7.5 billion of sales for the
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year ended December 31, 2021. Global Atlantic believes that focusing on banks and broker-dealers within the individual market provides attractive returns and helps maintain a competitive advantage. Global Atlantic's life products are distributed primarily through 195 independent marketing organizations and approximately 1,300 funeral homes.
•Fixed-Rate and Fixed-Indexed Annuities. With an annuity product, the policyholder provides Global Atlantic cash referred to as premium in exchange for earning interest on a tax deferred basis on and the ability based on the contract terms to take lump sum or periodic withdrawals of their account value. Global Atlantic’s annuity products typically also offer a death benefit that guarantees the full account value for the beneficiaries in the event of the death of the policyholder. Fixed-rate annuities offer policyholders reliable, tax-deferred savings accumulation and income based on a fixed rate that may be guaranteed for a period of time. Fixed-indexed annuities allow the policyholder to elect strategies where interest is credited based on the performance of a market index. This selection allows the policyholder to participate in the upside performance of the selected index, subject to limits and protection from downside market risks. Global Atlantic primarily generates income from annuity products by earning a spread between income earned on investments and the cost of providing benefits under the annuity contract.
•Targeted Life Products. Global Atlantic’s targeted life products primarily consist of indexed universal life and preneed life insurance. With universal life and preneed products, the policyholder provides Global Atlantic with a premium that funds the policyholder’s account in exchange for earning interest on the account and a death benefit. A universal life insurance account increases with premium payments from the policyholder and interest credited by Global Atlantic, and decreases based on charges, such as fees payable to Global Atlantic. Indexed universal life policies allow the policyholder to elect strategies where the interest is credited on a portion of their account based on the performance of a market index. This selection allows the policyholder to participate in the upside performance of the selected index, subject to limits and protection from downside market risks. With preneed products, the policyholder generally purchases the preneed product along with a contract with a funeral firm that guarantees the policyholder a pre-planned funeral, funded by proceeds from the preneed policy.
Institutional Markets. Global Atlantic provides its institutional clients customized reinsurance solutions to assist them in meeting their strategic, risk management and capital goals. In general, by reinsuring policies, the institutional client reduces or releases capital that it held for the reinsured business and may use such capital for its other business goals. Reinsurance solutions include block, flow, and PRT reinsurance, as well as funding agreements. Global Atlantic’s reinsurance solutions are offered through a client coverage effort focused on the top 50 retirement and life companies. Since Global Atlantic’s founding in 2004, it has executed multiple reinsurance transactions, including block, flow and PRT reinsurance, representing a total of $99.5 billion of assets as of December 31, 2021. For the year ended December 31, 2021, Global Atlantic generated $3.3 billion and $1.8 billion of flow and PRT reinsurance production, respectively. Global Atlantic participates in the funding agreement market, including through membership in Federal Home Loan Banks and as a provider of funding agreements in connection with a funding agreement backed notes ("FABN") program established in 2021.
•Block Reinsurance. Block reinsurance is a transaction in which an insurance company divests a block of insurance policies to Global Atlantic in exchange for Global Atlantic’s obligation to pay all or a portion of future insurance claims arising from that block. Global Atlantic operates in the block reinsurance market by offering solutions to its clients across various sizes of transactions and across multiple product types, including both retirement and life products. In block reinsurance transactions, Global Atlantic’s insurance company subsidiaries assume the obligation to pay the policy benefits from the cedant in exchange for a transfer of assets.
•PRT Transactions. PRT is a transaction in which a pension plan sponsor, such as a corporation, transfers the risk associated with the pension plan’s liabilities to an insurance company. Global Atlantic primarily operates in the PRT market through reinsurance relationships with insurance company clients that directly underwrite and assume corporate pension liabilities. Insurance company subsidiaries of Global Atlantic act as the reinsurer in respect of these PRT transactions, and Global Atlantic’s clients are the ceding companies.
•Flow Reinsurance. Flow reinsurance is an agreement in which an insurance company writes new retail policies and shares an economic portion of such newly issued policies with an insurance company subsidiary of Global Atlantic, as its reinsurer, on an ongoing basis. Global Atlantic's flow reinsurance business consists primarily of retirement products.
•Funding Agreements. Funding agreements, including those issued in connection with a FABN program, are a deposit-type contract issued by Global Atlantic’s insurance company subsidiaries. In general, a funding agreement provides its holder with a guaranteed return of principal and periodic interest payments.
