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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended March 31, 20222023
or
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| ☐ | 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 | | 26-042610788-1203639 |
(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 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
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 ☒ No ☐
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 4, 2022,9, 2023, there were 592,607,251863,073,995 shares of common stock of the registrant outstanding.
KKR & CO. INC.
FORM 10-Q
For the Quarter Ended March 31, 20222023
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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; the return of balance sheet capital if a fund has a successful fundraise; investment opportunities offered to individual investors to continue to grow and to represent a larger percentage of our assets under management; the estimate of the amounts expected to be owed under the tax receivable agreement; the ability of core private equity investments to generate earnings that compound over a long period of time; and the timing and completion of thecertain 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 underin the section entitled "Business Environment" in this report and "Risk Factors" in this report.our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the U.S. Securities and Exchange Commission ("SEC") on February 27, 2023 (our "Annual 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").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.
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"principals" are to January 1, 2020 referour current and former employees who formerly held interests in KKR Holdings L.P. ("KKR Holdings"), which we acquired on May 31, 2022, pursuant to the Reorganization Agreement, as discussed below. 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. (“Associates Holdings”), in which carry pool participants are limited partners. Associates Holdings is currently not a subsidiary of KKR Capstone Americas LLC and its affiliates (“& Co. Inc.
KKR Capstone”Group Partnership L.P. ("KKR Group Partnership"), which were then owned and controlled by their senior management and not subsidiaries or affiliates is the intermediate holding company that owns the entirety of KKR.
KKR’s business. 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).and any other holders of minority interests in KKR Group Partnership. 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 “Exchangeable securities” refers to “principals” aresecurities that have the right to current and former employees who hold interests in KKR’s business throughacquire KKR Holdings L.P. (“KKR Holdings”). As of March 31, 2022, KKR Holdings owned, as a limited partner, 258,726,163 Group Partnership Units representing 30.4%and to exchange them for our shares of common stock. As of the thendate of this report, our only 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 ofexchangeable securities are vested restricted holdings units issued under the Amended and Restated KKR & Co. Inc. but has an equity ownership in KKR Group Partnership similar to KKR Holdings. As of March 31, 2022, KKR Holdings II L.P. owned, as a limited partner, less2019 Equity Incentive Plan (the "2019 Equity Incentive Plan"). In the future, we may issue securities other 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 businessrestricted holdings units 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.may constitute exchangeable securities.
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 (which
as noted below was completed), (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. On May 31, 2022, KKR completed the acquisition of KKR Holdings and the 258.3 million KKR Group Partnership Units held by it, and in exchange KKR issued and delivered 266.8 million shares of common stock to our principals. On the "Sunset Date" (which will occur no later than December 31, 2026), KKR will cancel the Series I preferred stock, establish voting rights for all common stock on a one vote per share basis, and acquire control of the carry pool. For more information about the Reorganization Agreement, see "Certain Relationships and Related Transactions, and Director Independence—Reorganization Agreement" in this report.
KKR’s asset management business is conducted by Kohlberg Kravis Roberts & Co. L.P. and various other subsidiaries of KKR & Co. Inc. other than Global Atlantic. KKR’s insurance business is operated by Global Atlantic, which KKR acquired (the "GA Acquisition") on February 1, 2021 (the "GA Acquisition Date"). KJR Management ("KJRM") is a Japanese real estate asset manager, which KKR acquired on April 28, 2022.
References to our "funds" or "vehicles" refer to a wide array of investment funds, vehicles and accounts that are advised, managed or sponsored by one or more subsidiaries of KKR, including collateralized loan obligations ("CLOs") and business development companies (each, a "BDC"), unless the context requires otherwise. These references do not include the investment funds, vehicles or accounts of any hedge fund partnership or any other third-party manager with which we have formed a strategic partnership or have acquired a minority ownership interest. Unless the context requires otherwise, references to “fund investors” refers to the third-party investors in our Annual Reportfunds and vehicles. References to “strategic investor partnerships” refers to separately managed accounts with certain investors, which typically 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 Form 10-K fora fully exchanged and diluted basis reflect (i) actual shares of common stock outstanding, (ii) shares of common stock into which all outstanding shares of Series C Mandatory Convertible Preferred Stock are convertible, and (iii) shares of common stock issuable pursuant to equity awards actually granted pursuant to the year ended December 31, 2021 filedAmended and Restated KKR & Co. Inc. 2010 Equity Incentive Plan (the "2010 Equity Incentive Plan" and, together with the U.S. Securities2019 Equity Incentive Plan, our "Equity Incentive Plans"). Our outstanding common stock on a fully exchanged and Exchange Commission ("SEC").
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—Analysis of Non-GAAP Performance Measures—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"), 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. Additionally, references to "including" are for the purpose of illustration and shall be read to mean "including but not limited to."
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KKR & CO. INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(Amounts in Thousands, Except Share and Per Share Data)
| | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 | |
| Assets | Assets | | | | Assets | | | | |
| Asset Management | Asset Management | | Asset Management | | |
| Cash and Cash Equivalents | Cash and Cash Equivalents | $ | 8,324,897 | | | $ | 6,699,668 | | Cash and Cash Equivalents | $ | 5,576,121 | | | $ | 6,705,325 | | |
| Restricted Cash and Cash Equivalents | Restricted Cash and Cash Equivalents | 103,961 | | | 134,298 | | Restricted Cash and Cash Equivalents | 161,619 | | | 253,431 | | |
| Investments | Investments | 88,770,480 | | | 88,775,514 | | Investments | 97,949,918 | | | 92,375,463 | | |
| Due from Affiliates | Due from Affiliates | 1,277,574 | | | 1,224,283 | | Due from Affiliates | 1,847,869 | | | 1,663,303 | | |
| Other Assets | Other Assets | 2,407,714 | | | 2,886,313 | | Other Assets | 5,048,330 | | | 5,197,626 | | |
| | 100,884,626 | | | 99,720,076 | | | 110,583,857 | | | 106,195,148 | | |
| Insurance | Insurance | | | | Insurance | | | | |
| Cash and Cash Equivalents | Cash and Cash Equivalents | $ | 4,590,032 | | | $ | 3,391,934 | | Cash and Cash Equivalents | $ | 3,713,382 | | | $ | 6,118,231 | | |
| Restricted Cash and Cash Equivalents | Restricted Cash and Cash Equivalents | 523,503 | | | 300,404 | | Restricted Cash and Cash Equivalents | 277,398 | | | 308,383 | | |
| Investments | Investments | 122,799,871 | | | 123,763,675 | | Investments | 129,401,394 | | | 124,199,176 | | |
| Reinsurance Recoverable | Reinsurance Recoverable | 24,639,148 | | | 25,062,256 | | Reinsurance Recoverable | 26,157,178 | | | 26,022,081 | | |
| Insurance Intangible Assets | Insurance Intangible Assets | 1,481,284 | | | 1,407,149 | | Insurance Intangible Assets | 2,391,610 | | | 2,331,494 | | |
| Other Assets | Other Assets | 6,302,775 | | | 5,053,518 | | Other Assets | 5,920,967 | | | 6,041,329 | | |
| Separate Account Assets | Separate Account Assets | 5,069,742 | | | 5,586,428 | | Separate Account Assets | 4,164,803 | | | 4,130,794 | | |
| | 165,406,355 | | | 164,565,364 | | | 172,026,732 | | | 169,151,488 | | |
| Total Assets | Total Assets | $ | 266,290,981 | | | $ | 264,285,440 | | Total Assets | $ | 282,610,589 | | | $ | 275,346,636 | | |
| | Liabilities and Equity | Liabilities and Equity | | | | Liabilities and Equity | | | | |
| Asset Management | Asset Management | | Asset Management | | |
| Debt Obligations | Debt Obligations | $ | 36,112,872 | | | $ | 36,669,755 | | Debt Obligations | $ | 42,519,776 | | | $ | 40,598,613 | | |
| Due to Affiliates | Due to Affiliates | 457,668 | | | 462,722 | | Due to Affiliates | 435,270 | | | 466,057 | | |
| Accrued Expenses and Other Liabilities | Accrued Expenses and Other Liabilities | 7,241,786 | | | 7,896,897 | | Accrued Expenses and Other Liabilities | 7,792,747 | | | 6,471,775 | | |
| | 43,812,326 | | | 45,029,374 | | | 50,747,793 | | | 47,536,445 | | |
| Insurance | Insurance | | | | Insurance | | | | |
| Policy Liabilities | $ | 131,076,687 | | | $ | 126,520,044 | | |
| Policy Liabilities (market risk benefit liabilities: $764,407 and $682,038, respectively) | | Policy Liabilities (market risk benefit liabilities: $764,407 and $682,038, respectively) | $ | 141,129,974 | | | $ | 137,780,929 | | |
| Debt Obligations | Debt Obligations | 2,029,769 | | | 1,908,006 | | Debt Obligations | 2,157,283 | | | 2,128,166 | | |
| Funds Withheld Payable at Interest | Funds Withheld Payable at Interest | 21,781,731 | | | 23,460,253 | | Funds Withheld Payable at Interest | 22,995,695 | | | 22,739,417 | | |
| Accrued Expenses and Other Liabilities | Accrued Expenses and Other Liabilities | 4,615,841 | | | 3,263,566 | | Accrued Expenses and Other Liabilities | 3,465,099 | | | 4,600,375 | | |
| Reinsurance Liabilities | Reinsurance Liabilities | 607,014 | | | 378,549 | | Reinsurance Liabilities | 826,566 | | | 1,059,820 | | |
| Separate Account Liabilities | Separate Account Liabilities | 5,069,742 | | | 5,586,428 | | Separate Account Liabilities | 4,164,803 | | | 4,130,794 | | |
| | 165,180,784 | | | 161,116,846 | | | 174,739,420 | | | 172,439,501 | | |
| Total Liabilities | Total Liabilities | 208,993,110 | | | 206,146,220 | | Total Liabilities | 225,487,213 | | | 219,975,946 | | |
| |
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| | | |
| Commitments and Contingencies (See Note 24) | 0 | | 0 |
| | | |
| | | |
| | | |
| Redeemable Noncontrolling Interests | $ | 81,793 | | | $ | 82,491 | |
| | | |
| Stockholders' Equity | | | |
| | | |
| Series C Mandatory Convertible Preferred Stock, $0.01 par value. 23,000,000 shares issued and outstanding as of March 31, 2022 and December 31, 2021. | 1,115,792 | | | 1,115,792 | |
| Series I Preferred Stock, $0.01 par value. 1 share authorized, 1 share issued and outstanding as of March 31, 2022 and December 31, 2021. | — | | | — | |
| Series II Preferred Stock, $0.01 par value. 499,999,999 shares authorized, 258,726,163 and 258,726,163 shares, issued and outstanding as of March 31, 2022 and December 31, 2021, respectively. | 2,587 | | | 2,587 | |
| Common Stock, $0.01 par value. 3,500,000,000 shares authorized, 590,472,444 and 595,663,618 shares, issued and outstanding as of March 31, 2022 and December 31, 2021, respectively. | 5,905 | | | 5,957 | |
| Additional Paid-In Capital | 8,729,544 | | | 8,997,435 | |
| Retained Earnings | 7,510,671 | | | 7,670,182 | |
| Accumulated Other Comprehensive Income (Loss) ("AOCI") | (1,650,212) | | | (209,789) | |
| Total KKR & Co. Inc. Stockholders' Equity | 15,714,287 | | | 17,582,164 | |
| Noncontrolling Interests | 41,501,791 | | | 40,474,565 | |
| Total Equity | 57,216,078 | | | 58,056,729 | |
| Total Liabilities and Equity | $ | 266,290,981 | | | $ | 264,285,440 | |
| | | |
| | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 | | |
| | | | | |
| Commitments and Contingencies (See Note 25) | | | | | |
| | | | | |
| | | | | |
| | | | | |
| Redeemable Noncontrolling Interests (See Note 24) | $ | 144,126 | | | $ | 152,065 | | | |
| | | | | |
| Stockholders' Equity | | | | | |
| | | | | |
| Series C Mandatory Convertible Preferred Stock, $0.01 par value. 22,999,974 and 22,999,974 shares, issued and outstanding as of March 31, 2023 and December 31, 2022, respectively. | $ | 1,115,792 | | | $ | 1,115,792 | | | |
| Series I Preferred Stock, $0.01 par value. 1 share authorized, 1 share issued and outstanding as of March 31, 2023 and December 31, 2022. | — | | | — | | | |
| | | | | |
| Common Stock, $0.01 par value. 3,500,000,000 shares authorized, 861,104,000 and 861,110,478 shares, issued and outstanding as of March 31, 2023 and December 31, 2022, respectively. | 8,611 | | | 8,611 | | | |
| Additional Paid-In Capital | 16,339,472 | | | 16,284,057 | | | |
| Retained Earnings | 6,890,381 | | | 6,701,107 | | | |
| Accumulated Other Comprehensive Income (Loss) ("AOCI") | (4,691,575) | | | (5,301,800) | | | |
| Total KKR & Co. Inc. Stockholders' Equity | 19,662,681 | | | 18,807,767 | | | |
| Noncontrolling Interests (See Note 23) | 37,316,569 | | | 36,410,858 | | | |
| Total Equity | 56,979,250 | | | 55,218,625 | | | |
| Total Liabilities and Equity | $ | 282,610,589 | | | $ | 275,346,636 | | | |
| | | | | |
See notes to financial statements.
KKR & CO. INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (Continued)(CONTINUED)
(Amounts in Thousands)
The following presents the portion of the consolidated balances provided in the consolidated statements of financial condition attributable to consolidated variable interest entities ("VIEs"). As of March 31, 20222023 and December 31, 2021,2022, KKR's consolidated VIEs consist primarily of (i) certain collateralized financing entities ("CFEs") holding collateralized loan obligations ("CLOs"), (ii) certain investment funds, and (iii) certain VIEs formed by Global Atlantic. The noteholders, creditors and equity holders of these VIEs have no recourse to the assets of any other KKR entity.
With respect to consolidated CLOs and certain investment funds, the following assets may only be used to settle obligations of these consolidated VIEs and the following liabilities are only the obligations of these consolidated VIEs and not generally to KKR. Additionally, KKR has no right to the benefits from, nor does KKR bear the risks associated with, the assets held by these VIEs beyond KKR's beneficial interest therein and any income generated from the VIEs. There are neither explicit arrangements nor does KKR hold implicit variable interests that would require KKR to provide any material ongoing financial support to the consolidated VIEs, beyond amounts previously committed to them, if any.
With respect to certain other VIEs consolidated by Global Atlantic, Global Atlantic has formed certain VIEs to hold investments, including fixed maturity securities, consumer and other loans, renewable energy, transportation and real estate. These VIEs issue beneficial interests primarily to Global Atlantic’s insurance companies.
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| | Consolidated CLOs | | Consolidated Funds and Other Investment Vehicles | | Other
VIEs | | Total |
| Assets | | | | | | | |
| Asset Management | | | | | | | |
| Cash and Cash Equivalents | $ | 837,670 | | | $ | 2,674,422 | | | $ | — | | | $ | 3,512,092 | |
| Restricted Cash and Cash Equivalents | — | | | 68,508 | | | — | | | 68,508 | |
| Investments | 22,014,866 | | | 49,373,376 | | | — | | | 71,388,242 | |
| | | | | | | |
| Other Assets | 190,869 | | | 396,204 | | | — | | | 587,073 | |
| 23,043,405 | | | 52,512,510 | | | — | | | 75,555,915 | |
| Insurance | | | | | | | |
| Cash and Cash Equivalents | — | | | — | | | 1,365,544 | | | 1,365,544 | |
| | | | | | | |
| Investments | — | | | — | | | 23,186,192 | | | 23,186,192 | |
| Accrued Investment Income | — | | | — | | | 137,575 | | | 137,575 | |
| Other Assets | — | | | — | | | 1,072,608 | | | 1,072,608 | |
| — | | | — | | | 25,761,919 | | | 25,761,919 | |
| | | | | | | |
| Total Assets | $ | 23,043,405 | | | $ | 52,512,510 | | | $ | 25,761,919 | | | $ | 101,317,834 | |
| | | | | | | | |
| Liabilities | | | | | | | |
| Asset Management | | | | | | | |
| Debt Obligations | $ | 21,213,206 | | | $ | 5,947,090 | | | $ | — | | | $ | 27,160,296 | |
| Accrued Expenses and Other Liabilities | 1,021,892 | | | 676,814 | | | — | | | 1,698,706 | |
| 22,235,098 | | | 6,623,904 | | | — | | | 28,859,002 | |
| Insurance | | | | | | | |
| Accrued Expenses and Other Liabilities | — | | | — | | | 1,017,952 | | | 1,017,952 | |
| | | | | | | |
| | | | | | | |
| Total Liabilities | $ | 22,235,098 | | | $ | 6,623,904 | | | $ | 1,017,952 | | | $ | 29,876,954 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| | Consolidated CLOs | | Consolidated Funds and Other Investment Vehicles | | Other
VIEs | | Total |
| Assets | | | | | | | |
| Asset Management | | | | | | | |
| Cash and Cash Equivalents | $ | 1,101,591 | | | $ | 2,118,054 | | | $ | — | | | $ | 3,219,645 | |
| Restricted Cash and Cash Equivalents | — | | | 63,709 | | | — | | | 63,709 | |
| Investments | 24,013,221 | | | 58,194,698 | | | — | | | 82,207,919 | |
| | | | | | | |
| Other Assets | 219,357 | | | 515,498 | | | — | | | 734,855 | |
| 25,334,169 | | | 60,891,959 | | | — | | | 86,226,128 | |
| Insurance | | | | | | | |
| Cash and Cash Equivalents | — | | | — | | | 788,637 | | | 788,637 | |
| | | | | | | |
| Investments | — | | | — | | | 23,943,603 | | | 23,943,603 | |
| Accrued Investment Income | — | | | — | | | 181,741 | | | 181,741 | |
| Other Assets | — | | | — | | | 1,198,172 | | | 1,198,172 | |
| — | | | — | | | 26,112,153 | | | 26,112,153 | |
| | | | | | | |
| Total Assets | $ | 25,334,169 | | | $ | 60,891,959 | | | $ | 26,112,153 | | | $ | 112,338,281 | |
| | | | | | | | |
| Liabilities | | | | | | | |
| Asset Management | | | | | | | |
| Debt Obligations | $ | 23,804,584 | | | $ | 7,954,526 | | | $ | — | | | $ | 31,759,110 | |
| Accrued Expenses and Other Liabilities | 742,023 | | | 1,771,732 | | | — | | | 2,513,755 | |
| 24,546,607 | | | 9,726,258 | | | — | | | 34,272,865 | |
| Insurance | | | | | | | |
| Accrued Expenses and Other Liabilities | — | | | — | | | 409,889 | | | 409,889 | |
| | | | | | | |
| | | | | | | |
| Total Liabilities | $ | 24,546,607 | | | $ | 9,726,258 | | | $ | 409,889 | | | $ | 34,682,754 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | December 31, 2021 | | December 31, 2022 |
| | | Consolidated CLOs | | Consolidated Funds and Other Investment Vehicles | | Other
VIEs | | Total | | Consolidated CLOs | | Consolidated Funds and Other Investment Vehicles | | Other
VIEs | | Total |
| Assets | Assets | | | | | | | | Assets | | | | | | | |
| Asset Management | Asset Management | | Asset Management | |
| Cash and Cash Equivalents | Cash and Cash Equivalents | $ | 1,215,992 | | | $ | 1,085,958 | | | $ | — | | | $ | 2,301,950 | | Cash and Cash Equivalents | $ | 920,821 | | | $ | 2,936,937 | | | $ | — | | | $ | 3,857,758 | |
| Restricted Cash and Cash Equivalents | Restricted Cash and Cash Equivalents | — | | | 90,255 | | | — | | | 90,255 | | Restricted Cash and Cash Equivalents | — | | | 155,521 | | | — | | | 155,521 | |
| Investments | Investments | 22,076,809 | | | 46,780,595 | | | — | | | 68,857,404 | | Investments | 22,492,366 | | | 54,507,084 | | | — | | | 76,999,450 | |
| Other Assets | Other Assets | 173,329 | | | 641,946 | | | — | | | 815,275 | | Other Assets | 182,487 | | | 652,031 | | | — | | | 834,518 | |
| | 23,466,130 | | | 48,598,754 | | | — | | | 72,064,884 | | | 23,595,674 | | | 58,251,573 | | | — | | | 81,847,247 | |
| Insurance | Insurance | | | | | | | | Insurance | | | | | | | |
| Cash and Cash Equivalents | Cash and Cash Equivalents | — | | | — | | | 1,406,974 | | | 1,406,974 | | Cash and Cash Equivalents | — | | | — | | | 619,264 | | | 619,264 | |
| Investments | Investments | — | | | — | | | 20,043,016 | | | 20,043,016 | | Investments | — | | | — | | | 24,732,042 | | | 24,732,042 | |
| Accrued Investment Income | Accrued Investment Income | — | | | — | | | 100,693 | | | 100,693 | | Accrued Investment Income | — | | | — | | | 290,237 | | | 290,237 | |
| Other Assets | Other Assets | — | | | — | | | 506,777 | | | 506,777 | | Other Assets | — | | | — | | | 1,130,696 | | | 1,130,696 | |
| | — | | | — | | | 22,057,460 | | | 22,057,460 | | | — | | | — | | | 26,772,239 | | | 26,772,239 | |
| Total Assets | Total Assets | $ | 23,466,130 | | | $ | 48,598,754 | | | $ | 22,057,460 | | | $ | 94,122,344 | | Total Assets | $ | 23,595,674 | | | $ | 58,251,573 | | | $ | 26,772,239 | | | $ | 108,619,486 | |
| | Liabilities | Liabilities | | | | Liabilities | | | |
| Asset Management | Asset Management | | Asset Management | |
| Debt Obligations | Debt Obligations | $ | 21,271,084 | | | $ | 6,291,292 | | | $ | — | | | $ | 27,562,376 | | Debt Obligations | $ | 22,273,242 | | | $ | 7,306,625 | | | $ | — | | | $ | 29,579,867 | |
| Accrued Expenses and Other Liabilities | Accrued Expenses and Other Liabilities | 1,367,778 | | | 691,288 | | | — | | | 2,059,066 | | Accrued Expenses and Other Liabilities | 620,200 | | | 742,384 | | | — | | | 1,362,584 | |
| | 22,638,862 | | | 6,982,580 | | | — | | | 29,621,442 | | | 22,893,442 | | | 8,049,009 | | | — | | | 30,942,451 | |
| Insurance | Insurance | | | | | | | | Insurance | | | | | | | |
| Accrued Expenses and Other Liabilities | Accrued Expenses and Other Liabilities | — | | | — | | | 594,946 | | | 594,946 | | Accrued Expenses and Other Liabilities | — | | | — | | | 461,812 | | | 461,812 | |
| Total Liabilities | Total Liabilities | $ | 22,638,862 | | | $ | 6,982,580 | | | $ | 594,946 | | | $ | 30,216,388 | | Total Liabilities | $ | 22,893,442 | | | $ | 8,049,009 | | | $ | 461,812 | | | $ | 31,404,263 | |
See notes to financial statements.
KKR & CO. INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in Thousands, Except Share and Per Share Data)
| | | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 | | | | 2023 | | 2022 | |
| Revenues | Revenues | | | | | | Revenues | | | | | |
| Asset Management | Asset Management | | | | Asset Management | | | |
| Fees and Other | Fees and Other | | $ | 780,511 | | | $ | 493,311 | | | Fees and Other | | $ | 677,016 | | | $ | 780,511 | | |
| Capital Allocation-Based Income (Loss) | Capital Allocation-Based Income (Loss) | | (945,743) | | | 2,684,647 | | | Capital Allocation-Based Income (Loss) | | 449,018 | | | (945,743) | | |
| | | (165,232) | | | 3,177,958 | | | | | 1,126,034 | | | (165,232) | | |
| Insurance | Insurance | | | | | | Insurance | | | | | |
| Net Premiums | Net Premiums | | 372,144 | | | 1,176,142 | | | Net Premiums | | 473,624 | | | 372,144 | | |
| Policy Fees | Policy Fees | | 318,436 | | | 201,683 | | | Policy Fees | | 313,802 | | | 313,782 | | |
| Net Investment Income | Net Investment Income | | 812,605 | | | 444,781 | | | Net Investment Income | | 1,300,697 | | | 812,605 | | |
| Net Investment-Related Gains (Losses) | Net Investment-Related Gains (Losses) | | (368,680) | | | (455,702) | | | Net Investment-Related Gains (Losses) | | (123,833) | | | (368,680) | | |
| Other Income | Other Income | | 34,744 | | | 18,144 | | | Other Income | | 37,158 | | | 34,744 | | |
| | | 1,169,249 | | | 1,385,048 | | | | | 2,001,448 | | | 1,164,595 | | |
| Total Revenues | Total Revenues | | 1,004,017 | | | 4,563,006 | | | Total Revenues | | 3,127,482 | | | 999,363 | | |
| | Expenses | Expenses | | | | Expenses | | | |
| Asset Management | Asset Management | | | | Asset Management | | | |
| Compensation and Benefits | Compensation and Benefits | | 283,672 | | | 1,306,797 | | | Compensation and Benefits | | 575,670 | | | 283,672 | | |
| Occupancy and Related Charges | Occupancy and Related Charges | | 18,149 | | | 15,200 | | | Occupancy and Related Charges | | 22,149 | | | 18,149 | | |
| General, Administrative and Other | General, Administrative and Other | | 234,665 | | | 166,997 | | | General, Administrative and Other | | 213,689 | | | 234,665 | | |
| | | 536,486 | | | 1,488,994 | | | | | 811,508 | | | 536,486 | | |
| Insurance | Insurance | | | | | | Insurance | | | | | |
| Policy Benefits and Claims | | 726,060 | | | 1,485,318 | | | |
| Net Policy Benefits and Claims (including market risk benefit loss (gain) of $146,309 and $(195,683), respectively) | | Net Policy Benefits and Claims (including market risk benefit loss (gain) of $146,309 and $(195,683), respectively) | | 1,527,054 | | | 513,178 | | |
| Amortization of Policy Acquisition Costs | Amortization of Policy Acquisition Costs | | (7,733) | | | (20,478) | | | Amortization of Policy Acquisition Costs | | 44,211 | | | 11,422 | | |
| Interest Expense | Interest Expense | | 13,219 | | | 10,672 | | | Interest Expense | | 40,261 | | | 13,219 | | |
| Insurance Expenses | Insurance Expenses | | 116,743 | | | 52,084 | | | Insurance Expenses | | 225,318 | | | 115,803 | | |
| General, Administrative and Other | General, Administrative and Other | | 167,214 | | | 79,955 | | | General, Administrative and Other | | 211,731 | | | 167,624 | | |
| | | 1,015,503 | | — | | 1,607,551 | | | | | 2,048,575 | | | 821,246 | | |
| Total Expenses | Total Expenses | | 1,551,989 | | — | | 3,096,545 | | | Total Expenses | | 2,860,083 | | | 1,357,732 | | |
| | | Investment Income (Loss) - Asset Management | Investment Income (Loss) - Asset Management | | | | Investment Income (Loss) - Asset Management | | | |
| Net Gains (Losses) from Investment Activities | Net Gains (Losses) from Investment Activities | | 914,261 | | | 2,696,200 | | | Net Gains (Losses) from Investment Activities | | (159,409) | | | 914,261 | | |
| Dividend Income | Dividend Income | | 662,350 | | | 75,746 | | | Dividend Income | | 148,167 | | | 662,350 | | |
| Interest Income | Interest Income | | 352,556 | | | 367,455 | | | Interest Income | | 728,616 | | | 352,556 | | |
| Interest Expense | Interest Expense | | (281,759) | | | (251,756) | | | Interest Expense | | (576,338) | | | (281,759) | | |
| Total Investment Income (Loss) | Total Investment Income (Loss) | | 1,647,408 | | | 2,887,645 | | | Total Investment Income (Loss) | | 141,036 | | | 1,647,408 | | |
| | Income (Loss) Before Taxes | | Income (Loss) Before Taxes | | 408,435 | | | 1,289,039 | | |
| | Income Tax Expense (Benefit) | | Income Tax Expense (Benefit) | | 148,747 | | | 36,651 | | |
| | | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 | | | | 2023 | | 2022 | |
| Income (Loss) Before Taxes | | 1,099,436 | | | 4,354,106 | | | |
| | Income Tax Expense (Benefit) | | (3,166) | | | 438,739 | | | |
| | Net Income (Loss) | Net Income (Loss) | | 1,102,602 | | | 3,915,367 | | | Net Income (Loss) | | 259,688 | | | 1,252,388 | | |
| Net Income (Loss) Attributable to Redeemable Noncontrolling Interests | Net Income (Loss) Attributable to Redeemable Noncontrolling Interests | | (63) | | | — | | | Net Income (Loss) Attributable to Redeemable Noncontrolling Interests | | (7,303) | | | (63) | | |
| Net Income (Loss) Attributable to Noncontrolling Interests | Net Income (Loss) Attributable to Noncontrolling Interests | | 1,159,185 | | | 2,245,531 | | | Net Income (Loss) Attributable to Noncontrolling Interests | | (73,003) | | | 1,244,987 | | |
| Net Income (Loss) Attributable to KKR & Co. Inc. | Net Income (Loss) Attributable to KKR & Co. Inc. | | (56,520) | | | 1,669,836 | | | Net Income (Loss) Attributable to KKR & Co. Inc. | | 339,994 | | | 7,464 | | |
| | Series A Preferred Stock Dividends | | — | | | 5,822 | | | |
| Series B Preferred Stock Dividends | | — | | | 2,519 | | | |
| | Series C Mandatory Convertible Preferred Stock Dividends | Series C Mandatory Convertible Preferred Stock Dividends | | 17,250 | | | 17,250 | | | Series C Mandatory Convertible Preferred Stock Dividends | | 17,250 | | | 17,250 | | |
| | Net Income (Loss) Attributable to KKR & Co. Inc. Common Stockholders | Net Income (Loss) Attributable to KKR & Co. Inc. Common Stockholders | | $ | (73,770) | | | $ | 1,644,245 | | | Net Income (Loss) Attributable to KKR & Co. Inc. Common Stockholders | | $ | 322,744 | | | $ | (9,786) | | |
| | Net Income (Loss) Attributable to KKR & Co. Inc.
Per Share of Common Stock | Net Income (Loss) Attributable to KKR & Co. Inc.
Per Share of Common Stock | | | | Net Income (Loss) Attributable to KKR & Co. Inc.
Per Share of Common Stock | | | |
| Basic | Basic | | $ | (0.12) | | | $ | 2.85 | | | Basic | | $ | 0.37 | | | $ | (0.02) | | |
| Diluted | Diluted | | $ | (0.12) | | | $ | 2.68 | | | Diluted | | $ | 0.36 | | | $ | (0.02) | | |
| Weighted Average Shares of Common Stock Outstanding | Weighted Average Shares of Common Stock Outstanding | | | | Weighted Average Shares of Common Stock Outstanding | | | |
| Basic | Basic | | 592,202,835 | | | 576,727,967 | | | Basic | | 861,108,510 | | | 592,202,835 | | |
| Diluted | Diluted | | 592,202,835 | | | 620,888,491 | | | Diluted | | 887,169,336 | | | 592,202,835 | | |
See notes to financial statements.
KKR & CO. INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(Amounts in Thousands)
| | | | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | | | 2022 | | 2021 | | | | 2023 | | 2022 | |
| Net Income (Loss) | Net Income (Loss) | | $ | 1,102,602 | | | $ | 3,915,367 | | | Net Income (Loss) | | $ | 259,688 | | | $ | 1,252,388 | | |
| | Other Comprehensive Income (Loss), Net of Tax: | Other Comprehensive Income (Loss), Net of Tax: | | | | Other Comprehensive Income (Loss), Net of Tax: | | | |
| | Unrealized Gains (Losses) on Available-For-Sale Securities and Other | Unrealized Gains (Losses) on Available-For-Sale Securities and Other | | (3,339,211) | | | (1,490,289) | | | Unrealized Gains (Losses) on Available-For-Sale Securities and Other | | 1,132,752 | | | (3,539,038) | | |
| | Net effect of changes in discount rates and instrument-specific credit risk on policy liabilities | | Net effect of changes in discount rates and instrument-specific credit risk on policy liabilities | | (137,101) | | | 724,586 | | |
| | Foreign Currency Translation Adjustments | Foreign Currency Translation Adjustments | | (22,281) | | | (15,257) | | | Foreign Currency Translation Adjustments | | (18,238) | | | (22,281) | | |
| | Comprehensive Income (Loss) | Comprehensive Income (Loss) | | (2,258,890) | | | 2,409,821 | | | Comprehensive Income (Loss) | | 1,237,101 | | | (1,584,345) | | |
| Comprehensive Income (Loss)
Attributable to Redeemable Noncontrolling Interests | Comprehensive Income (Loss)
Attributable to Redeemable Noncontrolling Interests | | (63) | | | — | | | Comprehensive Income (Loss)
Attributable to Redeemable Noncontrolling Interests | | (7,303) | | | (63) | | |
Comprehensive Income (Loss)
Attributable to Noncontrolling Interests | Comprehensive Income (Loss)
Attributable to Noncontrolling Interests | | (761,884) | | | 1,366,143 | | | Comprehensive Income (Loss)
Attributable to Noncontrolling Interests | | 294,185 | | | (375,485) | | |
| | Comprehensive Income (Loss) Attributable to KKR & Co. Inc. | Comprehensive Income (Loss) Attributable to KKR & Co. Inc. | | $ | (1,496,943) | | | $ | 1,043,678 | | | Comprehensive Income (Loss) Attributable to KKR & Co. Inc. | | $ | 950,219 | | | $ | (1,208,797) | | |
See notes to financial statements.
| | | | | | | | | | | | | | | | | | | | | | | |
KKR & CO. INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED) (Amounts in Thousands, Except Share and Per Share Data) |
| | | | | | | |
| Three Months Ended
March 31, 2022 | | Three Months Ended
March 31, 2021 |
| Amounts | | Shares | | Amounts | | Shares |
| Series A and B Preferred Stock | | | | | | | |
| Beginning of Period | $ | — | | | — | | | $ | 482,554 | | | 20,000,000 | |
| | | | | | | |
| | | | | | | |
| End of Period | — | | | — | | | 482,554 | | | 20,000,000 | |
| Series C Mandatory Convertible Preferred Stock | | | | | | | |
| Beginning of Period | 1,115,792 | | | 23,000,000 | | | 1,115,792 | | | 23,000,000 | |
| End of Period | 1,115,792 | | | 23,000,000 | | | 1,115,792 | | | 23,000,000 | |
| Series I Preferred Stock | | | | | | | |
| Beginning of Period | — | | | 1 | | | — | | | 1 | |
| End of Period | — | | | 1 | | | — | | | 1 | |
| Series II Preferred Stock | | | | | | | |
| Beginning of Period | 2,587 | | | 258,726,163 | | | 2,756 | | | 275,626,493 | |
| Cancellation of Series II Preferred Stock | — | | | — | | | (23) | | | (2,258,781) | |
| End of Period | 2,587 | | | 258,726,163 | | | 2,733 | | | 273,367,712 | |
| Common Stock | | | | | | | |
| Beginning of Period | 5,957 | | | 595,663,618 | | | 5,729 | | | 572,893,738 | |
| Private Placement Share Issuance | — | | | — | | | 9 | | | 964,871 | |
| Exchange of KKR Holdings Units | — | | | — | | | 23 | | | 2,258,781 | |
| Net Delivery of Common Stock | — | | | — | | | 37 | | | 3,657,470 | |
| Clawback of Transfer Restricted Shares | — | | | — | | | — | | | (4,263) | |
| Repurchases of Common Stock | (52) | | | (5,191,174) | | | (15) | | | (1,501,558) | |
| End of Period | 5,905 | | | 590,472,444 | | | 5,783 | | | 578,269,039 | |
| Additional Paid-In Capital | | | | | | | |
| Beginning of Period | 8,997,435 | | | | | 8,687,817 | | | |
| Private Placement Share Issuance | — | | | | | 38,454 | | | |
| Exchange of KKR Holdings Units | — | | | | | 58,501 | | | |
| Tax Effects - Exchange of KKR Holdings Units and Other | 26,780 | | | | | 4,627 | | | |
| Net Delivery of Common Stock | — | | | | | (55,910) | | | |
| Repurchases of Common Stock | (346,599) | | | | | (71,351) | | | |
| Equity-Based Compensation | 51,928 | | | | | 46,201 | | | |
| | | | | | | |
| End of Period | 8,729,544 | | | | | 8,708,339 | | | |
| Retained Earnings | | | | | | | |
| Beginning of Period | 7,670,182 | | | | | 3,440,782 | | | |
| Net Income (Loss) Attributable to KKR & Co. Inc. | (56,520) | | | | | 1,669,836 | | | |
| Series A Preferred Stock Dividends ($0.421875 per share) | — | | | | | (5,822) | | | |
| | | | | | | |
| Series B Preferred Stock Dividends ($0.406250 per share) | — | | | | | (2,519) | | | |
| | | | | | | |
| Series C Mandatory Convertible Preferred Stock Dividends ($0.75 per share) | (17,250) | | | | | (17,250) | | | |
| Common Stock Dividends ($0.145 and $0.135 per share, respectively) | (85,741) | | | | | (77,804) | | | |
| End of Period | 7,510,671 | | | | | 5,007,223 | | | |
| Accumulated Other Comprehensive Income (Loss) (net of tax) | | | | | | | |
| Beginning of Period | (209,789) | | | | | (18,612) | | | |
| Other Comprehensive Income (Loss) | (1,440,423) | | | | | (626,158) | | | |
| Exchange of KKR Holdings Units | — | | | | | (1,598) | | | |
| | | | | | | |
| End of Period | (1,650,212) | | | | | (646,368) | | | |
| Total KKR & Co. Inc. Stockholders' Equity | 15,714,287 | | | | | 14,676,056 | | | |
| Noncontrolling Interests (See Note 22) | 41,501,791 | | | | | 31,534,729 | | | |
| Total Equity | $ | 57,216,078 | | | | | $ | 46,210,785 | | | |
| | | | | | | |
| Redeemable Noncontrolling Interests (See Note 23) | $ | 81,793 | | | | | $ | 91,845 | | | |
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See notes to financial statements. | | | | | | | | | | | | | | | | | | | | | | | |
KKR & CO. INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED) (Amounts in Thousands, Except Share and Per Share Data) |
| | | | | | | |
| Three Months Ended
March 31, 2023 | | Three Months Ended
March 31, 2022 |
| Amounts | | Shares | | Amounts | | Shares |
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| Series C Mandatory Convertible Preferred Stock | | | | | | | |
| Beginning of Period | $ | 1,115,792 | | | 22,999,974 | | | $ | 1,115,792 | | | 23,000,000 | |
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| End of Period | 1,115,792 | | | 22,999,974 | | | 1,115,792 | | | 23,000,000 | |
| Series I Preferred Stock | | | | | | | |
| Beginning of Period | — | | | 1 | | | — | | | 1 | |
| End of Period | — | | | 1 | | | — | | | 1 | |
| Series II Preferred Stock | | | | | | | |
| Beginning of Period | — | | | — | | | 2,587 | | | 258,726,163 | |
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| End of Period | — | | | — | | | 2,587 | | | 258,726,163 | |
| Common Stock | | | | | | | |
| Beginning of Period | 8,611 | | | 861,110,478 | | | 5,957 | | | 595,663,618 | |
| Clawback of Transfer Restricted Shares | — | | | (13,624) | | | — | | | — | |
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| Net Delivery of Common Stock | — | | | 7,146 | | | — | | | — | |
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| Repurchases of Common Stock | — | | | — | | | (52) | | | (5,191,174) | |
| End of Period | 8,611 | | | 861,104,000 | | | 5,905 | | | 590,472,444 | |
| Additional Paid-In Capital | | | | | | | |
| Beginning of Period (as previously reported) | 16,190,407 | | | | | 8,997,435 | | | |
| Adoption of New Accounting Standard (See Note 2) | 93,650 | | | | | — | | | |
| Beginning of Period (as revised) | 16,284,057 | | | | | 8,997,435 | | | |
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| Tax Effects - Exchange of KKR Holdings Units and Other | — | | | | | 26,780 | | | |
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| Repurchases of Common Stock | — | | | | | (346,599) | | | |
| Equity-Based Compensation | 55,415 | | | | | 51,928 | | | |
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| End of Period | 16,339,472 | | | | | 8,729,544 | | | |
| Retained Earnings | | | | | | | |
| Beginning of Period (as previously reported) | 6,315,711 | | | | | 7,670,182 | | | |
| Adoption of New Accounting Standard (See Note 2) | 385,396 | | | | | 65,930 | | | |
| Beginning of Period (as revised) | 6,701,107 | | | | | 7,736,112 | | | |
| Net Income (Loss) Attributable to KKR & Co. Inc. | 339,994 | | | | | 7,464 | | | |
| Series C Mandatory Convertible Preferred Stock Dividends ($0.75 per share) | (17,250) | | | | | (17,250) | | | |
| Common Stock Dividends ($0.155 and $0.145 per share) | (133,470) | | | | | (85,741) | | | |
| End of Period | 6,890,381 | | | | | 7,640,585 | | | |
| Accumulated Other Comprehensive Income (Loss) (net of tax) | | | | | | | |
| Beginning of Period (as previously reported) | (5,901,701) | | | | | (209,789) | | | |
| Adoption of New Accounting Standard (See Note 2) | 599,901 | | | | | 10,341 | | | |
| Beginning of Period (as revised) | (5,301,800) | | | | | (199,448) | | | |
| Other Comprehensive Income (Loss) | 610,225 | | | | | (1,216,261) | | | |
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| End of Period | (4,691,575) | | | | | (1,415,709) | | | |
| Total KKR & Co. Inc. Stockholders' Equity | 19,662,681 | | | | | 16,078,704 | | | |
| Noncontrolling Interests (See Note 23) | 37,316,569 | | | | | 41,993,151 | | | |
| Total Equity | $ | 56,979,250 | | | | | $ | 58,071,855 | | | |
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| Redeemable Noncontrolling Interests (See Note 24) | $ | 144,126 | | | | | $ | 81,793 | | | |
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See notes to financial statements.
KKR & CO. INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in Thousands) | | | | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | | 2022 | | 2021 | | | | 2023 | | 2022 | |
| Operating Activities | Operating Activities | | | | | | Operating Activities | | | | | |
| Net Income (Loss) | Net Income (Loss) | | $ | 1,102,602 | | | $ | 3,915,367 | | | Net Income (Loss) | | $ | 259,688 | | | $ | 1,252,388 | | |
| Adjustments to Reconcile Net Income (Loss) to Net Cash Provided (Used) by Operating Activities: | Adjustments to Reconcile Net Income (Loss) to Net Cash Provided (Used) by Operating Activities: | | | | Adjustments to Reconcile Net Income (Loss) to Net Cash Provided (Used) by Operating Activities: | | | |
| Equity-Based and Other Non-Cash Compensation | Equity-Based and Other Non-Cash Compensation | | 168,792 | | | 88,162 | | | Equity-Based and Other Non-Cash Compensation | | 184,135 | | | 168,792 | | |
| Net Realized (Gains) Losses - Asset Management | Net Realized (Gains) Losses - Asset Management | | (279,629) | | | (584,381) | | | Net Realized (Gains) Losses - Asset Management | | (99,380) | | | (279,629) | | |
| Change in Unrealized (Gains) Losses - Asset Management | Change in Unrealized (Gains) Losses - Asset Management | | (634,632) | | | (2,111,819) | | | Change in Unrealized (Gains) Losses - Asset Management | | 258,789 | | | (634,632) | | |
| Capital Allocation-Based (Income) Loss - Asset Management | Capital Allocation-Based (Income) Loss - Asset Management | | 945,743 | | | (2,684,647) | | | Capital Allocation-Based (Income) Loss - Asset Management | | (449,018) | | | 945,743 | | |
| Net Realized (Gains) Losses - Insurance | | (74,974) | | | 441,553 | | | |
| Net Realized (Gains) Losses on Insurance Operations | | Net Realized (Gains) Losses on Insurance Operations | | 953,155 | | | (270,658) | | |
| Net Accretion and Amortization | Net Accretion and Amortization | | 74,962 | | | 82,607 | | | Net Accretion and Amortization | | 32,180 | | | 74,962 | | |
| Interest Credited to Policyholder Account Balances (net of Policy Fees) - Insurance | Interest Credited to Policyholder Account Balances (net of Policy Fees) - Insurance | | 470,543 | | | 422,873 | | | Interest Credited to Policyholder Account Balances (net of Policy Fees) - Insurance | | 623,849 | | | 470,543 | | |
| Other Non-Cash Amounts | Other Non-Cash Amounts | | (8,079) | | | 2,297 | | | Other Non-Cash Amounts | | 49,999 | | | 7,971 | | |
| Cash Flows Due to Changes in Operating Assets and Liabilities: | Cash Flows Due to Changes in Operating Assets and Liabilities: | | | | Cash Flows Due to Changes in Operating Assets and Liabilities: | | | |
| Reinsurance Transactions and Acquisitions, Net of Cash Provided - Insurance | Reinsurance Transactions and Acquisitions, Net of Cash Provided - Insurance | | 5,764 | | | 415,777 | | | Reinsurance Transactions and Acquisitions, Net of Cash Provided - Insurance | | 242,554 | | | 5,764 | | |
| Change in Premiums, Notes Receivable and Reinsurance Recoverable, Net of Reinsurance Premiums Payable - Insurance | Change in Premiums, Notes Receivable and Reinsurance Recoverable, Net of Reinsurance Premiums Payable - Insurance | | 291,418 | | | 295,131 | | | Change in Premiums, Notes Receivable and Reinsurance Recoverable, Net of Reinsurance Premiums Payable - Insurance | | (263,534) | | | 291,418 | | |
| Change in Deferred Policy Acquisition Costs - Insurance | Change in Deferred Policy Acquisition Costs - Insurance | | (120,435) | | | (73,201) | | | Change in Deferred Policy Acquisition Costs - Insurance | | (166,926) | | | (120,435) | | |
| Change in Policy Liabilities and Accruals, Net - Insurance | Change in Policy Liabilities and Accruals, Net - Insurance | | (422,298) | | | (189,108) | | | Change in Policy Liabilities and Accruals, Net - Insurance | | 130,151 | | | (431,737) | | |
| Change in Consolidation | | — | | | (21,149) | | | |
| | Change in Due from / to Affiliates | Change in Due from / to Affiliates | | (68,560) | | | (212,300) | | | Change in Due from / to Affiliates | | (145,301) | | | (68,560) | | |
| Change in Other Assets | Change in Other Assets | | 570,262 | | | 308,439 | | | Change in Other Assets | | 493,728 | | | 610,079 | | |
| Change in Accrued Expenses and Other Liabilities | Change in Accrued Expenses and Other Liabilities | | (491,126) | | | 1,135,268 | | | Change in Accrued Expenses and Other Liabilities | | 699,553 | | | (491,656) | | |
| Investments Purchased - Asset Management | Investments Purchased - Asset Management | | (12,736,719) | | | (15,127,133) | | | Investments Purchased - Asset Management | | (9,966,282) | | | (12,736,719) | | |
| Proceeds from Investments - Asset Management | Proceeds from Investments - Asset Management | | 12,123,184 | | | 13,823,098 | | | Proceeds from Investments - Asset Management | | 5,229,772 | | | 12,123,184 | | |
| Net Cash Provided (Used) by Operating Activities | Net Cash Provided (Used) by Operating Activities | | 916,818 | | | (73,166) | | | Net Cash Provided (Used) by Operating Activities | | (1,932,888) | | | 916,818 | | |
| | Investing Activities | Investing Activities | | | | Investing Activities | | | |
| Acquisition of Global Atlantic, Net of Cash Acquired (See Note 3) | | — | | | (415,640) | | | |
| | Purchases of Fixed Assets | Purchases of Fixed Assets | | (11,888) | | | (27,727) | | | Purchases of Fixed Assets | | (23,207) | | | (11,888) | | |
| Investments Purchased - Insurance | Investments Purchased - Insurance | | (15,105,620) | | | (5,300,346) | | | Investments Purchased - Insurance | | (8,769,518) | | | (15,105,620) | | |
| Proceeds from Investments - Insurance | Proceeds from Investments - Insurance | | 13,130,681 | | | 5,255,841 | | | Proceeds from Investments - Insurance | | 4,956,273 | | | 13,130,681 | | |
| Other Investing Activities, Net - Insurance | Other Investing Activities, Net - Insurance | | (11,002) | | | 111,836 | | | Other Investing Activities, Net - Insurance | | 17,919 | | | (11,002) | | |
| | Net Cash Provided (Used) by Investing Activities | Net Cash Provided (Used) by Investing Activities | | (1,997,829) | | | (376,036) | | | Net Cash Provided (Used) by Investing Activities | | (3,818,533) | | | (1,997,829) | | |
| | Financing Activities | Financing Activities | | | | Financing Activities | | | |
| Series A and B Preferred Stock Dividends | | — | | | (8,341) | | | |
| | Series C Mandatory Convertible Preferred Stock Dividends | Series C Mandatory Convertible Preferred Stock Dividends | | (17,250) | | | (17,250) | | | Series C Mandatory Convertible Preferred Stock Dividends | | (17,250) | | | (17,250) | | |
| Common Stock Dividends | Common Stock Dividends | | (85,741) | | | (77,804) | | | Common Stock Dividends | | (133,470) | | | (85,741) | | |
| Distributions to Redeemable Noncontrolling Interests | Distributions to Redeemable Noncontrolling Interests | | (635) | | | — | | | Distributions to Redeemable Noncontrolling Interests | | (636) | | | (635) | | |
| | Distributions to Noncontrolling Interests | Distributions to Noncontrolling Interests | | (1,873,873) | | | (1,027,834) | | | Distributions to Noncontrolling Interests | | (1,840,303) | | | (1,873,873) | | |
| Contributions from Noncontrolling Interests | Contributions from Noncontrolling Interests | | 3,494,333 | | | 3,164,049 | | | Contributions from Noncontrolling Interests | | 2,468,778 | | | 3,494,333 | | |
| | Net Delivery of Common Stock (Equity Incentive Plans) | | — | | | (55,873) | | | |
| | Repurchases of Common Stock | Repurchases of Common Stock | | (346,651) | | | (71,366) | | | Repurchases of Common Stock | | — | | | (346,651) | | |
| Private Placement Share Issuance | | — | | | 38,463 | | | |
| | Proceeds from Debt Obligations | Proceeds from Debt Obligations | | 5,515,904 | | | 5,109,790 | | | Proceeds from Debt Obligations | | 3,378,792 | | | 5,515,904 | | |
| Repayment of Debt Obligations | Repayment of Debt Obligations | | (5,484,370) | | | (3,552,362) | | | Repayment of Debt Obligations | | (1,858,984) | | | (5,484,370) | | |
| Financing Costs Paid | Financing Costs Paid | | (42,816) | | | (921) | | | Financing Costs Paid | | — | | | (42,816) | | |
| Additions to Contractholder Deposit Funds - Insurance | Additions to Contractholder Deposit Funds - Insurance | | 5,066,018 | | | 2,433,498 | | | Additions to Contractholder Deposit Funds - Insurance | | 4,547,895 | | | 5,066,018 | | |
| Withdrawals from Contractholder Deposit Funds - Insurance | Withdrawals from Contractholder Deposit Funds - Insurance | | (2,628,071) | | | (1,475,176) | | | Withdrawals from Contractholder Deposit Funds - Insurance | | (4,060,332) | | | (2,628,071) | | |
| Reinsurance Transactions, Net of Cash Provided - Insurance | Reinsurance Transactions, Net of Cash Provided - Insurance | | 46,566 | | | — | | | Reinsurance Transactions, Net of Cash Provided - Insurance | | 79,516 | | | 46,566 | | |
| Other Financing Activity, Net - Insurance | Other Financing Activity, Net - Insurance | | 503,062 | | | 269 | | | Other Financing Activity, Net - Insurance | | (491,038) | | | 503,062 | | |
| Net Cash Provided (Used) by Financing Activities | Net Cash Provided (Used) by Financing Activities | | 4,146,476 | | | 4,459,142 | | | Net Cash Provided (Used) by Financing Activities | | 2,072,968 | | | 4,146,476 | | |
| | Effect of exchange rate changes on cash, cash equivalents and restricted cash | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | | 21,603 | | | (49,376) | | |
| | Net Increase/(Decrease) in Cash, Cash Equivalents and Restricted Cash | | Net Increase/(Decrease) in Cash, Cash Equivalents and Restricted Cash | | $ | (3,656,850) | | | $ | 3,016,089 | | |
| Cash, Cash Equivalents and Restricted Cash, Beginning of Period | | Cash, Cash Equivalents and Restricted Cash, Beginning of Period | | 13,385,370 | | | 10,526,304 | | |
| Cash, Cash Equivalents and Restricted Cash, End of Period | | Cash, Cash Equivalents and Restricted Cash, End of Period | | $ | 9,728,520 | | | $ | 13,542,393 | | |
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| | | | Three Months Ended March 31, | |
| | 2022 | | 2021 | | |
| | Effect of exchange rate changes on cash, cash equivalents and restricted cash | | (49,376) | | | (25,722) | | | |
| | Net Increase/(Decrease) in Cash, Cash Equivalents and Restricted Cash | | $ | 3,016,089 | | | $ | 3,984,218 | | | |
| Cash, Cash Equivalents and Restricted Cash, Beginning of Period | | 10,526,304 | | | 6,993,457 | | | |
| Cash, Cash Equivalents and Restricted Cash, End of Period | | $ | 13,542,393 | | | $ | 10,977,675 | | | |
| | | | | Three Months Ended March 31, |
| | | | 2023 | | 2022 | |
| Cash, Cash Equivalents and Restricted Cash are comprised of the following: | Cash, Cash Equivalents and Restricted Cash are comprised of the following: | | | | Cash, Cash Equivalents and Restricted Cash are comprised of the following: | | | | | |
| | Beginning of the Period | Beginning of the Period | | | | Beginning of the Period | | | |
| Asset Management | Asset Management | | | | Asset Management | | | |
| Cash and Cash Equivalents | Cash and Cash Equivalents | | $ | 6,699,668 | | | $ | 6,507,874 | | | Cash and Cash Equivalents | | $ | 6,705,325 | | | $ | 6,699,668 | | |
| Restricted Cash and Cash Equivalents | Restricted Cash and Cash Equivalents | | 134,298 | | | 485,583 | | | Restricted Cash and Cash Equivalents | | 253,431 | | | 134,298 | | |
| Total Asset Management | Total Asset Management | | 6,833,966 | | | 6,993,457 | | | Total Asset Management | | 6,958,756 | | | 6,833,966 | | |
| Insurance | Insurance | | | | | | Insurance | | | | | |
| Cash and Cash Equivalents | Cash and Cash Equivalents | | $ | 3,391,934 | | | $ | — | | | Cash and Cash Equivalents | | $ | 6,118,231 | | | $ | 3,391,934 | | |
| Restricted Cash and Cash Equivalents | Restricted Cash and Cash Equivalents | | 300,404 | | | — | | | Restricted Cash and Cash Equivalents | | 308,383 | | | 300,404 | | |
| Total Insurance | Total Insurance | | 3,692,338 | | | — | | | Total Insurance | | 6,426,614 | | | 3,692,338 | | |
| | Cash, Cash Equivalents and Restricted Cash, Beginning of Period | Cash, Cash Equivalents and Restricted Cash, Beginning of Period | | $ | 10,526,304 | | | $ | 6,993,457 | | | Cash, Cash Equivalents and Restricted Cash, Beginning of Period | | $ | 13,385,370 | | | $ | 10,526,304 | | |
| | End of the Period | End of the Period | | | | End of the Period | | | |
| Asset Management | Asset Management | | | | Asset Management | | | |
| Cash and Cash Equivalents | Cash and Cash Equivalents | | $ | 8,324,897 | | | $ | 5,031,724 | | | Cash and Cash Equivalents | | $ | 5,576,121 | | | $ | 8,324,897 | | |
| Restricted Cash and Cash Equivalents | Restricted Cash and Cash Equivalents | | 103,961 | | | 79,017 | | | Restricted Cash and Cash Equivalents | | 161,619 | | | 103,961 | | |
| Total Asset Management | Total Asset Management | | 8,428,858 | | | 5,110,741 | | | Total Asset Management | | 5,737,740 | | | 8,428,858 | | |
| Insurance | Insurance | | | | | | Insurance | | | | | |
| Cash and Cash Equivalents | Cash and Cash Equivalents | | $ | 4,590,032 | | | $ | 5,467,012 | | | Cash and Cash Equivalents | | $ | 3,713,382 | | | $ | 4,590,032 | | |
| Restricted Cash and Cash Equivalents | Restricted Cash and Cash Equivalents | | 523,503 | | | 399,922 | | | Restricted Cash and Cash Equivalents | | 277,398 | | | 523,503 | | |
| Total Insurance | Total Insurance | | 5,113,535 | | | 5,866,934 | | | Total Insurance | | 3,990,780 | | | 5,113,535 | | |
| | Cash, Cash Equivalents and Restricted Cash, End of Period | Cash, Cash Equivalents and Restricted Cash, End of Period | | $ | 13,542,393 | | | $ | 10,977,675 | | | Cash, Cash Equivalents and Restricted Cash, End of Period | | $ | 9,728,520 | | | $ | 13,542,393 | | |
See notes to financial statements.
KKR & CO. INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)(CONTINUED)
(Amounts in Thousands)
| | | | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | | | 2022 | | 2021 | | | | 2023 | | 2022 | |
| Supplemental Disclosures of Cash Flow Information | Supplemental Disclosures of Cash Flow Information | | | | | | Supplemental Disclosures of Cash Flow Information | | | | | |
| Payments for Interest | Payments for Interest | | $ | 329,776 | | | $ | 289,420 | | | Payments for Interest | | $ | 566,904 | | | $ | 329,776 | | |
| Payments for Income Taxes | Payments for Income Taxes | | $ | 24,406 | | | $ | 11,044 | | | Payments for Income Taxes | | $ | 21,441 | | | $ | 24,406 | | |
| Payments for Operating Lease Liabilities | Payments for Operating Lease Liabilities | | $ | 11,600 | | | $ | 9,846 | | | Payments for Operating Lease Liabilities | | $ | 15,281 | | | $ | 11,600 | | |
| | Supplemental Disclosures of Non-Cash Investing and Financing Activities | Supplemental Disclosures of Non-Cash Investing and Financing Activities | | | | | Supplemental Disclosures of Non-Cash Investing and Financing Activities | | | |
| Equity-Based and Other Non-Cash Contributions | Equity-Based and Other Non-Cash Contributions | | $ | 134,964 | | | $ | 82,517 | | | Equity-Based and Other Non-Cash Contributions | | $ | 129,272 | | | $ | 134,964 | | |
| | Non-Cash Contribution from Noncontrolling Interests | Non-Cash Contribution from Noncontrolling Interests | | $ | 85,258 | | | $ | 845,943 | | | Non-Cash Contribution from Noncontrolling Interests | | $ | — | | | $ | 85,258 | | |
| | Debt Obligations - Net Gains (Losses), Translation and Other | Debt Obligations - Net Gains (Losses), Translation and Other | | $ | 545,574 | | | $ | 235,821 | | | Debt Obligations - Net Gains (Losses), Translation and Other | | $ | (428,559) | | | $ | 545,574 | | |
| Tax Effects - Exchange of KKR Holdings L.P. Units and Other | | $ | 26,780 | | | $ | 4,627 | | | |
| | Tax Effects - Exchange of KKR Holdings L.P. Units and Other (See Note 1) | | Tax Effects - Exchange of KKR Holdings L.P. Units and Other (See Note 1) | | $ | — | | | $ | 26,780 | | |
| | Right-of-Use Assets obtained in Exchange for new Operating Lease Liabilities | Right-of-Use Assets obtained in Exchange for new Operating Lease Liabilities | | $ | 1,211 | | | $ | 31,003 | | | Right-of-Use Assets obtained in Exchange for new Operating Lease Liabilities | | $ | 17,167 | | | $ | 1,211 | | |
| Investments Acquired through Reinsurance Agreements | Investments Acquired through Reinsurance Agreements | | $ | 2,697,956 | | | $ | 368,328 | | | Investments Acquired through Reinsurance Agreements | | $ | — | | | $ | 2,697,956 | | |
| Policyholder Liabilities and Accruals Acquired through Reinsurance Agreements | Policyholder Liabilities and Accruals Acquired through Reinsurance Agreements | | $ | 236,698 | | | $ | 1,112,370 | | | Policyholder Liabilities and Accruals Acquired through Reinsurance Agreements | | $ | 242,554 | | | $ | 236,698 | | |
| Contractholder Deposit Funds Acquired through Reinsurance Agreements | Contractholder Deposit Funds Acquired through Reinsurance Agreements | | $ | 2,537,960 | | | $ | 6,988 | | | Contractholder Deposit Funds Acquired through Reinsurance Agreements | | $ | 24,083 | | | $ | 2,537,960 | | |
| | Change in Consolidation | Change in Consolidation | | | | Change in Consolidation | | | |
| Investments | | $ | — | | | $ | (49,403) | | | |
| Investments - Insurance | | Investments - Insurance | | $ | (93,545) | | | $ | — | | |
| | Other Assets | | $ | — | | | $ | (32,689) | | | |
| Debt Obligations | | $ | — | | | $ | (26,165) | | | |
| Due to Affiliates | | $ | — | | | $ | (238) | | | |
| Accrued Expenses and Other Liabilities | | $ | — | | | $ | (10,350) | | | |
| | Noncontrolling Interests | Noncontrolling Interests | | $ | — | | | $ | (66,488) | | | Noncontrolling Interests | | $ | (93,545) | | | $ | — | | |
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See notes to financial statements.
KKR & CO. INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(All Amounts in Thousands, Except Share and Per Share Data, and Except Where Noted)
1. ORGANIZATION
KKR & Co. Inc. (NYSE: KKR), through its subsidiaries (collectively, "KKR"), is a leading global investment firm that offers alternative asset management as well as capital markets and insurance solutions. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and supporting growth in its portfolio companies and communities. KKR sponsors investment funds that invest in private equity, credit and real assets and has strategic partners that manage hedge funds. KKR’s insurance subsidiaries offer retirement, life and reinsurance products under the management of The Global Atlantic Financial Group LLC ("TGAFG" and, together with its subsidiaries, "Global Atlantic").
KKR & Co. Inc. is the parent company of KKR Group Co. Inc., which in turn owns KKR Group Holdings Corp., which is the general partner of KKR Group Partnership L.P. ("KKR Group Partnership"). KKR & Co. Inc. both indirectly controls KKR Group Partnership and indirectly holds Class A partner interests in KKR Group Partnership ("KKR Group Partnership Units") representing economic interests in KKR's business. The remaining KKR Group Partnership Units are held by KKR Holdings L.P. ("KKR Holdings"), which is not a subsidiary of KKR & Co. Inc., and holders of other exchangeable securities through KKR Holdings II L.P. As of March 31, 2022,2023, KKR & Co. Inc. held indirectly approximately 69.4%99.7% of the KKR Group Partnership Units. The percentageremaining balance is held indirectly by KKR employees through vested restricted holdings units representing an ownership interest in KKR Group Partnership Units, which may continue to change as KKR Holdings and the holders of other exchangeable securities exchange their KKR Group Partnership Unitsbe exchanged for shares of common stock of KKR & Co. Inc. or when("exchangeable securities"). As limited partner interests, these KKR & Co. Inc. otherwise issues or repurchases shares of common stock ofGroup Partnership Units are non-voting and do not entitle anyone other than KKR & Co. Inc.to manage our business and affairs. KKR Group Partnership also has outstanding limited partner interests that provide for a carry pool provided by KKR Associates Holdings L.P. ("Associates Holdings") and preferred units with economic terms that mirror the Series C Mandatory Convertible Preferred Stock issued by KKR & Co. Inc.
References to "KKR" in these financial statements refer to KKR & Co. Inc. and its subsidiaries, including Global Atlantic, unless the context requires otherwise, especially in sections where "KKR" is intended to refer to the asset management business only. References in these financial statements to "principals" are to KKR's current and former employees who holdheld interests in KKR's business through KKR Holdings.Holdings prior to the Reorganization Mergers (as defined below). References to "Global Atlantic" in these financial statements includes the insurance companies of Global Atlantic, which are consolidated by KKR.
Reorganization Agreement
On October 8, 2021, KKR entered into a Reorganization Agreement (the "Reorganization Agreement") with KKR Holdings L.P. ("KKR Holdings"), KKR Management LLP (which holds the sole outstanding share of Series I preferred stock), KKR Associates Holdings, L.P. 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)some of which were completed on May 31, 2022, and other changes to be completed in the acquisitionfuture. On May 31, 2022, KKR completed the merger transactions ("Reorganization Mergers") contemplated by the Reorganization Agreement pursuant to which KKR ofacquired KKR Holdings (which changed its name to KKR Group Holdings L.P.) and all of the KKR Group Partnership Units held by it, (b)it.
Pursuant to the Reorganization Agreement, the following transactions will occur in the future eliminationon the Sunset Date (as defined below):
i.the control of voting controlKKR & Co. Inc. by KKR Management LLP and its ownership of the Series I preferred stock, (c) Preferred Stock held by it will be eliminated,
ii.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. In particular, the Reorganization Agreement provides for:
i.a simplifying reorganization of KKR’s current corporate structure whereby all holders of common stock of KKR & Co. Inc. immediately prior to such reorganization and all holders of interests in KKR Holdings immediately prior to such reorganization will receive the same common stock in a new parent company of KKR (“New KKR Parent”),
ii.the future elimination of control of New KKR Parent by KKR Management LLP by having all voting power vested in the common stock of New KKR Parentbe established on a one vote per share basis, on the Sunset Date (as defined below),
iii.also on the Sunset Date, the future acquisitionKKR will acquire control of control by KKR of KKR Associates Holdings, L.P., the entity providing for the allocation of carry proceeds to KKR employees, also known as the carry pool,pool.
iv.the termination of KKR's tax receivable agreement with KKR Holdings other than with respect to exchanges prior to the closing of the mergers contemplated by the Reorganization Agreement, and
v.in the merger of KKR Holdings with a subsidiary of New KKR Parent (the “Holdings Merger”), the issuance to limited partners of KKR Holdings of 8.5 million shares (as adjusted for any stock splits or similar adjustments) of common stock of New KKR Parent, which will not be transferrable (except in the case of death or for estate planning purposes) prior to the Sunset Date.
The “Sunset Date” will be the earlier of (i) December 31, 2026 and (ii) the six-month anniversary of the first date on which the death or permanent disability of both Mr. Henry Kravis and Mr. George Roberts (collectively, "Co-Founders") has occurred (or any earlier date consented to by KKR Management LLP in its sole discretion). In addition, KKR Management LLP agreed not to transfer its ownership of the sole share of Series I preferred stock. The transactions contemplated to occur under the Reorganization Agreement (including the establishment of New KKR Parent, the Holdings Merger, the termination of the tax receivable agreement except with respect to exchanges of Holdings units made prior thereto,Preferred Stock, and, the changes to occur effective on the Sunset Date)Date are all requiredunconditional commitments of the parties to be consummated together as integrated transactions under the Reorganization Agreement. The consummation of the merger transactions is subject to the receipt of regulatory approvals and other conditions to closing as provided in the Reorganization Agreement. While the Sunset Date itself is expected to occur after, and is conditioned upon, the completion of the merger transactions contemplated by the Reorganization Agreement, the changes to occur effective on the Sunset Date will be unconditional commitments upon the completion of the merger transactions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements of KKR & Co. Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and the instructions to this Quarterly Report on Form 10-Q. The condensed consolidated financial statements (referred to hereafter as the "financial statements"), including these notes, are unaudited and exclude some of the disclosures required in annual financial statements. Management believes it has made all necessary adjustments (consisting of only normal recurring items) such that the financial statements are presented fairly and that estimates made in preparing the financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. TheExcept for balances affected by the adoption of new accounting guidance for insurance and reinsurance companies that issue long-duration contracts (“LDTI”) noted in Note 2—”Summary of Significant Accounting Policies”, the consolidated balance sheet data as of December 31, 20212022 were derived from audited financial statements included in KKR & Co. Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2021,2022 filed with the U.S. Securities and Exchange Commission ("SEC") on February 27, 2023 (our "Annual Report"), and the financial statements should be read in conjunction with the audited financial statements included therein. Additionally, in the accompanying financial statements, the condensed consolidated statements of financial condition are referred to hereafter as the "consolidated statements of financial condition"; the condensed consolidated statements of operations are referred to hereafter as the "consolidated statements of operations"; the condensed consolidated statements of comprehensive income (loss) are referred to hereafter as the "consolidated statements of comprehensive income (loss)"; the condensed consolidated statements of changes in equity and redeemable non-controllingnoncontrolling interests are referred to hereafter as the "consolidated statements of changes in equity"; and the condensed consolidated statements of cash flows are referred to hereafter as the "consolidated statements of cash flows."
KKR consolidates the financial results of KKR Group Partnership and its consolidated entities, which include the accounts of KKR's investment management and capital markets companies, the general partners of certain unconsolidated investment funds, general partners of consolidated investment funds and their respective consolidated investment funds, Global Atlantic’s insurance companies and certain other entities including CFEs.
The presentations in the consolidated statement of financial condition and consolidated statement of operations reflect the significant industry diversification of KKR by its acquisition of Global Atlantic. Global Atlantic operates an insurance business, and KKR operates an asset management business, each of which possess distinct characteristics. As a result, KKR developed a two-tiered approach for the financial statements presentation, where Global Atlantic's insurance operations are presented separately from KKR's asset management business. KKR believes that these separate presentations provide a more informative view of the consolidated financial position and results of operations than traditional aggregated presentations and that reporting Global Atlantic’s insurance operations separately is appropriate given, among other factors, the relative significance of Global Atlantic’s policy liabilities, which are not obligations of KKR (other than the insurance companies that issued them). If a traditional aggregate presentation were to be used, KKR would expect to eliminate or combine several identical or similar captions, which would condense the presentations, but would also reduce the level of information presented. KKR also believes that using a traditional aggregate presentation would result in no new line items compared to the two-tier presentation included in the financial statements in this report.
In the ordinary course of business, KKR’s Asset Management business and Global Atlantic enter into transactions with each other, which may include transactions pursuant to their investment management agreements and financing arrangements. The borrowings from these financing arrangements are non-recourse to KKR beyond the assets pledged to support such borrowings. All the investment management and financing arrangements between KKR's Asset Management business and Global Atlantic are eliminated in consolidation; however, KKR's allocated share of the net income from the consolidation of Global Atlantic is increased by the amount of fees earned from and decreased by the amount of interest expense incurred from noncontrolling interest holders in Global Atlantic. Accordingly, the elimination of these fees and interest impacts the net income (loss) attributable to KKR and KKR stockholders' equity for the pro-rata ownership of the noncontrolling interests in Global Atlantic.
All intercompany transactions and balances have been eliminated.
For a detailed discussion about KKR’s significant accounting policies and for further information on accounting updates adopted in the prior year, see Note 2 to the financial statements in the 2021 Form 10-K. DuringAnnual Report. Other than the items listed below, during the three months ended March 31, 2022,2023, there were no significant updates to KKR’s significant accounting policies.
Deferral and amortization of certain revenues and expenses
Deferrals
Deferred policy acquisition costs ("DAC") consist of commissions and other costs that are directly related to the successful acquisition of new or renewal life insurance or annuity contracts. DAC is estimated using a group approach, instead of on an individual contract level. DAC groups, or cohorts, are by product type and issue year and consistent with the groups used in estimating the associated insurance liability. DAC is recorded in insurance intangibles in the consolidated statements of financial condition.
Value of business acquired ("VOBA") represents the difference between the carrying value of the purchased insurance contract liabilities at the time of the business combination and the estimated fair value of insurance and reinsurance contracts. VOBA can be either positive or negative. Positive VOBA is recorded in insurance intangibles. Negative VOBA is recorded in the same financial statement line in the consolidated statement of financial condition as the associated reserves.
For limited-payment products (e.g., payout annuities), gross premiums received in excess of net premiums are deferred at initial recognition as a deferred profit liability (“DPL”). DPL is measured using assumptions consistent with those used in the measurement of the liability for future policy benefits, including discount rate, mortality, lapses, and expenses. DPL is recorded in policy liabilities in the consolidated statements of financial condition.
For certain preneed contracts, the gross premium is in excess of the benefit reserve plus additional insurance liability. An unearned front-end load ("UFEL") is established to defer the recognition of this front-end load. UFEL is recorded in policy liabilities in the consolidated statements of financial condition.
Amortization
DAC is amortized on a constant level basis for the grouped contracts over the expected economic life of the related contracts. Global Atlantic amortizes DAC for all products on a constant level basis based on policy count, except for DAC for traditional life products that are amortized on a constant level basis based on face amount. The constant level bases used for amortization are projected using mortality and lapse assumptions that are based on Global Atlantic’s experience, industry data, and other factors and are consistent with those used for the liability for future policy benefits. If those projected assumptions change in future periods, they will be reflected in the cohort level amortization basis at that time. Unexpected lapses, due to higher mortality and lapse experience than expected, are recognized in the current period as a reduction of the capitalized balances.
Amortization of DAC is included in amortization of policyholder acquisition costs in the consolidated statements of operations.
VOBA is generally amortized using the same methodology and assumptions used to amortize DAC.
DPL is amortized and recognized in proportion to insurance in force for life insurance contracts and expected future benefit payments for annuity contracts. Interest is accreted on the balance of the DPL using the discount rate determined at contract issuance. Global Atlantic reviews and updates its estimates of cash flows for the DPL at the same time as the estimates of cash flows for the liability for future policy benefits. When cash flows are updated, the updated estimates are used to recalculate the DPL at contract issuance. The recalculated DPL as of the beginning of the current reporting period is compared to the carrying amount of the DPL as of the beginning of the current reporting period, and any difference is recognized as either a charge or credit to net policy benefits and claims.
UFEL is amortized consistent with the amortization of DAC on preneed contracts.
The key assumptions used in the calculation of the amortization of these balances are reviewed quarterly and updated if actual experience or other evidence suggests that current assumptions should be revised. In addition, Global Atlantic formally reviews assumptions annually as part of the assumptions review process. The effects of changes in assumptions are recorded in net income in the period in which the changes are made.
Internal replacements
An internal replacement is a modification in product benefits, features, rights, or coverages that occurs by the legal extinguishment of one contract and the issuance of another contract (a contract exchange), or by amendment, endorsement, or rider to a contract, or by the election of a benefit, feature, right, or coverage within a contract. If the modification does not substantially change the contract, the unchanged contract is viewed as a prospective revision and the unamortized DAC is
Notes to Financial Statements (Continued)
adjusted prospectively. As such, unamortized DAC and other associated balances from the unchanged contract are retained and acquisition costs incurred to modify the contract are not deferred but expensed as incurred. Other balances associated with the unchanged contract, such as any liability for future policyholder benefit or market risk benefits, should similarly be accounted for as if the unchanged contract is a continuation of the original contract. If an internal replacement represents a substantial change, the original contract is considered to be extinguished and any related DAC or other policy balances are charged or credited to income, and any new deferrable costs associated with the replacement contract are deferred.
Separate accounts
Separate account assets and liabilities represent segregated funds administered and invested by Global Atlantic for the benefit of variable annuities and variable universal life insurance contractholders and certain pension funds. Global Atlantic reports separately, as assets and liabilities, investments held in the separate accounts and liabilities of separate accounts if: (1) such separate accounts are legally recognized; (2) assets supporting the contract liabilities are legally insulated from Global Atlantic’s general account liabilities; (3) investments are directed by the contract owner or participant; and (4) all investment performance, net of contract fees and assessments, is passed through to the contract owner.
Separate account assets consist principally of mutual funds at fair value. The investment income and gains and losses of these accounts generally accrue to the contractholders and therefore, are not included in Global Atlantic’s net income. However, Global Atlantic’s net income reflects fees assessed and earned on fund values of these contracts which are presented as a component of policy fees in the consolidated statements of operations. Realized investment gains and losses related to separate accounts that meet the conditions for separate account reporting accrue to and are borne by the contractholder.
Policy liabilities
Policy liabilities, or collectively, “reserves,” are the portion of past premiums or assessments received that are set aside to meet future policy and contract obligations as they become due. Interest accrues on these reserves and on future premiums, which may also be available to pay for future obligations. Global Atlantic establishes reserves to pay future policyholder benefits, claims, and certain expenses for its life policies and annuity contracts.
Reserves are estimates based on models that include many actuarial assumptions and projections. These assumptions and projections, which are inherently uncertain, involve significant judgment, including assumptions as to the levels and/or timing of premiums, benefits, claims, expenses, interest credits, investment results (including equity market returns), mortality, longevity, and persistency.
The assumptions on which reserves are based are intended to represent an estimation of experience for the period that policyholder benefits are payable. The adequacy of these reserves and the assumptions underlying those reserves are reviewed at least annually. Global Atlantic cannot, however, determine with precision the amount or the timing of actual policyholder benefit payments. If actual experience is better than or equal to the assumptions, then reserves would be adequate to provide for future policyholder benefits and expenses. If experience is worse than the assumptions, additional reserves may be required to meet future policy and contract obligations. This would result in a charge to Global Atlantic’s net income during the period in which excess policyholder benefits are paid or an increase in reserves occurs.
For a majority of Global Atlantic’s in-force policies, including its universal life policies and most annuity contracts, the base policy reserve is equal to the account value. For these products, the account value represents Global Atlantic’s obligation to repay to the policyholder the amounts held on deposit. However, there are several significant blocks of business where additional policyholder reserves are explicitly calculated, including fixed-indexed annuities, variable annuities, universal life with secondary guarantees, indexed universal life and preneed policies.
Annuity contracts
Fixed-indexed annuities ("FIA")
Policy liabilities for fixed-indexed annuities earning a fixed rate of interest and certain other fixed-rate annuity products are computed under a retrospective deposit method and represent policyholder account balances before applicable surrender charges. For certain fixed-rate annuity products, an additional reserve was established for above market interest rate guarantees upon acquisition. These reserves are amortized on a straight-line basis over the remaining guaranteed interest rate period.
Certain of Global Atlantic’s fixed-indexed annuity products enable the policyholder to allocate contract value between a fixed crediting rate and strategies which reflect the change in the value of an index, such as the S&P 500 Index or other indices. These products are accounted for as investment-type contracts. The liability for these products consists of a combination of the
Notes to Financial Statements (Continued)
underlying account value and an embedded derivative value. The liability for the underlying account value is primarily based on policy guarantees and its initial value is the difference between the premium payment and the fair value of the embedded derivative. Thereafter, the account value liability is determined in a manner consistent with the accounting for a deposit liability under the “effective yield method” (previously referred to in our Annual Report as the "constant yield method"). All future host balances are determined as: (1) the initial host balance; (2) plus interest; (3) less applicable policyholder benefits. The interest rate used in the prior roll forward is re-determined on each valuation date, per the effective yield method. The embedded derivative component’s fair value is based on an estimate of the policyholders’ expected participation in future increases in the relevant index. The fair value of this embedded derivative component includes assumptions, including those about future interest rates and investment yields, future costs for options used to hedge the contract obligations, projected withdrawal and surrender activity, benefit utilization and the level and limits on contract participation in any future increases in the respective index option. The account value liability and embedded derivative are recorded in policy liabilities in the consolidated statements of financial condition, with changes in value of the liabilities recorded in policy benefits and claims in the consolidated statements of operations.
Contractholder deposit funds reserves for certain assumed blocks of fixed-indexed and fixed-rate annuity products are accounted for as investment-type contracts. A net liability (consisting of the benefit reserve plus deferred revenue liability less ceding commission paid between a ceding and assuming reinsurance company) is established at inception and amortized under the effective yield method.
Global Atlantic issues registered index-linked annuity ("RILA") contracts, which are similar to FIAs in offering the policyholder the opportunity to participate in the performance of a market index, subject to a cap or adjusted for a participation rate. In contrast to the FIA, the RILA enables policyholders to earn higher returns but with the risk of loss to principal and related earnings. In particular, if performance of the market indices is negative, the policyholder may potentially absorb losses, subject to downside protection in the form of either a “buffer” or a “floor” specified in the contract. A “buffer” is protection from downside performance up to a certain percentage, typically 10 percent, with uncapped losses thereafter. A “floor” is protection from downside performance in excess of the “floor,” e.g., if the floor is 10% then the policyholder absorbs losses up to 10% but not in excess.
The RILA is accounted for similar to the FIA. The RILA host contract is calculated at the inception of the contract as the value of the initial premium minus the value of the index option, which is an embedded derivative. That initial host value is then accreted to the guaranteed surrender value at the end of the surrender charge period. The RILA index option, which is an embedded derivative, is required to be measured at fair value. Fair value represents the policyholders’ expected participation in future increases in the relevant index and is calculated as the excess cash flows from the indexed crediting feature above the guaranteed cash flows. The excess cash flows are based on the option budget methodology whereby the indexed account is projected to grow by the option budget. A key difference from a standard FIA product is that the RILA policyholder can lose principal on this investment. Therefore, it is possible that the embedded derivative can become negative. The option budget will be calculated depending on the product type and strategy. The growth in the indexed account will be projected based on the value of the options dependent upon the strategy and associated hedge construction. The fair value of this embedded derivative component includes assumptions, including those about future interest rates and investment yields, future costs for options used to hedge the contract obligations, projected withdrawal and surrender activity, benefit utilization and the level and limits on contract participation in any future increases in the respective index option. The account value liability and embedded derivative are recorded in policy liabilities in the consolidated statements of financial condition, with changes in value of the liabilities recorded in policy benefits and claims in the consolidated statements of operations.
Variable annuities
Global Atlantic issues and assumes variable annuity contracts for which the liabilities are included in policy liabilities in the consolidated statements of financial condition. The change in the liabilities for these benefits is included in policy benefits and claims in the consolidated statements of operations. Variable annuity contracts may have certain guarantees that are accounted for as market risk benefits, which are discussed in more detail below.
Funding agreements
Global Atlantic issues funding agreements to certain unaffiliated special purpose entities that have issued debt securities for which payment of interest and principal is secured by such funding agreements. Global Atlantic also has similar obligations to federal home loan banks. Global Atlantic’s funding agreements are considered investment type contracts and liabilities are net deposits plus accrued and unpaid interest. Global Atlantic's obligation is reported in policy liabilities in the consolidated statements of financial condition. Interest expense is calculated using the effective interest method and recorded in policy benefits and claims in the consolidated statements of operations.
Notes to Financial Statements (Continued)
Interest-sensitive life products
For universal life policies, the base policy reserve is the policyholder account value.
Policy liabilities for indexed universal life with returns linked to the performance of a specified market index are equal to the sum of two components: (1) the fair value of the embedded derivative; and (2) the host (or guaranteed) component. The fair value of the embedded derivative component is based on the fair value of the policyholders’ expected participation in future increases in the relevant index over the life of the contract. The fair value of this embedded derivative component includes assumptions, including those about future interest rates and investment yields, future costs for options used to hedge the contract obligations, projected benefits, benefit utilization and the level and limits on contract participation in any future increases in the respective index option.
The initial host balance is established at the time of premium payment and is equal to the total account value less the embedded derivative component. Thereafter, the balance of the host component is determined in a manner consistent with the accounting for a deposit liability under the “effective yield method.” All future host balances are determined as: (1) the initial host balance; (2) plus interest; (3) less applicable policyholder benefits. The interest rate used in the prior roll forward is re-determined on each valuation date, per the effective yield method.
Preneed policies
Global Atlantic’s preneed life insurance contracts are accounted for as universal life-type contracts which require that the retrospective deposit method be used. That accounting method establishes a liability for policyholder benefits in an amount determined by the account or contract balance that accrues to the benefit of the policyholder. This account value is deemed to be equal to the contract’s statutory cash surrender value. The majority of Global Atlantic’s preneed insurance contracts feature death benefits with a discretionary death benefit growth rate. Global Atlantic has the discretion to adjust these rates up or down. Global Atlantic has established an additional reserve for expected future discretionary benefits which is reflected as policy liabilities in the consolidated statements of financial condition. Global Atlantic has also issued preneed insurance contracts with crediting rates tied to inflation as measured by the U.S. Consumer Price Index.
Traditional life and limited payment contracts
Liability for future policy benefits
A liability for future policy benefits, which is the present value of estimated future policy benefits to be paid to or on behalf of policyholders and certain related expenses less the present value of estimated future net premiums to be collected from policyholders, is accrued as premium revenue is recognized. The liability is estimated using current assumptions that include mortality, lapses, and expenses. These current assumptions are based on judgments that consider Global Atlantic’s historical experience, industry data, and other factors.
For nonparticipating traditional and limited-payment contracts, contracts are grouped into cohorts by contract type and issue year. The liability is adjusted for differences between actual and expected experience. With the exception of the expense assumption, Global Atlantic reviews its historical and future cash flow assumptions quarterly and updates the net premium ratio used to calculate the liability each time the assumptions are changed. Global Atlantic has elected to use expense assumptions that are locked in at contract inception and are not subsequently reviewed or updated.
Each quarter, Global Atlantic updates its estimate of cash flows expected over the entire life of a group of contracts using actual historical experience and current future cash flow assumptions. These updated cash flows are discounted using the discount rate or curve on the original contract issue date to calculate the revised net premiums and net premium ratio, which are used to derive an updated liability for future policy benefits. This amount is then compared to the carrying amount of the liability before the updating of cash flow assumptions to determine the current period change in liability estimate. This current period change in the liability is the liability remeasurement gain or loss and is presented parenthetically as a separate component of benefit expense in the consolidated statements of operations.
Notes to Financial Statements (Continued)
For nonparticipating traditional and limited-payment contracts, the discount rate assumption is a spot rate yield curve that is derived based on upper medium grade (low credit risk) fixed-income instruments with similar duration to the liability. Global Atlantic uses one or more external indices of corporate credit issues as its proxy for these instruments. The discount rate assumption is updated quarterly and used to remeasure the liability at the reporting date, with the resulting change in the discount rate reflected in other comprehensive income. For liability cash flows between two market observable points on the yield curve, Global Atlantic interpolates the effective yield by holding the marginal rates constant. For liability cash flows that are projected beyond the last market-observable point on the yield curve, Global Atlantic uses the last market-observable yield level.
Payout annuities
Payout annuities include single premium immediate annuities, annuitizations of deferred annuities, pension risk transfer and structured settlements. These contracts subject the insurer to risks over a period that extends beyond the period or periods in which premiums are collected. These contracts may be either non-life contingent or life contingent. Non-life contingent annuities are accounted for as investment contracts. For life contingent annuities, Global Atlantic records a liability at the present value of future annuity payments and estimated future expenses calculated using expected mortality and costs, and expense assumptions. Any gross premiums received in excess of the net premium is the DPL and is recognized separately in income in a constant relationship with the discounted amount of the insurance in-force or expected future benefit payments. These liabilities are recorded in policy liabilities in the consolidated statements of financial condition.
Also included under payout annuities are liabilities for disability income benefits which pertain primarily to disability income policies that are already in claim payout status. Liabilities for disability income benefits are calculated as the present value of future disability payments and estimated future expenses using expected mortality and costs, and interest assumptions. The liabilities are recorded in policy liabilities in the consolidated statements of financial condition.
Whole and term life
Global Atlantic has established liabilities for amounts payable under insurance policies, including whole life insurance and term life insurance policies. These policies provide death benefits in exchange for a guaranteed level premium for a specified period of time and, in the case of whole life, a guaranteed minimum cash surrender value. Generally, liabilities for these policies are calculated as the present value of future expected benefits to be paid reduced by the present value of future expected net premiums. Current assumptions are used in the establishment of liabilities for future policyholder benefits including mortality, policy lapse, renewal, investment returns, inflation, expenses and other contingent events as appropriate for the respective product. Each quarter, Global Atlantic updates its estimate of cash flows using actual historical experience and current future cash flow assumptions. These updated cash flows are discounted using the discount rate or curve on the original contract issue date to calculate the revised net premiums and net premium ratio, which are used to derive an updated liability for future policy benefits. This amount is then compared to the carrying amount of the liability before the updating of cash flow assumptions to determine the current period change in liability estimate. This current period change in the liability is the liability remeasurement gain or loss and is presented parenthetically as a separate component of benefit expense in the consolidated statement of operations.