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The following table represents Global Atlantic’s new business volumes by business and product for the year ended December 31, 2021:
| Year Ended December 31, 2021 | ||||||||
| ($ in millions) | ||||||||
| Individual channel: | ||||||||
| Fixed-rate annuities | $ | 4,044 | ||||||
| Fixed-indexed annuities | 3,166 | |||||||
| Variable annuities | 57 | |||||||
| Total retirement products | $ | 7,267 | ||||||
| Life insurance products | $ | 49 | ||||||
| Preneed life | $ | 230 | ||||||
| Institutional channel: | ||||||||
| Block | $ | 17,105 | ||||||
| Flow & pension risk transfer | 5,088 | |||||||
| Funding agreements | 2,800 | |||||||
| Total institutional channel | $ | 24,993 | ||||||
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Note: In Global Atlantic's individual channel, sales of annuities include all money paid into new and existing contracts. Individual channel sales of traditional life products are based on commissionable premium, a commonly used industry sales metric, and individual channel sales for preneed life are based on the face amount of insurance. Traditional life sales do not include the recurring premiums that policyholders may pay over time. New business volume from our institutional channel is based on the assets assumed, net of any ceding commission, and is before any retro cession to Ivy Re, a reinsurance entity sponsored by Global Atlantic.
As a retirement and life insurance business, a substantial portion of Global Atlantic’s earnings are derived from the investments backing its in-force policy liability base. Global Atlantic seeks to have a diversified set of policy liabilities in order to manage adverse developments across liability types. As of December 31, 2021, 50% of its reserves were in its individual market and 50% were in its institutional market.
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The table below represents a breakdown of Global Atlantic’s policy liabilities by business and product type as of December 31, 2021, separated by reserves originated through its individual and institutional markets.
| Reserves as of December 31, 2021 | |||||||||||||||||||||||||||||||||||
| Individual market | Institutional market(4) | Total | Ceded | Total, net | Percentage of total | ||||||||||||||||||||||||||||||
| ($ in thousands, except percentages, if applicable) | |||||||||||||||||||||||||||||||||||
| Fixed-rate annuity | $ | 22,081,352 | $ | 39,761,617 | $ | 61,842,969 | $ | (15,616,145) | $ | 46,226,824 | 46.8 | % | |||||||||||||||||||||||
| Fixed-indexed annuity | 20,759,011 | 7,175,989 | 27,935,000 | (3,595,569) | 24,339,431 | 21.1 | % | ||||||||||||||||||||||||||||
| Variable annuity | 3,431,588 | 3,945,759 | 7,377,347 | (644,349) | 6,732,998 | 5.6 | % | ||||||||||||||||||||||||||||
| Indexed universal life | 12,133,840 | — | 12,133,840 | (73,449) | 12,060,391 | 9.2 | % | ||||||||||||||||||||||||||||
| Preneed life | 2,897,018 | — | 2,897,018 | — | 2,897,018 | 2.2 | % | ||||||||||||||||||||||||||||
Other life insurance(1) | 2,068,903 | 10,435,145 | 12,504,048 | (3,769,293) | 8,734,755 | 9.5 | % | ||||||||||||||||||||||||||||
Funding agreements(2) | 2,229,203 | 3,785,351 | 6,014,554 | — | 6,014,554 | 4.6 | % | ||||||||||||||||||||||||||||
| Closed block | — | 1,351,601 | 1,351,601 | (1,286,766) | 64,835 | 1.0 | % | ||||||||||||||||||||||||||||
Other corporate(3) | — | 50,095 | 50,095 | (49,657) | 438 | — | % | ||||||||||||||||||||||||||||
| Total reserves | $ | 65,600,915 | $ | 66,505,557 | $ | 132,106,472 | $ | (25,035,228) | $ | 107,071,244 | 100.0 | % | |||||||||||||||||||||||
| Total general account | $ | 62,513,387 | $ | 64,006,657 | $ | 126,520,044 | $ | (25,035,228) | $ | 101,484,816 | 95.8 | % | |||||||||||||||||||||||
| Total separate account | 3,087,528 | 2,498,900 | 5,586,428 | — | 5,586,428 | 4.2 | % | ||||||||||||||||||||||||||||
| Total reserves | $ | 65,600,915 | $ | 66,505,557 | $ | 132,106,472 | $ | (25,035,228) | $ | 107,071,244 | 100.0 | % | |||||||||||||||||||||||
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(1)“Other life products” includes universal life, term and whole life insurance products.
(2)"Funding agreements” includes funding agreements associated with Federal Home Loan Bank borrowings and under our funding-agreement backed-notes program .