Policy liabilities for participating whole life insurance policies are equal to the aggregate of: (1) net level premium reserves for death and endowment policyholder benefits (calculated based upon the non-forfeiture interest rate, and mortality rated guarantee in calculating the cash surrender values described in such contracts); and (2) the liability for terminal dividends.
Product guarantees
Market risk benefits
Market risk benefits are contracts or contract features that both provide protection to the policyholder from other-than-nominal capital market risk and expose Global Atlantic to other-than-nominal capital market risk.
Market risk benefits include certain contract features on fixed annuity and variable annuity products. These features include minimum guarantees to policyholders, such as guaranteed minimum death benefits (GMDBs), guaranteed minimum withdrawal benefits (GMWBs), and long-term care benefits (i.e., capped at the return of account value plus one or two times the account value). Market risk benefits are measured at fair value using a non-option and option valuation approach based on current net amounts at risk, market data, experience, and other factors. Changes in fair value are recognized in net income each period with the exception of the portion of the change in fair value due to a change in the instrument-specific credit risk, which is recognized in other comprehensive income.
Notes to Financial Statements (Continued)
Additional liability for annuitization, death, or other insurance benefits
Global Atlantic establishes additional liabilities for contracts or contract features that provide for potential benefits in addition to the account balance but are not market risk benefits or embedded derivatives. These benefits include annuitization benefits and death or other insurance benefits (e.g., universal life secondary guarantees). For these benefits, the liability is the sum of the current benefit ratio multiplied by cumulative assessments and accreted interest, less excess payments.
In particular, Global Atlantic holds additional liabilities for universal life products with secondary guarantees, sometimes referred to as no-lapse guarantees. The additional liabilities are measured using the benefit ratio approach where excess benefits are spread over the life of the contract based on assessments collected from the policyholder. Generally, total expected excess benefit payments are the aggregate of death claims after the policyholder account value is exhausted. The exception is when the cost of insurance charges are insufficient to produce consistently positive earnings in the future. In this case, all death benefits are deemed to be excess benefits. For annuitization benefits, the benefit ratio is the present value of expected annuitization payments to be made less the accrued account balance at the expected annuitization date divided by the present value of expected assessments during the accumulation phase of the contract, discounted at the contract rate. Expected annuitization payments and related incremental claim adjustment expenses, expected assessments, and expected excess payments are calculated using discount rate, mortality, lapse, and expense assumptions.
Global Atlantic recognizes a shadow reserve adjustment for the additional insurance liabilities when unrealized gains and losses are included in the investment margin while calculating the present value of expected assessments for the benefit ratios. Shadow reserve adjustments are recognized in other comprehensive income.
For additional liabilities for death or other insurance benefits, the discount rate assumption is based on the contract rate at inception. The mortality, lapse, and expense assumptions are based on Company’s experience, industry data, and other factors. Assumptions are reviewed and updated, if necessary, at least annually. When those assumptions are updated, the benefit ratio and the liability are remeasured, with the resulting gain or loss reflected in total benefits expense.
Outstanding claims
Outstanding claims include amounts payable relating to in course of settlement and incurred but not reported claim liabilities. In course of settlement, claim liabilities are established for policies when Global Atlantic is notified of the death of the policyholder, but the claim has not been paid as of the reporting date. Incurred but not reported claim liabilities are determined using studies of past experience and are estimated using actuarial assumptions of historical claims expense, adjusted for current trends and conditions. These estimates are continually reviewed, and the ultimate liability may vary significantly from the amounts initially recognized, which are reflected in net income in the period in which they are determined. Changes in policyholder and contract claims are recorded in policy benefits and claims in the consolidated statements of operations.
Closed blocks
Through its insurance companies, Global Atlantic has acquired several closed blocks of participating life insurance policies. Global Atlantic has elected to account for the closed block policy liabilities using the fair value option.
The assets and cash flow generated by the closed blocks inure solely to the benefit of the holders of policies included in the closed blocks. All closed block assets will ultimately be paid out as policyholder benefits and through policyholder dividends. In the event that the closed blocks’ assets are insufficient to meet the benefits of the closed blocks’ benefits, general assets of Global Atlantic would be used to meet the contractual benefits to the closed blocks’ policyholders.
The closed block liabilities are measured at fair value, which comprises the fair value of the closed block assets plus the present value of projected expenses including commissions and the cost of capital charges associated with the closed blocks. In calculating the present value, Global Atlantic used a discount rate based on current U.S. Treasury rates, with a risk margin to reflect uncertainties in the closed block liability and a provision for Global Atlantic’s instrument-specific credit risk.
Reinsurance
Consistent with the overall business strategy, Global Atlantic assumes certain policy risks written by other insurance companies on a coinsurance, modified coinsurance or funds withheld coinsurance basis. Reinsurance accounting is applied for ceded and assumed transactions when risk transfer provisions have been met. To meet risk transfer requirements, a long-duration reinsurance contract must transfer mortality or morbidity risks, and subject the reinsurer to a reasonable possibility of a significant loss. Those contracts that do not meet risk transfer requirements are accounted for using deposit accounting. Global Atlantic seeks to diversify risk and limits its overall financial exposure through reinsurance.
Notes to Financial Statements (Continued)
With respect to ceded reinsurance, Global Atlantic values reinsurance recoverables on reported claims at the time the underlying claim is recognized in accordance with contract terms. For future policyholder benefits, Global Atlantic estimates the amount of reinsurance recoverables based on the terms of the reinsurance contracts and historical reinsurance recovery information. The reinsurance recoverables are based on what Global Atlantic believes are reasonable estimates and the balance is reported as an asset in the consolidated statements of financial condition. However, the ultimate amount of the reinsurance recoverable is not known until all claims are settled.
The cost of reinsurance, which is the difference between the amount paid for a reinsurance contract and the amount of the liabilities for policy benefits relating to the underlying reinsured contracts, is deferred and amortized over the reinsurance contract period for short-duration contracts, or over the terms of the reinsured policies on a basis consistent with the reporting of those policies for long-duration contracts. Generally, Global Atlantic amortizes cost of reinsurance based on policy count or effective yield method, retrospectively calculated based on actual and projected future cash flows. Cost of reinsurance assets and liabilities are reported in insurance intangibles and policy liabilities in the consolidated statements of financial condition, respectively. Reinsurance contracts do not relieve Global Atlantic from its obligations to policyholders, and failure of reinsurers to honor their obligations could result in losses to Global Atlantic; consequently, allowances are established for expected credit losses, via a charge to policy benefits and claims in the consolidated statements of operations. Global Atlantic’s funds withheld receivable at interest and reinsurance recoverable assets are reviewed for expected credit losses by considering credit ratings for each reinsurer, historical insurance industry specific default rate factors, rights of offset, expected recovery rates upon default and the impact of other terms specific to the reinsurance arrangement.
For funds withheld and modified coinsurance agreements, Global Atlantic has the right to receive or obligation to pay the total return on assets supporting the funds withheld receivable at interest or funds withheld payable at interest. This indirectly exposes Global Atlantic to the credit risk of the underlying assets. As a result, funds withheld coinsurance and modified coinsurance agreements are viewed as total return swaps and accounted for as embedded derivatives. Embedded derivatives are required to be separated from the host contracts and measured at fair value with changes in fair value recognized in net income. Generally, the embedded derivative is measured as the difference between the fair value of the underlying assets and the carrying value of the host contract at the balance sheet date. The fair value of the embedded derivative is included in the funds withheld receivable at interest or the funds withheld payable at interest on the consolidated statements of financial condition. Changes in the fair value of the embedded derivative are reported in operating activities on the consolidated statements of cash flows.
Recognition of insurance revenue and related benefits
Premiums related to whole life and term life insurance contracts and payout contracts with life contingencies are recognized in premiums in the consolidated statements of operations when due from the contractholders.
Amounts received as payment for universal life and investment-type contracts are reported as deposits to contractholder account balances and recorded in policy liabilities in the consolidated statements of financial condition. Amounts received as payment for Global Atlantic’s fixed fund variable annuities are reported as a component of policy liabilities in the consolidated statements of financial condition. Revenues from these contracts consist primarily of fees assessed against the contractholder account balance for mortality, policy administration, separate account administration and surrender charges, and are reported in policy fees in the consolidated statements of operations. Additionally, Global Atlantic earns investment income from the investment of contract deposits in Global Atlantic’s insurance companies' general account portfolio, which is reported in net investment income in the consolidated statements of operations.
Fees assessed that represent compensation to Global Atlantic for benefits to be provided in future periods and certain other fees are established as an unearned revenue reserve liability and amortized into revenue over the expected life of the related contracts in proportion to estimated gross profits in a manner consistent with DAC for these contracts. Unearned revenue reserves are reported in policy liabilities in the consolidated statements of financial condition and amortized into policy fees in the consolidated statements of operations. Benefits and expenses for these products include claims in excess of related account balances, expenses for contract administration and interest credited to contractholder account balances in the consolidated statements of operations.
Notes to Financial Statements (Continued)
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, and investment income (loss) during the reporting periods. Such estimates include but are not limited to (i) the valuation of investments and financial instruments, (ii) the determination of the income tax provision, (iii) the impairment of goodwill and intangible assets, (iv) the impairment of available-for-sale investments, (v) the valuation of insurance policy liabilities, including market risk benefits, (vi) the valuation of embedded derivatives in policy liabilities and funds withheld, (vii) the determination of the allowance for loan losses, and (viii) amortization of deferred revenues and expenses associated with the insurance business.
Certain events particular to each industry and country in which the portfolio companies conduct their operations, as well as general economic, political, regulatory and public health conditions, may have a significant negative impact on KKR’s investments and profitability. Such events are beyond KKR’s control, and the likelihood that they may occur and the effect on KKR's use of estimates cannot be predicted. Actual results could differ from those estimates, and such differences could be material to the financial statements.
Adoption of new accounting pronouncements
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and related regulatory actions
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss ("NOL") carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.
The provisions of the CARES Act, as amended by the Consolidated Appropriations Act, also permit financial institutions to suspend requirements under U.S. GAAP for loan modifications that otherwise would be categorized as troubled debt restructurings ("TDRs") if (1) the borrower was not more than 30 days past due as of December 31, 2019, and (2) the modifications are related to arrangements that defer or delay the payment of principal or interest, or change the interest rate on the loan, provided the modifications are made between March 1, 2020 and the earlier of 60 days after the end of the national emergency related to the COVID-19 pandemic or January 1, 2022. Global Atlantic has applied this guidance before the permitted suspension period expired on January 1, 2022 to loan forbearance requests that meet the requirements. The application of this guidance did not have a material impact on the financial statements.
See Note 8 "Investments" for additional information on loan modifications.
Simplifying the accounting for income taxes
On December 18, 2019, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2019-12, which modifies ASC 740 to simplify the accounting for income taxes. This guidance eliminates the exceptions to the incremental approach, to accounting for basis differences when there are changes in ownership of foreign investments, and to interim period tax accounting for year-to-date losses that exceed anticipated losses. The guidance also simplifies the application of tax guidance related to franchise taxes, transactions with government entities, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. The guidance is effective for public business entities that meet the definition of an SEC filer for fiscal years beginning after December 15, 2020, including interim period within those fiscal years. KKR adopted the standard effective January 1, 2021. The adoption of this new guidance did not have a material impact on the financial statements.
Reference rate reform
In March 2020, the FASB issued new guidance to ease the accounting implications of the transition away from the London Interbank Offering Rate ("LIBOR") and other reference rates which are scheduled to be discontinued, including LIBOR tenors after June 30, 2023. The new guidance offers a variety of optional expedients and exceptions related to accounting for contract modifications and hedging relationships. These expedients and exceptions apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The new guidance is effective for contract modifications made and hedging relationships existing or entered into from January 1, 2020 through December 31, 2022. In the first quarter 2022, KKR elected to adopt the new guidance and, for the modifications that have occurred to date, the adoption of the guidance has not had a material impact on KKR’s consolidated financial statements.
Future application of accounting standards
Targeted improvements to the accounting for long-duration contracts
In August 2018, the FASB issuedEffective January 1, 2023, Global Atlantic adopted new accounting guidance for insurance and reinsurance companies that issue long-duration contracts such as life insurance(“LDTI”), on February 1, 2021 ("GA Acquisition Date"), on a full retrospective basis, coinciding with the acquisition of Global Atlantic by KKR ("GA Acquisition").
The following table summarizes the balance of, and annuities. The objective of this guidance is to improve, simplify and enhance the financial reporting of long-duration contracts by providing financial statement users with useful information in a timely and transparent manner. The primary changes include:
(1) more timely recognition of assumption changes in the liability for future policy benefits and useas of a current rate for the discounting of future cash flows – The assumptions used to calculate the liability for future policy benefits on traditional and limited-payment contracts are required to be reviewed and updated periodically (versus set at inception and not changed under the current guidance). Cash flow assumptions are required to be reviewed at least annually with the impact recognized in net income. The standard also prescribes that the discount rate assumption should be based on a current upper-medium grade (i.e., low credit risk) fixed income instrument yield (e.g., a single A credit-rating) with the impact recognized in other comprehensive income ("OCI").
(2) standardization and improvement in the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts– The new guidance creates a new category of benefits referred to as market risk benefits, which are contracts or contract features that provide both protectionFebruary 1, 2021 due to the policyholder from capital market risk and expose the insurer to other-than-nominal capital market risk. Market risk benefits are required to be measured at fair value with the change in fair value recognized in net income, except for changes in the entity’s non-performance risk, which is recognized in OCI.adoption of LDTI.
(3) simplification of the amortization of deferred acquisition costs - Deferred policy acquisition costs ("DAC") and other similar actuarial balances (e.g., deferred sales inducements) for life and annuity contracts are required to be amortized on a constant basis over the term of the related contracts.
(4) enhanced disclosures– Additional disclosures are required including disaggregated roll-forwards of significant insurance liabilities as well as disclosures about significant inputs, judgments, assumptions and methods used in measurement.
| | | | | | | | | | | | | | | | | |
| Liability for future policy benefits | Payout annuities | | Other | | Total |
| Balance, as of February 1, 2021 | $ | 12,785,557 | | | $ | 592,242 | | | $ | 13,377,799 | |
| Change in discount rate assumptions | 151,651 | | | 20,930 | | | 172,581 | |
| Adjusted balance, as of February 1, 2021 | $ | 12,937,208 | | | $ | 613,172 | | | $ | 13,550,380 | |
The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. For changes relatedincrease to the liability for future policy benefits and deferred acquisition costs,as of February 1, 2021, was primarily due to remeasuring the new guidance requires adoptionliability using a modified retrospective approach upon transitiondiscount rate based on a spot rate yield curve that is derived based on upper medium grade (low credit risk) fixed-income instruments with an optionsimilar duration to elect a retrospective approach. Forthe liability.
The following table summarizes the balance of, and changes related toin, the net liability position of market risk benefits (previously recorded as product guarantees included within policy liabilities in the new guidance requires a retrospective approach.consolidated statement of financial condition) as of February 1, 2021 due to the adoption of LDTI.
| | | | | | | | | | | | | | | | | |
| Market risk benefits | Fixed-indexed annuities | | Variable- and other annuities | | Total |
Balance, as of February 1, 2021(1) | $ | 895,114 | | | $ | 325,311 | | | $ | 1,220,425 | |
| Adjustment for the difference between prior carrying amount and market risk benefit value | 282,354 | | | 87,733 | | | 370,087 | |
| Adjusted balance, as of February 1, 2021 | $ | 1,177,468 | | | $ | 413,044 | | | $ | 1,590,512 | |
KKR intends to implement this standard using the retrospective approach for the liability for future policy benefits, deferred acquisition costs andThe $1,220.4 million balance associated with market risk benefits withprior to transition was previously recorded as product guarantees either as an adoption dateembedded derivative in contractholder deposits of January 1, 2023. KKR has completed the design$236 million, or as an additional liability for insurance benefits of $984.4 million under policy liabilities extinguished at transition, and planning phase of its implementation effort and has begun detailed implementation activities. KKR has established a governance framework to manage the implementation activities and support timely application of the guidance. KKR has made progress in the following areas:
•High level impact assessment;
•Identification of key accounting policy decisions;
•Evaluation and selection of actuarial system solutions;
•Development of detailed business requirements document inclusive of roll-forward disclosures; and
•Preliminary modeling ofremeasured as market risk benefits.
KKR continuesThe transition approach for market risk benefits requires assessing products to evaluatedetermine whether contracts or contract features expose Global Atlantic to other than nominal capital market risk. The balance at February 1, 2021 reflects the population of market risk benefits identified. The increase to the carrying value of the market risk benefit liability as of February 1, 2021, reflects the required adjustment to remeasure the liability at fair value using current net amounts at risk, market data, experience, and other factors. The change primarily reflects the impact of this guidance but anticipates thatdiscount rates and instrument-specific credit risk as of the new standard will have a material impact on the consolidated financial statements. The new guidance is expected to increase financial statement volatility primarily due to the requirement to measure market risk benefits at fair value, which is recorded in net income, except for changes in value attributable to changes in an entity’s non-performance risk, which is recognized in OCI. In addition, the new guidance is expected to have a significant impact on KKR’s systems, processes and controls.
Notes to Financial Statements (Continued)
The following table summarizes the balance of, and changes in, reinsurance recoverable as of February 1, 2021 due to the adoption of LDTI.
| | | | | | | | | | | | | | | | | | | | | | | |
| Reinsurance recoverable | Fixed indexed annuities | | Payout annuities | | Other | | Total |
| Balance, as of February 1, 2021 | $ | 4,487,850 | | | $ | 7,100,198 | | | $ | 4,164,982 | | | $ | 15,753,030 | |
| Change in discount rate assumptions | — | | | 75,708 | | | — | | | 75,708 | |
| Adjusted balance, as of February 1, 2021, net of reinsurance | $ | 4,487,850 | | | $ | 7,175,906 | | | $ | 4,164,982 | | | $ | 15,828,738 | |
The following table summarizes the balance of, and changes in value of business acquired, net as of February 1, 2021 due to the adoption of LDTI.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| VOBA | Fixed indexed annuities | | Fixed-rate annuities | | Payout annuities | | Interest-sensitive life | | Variable annuities | | Other | | Total |
| Balance, as of February 1, 2021 | $ | 474,165 | | | $ | 56,563 | | | $ | — | | | $ | 307,216 | | | $ | 186,576 | | | $ | — | | | $ | 1,024,520 | |
| Adjustment to reflect transition impact to balance established as part of purchase accounting upon the GA Acquisition | 282,354 | | | — | | | 101,338 | | | 692 | | | 108,411 | | | — | | | 492,795 | |
| Adjusted balance, as of February 1, 2021 | $ | 756,519 | | | $ | 56,563 | | | $ | 101,338 | | | $ | 307,908 | | | $ | 294,987 | | | $ | — | | | $ | 1,517,315 | |
The following table summarizes the balance of, and changes in negative value of business acquired, net as of February 1, 2021 due to the adoption of LDTI.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Negative VOBA | Fixed indexed annuities | | Fixed-rate annuities | | Payout annuities | | Interest-sensitive life | | Variable annuities | | Other | | Total |
| Balance, as of February 1, 2021 | $ | 222,135 | | | $ | 180,769 | | | $ | — | | | $ | 549,983 | | | $ | 119,122 | | | $ | 201,405 | | | $ | 1,273,414 | |
| Adjustment to reflect transition impact to balance established as part of purchase accounting upon the GA Acquisition | — | | | — | | | 25,395 | | | 755 | | | — | | | (315) | | | 25,835 | |
| Adjusted balance, as of February 1, 2021 | $ | 222,135 | | | $ | 180,769 | | | $ | 25,395 | | | $ | 550,738 | | | $ | 119,122 | | | $ | 201,090 | | | $ | 1,299,249 | |
As a result of the GA Acquisition, Global Atlantic established a new accounting basis to reflect the fair value of assets and liabilities on the GA Acquisition Date, including resetting retained earnings, deferred acquisition costs and accumulated other comprehensive income to zero. As a result of the transition coinciding with the acquisition by KKR, the transition impact of the adoption was recorded as a change to the present value of future profits reflected in the value of business acquired insurance intangible asset recognized as part of purchase accounting.
The following table presents the effect of transition adjustments on the value of business acquired assets and liabilities due to the adoption of LDTI.
| | | | | | | | | | | |
| February 1, 2021 |
| VOBA | | Negative VOBA |
| Reinsurance recoverable | $ | (75,708) | | | $ | — | |
| Liability for future policy benefits | 198,416 | | | (25,835) | |
| Market risk benefits | 370,087 | | | — | |
| Total transition adjustments | $ | 492,795 | | | $ | (25,835) | |
Notes to Financial Statements (Continued)
As a result of the retrospective application of the LDTI adoption, KKR adjusted certain previously reported amounts in its consolidated statements of financial condition, consolidated statements of operations, consolidated statements of comprehensive income, and consolidated statements of cash flows, as follows:
| | | | | | | | | | | | | | | | | |
| Consolidated statement of financial condition as of December 31, 2022 | As previously reported | | Adjustment | | As revised |
| Reinsurance recoverable | $ | 27,919,591 | | | $ | (1,897,510) | | | $ | 26,022,081 | |
| Insurance intangibles | 1,722,681 | | | 608,813 | | | 2,331,494 | |
| Other assets | 6,483,187 | | | (441,858) | | | 6,041,329 | |
| Total assets | $ | 277,077,191 | | | $ | (1,730,555) | | | $ | 275,346,636 | |
| Policy liabilities | 141,223,287 | | | (3,442,358) | | | 137,780,929 | |
| Accrued Expenses and Other Liabilities | 4,600,377 | | | (2) | | | 4,600,375 | |
| Total liabilities | $ | 223,418,306 | | | $ | (3,442,360) | | | $ | 219,975,946 | |
| Additional Paid-In Capital | 16,190,407 | | | 93,650 | | | 16,284,057 | |
| Retained earnings | 6,315,711 | | | 385,396 | | | 6,701,107 | |
| Accumulated other comprehensive income (loss) | (5,901,701) | | | 599,901 | | | (5,301,800) | |
| Noncontrolling interest | 35,778,000 | | | 632,858 | | | 36,410,858 | |
| Total equity | $ | 53,506,820 | | | $ | 1,711,805 | | | $ | 55,218,625 | |
The cumulative impact of the retrospective application of the LDTI adoption increased net income attributable to shareholders by $319.5 million and $65.9 million for each of the periods ended December 31, 2022 and 2021, respectively ($385.4 million cumulatively), and increased other comprehensive income by $589.6 million and $10.3 million for each of the periods ended December 31, 2022 and 2021, respectively ($599.9 million cumulatively). These increases were primarily as a result of an increase in discount rates and Global Atlantic’s instrument-specific credit risk during each of the respective periods.
| | | | | | | | | | | | | | | | | |
| Consolidated statement of operations for the three months ended March 31, 2022 | As previously reported | | Adjustment | | As revised |
| Policy fees | $ | 318,436 | | | $ | (4,654) | | | $ | 313,782 | |
Net policy benefits and claims(1) | 726,060 | | | (212,882) | | | 513,178 | |
| Amortization of policy acquisition costs | (7,733) | | | 19,155 | | | 11,422 | |
| Insurance expenses | 116,743 | | | (940) | | | 115,803 | |
| General, Administrative and Other | 167,214 | | | 410 | | | 167,624 | |
| Income tax expense (benefit) | (3,166) | | | 39,817 | | | 36,651 | |
| Net Income (Loss) | 1,102,602 | | | 149,786 | | | 1,252,388 | |
| Net Income (Loss) Attributable to KKR & Co. Inc. Common Stockholders | (73,770) | | | 63,984 | | | (9,786) | |
Net Income (Loss) Attributable to KKR & Co. Inc.
Per Share of Common Stock – Basic | (0.12) | | | 0.10 | | | (0.02) | |
Net Income (Loss) Attributable to KKR & Co. Inc. Per Share of Common Stock – Diluted | (0.12) | | | 0.10 | | | (0.02) | |
_________________
(1)Includes adjustment for market risk benefit gain for the three months ended March 31, 2022 of $(195.7) million.
| | | | | | | | | | | | | | | | | |
| Consolidated statement of comprehensive income for the three months ended March 31, 2022 | As previously reported | | Adjustment | | As revised |
| Unrealized Gains (Losses) on Available-For-Sale Securities and Other | $ | (3,339,211) | | | $ | (199,827) | | | $ | (3,539,038) | |
| Net effect of changes in discount rates and instrument-specific credit risk on policy liabilities | — | | | 724,586 | | | 724,586 | |
| Comprehensive Income (Loss) | (2,258,890) | | | 674,545 | | | (1,584,345) | |
| Comprehensive Income (Loss) Attributable to KKR & Co. Inc. | (1,496,943) | | | 288,146 | | | (1,208,797) | |
| | | | | | | | | | | | | | | | | |
| Consolidated statement of cash flow for the three months ended March 31, 2022 | As previously reported | | Adjustment | | As revised |
| Net realized (gains) losses on insurance operations | $ | (74,974) | | | $ | (195,684) | | | $ | (270,658) | |
| Other non-cash amounts | (8,079) | | | 16,050 | | | 7,971 | |
| Change in policy liabilities and accruals, net | (422,298) | | | (9,439) | | | (431,737) | |
| Change in other assets | 570,262 | | | 39,817 | | | 610,079 | |
| Change in accounts payable, accrued expenses and other liabilities | (491,126) | | | (530) | | | (491,656) | |
Notes to Financial Statements (Continued)
Troubled debt restructurings and vintage disclosures
In March 2022, the FASB issued new guidance regarding the modification of receivables, which affects their recognition and measurement. The guidance eliminates the concept of troubled debt restructurings and instead requires all modifications to be analyzed to determine whether they result in a new receivable or a continuation of an existing receivable. The guidance also makes related updates to the measurement of expected credit losses for receivables. The new guidance requires additional disclosures for receivable modifications involving borrowers experiencing financial difficulty as well as disclosure of loan charge-offs by origination year (vintage). For entities that have already adopted ASC 326 (addressing credit losses on financial instruments), the guidance iswas effective for fiscal years beginning after December 15, 2022, including interim periodperiods within those fiscal years. KKR adopted this accounting standard effective January 1, 2023. Refer to Note 8 — “Investments–Loan modifications” for additional information.
Business combinations - Accounting for contract assets and contract liabilities from contracts with customers
In October 2021, the FASB issued new guidance (ASU 2021-08) to add contract assets and contract liabilities from contracts with customers acquired in a business combination to the list of exceptions to the fair value recognition and measurement principles that apply to business combinations, and instead require them to be accounted for in accordance with revenue recognition guidance. KKR adopted this accounting standard effective January 1, 2023 and its adoption did not have any material impact on KKR's consolidated financial statements.
Future application of accounting standards
Fair value measurement of equity security subject to contractual sale restriction
In June 2022, the FASB issued ASU 2022-03, ASC Subtopic 820 “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. According to ASU 2022-03, an entity should not consider the contractual sale restriction when measuring the equity security’s fair value and an entity is not allowed to recognize a contractual sale restriction as a separate unit of account.
ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted.permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. KKR is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
3. ACQUISITIONS
Acquisition of Mitsubishi Corp-UBS Realty Inc.
On March 17, 2022, KKR announced the signing of a strategic transaction by 76KK,entered into an indirect subsidiary of KKR & Co. Inc.,agreement to acquire all of the outstanding shares of Mitsubishi Corp-UBSCorp.-UBS Realty Inc. (“MC-UBSR”) from Mitsubishi Corporation and UBS Asset Management in an all-cash transaction valued at ¥227 billion (which was approximately ¥230$1.7 billion (or approximately $1.8 billion)at such time) (the “KJRM Acquisition”). On April 28, 2022, KKR completed the acquisition of Mitsubishi Corp-UBS Realty Inc.,MC-UBSR, which changed its name to KJR Management ("KJRM"). Given the recent closing, the purchase accounting analysisKJRM is incomplete.
Acquisition of Global Atlantic
On July 7, 2020, indirect subsidiaries of KKRa real estate asset manager in Japan that manages two Tokyo Stock Exchange-listed real estate investment trusts ("REITs"): Japan Metropolitan Fund Investment Corporation, which is primarily focused on retail, offices, hotels and other assets located in urban areas in Japan, and Industrial & Co. Inc., namely Magnolia Parent LLCInfrastructure Fund Investment Corporation, which is primarily focused on industrial and Magnolia Merger Sub Limited, entered into an Agreement and Plan of Merger (the “GA Merger Agreement”) with Global Atlantic Financial Group Limited ("GAFG"), Global Atlantic Financial Life Limited ("GAFLL"), LAMC LP, and Goldman Sachs & Co. LLC, solelyinfrastructure properties in its capacity as the Equity Representative (as defined in the GA Merger Agreement). Pursuant to the GA Merger Agreement, at the closing of the acquisition of Global Atlantic by KKR (the "GA Acquisition"), among other things, Global Atlantic Financial Group Limited continued as the surviving entity in its merger with Magnolia Merger Sub Limited and became a direct subsidiary of Magnolia Parent LLC, which subsequently changed its name toJapan. The Global Atlantic Financial Group LLC (“TGAFG”).
On February 1, 2021 (the “GA Acquisition Date”), the GA Acquisition was completed, and KKR acquired all of the voting interests in Global Atlantic and an economic ownership of 61.1% of Global Atlantic prior to certain post-closing purchase price adjustments discussed below and after taking into account GA Rollover Investors’ and GA Co-Investors’ (each as defined below) equity ownership of Global Atlantic. In addition to entering into the retirement and life insurance business through KKR's indirect ownership of Global Atlantic's insurance companies, KKR's flagship investment management company became the investment adviser for Global Atlantic’s insurance companies, which increases KKR’s presence in the insurance community. Furthermore, the transaction allows Global Atlantic to gain access to KKR’s origination and asset management capabilities.
Under the GA Merger Agreement, KKR agreed to pay former shareholders of Global Atlantic Financial Group Limited an amount in cash equal to 1.0x U.S. GAAP Shareholders’ Equity of Global Atlantic Financial Group Limited, excluding Accumulated Other Comprehensive Income and subject to certain other purchase price adjustments ("GA Book Value," determined as $4.7 billion as of February 1, 2021 for purposes of the purchase price determination). The amount of consideration payable by KKR was reduced by the amount of equity rolled over by certain former shareholders of Global Atlantic Financial Group Limited who elected to continue their equity ownership in Global Atlantic at closing ("GA Rollover Investors"). In addition, KKR syndicated equity interests in Global Atlantic to minority co-investors ("GA Co-Investors"), which also had the effect of reducing the amount of consideration payable by KKR at closing. The purchase price is as follows (in thousands):
| | | | | |
Cash consideration paid by KKR | $ | 2,914,455 | |
GA Co-Investors and GA Rollover Investors | 1,824,239 | |
Total Purchase Price | $ | 4,738,694 | |
The purchase price paid at closing was subject to certain post-closing adjustments, which were finalized in June 2021, and KKR and certain GA Co-Investors paid incremental amounts of $55 million and $3 million, respectively ($58 million in total). As a result of the post-closing adjustments, KKR's economic ownership of Global Atlantic increased from 61.1% at closing to 61.5%.
The GAKJRM Acquisition was accounted for as a business combination under FASB Accounting Standards Codification Topic 805, Business Combinations ("Topic 805"). Goodwill
KKR plans to continue the existing strategy and business of $497.1KJRM. The acquisition is expected to enhance KJRM’s leading real estate asset management business with potential opportunities for organic and inorganic growth and scale in Japan.
In connection with the acquisition, KKR allocated an amount of $1,733 million has been recorded based on the amount that the purchase price exceedsto the fair value of the net assets acquired less the amounts attributable to noncontrolling interests. Goodwill is primarily attributable to the scale, skill sets, operations,KJRM’s investment management contracts and synergies that can be achieved subsequent to the GA Acquisition. The goodwill recorded is not expected to be deductible for tax purposes and it has been allocated to the Insurance segment.
The following table summarizes the fair value amounts recognized for the assets acquired and liabilities assumed and resulting goodwill as of the GA Acquisition Date:
| | | | | | | | | |
| | February 1, 2021 | |
($ in thousands) | | | |
Consideration Transferred | | | |
Cash Consideration paid by KKR | | $ | 2,914,455 | | |
GA Co-Investors | | 978,296 | | |
GA Rollover Investors | | 845,943 | | |
Settlement of pre-existing relationships(1)
| | (60,200) | | |
Total Consideration Transferred(2)
| | $ | 4,678,494 | | |
| | | |
Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed: | | | |
Cash, Cash Equivalents and Restricted Cash | | $ | 3,358,772 | | |
| | | |
Investments | | 99,544,755 | | |
Reinsurance Recoverable | | 15,753,030 | | |
Insurance Intangible Assets | | 1,024,520 | | |
Other Assets(3)
| | 3,325,652 | | |
Separate Account Assets | | 5,371,060 | | |
Policy Liabilities | | (100,374,765) | | |
Debt Obligations | | (1,450,920) | | |
Funds Withheld Payable at Interest | | (13,800,969) | | |
Accrued Expenses and Other Liabilities | | (2,735,811) | | |
Reinsurance Liabilities | | (180,573) | | |
Separate Account Liabilities | | (5,371,060) | | |
Total Identifiable Net Assets | | 4,463,691 | | |
Redeemable non-controlling interests(4)
| | (91,845) | | |
Other Noncontrolling interests(4)
| | (190,405) | | |
Goodwill | | $ | 497,053 | | |
(1) Represents KKR debt obligations held by Global Atlantic at the GA Acquisition Date.
(2) At the GA Acquisition Date, the transaction was funded with a combination of (i) cash on hand by KKR, (ii) cash proceeds from syndication of the equity interests in Global Atlantic to minority co-investors and equity rolled over from certain former Global Atlantic shareholders. The equity held by GA co-investors and rollover investors are presented as noncontrolling interests in the financial statements. Acquisition of Global Atlantic, Net of Cash Acquired in the consolidated statements of cash flows represents the Total Consideration Transferred (excluding GA Rollover Investors) net of acquired Cash and Cash Equivalents and Restricted Cash and Cash Equivalents.
(3) Includes $1.0 billionapproximately $530 million of deferred tax assets recognizedliabilities resulting from the step-updifference in book and tax basis under purchase accounting.
(4) Represents the fair value of Noncontrolling Interests in consolidated renewable energy entities held by Global Atlantic on the GA Acquisition Date. Such interests do not represent ownership interests held by GA Rollover Investors or GA Co-Investors in Global Atlantic's equity.
Measurement Period Adjustments
KKR finalized the valuation of the acquiredsuch intangible assets and assumed liabilities in December 2021. During the second quarter of 2021, KKR recognized measurement period adjustments to reflect new information obtained about facts and circumstances that existed as of the acquisition date. The measurement period adjustments also reflected the increase in the total consideration transferred of $58 million as a result of final purchase price adjustments. Measurement period adjustments consist primarily of a $50 million increase in the value of distribution agreements acquired, a $63 million increase in policy liabilities, a $25 million increase in investments, and a $46 million increase in goodwill. The related impact to net income that would have been recognized in previous periods if the adjustments were recognized as of the GA Acquisition Date was not material to the consolidated financial statements.
KKR performed a valuation of the acquired investments, policy liabilities, value of business acquired ("VOBA"), other identifiable intangibles, and funds withheld at interest payables and receivables. The following is a summary of significant inputs to the valuation:
Investments
Global Atlantic’s investment portfolio primarily consists of fixed maturity securities, mortgage and other loan receivables, equity securities, and investments in real assets such as renewable energy and transportation assets. All of the assets included within the investment portfolio were measured and reported at their fair values on the GA Acquisition Date consistent with the valuation methodologies discussed in Note 2 "Summary of Significant Accounting Policies" in audited financial statements included in KKR & Co. Inc.'s Annual Report on Form 10-K for the year ended December 31, 2021. As a result, the cost basis of each respective investment was reset to equal fair value on the GA Acquisition Date.
Policy liabilities
Policy liabilities were remeasured based on generally accepted actuarial methods and reported at their fair values on the GA Acquisition Date. Assumptions for future mortality, persistency, policyholder behavior, expenses, investment return and other actuarial factors were based on an evaluation of Global Atlantic’s recent experience, industry experience, and anticipated future trends. These assumptions are intended to be representative of market assumptions used by buyers and sellers in similar transactions. The approach employed to develop these projection assumptions is described below:
•Discount rates used to calculate fair value ranged from 11% to 15%, depending on product;
•Mortality and persistency assumptionsIntangibles are based on both Global Atlantic and general industry experience;
•Expenses were projected reflecting Global Atlantic’s unit expenses with an allocation of a portion of overhead expenses to in-force business;
•Future investment income reflects a runoff of the existing asset portfolios and reinvestment strategies based on Global Atlantic’s assumptions for asset yield, quality, and maturity. The projections are based on forward interest rates implied by the Treasury yield curve. Credit rates reflect Global Atlantic’s target spreads;
•Separate account and index account growth rates are based on long-term return expectations for different fund types and on the underlying mix of funds; and
•Statutory reserves underlying the valuation reflect Global Atlantic’s current reserving methodologies.
Value of business acquired ("VOBA")
VOBA represents the estimated fair value of future net cash flows from in-force life and annuity insurance contracts acquired at the GA Acquisition Date.
Other identifiable intangible assets
Other identifiable intangible assets represent distribution relationships, trade names and state insurance licenses. The distribution relationships were valuedupon third-party valuations using the excess earnings method, which derives value based on the present value of the cash flow attributable to the distribution relationships,investment management contracts, less returns for contributory assets. The trade name intangible asset representssignificant assumptions used in the Global Atlantic trade name, and was valued using the relief-from-royalty method giving consideration to publicly available third-party trade name royalty rates as well as expected premiums generated by the usevaluation of the trade name over its anticipated life.intangible assets acquired are unobservable and include (i) the asset's estimated useful life, (ii) the projected assets under management, (iii) the projected revenue growth rates, and (iv) the discount rate.
KJRM’s investment management contracts were determined to have indefinite useful lives at the time of the KJRM Acquisition and are not subject to amortization. The state insurance licenses represent Global Atlantic’s jurisdictional insurance licenses, which include 52 insurance licenses, encompassing all 50 U.S. states,assignment of indefinite lives to such investment management contracts is primarily based upon (i) the Districtassumption that there is no foreseeable limit on the contract period to manage KJRM’s listed REITs; (ii) KKR expects to have the ability to continue to operate these products indefinitely; (iii) the products have multiple investors and are not reliant on a single investor or small group of Columbia,investors for their continued operation; (iv) current competitive factors and the U.S. Virgin Islands. They were protected through registrationeconomic conditions do not indicate a finite life; and were valued using the market approach(v) there is a high likelihood of continued renewal based on third-party market transactions from which the prices paid for state insurance licenses could be derived.historical experience.
Funds withheld at interest receivables and payables
Funds withheld at interest receivables and payables were remeasured at fair value based on the fairThe carrying value of assets held ingoodwill associated with the underlying portfolios supporting those receivables or payables.
The fair value and weighted average estimated useful lives of Value of Business Acquired and Other Identifiable Intangible Assets acquired in the GAKJRM Acquisition consistwas $509 million as of the following (dollarsacquisition date and is entirely allocated to the asset management segment. The goodwill is attributable primarily to the assembled workforce of KJRM and expected synergies. The goodwill recorded is not expected to be deductible for tax purposes.
KKR finalized the purchase price allocation in thousands):
| | | | | | | | | | | | | | |
| | Fair Value | | Average Useful Life |
| | ($ in thousands) | | (in years) |
| VOBA (included within Insurance Intangible Assets) | | $ | 1,024,520 | | | 28.6 |
| Negative VOBA (included within Policy Liabilities) | | (1,273,414) | | | 22.2 |
| Total VOBA | | $ | (248,894) | | | |
| | | | |
| Value of Distribution Agreements Acquired | | $ | 250,000 | | | 16 to 21 |
| Trade Names | | 50,000 | | | 15 to 18 |
| State Insurance Licenses | | 10,000 | | | Indefinite |
| Total Identifiable Other Intangible Assets (included within Other Assets) | | $ | 310,000 | | | |
As of the GA Acquisition Date, Global Atlantic's financial results are reflected in these financial statements. Global Atlantic's revenues of $1.4 billion and net income before allocation to noncontrolling interest holders of $(203.9) million, respectively, are included in the consolidated statement of operations for the three months ended March 31, 2021.
Pro- Forma Financial Information
Unaudited pro-forma financial information for the three months ended March 31, 2021 is presented below. Pro-forma financial information presented does not includeDecember 2022. No measurement period adjustments to reflect any potential revenue synergies or cost savingsnew information obtained about facts and circumstances that may be achievable in connection with the GA Acquisition and assume the GA Acquisition occurred as of January 1, 2020. The unaudited pro forma financial information is presented for informational purposes only, and is not necessarily indicative of future operations or results had the GA Acquisition been completed as of January 1, 2020.
| | | | | | | | | | | | | | |
| | | | Three months ended | | |
| | | | | | March 31, 2021 | | |
Total Revenues | | | | | | $ | 5,077,184 | | | |
Net Income Attributable to KKR & Co. Inc. Common Stockholders | | | | | | $ | 1,738,106 | | | |
| | | | | | | | |
Amounts above reflect certain pro forma adjustments that were directly attributable to the GA Acquisition. These adjustments include the following:
•adjustment to reflect the elimination of historical amortization of Global Atlantic’s intangibles and the additional amortization of intangibles measured at fair valueexisted as of the GA Acquisition Date;acquisition date were recorded.
•adjustment to reflect the prospective reclassification from accumulated other comprehensive earningsPro forma results of operations would not be materially different as a result of the unrealized gains on available-for-sale securities to a premium which will be amortized into income based on the expected life of the investment securities;
•adjustments to reflect the KKR pro-rata economic ownership as well as financing consummated by KKR to complete the acquisition;acquisition and
•adjustments to reflect the adoption of ASC 326 "Financial Instruments - Credit Losses" in 2020 by Global Atlantic.
4. REVENUES - ASSET MANAGEMENT
For the three months ended March 31, 20222023 and 2021,2022, respectively, Asset Management revenues consisted of the following:
| | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, | | |
| | | | | | 2022 | | 2021 | | | | | | |
| Management Fees | | | | | $ | 398,046 | | | $ | 276,181 | | | | | | | |
| Fee Credits | | | | | (187,745) | | | (35,398) | | | | | | | |
| Transaction Fees | | | | | 466,966 | | | 165,893 | | | | | | | |
| Monitoring Fees | | | | | 39,400 | | | 35,388 | | | | | | | |
| Incentive Fees | | | | | 7,057 | | | 3,438 | | | | | | | |
| Expense Reimbursements | | | | | 41,303 | | | 27,729 | | | | | | | |
| | | | | | | | | | | | | |
| Consulting Fees | | | | | 15,484 | | | 20,080 | | | | | | | |
| Total Fees and Other | | | | | 780,511 | | | 493,311 | | | | | | | |
| | | | | | | | | | | | | |
| Carried Interest | | | | | (783,688) | | | 2,140,426 | | | | | | | |
| General Partner Capital Interest | | | | | (162,055) | | | 544,221 | | | | | | | |
| Total Capital Allocation-Based Income (Loss) | | | | | (945,743) | | | 2,684,647 | | | | | | | |
| | | | | | | | | | | | | |
| Total Revenues - Asset Management | | | | | $ | (165,232) | | | $ | 3,177,958 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, | | |
| | | | | | 2023 | | 2022 | | | | | | |
| Management Fees | | | | | $ | 453,093 | | | $ | 398,046 | | | | | | | |
| Fee Credits | | | | | (57,531) | | | (187,745) | | | | | | | |
| Transaction Fees | | | | | 209,839 | | | 466,966 | | | | | | | |
| Monitoring Fees | | | | | 29,853 | | | 39,400 | | | | | | | |
| Incentive Fees | | | | | 6,413 | | | 7,057 | | | | | | | |
| Expense Reimbursements | | | | | 15,544 | | | 41,303 | | | | | | | |
| | | | | | | | | | | | | |
| Consulting Fees | | | | | 19,805 | | | 15,484 | | | | | | | |
| Total Fees and Other | | | | | 677,016 | | | 780,511 | | | | | | | |
| | | | | | | | | | | | | |
| Carried Interest | | | | | 343,070 | | | (783,688) | | | | | | | |
| General Partner Capital Interest | | | | | 105,948 | | | (162,055) | | | | | | | |
| Total Capital Allocation-Based Income (Loss) | | | | | 449,018 | | | (945,743) | | | | | | | |
| | | | | | | | | | | | | |
| Total Revenues - Asset Management | | | | | $ | 1,126,034 | | | $ | (165,232) | | | | | | | |
5. NET GAINS (LOSSES) FROM INVESTMENT ACTIVITIES - ASSET MANAGEMENT
Net Gains (Losses) from Investment Activities in the consolidated statements of operations consist primarily of the realized and unrealized gains and losses on investments (including foreign exchange gains and losses attributable to foreign denominated investments and related activities) and other financial instruments, including those for which the fair value option has been elected. Unrealized gains or losses result from changes in the fair value of these investments and other financial instruments during a period. Upon disposition of an investment or financial instrument, previously recognized unrealized gains or losses are reversed and an offsetting realized gain or loss is recognized in the current period.
The following table summarizes total Net Gains (Losses) from Investment Activities for the three months ended March 31, 2022 and 2021, respectively:Activities:
| | | | | | | | Three Months Ended March 31, 2022 | | | Three Months Ended March 31, 2023 | |
| | Net Realized Gains (Losses) | | Net Unrealized Gains (Losses) | | Total | | | Net Realized Gains (Losses) | | Net Unrealized Gains (Losses) | | Total | |
Private Equity (1) | Private Equity (1) | $ | 198,380 | | | $ | (265,326) | | | $ | (66,946) | | | Private Equity (1) | $ | 199,081 | | | $ | (36,664) | | | $ | 162,417 | | |
Credit (1) | Credit (1) | (11,455) | | | (188,974) | | | (200,429) | | | Credit (1) | (22,963) | | | 104,775 | | | 81,812 | | |
Investments of Consolidated CFEs (1) | Investments of Consolidated CFEs (1) | 2,949 | | | (269,548) | | | (266,599) | | | Investments of Consolidated CFEs (1) | (5,017) | | | 317,881 | | | 312,864 | | |
Real Assets (1) | Real Assets (1) | (2,761) | | | 1,297,270 | | | 1,294,509 | | | Real Assets (1) | 9,434 | | | (325,909) | | | (316,475) | | |
Equity Method - Other (1) | Equity Method - Other (1) | 14,284 | | | (72,642) | | | (58,358) | | | Equity Method - Other (1) | 39,219 | | | 29,505 | | | 68,724 | | |
Other Investments (1) | Other Investments (1) | 1,743 | | | (15,015) | | | (13,272) | | | Other Investments (1) | (112,663) | | | (519) | | | (113,182) | | |
Foreign Exchange Forward Contracts and Options (2) | Foreign Exchange Forward Contracts and Options (2) | 90,890 | | | (147,007) | | | (56,117) | | | Foreign Exchange Forward Contracts and Options (2) | (58,635) | | | 36,269 | | | (22,366) | | |
Securities Sold Short (2) | Securities Sold Short (2) | 36,082 | | | 10,181 | | | 46,263 | | | Securities Sold Short (2) | (3,475) | | | 2,241 | | | (1,234) | | |
Other Derivatives (2) | Other Derivatives (2) | (12,005) | | | 20,137 | | | 8,132 | | | Other Derivatives (2) | (2,122) | | | 14,330 | | | 12,208 | | |
Debt Obligations and Other (3) | Debt Obligations and Other (3) | (38,478) | | | 265,556 | | | 227,078 | | | Debt Obligations and Other (3) | 56,521 | | | (400,698) | | | (344,177) | | |
| Net Gains (Losses) From Investment Activities | Net Gains (Losses) From Investment Activities | $ | 279,629 | | | $ | 634,632 | | | $ | 914,261 | | | Net Gains (Losses) From Investment Activities | $ | 99,380 | | | $ | (258,789) | | | $ | (159,409) | | |
| | | | Three Months Ended March 31, 2021 | | | Three Months Ended March 31, 2022 | |
| | Net Realized Gains (Losses) | | Net Unrealized Gains (Losses) | | Total | | | Net Realized Gains (Losses) | | Net Unrealized Gains (Losses) | | Total | |
Private Equity (1) | Private Equity (1) | $ | 756,347 | | | $ | 794,318 | | | $ | 1,550,665 | | | Private Equity (1) | $ | 198,380 | | | $ | (265,326) | | | $ | (66,946) | | |
Credit (1) | Credit (1) | 33,916 | | | (4,509) | | | 29,407 | | | Credit (1) | (11,455) | | | (188,974) | | | (200,429) | | |
Investments of Consolidated CFEs (1) | Investments of Consolidated CFEs (1) | (2,628) | | | 128,143 | | | 125,515 | | | Investments of Consolidated CFEs (1) | 2,949 | | | (269,548) | | | (266,599) | | |
Real Assets (1) | Real Assets (1) | 39,749 | | | 234,398 | | | 274,147 | | | Real Assets (1) | (2,761) | | | 1,297,270 | | | 1,294,509 | | |
Equity Method - Other (1) | Equity Method - Other (1) | 5,187 | | | 396,514 | | | 401,701 | | | Equity Method - Other (1) | 14,284 | | | (72,642) | | | (58,358) | | |
Other Investments (1) | Other Investments (1) | (226,899) | | | 433,080 | | | 206,181 | | | Other Investments (1) | 1,743 | | | (15,015) | | | (13,272) | | |
Foreign Exchange Forward Contracts and Options (2) | Foreign Exchange Forward Contracts and Options (2) | (5,643) | | | 15,192 | | | 9,549 | | | Foreign Exchange Forward Contracts and Options (2) | 90,890 | | | (147,007) | | | (56,117) | | |
Securities Sold Short (2) | Securities Sold Short (2) | 50,623 | | | 50,996 | | | 101,619 | | | Securities Sold Short (2) | 36,082 | | | 10,181 | | | 46,263 | | |
Other Derivatives (2) | Other Derivatives (2) | (30,521) | | | 29,334 | | | (1,187) | | | Other Derivatives (2) | (12,005) | | | 20,137 | | | 8,132 | | |
Debt Obligations and Other (3) | Debt Obligations and Other (3) | (35,750) | | | 34,353 | | | (1,397) | | | Debt Obligations and Other (3) | (38,478) | | | 265,556 | | | 227,078 | | |
| Net Gains (Losses) From Investment Activities | Net Gains (Losses) From Investment Activities | $ | 584,381 | | | $ | 2,111,819 | | | $ | 2,696,200 | | | Net Gains (Losses) From Investment Activities | $ | 279,629 | | | $ | 634,632 | | | $ | 914,261 | | |
| | |
(1)See Note 8 "Investments."
(2)See Note 9 "Derivatives" and Note 15 "Other Assets and Accrued Expenses and Other Liabilities."
(3)See Note 17 "Debt Obligations."
6. NET INVESTMENT INCOME - INSURANCE
Net investment income for Global Atlantic is comprised primarily of interest income, including amortization of premiums and accretion of discounts, based on yields that change due to expectations in projected cash flows, dividend income from common and preferred stock, earnings from investments accounted for under equity method accounting, and lease income on other investments.
The components of net investment income were as follows:
| | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | |
| Fixed maturity securities – interest and other income | $ | 691,293 | | | $ | 351,540 | | | |
| Mortgage and other loan receivables | 324,141 | | | 122,466 | | | |
| Investments in transportation and other leased assets | 67,679 | | | 36,743 | | | |
| Investments in renewable energy | 25,218 | | | 796 | | | |
| Short-term and other investment income | 20,697 | | | 5,113 | | | |
| Income assumed from funds withheld receivable at interest | 19,605 | | | 13,473 | | | |
| Policy loans | 7,911 | | | 1,847 | | | |
| Investments in real estate | 3,903 | | | 1,084 | | | |
| Equity securities – dividends and other income | — | | | (484) | | | |
| Income ceded to funds withheld payable at interest | (179,702) | | | (29,839) | | | |
| Gross investment income | 980,745 | | | 502,739 | | | |
| Less investment expenses: | | | | | |
| Investment management and administration | 113,131 | | | 33,946 | | | |
| Transportation and renewable energy asset depreciation and maintenance | 53,953 | | | 23,509 | | | |
| Interest expense on derivative collateral and repurchase agreements | 1,056 | | | 503 | | | |
| Net investment income | $ | 812,605 | | | $ | 444,781 | | | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| Fixed maturity securities – interest and other income | $ | 1,050,796 | | | $ | 691,293 | |
| Mortgage and other loan receivables | 459,146 | | | 324,141 | |
| Investments in transportation and other leased assets | 76,188 | | | 67,679 | |
| Investments in renewable energy | 20,583 | | | 25,218 | |
| Investments in real estate | 36,101 | | | 3,903 | |
| Short-term and other investment income | 77,616 | | | 20,697 | |
| Income assumed from funds withheld receivable at interest | 22,101 | | | 19,605 | |
| Policy loans | 10,277 | | | 7,911 | |
| | | |
| Income ceded to funds withheld payable at interest | (301,223) | | | (179,702) | |
| Gross investment income | 1,451,585 | | | 980,745 | |
| Less investment expenses: | | | |
| Investment management and administration | 85,341 | | | 113,131 | |
| Transportation and renewable energy asset depreciation and maintenance | 49,162 | | | 53,953 | |
| Interest expense on derivative collateral and repurchase agreements | 16,385 | | | 1,056 | |
| Net investment income | $ | 1,300,697 | | | $ | 812,605 | |
7. NET INVESTMENT-RELATED GAINS (LOSSES)LOSSES - INSURANCE
Net investment-related (losses) gainslosses from insurance operations primarily consists of (i) realized gains and (losses) from the disposal of investments, (ii) unrealized gains and (losses) from investments held for trading, equity securities, real estate investments accounted for under investment company accounting, and investments with fair value remeasurements recognized in earnings as a result of the election of a fair-value option, (iii) unrealized gains and (losses) on funds withheld at interest, (iv) unrealized gains and (losses) from derivatives not designated in an hedging relationship, and (v) allowances for credit losses, and other impairments of investments.
Net investment-related gains (losses)losses were as follows:
| | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 | | |
| Realized gains (losses) on equity investments | $ | — | | | $ | 2,243 | | | |
| Realized gains (losses) on available-for-sale fixed maturity debt securities | (243,350) | | | (45,640) | | | |
| Credit loss allowances on available-for-sale securities | (10,602) | | | (21,351) | | | |
| Credit loss allowances on mortgage and other loan receivables | (26,085) | | | (183,641) | | | |
| Allowances on unfunded commitments | 6,790 | | | (14,609) | | | |
| | | | | |
| Unrealized gains (losses) on fixed maturity securities classified as trading | (1,038,446) | | | (317,052) | | | |
| Unrealized gains (losses) on investments recognized under the fair-value option | (2,493) | | | (12,166) | | | |
| Unrealized gains (losses) on real estate investments recognized at fair value under investment company accounting | 77,692 | | | — | | | |
| Net gains (losses) on derivative instruments | 859,734 | | | 148,532 | | | |
| Realized gains (losses) on funds withheld at interest, payable portfolio | (26,387) | | | (7,378) | | | |
| Realized gains (losses) on funds withheld at interest, receivable portfolio | 25,600 | | | 354 | | | |
| Other realized gains (losses) | 8,867 | | | (4,994) | | | |
| Net investment-related gains (losses) | $ | (368,680) | | | $ | (455,702) | | | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| | | |
| Realized gains (losses) on available-for-sale fixed maturity debt securities | $ | 3,432 | | | $ | (243,350) | |
| Credit loss allowances on available-for-sale securities | (76,318) | | | (10,602) | |
| Credit loss allowances on mortgage and other loan receivables | (64,111) | | | (26,085) | |
| Allowances on unfunded commitments | (8,000) | | | 6,790 | |
| Impairment of available-for-sale fixed maturity debt securities due to intent to sell | (26,741) | | | — | |
| Unrealized gains (losses) on fixed maturity securities classified as trading | 376,290 | | | (1,038,446) | |
| Unrealized losses on investments recognized under the fair-value option | (55,773) | | | (2,493) | |
| Unrealized gains on real estate investments recognized at fair value under investment company accounting | 63,192 | | | 77,692 | |
| Net (losses) gains on derivative instruments | (348,225) | | | 859,734 | |
| Realized gains (losses) on funds withheld at interest payable portfolio | 3,980 | | | (26,387) | |
| Realized gains on funds withheld at interest receivable portfolio | 17,733 | | | 25,600 | |
| Other realized losses (gains) | (9,292) | | | 8,867 | |
| Net investment-related losses | $ | (123,833) | | | $ | (368,680) | |
Allowance for credit losses
Available-for-sale fixed maturity securities
The table below presents a roll-forward of the allowance for credit losses recognized for fixed maturity securities held by Global Atlantic:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, 2022 |
| | | | | | | | Corporate | | Structured | | Total |
| Balance, as of beginning of period | | | | | | | | $ | 3,238 | | | $ | 84,895 | | | $ | 88,133 | |
| Initial impairments for credit losses recognized on securities not previously impaired | | | | | | | | 122 | | | 15,758 | | | 15,880 | |
| Initial credit loss allowance recognized on purchased credit deteriorated ("PCD") securities | | | | | | | | — | | | 140 | | | 140 | |
| Accretion of initial credit loss allowance on PCD securities | | | | | | | | — | | | 477 | | | 477 | |
| Reductions due to sales (or maturities, pay downs or prepayments) during the period of securities previously identified as credit impaired | | | | | | | | — | | | (2,444) | | | (2,444) | |
| | | | | | | | | | | | |
| Net additions / reductions for securities previously impaired | | | | | | | | 1,640 | | | (6,918) | | | (5,278) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Balance, as of end of period | | | | | | | | $ | 5,000 | | | $ | 91,908 | | | $ | 96,908 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, 2021 |
| | | | | | | | Corporate | | Structured | | Total |
Balance, as of beginning of period(1) | | | | | | | | $ | — | | | $ | 120,895 | | | $ | 120,895 | |
| Initial impairments for credit losses recognized on securities not previously impaired | | | | | | | | — | | | 27,423 | | | 27,423 | |
| Initial credit loss allowance recognized on PCD securities | | | | | | | | — | | | 222 | | | 222 | |
| Accretion of initial credit loss allowance on PCD securities | | | | | | | | — | | | 321 | | | 321 | |
| Reductions due to sales (or maturities, pay downs or prepayments) during the period of securities previously identified as credit impaired | | | | | | | | — | | | (2,537) | | | (2,537) | |
| | | | | | | | | | | | |
| Net additions / reductions for securities previously impaired | | | | | | | | — | | | (6,072) | | | (6,072) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Balance, as of end of period | | | | | | | | $ | — | | | $ | 140,252 | | | $ | 140,252 | |
(1)Includes securities designated as purchased credit impaired as of the time of the acquisition of Global Atlantic.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2022 |
| Corporate | | Structured | | Total | | Corporate | | Structured | | Total |
| Balance, as of beginning of period | $ | 1,298 | | | $ | 127,034 | | | $ | 128,332 | | | $ | 3,238 | | | $ | 84,895 | | | $ | 88,133 | |
| Initial impairments for credit losses recognized on securities not previously impaired | 151 | | | 45,200 | | | 45,351 | | | 122 | | | 15,758 | | | 15,880 | |
| Initial credit loss allowance recognized on purchased credit deteriorated ("PCD") securities | — | | | — | | | — | | | — | | | 140 | | | 140 | |
| Accretion of initial credit loss allowance on PCD securities | — | | | 351 | | | 351 | | | — | | | 477 | | | 477 | |
| Reductions due to sales (or maturities, pay downs or prepayments) during the period of securities previously identified as credit impaired | — | | | (3,887) | | | (3,887) | | | — | | | (2,444) | | | (2,444) | |
| | | | | | | | | | | |
| Net additions / reductions for securities previously impaired | — | | | 30,967 | | | 30,967 | | | 1,640 | | | (6,918) | | | (5,278) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance, as of end of period | $ | 1,449 | | | $ | 199,665 | | | $ | 201,114 | | | $ | 5,000 | | | $ | 91,908 | | | $ | 96,908 | |
Mortgage and other loan receivables
Changes in the allowance for credit losses on mortgage and other loan receivables held by Global Atlantic are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, 2022 |
| | | | | | | | | | Commercial Mortgage Loans | | Residential Mortgage Loans | | Consumer and Other Loan Receivables | | Total |
| Balance, as of beginning of period | | | | | | | | | | $ | 65,970 | | | $ | 72,082 | | | $ | 236,025 | | | $ | 374,077 | |
| Net provision (release) | | | | | | | | | | 15,566 | | | 15,501 | | | (4,982) | | | 26,085 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Balance, as of end of period | | | | | | | | | | $ | 81,536 | | | $ | 87,583 | | | $ | 231,043 | | | $ | 400,162 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, 2021 |
| | | | | | | | | | Commercial Mortgage Loans | | Residential Mortgage Loans | | Consumer and Other Loan Receivables | | Total |
Balance, as of beginning of period (1) | | | | | | | | | | $ | 58,203 | | | $ | 62,056 | | | $ | — | | | $ | 120,259 | |
| Net provision | | | | | | | | | | 21,853 | | | 16,683 | | | 145,105 | | | 183,641 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Balance, as of end of period | | | | | | | | | | $ | 80,056 | | | $ | 78,739 | | | $ | 145,105 | | | $ | 303,900 | |
(1) Includes loans designated as purchased credit deteriorated as of the time of the acquisition of Global Atlantic.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2022 |
| Commercial Mortgage Loans | | Residential Mortgage Loans | | Consumer and Other Loan Receivables | | Total | | Commercial Mortgage Loans | | Residential Mortgage Loans | | Consumer and Other Loan Receivables | | Total |
| Balance, as of beginning of period | $ | 227,315 | | | $ | 125,824 | | | $ | 207,089 | | | $ | 560,228 | | | $ | 65,970 | | | $ | 72,082 | | | $ | 236,025 | | | $ | 374,077 | |
| Net provision (release) | 20,111 | | | 10,316 | | | 33,684 | | | 64,111 | | | 15,566 | | | 15,501 | | | (4,982) | | | 26,085 | |
| | | | | | | | | | | | | | | |
| Charge-offs | — | | | (1,693) | | | (35,372) | | | (37,065) | | | — | | | — | | | — | | | — | |
| Recoveries of amounts previously charged-off | — | | | — | | | 1,826 | | | 1,826 | | | — | | | — | | | — | | | — | |
| Balance, as of end of period | $ | 247,426 | | | $ | 134,447 | | | $ | 207,227 | | | $ | 589,100 | | | $ | 81,536 | | | $ | 87,583 | | | $ | 231,043 | | | $ | 400,162 | |
Proceeds and gross gains and losses from voluntary sales
The proceeds from voluntary sales and the gross gains and losses on those sales of available-for-sale ("AFS") fixed maturity securities were as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| AFS fixed maturity securities: | | | |
| Proceeds from voluntary sales | $ | 1,406,925 | | | $ | 6,128,285 | |
| Gross gains | 15,464 | | | 8,942 | |
| Gross losses | (10,044) | | | (245,871) | |
| | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 | | |
| AFS fixed maturity securities: | | | | | |
| Proceeds from voluntary sales | $ | 6,128,285 | | | $ | 1,903,120 | | | |
| Gross gains | 8,942 | | | 4,776 | | | |
| Gross losses | (245,871) | | | (50,972) | | | |
8. INVESTMENTS
Investments consist of the following:
| | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 | | | | |
| Asset Management | | | | | | | |
| Private Equity | $ | 26,180,914 | | | $ | 25,685,750 | | | | | |
| Credit | 6,821,730 | | | 7,949,573 | | | | | |
| Investments of Consolidated CFEs | 22,014,866 | | | 22,076,809 | | | | | |
| Real Assets | 14,788,831 | | | 12,500,749 | | | | | |
| Equity Method - Other | 4,667,571 | | | 4,877,592 | | | | | |
| Equity Method - Capital Allocation-Based Income | 10,254,226 | | | 11,539,945 | | | | | |
| Other Investments | 4,042,342 | | | 4,145,096 | | | | | |
| Investments - Asset Management | $ | 88,770,480 | | | $ | 88,775,514 | | | | | |
| | | | | | | |
| Insurance | | | | | | | |
Fixed maturity securities, available-for-sale, at fair value(1) | $ | 64,243,697 | | | $ | 68,870,886 | | | | | |
| Mortgage and other loan receivables | 31,576,685 | | | 28,876,759 | | | | | |
Fixed maturity securities, trading, at fair value(2) | 13,061,360 | | | 13,753,573 | | | | | |
| Other investments | 10,150,075 | | | 8,208,566 | | | | | |
| Funds withheld receivable at interest | 2,966,803 | | | 2,999,448 | | | | | |
| Policy loans | 762,460 | | | 765,310 | | | | | |
| Equity securities at fair value | 38,791 | | | 289,133 | | | | | |
| Investments - Insurance | $ | 122,799,871 | | | $ | 123,763,675 | | | | | |
| | | | | | | |
| Total Investments | $ | 211,570,351 | | | $ | 212,539,189 | | | | | |
| | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 | | | | |
| Asset Management | | | | | | | |
| Private Equity | $ | 27,454,205 | | | $ | 26,607,688 | | | | | |
| Credit | 8,297,931 | | | 7,804,392 | | | | | |
| Investments of Consolidated CFEs | 24,013,221 | | | 22,492,366 | | | | | |
| Real Assets | 19,854,474 | | | 17,976,366 | | | | | |
| Equity Method - Other | 7,043,747 | | | 6,838,541 | | | | | |
| Equity Method - Capital Allocation-Based Income | 7,204,647 | | | 6,862,712 | | | | | |
| Other Investments | 4,081,693 | | | 3,793,398 | | | | | |
| Investments - Asset Management | $ | 97,949,918 | | | $ | 92,375,463 | | | | | |
| | | | | | | |
| Insurance | | | | | | | |
Fixed maturity securities, available-for-sale, at fair value(1) | $ | 67,828,743 | | | $ | 61,939,529 | | | | | |
| Mortgage and other loan receivables | 34,698,694 | | | 35,090,698 | | | | | |
Fixed maturity securities, trading, at fair value(2) | 12,755,365 | | | 12,038,847 | | | | | |
| Other investments | 10,446,292 | | | 11,374,656 | | | | | |
| Funds withheld receivable at interest | 2,774,730 | | | 2,868,036 | | | | | |
| Policy loans | 880,030 | | | 868,911 | | | | | |
| Equity securities at fair value | 17,540 | | | 18,499 | | | | | |
| Investments - Insurance | $ | 129,401,394 | | | $ | 124,199,176 | | | | | |
| | | | | | | |
| Total Investments | $ | 227,351,312 | | | $ | 216,574,639 | | | | | |
((1)1) Amortized cost of $69.1$78.2 billion and $69.5$73.6 billion, net of credit loss allowances of $96.9$201.1 million and $88.1 million.$128.3 million, respectively.
(2)Amortized cost of $14.2$15.1 billion and $13.9 billion.$14.8 billion, respectively.
As of both March 31, 20222023 and December 31, 2021,2022, there were no investments which represented greater than 5% of total investments.
Fixed maturity securities
The cost or amortized cost and fair value for AFS fixed maturity securities were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost or amortized cost | | Allowance for Credit Losses (2)(3) | | Gross unrealized | | Fair value |
| As of March 31, 2022 | | | gains | | losses | |
| AFS fixed maturity securities portfolio by type: | | | | | | | | | |
| U.S. government and agencies | $ | 528,130 | | | $ | — | | | $ | 475 | | | $ | (37,431) | | | $ | 491,174 | |
| U.S. state, municipal and political subdivisions | 5,330,590 | | | — | | | 2,677 | | | (546,271) | | | 4,786,996 | |
| Corporate | 40,541,267 | | | (5,000) | | | 43,940 | | | (3,634,576) | | | 36,945,631 | |
| Residential mortgage-backed securities ("RMBS") | 7,377,229 | | | (50,060) | | | 71,724 | | | (235,551) | | | 7,163,342 | |
| Commercial mortgage-backed securities ("CMBS") | 6,622,204 | | | (6,442) | | | 3,679 | | | (289,380) | | | 6,330,061 | |
| Collateralized bond obligations ("CBOs") | 3,089,089 | | | (20,800) | | | 2,807 | | | (87,089) | | | 2,984,007 | |
| Collateralized loan obligations ("CLOs") | 2,685,279 | | | (3,665) | | | 1,009 | | | (39,669) | | | 2,642,954 | |
All other structured securities(1) | 2,968,505 | | | (10,941) | | | 19,967 | | | (77,999) | | | 2,899,532 | |
| Total AFS fixed maturity securities | $ | 69,142,293 | | | $ | (96,908) | | | $ | 146,278 | | | $ | (4,947,966) | | | $ | 64,243,697 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost or amortized cost | | Allowance for Credit Losses (1)(2) | | Gross unrealized | | Fair value |
| As of March 31, 2023 | | | gains | | losses | |
| AFS fixed maturity securities portfolio by type: | | | | | | | | | |
| U.S. government and agencies | $ | 440,171 | | | $ | — | | | $ | 1,850 | | | $ | (63,495) | | | $ | 378,526 | |
| U.S. state, municipal and political subdivisions | 5,567,801 | | | — | | | 20,895 | | | (1,020,472) | | | 4,568,224 | |
| Corporate | 47,216,455 | | | (1,449) | | | 141,254 | | | (7,122,069) | | | 40,234,191 | |
| Residential mortgage-backed securities | 7,981,482 | | | (146,755) | | | 13,487 | | | (807,058) | | | 7,041,156 | |
| Commercial mortgage-backed securities | 7,454,715 | | | (15,628) | | | 846 | | | (822,087) | | | 6,617,846 | |
| Collateralized bond obligations | 3,029,471 | | | (745) | | | — | | | (185,820) | | | 2,842,906 | |
| Collateralized loan obligations | 3,460,298 | | | (25,087) | | | 1,184 | | | (166,211) | | | 3,270,184 | |
| Asset-backed securities | 3,095,110 | | | (11,450) | | | 7,796 | | | (215,746) | | | 2,875,710 | |
| Total AFS fixed maturity securities | $ | 78,245,503 | | | $ | (201,114) | | | $ | 187,312 | | | $ | (10,402,958) | | | $ | 67,828,743 | |
(1) Includes primarily asset-backed securities ("ABS").
(2) Represents the cumulative amount of credit impairments that have been recognized in the consolidated statementstatements of operations (as net investment (losses) gains) or that were recognized as a gross-up of the purchase price of PCD securities. Amount excludes unrealized losses related to non-credit impairment.
(3) (2)Includes credit loss allowances on purchase-credit deteriorated fixed-maturity securities of $(38.5)$(23.6) million.
| | | Cost or amortized cost | | Allowance for Credit Losses (2)(3) | | Gross unrealized | | Fair value | | Cost or amortized cost | | Allowance for Credit Losses (1)(2) | | Gross unrealized | | Fair value |
| As of December 31, 2021 | | gains | | losses | | |
| As of December 31, 2022 | | As of December 31, 2022 | Cost or amortized cost | | Allowance for Credit Losses (1)(2) | | gains | | losses | | Fair value |
| AFS fixed maturity securities portfolio by type: | AFS fixed maturity securities portfolio by type: | | | | | | | | | | AFS fixed maturity securities portfolio by type: | | | | | |
| U.S. government and agencies | U.S. government and agencies | $ | 785,144 | | | $ | — | | | $ | 4,171 | | | $ | (4,768) | | | $ | 784,547 | | U.S. government and agencies | $ | 438,931 | | | $ | — | | | $ | 304 | | | $ | (72,494) | | | $ | 366,741 | |
| U.S. state, municipal and political subdivisions | U.S. state, municipal and political subdivisions | 5,122,651 | | | — | | | 42,286 | | | (55,240) | | | 5,109,697 | | U.S. state, municipal and political subdivisions | 5,638,252 | | | — | | | 6,582 | | | (1,233,874) | | | 4,410,960 | |
| Corporate | Corporate | 41,433,757 | | | (3,238) | | | 190,516 | | | (688,648) | | | 40,932,387 | | Corporate | 44,253,062 | | | (1,298) | | | 49,509 | | | (7,984,341) | | | 36,316,932 | |
| RMBS | RMBS | 7,703,030 | | | (50,975) | | | 126,662 | | | (113,359) | | | 7,665,358 | | RMBS | 7,307,526 | | | (100,554) | | | 12,052 | | | (834,212) | | | 6,384,812 | |
| CMBS | CMBS | 5,952,656 | | | (282) | | | 16,332 | | | (56,523) | | | 5,912,183 | | CMBS | 7,269,662 | | | (14,490) | | | 36 | | | (834,735) | | | 6,420,473 | |
| CBOs | CBOs | 3,111,620 | | | (22,160) | | | 6,862 | | | (27,466) | | | 3,068,856 | | CBOs | 3,051,850 | | | (426) | | | — | | | (217,773) | | | 2,833,651 | |
| CLOs | CLOs | 2,985,098 | | | (639) | | | 6,554 | | | (5,776) | | | 2,985,237 | | CLOs | 2,726,888 | | | (6,165) | | | 127 | | | (200,160) | | | 2,520,690 | |
All other structured securities(1) | 2,425,540 | | | (10,839) | | | 19,990 | | | (22,070) | | | 2,412,621 | | |
| ABSs | | ABSs | 2,914,617 | | | (5,399) | | | 4,702 | | | (228,650) | | | 2,685,270 | |
| Total AFS fixed maturity securities | Total AFS fixed maturity securities | $ | 69,519,496 | | | $ | (88,133) | | | $ | 413,373 | | | $ | (973,850) | | | $ | 68,870,886 | | Total AFS fixed maturity securities | $ | 73,600,788 | | | $ | (128,332) | | | $ | 73,312 | | | $ | (11,606,239) | | | $ | 61,939,529 | |
(1) Includes primarily asset-backed securities ("ABS").
(2) Represents the cumulative amount of credit impairments that have been recognized in the consolidated statementstatements of operations (as net investment (losses) gains) or that were recognized as a gross-up of the purchase price of PCD securities. Amount excludes unrealized losses related to non-credit impairment.
(3) (2)Includes credit loss allowances on purchase-credit deteriorated fixed-maturity securities of $(46.4)$(29.9) million.
Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties, or Global Atlantic may have the right to put or sell the obligations back to the issuers.
The maturity distribution for AFS fixed maturity securities is as follows:
| | | | | | | | | | | | |
| As of March 31, 2023 | | Cost or
amortized cost (net of allowance) | | Fair value |
| Due in one year or less | | $ | 1,111,146 | | | $ | 1,099,144 | |
| Due after one year through five years | | 12,746,392 | | | 12,176,052 | |
| Due after five years through ten years | | 10,175,556 | | | 9,410,865 | |
| Due after ten years | | 29,189,884 | | | 22,494,880 | |
| Subtotal | | 53,222,978 | | | 45,180,941 | |
| RMBS | | 7,834,727 | | | 7,041,156 | |
| CMBS | | 7,439,087 | | | 6,617,846 | |
| CBOs | | 3,028,726 | | | 2,842,906 | |
| CLOs | | 3,435,211 | | | 3,270,184 | |
| ABSs | | 3,083,660 | | | 2,875,710 | |
| Total AFS fixed maturity securities | | $ | 78,044,389 | | | $ | 67,828,743 | |
| | | | | | | | | | | | |
| As of March 31, 2022 | | Cost or
amortized cost (net of allowance) | | Fair value |
| Due in one year or less | | $ | 850,975 | | | $ | 844,911 | |
| Due after one year through five years | | 8,531,656 | | | 8,218,579 | |
| Due after five years through ten years | | 9,999,591 | | | 9,505,003 | |
| Due after ten years | | 27,012,765 | | | 23,655,308 | |
| Subtotal | | 46,394,987 | | | 42,223,801 | |
| RMBS | | 7,327,169 | | | 7,163,342 | |
| CMBS | | 6,615,762 | | | 6,330,061 | |
| CBOs | | 3,068,289 | | | 2,984,007 | |
| CLOs | | 2,681,614 | | | 2,642,954 | |
| All other structured securities | | 2,957,564 | | | 2,899,532 | |
| Total AFS fixed maturity securities | | $ | 69,045,385 | | | $ | 64,243,697 | |
| | | | | | | | | | | | |
| As of December 31, 2021 | | Cost or
amortized cost (net of allowance) | | Fair value |
| Due in one year or less | | $ | 871,340 | | | $ | 869,287 | |
| Due after one year through five years | | 9,256,449 | | | 9,171,707 | |
| Due after five years through ten years | | 11,460,032 | | | 11,350,091 | |
| Due after ten years | | 25,750,493 | | | 25,435,546 | |
| Subtotal | | 47,338,314 | | | 46,826,631 | |
| RMBS | | 7,652,055 | | | 7,665,358 | |
| CMBS | | 5,952,374 | | | 5,912,183 | |
| CBOs | | 3,089,460 | | | 3,068,856 | |
| CLOs | | 2,984,459 | | | 2,985,237 | |
| All other structured securities | | 2,414,701 | | | 2,412,621 | |
| Total AFS fixed maturity securities | | $ | 69,431,363 | | | $ | 68,870,886 | |
Purchased credit deteriorated securities
Certain securities purchased by Global Atlantic were assessed at acquisition as having experienced a more-than-insignificant deterioration in credit quality since their origination. These securities are identified as PCD, and a reconciliation of the difference between the purchase price and the par value of these PCD securities is below:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| Purchase price of PCD securities acquired during the current period | $ | 5,185 | | | $ | 1,591,176 | |
| Allowance for credit losses at acquisition | 140 | | | 121,117 | |
| Discount (premium) attributable to other factors | 1,207 | | | 277,480 | |
| Par value | $ | 6,532 | | | $ | 1,989,773 | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| Purchase price of PCD securities acquired during the current period | $ | — | | | $ | 5,185 | |
| Allowance for credit losses at acquisition | — | | | 140 | |
| Discount attributable to other factors | — | | | 1,207 | |
| Par value | $ | — | | | $ | 6,532 | |
Securities in a continuous unrealized loss position
The following tables provide information about AFS fixed maturity securities that have been continuously in an unrealized loss position:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or more | | Total |
| As of March 31, 2023 | | Fair
value | | Unrealized losses | | Fair
value | | Unrealized losses | | Fair
value | | Unrealized losses |
| AFS fixed maturity securities portfolio by type: | | | | | | | | | | | | |
| U.S. government and agencies | | $ | 41,237 | | | $ | (442) | | | $ | 202,902 | | | $ | (63,053) | | | $ | 244,139 | | | $ | (63,495) | |
| U.S. state, municipal and political subdivisions | | 447,639 | | | (35,891) | | | 3,617,169 | | | (984,581) | | | 4,064,808 | | | (1,020,472) | |
| Corporate | | 9,620,913 | | | (417,413) | | | 24,411,962 | | | (6,704,656) | | | 34,032,875 | | | (7,122,069) | |
| RMBS | | 2,270,895 | | | (156,956) | | | 3,918,339 | | | (650,102) | | | 6,189,234 | | | (807,058) | |
| CBOs | | 672,051 | | | (33,236) | | | 2,170,855 | | | (152,584) | | | 2,842,906 | | | (185,820) | |
| CMBS | | 1,283,842 | | | (92,237) | | | 5,200,921 | | | (729,850) | | | 6,484,763 | | | (822,087) | |
| CLOs | | 768,231 | | | (21,498) | | | 2,029,386 | | | (144,713) | | | 2,797,617 | | | (166,211) | |
| ABSs | | 1,142,861 | | | (75,221) | | | 1,319,087 | | | (140,525) | | | 2,461,948 | | | (215,746) | |
| Total AFS fixed maturity securities in a continuous loss position | | $ | 16,247,669 | | | $ | (832,894) | | | $ | 42,870,621 | | | $ | (9,570,064) | | | $ | 59,118,290 | | | $ | (10,402,958) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or more | | Total |
| As of March 31, 2022 | | Fair
value | | Unrealized losses | | Fair
value | | Unrealized losses | | Fair
value | | Unrealized losses |
| AFS fixed maturity securities portfolio by type: | | | | | | | | | | | | |
| U.S. government and agencies | | $ | 296,069 | | | $ | (29,763) | | | $ | 92,301 | | | $ | (7,668) | | | $ | 388,370 | | | $ | (37,431) | |
| U.S. state, municipal and political subdivisions | | 4,312,737 | | | (512,738) | | | 252,147 | | | (33,533) | | | 4,564,884 | | | (546,271) | |
| Corporate | | 27,551,887 | | | (3,022,312) | | | 4,842,176 | | | (612,264) | | | 32,394,063 | | | (3,634,576) | |
| RMBS | | 3,997,811 | | | (160,389) | | | 845,265 | | | (75,162) | | | 4,843,076 | | | (235,551) | |
| CBOs | | 2,209,873 | | | (65,789) | | | 507,754 | | | (21,300) | | | 2,717,627 | | | (87,089) | |
| CMBS | | 5,668,051 | | | (273,082) | | | 202,155 | | | (16,298) | | | 5,870,206 | | | (289,380) | |
| CLOs | | 2,259,867 | | | (39,213) | | | 26,875 | | | (456) | | | 2,286,742 | | | (39,669) | |
| All other structured securities | | 1,801,889 | | | (68,226) | | | 187,510 | | | (9,773) | | | 1,989,399 | | | (77,999) | |
| Total AFS fixed maturity securities in a continuous loss position | | $ | 48,098,184 | | | $ | (4,171,512) | | | $ | 6,956,183 | | | $ | (776,454) | | | $ | 55,054,367 | | | $ | (4,947,966) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or more | | Total |
| As of December 31, 2021 | | Fair
value | | Unrealized losses | | Fair
value | | Unrealized losses | | Fair
value | | Unrealized losses |
| AFS fixed maturity securities portfolio by type: | | | | | | | | | | | | |
| U.S. government and agencies | | $ | 311,096 | | | $ | (4,768) | | | $ | — | | | $ | — | | | $ | 311,096 | | | $ | (4,768) | |
| U.S. state, municipal and political subdivisions | | 2,802,309 | | | (55,240) | | | — | | | — | | | 2,802,309 | | | (55,240) | |
| Corporate | | 30,385,514 | | | (688,648) | | | — | | | — | | | 30,385,514 | | | (688,648) | |
| RMBS | | 3,196,876 | | | (113,359) | | | — | | | — | | | 3,196,876 | | | (113,359) | |
| CBOs | | 2,152,790 | | | (27,466) | | | — | | | — | | | 2,152,790 | | | (27,466) | |
| CMBS | | 3,405,774 | | | (56,523) | | | — | | | — | | | 3,405,774 | | | (56,523) | |
| CLOs | | 1,172,330 | | | (5,776) | | | — | | | — | | | 1,172,330 | | | (5,776) | |
| All other structured securities | | 1,348,356 | | | (22,070) | | | — | | | — | | | 1,348,356 | | | (22,070) | |
| Total AFS fixed maturity securities in a continuous loss position | | $ | 44,775,045 | | | $ | (973,850) | | | $ | — | | | $ | — | | | $ | 44,775,045 | | | $ | (973,850) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or more | | Total |
| As of December 31, 2022 | | Fair
value | | Unrealized losses | | Fair
value | | Unrealized losses | | Fair
value | | Unrealized losses |
| AFS fixed maturity securities portfolio by type: | | | | | | | | | | | | |
| U.S. government and agencies | | $ | 122,272 | | | $ | (52,639) | | | $ | 108,498 | | | $ | (19,855) | | | $ | 230,770 | | | $ | (72,494) | |
| U.S. state, municipal and political subdivisions | | 2,321,404 | | | (605,698) | | | 1,780,984 | | | (628,176) | | | 4,102,388 | | | (1,233,874) | |
| Corporate | | 14,792,384 | | | (2,114,695) | | | 17,943,907 | | | (5,869,646) | | | 32,736,291 | | | (7,984,341) | |
| RMBS | | 3,998,737 | | | (442,543) | | | 2,068,529 | | | (391,669) | | | 6,067,266 | | | (834,212) | |
| CBOs | | 1,351,552 | | | (103,499) | | | 1,482,099 | | | (114,274) | | | 2,833,651 | | | (217,773) | |
| CMBS | | 4,054,053 | | | (445,168) | | | 2,338,517 | | | (389,567) | | | 6,392,570 | | | (834,735) | |
| CLOs | | 1,862,608 | | | (139,766) | | | 636,014 | | | (60,394) | | | 2,498,622 | | | (200,160) | |
| ABSs | | 1,610,876 | | | (113,285) | | | 832,635 | | | (115,365) | | | 2,443,511 | | | (228,650) | |
| Total AFS fixed maturity securities in a continuous loss position | | $ | 30,113,886 | | | $ | (4,017,293) | | | $ | 27,191,183 | | | $ | (7,588,946) | | | $ | 57,305,069 | | | $ | (11,606,239) | |
Unrealized gains and losses can be created by changing interest rates or several other factors, including changing credit spreads. Global Atlantic had gross unrealized losses on below investment grade AFS fixed maturity securities of $219.4$841.0 million and $77.0$836.3 million as of March 31, 20222023 and December 31, 2021,2022, respectively. The single largest unrealized loss on AFS fixed maturity securities was $27.2$60.0 million and $7.3$60.4 million as of March 31, 20222023 and December 31, 2021,2022, respectively. Global Atlantic had 5,7296,281 and 4,3706,328 securities in an unrealized loss position as of March 31, 20222023 and December 31, 2021,2022, respectively.
As of March 31, 2022,2023, AFS fixed maturity securities in an unrealized loss position for 12 months or more consisted of 8144,797 debt securities. These debt securities primarily relate to Corporate, RMBS, and U.S. state, municipal and political subdivisions fixed maturity securities, which have depressed values due primarily to an increase in interest rates since the purchase of these securities. UnrealizedDuring the three months ended March 31, 2023, unrealized losses of $26.7 million were not recognized in net income on these debt securities since as of March 31, 2023 there were specific securities that, as of the balance sheet date, Global Atlantic neither intendsintended to sell the securities nor doesor Global Atlantic believed it believe that it iswas more likely than not that it will be required to sell these securities before recovery of their cost or amortized cost basis. As of March 31, 2022, no loss was recognized as Global Atlantic did not believe there were specific securities that, as of that date, it intended to, or would be required to sell before recovery. For securities with significant declines in value, individual security level analysis was performed utilizing underlying collateral default expectations, market data, and industry analyst reports.
Mortgage and other loan receivables
Mortgage and other loan receivables consist of the following:
| | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Commercial mortgage loans(1) | Commercial mortgage loans(1) | $ | 15,489,750 | | | $ | 13,824,772 | | Commercial mortgage loans(1) | $ | 19,004,039 | | | $ | 18,830,780 | |
Residential mortgage loans(1) | Residential mortgage loans(1) | 9,704,021 | | | 8,724,904 | | Residential mortgage loans(1) | 10,702,441 | | | 10,688,972 | |
| Consumer loans | Consumer loans | 6,137,735 | | | 5,617,925 | | Consumer loans | 4,970,378 | | | 5,228,534 | |
Other loan receivables(3)(2) | Other loan receivables(3)(2) | 645,341 | | | 1,083,235 | | Other loan receivables(3)(2) | 610,936 | | | 902,640 | |
| Total mortgage and other loan receivables | Total mortgage and other loan receivables | 31,976,847 | | | 29,250,836 | | Total mortgage and other loan receivables | 35,287,794 | | | 35,650,926 | |
Allowance for credit losses(4)(3) | Allowance for credit losses(4)(3) | (400,162) | | | (374,077) | | Allowance for credit losses(4)(3) | (589,100) | | | (560,228) | |
| Total mortgage and other loan receivables, net of allowance for loan losses | Total mortgage and other loan receivables, net of allowance for loan losses | $ | 31,576,685 | | | $ | 28,876,759 | | Total mortgage and other loan receivables, net of allowance for loan losses | $ | 34,698,694 | | | $ | 35,090,698 | |
(1) Includes $980.1$773.9 million and $805.4$787.5 million of loans carried at fair value using the fair value option as of March 31, 20222023 and December 31, 2021,2022, respectively. The fair value option was elected for these loans for asset-liability matching purposes. These loans had unpaid principal balances of $989.8$864.4 million and $794.1$871.2 million as of March 31, 20222023 and December 31, 2021,2022, respectively.