(3)“Other corporate” primarily includes accident & health reserves that we assumed as part of a reinsurance transaction in 2009.
(4)Institutional market reserves are sourced using customized reinsurance solutions such as block, flow and PRT. As of December 31, 2021, reserves sourced through for block, flow and PRT transactions were $49.2 billion, $5.4 billion, and $4.1 billion, respectively.
Underwriting and pricing
Global Atlantic’s underwriting and pricing functions have dedicated teams, who are supported by multiple corporate functions, including actuarial, finance, operations, compliance, investments and risk. These functions have guidelines and procedures designed to assess and quantify the risks of each product type originated through its individual or institutional markets.
Global Atlantic’s proprietary technology platform incorporates analytic models with customized third-party software and database technology, allowing Global Atlantic to dynamically analyze its asset and liability cash flow profile across a range of market and policyholder behavior scenarios. This proprietary platform allows Global Atlantic to integrate investment allocation decisions with product pricing, so that the terms of the liabilities it originates reflect its view of the investment environment. The committees responsible for underwriting and pricing are also aligned with other business functions and include representatives from actuarial, finance, operations, investments, risk and sales.
Global Atlantic also performs suitability reviews for new annuity sales. For sales through banks and broker-dealers, Global Atlantic generally delegates suitability reviews to these distribution partners.
When pricing reinsurance transactions in the institutional market, Global Atlantic performs asset and liability modeling of the block of business to be reinsured and typically re-underwrites the liability assumptions on the block using then-current market conditions, actuarial experience provided by the ceding company and its own experience from business Global Atlantic has originated. Reinsured blocks of business are integrated into Global Atlantic’s technology and infrastructure systems and monitored in the same manner used across the broader business, combining input from actuarial, risk, investment management and other functions.
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Investment management
Global Atlantic has an excellent track record of generating strong investment results, and since February 2021 KKR has been the investment manager of Global Atlantic’s assets. Global Atlantic believes that KKR's investment expertise, broad range of investment management services and strong origination capabilities are key to maintaining Global Atlantic's successful track record of identifying assets that are well-suited to the stable and long-dated nature of Global Atlantic's insurance liabilities.
Global Atlantic seeks to focus on investments that have the potential to generate stable, predictable, long-dated asset cash flows, are of high credit quality, and that focus on capital protection. These kinds of investments are expected to consist of corporate debt, asset-backed finance, specialty finance, transportation finance, securitizations, private loan facilities, and commercial and residential real estate investment opportunities. However, Global Atlantic’s investments are not limited to solely those asset classes.
Supplementing KKR’s role as an investment advisor, Global Atlantic has retained in-house certain investment origination and allocation functions with expertise in consideration of insurance company asset portfolios. These considerations include asset-liability matching, asset allocation, ongoing portfolio management and new business pricing across both Global Atlantic’s individual and institutional markets. Global Atlantic believes that matching asset and liability cash flows is key to protecting policyholders and achieving its target returns. Global Atlantic’s investment origination and allocation functions are closely integrated with its risk management team, and a group of its risk management professionals is dedicated to supporting investment decision-making. Global Atlantic uses a proprietary risk platform to develop a comprehensive view of the expected cash flow profile of its liabilities and determine the optimal profile of its asset cash flows. Global Atlantic is also capable of developing a bottoms-up view of the cash flows of investments that it considers. These processes help to identify the investments that offer a cash flow profile that is consistent with Global Atlantic’s risk tolerances.
Working within Global Atlantic’s cash flow matching framework as well as its regulatory and rating agency requirements, Global Atlantic has a flexible investment mandate, which allows it to pursue asset classes and investment types that it believes offer the best risk-adjusted returns. Global Atlantic believes that the integration of the analytics around its assets and liabilities and its flexible investment mandate enable Global Atlantic to respond dynamically to market conditions and make investment decisions that maximize risk adjusted returns while still protecting Global Atlantic’s policyholders.