(2)As of March 31, 20222023 and December 31, 2021,2022, other loan receivables consisted primarily of loans collateralized by aircraft of $410.8$272.8 million and $850.1$282.3 million, respectively.
(3) Includes $28.2 million and $27.3 million of related party loans carried at fair value using the fair value option as of March 31, 2022 and December 31, 2021, respectively. These loans had unpaid principal balances of $28.2 million and $27.3 million as of March 31, 2022 and December 31, 2021, respectively.
(4) Includes credit loss allowances on purchase-credit deteriorated mortgage and other loan receivables of $(85.1)$(108.6) million and $(77.9)$(106.2) million as of March 31, 20222023 and December 31, 2021,2022, respectively.
Notes to Financial Statements (Continued)
The maturity distribution for residential and commercial mortgage loans was as follows as of March 31, 2022:2023:
| | | | | | | | | | | | | | | | | |
| Years | Residential | | Commercial | | Total mortgage loans |
| Remainder of 2022 | $ | 299,047 | | | $ | 1,000,106 | | | $ | 1,299,153 | |
| 2023 | 127,475 | | | 1,193,881 | | | 1,321,356 | |
| 2024 | 832,243 | | | 1,710,830 | | | 2,543,073 | |
| 2025 | 17,770 | | | 1,262,962 | | | 1,280,732 | |
| 2026 | 699,076 | | | 3,086,745 | | | 3,785,821 | |
| 2027 | 118,413 | | | 2,571,094 | | | 2,689,507 | |
| 2028 and thereafter | 7,609,997 | | | 4,664,132 | | | 12,274,129 | |
| Total | $ | 9,704,021 | | | $ | 15,489,750 | | | $ | 25,193,771 | |
| | | | | | | | | | | | | | | | | |
| Years | Residential | | Commercial | | Total mortgage loans |
| Remainder of 2023 | $ | 131,042 | | | $ | 1,512,742 | | | $ | 1,643,784 | |
| 2024 | 447,388 | | | 2,164,157 | | | 2,611,545 | |
| 2025 | 15,739 | | | 3,673,872 | | | 3,689,611 | |
| 2026 | 929,252 | | | 3,578,371 | | | 4,507,623 | |
| 2027 | 816,303 | | | 2,955,626 | | | 3,771,929 | |
| 2028 | 131,774 | | | 1,396,277 | | | 1,528,051 | |
| 2029 and thereafter | 8,230,943 | | | 3,722,994 | | | 11,953,937 | |
| Total | $ | 10,702,441 | | | $ | 19,004,039 | | | $ | 29,706,480 | |
Actual maturities could differ from contractual maturities, because borrowers may have the right to prepay (with or without prepayment penalties) and loans may be refinanced.
Global Atlantic diversifies its mortgage loan portfolio by both geographic region and property type to reduce concentration risk. The following tables present the mortgage loans by geographic region and property type:
| | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage loans – carrying value by geographic region | March 31, 2023 | | December 31, 2022 |
| Pacific | $ | 7,163,287 | | | 24.1 | % | | $ | 7,197,110 | | | 24.4 | % |
| West South Central | 3,687,564 | | | 12.4 | % | | 3,582,648 | | | 12.1 | % |
| South Atlantic | 8,119,808 | | | 27.3 | % | | 8,051,653 | | | 27.3 | % |
| Middle Atlantic | 3,699,989 | | | 12.5 | % | | 3,590,530 | | | 12.2 | % |
| East North Central | 1,257,665 | | | 4.2 | % | | 1,240,264 | | | 4.2 | % |
| Mountain | 3,142,342 | | | 10.6 | % | | 3,152,895 | | | 10.7 | % |
| New England | 1,371,832 | | | 4.6 | % | | 1,414,897 | | | 4.8 | % |
| East South Central | 704,109 | | | 2.4 | % | | 712,886 | | | 2.4 | % |
| West North Central | 328,156 | | | 1.1 | % | | 349,079 | | | 1.2 | % |
| Other regions | 231,728 | | | 0.8 | % | | 227,790 | | | 0.7 | % |
| Total by geographic region | $ | 29,706,480 | | | 100.0 | % | | $ | 29,519,752 | | | 100.0 | % |
| | | | | | | | | | | |
| Mortgage loans - carrying value by geographic region | March 31, 2022 | | December 31, 2021 |
| Pacific | $ | 7,313,819 | | | $ | 6,675,064 | |
| West South Central | 2,957,751 | | | 2,675,890 | |
| South Atlantic | 6,057,624 | | | 4,996,043 | |
| Middle Atlantic | 3,377,082 | | | 3,142,973 | |
| East North Central | 1,143,793 | | | 590,911 | |
| Mountain | 2,257,201 | | | 1,957,099 | |
| New England | 1,114,162 | | | 1,099,157 | |
| East South Central | 577,278 | | | 1,035,764 | |
| West North Central | 335,757 | | | 350,546 | |
| Other regions | 59,304 | | | 26,229 | |
| Total by geographic region | $ | 25,193,771 | | | $ | 22,549,676 | |
| | | | | | | | | | | |
| Mortgage loans - carrying value by property type | March 31, 2022 | | December 31, 2021 |
| Residential | $ | 9,704,021 | | | $ | 8,724,904 | |
| Office building | 4,570,721 | | | 4,185,146 | |
| Apartment | 7,240,838 | | | 6,194,819 | |
| Industrial | 2,002,947 | | | 1,981,713 | |
| Retail | 723,329 | | | 780,071 | |
| Other property types | 753,879 | | | 483,560 | |
| Warehouse | 198,036 | | | 199,463 | |
| Total by property type | $ | 25,193,771 | | | $ | 22,549,676 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage loans – carrying value by property type | March 31, 2023 | | December 31, 2022 |
| Residential | $ | 10,702,441 | | | 36.0 | % | | $ | 10,688,972 | | | 36.2 | % |
| Office building | 4,629,307 | | | 15.6 | % | | 4,594,238 | | | 15.6 | % |
| Apartment | 9,694,666 | | | 32.6 | % | | 9,698,728 | | | 32.9 | % |
| Industrial | 3,209,573 | | | 10.8 | % | | 3,139,163 | | | 10.6 | % |
| Retail | 572,748 | | | 1.9 | % | | 630,455 | | | 2.1 | % |
| Other property types | 689,834 | | | 2.3 | % | | 582,479 | | | 2.0 | % |
| Warehouse | 207,911 | | | 0.8 | % | | 185,717 | | | 0.6 | % |
| Total by property type | $ | 29,706,480 | | | 100.0 | % | | $ | 29,519,752 | | | 100.0 | % |
As of March 31, 20222023 and December 31, 2021,2022, Global Atlantic had $213.1$324.3 million and $202.7$192.3 million of mortgage loans that were 90 days or more past due or in the process of foreclosure, respectively.respectively, and have been classified as non-income producing. Global Atlantic ceases accrual of interest on loans that are more than 90 days past due and recognizes income as cash is received. As of March 31, 2022 and December 31, 2021, there were $213.1 million and $202.7 million of mortgage loans that were non-income producing, respectively.
As of March 31, 2022 and December 31, 2021, less than 1% and 1% of residential mortgage loans have been granted forbearance due to COVID-19, respectively. This forbearance, which generally involves a 3-month period in which payments are not required (though must subsequently be made up), is not considered to result in troubled debt restructurings for the three months ended March 31, 2022 and 2021. Interest continues to accrue on loans in temporary forbearance.
As of March 31, 2022 and December 31, 2021, Global Atlantic had $6.1 million and $5.1 million of consumer loans that were delinquent by more than 120 days or in default, respectively.
Purchased credit deteriorated loans
Certain residential mortgage loans purchased by Global Atlantic were assessed at acquisition as having experienced a more-than-insignificant deterioration in credit quality since their origination. These loans are identified as PCD, and a reconciliation of the difference between the purchase price and the par value of these PCD loans is below. There were no PCD loans purchased during the three months ended March 31, 2022:
| | | | | | | |
| | | Three Months Ended March 31, |
| | | March 31, 2021 |
Purchase price of PCD loans acquired during the current period | | | $ | 3,694,867 | |
Allowance for credit losses at acquisition | | | 120,259 | |
Discount (premium) attributable to other factors | | | (146,694) | |
Par value | | | $ | 3,668,432 | |
Credit quality indicators
Mortgage and loan receivable performance status
The following table represents the portfolio of mortgage and loan receivables by origination year and performance status:status as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| By year of origination |
| Performance status as of March 31, 2023 | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Total |
| Commercial mortgage loans | | | | | | | | | | | | | |
| Current-period gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | |
| Current | $ | 199,707 | | | $ | 6,164,880 | | | $ | 6,927,008 | | | $ | 777,073 | | | $ | 1,417,346 | | | $ | 3,414,703 | | | $ | 18,900,717 | |
| 30 to 59 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| 60 to 89 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| 90 days or more past due | — | | | — | | | — | | | — | | | 103,322 | | | — | | | 103,322 | |
| Total commercial mortgage loans | $ | 199,707 | | | $ | 6,164,880 | | | $ | 6,927,008 | | | $ | 777,073 | | | $ | 1,520,668 | | | $ | 3,414,703 | | | $ | 19,004,039 | |
| Residential mortgage loans | | | | | | | | | | | | | |
| Current-period gross charge-offs | $ | — | | | $ | (246) | | | $ | (210) | | | $ | (46) | | | $ | (133) | | | $ | (1,058) | | | $ | (1,693) | |
| | | | | | | | | | | | | |
| Current | $ | 117,738 | | | $ | 1,875,615 | | | $ | 4,711,601 | | | $ | 1,851,565 | | | $ | 255,925 | | | $ | 1,460,682 | | | $ | 10,273,126 | |
| 30 to 59 days past due | — | | | 13,476 | | | 45,876 | | | 4,489 | | | 3,278 | | | 87,160 | | | 154,279 | |
| 60 to 89 days past due | — | | | 6,582 | | | 15,333 | | | 1,515 | | | 3,411 | | | 27,193 | | | 54,034 | |
| 90 days or more past due | — | | | 10,809 | | | 61,689 | | | 12,839 | | | 11,313 | | | 124,352 | | | 221,002 | |
| Total residential mortgage loans | $ | 117,738 | | | $ | 1,906,482 | | | $ | 4,834,499 | | | $ | 1,870,408 | | | $ | 273,927 | | | $ | 1,699,387 | | | $ | 10,702,441 | |
| Consumer loans | | | | | | | | | | | | | |
| Current-period gross charge-offs | $ | — | | | $ | (3,092) | | | $ | (18,826) | | | $ | (5,181) | | | $ | (3,165) | | | $ | (5,108) | | | $ | (35,372) | |
| | | | | | | | | | | | | |
| Current | $ | 1,474 | | | $ | 522,779 | | | $ | 2,074,812 | | | $ | 809,837 | | | $ | 688,962 | | | $ | 747,937 | | | $ | 4,845,801 | |
| 30 to 59 days past due | — | | | 4,642 | | | 30,435 | | | 5,933 | | | 4,608 | | | 13,359 | | | 58,977 | |
| 60 to 89 days past due | — | | | 2,637 | | | 14,479 | | | 2,998 | | | 2,373 | | | 7,925 | | | 30,412 | |
| 90 days or more past due | — | | | 3,374 | | | 14,613 | | | 5,840 | | | 4,799 | | | 6,562 | | | 35,188 | |
| Total consumer loans | $ | 1,474 | | | $ | 533,432 | | | $ | 2,134,339 | | | $ | 824,608 | | | $ | 700,742 | | | $ | 775,783 | | | $ | 4,970,378 | |
| Total mortgage and consumer loan receivables | $ | 318,919 | | | $ | 8,604,794 | | | $ | 13,895,846 | | | $ | 3,472,089 | | | $ | 2,495,337 | | | $ | 5,889,873 | | | $ | 34,676,858 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2022 |
| Performance status | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Total |
| Commercial mortgage loans | | | | | | | | | | | | | |
| Current | $ | 1,868,657 | | | $ | 6,951,312 | | | $ | 948,847 | | | $ | 1,751,631 | | | $ | 1,305,089 | | | $ | 2,664,214 | | | $ | 15,489,750 | |
| 30 to 59 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| 60 to 89 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Over 90 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total commercial mortgage loans | $ | 1,868,657 | | | $ | 6,951,312 | | | $ | 948,847 | | | $ | 1,751,631 | | | $ | 1,305,089 | | | $ | 2,664,214 | | | $ | 15,489,750 | |
| Residential mortgage loans | | | | | | | | | | | | | |
| Current | $ | 219,133 | | | $ | 5,336,585 | | | $ | 1,686,516 | | | $ | 357,644 | | | $ | 22,359 | | | $ | 1,621,706 | | | $ | 9,243,943 | |
| 30 to 59 days past due | — | | | 74,146 | | | 12,931 | | | 13,197 | | | 1,025 | | | 90,602 | | | 191,901 | |
| 60 to 89 days past due | — | | | 20,935 | | | 2,507 | | | 1,294 | | | 544 | | | 29,774 | | | 55,054 | |
| Over 90 days past due | — | | | 11,221 | | | 16,696 | | | 15,554 | | | 2,737 | | | 166,915 | | | 213,123 | |
| Total residential mortgage loans | $ | 219,133 | | | $ | 5,442,887 | | | $ | 1,718,650 | | | $ | 387,689 | | | $ | 26,665 | | | $ | 1,908,997 | | | $ | 9,704,021 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total mortgage loans | $ | 2,087,790 | | | $ | 12,394,199 | | | $ | 2,667,497 | | | $ | 2,139,320 | | | $ | 1,331,754 | | | $ | 4,573,211 | | | $ | 25,193,771 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2021 |
| Performance status | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total |
| Commercial mortgage loans | | | | | | | | | | | | | | |
| Current | | $ | 6,831,655 | | | $ | 976,369 | | | $ | 1,883,908 | | | $ | 1,373,865 | | | $ | 817,954 | | | $ | 1,941,021 | | | $ | 13,824,772 | |
| 30 to 59 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| 60 to 89 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Over 90 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total commercial mortgage loans | | $ | 6,831,655 | | | $ | 976,369 | | | $ | 1,883,908 | | | $ | 1,373,865 | | | $ | 817,954 | | | $ | 1,941,021 | | | $ | 13,824,772 | |
| Residential mortgage loans | | | | | | | | | | | | | | |
| Current | | $ | 4,505,537 | | | $ | 1,576,342 | | | $ | 393,153 | | | $ | 123,995 | | | $ | 65,070 | | | $ | 1,711,156 | | | $ | 8,375,253 | |
| 30 to 59 days past due | | 24,955 | | | 6,028 | | | 5,818 | | | 1,155 | | | 739 | | | 75,104 | | | 113,799 | |
| 60 to 89 days past due | | 4,247 | | | 1,243 | | | 607 | | | — | | | — | | | 27,028 | | | 33,125 | |
| Over 90 days past due | | 5,305 | | | 14,272 | | | 21,985 | | | 2,686 | | | — | | | 158,479 | | | 202,727 | |
| Total residential mortgage loans | | $ | 4,540,044 | | | $ | 1,597,885 | | | $ | 421,563 | | | $ | 127,836 | | | $ | 65,809 | | | $ | 1,971,767 | | | $ | 8,724,904 | |
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| Total mortgage loans | | $ | 11,371,699 | | | $ | 2,574,254 | | | $ | 2,305,471 | | | $ | 1,501,701 | | | $ | 883,763 | | | $ | 3,912,788 | | | $ | 22,549,676 | |
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| | By year of origination |
| Performance status as of December 31, 2022 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Total |
| Commercial mortgage loans | | | | | | | | | | | | | | |
| Current | | $ | 6,081,261 | | | $ | 6,845,839 | | | $ | 809,254 | | | $ | 1,529,897 | | | $ | 1,260,593 | | | $ | 2,303,936 | | | $ | 18,830,780 | |
| 30 to 59 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| 60 to 89 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total commercial mortgage loans | | $ | 6,081,261 | | | $ | 6,845,839 | | | $ | 809,254 | | | $ | 1,529,897 | | | $ | 1,260,593 | | | $ | 2,303,936 | | | $ | 18,830,780 | |
| Residential mortgage loans | | | | | | | | | | | | | | |
| Current | | $ | 1,855,038 | | | $ | 4,802,333 | | | $ | 1,879,606 | | | $ | 264,050 | | | $ | 13,670 | | | $ | 1,485,244 | | | $ | 10,299,941 | |
| 30 to 59 days past due | | 10,534 | | | 49,169 | | | 6,144 | | | 6,471 | | | — | | | 80,357 | | | 152,675 | |
| 60 to 89 days past due | | 796 | | | 13,143 | | | 2,016 | | | 955 | | | — | | | 27,114 | | | 44,024 | |
| 90 days or more past due | | 7,598 | | | 35,978 | | | 11,483 | | | 8,389 | | | 2,438 | | | 126,446 | | | 192,332 | |
| Total residential mortgage loans | | $ | 1,873,966 | | | $ | 4,900,623 | | | $ | 1,899,249 | | | $ | 279,865 | | | $ | 16,108 | | | $ | 1,719,161 | | | $ | 10,688,972 | |
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| Total mortgage loans | | $ | 7,955,227 | | | $ | 11,746,462 | | | $ | 2,708,503 | | | $ | 1,809,762 | | | $ | 1,276,701 | | | $ | 4,023,097 | | | $ | 29,519,752 | |
The following table represents the portfolio of consumer loan receivables by performance status:
| | | | | | | | | | | |
| Performance status | March 31, 2022 | | December 31, 2021 |
| Consumer loans | | | |
| Current | $ | 6,043,214 | | | $ | 5,556,923 | |
| 30 to 59 days past due | 54,012 | | | 34,048 | |
| 60 to 89 days past due | 23,937 | | | 16,817 | |
| Over 90 days past due | 16,572 | | | 10,137 | |
| Total consumer loans | $ | 6,137,735 | | | $ | 5,617,925 | |
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| Performance status | | | December 31, 2022 |
| Consumer loans | | | |
| Current | | | $ | 5,113,507 | |
| 30 to 59 days past due | | | 62,742 | |
| 60 to 89 days past due | | | 31,371 | |
| 90 days or more past due | | | 20,914 | |
| Total consumer loans | | | $ | 5,228,534 | |
Loan-to-value ratio on mortgage loans
The loan-to-value ratio is expressed as a percentage of the current amount of the loan relative to the value of the underlying collateral. The following table summarizes theGlobal Atlantic's loan-to-value ratios for its commercial mortgage loans as of March 31, 20222023 and December 31, 2021:2022:
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| Loan-to-value as of March 31, 2023, by year of origination | | Carrying value loan-to-value 70% and less | | Carrying value loan-to-value 71% - 90% | | Carrying value loan-to-value over 90% | | Total carrying value |
| 2023 | | $ | 199,707 | | | $ | — | | | $ | — | | | $ | 199,707 | |
| 2022 | | 5,761,331 | | | 403,549 | | | — | | | 6,164,880 | |
| 2021 | | 5,047,465 | | | 1,758,632 | | | 120,911 | | | 6,927,008 | |
| 2020 | | 621,066 | | | 120,906 | | | 35,101 | | | 777,073 | |
| 2019 | | 1,230,676 | | | 186,670 | | | 103,322 | | | 1,520,668 | |
| 2018 | | 1,003,438 | | | 18,978 | | | 180,263 | | | 1,202,679 | |
| Prior | | 2,193,968 | | | — | | | 18,056 | | | 2,212,024 | |
| Total commercial mortgage loans | | $ | 16,057,651 | | | $ | 2,488,735 | | | $ | 457,653 | | | $ | 19,004,039 | |
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| Loan-to-value as of March 31, 2022, by year of origination | | Carrying value loan-to-value 70% and less | | Carrying value loan-to-value 71% - 90% | | Carrying value loan-to-value over 90% | | Total carrying value |
| 2022 | | $ | 1,716,958 | | | $ | 151,699 | | | $ | — | | | $ | 1,868,657 | |
| 2021 | | 4,965,273 | | | 1,986,039 | | | — | | | 6,951,312 | |
| 2020 | | 788,984 | | | 124,861 | | | 35,002 | | | 948,847 | |
| 2019 | | 1,615,931 | | | 135,700 | | | — | | | 1,751,631 | |
| 2018 | | 1,256,207 | | | 48,882 | | | — | | | 1,305,089 | |
| 2017 | | 767,459 | | | 44,829 | | | — | | | 812,288 | |
| Prior | | 1,848,431 | | | 3,495 | | | — | | | 1,851,926 | |
| Total commercial mortgage loans | | $ | 12,959,243 | | | $ | 2,495,505 | | | $ | 35,002 | | | $ | 15,489,750 | |
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| Loan-to-value as of December 31, 2021, by year of origination | Carrying value loan-to-value 70% and less | | Carrying value loan-to-value 71% - 90% | | Carrying value loan-to-value over 90% | | Total carrying value |
| 2021 | $ | 4,910,170 | | | $ | 1,921,485 | | | $ | — | | | $ | 6,831,655 | |
| 2020 | 819,406 | | | 121,997 | | | 34,966 | | | 976,369 | |
| 2019 | 1,747,656 | | | 136,252 | | | — | | | 1,883,908 | |
| 2018 | 1,324,807 | | | 49,058 | | | — | | | 1,373,865 | |
| 2017 | 772,989 | | | 44,965 | | | — | | | 817,954 | |
| 2016 | 425,926 | | | 2,440 | | | — | | | 428,366 | |
| Prior | 1,497,503 | | | 15,152 | | | — | | | 1,512,655 | |
| Total commercial mortgage loans | $ | 11,498,457 | | | $ | 2,291,349 | | | $ | 34,966 | | | $ | 13,824,772 | |
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| Loan-to-value as of December 31, 2022, by year of origination | | Carrying value loan-to-value 70% and less | | Carrying value loan-to-value 71% - 90% | | Carrying value loan-to-value over 90% | | Total carrying value |
| 2022 | | $ | 5,677,763 | | | $ | 403,498 | | | $ | — | | | $ | 6,081,261 | |
| 2021 | | 4,971,346 | | | 1,758,748 | | | 115,745 | | | 6,845,839 | |
| 2020 | | 650,825 | | | 123,343 | | | 35,086 | | | 809,254 | |
| 2019 | | 1,211,523 | | | 215,050 | | | 103,324 | | | 1,529,897 | |
| 2018 | | 1,061,566 | | | 18,885 | | | 180,142 | | | 1,260,593 | |
| 2017 | | 699,144 | | | — | | | 18,160 | | | 717,304 | |
| Prior | | 1,586,632 | | | — | | | — | | | 1,586,632 | |
| Total commercial mortgage loans | | $ | 15,858,799 | | | $ | 2,519,524 | | | $ | 452,457 | | | $ | 18,830,780 | |
Changing economic conditions affect theGlobal Atlantic's valuation of commercial mortgage loans. Changing vacancies and rents are incorporated into the discounted cash flow analysis that Global Atlantic performs for monitored loans and may contribute to the establishment of (or increase or decrease in) a commercial mortgage loan valuation allowance for credit losses. In addition, Global Atlantic continuously monitors its commercial mortgage loan portfolio to identify risk. Areas of emphasis are properties that have exposure to specific geographic events or have deteriorating credit.
The weighted average loan-to-value ratio for theGlobal Atlantic's residential mortgage loans was 66%65% and 68%64% as of March 31, 20222023 and December 31, 2021, respectively2022, respectively.
Loan modifications
Global Atlantic may modify the terms of a loan when the borrower is experiencing financial difficulties, as a means to optimize recovery of amounts due on the loan. Modifications may involve temporary relief, such as payment forbearance for a short period time (where interest continues to accrue) or may involve more substantive changes to a loan. Changes to the terms of a loan, pursuant to a modification agreement, are factored into the analysis of the loan’s expected credit losses, under the allowance model applicable to the loan.
For commercial mortgage loans, modifications for borrowers experiencing financial difficulty are tailored for individual loans and may include interest rate relief, maturity extensions or, less frequently, principal forgiveness. For residential mortgage loans, the most common modifications for borrowers experiencing financial difficulty, aside from insignificant delays in payment, typically involve interest rate relief, deferral of missed payments to the end of the loan term, or maturity extensions. For consumer loans to borrowers experiencing financial difficulty, common modifications, aside from insignificant delays in payment, typically involve the deferral of a portion of the amount due until the loan’s maturity.
The table below presents the carrying value of loans to borrowers experiencing financial difficulty, for which modifications have been granted during the period ended March 31, 2023.
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| Carrying value as of March 31, 2023 by loan type | Deferral of Amounts Due | | Interest Rate Relief | | Maturity Extension | | Combination(1) | | Total | | Percentage of total carrying value outstanding |
| Commercial mortgage loans | $ | — | | | $ | — | | | $ | — | | | $ | 66,813 | | | $ | 66,813 | | | 0.35 | % |
| Residential mortgage loans | 725 | | | 190 | | | 28,686 | | | 522 | | | 30,123 | | | 0.28 | % |
| Consumer loans | 1,251 | | | — | | | — | | | — | | | 1,251 | | | 0.03 | % |
| Total | $ | 1,976 | | | $ | 190 | | | $ | 28,686 | | | $ | 67,335 | | | $ | 98,187 | | | |
(1).Includes modifications involving deferral of amounts due, interest rate relief and/or maturity extension.
The commercial mortgage loans that had a combination of modifications had both interest rate relief and maturity extensions. For these loans, the interest rate relief involved a change from a floating rate to a weighted average fixed rate of 5.5%. The maturity extensions for these loans added a weighted-average 1.0 years to the life of the loans.
Notes to Financial Statements (Continued)
The table below presents the performance status of the loans modified during the period ended March 31, 2023.
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| Performance status as of March 31, 2023 by loan type | Current | | 30-59 days past due | | 60-89 days past due | | 90 days or more past due | | Total |
| Commercial mortgage loans | $ | 66,813 | | | $ | — | | | $ | — | | | $ | — | | | $ | 66,813 | |
| Residential mortgage loans | 21,016 | | | 5,213 | | | 2,910 | | | 984 | | | 30,123 | |
| Consumer loans | 1,190 | | | — | | | 61 | | | — | | | 1,251 | |
| Total | $ | 89,019 | | | $ | 5,213 | | | $ | 2,971 | | | $ | 984 | | | $ | 98,187 | |
Other investments
Other investments consist of the following:
| | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Investments in real estate(1) | Investments in real estate(1) | $ | 3,564,803 | | | $ | 1,564,853 | | Investments in real estate(1) | $ | 4,805,747 | | | $ | 4,641,429 | |
Investments in renewable energy(2) | Investments in renewable energy(2) | 3,510,579 | | | 3,573,811 | | Investments in renewable energy(2) | 2,298,428 | | | 3,427,062 | |
Investments in transportation and other leased assets(3) | Investments in transportation and other leased assets(3) | 2,638,884 | | | 2,663,759 | | Investments in transportation and other leased assets(3) | 2,868,789 | | | 2,821,602 | |
| Other investment partnerships | Other investment partnerships | 250,796 | | | 234,301 | | Other investment partnerships | 185,323 | | | 197,378 | |
| FHLB common stock and other investments | FHLB common stock and other investments | 185,013 | | | 171,842 | | FHLB common stock and other investments | 288,005 | | | 287,185 | |
| Total other investments | Total other investments | $ | 10,150,075 | | | $ | 8,208,566 | | Total other investments | $ | 10,446,292 | | | $ | 11,374,656 | |
(1) Investments in real estate are held in consolidated investment companies that use fair value accounting.
(2)Net of accumulated depreciation attributed to consolidated renewable energy assets of $177.9$239.0 million and $156.8$229.7 million as of March 31, 20222023 and December 31, 2021,2022, respectively.
(3)Net of accumulated depreciation of $137.5$259.7 million and $105.1$230.2 million as of March 31, 20222023 and December 31, 2021,2022, respectively.
The total amount of other investments accounted for using the equity method of accounting was $1.2$1.1 billion as of both March 31, 20222023 and December 31, 2021.2022. Global Atlantic's maximum exposure to loss related to these equity method investments is limited to the carrying value of these investments plus unfunded commitments of $20.5 million and $22.4$21.0 million as of March 31, 20222023 and December 31, 2021,2022, respectively.
In addition, Global Atlantic has investments that would otherwise require the equity method of accounting for which the fair value option has been elected. The carrying amount of these investments was $174.9$219.8 million and $147.8$264.9 million as of March 31, 20222023 and December 31, 2021,2022, respectively.
Funding agreements
Certain Global Atlantic subsidiaries are members of regional banks in the Federal Home Loan Bank ("FHLB") system. These subsidiaries have also entered into funding agreements with their respective FHLB. The funding agreements are issued in exchange for cash. The funding agreements require that Global Atlantic pledge eligible assets, such as commercial mortgage loans, as collateral. With respect to certain classes of eligible assets, the FHLB holds the pledged eligible assets in custody at the respective FHLB. The liabilities for the funding agreements are included in policy liabilities in the consolidated statements of financial condition.
Information related to the FHLB investment and funding agreements as of March 31, 2022 and December 31, 2021 is as follows:
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| Investment in common stock | | Funding agreements issued to FHLB member banks | | Collateral |
| March 31, 2022 | | December 31, 2021 | | March 31, 2022 | | December 31, 2021 | | March 31, 2022 | | December 31, 2021 |
| FHLB Indianapolis | $ | 80,640 | | | $ | 80,640 | | | $ | 1,616,408 | | | $ | 1,619,765 | | | $ | 2,584,557 | | | $ | 2,577,698 | |
| FHLB Des Moines | 34,600 | | | 34,600 | | | 620,901 | | | 620,006 | | | 1,036,313 | | | 1,004,530 | |
| FHLB Boston | 22,520 | | | 22,520 | | | 325,375 | | | 326,639 | | | 482,410 | | | 553,384 | |
| Total | $ | 137,760 | | | $ | 137,760 | | | $ | 2,562,684 | | | $ | 2,566,410 | | | $ | 4,103,280 | | | $ | 4,135,612 | |
In addition, in January 2021, Global Atlantic launched an inaugural funding agreement backed note ("FABN") program, through which GA Global Funding Trust, a special purpose statutory trust, was established to offer its senior secured medium-term notes. Net proceeds from each sale of the aforementioned notes are used to purchase one or more funding agreements from Forethought Life Insurance Company, an insurance subsidiary of Global Atlantic. As of March 31, 2022and December 31, 2021, Global Atlantic had $4.6 billion and $3.5 billion of such funding agreements outstanding, with $5.4 billion and $6.5 billion of remaining capacity under the program, respectively. Subsequent to quarter-end, in April 2022, Global Atlantic issued an additional $900 million of funding agreements in connection with the program.
Repurchase agreement transactions
As of March 31, 20222023 and December 31, 2021,2022, Global Atlantic participated in third-party repurchase agreements with a notional value of $810.5$312.2 million and $300.4$798.9 million, respectively. As collateral for these transactions, as of March 31, 2022 and December 31, 2021, Global Atlantic postedmay post AFS fixed maturity securities with a fair value and amortized cost of $829.0 million and $915.0 million, and $313.0 million and $317.0 million, respectively,residential mortgage loans, which are included in Insurance - Investments in the consolidated statements of financial condition.
The faircarrying value of securitiesassets pledged for repurchase agreements by classtype of collateral and remaining contractual maturity of the repurchase agreements as of March 31, 20222023 and December 31, 20212022 is presented in the following tables:
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| As of March 31, 2023 | | Overnight | | <30 Days | | 30 - 90 Days | | > 90 Days | | Total |
| AFS corporate securities | | $ | — | | | $ | — | | | $ | — | | | $ | 326,681 | | | $ | 326,681 | |
| Residential mortgage loans | | — | | | 1,605 | | | — | | | — | | | 1,605 | |
| Total borrowing | | $ | — | | | $ | 1,605 | | | $ | — | | | $ | 326,681 | | | $ | 328,286 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2022 | | Overnight | | <30 Days | | 30 - 90 Days | | > 90 Days | | Total |
| Corporate Securities | | $ | — | | | $ | 519,752 | | | $ | — | | | $ | 309,292 | | | $ | 829,044 | |
| Total borrowing | | $ | — | | | $ | 519,752 | | | $ | — | | | $ | 309,292 | | | $ | 829,044 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 | | Overnight | | <30 Days | | 30 - 90 Days | | > 90 Days | | Total |
| Corporate Securities | | $ | — | | | $ | — | | | $ | — | | | $ | 312,965 | | | $ | 312,965 | |
| Total borrowing | | $ | — | | | $ | — | | | $ | — | | | $ | 312,965 | | | $ | 312,965 | |
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| As of December 31, 2022 | | Overnight | | <30 Days | | 30 - 90 Days | | > 90 Days | | Total |
| AFS corporate securities | | $ | — | | | $ | — | | | $ | 507,656 | | | $ | 325,912 | | | $ | 833,568 | |
| Total borrowing | | $ | — | | | $ | — | | | $ | 507,656 | | | $ | 325,912 | | | $ | 833,568 | |
OtherCertain of Global Atlantic’s subsidiaries are members of regional banks in the Federal Home Loan Banks (FHLB) system and such membership requires the members to own stock in these FHLBs. Global Atlantic owns an aggregate of $129 million (accounted for at cost basis) of stock in FHLBs as of both March 31, 2023 and December 31, 2022. In addition, Global Atlantic’s operating insurance subsidiaries have entered into funding agreements with the FHLB, which require that Global Atlantic pledge eligible assets, such as fixed maturity securities and mortgage loans, as collateral. Assets pledged as collateral for these funding agreements had a carrying value of $3.7 billion and $3.6 billion as of March 31, 2023 and December 31, 2022, respectively.
As of March 31, 20222023 and December 31, 2021,2022, the cost or amortized cost and faircarrying value of the assets on deposit with various state and U.S. governmental authorities was $184.0were $149.0 million and $165.6 million, and $182.6 million and $180.8$142.7 million, respectively.
9. DERIVATIVES
Asset Management
KKR and certain of its consolidated funds have entered into derivative transactions as part of their overall risk management for the asset management business and investment strategies. These derivative contracts are not designated as hedging instruments for accounting purposes. Such contracts may include forward, swap and option contracts related to foreign currencies and interest rates to manage foreign exchange risk and interest rate risk arising from certain assets and liabilities. All derivatives are recognized in Other Assets or Accrued Expenses and Other Liabilities and are presented on a gross basis in the consolidated statements of financial condition and measured at fair value with changes in fair value recorded in Net Gains (Losses) from Investment Activities in the accompanying consolidated statements of operations. KKR's derivative financial instruments contain credit risk to the extent that its counterparties may be unable to meet the terms of the agreements. KKR attempts to reduce this risk by limiting its counterparties to major financial institutions with strong credit ratings.
Insurance
Global Atlantic holds derivative instruments that are primarily used in its hedge program. Global Atlantic has established a hedge program that seeks to mitigate economic impacts primarily from interest rate and equity price movements, while taking into consideration accounting and capital impacts.
Global Atlantic hedges interest rate and equity market risks associated with its insurance liabilities including fixed-indexed annuities, indexed universal life policies, variable annuity policies and variable universal life policies, among others. For fixed-indexed annuities and indexed universal life policies, Global Atlantic generally seeks to use static hedges to offset the exposure primarily created by changes in its embedded derivative balances. Global Atlantic generally purchases options which replicate the crediting rate strategies, often in the form of call spreads. Call spreads are the purchase of a call option matched by the sale of a different call option. For variable annuities and variable universal life policies, Global Atlantic generally seeks to dynamically hedge its exposure to changes in the value of the guarantee it provides to policyholders. Doing so requires the active trading of several financial instruments to respond to changes in market conditions. In addition, Global Atlantic enters into inflation swaps to manage inflation risk associated with inflation-indexed preneed policies.
In the context of specific reinsurance transactions in the institutional channel or acquisitions, Global Atlantic may also enter into hedges which are designed to limit short-term market risks to the economic value of the target assets. From time to time, Global Atlantic also enters into hedges designed to mitigate interest rate and credit risk in investment income, interest expense, and fair value of assets and liabilities. In addition, Global Atlantic enters into currency swaps and forwards to manage any foreign exchange rate risks that may arise from investments denominated in foreign currencies.
Global Atlantic attempts to mitigate the risk of loss due to ineffectiveness under these derivative investments through a regular monitoring process which evaluates the program’s effectiveness. Global Atlantic is exposed to risk of loss in the event of non-performance by the counterparties and, accordingly, all option contracts are purchased from counterparties that have been evaluated for creditworthiness. All of these counterparties are nationally recognized financial institutions with a Moody’s or S&P investment-grade credit rating. Global Atlantic monitors its derivative activities by reviewing portfolio activities and risk levels. Global Atlantic also oversees all derivative transactions to ensure that the types of transactions entered into and the results obtained from those transactions are consistent with both Global Atlantic's risk management strategy and its policies and procedures.
The restricted cash which was held in connection with open derivative transactions with exchange brokers was $363.7$250.4 million and $151.1$278.7 million as of March 31, 20222023 and December 31, 2021,2022, respectively.
Global Atlantic also has embedded derivatives related to reinsurance contracts that are accounted for on a modified coinsurance and funds withheld basis. An embedded derivative exists because the arrangement exposes the reinsurer to third-party credit risk. These embedded derivatives are included in funds withheld receivable and payable at interest in the consolidated balance sheets.statements of financial condition.
Credit Risk
Global Atlantic may be exposed to credit-related losses in the event of nonperformance by its counterparties to derivatives. Generally, the current credit exposure of the Global Atlantic’s derivatives is limited to the positive fair value of derivatives less any collateral received from the counterparty.
Global Atlantic manages the credit risk on its derivatives by entering into derivative transactions with highly rated financial institutions and other creditworthy counterparties and, where feasible, by trading through central clearing counterparties. Global Atlantic further manages its credit risk on derivatives via the use of master netting agreements, which require the daily posting of collateral by the party in a liability position. Counterparty credit exposure and collateral values are monitored
Notes to Financial Statements (Continued)
regularly and measured against counterparty exposure limits. The provisions of derivative transactions may allow for the termination and settlement of a transaction if there is a downgrade to Global Atlantic’s financial strength ratings below a specified level.
The fair value and notional value of the derivative assets and liabilities were as follows:
| | | | | | | | | | | | | | | | | | |
| As of March 31, 2023 | | Notional Value | | Derivative
Assets | | Derivative
Liabilities |
| Asset Management | | | | | | |
| Foreign Exchange Contracts and Options | | $ | 11,590,982 | | | $ | 573,820 | | | $ | 276,405 | |
| Other Derivatives | | 163,352 | | | 17,404 | | | 6,117 | |
| Total Asset Management | | $ | 11,754,334 | | | $ | 591,224 | | | $ | 282,522 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Insurance | | | | | | |
| Derivatives designated as hedge accounting instruments: | | | | | | |
| Interest rate contracts | | $ | 8,063,500 | | | $ | 6,544 | | | $ | 590,222 | |
| Foreign currency contracts | | 2,108,725 | | | 34,604 | | | 41,315 | |
| Total derivatives designated as hedge accounting instruments | | $ | 10,172,225 | | | $ | 41,148 | | | $ | 631,537 | |
| Derivatives not designated as hedge accounting instruments: | | | | | | |
| Interest rate contracts | | $ | 14,689,159 | | | $ | 225,297 | | | $ | 127,700 | |
| Equity market contracts | | 34,079,321 | | | 900,174 | | | 169,580 | |
| Foreign currency contracts | | 648,557 | | | 83,374 | | | 32,826 | |
| Credit risk contracts | | 60,000 | | | — | | | 851 | |
| | | | | | |
| Total derivatives not designated as hedge accounting instruments | | $ | 49,477,037 | | | $ | 1,208,845 | | | $ | 330,957 | |
Impact of netting(2) | | $ | — | | | $ | (344,226) | | | $ | (344,226) | |
Total Insurance(1) | | $ | 59,649,262 | | | $ | 905,767 | | | $ | 618,268 | |
| | | | | | |
| Fair value included within total assets and liabilities | | $ | 71,403,596 | | | $ | 1,496,991 | | | $ | 900,790 | |
(1)Excludes embedded derivatives. The fair value of these embedded derivatives in an asset position was $(18.0) million and the fair value of these embedded derivatives in a liability position was $(281.7) million as of March 31, 2023.
(2)Represents netting of derivative exposures covered by qualifying master netting agreements.
| | | | | | | | | | | | | | | | | |
| As of December 31, 2022 |
Notional Value | | Derivative
Assets | | Derivative
Liabilities |
| Asset Management | | | | | |
| Foreign Exchange Contracts and Options | $ | 16,144,795 | | | $ | 668,716 | | | $ | 406,746 | |
| Other Derivatives | 125,000 | | | 7,519 | | | 11,018 | |
| Total Asset Management | $ | 16,269,795 | | | $ | 676,235 | | | $ | 417,764 | |
| | | | | |
| Insurance | | | | | |
| Derivatives designated as hedge accounting instruments: | | | | | |
| Interest rate contracts | $ | 6,999,000 | | | $ | — | | | $ | 695,296 | |
| Foreign currency contracts | 2,021,061 | | | 42,557 | | | 44,238 | |
| Total derivatives designated as hedge accounting instruments | $ | 9,020,061 | | | $ | 42,557 | | | $ | 739,534 | |
| Derivatives not designated as hedge accounting instruments: | | | | | |
| Interest rate contracts | $ | 8,700,253 | | | $ | 182,734 | | | $ | 267,033 | |
| Equity market contracts | 34,889,122 | | | 626,391 | | | 91,344 | |
| Foreign currency contracts | 675,390 | | | 84,883 | | | 47,442 | |
| Credit risk contracts | 60,000 | | | — | | | 929 | |
| Total derivatives not designated as hedge accounting instruments | $ | 44,324,765 | | | $ | 894,008 | | | $ | 406,748 | |
Impact of netting(2) | $ | — | | | $ | (212,175) | | | $ | (212,175) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Total Insurance(1) | $ | 53,344,826 | | | $ | 724,390 | | | $ | 934,107 | |
| | | | | |
| Fair value included within total assets and liabilities | $ | 69,614,621 | | | $ | 1,400,625 | | | $ | 1,351,871 | |
Notes to Financial Statements (Continued)
(1)Excludes embedded derivatives. The fair value of these embedded derivatives in an asset position was $12.8 million and the fair value of these embedded derivatives in a liability position was $(1.3) billion as of December 31, 2022.
(2)Represents netting of derivative exposures covered by qualifying master netting agreements.
Derivatives designated as accounting hedges
Where Global Atlantic has derivative instruments that are designated and qualify as accounting hedges, these derivative instruments receive hedge accounting.
Global Atlantic has designated interest rate swaps to hedge the interest rate risk associated with the $500 million senior unsecured notes due 2029, $650 million senior unsecured notes due 2031, FHLB and FABN funding agreement liabilities in fair value hedges. The 2029 Senior Notes and 2031 Senior Notes are reported in debt and FHLB and FABN funding agreement liabilities are reported in policy liabilities in the consolidated statements of financial condition and are hedged through their respective maturities. These hedges qualify for the shortcut method of assessing hedge effectiveness.
The following table represents the gains (losses) recognized on derivative instruments and related hedged items in fair value hedging relationship:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 | Derivatives | | Hedged items | | Net |
| 2029 Senior Notes | $ | (29,121) | | | $ | 29,121 | | | $ | — | |
| 2031 Senior Notes | (41,439) | | | 41,439 | | | — | |
| FHLB funding agreement liabilities | (18,791) | | | 18,791 | | | — | |
| FABN liabilities | (102,583) | | | 102,583 | | | — | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 | Derivatives | | Hedged items | | Net |
| 2029 Senior Notes | $ | (26,379) | | | $ | 26,379 | | | $ | — | |
| FHLB funding agreement liabilities | (5,325) | | | 5,325 | | | — | |
The following table represents the carrying values and fair value adjustments for the hedged items:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2022 | | As of December 31, 2021 |
| Carrying value | | Fair value of hedge adjustments | | Carrying value | | Fair value of hedge adjustments |
| 2029 Senior Notes | $ | 436,868 | | | $ | (29,121) | | | $ | 473,890 | | | $ | (18,808) | |
| 2031 Senior Notes | 608,561 | | | (41,439) | | | 644,439 | | | (5,561) | |
| FHLB funding agreement liabilities | 1,038,085 | | | (18,791) | | | 1,070,770 | | | (16,092) | |
| FABN liabilities | 3,921,609 | | | (102,583) | | | — | | | — | |
Global Atlantic has designated bond forwards to hedge the interest rate risk associated with the planned purchase of AFS debt securities in cash flow hedges. Regression analysis is used to assess the effectiveness of these hedges. As of March 31, 2022 and December 31, 2021, there was a cumulative (loss) gain of $(48.1) million and $9.4 million on the bond forwards recorded in accumulated other comprehensive (loss) income, respectively. Amounts deferred in accumulated other comprehensive (loss) income are reclassified to net investment income following the qualifying purchases of AFS securities, as an adjustment to the yield earned over the life of the purchased securities, using the effective interest method. These arrangements are hedging purchases from July 2021 through January 2027 and are expected to affect earnings until 2051. There were $2.9 million of securities purchased for the three months ended March 31, 2022. Global Atlantic estimates that the amount of gains/losses in accumulated other comprehensive (loss) income to be reclassified into earnings in the next 12 months will not be material.
Global Atlantic has designated foreign exchange forward purchase contracts ("FX forwards") to hedge the foreign currency risk associated with foreign currency-denominated bonds in fair value hedges. These foreign currency-denominated bonds are accounted for as AFS fixed maturity securities. Changes in the fair value of the hedged AFS fixed maturity securities due to changes in spot exchange rates are reclassified from AOCI to earnings, which offsets the earnings impact of the spot changes of the FX forwards.forwards, both of which are recognized within investment-related (losses) gains. The effectiveness of these hedges is assessed using the spot method. Changes in the fair value of the FX forwards related to changes in the spot-forward difference are excluded from the assessment of hedge effectiveness and are deferred in AOCI and recognized in earnings using a systematic and rational method over the life of the FX forwards.
The following table representspresents the gains (losses) related tofinancial statement classification, carrying amount and cumulative fair value hedging adjustments for qualifying hedged assets and liabilities:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2023 | | As of December 31, 2022 |
| Carrying amount of hedged assets/(liabilities) | | Cumulative amount of fair value hedging adjustments included in the carrying amount of hedged assets/(liabilities)(1) | | Carrying amount of hedged assets/(liabilities) | | Cumulative amount of fair value hedging adjustments included in the carrying amount of hedged assets/(liabilities)(1) |
AFS fixed maturity securities(2) | $ | 2,037,271 | | | $ | 29,624 | | | $ | 2,010,748 | | | $ | (61,785) | |
| Debt | 975,672 | | | (167,868) | | | 945,873 | | | (201,603) | |
| Policy liabilities | (6,155,007) | | | (349,127) | | | (5,670,884) | | | (435,494) | |
| | | | | | | |
(1)Includes $46.3 million and $53.1 million of hedging adjustments on discontinued hedging relationships as of March 31, 2023 and December 31, 2022, respectively.
(2)Carrying amount is the FX forwards hedging instruments:amortized cost for AFS debt securities.
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| Net investment-related gains (losses) | $ | 40,742 | | | $ | 2,825 | |
| AOCI | 18,318 | | | 165 | |
| Amortization - excluded component | 3,544 | | | (839) | |
As of March 31, 2023 and December 31, 2022, there was a cumulative (loss) gain of $(111.9) million and $(169.8) million on the currently designated bond forwards recorded in accumulated other comprehensive loss, respectively. Amounts deferred in accumulated other comprehensive loss are reclassified to net investment income following the qualifying purchases of AFS securities, as an adjustment to the yield earned over the life of the purchased securities, using the effective interest method.
Global Atlantic estimates that the amount of gains/losses in accumulated other comprehensive loss to be reclassified into earnings in the next 12 months will not be material.
The fair valuefollowing table presents the financial statement classification and notional valueamount of thegains (losses) recognized on derivative assetsinstruments and liabilities were as follows:related hedged items, where applicable:
| | | | | | | | | | | | | | | | | | |
| As of March 31, 2022 | | Notional Value | | Derivative
Assets | | Derivative
Liabilities |
| Asset Management | | | | | | |
| Foreign Exchange Contracts and Options | | $ | 5,891,394,106 | | | $ | 367,079 | | | $ | 239,875 | |
| Other Derivatives | | 98,851,905 | | | 5,294 | | | 28,077 | |
| Total Asset Management | | | | 372,373 | | | 267,952 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Insurance | | | | | | |
| Equity market contracts | | $ | 129,988,065 | | | $ | 931,021 | | | $ | 181,694 | |
| Interest rate contracts | | 11,794,558 | | | 297,358 | | | 509,816 | |
| Foreign currency contracts | | 2,209,118 | | | 47,866 | | | 20,988 | |
| Credit risk contracts | | 113,133 | | | — | | | 1,360 | |
Impact of netting(1) | | | | (251,656) | | | (251,656) | |
| Fair value included within derivative assets and derivative liabilities | | | | 1,024,589 | | | 462,202 | |
| Embedded derivative – indexed universal life products | | | | — | | | 512,015 | |
| Embedded derivative – annuity products | | | | — | | | 1,777,832 | |
| Fair value included within policy liabilities | | | | — | | | 2,289,847 | |
| Embedded derivative – funds withheld at interest | | | | 8,196 | | | (1,219,491) | |
| Total Insurance | | | | 1,032,785 | | | 1,532,558 | |
| | | | | | |
| Fair value included within total assets and liabilities | | | | $ | 1,405,158 | | | $ | 1,800,510 | |
(1) Represents netting of derivative exposures covered by qualifying master netting agreements.
| | | | | | | | | | | | | | | | | |
| As of December 31, 2021 |
Notional Value | | Derivative
Assets | | Derivative
Liabilities |
| Asset Management | | | | | |
| Foreign Exchange Contracts and Options | $ | 12,822,521 | | | $ | 590,637 | | | $ | 319,511 | |
| Other Derivatives | 505,725 | | | 491 | | | 45,003 | |
| Total Asset Management | | | 591,128 | | | 364,514 | |
| | | | | |
| Insurance | | | | | |
| Equity market contracts | $ | 31,294,053 | | | $ | 1,216,843 | | | $ | 186,754 | |
| Interest rate contracts | 16,692,035 | | | 198,658 | | | 101,245 | |
| Foreign currency contracts | 1,517,434 | | | 32,464 | | | 7,639 | |
| Credit risk contracts | 107,754 | | | — | | | 1,540 | |
Impact of netting(1) | | | (152,015) | | | (152,015) | |
| Fair value included within derivative assets and derivative liabilities | | | 1,295,950 | | | 145,163 | |
| Embedded derivative – indexed universal life products | | | — | | | 557,276 | |
| Embedded derivative – annuity products | | | — | | | 1,983,949 | |
| Fair value included within policy liabilities | | | — | | | 2,541,225 | |
| Embedded derivative – funds withheld at interest | | | 31,740 | | | (49,491) | |
| Total Insurance | | | 1,327,690 | | | 2,636,897 | |
| | | | | |
| Fair value included within total assets and liabilities | | $ | 1,918,818 | | | $ | 3,001,411 | |
(1) Represents netting of derivative exposures covered by qualifying master netting agreements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2023 |
| | Net investment-related gains (losses) | | Net investment income | | Net policy benefits and claims | | Interest expense | | Change in AOCI |
| Derivatives designated as hedge accounting instruments: | | | | | | | | | | |
| Fair value hedges | | | | | | | | | | |
| Gains (losses) on derivatives designated as hedge instruments: | | | | | | | | | | |
| Interest rate contracts | | $ | — | | | $ | — | | | $ | 34,557 | | | $ | 20,104 | | | $ | — | |
| Foreign currency contracts | | (35,388) | | | — | | | — | | | — | | | 9,280 | |
| Total gains (losses) on derivatives designated as hedge instruments | | $ | (35,388) | | | $ | — | | | $ | 34,557 | | | $ | 20,104 | | | $ | 9,280 | |
| Gains (losses) on hedged items: | | | | | | | | | | |
| Interest rate contracts | | $ | — | | | $ | — | | | $ | (34,557) | | | $ | (20,104) | | | $ | — | |
| Foreign currency contracts | | 29,624 | | | — | | | — | | | — | | | — | |
| Total gains (losses) on hedged items | | $ | 29,624 | | | $ | — | | | $ | (34,557) | | | $ | (20,104) | | | $ | — | |
| Amortization for gains (losses) excluded from assessment of effectiveness: | | | | | | | | | | |
| Foreign currency contracts | | $ | 6,826 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Total amortization for gains (losses) excluded from assessment of effectiveness | | 6,826 | | | — | | | — | | | — | | | — | |
| Total gains (losses) on fair value hedges, net of hedged items | | $ | 1,062 | | | $ | — | | | $ | — | | | $ | — | | | $ | 9,280 | |
| Cash flow hedges | | | | | | | | | | |
| Interest rate contracts | | $ | (268) | | | $ | — | | | $ | — | | | $ | — | | | $ | 57,920 | |
| Total gains (losses) on cash flow hedges | | $ | (268) | | | $ | — | | | $ | — | | | $ | — | | | $ | 57,920 | |
| Derivatives not designated as hedge accounting instruments: | | | | | | | | | | |
| Asset Management | | | | | | | | | | |
| Foreign Exchange Contracts and Options | | $ | (22,366) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Other Derivatives | | 12,208 | | | — | | | — | | | — | | | — | |
| Total included in Net Gains (Losses) from Investment Activities | | $ | (10,158) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | |
| Insurance | | | | | | | | | | |
| Embedded derivatives - funds withheld receivable | | $ | (30,767) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Embedded derivatives - funds withheld payable | | (430,235) | | | — | | | — | | | — | | | — | |
| Equity index options | | 83,887 | | | — | | | — | | | — | | | — | |
| Equity future contracts | | (40,825) | | | — | | | — | | | — | | | — | |
| Interest rate contracts and other contracts | | 68,996 | | | — | | | — | | | — | | | — | |
| Credit risk contracts | | (75) | | | — | | | — | | | — | | | — | |
| | | | | | | | | | |
| Total gains (losses) on derivatives not designated as hedge accounting instruments from Insurance Activities | | $ | (349,019) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Total | | $ | (358,383) | | | $ | — | | | $ | — | | | $ | — | | | $ | 67,200 | |
The amounts of derivative gains and losses recognized are reported in the consolidated statements of operations as follows:
| | Derivative contracts not designated as hedges | | Three Months Ended March 31, | |
| | | 2022 | | 2021 | | | Three Months Ended March 31, 2022 |
| | | | Net investment-related gains (losses) | | Net investment income | | Net policy benefits and claims | | Interest expense | | Change in AOCI |
| Derivatives designated as hedge accounting instruments: | | Derivatives designated as hedge accounting instruments: | | | | | | | | | | |
| Fair value hedges | | Fair value hedges | | |
| Gains (losses) on derivatives designated as hedge instruments: | | Gains (losses) on derivatives designated as hedge instruments: | | |
| Interest rate contracts | | Interest rate contracts | | $ | — | | | $ | — | | | $ | (121,374) | | | $ | (70,000) | | | $ | — | |
| Foreign currency contracts | | Foreign currency contracts | | 40,742 | | | — | | | — | | | — | | | 18,318 | |
| Total gains (losses) on derivatives designated as hedge instruments | | Total gains (losses) on derivatives designated as hedge instruments | | $ | 40,742 | | | $ | — | | | $ | (121,374) | | | $ | (70,000) | | | $ | 18,318 | |
| Gains (losses) on hedged items: | | Gains (losses) on hedged items: | | |
| Interest rate contracts | | Interest rate contracts | | $ | — | | | $ | — | | | $ | 121,374 | | | $ | 70,000 | | | $ | — | |
| Foreign currency contracts | | Foreign currency contracts | | (35,932) | | | — | | | — | | | — | | | — | |
| Total gains (losses) on hedged items | | Total gains (losses) on hedged items | | $ | (35,932) | | | $ | — | | | $ | 121,374 | | | $ | 70,000 | | | $ | — | |
| Amortization for gains (losses) excluded from assessment of effectiveness: | | Amortization for gains (losses) excluded from assessment of effectiveness: | | |
| Foreign currency contracts | | Foreign currency contracts | | $ | 3,544 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Total amortization for gains (losses) excluded from assessment of effectiveness | | Total amortization for gains (losses) excluded from assessment of effectiveness | | $ | 3,544 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Total gains (losses) on fair value hedges, net of hedged items | | Total gains (losses) on fair value hedges, net of hedged items | | $ | 8,354 | | | $ | — | | | $ | — | | | $ | — | | | $ | 18,318 | |
| Cash flow hedges | | Cash flow hedges | | |
| Interest rate contracts | | Interest rate contracts | | $ | 203 | | | $ | — | | | $ | — | | | $ | — | | | $ | (48,064) | |
| Total gains (losses) on cash flow hedges | | Total gains (losses) on cash flow hedges | | $ | 203 | | | $ | — | | | $ | — | | | $ | — | | | $ | (48,064) | |
| Derivatives not designated as hedge accounting instruments: | | Derivatives not designated as hedge accounting instruments: | | |
| Asset Management | Asset Management | | | | | Asset Management | | |
| Net Gains (Losses) from Investment Activities: | | | |
| Foreign Exchange Contracts and Options | Foreign Exchange Contracts and Options | | $ | (56,117) | | | $ | 9,549 | | Foreign Exchange Contracts and Options | | $ | (56,117) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Other Derivatives | Other Derivatives | | 8,132 | | | (1,187) | | Other Derivatives | | 8,132 | | | — | | | — | | | — | | | — | |
| Total included in Net Gains (Losses) from Investment Activities | Total included in Net Gains (Losses) from Investment Activities | | $ | (47,985) | | | $ | 8,362 | | Total included in Net Gains (Losses) from Investment Activities | | $ | (47,985) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | Insurance | Insurance | | | Insurance | | |
| Net investment-related gains (losses): | | | |
| Funds withheld receivable embedded derivatives | | $ | (33,980) | | | $ | 55,883 | | |
| Funds withheld payable embedded derivatives | | 1,180,435 | | | 313,230 | | |
| Embedded derivatives - funds withheld receivable | | Embedded derivatives - funds withheld receivable | | $ | (33,980) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Embedded derivatives - funds withheld payable | | Embedded derivatives - funds withheld payable | | 1,180,435 | | | — | | | — | | | — | | | — | |
| Equity index options | Equity index options | | (223,366) | | | 104,021 | | Equity index options | | (223,366) | | | — | | | — | | | — | | | — | |
| Equity future contracts | Equity future contracts | | 79,796 | | | (69,583) | | Equity future contracts | | 79,796 | | | — | | | — | | | — | | | — | |
| Interest rate contracts | | (150,176) | | | (256,793) | | |
| Interest rate contracts and other contracts | | Interest rate contracts and other contracts | | (150,176) | | | — | | | — | | | — | | | — | |
| Credit risk contracts | Credit risk contracts | | (1,532) | | | (36) | | Credit risk contracts | | (1,532) | | | — | | | — | | | — | | | — | |
| | Total included in net investment-related gains (losses) | | $ | 851,177 | | | $ | 146,722 | | |
| Total gains (losses) on derivatives not qualifying as hedge accounting instruments from Insurance Activities | | Total gains (losses) on derivatives not qualifying as hedge accounting instruments from Insurance Activities | | $ | 851,177 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Total | | Total | | $ | 811,749 | | | $ | — | | | $ | — | | | $ | — | | | $ | (29,746) | |
| | | | | | | | | | | | | | | | | | | |
| Derivative contracts designated as hedges | | | | | Three Months Ended March 31, |
| | | | | | | | | 2022 | | 2021 |
| Insurance | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | |
| Foreign currency forwards | | | | | | | | | $ | 8,557 | | | $ | 1,810 | |
| Total included in net investment-related gains (losses) | | | | | | | | | $ | 8,557 | | | $ | 1,810 | |
| Policy benefits and claims: | | | | | | | | | | | |
| Interest rate swap | | | | | | | | | $ | (129,931) | | | $ | (8,403) | |
| Total included in policy benefits and claims | | | | | | | | | $ | (129,931) | | | $ | (8,403) | |
| Interest expense: | | | | | | | | | | | |
| Interest rate swap | | | | | | | | | $ | (70,561) | | | $ | (24,776) | |
| Total included in interest expense | | | | | | | | | $ | (70,561) | | | $ | (24,776) | |
Collateral
The amount of Global Atlantic's net derivative assets and liabilities after consideration of collateral received or pledged were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2022 | Gross amount recognized | | Gross amounts offset in the statement of financial position(1) | | Net amounts presented in the statement of financial condition | | Collateral (received) / pledged | | Net amount after collateral |
| Derivative assets (excluding embedded derivatives) | $ | 1,276,245 | | | $ | (251,656) | | | $ | 1,024,589 | | | $ | (894,687) | | | $ | 129,902 | |
| Derivative liabilities (excluding embedded derivatives) | $ | 713,858 | | | $ | (251,656) | | | $ | 462,202 | | | $ | 79,070 | | | $ | 383,132 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2023 | Gross amount recognized | | Gross amounts offset in the statements of financial position(1) | | Net amounts presented in the statements of financial condition | | Collateral (received) / pledged | | Net amount after collateral |
| Derivative assets (excluding embedded derivatives) | $ | 1,249,993 | | | $ | (344,226) | | | $ | 905,767 | | | $ | (644,591) | | | $ | 261,176 | |
| Derivative liabilities (excluding embedded derivatives) | $ | 962,494 | | | $ | (344,226) | | | $ | 618,268 | | | $ | 371,856 | | | $ | 246,412 | |
(1)Represents netting of derivative exposures covered by qualifying master netting agreements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 | Gross amount recognized | | Gross amounts offset in the statement of financial position(1) | | Net amounts presented in the statement of financial condition | | Collateral (received) / pledged | | Net amount after collateral |
| Derivative assets (excluding embedded derivatives) | $ | 1,447,965 | | | $ | (152,015) | | | $ | 1,295,950 | | | $ | (1,086,061) | | | $ | 209,889 | |
| Derivative liabilities (excluding embedded derivatives) | $ | 297,178 | | | $ | (152,015) | | | $ | 145,163 | | | $ | 49,860 | | | $ | 95,303 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2022 | Gross amount recognized | | Gross amounts offset in the statements of financial position(1) | | Net amounts presented in the statements of financial condition | | Collateral (received) / pledged | | Net amount after collateral |
| Derivative assets (excluding embedded derivatives) | $ | 936,565 | | | $ | (212,175) | | | $ | 724,390 | | | $ | (466,371) | | | $ | 258,019 | |
| Derivative liabilities (excluding embedded derivatives) | $ | 1,146,282 | | | $ | (212,175) | | | $ | 934,107 | | | $ | 366,508 | | | $ | 567,599 | |
(1) Represents netting of derivative exposures covered by qualifying master netting agreements.
10. FAIR VALUE MEASUREMENTS
The following tables summarize the valuation of assets and liabilities measured and reported at fair value by the fair value hierarchy. Investments classified as Equity Method - Other, for which the fair value option has not been elected, and Equity Method - Capital Allocation-Based Income have been excluded from the tables below.
Assets, at fair value: | | | | March 31, 2022 | | March 31, 2023 |
| | | Level I | | Level II | | Level III | | Total | | Level I | | Level II | | Level III | | Total |
| Asset Management | Asset Management | | | | | | | | Asset Management | | | | | | | |
| Private Equity | Private Equity | $ | 1,906,139 | | | $ | 275,759 | | | $ | 23,999,016 | | | $ | 26,180,914 | | Private Equity | $ | 1,199,178 | | | $ | 65,526 | | | $ | 26,189,501 | | | $ | 27,454,205 | |
| Credit | Credit | — | | | 1,506,877 | | | 5,314,853 | | | 6,821,730 | | Credit | 287,728 | | | 2,107,625 | | | 5,902,578 | | | 8,297,931 | |
| Investments of Consolidated CFEs | Investments of Consolidated CFEs | — | | | 22,014,866 | | | — | | | 22,014,866 | | Investments of Consolidated CFEs | — | | | 24,013,221 | | | — | | | 24,013,221 | |
| Real Assets | Real Assets | — | | | 1,496,708 | | | 13,292,123 | | | 14,788,831 | | Real Assets | — | | | 907,623 | | | 18,946,851 | | | 19,854,474 | |
| Equity Method - Other | Equity Method - Other | 492,913 | | | 29,985 | | | 984,904 | | | 1,507,802 | | Equity Method - Other | 408,987 | | | 983,614 | | | 1,602,694 | | | 2,995,295 | |
| Other Investments | Other Investments | 898,329 | | | 9,087 | | | 3,134,926 | | | 4,042,342 | | Other Investments | 256,140 | | | 87,107 | | | 3,738,446 | | | 4,081,693 | |
| Total Investments | Total Investments | 3,297,381 | | | 25,333,282 | | | 46,725,822 | | | 75,356,485 | | Total Investments | $ | 2,152,033 | | | $ | 28,164,716 | | | $ | 56,380,070 | | | $ | 86,696,819 | |
| | Foreign Exchange Contracts and Options | Foreign Exchange Contracts and Options | — | | | 367,079 | | | — | | | 367,079 | | Foreign Exchange Contracts and Options | — | | | 573,820 | | | — | | | 573,820 | |
| Other Derivatives | Other Derivatives | 547 | | | 4,042 | | | 705 | | (1) | 5,294 | | Other Derivatives | — | | | 17,404 | | | — | | | 17,404 | |
| Total Assets at Fair Value - Asset Management | Total Assets at Fair Value - Asset Management | $ | 3,297,928 | | | $ | 25,704,403 | | | $ | 46,726,527 | | | $ | 75,728,858 | | Total Assets at Fair Value - Asset Management | $ | 2,152,033 | | | $ | 28,755,940 | | | $ | 56,380,070 | | | $ | 87,288,043 | |
| | Insurance | Insurance | | | | | | | | Insurance | | | | | | | |
| AFS fixed maturity securities: | AFS fixed maturity securities: | | AFS fixed maturity securities: | |
| U.S. government and agencies | U.S. government and agencies | $ | 301,899 | | | $ | 189,275 | | | $ | — | | | $ | 491,174 | | U.S. government and agencies | $ | 290,343 | | | $ | 88,183 | | | $ | — | | | $ | 378,526 | |
| U.S. state, municipal and political subdivisions | U.S. state, municipal and political subdivisions | — | | | 4,786,996 | | | — | | | 4,786,996 | | U.S. state, municipal and political subdivisions | — | | | 4,568,224 | | | — | | | 4,568,224 | |
| Corporate | Corporate | — | | | 28,975,437 | | | 7,970,195 | | | 36,945,632 | | Corporate | — | | | 31,939,768 | | | 8,294,423 | | | 40,234,191 | |
| Structured securities | Structured securities | — | | | 20,637,356 | | | 1,382,539 | | | 22,019,895 | | Structured securities | — | | | 20,877,017 | | | 1,770,785 | | | 22,647,802 | |
| Total AFS fixed maturity securities | Total AFS fixed maturity securities | 301,899 | | | 54,589,064 | | | 9,352,734 | | | 64,243,697 | | Total AFS fixed maturity securities | $ | 290,343 | | | $ | 57,473,192 | | | $ | 10,065,208 | | | $ | 67,828,743 | |
| Trading fixed maturity securities: | Trading fixed maturity securities: | | Trading fixed maturity securities: | |
| U.S. government and agencies | U.S. government and agencies | 233,754 | | | 158,440 | | | — | | | 392,194 | | U.S. government and agencies | $ | 254,678 | | | $ | 63,165 | | | $ | — | | | $ | 317,843 | |
| U.S. state, municipal and political subdivisions | U.S. state, municipal and political subdivisions | — | | | 857,021 | | | — | | | 857,021 | | U.S. state, municipal and political subdivisions | — | | | 622,337 | | | — | | | 622,337 | |
| Corporate | Corporate | — | | | 7,582,756 | | | 705,685 | | | 8,288,441 | | Corporate | — | | | 7,489,952 | | | 631,870 | | | 8,121,822 | |
| Structured securities | Structured securities | — | | | 2,893,125 | | | 630,579 | | | 3,523,704 | | Structured securities | — | | | 3,031,798 | | | 661,565 | | | 3,693,363 | |
| Total trading fixed maturity securities | Total trading fixed maturity securities | 233,754 | | | 11,491,342 | | | 1,336,264 | | | 13,061,360 | | Total trading fixed maturity securities | $ | 254,678 | | | $ | 11,207,252 | | | $ | 1,293,435 | | | $ | 12,755,365 | |
| Equity securities | Equity securities | 5,854 | | | — | | | 32,937 | | | 38,791 | | Equity securities | 2,229 | | | — | | | 15,311 | | | 17,540 | |
Mortgage and other loan receivables(2) | Mortgage and other loan receivables(2) | — | | | — | | | 1,007,906 | | | 1,007,906 | | Mortgage and other loan receivables(2) | — | | | — | | | 773,917 | | | 773,917 | |
Other investments(3)(1) | Other investments(3)(1) | — | | | — | | | 3,620,186 | | | 3,620,186 | | Other investments(3)(1) | — | | | — | | | 5,009,113 | | | 5,009,113 | |
| Funds withheld receivable at interest | Funds withheld receivable at interest | — | | | — | | | 8,196 | | | 8,196 | | Funds withheld receivable at interest | — | | | — | | | (17,982) | | | (17,982) | |
| Reinsurance recoverable | Reinsurance recoverable | — | | | — | | | 1,231,957 | | | 1,231,957 | | Reinsurance recoverable | — | | | — | | | 1,010,602 | | | 1,010,602 | |
| Derivative assets: | Derivative assets: | | Derivative assets: | |
| Equity market contracts | Equity market contracts | 57,568 | | | 873,453 | | | — | | | 931,021 | | Equity market contracts | 12,439 | | | 887,735 | | | — | | | 900,174 | |
| Interest rate contracts | Interest rate contracts | 38,903 | | | 258,455 | | | — | | | 297,358 | | Interest rate contracts | 26,775 | | | 205,066 | | | — | | | 231,841 | |
| | Foreign currency contracts | Foreign currency contracts | — | | | 47,866 | | | — | | | 47,866 | | Foreign currency contracts | — | | | 117,978 | | | — | | | 117,978 | |
Impact of netting(4)(2) | Impact of netting(4)(2) | (38,609) | | | (213,047) | | | — | | | (251,656) | | Impact of netting(4)(2) | (60,383) | | | (283,843) | | | — | | | (344,226) | |
| Total derivative assets | Total derivative assets | 57,862 | | | 966,727 | | | — | | | 1,024,589 | | Total derivative assets | $ | (21,169) | | | $ | 926,936 | | | $ | — | | | $ | 905,767 | |
| Separate account assets | Separate account assets | 5,069,742 | | | — | | | — | | | 5,069,742 | | Separate account assets | 4,164,803 | | | — | | | — | | | 4,164,803 | |
| Total Assets at Fair Value - Insurance | Total Assets at Fair Value - Insurance | $ | 5,669,111 | | | $ | 67,047,133 | | | $ | 16,590,180 | | | $ | 89,306,424 | | Total Assets at Fair Value - Insurance | $ | 4,690,884 | | | $ | 69,607,380 | | | $ | 18,149,604 | | | $ | 92,447,868 | |
| | | Total Assets at Fair Value | Total Assets at Fair Value | $ | 8,967,039 | | | $ | 92,751,536 | | | $ | 63,316,707 | | | $ | 165,035,282 | | Total Assets at Fair Value | $ | 6,842,917 | | | $ | 98,363,320 | | | $ | 74,529,674 | | | $ | 179,735,911 | |
| | | | December 31, 2021 | | December 31, 2022 |
| | | Level I | | Level II | | Level III | | Total | | Level I | | Level II | | Level III | | Total |
| Asset Management | Asset Management | | | | | | | | Asset Management | | | | | | | |
| Private Equity | Private Equity | $ | 2,044,380 | | | $ | 318,736 | | | $ | 23,322,634 | | | $ | 25,685,750 | | Private Equity | $ | 1,057,025 | | | $ | 213,706 | | | $ | 25,336,957 | | | $ | 26,607,688 | |
| Credit | Credit | — | | | 2,122,912 | | | 5,826,661 | | | 7,949,573 | | Credit | 187,504 | | | 1,830,862 | | | 5,786,026 | | | 7,804,392 | |
| Investments of Consolidated CFEs | Investments of Consolidated CFEs | — | | | 22,076,809 | | | — | | | 22,076,809 | | Investments of Consolidated CFEs | — | | | 22,492,366 | | | — | | | 22,492,366 | |
| Real Assets | Real Assets | — | | | 1,111,219 | | | 11,389,530 | | | 12,500,749 | | Real Assets | — | | | 961,254 | | | 17,015,112 | | | 17,976,366 | |
| Equity Method - Other | Equity Method - Other | 482,061 | | | 105,647 | | | 1,013,807 | | | 1,601,515 | | Equity Method - Other | 435,315 | | | 883,652 | | | 1,624,420 | | | 2,943,387 | |
| Other Investments | Other Investments | 759,002 | | | 146,081 | | | 3,240,013 | | | 4,145,096 | | Other Investments | 395,972 | | | 63,060 | | | 3,334,366 | | | 3,793,398 | |
| Total Investments | Total Investments | 3,285,443 | | | 25,881,404 | | | 44,792,645 | | | 73,959,492 | | Total Investments | $ | 2,075,816 | | | $ | 26,444,900 | | | $ | 53,096,881 | | | $ | 81,617,597 | |
| | Foreign Exchange Contracts and Options | Foreign Exchange Contracts and Options | — | | | 590,637 | | | — | | | 590,637 | | Foreign Exchange Contracts and Options | — | | | 668,716 | | | — | | | 668,716 | |
| Other Derivatives | Other Derivatives | — | | | 12 | | | 479 | | (1) | 491 | | Other Derivatives | 9 | | | 7,510 | | | — | | | 7,519 | |
| Total Assets at Fair Value - Asset Management | Total Assets at Fair Value - Asset Management | $ | 3,285,443 | | | $ | 26,472,053 | | | $ | 44,793,124 | | | $ | 74,550,620 | | Total Assets at Fair Value - Asset Management | $ | 2,075,825 | | | $ | 27,121,126 | | | $ | 53,096,881 | | | $ | 82,293,832 | |
| | Insurance | Insurance | | | | | | | | Insurance | | | | | | | |
| AFS fixed maturity securities: | AFS fixed maturity securities: | | AFS fixed maturity securities: | |
| U.S. government and agencies | U.S. government and agencies | $ | 500,325 | | | $ | 284,222 | | | $ | — | | | $ | 784,547 | | U.S. government and agencies | $ | 283,402 | | | $ | 83,339 | | | $ | — | | | $ | 366,741 | |
| U.S. state, municipal and political subdivisions | U.S. state, municipal and political subdivisions | — | | | 5,109,697 | | | — | | | 5,109,697 | | U.S. state, municipal and political subdivisions | — | | | 4,410,960 | | | — | | | 4,410,960 | |
| Corporate | Corporate | — | | | 33,281,727 | | | 7,650,660 | | | 40,932,387 | | Corporate | — | | | 28,006,275 | | | 8,310,657 | | | 36,316,932 | |
| Structured securities | Structured securities | — | | | 21,215,854 | | | 828,401 | | | 22,044,255 | | Structured securities | — | | | 19,425,455 | | | 1,419,441 | | | 20,844,896 | |
| Total AFS fixed maturity securities | Total AFS fixed maturity securities | 500,325 | | | 59,891,500 | | | 8,479,061 | | | 68,870,886 | | Total AFS fixed maturity securities | $ | 283,402 | | | $ | 51,926,029 | | | $ | 9,730,098 | | | $ | 61,939,529 | |
| Trading fixed maturity securities: | Trading fixed maturity securities: | | Trading fixed maturity securities: | |
| U.S. government and agencies | U.S. government and agencies | 371,366 | | | 252,266 | | | — | | | 623,632 | | U.S. government and agencies | $ | 93,697 | | | $ | 59,940 | | | $ | — | | | $ | 153,637 | |
| U.S. state, municipal and political subdivisions | U.S. state, municipal and political subdivisions | — | | | 879,463 | | | — | | | 879,463 | | U.S. state, municipal and political subdivisions | — | | | 705,836 | | | — | | | 705,836 | |
| Corporate | Corporate | — | | | 8,486,922 | | | 565,025 | | | 9,051,947 | | Corporate | — | | | 7,218,354 | | | 672,023 | | | 7,890,377 | |
| Structured securities | Structured securities | — | | | 2,779,757 | | | 418,774 | | | 3,198,531 | | Structured securities | — | | | 2,645,186 | | | 643,811 | | | 3,288,997 | |
| Total trading fixed maturity securities | Total trading fixed maturity securities | 371,366 | | | 12,398,408 | | | 983,799 | | | 13,753,573 | | Total trading fixed maturity securities | $ | 93,697 | | | $ | 10,629,316 | | | $ | 1,315,834 | | | $ | 12,038,847 | |
| Equity securities | Equity securities | 256,196 | | | — | | | 32,937 | | | 289,133 | | Equity securities | 2,213 | | | — | | | 16,286 | | | 18,499 | |
Mortgage and other loan receivables(2) | — | | | — | | | 832,674 | | | 832,674 | | |
Other investments(3) | — | | | — | | | 1,603,345 | | | 1,603,345 | | |
| Mortgage and other loan receivables | | Mortgage and other loan receivables | — | | | — | | | 787,515 | | | 787,515 | |
Other investments(1) | | Other investments(1) | — | | | — | | | 4,883,441 | | | 4,883,441 | |
| Funds withheld receivable at interest | Funds withheld receivable at interest | — | | | — | | | 31,740 | | | 31,740 | | Funds withheld receivable at interest | — | | | — | | | 12,785 | | | 12,785 | |
| Reinsurance recoverable | Reinsurance recoverable | — | | | — | | | 1,293,791 | | | 1,293,791 | | Reinsurance recoverable | — | | | — | | | 981,775 | | | 981,775 | |
| Derivative assets: | Derivative assets: | | Derivative assets: | |
| Equity market contracts | Equity market contracts | 66,510 | | | 1,150,333 | | | — | | | 1,216,843 | | Equity market contracts | 31,025 | | | 595,366 | | | — | | | 626,391 | |
| Interest rate contracts | Interest rate contracts | 44,472 | | | 154,186 | | | — | | | 198,658 | | Interest rate contracts | 4,856 | | | 177,878 | | | — | | | 182,734 | |
| | Foreign currency contracts | Foreign currency contracts | — | | | 32,464 | | | — | | | 32,464 | | Foreign currency contracts | — | | | 127,440 | | | — | | | 127,440 | |
Impact of netting(4) | (25,588) | | | (126,427) | | | — | | | (152,015) | | |
Impact of netting(2) | | Impact of netting(2) | (7,079) | | | (205,096) | | | — | | | (212,175) | |
| Total derivative assets | Total derivative assets | 85,394 | | | 1,210,556 | | | — | | | 1,295,950 | | Total derivative assets | $ | 28,802 | | | $ | 695,588 | | | $ | — | | | $ | 724,390 | |
| Separate account assets | Separate account assets | 5,586,428 | | | — | | | — | | | 5,586,428 | | Separate account assets | 4,130,794 | | | — | | | — | | | 4,130,794 | |
| Total Assets at Fair Value - Insurance | Total Assets at Fair Value - Insurance | $ | 6,799,709 | | | $ | 73,500,464 | | | $ | 13,257,347 | | | $ | 93,557,520 | | Total Assets at Fair Value - Insurance | $ | 4,538,908 | | | $ | 63,250,933 | | | $ | 17,727,734 | | | $ | 85,517,575 | |
| | Total Assets at Fair Value | Total Assets at Fair Value | $ | 10,085,152 | | | $ | 99,972,517 | | | $ | 58,050,471 | | | $ | 168,108,140 | | Total Assets at Fair Value | $ | 6,614,733 | | | $ | 90,372,059 | | | $ | 70,824,615 | | | $ | 167,811,407 | |
(1)Includes derivative assets that were valued using a third-party valuation firm. The approach used to estimate the fair value of these derivative assets was generally the discounted cash flow method, which includes consideration of the current portfolio, projected portfolio construction, projected portfolio realizations, portfolio volatility (based on the volatility, correlation, and size of each underlying asset class), and the discounting of future cash flows to the reporting date.
(2)Includes related party balance of $28.2 million and $27.3 million in Level III for mortgage and other loan receivables as of March 31, 2022 and December 31, 2021, respectively.
(3)Other investments excluded from the fair value hierarchy include certain real estate and private equity funds for which fair value is measured at net asset value per share as a practical expedient. As of March 31, 20222023 and December 31, 2021,2022, the fair value of these investments was $135.9$139.1 million and $108.7$148.9 million, respectively.
(4)(2)Represents netting of derivative exposures covered by qualifying master netting agreements.
Liabilities, at fair value:
| | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 |
| | Level I | | Level II | | Level III | | Total |
| Asset Management | | | | | | | |
| Securities Sold Short | $ | 136,128 | | | $ | — | | | $ | — | | | $ | 136,128 | |
| Foreign Exchange Contracts and Options | — | | | 239,875 | | | — | | | 239,875 | |
| Unfunded Revolver Commitments | — | | | — | | | 64,556 | | (1) | 64,556 | |
| Other Derivatives | — | | | 28,077 | | | — | | | 28,077 | |
| Debt Obligations of Consolidated CFEs | — | | | 21,213,206 | | | — | | | 21,213,206 | |
| Total Liabilities at Fair Value - Asset Management | $ | 136,128 | | | $ | 21,481,158 | | | $ | 64,556 | | | $ | 21,681,842 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Insurance | | | | | | | |
| Policy liabilities | $ | — | | | $ | — | | | $ | 466,408 | | | $ | 466,408 | |
| Closed block policy liabilities | — | | | — | | | 1,269,991 | | | 1,269,991 | |
| Funds withheld payable at interest | — | | | — | | | (1,219,491) | | | (1,219,491) | |
| Derivative instruments payable: | | | | | | | |
| Equity market contracts | 63,886 | | | 117,808 | | | — | | | 181,694 | |
| Interest rate contracts | 72,352 | | | 437,464 | | | — | | | 509,816 | |
| Foreign currency contracts | — | | | 20,988 | | | — | | | 20,988 | |
| Credit contracts | — | | | 1,360 | | | — | | | 1,360 | |
Impact of netting(2) | (38,609) | | | (213,047) | | | — | | | (251,656) | |
| Total derivative instruments payable | 97,629 | | | 364,573 | | | — | | | 462,202 | |
| | | | | | | |
| Embedded derivative – indexed universal life products | — | | | — | | | 512,015 | | | 512,015 | |
| Embedded derivative – annuity products | — | | | — | | | 1,777,832 | | | 1,777,832 | |
| Total Liabilities at Fair Value - Insurance | $ | 97,629 | | | $ | 364,573 | | | $ | 2,806,755 | | | $ | 3,268,957 | |
| | | | | | | |
| Total Liabilities at Fair Value | $ | 233,757 | | | $ | 21,845,731 | | | $ | 2,871,311 | | | $ | 24,950,799 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Level I | | Level II | | Level III | | Total |
| Asset Management | | | | | | | |
| Securities Sold Short | $ | 249,383 | | | $ | — | | | $ | — | | | $ | 249,383 | |
| Foreign Exchange Contracts and Options | — | | | 319,511 | | | — | | | 319,511 | |
| Unfunded Revolver Commitments | — | | | — | | | 64,276 | | (1) | 64,276 | |
| Other Derivatives | — | | | 45,003 | | | — | | | 45,003 | |
| Debt Obligations of Consolidated CFEs | — | | | 21,271,084 | | | — | | | 21,271,084 | |
| Total Liabilities at Fair Value - Asset Management | $ | 249,383 | | | $ | 21,635,598 | | | $ | 64,276 | | | $ | 21,949,257 | |
| | | | | | | |
| Insurance | | | | | | | |
| Policy liabilities | $ | — | | | $ | — | | | $ | 519,454 | | | $ | 519,454 | |
| Closed block policy liabilities | — | | | — | | | 1,350,224 | | | 1,350,224 | |
| Funds withheld payable at interest | — | | | — | | | (49,491) | | | (49,491) | |
| Derivative instruments payable: | | | | | | | |
| Equity market contracts | 33,933 | | | 152,821 | | | — | | | 186,754 | |
| Interest rate contracts | 14,009 | | | 87,236 | | | — | | | 101,245 | |
| Foreign currency contracts | — | | | 7,639 | | | — | | | 7,639 | |
| Credit contracts | — | | | 1,540 | | | — | | | 1,540 | |
Impact of netting(2) | (25,588) | | | (126,427) | | | — | | | (152,015) | |
| Total derivative instruments payable | 22,354 | | | 122,809 | | | — | | | 145,163 | |
| | | | | | | |
| Embedded derivative – indexed universal life products | — | | | — | | | 557,276 | | | 557,276 | |
| Embedded derivative – annuity products | — | | | — | | | 1,983,949 | | | 1,983,949 | |
| Total Liabilities at Fair Value - Insurance | $ | 22,354 | | | $ | 122,809 | | | $ | 4,361,412 | | | $ | 4,506,575 | |
| 0 | | 0 | | 0 | | 0 |
| Total Liabilities at Fair Value | $ | 271,737 | | | $ | 21,758,407 | | | $ | 4,425,688 | | | $ | 26,455,832 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 |
| | Level I | | Level II | | Level III | | Total |
| Asset Management | | | | | | | |
| Securities Sold Short | $ | 100,861 | | | $ | — | | | $ | — | | | $ | 100,861 | |
| Foreign Exchange Contracts and Options | — | | | 276,405 | | | — | | | 276,405 | |
| Unfunded Revolver Commitments | — | | | — | | | 112,534 | | (1) | 112,534 | |
| Other Derivatives | 63 | | | 6,054 | | | — | | | 6,117 | |
| Debt Obligations of Consolidated CFEs | — | | | 23,804,584 | | | — | | | 23,804,584 | |
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| | | | | | | |
| Total Liabilities at Fair Value - Asset Management | $ | 100,924 | | | $ | 24,087,043 | | | $ | 112,534 | | | $ | 24,300,501 | |
| | | | | | | |
| Insurance | | | | | | | |
Policy liabilities(3) (including market risk benefits) | $ | — | | | $ | — | | | $ | 1,133,779 | | | $ | 1,133,779 | |
| Closed block policy liabilities | — | | | — | | | 1,046,458 | | | 1,046,458 | |
| Funds withheld payable at interest | — | | | — | | | (3,057,531) | | | (3,057,531) | |
| Derivative instruments payable: | | | | | | | |
| Equity market contracts | 40,810 | | | 128,770 | | | — | | | 169,580 | |
| Interest rate contracts | 23,783 | | | 694,139 | | | — | | | 717,922 | |
| Foreign currency contracts | — | | | 74,141 | | | — | | | 74,141 | |
| Credit contracts | — | | | 851 | | | — | | | 851 | |
Impact of netting(2) | (60,383) | | | (283,843) | | | — | | | (344,226) | |
| Total derivative instruments payable | 4,210 | | | 614,058 | | | — | | | 618,268 | |
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| Embedded derivative – interest-sensitive life products | — | | | — | | | 373,391 | | | 373,391 | |
| Embedded derivative – annuity products | — | | | — | | | 2,402,427 | | | 2,402,427 | |
| Total Liabilities at Fair Value - Insurance | $ | 4,210 | | | $ | 614,058 | | | $ | 1,898,524 | | | $ | 2,516,792 | |
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| Total Liabilities at Fair Value | $ | 105,134 | | | $ | 24,701,101 | | | $ | 2,011,058 | | | $ | 26,817,293 | |
Notes to Financial Statements (Continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Level I | | Level II | | Level III | | Total |
| Asset Management | | | | | | | |
| Securities Sold Short | $ | 158,751 | | | $ | — | | | $ | — | | | $ | 158,751 | |
| Foreign Exchange Contracts and Options | — | | | 406,746 | | | — | | | 406,746 | |
| Unfunded Revolver Commitments | — | | | — | | | 137,315 | | (1) | 137,315 | |
| Other Derivatives | — | | | 11,018 | | | — | | | 11,018 | |
| Debt Obligations of Consolidated CFEs | — | | | 22,273,242 | | | — | | | 22,273,242 | |
| Total Liabilities at Fair Value - Asset Management | $ | 158,751 | | | $ | 22,691,006 | | | $ | 137,315 | | | $ | 22,987,072 | |
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| Insurance | | | | | | | |
Policy liabilities(3) (including market risk benefits) | $ | — | | | $ | — | | | $ | 1,063,496 | | | $ | 1,063,496 | |
| Closed block policy liabilities | — | | | — | | | 1,016,313 | | | 1,016,313 | |
| Funds withheld payable at interest | — | | | — | | | (3,487,766) | | | (3,487,766) | |
| Derivative instruments payable: | | | | | | | |
| Equity market contracts | 2,692 | | | 88,652 | | | — | | | 91,344 | |
| Interest rate contracts | 9,693 | | | 952,636 | | | — | | | 962,329 | |
| Foreign currency contracts | — | | | 91,680 | | | — | | | 91,680 | |
| Credit contracts | — | | | 929 | | | — | | | 929 | |
Impact of netting(2) | (7,079) | | | (205,096) | | | — | | | (212,175) | |
| Total derivative instruments payable | 5,306 | | | 928,801 | | | — | | | 934,107 | |
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| Embedded derivative – interest-sensitive life products | — | | | — | | | 337,860 | | | 337,860 | |
| Embedded derivative – annuity products | — | | | — | | | 1,851,381 | | | 1,851,381 | |
| Total Liabilities at Fair Value - Insurance | $ | 5,306 | | | $ | 928,801 | | | $ | 781,284 | | | $ | 1,715,391 | |
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| Total Liabilities at Fair Value | $ | 164,057 | | | $ | 23,619,807 | | | $ | 918,599 | | | $ | 24,702,463 | |
(1)These unfunded revolver commitments are classified as Level III within the fair value hierarchy and valued using the same valuation methodologies as KKR's Level III credit investments.