As of December 31, 2021, Global Atlantic’s investment portfolio was comprised of the following:
| December 31, 2021 | ||||||||||||||
| ($ in thousands, except percentages) | Carrying value | Percent of total | ||||||||||||
| Fixed maturity securities, available-for-sale, at fair value | $ | 70,523,202 | 56.1 | % | ||||||||||
| Mortgage and other loan receivables | 28,876,759 | 23.0 | % | |||||||||||
| Fixed maturity securities, trading, at fair value | 14,048,969 | 11.2 | % | |||||||||||
| Other investments | 8,209,566 | 6.5 | % | |||||||||||
| Funds withheld receivable at interest | 2,999,448 | 2.4 | % | |||||||||||
| Policy loans | 765,310 | 0.6 | % | |||||||||||
| Equity securities at fair value | 289,133 | 0.2 | % | |||||||||||
| Total investments | $ | 125,712,387 | 100.0 | % | ||||||||||
Capital
Capital strength allows insurance companies to meet their future policyholder obligations and to support the growth of their businesses. Global Atlantic believes it has built a strong financial foundation to meet these objectives. Global Atlantic is well capitalized, and its capital position, combined with annual capital generation from its in-force book of business, helps it to fund new business volume growth. Global Atlantic takes a responsible and flexible capital approach to allocating capital to where it believes is the most attractive alternative available. Global Atlantic manages its capital and liquidity position with the objective of maintaining sufficient capital and liquidity to be able to capture investment opportunities as they arise and meet policyholder obligations, even in times of foreseeable stress.
Global Atlantic also sponsors unaffiliated co-investment vehicles for third-party capital to participate alongside Global Atlantic in reinsurance opportunities. In April 2020, Global Atlantic sponsored Ivy Co-Invest Vehicle LLC (together with its subsidiaries, “Ivy”). As of December 31, 2021, Ivy had deployed its $1.05 billion of third-party capital in reinsurance transactions with Global Atlantic.
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Competition
Our asset management business competes with other investment managers for both fund investors and investment opportunities. The firm's competitors consist primarily of sponsors of public and private investment funds, real estate development companies, BDCs, investment banks, commercial finance companies and operating companies acting as strategic buyers. We believe that competition for fund investors is based primarily on investment performance, investor liquidity and willingness to invest, investor perception of investment managers' drive, focus and alignment of interest, business reputation, duration of relationships, quality of services, pricing, fund terms including fees, and the relative attractiveness of the types of investments that have been or are to be made. We believe that competition for investment opportunities is based primarily on the pricing, terms and structure of a proposed investment and certainty of execution. In addition to these traditional competitors within the global investment management industry, we also face competition from local and regional firms, financial institutions and sovereign wealth funds in the various countries in which we invest. In certain emerging markets, local firms may have more established relationships with the companies in which we are attempting to invest. These competitors often fall into one of the aforementioned categories but in some cases may represent new types of fund investors, including high net worth individuals, family offices and state-sponsored entities.
There are numerous funds focused on private equity, real assets, credit and hedge fund strategies that compete for investor capital. Fund managers have also increasingly adopted investment strategies outside of their traditional focus. For example, funds focused on credit and equity strategies have become active in taking control positions in companies, while private equity funds have acquired minority equity or debt positions in publicly listed companies. This convergence heighten competition for investments. Furthermore, as institutional fund investors increasingly consolidate their relationships for multiple investment products with a few investment firms, competition for capital from such institutional fund investors may become more acute. However, such consolidation may also lead institutional fund investors to prefer more established investment firms, which could help us to compete against newer entrants or investment firms that are smaller in size or offer more limited types of investment strategies.
Some of the entities that we compete with as an investment firm may have greater financial, technical, marketing and other resources and more personnel than us and, in the case of some asset classes, longer operating histories, more established relationships or greater experience. Several of our competitors also have raised, or may raise, significant amounts of capital and have investment objectives that are similar to the investment objectives of our funds, which may create additional competition for investment opportunities. Some of these competitors may also have lower costs of capital and access to funding sources that are not available to us, which may create competitive advantages for them. In addition, some of these competitors may have higher risk tolerances, different risk assessments or lower return thresholds, which could allow them to consider a wider range of investments and to bid more aggressively than us for investments. Strategic buyers may also be able to achieve synergistic cost savings or revenue enhancements with respect to a targeted portfolio company, which may provide them with a competitive advantage in bidding for such investments.
Our capital markets business competes primarily with investment banks and independent broker-dealers in North America, Europe, Asia-Pacific and the Middle East. We principally focus our capital markets activities on the firm, our portfolio companies and fund investors, but we also seek to service other third parties. While we generally target customers with whom we have existing relationships, those customers may have similar relationships with the firm's competitors, many of whom will have access to competing securities transactions, greater financial, technical or marketing resources or more established reputations than us.