(2)Represents netting of derivative exposures covered by qualifying master netting agreement.
(3)Includes market risk benefit of $764.4 million and $682.0 million, respectively.
The following tables summarize changes in assets and liabilities measured and reported at fair value for which Level III inputs have been used to determine fair value for the three months ended March 31, 2023 and 2022, and 2021, respectively. For certain insurance disclosures, the beginning of the period represents balances as of the GA Acquisition Date.
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| Three Months Ended March 31, 2022 | | | | |
| Balance, Beg. of Period | Transfers In / (Out) - Changes in Consolidation | Transfers
In | Transfers Out | Net Purchases/Issuances/Sales/Settlements | Net Unrealized and Realized Gains (Losses) | Change in OCI | Balance, End of Period | Changes in Net Unrealized Gains (Losses) Included in Earnings related to Level III Assets and Liabilities still held as of the Reporting Date | Changes in Net Unrealized Gains (Losses) Included in OCI related to Level III Assets and Liabilities still held as of the Reporting Date | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | | | | | | |
| Asset Management | | | | | | | | | | | | | | | | | | | | |
| Private Equity | $ | 23,322,634 | | $ | — | | $ | — | | $ | (138,220) | | $ | 680,792 | | $ | 133,810 | | $ | — | | $ | 23,999,016 | | $ | 18,304 | | $ | — | | | | | | | | | | | |
| Credit | 5,826,661 | | — | | — | | — | | (383,841) | | (126,598) | | (1,369) | | 5,314,853 | | (58,683) | | (1,369) | | | | | | | | | | | |
| Real Assets | 11,389,530 | | — | | — | | — | | 1,008,641 | | 893,952 | | — | | 13,292,123 | | 864,586 | | — | | | | | | | | | | | |
| Equity Method - Other | 1,013,807 | | — | | — | | — | | 40,182 | | (69,085) | | — | | 984,904 | | (71,310) | | — | | | | | | | | | | | |
| Other Investments | 3,240,013 | | — | | — | | — | | (86,258) | | (18,829) | | — | | 3,134,926 | | (14,995) | | — | | | | | | | | | | | |
| Other Derivatives | 479 | | — | | — | | — | | 11,284 | | (11,058) | | — | | 705 | | (11,058) | | — | | | | | | | | | | | |
| Total Assets - Asset Management | 44,793,124 | | — | | — | | (138,220) | | 1,270,800 | | 802,192 | | (1,369) | | 46,726,527 | | 726,844 | | (1,369) | | | | | | | | | | | |
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| Insurance | | | | | | | | | | | | | | | | | | | | |
| AFS fixed maturity securities: | | | | | | | | | | | | | | | | | | | | |
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| Corporate fixed maturity securities | 7,650,660 | | — | | — | | — | | 391,605 | | 1,275 | | (73,345) | | 7,970,195 | | — | | (46,123) | | | | | | | | | | | |
| Structured securities | 828,401 | | — | | 343,338 | | — | | 228,734 | | (3,409) | | (14,525) | | 1,382,539 | | — | | (20,703) | | | | | | | | | | | |
| Total AFS fixed maturity securities | 8,479,061 | | — | | 343,338 | | — | | 620,339 | | (2,134) | | (87,870) | | 9,352,734 | | — | | (66,826) | | | | | | | | | | | |
| Trading fixed maturity securities: | | | | | | | | | | | | | | | | | | | | |
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| Corporate fixed maturity securities | 565,025 | | — | | — | | (31,407) | | 182,432 | | (10,365) | | — | | 705,685 | | (11,116) | | — | | | | | | | | | | | |
| Structured securities | 418,774 | | — | | 98,307 | | (21,745) | | 144,203 | | (8,960) | | — | | 630,579 | | (10,412) | | — | | | | | | | | | | | |
| Total trading fixed maturity securities | 983,799 | | — | | 98,307 | | (53,152) | | 326,635 | | (19,325) | | — | | 1,336,264 | | (21,528) | | — | | | | | | | | | | | |
| Equity securities | 32,937 | | — | | — | | — | | — | | — | | — | | 32,937 | | 20,292 | | — | | | | | | | | | | | |
| Mortgage and other loan receivables | 832,674 | | — | | — | | — | | 203,197 | | (27,965) | | — | | 1,007,906 | | (9,559) | | — | | | | | | | | | | | |
| Other investments | 1,603,345 | | — | | — | | — | | 1,920,480 | | 96,361 | | — | | 3,620,186 | | 108,587 | | — | | | | | | | | | | | |
| Funds withheld receivable at interest | 31,740 | | — | | — | | — | | 10,435 | | (33,979) | | — | | 8,196 | | — | | — | | | | | | | | | | | |
| Reinsurance recoverable | 1,293,791 | | — | | — | | — | | (14,375) | | (47,459) | | — | | 1,231,957 | | — | | — | | | | | | | | | | | |
| Total Assets - Insurance | 13,257,347 | | — | | 441,645 | | (53,152) | | 3,066,711 | | (34,501) | | (87,870) | | 16,590,180 | | 97,792 | | (66,826) | | | | | | | | | | | |
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| Total | $ | 58,050,471 | | $ | — | | $ | 441,645 | | $ | (191,372) | | $ | 4,337,511 | | $ | 767,691 | | $ | (89,239) | | $ | 63,316,707 | | $ | 824,636 | | $ | (68,195) | | | | | | | | | | | |
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| Three Months Ended March 31, 2023 | | | | |
| Balance, Beg. of Period | Transfers In / (Out) - Changes in Consolidation | Transfers
In | Transfers Out | Net Purchases/Issuances/Sales/Settlements | Net Unrealized and Realized Gains (Losses) | Change in OCI | Balance, End of Period | Changes in Net Unrealized Gains (Losses) Included in Earnings related to Level III Assets and Liabilities still held as of the Reporting Date | Changes in Net Unrealized Gains (Losses) Included in OCI related to Level III Assets and Liabilities still held as of the Reporting Date | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | | | | | | |
| Asset Management | | | | | | | | | | | | | | | | | | | | |
| Private Equity | $ | 25,336,957 | | $ | — | | $ | — | | $ | — | | $ | 933,427 | | $ | (80,883) | | $ | — | | $ | 26,189,501 | | $ | (82,903) | | $ | — | | | | | | | | | | | |
| Credit | 5,786,026 | | — | | 17,628 | | (23,758) | | 76,332 | | 46,350 | | — | | 5,902,578 | | 44,069 | | — | | | | | | | | | | | |
| Real Assets | 17,015,112 | | — | | — | | — | | 2,215,040 | | (283,301) | | — | | 18,946,851 | | (288,639) | | — | | | | | | | | | | | |
| Equity Method - Other | 1,624,420 | | — | | — | | — | | 5,644 | | (27,370) | | — | | 1,602,694 | | (23,357) | | — | | | | | | | | | | | |
| Other Investments | 3,334,366 | | — | | — | | (22,376) | | 511,252 | | (84,796) | | — | | 3,738,446 | | (92,618) | | — | | | | | | | | | | | |
| Other Derivatives | — | | — | | — | | — | | 2,153 | | (2,153) | | — | | — | | — | | — | | | | | | | | | | | |
| Total Assets - Asset Management | $ | 53,096,881 | | $ | — | | $ | 17,628 | | $ | (46,134) | | $ | 3,743,848 | | $ | (432,153) | | $ | — | | $ | 56,380,070 | | $ | (443,448) | | $ | — | | | | | | | | | | | |
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| Insurance | | | | | | | | | | | | | | | | | | | | |
| AFS fixed maturity securities: | | | | | | | | | | | | | | | | | | | | |
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| Corporate fixed maturity securities | $ | 8,310,657 | | $ | — | | $ | — | | $ | — | | $ | (66,084) | | $ | 21,265 | | $ | 28,585 | | $ | 8,294,423 | | $ | — | | $ | 19,326 | | | | | | | | | | | |
| Structured securities | 1,419,441 | | — | | 170,775 | | (3,374) | | 154,983 | | (4,139) | | 33,099 | | 1,770,785 | | — | | 32,822 | | | | | | | | | | | |
| Total AFS fixed maturity securities | 9,730,098 | | — | | 170,775 | | (3,374) | | 88,899 | | 17,126 | | 61,684 | | 10,065,208 | | — | | 52,148 | | | | | | | | | | | |
| Trading fixed maturity securities: | | | | | | | | | | | | | | | | | | | | |
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| Corporate fixed maturity securities | 672,023 | | — | | — | | — | | (27,893) | | (12,260) | | — | | 631,870 | | (11,841) | | — | | | | | | | | | | | |
| Structured securities | 643,811 | | — | | 5,890 | | (6,747) | | 14,017 | | 4,594 | | — | | 661,565 | | 6,060 | | — | | | | | | | | | | | |
| Total trading fixed maturity securities | 1,315,834 | | — | | 5,890 | | (6,747) | | (13,876) | | (7,666) | | — | | 1,293,435 | | (5,781) | | — | | | | | | | | | | | |
| Equity securities | 16,286 | | — | | — | | — | | — | | (975) | | — | | 15,311 | | (975) | | — | | | | | | | | | | | |
| Mortgage and other loan receivables | 787,515 | | — | | — | | — | | (10,560) | | (3,038) | | — | | 773,917 | | (2,165) | | — | | | | | | | | | | | |
| Other investments | 4,883,441 | | — | | — | | — | | 110,942 | | 14,730 | | — | | 5,009,113 | | 24,546 | | — | | | | | | | | | | | |
| Funds withheld receivable at interest | 12,785 | | — | | — | | — | | — | | (30,767) | | — | | (17,982) | | — | | — | | | | | | | | | | | |
| Reinsurance recoverable | 981,775 | | — | | — | | — | | (10,654) | | 39,481 | | — | | 1,010,602 | | — | | — | | | | | | | | | | | |
| Total Assets - Insurance | $ | 17,727,734 | | $ | — | | $ | 176,665 | | $ | (10,121) | | $ | 164,751 | | $ | 28,891 | | $ | 61,684 | | $ | 18,149,604 | | $ | 15,625 | | $ | 52,148 | | | | | | | | | | | |
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| Total | $ | 70,824,615 | | $ | — | | $ | 194,293 | | $ | (56,255) | | $ | 3,908,599 | | $ | (403,262) | | $ | 61,684 | | $ | 74,529,674 | | $ | (427,823) | | $ | 52,148 | | | | | | | | | | | |
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| Three Months Ended March 31, 2021 | |
| Balance, Beg. of Period | Transfers In / (Out) - Changes in Consolidation | Transfers In | Transfers Out | Net Purchases/Issuances/Sales/Settlements | Net Unrealized and Realized Gains (Losses) | Change in OCI | Balance, End of Period | Changes in Net Unrealized Gains (Losses) Included in Net Gains (Losses) from Investment Activities related to Level III Assets and Liabilities still held as of the Reporting Date | Changes in Net Unrealized Gains (Losses) Included in OCI related to Level III Assets and Liabilities still held as of the Reporting Date | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | | | | | |
| Asset Management | | | | | | | | | | | | | | | | | | | |
| Private Equity | $ | 15,234,904 | | $ | — | | $ | — | | $ | — | | $ | 130,309 | | $ | 1,698,596 | | $ | — | | $ | 17,063,809 | | $ | 1,622,804 | | $ | — | | | | | | | | | | |
| Credit | 9,172,848 | | (1,021) | | 86,135 | | — | | 92,140 | | 33,640 | | 2,139 | | 9,385,881 | | 61,774 | | 2,139 | | | | | | | | | | |
| Real Assets | 5,924,575 | | — | | — | | — | | 696,345 | | 258,297 | | — | | 6,879,217 | | 231,898 | | — | | | | | | | | | | |
| Equity Method - Other | 1,014,378 | | — | | — | | — | | (153,840) | | 181,242 | | — | | 1,041,780 | | 180,258 | | — | | | | | | | | | | |
| Other Investments | 2,341,981 | | (2,879) | | — | | (105,644) | | 63,054 | | 176,853 | | — | | 2,473,365 | | 214,879 | | — | | | | | | | | | | |
| Other Derivatives | 6,668 | | — | | — | | — | | 3,574 | | (6,841) | | — | | 3,401 | | (6,841) | | — | | | | | | | | | | |
| Total Assets - Asset Management | 33,695,354 | | (3,900) | | 86,135 | | (105,644) | | 831,582 | | 2,341,787 | | 2,139 | | 36,847,453 | | 2,304,772 | | 2,139 | | | | | | | | | | |
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| Insurance | | | | | | | | | | | | | | | | | | | |
| AFS fixed maturity securities: | | | | | | | | | | | | | | | | | | | |
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| Corporate fixed maturity securities | 3,519,368 | | — | | — | | — | | 244,578 | | — | | (24,416) | | 3,739,530 | | — | | (22,210) | | | | | | | | | | |
| Structured securities | 197,983 | | — | | — | | — | | (1,692) | | — | | (3,185) | | 193,106 | | — | | 474 | | | | | | | | | | |
| Total AFS fixed maturity securities | 3,717,351 | | — | | — | | — | | 242,886 | | — | | (27,601) | | 3,932,636 | | — | | (21,736) | | | | | | | | | | |
| Trading fixed maturity securities: | | | | | | | | | | | | | | | | | | | |
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| Corporate fixed maturity securities | 674,380 | | — | | — | | — | | 55,699 | | (4,001) | | — | | 726,078 | | (3,600) | | — | | | | | | | | | | |
| Structured securities | 14,661 | | — | | — | | — | | 8,055 | | (183) | | — | | 22,533 | | (222) | | — | | | | | | | | | | |
| Total trading fixed maturity securities | 689,041 | | — | | — | | — | | 63,754 | | (4,184) | | — | | 748,611 | | (3,822) | | — | | | | | | | | | | |
| Equity securities | 66,660 | | — | | — | | — | | — | | 3,325 | | — | | 69,985 | | 3,325 | | — | | | | | | | | | | |
| Mortgage and other loan receivables | 929,855 | | — | | — | | — | | 247,719 | | 5,500 | | — | | 1,183,074 | | 6,322 | | — | | | | | | | | | | |
| Other investments | 443,824 | | — | | — | | — | | — | | 1,058 | | — | | 444,882 | | 6,092 | | — | | | | | | | | | | |
| Funds withheld receivable at interest | — | | — | | — | | — | | 334 | | 55,549 | | — | | 55,883 | | — | | — | | | | | | | | | | |
| Reinsurance recoverable | — | | — | | — | | — | | — | | 1,317,962 | | — | | 1,317,962 | | — | | — | | | | | | | | | | |
| Total Assets - Insurance | 5,846,731 | | — | | — | | — | | 554,693 | | 1,379,210 | | (27,601) | | 7,753,033 | | 11,917 | | (21,736) | | | | | | | | | | |
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| Total | $ | 39,542,085 | | $ | (3,900) | | $ | 86,135 | | $ | (105,644) | | $ | 1,386,275 | | $ | 3,720,997 | | $ | (25,462) | | $ | 44,600,486 | | $ | 2,316,689 | | $ | (19,597) | | | | | | | | | | |
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| Three Months Ended March 31, 2022 | |
| Balance, Beg. of Period | Transfers In / (Out) - Changes in Consolidation | Transfers In | Transfers Out | Net Purchases/Issuances/Sales/Settlements | Net Unrealized and Realized Gains (Losses) | Change in OCI | Balance, End of Period | Changes in Net Unrealized Gains (Losses) Included in Earnings related to Level III Assets and Liabilities still held as of the Reporting Date | Changes in Net Unrealized Gains (Losses) Included in OCI related to Level III Assets and Liabilities still held as of the Reporting Date | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | | | | | |
| Asset Management | | | | | | | | | | | | | | | | | | | |
| Private Equity | $ | 23,322,634 | | $ | — | | $ | — | | $ | (138,220) | | $ | 680,792 | | $ | 133,810 | | $ | — | | $ | 23,999,016 | | $ | 18,304 | | $ | — | | | | | | | | | | |
| Credit | 5,826,661 | | — | | — | | — | | (383,841) | | (126,598) | | (1,369) | | 5,314,853 | | (58,683) | | (1,369) | | | | | | | | | | |
| Real Assets | 11,389,530 | | — | | — | | — | | 1,008,641 | | 893,952 | | — | | 13,292,123 | | 864,586 | | — | | | | | | | | | | |
| Equity Method - Other | 1,013,807 | | — | | — | | — | | 40,182 | | (69,085) | | — | | 984,904 | | (71,310) | | — | | | | | | | | | | |
| Other Investments | 3,240,013 | | — | | — | | — | | (86,258) | | (18,829) | | — | | 3,134,926 | | (14,995) | | — | | | | | | | | | | |
| Other Derivatives | 479 | | — | | — | | — | | 11,284 | | (11,058) | | — | | 705 | | (11,058) | | — | | | | | | | | | | |
| Total Assets - Asset Management | $ | 44,793,124 | | $ | — | | $ | — | | $ | (138,220) | | $ | 1,270,800 | | $ | 802,192 | | $ | (1,369) | | $ | 46,726,527 | | $ | 726,844 | | $ | (1,369) | | | | | | | | | | |
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| Insurance | | | | | | | | | | | | | | | | | | | |
| AFS fixed maturity securities: | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Corporate fixed maturity securities | $ | 7,650,660 | | $ | — | | $ | — | | $ | — | | $ | 391,605 | | $ | 1,275 | | $ | (73,345) | | $ | 7,970,195 | | $ | — | | $ | (46,123) | | | | | | | | | | |
| Structured securities | 828,401 | | — | | 343,338 | | — | | 228,734 | | (3,409) | | (14,525) | | 1,382,539 | | — | | (20,703) | | | | | | | | | | |
| Total AFS fixed maturity securities | 8,479,061 | | — | | 343,338 | | — | | 620,339 | | (2,134) | | (87,870) | | 9,352,734 | | — | | (66,826) | | | | | | | | | | |
| Trading fixed maturity securities: | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | |
| Corporate fixed maturity securities | 565,025 | | — | | — | | (31,407) | | 182,432 | | (10,365) | | — | | 705,685 | | (11,116) | | — | | | | | | | | | | |
| Structured securities | 418,774 | | — | | 98,307 | | (21,745) | | 144,203 | | (8,960) | | — | | 630,579 | | (10,412) | | — | | | | | | | | | | |
| Total trading fixed maturity securities | 983,799 | | — | | 98,307 | | (53,152) | | 326,635 | | (19,325) | | — | | 1,336,264 | | (21,528) | | — | | | | | | | | | | |
| Equity securities | 32,937 | | — | | — | | — | | — | | — | | — | | 32,937 | | 20,292 | | — | | | | | | | | | | |
| Mortgage and other loan receivables | 832,674 | | — | | — | | — | | 203,197 | | (27,965) | | — | | 1,007,906 | | (9,559) | | — | | | | | | | | | | |
| Other investments | 1,603,345 | | — | | — | | — | | 1,920,480 | | 96,361 | | — | | 3,620,186 | | 108,587 | | — | | | | | | | | | | |
| Funds withheld receivable at interest | 31,740 | | — | | — | | — | | 10,435 | | (33,979) | | — | | 8,196 | | — | | — | | | | | | | | | | |
| Reinsurance recoverable | 1,293,791 | | — | | — | | — | | (14,375) | | (47,459) | | — | | 1,231,957 | | — | | — | | | | | | | | | | |
| Total Assets - Insurance | $ | 13,257,347 | | $ | — | | $ | 441,645 | | $ | (53,152) | | $ | 3,066,711 | | $ | (34,501) | | $ | (87,870) | | $ | 16,590,180 | | $ | 97,792 | | $ | (66,826) | | | | | | | | | | |
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| Total | $ | 58,050,471 | | $ | — | | $ | 441,645 | | $ | (191,372) | | $ | 4,337,511 | | $ | 767,691 | | $ | (89,239) | | $ | 63,316,707 | | $ | 824,636 | | $ | (68,195) | | | | | | | | | | |
| | | | Three Months Ended March 31, 2022 | | | Three Months Ended March 31, 2023 |
| | | Purchases | Issuances | Sales | Settlements | Net Purchases/ Issuances/ Sales/ Settlements | | | Purchases | Issuances | Sales | Settlements | Net Purchases/ Issuances/ Sales/ Settlements |
| Assets | Assets | | | Assets | | |
| Asset Management | Asset Management | | | Asset Management | | |
| Private Equity | Private Equity | | $ | 904,261 | | $ | — | | $ | (223,469) | | $ | — | | $ | 680,792 | | Private Equity | | $ | 955,937 | | $ | — | | $ | (22,510) | | $ | — | | $ | 933,427 | |
| Credit | Credit | | 519,351 | | — | | (885,330) | | (17,862) | | (383,841) | | Credit | | 440,733 | | — | | (278,981) | | (85,420) | | 76,332 | |
| Real Assets | Real Assets | | 1,510,787 | | — | | (502,146) | | — | | 1,008,641 | | Real Assets | | 2,291,691 | | — | | (75,612) | | (1,039) | | 2,215,040 | |
| Equity Method - Other | Equity Method - Other | | 41,819 | | — | | (1,637) | | — | | 40,182 | | Equity Method - Other | | 6,472 | | — | | (828) | | — | | 5,644 | |
| Other Investments | Other Investments | | 161,876 | | — | | (248,134) | | — | | (86,258) | | Other Investments | | 592,177 | | — | | (16,016) | | (64,909) | | 511,252 | |
| Other Derivatives | Other Derivatives | | 11,284 | | — | | — | | — | | 11,284 | | Other Derivatives | | 2,153 | | — | | — | | — | | 2,153 | |
| Total Assets - Asset Management | Total Assets - Asset Management | | 3,149,378 | | — | | (1,860,716) | | (17,862) | | 1,270,800 | | Total Assets - Asset Management | | $ | 4,289,163 | | $ | — | | $ | (393,947) | | $ | (151,368) | | $ | 3,743,848 | |
| | Insurance | Insurance | | | Insurance | | |
| AFS fixed maturity securities: | AFS fixed maturity securities: | | | AFS fixed maturity securities: | | |
| | Corporate fixed maturity securities | Corporate fixed maturity securities | | 924,672 | | — | | (58,392) | | (474,675) | | 391,605 | | Corporate fixed maturity securities | | $ | 235,382 | | $ | — | | $ | (588) | | $ | (300,878) | | $ | (66,084) | |
| Structured securities | Structured securities | | 231,916 | | — | | — | | (3,182) | | 228,734 | | Structured securities | | 176,819 | | — | | — | | (21,836) | | 154,983 | |
| Total AFS fixed maturity securities | Total AFS fixed maturity securities | | 1,156,588 | | — | | (58,392) | | (477,857) | | 620,339 | | Total AFS fixed maturity securities | | 412,201 | | — | | (588) | | (322,714) | | 88,899 | |
| Trading fixed maturity securities: | Trading fixed maturity securities: | | | Trading fixed maturity securities: | | |
| | Corporate fixed maturity securities | Corporate fixed maturity securities | | 189,017 | | — | | — | | (6,585) | | 182,432 | | Corporate fixed maturity securities | | 7,717 | | — | | (1,000) | | (34,610) | | (27,893) | |
| Structured securities | Structured securities | | 155,253 | | — | | — | | (11,050) | | 144,203 | | Structured securities | | 24,650 | | — | | (694) | | (9,939) | | 14,017 | |
| Total trading fixed maturity securities | Total trading fixed maturity securities | | 344,270 | | — | | — | | (17,635) | | 326,635 | | Total trading fixed maturity securities | | 32,367 | | — | | (1,694) | | (44,549) | | (13,876) | |
| | Mortgage and other loan receivables | Mortgage and other loan receivables | | 220,225 | | — | | — | | (17,028) | | 203,197 | | Mortgage and other loan receivables | | 377 | | — | | (3,078) | | (7,859) | | (10,560) | |
| Other investments | Other investments | | 1,920,480 | | — | | — | | — | | 1,920,480 | | Other investments | | 118,394 | | — | | (7,452) | | — | | 110,942 | |
| Funds withheld receivable at interest | | — | | 10,435 | | — | | — | | 10,435 | | |
| | Reinsurance recoverable | Reinsurance recoverable | | — | | — | | — | | (14,375) | | (14,375) | | Reinsurance recoverable | | — | | — | | — | | (10,654) | | (10,654) | |
| Total Assets - Insurance | Total Assets - Insurance | | 3,641,563 | | 10,435 | | (58,392) | | (526,895) | | 3,066,711 | | Total Assets - Insurance | | $ | 563,339 | | $ | — | | $ | (12,812) | | $ | (385,776) | | $ | 164,751 | |
| | Total | Total | | $ | 6,790,941 | | $ | 10,435 | | $ | (1,919,108) | | $ | (544,757) | | $ | 4,337,511 | | Total | | $ | 4,852,502 | | $ | — | | $ | (406,759) | | $ | (537,144) | | $ | 3,908,599 | |
| | | | Three Months Ended March 31, 2021 | | | Three Months Ended March 31, 2022 |
| | | Purchases | Issuances | Sales | Settlements | Net Purchases/ Issuances/ Sales/ Settlements | | | Purchases | Issuances | Sales | Settlements | Net Purchases/ Issuances/ Sales/ Settlements |
| Assets | Assets | | | Assets | | |
| Asset Management | Asset Management | | | Asset Management | | |
| Private Equity | Private Equity | | $ | 221,344 | | $ | — | | $ | (91,035) | | $ | — | | $ | 130,309 | | Private Equity | | $ | 904,261 | | $ | — | | $ | (223,469) | | $ | — | | $ | 680,792 | |
| Credit | Credit | | 1,120,791 | | — | | (1,028,651) | | — | | 92,140 | | Credit | | 519,351 | | — | | (885,330) | | (17,862) | | (383,841) | |
| Real Assets | Real Assets | | 924,320 | | — | | (227,975) | | — | | 696,345 | | Real Assets | | 1,510,787 | | — | | (502,146) | | — | | 1,008,641 | |
| Equity Method - Other | Equity Method - Other | | 144 | | — | | (153,984) | | — | | (153,840) | | Equity Method - Other | | 41,819 | | — | | (1,637) | | — | | 40,182 | |
| Other Investments | Other Investments | | 89,502 | | — | | (26,448) | | — | | 63,054 | | Other Investments | | 161,876 | | — | | (248,134) | | — | | (86,258) | |
| Other Derivatives | Other Derivatives | | 3,574 | | — | | — | | — | | 3,574 | | Other Derivatives | | 11,284 | | — | | — | | — | | 11,284 | |
| Total Assets - Asset Management | Total Assets - Asset Management | | 2,359,675 | | — | | (1,528,093) | | — | | 831,582 | | Total Assets - Asset Management | | $ | 3,149,378 | | $ | — | | $ | (1,860,716) | | $ | (17,862) | | $ | 1,270,800 | |
| | Insurance | Insurance | | | Insurance | | |
| AFS fixed maturity securities: | AFS fixed maturity securities: | | | AFS fixed maturity securities: | | |
| | Corporate fixed maturity securities | Corporate fixed maturity securities | | 287,638 | | — | | (3,299) | | (39,761) | | 244,578 | | Corporate fixed maturity securities | | $ | 924,672 | | $ | — | | $ | (58,392) | | $ | (474,675) | | $ | 391,605 | |
| Structured securities | Structured securities | | 10 | | — | | — | | (1,702) | | (1,692) | | Structured securities | | 231,916 | | — | | — | | (3,182) | | 228,734 | |
| Total AFS fixed maturity securities | Total AFS fixed maturity securities | | 287,648 | | — | | (3,299) | | (41,463) | | 242,886 | | Total AFS fixed maturity securities | | 1,156,588 | | — | | (58,392) | | (477,857) | | 620,339 | |
| Trading fixed maturity securities: | Trading fixed maturity securities: | | | Trading fixed maturity securities: | | |
| | Corporate fixed maturity securities | Corporate fixed maturity securities | | 57,451 | | — | | — | | (1,752) | | 55,699 | | Corporate fixed maturity securities | | 189,017 | | — | | — | | (6,585) | | 182,432 | |
| Structured securities | Structured securities | | 8,110 | | — | | — | | (55) | | 8,055 | | Structured securities | | 155,253 | | — | | — | | (11,050) | | 144,203 | |
| Total trading fixed maturity securities | Total trading fixed maturity securities | | 65,561 | | — | | — | | (1,807) | | 63,754 | | Total trading fixed maturity securities | | 344,270 | | — | | — | | (17,635) | | 326,635 | |
| | Mortgage and other loan receivables | Mortgage and other loan receivables | | 254,995 | | — | | (5,076) | | (2,200) | | 247,719 | | Mortgage and other loan receivables | | 220,225 | | — | | — | | (17,028) | | 203,197 | |
| | Other investments | | Other investments | | 1,920,480 | | — | | — | | — | | 1,920,480 | |
| Funds withheld receivable at interest | Funds withheld receivable at interest | | — | | 334 | | — | | — | | 334 | | Funds withheld receivable at interest | | — | | 10,435 | | — | | — | | 10,435 | |
| | Reinsurance recoverable | | Reinsurance recoverable | | — | | — | | — | | (14,375) | | (14,375) | |
| Total Assets - Insurance | Total Assets - Insurance | | 608,204 | | 334 | | (8,375) | | (45,470) | | 554,693 | | Total Assets - Insurance | | $ | 3,641,563 | | $ | 10,435 | | $ | (58,392) | | $ | (526,895) | | $ | 3,066,711 | |
| | Total | Total | | $ | 2,967,879 | | $ | 334 | | $ | (1,536,468) | | $ | (45,470) | | $ | 1,386,275 | | Total | | $ | 6,790,941 | | $ | 10,435 | | $ | (1,919,108) | | $ | (544,757) | | $ | 4,337,511 | |
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| Three Months Ended March 31, 2022 |
| Balance, Beg. of Period | Transfers In / (Out) - Changes in Consolidation | Transfers In | Transfers Out | Net Purchases/Sales/Settlements/Issuances | Net Unrealized and Realized Gains (Losses) | Change in OCI | Balance, End of Period | Changes in Net Unrealized Gains (Losses) Included in Earnings related to Level III Assets and Liabilities still held as of the Reporting Date |
| Liabilities | | | | | | | | | |
| Asset Management | | | | | | | | | |
| Unfunded Revolver Commitments | $ | 64,276 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 280 | | $ | — | | $ | 64,556 | | $ | 280 | |
| Total Liabilities - Asset Management | 64,276 | | — | | — | | — | | — | | 280 | | — | | 64,556 | | 280 | |
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| Insurance | | | | | | | | | |
| Policy liabilities | 519,454 | | — | | — | | — | | — | | (53,046) | | — | | 466,408 | | — | |
| Closed block policy liabilities | 1,350,224 | | — | | — | | — | | (81,101) | | (2,992) | | 3,860 | | 1,269,991 | | — | |
| Funds withheld payable at interest | (49,491) | | — | | — | | — | | 10,435 | | (1,180,435) | | — | | (1,219,491) | | — | |
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| Embedded derivative – indexed universal life products | 557,276 | | — | | — | | — | | 3,302 | | (48,563) | | — | | 512,015 | | — | |
| Embedded derivative – annuity products | 1,983,949 | | — | | — | | — | | 107,302 | | (313,419) | | — | | 1,777,832 | | — | |
| Total Liabilities - Insurance | 4,361,412 | | — | | — | | — | | 39,938 | | (1,598,455) | | 3,860 | | 2,806,755 | | — | |
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| Total | $ | 4,425,688 | | $ | — | | $ | — | | $ | — | | $ | 39,938 | | $ | (1,598,175) | | $ | 3,860 | | $ | 2,871,311 | | $ | 280 | |
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| Three Months Ended March 31, 2023 |
| Balance, Beg. of Period | Transfers In / (Out) - Changes in Consolidation | Transfers In | Transfers Out | Net Purchases/Sales/Settlements/Issuances | Net Unrealized and Realized Gains (Losses) | Change in OCI | Balance, End of Period | Changes in Net Unrealized Gains (Losses) Included in Earnings related to Level III Assets and Liabilities still held as of the Reporting Date |
| Liabilities | | | | | | | | | |
| Asset Management | | | | | | | | | |
| Unfunded Revolver Commitments | $ | 137,315 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (24,781) | | $ | — | | $ | 112,534 | | $ | (24,781) | |
| Total Liabilities - Asset Management | $ | 137,315 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (24,781) | | $ | — | | $ | 112,534 | | $ | (24,781) | |
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| Insurance | | | | | | | | | |
| Policy liabilities | $ | 1,063,496 | | $ | — | | $ | — | | $ | — | | $ | (865) | | $ | 123,163 | | $ | (52,015) | | $ | 1,133,779 | | $ | — | |
| Closed block policy liabilities | 1,016,313 | | — | | — | | — | | (5,862) | | 37,258 | | (1,251) | | 1,046,458 | | — | |
| Funds withheld payable at interest | (3,487,766) | | — | | — | | — | | — | | 430,235 | | — | | (3,057,531) | | — | |
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| Embedded derivative – interest-sensitive life products | 337,860 | | — | | — | | — | | (2,948) | | 38,479 | | — | | 373,391 | | — | |
| Embedded derivative – annuity products | 1,851,381 | | — | | — | | — | | 349,482 | | 201,564 | | — | | 2,402,427 | | — | |
| Total Liabilities - Insurance | $ | 781,284 | | $ | — | | $ | — | | $ | — | | $ | 339,807 | | $ | 830,699 | | $ | (53,266) | | $ | 1,898,524 | | $ | — | |
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| Total | $ | 918,599 | | $ | — | | $ | — | | $ | — | | $ | 339,807 | | $ | 805,918 | | $ | (53,266) | | $ | 2,011,058 | | $ | (24,781) | |
Notes to Financial Statements (Continued)
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| Three Months Ended March 31, 2022 |
| Balance, Beg. of Period | Transfers In / (Out) - Changes in Consolidation | Transfers In | Transfers Out | Net Purchases/Sales/Settlements/Issuances | Net Unrealized and Realized Gains (Losses) | Change in OCI | Balance, End of Period | Changes in Net Unrealized Gains (Losses) Included in Earnings related to Level III Assets and Liabilities still held as of the Reporting Date |
| Liabilities | | | | | | | | | |
| Asset Management | | | | | | | | | |
| Unfunded Revolver Commitments | $ | 64,276 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 280 | | $ | — | | $ | 64,556 | | $ | 280 | |
| Total Liabilities - Asset Management | $ | 64,276 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 280 | | $ | — | | $ | 64,556 | | $ | 280 | |
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| Insurance | | | | | | | | | |
| Policy liabilities | $ | 1,962,855 | | $ | — | | $ | — | | $ | — | | $ | 41,704 | | $ | (248,431) | | $ | (172,600) | | $ | 1,583,528 | | $ | — | |
| Closed block policy liabilities | 1,350,224 | | — | | — | | — | | (81,101) | | (2,992) | | 3,860 | | 1,269,991 | | — | |
| Funds withheld payable at interest | (49,491) | | — | | — | | — | | 10,435 | | (1,180,435) | | — | | (1,219,491) | | — | |
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| Embedded derivative – interest-sensitive life products | 557,276 | | — | | — | | — | | 6,732 | | (51,993) | | — | | 512,015 | | — | |
| Embedded derivative – annuity products | 1,864,409 | | — | | — | | — | | 95,901 | | (247,083) | | — | | 1,713,227 | | — | |
| Total Liabilities - Insurance | $ | 5,685,273 | | $ | — | | $ | — | | $ | — | | $ | 73,671 | | $ | (1,730,934) | | $ | (168,740) | | $ | 3,859,270 | | $ | — | |
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| Total | $ | 5,749,549 | | $ | — | | $ | — | | $ | — | | $ | 73,671 | | $ | (1,730,654) | | $ | (168,740) | | $ | 3,923,826 | | $ | 280 | |
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| Three Months Ended March 31, 2021 |
| Balance, Beg. of Period | Transfers In / (Out) - Changes in Consolidation | Transfers In | Transfers Out | Net Purchases/Sales/Settlements/Issuances | Net Unrealized and Realized Gains (Losses) | Change in OCI | Balance, End of Period | Changes in Net Unrealized Gains (Losses) Included in Earnings related to Level III Assets and Liabilities still held as of the Reporting Date |
| Liabilities | | | | | | | | | |
| Asset Management | | | | | | | | | |
| Unfunded Revolver Commitments | $ | 46,340 | | $ | — | | $ | — | | $ | — | | $ | 1,167 | | $ | (11,870) | | $ | — | | $ | 35,637 | | $ | (11,870) | |
| Total Liabilities - Asset Management | $ | 46,340 | | $ | — | | $ | — | | $ | — | | $ | 1,167 | | $ | (11,870) | | $ | — | | $ | 35,637 | | $ | (11,870) | |
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| Insurance | | | | | | | | | |
| Policy liabilities | 637,800 | | — | | — | | — | | — | | (72,158) | | — | | 565,642 | | — | |
| Closed block policy liabilities | 1,395,746 | | — | | — | | — | | — | | (25,982) | | (2,885) | | 1,366,879 | | — | |
| Funds withheld payable at interest | 59,230 | | — | | — | | — | | — | | (372,460) | | — | | (313,230) | | — | |
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| Embedded derivative – indexed universal life products | 386,746 | | — | | — | | — | | (931) | | 48,427 | | — | | 434,242 | | — | |
| Embedded derivative – annuity products | 1,024,601 | | — | | — | | — | | 44,809 | | (84,500) | | — | | 984,910 | | — | |
| Total Liabilities - Insurance | 3,504,123 | | — | | — | | — | | 43,878 | | (506,673) | | (2,885) | | 3,038,443 | | — | |
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| Total | 3,550,463 | | — | | — | | — | | 45,045 | | (518,543) | | (2,885) | | 3,074,080 | | (11,870) | |
| | | | Three Months Ended March 31, 2022 | | | Three Months Ended March 31, 2023 |
| | | Issuances | Settlements | Net Purchases/Issuances/Sales/Settlements | | | Issuances | Sales | Settlements | Net Issuances/Settlements |
| Liabilities | Liabilities | | | Liabilities | | |
| Asset Management | Asset Management | | | Asset Management | | |
| Unfunded Revolver Commitments | Unfunded Revolver Commitments | | $ | — | | $ | — | | $ | — | | Unfunded Revolver Commitments | | $ | — | | $ | — | | $ | — | | $ | — | |
| Total Liabilities - Asset Management | Total Liabilities - Asset Management | | — | | — | | — | | Total Liabilities - Asset Management | | $ | — | | $ | — | | $ | — | | $ | — | |
| | Insurance | Insurance | | | Insurance | | |
| Policy liabilities | | Policy liabilities | | $ | (45) | | $ | — | | $ | (820) | | $ | (865) | |
| Closed block policy liabilities | | Closed block policy liabilities | | — | | — | | (5,862) | | (5,862) | |
| | Closed block policy liabilities | | — | | (81,101) | | (81,101) | | |
| Funds withheld payable at interest | | 10,435 | | — | | 10,435 | | |
| | Embedded derivative – indexed universal life products | | 8,985 | | (5,683) | | 3,302 | | |
| Embedded derivative – interest-sensitive life products | | Embedded derivative – interest-sensitive life products | | — | | — | | (2,948) | | (2,948) | |
| Embedded derivative – annuity products | Embedded derivative – annuity products | | 107,302 | | — | | 107,302 | | Embedded derivative – annuity products | | 368,898 | | — | | (19,416) | | 349,482 | |
| Total Liabilities - Insurance | Total Liabilities - Insurance | | 126,722 | | (86,784) | | 39,938 | | Total Liabilities - Insurance | | $ | 368,853 | | $ | — | | $ | (29,046) | | $ | 339,807 | |
| | Total | Total | | $ | 126,722 | | $ | (86,784) | | $ | 39,938 | | Total | | $ | 368,853 | | $ | — | | $ | (29,046) | | $ | 339,807 | |
| | | | Three Months Ended March 31, 2021 | | | Three Months Ended March 31, 2022 |
| | | Issuances | | Settlements | Net Issuances/Settlements | | | Issuances | Sales | Settlements | Net Issuances/Settlements |
| Liabilities | Liabilities | | | | | Liabilities | | |
| Asset Management | Asset Management | | | | | Asset Management | | |
| Unfunded Revolver Commitments | Unfunded Revolver Commitments | | $ | 1,167 | | | $ | — | | $ | 1,167 | | Unfunded Revolver Commitments | | $ | — | | $ | — | | $ | — | | $ | — | |
| Total Liabilities - Asset Management | Total Liabilities - Asset Management | | 1,167 | | | — | | 1,167 | | Total Liabilities - Asset Management | | $ | — | | $ | — | | $ | — | | $ | — | |
| | Insurance | Insurance | | | | | Insurance | | |
| Policy liabilities | | Policy liabilities | | $ | 42,370 | | $ | — | | $ | (666) | | $ | 41,704 | |
| Closed block policy liabilities | | Closed block policy liabilities | | — | | — | | (81,101) | | (81,101) | |
| Funds withheld payable at interest | | Funds withheld payable at interest | | 10,435 | | — | | — | | 10,435 | |
| | Embedded derivative – indexed universal life products | | 5,607 | | | (6,538) | | (931) | | |
| Embedded derivative – interest-sensitive life products | | Embedded derivative – interest-sensitive life products | | 6,808 | | — | | (76) | | 6,732 | |
| Embedded derivative – annuity products | Embedded derivative – annuity products | | 44,809 | | | — | | 44,809 | | Embedded derivative – annuity products | | 104,981 | | — | | (9,080) | | 95,901 | |
| Total Liabilities - Insurance | Total Liabilities - Insurance | | 50,416 | | | (6,538) | | 43,878 | | Total Liabilities - Insurance | | $ | 164,594 | | $ | — | | $ | (90,923) | | $ | 73,671 | |
| | Total | Total | | $ | 51,583 | | | $ | (6,538) | | $ | 45,045 | | Total | | $ | 164,594 | | $ | — | | $ | (90,923) | | $ | 73,671 | |
Total realized and unrealized gains and losses recorded for Asset Management - Level III assets and liabilities are reported in Net Gains (Losses) from Investment Activities in the accompanying consolidated statements of operations while Insurance - Level III assets and liabilities are reported in Net Investment Gains and Policy Benefits and Claims in the accompanying consolidated statements of operations.