Global Atlantic operates in highly competitive markets. Within individual markets, Global Atlantic faces a variety of large and small industry participants. Large, established insurers often operate with the benefit of well-known brands, entrenched distribution relationships or proprietary distribution. The insurance industry has also seen an influx of new entrants, particularly in retirement products, who may be able to price new business aggressively, with a higher investment risk tolerance, seeking to gain market share. All of these companies compete for individual markets sales. Global Atlantic’s flow reinsurance business may also be impacted by competition among insurers in individual markets. The competitiveness of Global Atlantic’s product offerings will depend on the actions of its competitors and Global Atlantic’s ability to actively manage its product offerings. In institutional markets, there have been many block reinsurance transactions as many insurers continue to reevaluate their commitment to business lines and seek reinsurance solutions as a way to deemphasize or divest non-core businesses, reduce risk, seek capital relief or improve profitability. The block reinsurance market is also experiencing competition due to new entrants, including entrants based outside of the United States. Increased competition may make it more difficult for Global Atlantic to identify transactions with terms that are commercially acceptable based on its risk tolerance and target return objectives.
Competition is also intense for the attraction and retention of qualified employees and consultants. Our ability to continue to compete effectively in our businesses will depend upon our ability to attract new investment professionals, other employees and consultants and retain and motivate our existing investment professionals, other employees and consultants. We are also
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impacted by Global Atlantic's ability to attract and retain insurance professionals in the United States and Bermuda, including wholesalers, actuaries, risk management professionals and agents.
Human Capital
We believe our people are the key to our success and are what sets our firm apart. We strive to create a workplace environment where employees thrive both professionally and personally. At KKR, our philosophy is to ensure we manage our investments in people – our human capital – as rigorously and effectively as we do our financial capital. Our key focuses include driving exceptional performance and enhancing our firm culture.
Our primary goal in human capital management is to develop and retain talent at KKR by providing meaningful and well-understood careers for our people. We therefore focus on employee training and professional development. Where appropriate, we offer workshops, mentoring and executive coaching to supplement on-the-job experiences and ongoing feedback and coaching to maximize performance. In addition, fostering a culture of physical, mental, and emotional health and wellness is a priority for KKR, and we offer tools and resources to our employees so they can make informed health care decisions themselves and their families.
We seek to have a well-rounded, inclusive workplace — one that is reflective of our shareholders, fund investors, Global Atlantic's policyholders, the clients and other stakeholders with whom we collaborate, and the communities in which we live and conduct our business. In 2014, KKR established the Inclusion & Diversity Council (the "IDC"), a committee led by senior leaders to seek to ensure that KKR is an entrepreneurial, vibrant, and innovative organization that values diverse teams and varied lifestyles and backgrounds. The IDC’s goal is to attract, develop, and retain the best possible talent, actively work to make KKR a more diverse and inclusive workplace with increased representation among women and underrepresented demographic groups, and improve mentoring programs firm-wide.
As of December 31, 2021, we employed approximately 3,200 people worldwide:
| Asset Management Investment Professionals and KKR Capstone | 695 | ||||
| Other Asset Management Employees | 1,245 | ||||
| Global Atlantic Professionals and Employees | 1,232 | ||||
Other(1) | 66 | ||||
| Total Employees | 3,238 | ||||
(1)"Other" includes employees of a company in which we own a majority of the common equity, who are not directly managed by KKR or Global Atlantic. Does not include Senior Advisors and Other Advisors.
Asset Management Investment Professionals
Our 604 investment professionals come from diverse backgrounds in private equity, real assets, credit and other asset classes and include executives with operations, strategic consulting, risk management, liability management and finance experience. As a group, these professionals provide us with a strong global team for identifying attractive investment opportunities, creating value and generating superior returns.
KKR Capstone
We have developed an institutionalized process for creating value in investments. As part of our effort, we utilize a team of 91 operating professionals at KKR Capstone, who work exclusively with our investment professionals and portfolio company management teams or our designees. With professionals in North America, Europe and the Asia-Pacific, KKR Capstone provides additional expertise for assessing investment opportunities and assisting managers of portfolio companies in defining strategic priorities and implementing operational changes.
Other Asset Management Employees
Our 1,245 other professionals come from diverse backgrounds in capital markets, operational, economics, capital raising, client services, public affairs, finance, tax, legal, compliance, human capital, and information technology. As a group, these professionals provide us with a strong team for overseeing investments and performing capital markets activities, servicing our existing fund investors and creating relationships with new fund investors globally. Additionally, a majority of these other professionals are responsible for supporting the global infrastructure of KKR.
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Global Atlantic Professionals and Employees
Global Atlantic employees include professionals with backgrounds in the insurance industry, including retail sales, reinsurance, investment origination and allocation, risk management, actuarial and support functions. Global Atlantic primarily employs individuals in the United States and in Bermuda, where a number of its reinsurance professionals are located.
Senior Advisors and Other Advisors