The following table presents additional information about valuation methodologies and significant unobservable inputs used for financial assets and liabilities that are measured and reported at fair value and categorized within Level III as of March 31, 2022.2023. Because input information includes only those items for which information is reasonably available, balances shown below may not equal total amounts reported for such Level III assets and liabilities:
| | Level III Assets | Level III Assets | | Fair Value March 31, 2022 | | Valuation
Methodologies | | Unobservable Input(s) (1) | | Weighted Average (2) | | Range | | Impact to Valuation from an Increase in Input (3) | Level III Assets | | Fair Value March 31, 2023 | | Valuation
Methodologies | | Unobservable Input(s) (1) | | Weighted Average (2) | | Range | | Impact to Valuation from an Increase in Input (3) |
| | ASSET MANAGEMENT | ASSET MANAGEMENT | | | | | | | | | | ASSET MANAGEMENT | | | | | | | | | |
| | Private Equity | Private Equity | | $ | 23,999,016 | | | Private Equity | | $ | 26,189,501 | | |
| | Private Equity | Private Equity | | $ | 21,320,867 | | | Inputs to market comparables, discounted cash flow and transaction price | | Illiquidity Discount | | 6.7% | | 5.0% - 15.0% | | Decrease | Private Equity | | $ | 23,621,124 | | | Inputs to market comparables, discounted cash flow and transaction price | | Illiquidity Discount | | 6.4% | | 5.0% - 15.0% | | Decrease |
| | | | | | Weight Ascribed to Market Comparables | | 29.1% | | 0.0% - 100.0% | | (4) | | | Weight Ascribed to Market Comparables | | 27.5% | | 0.0% - 100.0% | | (4) |
| | | | | | Weight Ascribed to Discounted Cash Flow | | 65.4% | | 0.0% - 100.0% | | (5) | | | | | Weight Ascribed to Discounted Cash Flow | | 65.0% | | 0.0% - 100.0% | | (5) |
| | | | | | Weight Ascribed to Transaction Price | | 5.5% | | 0.0% - 100.0% | | (6) | | | | | Weight Ascribed to Transaction Price | | 7.5% | | 0.0% - 100.0% | | (6) |
| | | | | | Market comparables | | Enterprise Value/LTM EBITDA Multiple | | 17.3x | | 8.2x - 31.2x | | Increase | | | | | Market comparables | | Enterprise Value/LTM EBITDA Multiple | | 17.5x | | 8.1x - 50.9x | | Increase |
| | Enterprise Value/Forward EBITDA Multiple | | 15.1x | | 6.4x - 23.8x | | Increase | | Enterprise Value/Forward EBITDA Multiple | | 15.7x | | 7.8x - 33.2x | | Increase |
| | | | | | Discounted cash flow | | Weighted Average Cost of Capital | | 9.2% | | 4.6% - 14.6% | | Decrease | | | | | Discounted cash flow | | Weighted Average Cost of Capital | | 10.3% | | 6.7% - 13.9% | | Decrease |
| | | | | | Enterprise Value/LTM EBITDA Exit Multiple | | 14.3x | | 6.0x - 20.0x | | Increase | | | | | Enterprise Value/LTM EBITDA Exit Multiple | | 14.4x | | 6.0x - 27.6x | | Increase |
| | | | | | | | | | | | | | | | | | | | | | | | | | Growth Equity | | $ | 2,678,149 | | | Inputs to market comparables, discounted cash flow and milestones | | Illiquidity Discount | | 8.6% | | 5.0% - 20.0% | | Decrease | |
| Weight Ascribed to Market Comparables | | 37.6% | | 0.0% - 100.0% | | (4) | |
| Weight Ascribed to Discounted Cash Flow | | 2.1% | | 0.0% - 50.0% | | (5) | |
| Weight Ascribed to Milestones | | 60.3% | | 0.0% - 100.0% | | (6) | |
| Scenario Weighting | | Base | | 76.1% | | 70.0% - 80.0% | | Increase | |
| Downside | | 4.9% | | 0.0% - 10.0% | | Decrease | |
| Upside | | 19.0% | | 10.0% - 25.0% | | Increase | |
| | Credit | | $ | 5,314,853 | | | Yield Analysis | | Yield | | 8.8% | | 5.0% - 40.6% | | Decrease | |
| Net Leverage | | 6.1x | | 0.3x - 33.6x | | Decrease | |
| EBITDA Multiple | | 13.8x | | 0.7x - 33.0x | | Increase | |
| | | Real Assets | | $ | 13,292,123 | | | | | | | | | | | | |
| | Energy | | $ | 1,434,690 | | | Inputs to market comparables and discounted cash flow | | Weight Ascribed to Market Comparables | | 29.0% | | 0.0% - 50.0% | | (4) | |
| Weight Ascribed to Discounted Cash Flow | | 71.0% | | 50.0% - 100.0% | | (5) | |
| Market comparables | | Enterprise Value/LTM EBITDA Multiple | | 5.7x | | 5.7x - 5.7x | | Increase | |
| Enterprise Value/Forward EBITDA Multiple | | 5.9x | | 4.5x - 8.8x | | Increase | |
| Discounted cash flow | | Weighted Average Cost of Capital | | 12.8% | | 10.1% - 15.4% | | Decrease | |
| Average Price Per BOE (8) | | $48.63 | | $44.38 - $58.31 | | Increase | |
|
| | Level III Assets | Level III Assets | | Fair Value March 31, 2022 | | Valuation
Methodologies | | Unobservable Input(s) (1) | | Weighted Average (2) | | Range | | Impact to Valuation from an Increase in Input (3) | Level III Assets | | Fair Value March 31, 2023 | | Valuation
Methodologies | | Unobservable Input(s) (1) | | Weighted Average (2) | | Range | | Impact to Valuation from an Increase in Input (3) |
| | Growth Equity | | Growth Equity | | $ | 2,568,377 | | | Inputs to market comparables, discounted cash flow and milestones | | Illiquidity Discount | | 9.0% | | 5.0% - 15.0% | | Decrease |
| | | Weight Ascribed to Market Comparables | | 34.3% | | 0.0% - 100.0% | | (4) |
| | | Weight Ascribed to Discounted Cash Flow | | 0.9% | | 0.0% - 40.0% | | (5) |
| | | Weight Ascribed to Milestones | | 64.8% | | 0.0% - 100.0% | | (6) |
| | | Scenario Weighting | | Base | | 75.8% | | 70.0% - 80.0% | | Increase |
| | | Downside | | 6.2% | | 0.0% - 15.0% | | Decrease |
| | | Upside | | 18.0% | | 10.0% - 25.0% | | Increase |
| | Credit | | Credit | | $ | 5,902,578 | | | Yield Analysis | | Yield | | 11.7% | | 5.0% - 20.8% | | Decrease |
| | | Net Leverage | | 6.1x | | 0.2x - 16.9x | | Decrease |
| | | EBITDA Multiple | | 12.5x | | 0.3x - 33.0x | | Increase |
| | | Real Assets | | Real Assets | | $ | 18,946,851 | | | | | | | | | | | |
| | Energy | | Energy | | $ | 1,599,676 | | | Inputs to market comparables, discounted cash flow and transaction price | | Weight Ascribed to Market Comparables | | 41.8% | | 0.0% - 50.0% | | (4) |
| | | Weight Ascribed to Discounted Cash Flow | | 57.4% | | 5.0% - 100.0% | | (5) |
| | | Weight Ascribed to Transaction Price | | 0.8% | | 0.0% - 90.0% | | (6) |
| | | Market comparables | | Enterprise Value/LTM EBITDA Multiple | | 3.4x | | 3.4x - 3.4x | | Increase |
| | | Enterprise Value/Forward EBITDA Multiple | | 6.1x | | 4.0x- 7.0x | | Increase |
| | | Discounted cash flow | | Weighted Average Cost of Capital | | 12.1% | | 10.1% - 12.3% | | Decrease |
| | | Average Price Per BOE (8) | | $51.31 | | $48.23 - $56.88 | | Increase |
| Infrastructure
| Infrastructure
| | $ | 3,880,965 | | | Inputs to market comparables, discounted cash flow and transaction price | | Illiquidity Discount | | 5.0% | | 5.0% - 5.0% | | Decrease | Infrastructure
| | $ | 9,408,267 | | | Inputs to market comparables, discounted cash flow and transaction price | | Illiquidity Discount | | 5.6% | | 5.0% - 10.0% | | Decrease |
| | | Weight Ascribed to Market Comparables | | 1.1% | | 0.0% - 25.0% | | (4) |
| | Weight Ascribed to Market Comparables | | 1.7% | | 0.0% - 25.0% | | (4) | | Weight Ascribed to Discounted Cash Flow | | 65.8% | | 0.0% - 100.0% | | (5) |
| | Weight Ascribed to Discounted Cash Flow | | 69.7% | | 0.0% - 100.0% | | (5) | | Weight Ascribed to Transaction Price | | 33.1% | | 0.0% - 100.0% | | (6) |
| | Inputs to market comparables, discounted cash flow and transaction price | | Weight Ascribed to Transaction Price | | 28.6% | | 0.0% - 100.0% | | (6) | | Market comparables | | Enterprise Value/LTM EBITDA Multiple | | 10.7x | | 10.7x - 10.7x | | Increase |
| | Enterprise Value/Forward EBITDA Multiple | | 11.4x | | 11.4x - 11.4x | | Increase | | Enterprise Value/Forward EBITDA Multiple | | 14.3x | | 10.5x - 19.9x | | Increase |
| | Weighted Average Cost of Capital | | 6.7% | | 4.7% - 8.5% | | Decrease | | Discounted cash flow | | Weighted Average Cost of Capital | | 7.7% | | 5.1% - 9.0% | | Decrease |
| | Enterprise Value/LTM EBITDA Exit Multiple | | 12.1x | | 10.0x - 13.0x | | Increase | | Enterprise Value/LTM EBITDA Exit Multiple | | 16.9x | | 10.0x - 22.0x | | Increase |
| | Real Estate | Real Estate | | $ | 7,976,468 | | | Inputs to direct income capitalization, discounted cash flow and transaction price | | Weight Ascribed to Direct Income Capitalization | | 18.4% | | 0.0% - 100.0% | | (7) | Real Estate | | $ | 7,938,908 | | | Inputs to direct income capitalization, discounted cash flow and transaction price | | Weight Ascribed to Direct Income Capitalization | | 23.6% | | 0.0% - 100.0% | | (7) |
| | | | | | Weight Ascribed to Discounted Cash Flow | | 72.4% | | 0.0% - 100.0% | | (5) | | | | | Weight Ascribed to Discounted Cash Flow | | 73.1% | | 0.0% - 100.0% | | (5) |
| | Weight Ascribed to Transaction Price | | 9.2% | | 0.0% - 100.0% | | (6) | | Weight Ascribed to Transaction Price | | 3.3% | | 0.0% - 100.0% | | (6) |
| | | | | | Direct income capitalization | | Current Capitalization Rate | | 5.1% | | 3.6% - 7.4% | | Decrease | | | | | Direct income capitalization | | Current Capitalization Rate | | 5.1% | | 2.3% - 8.1% | | Decrease |
| | | | | | Discounted cash flow | | Unlevered Discount Rate | | 6.2% | | 3.8% - 18.0% | | Decrease | | | | | Discounted cash flow | | Unlevered Discount Rate | | 6.8% | | 2.6% - 18.0% | | Decrease |
| | Equity Method - Other | Equity Method - Other | | $ | 984,904 | | | Inputs to market comparables, discounted cash flow and transaction price | | Illiquidity Discount | | 7.5% | | 5.0% - 10.0% | | Decrease | Equity Method - Other | | $ | 1,602,694 | | | Inputs to market comparables, discounted cash flow and transaction price | | Illiquidity Discount | | 6.6% | | 5.0% - 10.0% | | Decrease |
| Weight Ascribed to Market Comparables | | 38.8% | | 0.0% - 100.0% | | (4) | | Weight Ascribed to Market Comparables | | 49.5% | | 10.0% - 100.0% | | (4) |
| | | | | | Weight Ascribed to Discounted Cash Flow | | 26.7% | | 0.0% - 100.0% | | (5) | | | | | Weight Ascribed to Discounted Cash Flow | | 32.7% | | 0.0% - 50.0% | | (5) |
| | | | | | Weight Ascribed to Transaction Price | | 34.6% | | 0.0% - 100.0% | | (6) | | | | | Weight Ascribed to Transaction Price | | 17.8% | | 0.0% - 80.0% | | (6) |
| | | | | | Market comparables | | Enterprise Value/LTM EBITDA Multiple | | 11.9x | | 5.7x - 18.1x | | Increase | | | | | Market comparables | | Enterprise Value/LTM EBITDA Multiple | | 14.2x | | 10.9x - 20.0x | | Increase |
| | Enterprise Value/Forward EBITDA Multiple | | 12.0x | | 4.5x - 18.5x | | Increase | | Enterprise Value/Forward EBITDA Multiple | | 12.5x | | 9.6x - 19.2x | | Increase |
| | | | | | Discounted cash flow | | Weighted Average Cost of Capital | | 10.2% | | 6.0% - 17.0% | | Decrease | | | | | Discounted cash flow | | Weighted Average Cost of Capital | | 10.5% | | 7.3% - 16.5% | | Decrease |
| | | | | | Enterprise Value/LTM EBITDA Exit Multiple | | 9.9x | | 6.0x - 15.0x | | Increase | | | | | Enterprise Value/LTM EBITDA Exit Multiple | | 10.9x | | 9.5x - 15.0x | | Increase |
| | Other Investments | Other Investments | | $ | 3,134,926 | | (9) | Inputs to market comparables, discounted cash flow and transaction price | | Illiquidity Discount | | 11.1% | | 10.0% - 20.0% | | Decrease | Other Investments | | $ | 3,738,446 | | (9) | Inputs to market comparables, discounted cash flow and transaction price | | Illiquidity Discount | | 8.4% | | 5.0% - 15.0% | | Decrease |
| Weight Ascribed to Market Comparables | | 22.9% | | 0.0% - 100.0% | | (4) | | Weight Ascribed to Market Comparables | | 14.8% | | 0.0% - 100.0% | | (4) |
| | Weight Ascribed to Discounted Cash Flow | | 58.5% | | 0.0% - 100.0% | | (5) | | Weight Ascribed to Discounted Cash Flow | | 46.7% | | 0.0% - 100.0% | | (5) |
| | Weight Ascribed to Transaction Price | | 18.6% | | 0.0% - 100.0% | | (6) | | Weight Ascribed to Transaction Price | | 38.5% | | 0.0% - 100.0% | | (6) |
| | Market comparables | | Enterprise Value/LTM EBITDA Multiple | | 12.0x | | 0.8x - 25.0x | | Increase | | Market comparables | | Enterprise Value/LTM EBITDA Multiple | | 10.9x | | 6.5x - 23.0x | | Increase |
| | Enterprise Value/Forward EBITDA Multiple | | 11.2x | | 0.7x - 22.9x | | Increase | | Enterprise Value/Forward EBITDA Multiple | | 13.6x | | 6.3x - 19.1x | | Increase |
| | Discounted cash flow | | Weighted Average Cost of Capital | | 14.4% | | 6.5% - 100.0% | | Decrease | | Discounted cash flow | | Weighted Average Cost of Capital | | 11.2% | | 8.1% - 44.2% | | Decrease |
| | Enterprise Value/LTM EBITDA Exit Multiple | | 10.4x | | 5.5x - 23.1x | | Increase | | Enterprise Value/LTM EBITDA Exit Multiple | | 12.1x | | 8.5x - 15.0x | | Increase |
| | | | INSURANCE | | |
| | Corporate fixed maturity securities | | $ | 1,620,204 | | | Discounted cash flow | | Discount Spread | | 2.01% | | —% - 4.91% | | Decrease | |
| | Structured securities | | $ | 134,475 | | | Discounted cash flow | | Discount Spread | | 3.00% | | 2.50% - 5.75% | | Decrease | |
| Constant Prepayment Rate | | 7.31% | | 5.00% - 15.00% | | Increase/Decrease | |
| Constant Default Rate | | 1.17% | | 1.00% - 2.50% | | Decrease | |
| Loss Severity | | 100% | | Decrease | |
| | Other investments | | $ | 1,445,961 | | | Direct capitalization | | Current Capitalization Rate | | 5.36% | | 5.11% - 5.61% | | Decrease | |
| Vacancy rate | | 5.00% | | Decrease | |
| Discounted cash flow | | Yield | | 8.00% | | Decrease | |
| Rate | | 5.12% | | 5.00% - 5.25% | | Decrease | |
| Terminal capitalization rate | | 3.97% | | 3.70% - 4.25% | | Decrease | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Level III Assets | | Fair Value March 31, 2022 | | Valuation
Methodologies | | Unobservable Input(s) (1)
| | Weighted
Average (2)
| | Range | | Impact to
Valuation
from an
Increase in
Input (3)
|
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Funds withheld receivable at interest | | $ | 8,196 | | | Discounted cash flow | | Duration/Weighted Average Life | | 9.56 years | | 0.0 years - 22.6 years | | Increase |
| | | | | Contractholder Persistency | | 6.39% | | 3.50% - 17.20% | | Increase |
| | | | | Nonperformance Risk | | | | 0.51% - 1.56% | | Decrease |
| | | | | | | | | | | | |
Reinsurance recoverable | | $ | 1,231,957 | | | Present value of expenses paid from the open block plus the cost of capital held in support of the liabilities. | | Expense assumption | | | | The average expense assumption is between $5.26 and $78.00 per policy, increased by inflation. | | Increase |
| | | | Unobservable inputs are a market participant’s view of the expenses, a risk margin on the uncertainty of the level of expenses and a cost of capital on the capital held in support of the liabilities. | | Expense risk margin | | | | 9.42% | | Decrease |
| | | | | | Cost of capital | | | | 3.69% - 13.85% | | Increase |
| | | | Discounted cash flow | | Mortality Rate | | | | 5.46% | | Increase |
| | | | | Surrender Rate | | | | 2.01% | | Increase |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level III Assets | | Fair Value March 31, 2023 | | Valuation
Methodologies | | Unobservable Input(s) (1) | | Weighted Average (2) | | Range | | Impact to Valuation from an Increase in Input (3) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| INSURANCE | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Corporate fixed maturity securities | | $ | 1,669,694 | | | Discounted cash flow | | Discount Spread | | 3.19% | | 0.65% - 5.30% | | Decrease |
| | | | | | | | | | | | |
| Structured securities | | $ | 92,067 | | | Discounted cash flow | | Discount Spread | | 3.63% | | 3.08% - 6.82% | | Decrease |
| | | | | | Constant Prepayment Rate | | 7.02% | | 5.00% - 15.00% | | Increase/Decrease |
| | | | | | Constant Default Rate | | 1.19% | | 1.00% - 2.50% | | Decrease |
| | | | | | Loss Severity | | 100% | | | | Decrease |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other investments | | $ | 4,805,747 | | | Discounted cash flow | | Vacancy rate | | 2.95% | | 0.00% - 5.00% | | Decrease |
| | | | | | Discount rate | | 7.59% | | 5.75% - 8.00% | | Decrease |
| | | | | | Terminal capitalization rate | | 5.94% | | 4.50% - 6.59% | | Decrease |
| | | | | | | | | | | | |
| Funds withheld receivable at interest | | $ | (17,982) | | | Discounted cash flow | | Duration/Weighted Average Life | | 8.35 years | | 0.0 years - 19.7 years | | Increase |
| | | | | Contractholder Persistency | | 6.80% | | 3.60% - 16.80% | | Increase |
| | | | | Instrument-specific credit risk | | 1.63% | | 0.92% - 1.74% | | Decrease |
| | | | | | | | | | | | |
| Reinsurance recoverable | | $ | 1,010,602 | | | Present value of expenses paid from the open block plus the cost of capital held in support of the liabilities. | | Expense assumption | | $17.2 | | The average expense assumption is between $8.23 and $78.00 per policy, increased by inflation. The annual inflation rate was increased by 2.50%. | | Increase |
| | | | Unobservable inputs are a market participant’s view of the expenses, a risk margin on the uncertainty of the level of expenses and a cost of capital on the capital held in support of the liabilities. | | Expense risk margin | | 9.42% | | | | Decrease |
| | | | | | Cost of capital | | 9.7% | | 3.69% - 13.85% | | Increase |
| | | | Discounted cash flow | | Mortality Rate | | 5.46% | | | | Increase |
| | | | | Surrender Rate | | 2.01% | | | | Increase |
(1)In determining certain of these inputs, management evaluates a variety of factors including economic conditions, industry and market developments, market valuations of comparable companies and company specific developments including exit strategies and realization opportunities. KKR has determined that market participants would take these inputs into account when valuing the investments and debt obligations. "LTM" means last twelve months, and "EBITDA" means earnings before interest, taxes, depreciation and amortization.
(2)Inputs were weighted based on the fair value of the investments included in the range.
(3)Unless otherwise noted, this column represents the directional change in the fair value of the Level III investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant increases and decreases in these inputs in isolation could result in significantly higher or lower fair value measurements.
(4)The directional change from an increase in the weight ascribed to the market comparables approach would increase the fair value of the Level III investments if the market comparables approach results in a higher valuation than the discounted cash flow approach and transaction price. The opposite would be true if the market comparables approach results in a lower valuation than the discounted cash flow approach and transaction price.
(5)The directional change from an increase in the weight ascribed to the discounted cash flow approach would increase the fair value of the Level III investments if the discounted cash flow approach results in a higher valuation than the market comparables approach, transaction price and direct income capitalization approach. The opposite would be true if the discounted cash flow approach results in a lower valuation than the market comparables approach, transaction price and direct income capitalization approach.
(6)The directional change from an increase in the weight ascribed to the transaction price or milestones would increase the fair value of the Level III investments if the transaction price or milestones results in a higher valuation than the market comparables and discounted cash flow approach. The opposite would be true if the transaction price or milestones results in a lower valuation than the market comparables approach and discounted cash flow approach.
(7)The directional change from an increase in the weight ascribed to the direct income capitalization approach would increase the fair value of the Level III investments if the direct income capitalization approach results in a higher valuation than the discounted cash flow approach. The opposite would be true if the direct income capitalization approach results in a lower valuation than the discounted cash flow approach.
Notes to Financial Statements (Continued)
(8)The total energy fair value amount includes multiple investments (in multiple locations throughout North America) that are held in multiple investment funds and produce varying quantities of oil, condensate, natural gas liquids, and natural gas. Commodity price may be measured using a common volumetric equivalent where one barrel of oil equivalent ("BOE"), is determined using the ratio of six thousand cubic feet of natural gas to one barrel of oil, condensate or natural gas liquids. The price per BOE is provided to show the aggregate of all price inputs for the various investments over a common volumetric equivalent although the valuations for specific investments may use price inputs specific to the asset for purposes of our valuations. The discounted cash flows include forecasted production of liquids (oil, condensate, and natural gas liquids) and natural gas with a forecasted revenue ratio of approximately 87%86% liquids and 13%14% natural gas.
(9)Consists primarily of investments in common stock, preferred stock, warrants and options of companies that are not private equity, real assets, credit, equity method - other or investments of consolidated CFEs.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level III Liabilities | | Fair Value March 31, 2023 | | Valuation
Methodologies | | Unobservable Input(s) (1) | | Weighted Average (2) | | Range | | Impact to Valuation from an Increase in Input (3) |
| | | | | | | | | | | | |
| ASSET MANAGEMENT | | | | | | | | | | |
| | | | | | | | | | | | |
| Unfunded Revolver Commitments | | $ | 112,534 | | | Yield Analysis | | Yield | | 16.1% | | 9.2% - 61.3% | | Decrease |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | | |
| INSURANCE | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Policy liabilities | | $ | 1,133,779 | | | Policy liabilities under fair value option: | | | | | | | | |
| | | Present value of best estimate liability cash flows. Unobservable inputs include a market participant view of the risk margin included in the discount rate which reflects the variability of the cash flows. | | Risk Margin Rate | | 1.48% | | 0.92% - 2.23% | | Decrease |
| | | Policyholder behavior is also a significant unobservable input, including lapse, surrender and mortality. | | Surrender Rate | | 6.03% | | 3.55% - 7.05% | | Decrease |
| | | | | Mortality Rate | | 4.43% | | 3.52% - 9.04% | | Increase |
| | | | Market risk benefit: | | | | | | | | |
| | | | Fair value using a non-option and option valuation approach | | Interest rates (10 and 30 year Treasury) | | | | 3.48% / 3.67% | | Decrease |
| | | | | | Instrument-specific credit risk (10 and 30 year) | | | | 1.58% / 1.74% | | Decrease |
| | | | Policyholder behavior is also a significant unobservable input, including lapse, surrender, and mortality. | | Mortality Rate | | 2.10% | | 0.60% - 22.30% | | Increase |
| | | | | | Lapse Rate | | 3.10% | | 0.40% - 40.40% | | Increase |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Closed block policy liabilities | | $ | 1,046,458 | | | Present value of expenses paid from the open block plus the cost of capital held in support of the liabilities. | | Expense assumption | | $17.2 | | The average expense assumption is between $8.23 and $78.00 per policy, increased by inflation. The annual inflation rate was increased by 2.50%. | | Increase |
| | | Instrument-specific credit risk | | | | 1.63% | | 0.92% - 1.74% | | Decrease |
| | | Unobservable inputs are a market participant’s view of the expenses, a risk margin on the uncertainty of the level of expenses and a cost of capital on the capital held in support of the liabilities. | | Expense Risk Margin | | 9.42% | | | | Decrease |
| | | | | Cost of Capital | | 9.7% | | 3.69% - 13.85% | | Increase |
| | | Discounted cash flow | | Mortality Rate | | 5.46% | | | | Increase |
| | | | | Surrender Rate | | 2.01% | | | | Increase |
| | | | | | | | | | | | |
| Funds withheld payable at interest | | $ | (3,057,531) | | | Discounted cash flow | | Duration/Weighted Average Life | | 8.35 years | | 0.0 years - 16.85 years | | Decrease |
| | | | Contractholder Persistency | | 6.80% | | 3.60% - 16.80% | | Decrease |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level III Liabilities | | Fair Value March 31, 2022 | | Valuation
Methodologies | | Unobservable Input(s) (1) | | Weighted Average (2) | | Range | | Impact to Valuation from an Increase in Input (3) |
| | | | | | | | | | | | |
| ASSET MANAGEMENT | | | | | | | | | | |
| | | | | | | | | | | | |
| Unfunded Revolver Commitments | | $ | 64,556 | | | Yield Analysis | | Yield | | 5.8% | | 3.7% - 7.4% | | Decrease |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | | |
| INSURANCE | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Policy liabilities | | $ | 466,408 | | | Present value of best estimate liability cash flows. Unobservable inputs include a market participant view of the risk margin included in the discount rate which reflects the variability of the cash flows. | | Risk Margin Rate | | | | 0.51% - 1.82% | | Decrease |
| | | Policyholder behavior is also a significant unobservable input, including surrender and mortality. | | Surrender Rate | | | | 3.61% - 6.45% | | Increase |
| | | | | Mortality Rate | | | | 3.65% - 8.59% | | Increase |
| | | | | | | | | | | | |
| Closed block policy liabilities | | $ | 1,269,991 | | | Present value of expenses paid from the open block plus the cost of capital held in support of the liabilities. | | Expense assumption | | | | The average expense assumption is between $5.26 and $78.00 per policy, increased by inflation. | | Increase |
| | | Nonperformance Risk | | | | | | 0.51% - 1.56% | | Decrease |
| | | Unobservable inputs are a market participant’s view of the expenses, a risk margin on the uncertainty of the level of expenses and a cost of capital on the capital held in support of the liabilities. | | Expense Risk Margin | | | | 9.42% | | Decrease |
| | | | | Cost of Capital | | | | 3.69% - 13.85% | | Increase |
| | | Discounted cash flow | | Mortality Rate | | | | 5.46% | | Increase |
| | | | | Surrender Rate | | | | 2.01% | | Increase |
| | | | | | | | | | | | |
| Funds withheld payable at interest | | $ | (1,219,491) | | | Discounted cash flow | | Duration/Weighted Average Life | | 9.6 years | | 0.0 years - 18.9 years | | Decrease |
| | | | Contractholder Persistency | | 6.39% | | 3.50% - 17.20% | | Decrease |
| | | | | | Nonperformance Risk | | | | 0.51% - 1.56% | | Decrease |
| | | | | | | | | | | | |
| Embedded derivative – indexed universal life products | | $ | 512,015 | | | Policy persistency is a significant unobservable input. | | Lapse Rate | | | | 3.86% | | Decrease |
| | | | | Mortality Rate | | | | 0.71% | | Decrease |
| | | Future costs for options used to hedge the contract obligations | | Option Budge Assumption | | | | 3.58% | | Increase |
| | | | | Nonperformance Risk | | | | 0.51% - 1.56% | | Decrease |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Level III Liabilities | | Fair Value March 31, 2022 | | Valuation
Methodologies | | Unobservable Input(s) (1)
| | Weighted
Average (2)
| | Range | | Impact to
Valuation
from an
Increase in
Input (3)
|
| | | | | | | | | | | | |
Embedded derivative – annuity products | | $ | 1,777,832 | | | Policyholder behavior is a significant unobservable input, including utilization and lapse. | | Utilization: | | | | | | |
| | | | | Fixed-indexed annuity | | 3.87% | | | | Decrease |
| | | | | Variable annuity | | 4.21% | | 2.32% - 35.02% | | Decrease |
| | | | | Surrender Rate: | | | | | | |
| | | | | Fixed-indexed annuity | | 10.67% | | | | Decrease |
| | | | | Variable annuity | | | | 4.09% - 39.60% | | Decrease |
| | | | | Mortality Rate: | | | | | | |
| | | | | Fixed-indexed annuity | | 1.99% | | | | Decrease |
| | | | | Variable annuity | | | | 1.36% - 7.38% | | Decrease |
| | | Future costs for options used to hedge the contract obligations | | Option Budge Assumption: | | | | | | |
| | | | | Retail RIA | | 1.60% | | | | Increase |
| | | | | Fixed-indexed annuity | | 2.01% | | | | Increase |
| | | | | Variable annuity | | n/a | | | | |
| | | | | Nonperformance Risk | | | | 0.51% - 1.56% | | Decrease |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level III Liabilities | | Fair Value March 31, 2023 | | Valuation
Methodologies | | Unobservable Input(s) (1) | | Weighted Average (2) | | Range | | Impact to Valuation from an Increase in Input (3) |
| | | | | | Instrument-specific credit risk | | 1.63% | | 0.92% - 1.74% | | Decrease |
| | | | | | | | | | | | |
| Embedded derivative – interest-sensitive life products | | $ | 373,391 | | | Policy persistency is a significant unobservable input. | | Lapse Rate | | 3.35% | | | | Decrease |
| | | | | Mortality Rate | | 0.76% | | | | Decrease |
| | | Future costs for options used to hedge the contract obligations | | Option Budge Assumption | | 3.67% | | | | Increase |
| | | | | Instrument-specific credit risk | | 1.63% | | 0.92% - 1.74% | | Decrease |
| | | | | | | | | | | | |
| Embedded derivative – annuity products | | $ | 2,402,427 | | | Policyholder behavior is a significant unobservable input, including utilization and lapse. | | Utilization: | | | | | | |
| | | | | Fixed-indexed annuity | | 3.41% | | | | Decrease |
| | | | | | | | | | | |
| | | | | Surrender Rate: | | | | | | |
| | | | | Retail FIA | | 11.23% | | | | Decrease |
| | | | | Institutional FIA | | 16.68% | | | | Decrease |
| | | | | | | | | | | |
| | | | | Mortality Rate: | | | | | | |
| | | | | Retail FIA | | 2.13% | | | | Decrease |
| | | | | Institutional FIA | | 2.07% | | | | Decrease |
| | | | | | | | | | | |
| | | Future costs for options used to hedge the contract obligations | | Option Budge Assumption: | | | | | | |
| | | | | Retail RIA | | 2.16% | | | | Increase |
| | | | | Institutional FIA | | 2.78% | | | | Increase |
| | | | | | | | | | | |
| | | | | Instrument-specific credit risk | | 1.63% | | 0.92% - 1.74% | | Decrease |
(1)In determining certain of these inputs, management evaluates a variety of factors including economic conditions, industry and market developments, market valuations of comparable companies and company specific developments including exit strategies and realization opportunities. KKR has determined that market participants would take these inputs into account when valuing the investments and debt obligations. "LTM" means last twelve months, and "EBITDA" means earnings before interest, taxes, depreciation and amortization.
(2)Inputs were weighted based on the fair value of the investments included in the range.
(3)Unless otherwise noted, this column represents the directional change in the fair value of the Level III investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant increases and decreases in these inputs in isolation could result in significantly higher or lower fair value measurements.
In the table above, certain private equity investments may be valued at cost for a period of time after an acquisition as the best indicator of fair value. In addition, certain valuations of private equity investments may be entirely or partially derived by reference to observable valuation measures for a pending or consummated transaction.
The various unobservable inputs used to determine the Level III valuations may have similar or diverging impacts on valuation. Significant increases and decreases in these inputs in isolation and interrelationships between those inputs could result in significantly higher or lower fair value measurements as noted in the table above.
Financial Instruments Not Carried At Fair Value
Asset management financial instruments are primarily measured at fair value on a recurring basis, except as disclosed in Note 17 "Debt Obligations."
Notes to Financial Statements (Continued)
The following tables present carrying amounts and fair values of Global Atlantic’s financial instruments which are not carried at fair value as of March 31, 20222023 and December 31, 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Hierarchy | | |
| As of March 31, 2023 | Carrying Value | | Level I | | Level II | | Level III | | Fair Value |
| ($ in thousands) | | | | | | | | | |
| Financial assets: | | | | | | | | | |
| Insurance | | | | | | | | | |
| Mortgage and other loan receivables | $ | 33,924,777 | | | $ | — | | | $ | — | | | $ | 30,972,550 | | | $ | 30,972,550 | |
| Policy loans | 880,029 | | | — | | | — | | | 834,716 | | | 834,716 | |
| FHLB common stock and other investments | 165,322 | | | — | | | — | | | 165,322 | | | 165,322 | |
| Funds withheld receivables at interest | 2,792,712 | | | — | | | 2,792,712 | | | — | | | 2,792,712 | |
| Cash and cash equivalents | 3,713,382 | | | 3,713,382 | | | — | | | — | | | 3,713,382 | |
| Restricted cash and cash equivalents | 277,398 | | | 277,398 | | | — | | | — | | | 277,398 | |
| Total financial assets | $ | 41,753,620 | | | $ | 3,990,780 | | | $ | 2,792,712 | | | $ | 31,972,588 | | | $ | 38,756,080 | |
| Financial liabilities: | | | | | | | | | |
| Insurance | | | | | | | | | |
| Policy liabilities - policyholder account balances | $ | 48,966,089 | | | $ | — | | | $ | 39,352,603 | | | $ | 7,268,330 | | | $ | 46,620,933 | |
| | | | | | | | | |
| | | | | | | | | |
| Funds withheld payables at interest | 26,053,226 | | | — | | | 26,053,226 | | | — | | | 26,053,226 | |
| Debt obligations | 2,157,283 | | | — | | | — | | | 1,816,578 | | | 1,816,578 | |
| Securities sold under agreements to repurchase | 313,797 | | | — | | | 313,797 | | | — | | | 313,797 | |
| Total financial liabilities | $ | 77,490,395 | | | $ | — | | | $ | 65,719,626 | | | $ | 9,084,908 | | | $ | 74,804,534 | |
| | | Fair Value Hierarchy | | | Fair Value Hierarchy | |
| As of March 31, 2022 | Carrying Value | | Level I | | Level II | | Level III | | Fair Value | |
| As of December 31, 2022 | | As of December 31, 2022 | Carrying Value | | Level I | | Level II | | Level III | | Fair Value |
| ($ in thousands) | ($ in thousands) | | | | | | | | | | ($ in thousands) | | | | | | | | | |
| Financial assets: | Financial assets: | | Financial assets: | |
| Insurance | Insurance | | Insurance | |
| Mortgage and other loan receivables | Mortgage and other loan receivables | $ | 30,568,779 | | | $ | — | | | $ | — | | | $ | 30,759,101 | | | $ | 30,759,101 | | Mortgage and other loan receivables | $ | 34,303,183 | | | $ | — | | | $ | — | | | $ | 31,256,107 | | | $ | 31,256,107 | |
| Policy loans | Policy loans | 762,460 | | | — | | | — | | | 759,299 | | | 759,299 | | Policy loans | 868,911 | | | — | | | — | | | 789,726 | | | 789,726 | |
| FHLB common stock and other investments | FHLB common stock and other investments | 185,013 | | | — | | | — | | | 185,013 | | | 185,013 | | FHLB common stock and other investments | 163,289 | | | — | | | — | | | 163,289 | | | 163,289 | |
| Funds withheld receivables at interest | Funds withheld receivables at interest | 2,958,607 | | | — | | | 2,958,607 | | | — | | | 2,958,607 | | Funds withheld receivables at interest | 2,855,251 | | | — | | | 2,855,251 | | | — | | | 2,855,251 | |
| Cash and cash equivalents | Cash and cash equivalents | 4,590,032 | | | 4,590,032 | | | — | | | — | | | 4,590,032 | | Cash and cash equivalents | 6,118,231 | | | 6,118,231 | | | — | | | — | | | 6,118,231 | |
| Restricted cash and cash equivalents | Restricted cash and cash equivalents | 523,503 | | | 523,503 | | | — | | | — | | | 523,503 | | Restricted cash and cash equivalents | 308,383 | | | 308,383 | | | — | | | — | | | 308,383 | |
| Total financial assets | Total financial assets | $ | 39,588,394 | | | $ | 5,113,535 | | | $ | 2,958,607 | | | $ | 31,703,413 | | | $ | 39,775,555 | | Total financial assets | $ | 44,617,248 | | | $ | 6,426,614 | | | $ | 2,855,251 | | | $ | 32,209,122 | | | $ | 41,490,987 | |
| Financial liabilities: | Financial liabilities: | | | | | | | | | | Financial liabilities: | | | | | | | | | |
| Insurance | Insurance | | Insurance | |
| Other contractholder deposit funds | $ | 34,823,758 | | | $ | — | | | $ | 32,804,568 | | | $ | — | | | $ | 32,804,568 | | |
| Supplementary contracts without life contingencies | 11,765 | | | — | | | — | | | 11,959 | | | 11,959 | | |
| Funding agreements | 2,562,684 | | | — | | | — | | | 2,515,380 | | | 2,515,380 | | |
| Policy liabilities - policyholder account balances | | Policy liabilities - policyholder account balances | $ | 48,403,949 | | | $ | — | | | $ | 38,328,025 | | | $ | 7,383,537 | | | $ | 45,711,562 | |
| | Funds withheld payables at interest | Funds withheld payables at interest | 23,001,222 | | | — | | | 23,001,222 | | | — | | | 23,001,222 | | Funds withheld payables at interest | 26,227,183 | | | — | | | 26,227,183 | | | — | | | 26,227,183 | |
| Debt obligations | Debt obligations | 2,029,769 | | | — | | | — | | | 1,923,154 | | | 1,923,154 | | Debt obligations | 2,128,166 | | | — | | | — | | | 1,698,526 | | | 1,698,526 | |
| Securities sold under agreements to repurchase | Securities sold under agreements to repurchase | 810,535 | | | — | | | 810,535 | | | — | | | 810,535 | | Securities sold under agreements to repurchase | 805,316 | | | — | | | 805,316 | | | — | | | 805,316 | |
| Total financial liabilities | Total financial liabilities | $ | 63,239,733 | | | $ | — | | | $ | 56,616,325 | | | $ | 4,450,493 | | | $ | 61,066,818 | | Total financial liabilities | $ | 77,564,614 | | | $ | — | | | $ | 65,360,524 | | | $ | 9,082,063 | | | $ | 74,442,587 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Hierarchy | | |
| As of December 31, 2021 | Carrying Value | | Level I | | Level II | | Level III | | Fair Value |
| ($ in thousands) | | | | | | | | | |
| Financial assets: | | | | | | | | | |
| Insurance | | | | | | | | | |
| Mortgage and other loan receivables | $ | 28,044,085 | | | $ | — | | | $ | — | | | $ | 28,645,675 | | | $ | 28,645,675 | |
| Policy loans | 765,310 | | | — | | | — | | | 754,530 | | | 754,530 | |
| FHLB common stock and other investments | 171,842 | | | — | | | — | | | 171,842 | | | 171,842 | |
| Funds withheld receivables at interest | 2,967,708 | | | — | | | 2,967,708 | | | — | | | 2,967,708 | |
| Cash and cash equivalents | 3,391,934 | | | 3,391,934 | | | — | | | — | | | 3,391,934 | |
| Restricted cash and cash equivalents | 300,404 | | | 300,404 | | | — | | | — | | | 300,404 | |
| Total financial assets | $ | 35,641,283 | | | $ | 3,692,338 | | | $ | 2,967,708 | | | $ | 29,572,047 | | | $ | 36,232,093 | |
| Financial liabilities: | | | | | | | | | |
| Insurance | | | | | | | | | |
| Other contractholder deposit funds | $ | 30,295,965 | | | $ | — | | | $ | 28,419,520 | | | $ | — | | | $ | 28,419,520 | |
| Supplementary contracts without life contingencies | 31,118 | | | — | | | — | | | 31,311 | | | 31,311 | |
| Funding agreements | 2,566,410 | | | — | | | — | | | 2,549,494 | | | 2,549,494 | |
| Funds withheld payables at interest | 23,509,744 | | | — | | | 23,509,744 | | | — | | | 23,509,744 | |
| Debt obligations | 1,908,006 | | | — | | | — | | | 1,953,631 | | | 1,953,631 | |
| Securities sold under agreements to repurchase | 300,446 | | | — | | | 300,446 | | | — | | | 300,446 | |
| Total financial liabilities | $ | 58,611,689 | | | $ | — | | | $ | 52,229,710 | | | $ | 4,534,436 | | | $ | 56,764,146 | |
11. FAIR VALUE OPTION
The following table summarizes the financial instruments for which the fair value option has been elected:
| | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Asset Management | | | | | | | | | | | | | | | |
| Credit | $ | 696,906 | | | $ | 2,019,229 | | | | | | | | | | | | | |
| Investments of Consolidated CFEs | 22,014,866 | | | 22,076,809 | | | | | | | | | | | | | |
| Real Assets | 207,543 | | | 182,858 | | | | | | | | | | | | | |
| Equity Method - Other | 1,507,802 | | | 1,601,515 | | | | | | | | | | | | | |
| Other Investments | 169,492 | | | 197,675 | | | | | | | | | | | | | |
| Total Asset Management | $ | 24,596,609 | | | $ | 26,078,086 | | | | | | | | | | | | | |
| Insurance | | | | | | | | | | | | | | | |
| Mortgage and other loan receivables | $ | 1,007,906 | | | $ | 832,674 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Other investments | 174,875 | | | 147,811 | | | | | | | | | | | | | |
| Reinsurance recoverable | 1,231,957 | | | 1,293,791 | | | | | | | | | | | | | |
| Total Insurance | $ | 2,414,738 | | | $ | 2,274,276 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Total Assets | $ | 27,011,347 | | | $ | 28,352,362 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | |
| Asset Management | | | | | | | | | | | | | | | |
| Debt Obligations of Consolidated CFEs | $ | 21,213,206 | | | $ | 21,271,084 | | | | | | | | | | | | | |
| Total Asset Management | $ | 21,213,206 | | | $ | 21,271,084 | | | | | | | | | | | | | |
| Insurance | | | | | | | | | | | | | | | |
| Policy liabilities | $ | 1,736,399 | | | $ | 1,869,678 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Total Insurance | $ | 1,736,399 | | | $ | 1,869,678 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Total Liabilities | $ | 22,949,605 | | | $ | 23,140,762 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Asset Management | | | | | | | | | | | | | | | |
| Credit | $ | 977,190 | | | $ | 1,121,775 | | | | | | | | | | | | | |
| Investments of Consolidated CFEs | 24,013,221 | | | 22,492,366 | | | | | | | | | | | | | |
| Real Assets | 194,451 | | | 202,153 | | | | | | | | | | | | | |
| Equity Method - Other | 2,995,295 | | | 2,943,387 | | | | | | | | | | | | | |
| Other Investments | 87,215 | | | 88,046 | | | | | | | | | | | | | |
| Total Asset Management | $ | 28,267,372 | | | $ | 26,847,727 | | | | | | | | | | | | | |
| Insurance | | | | | | | | | | | | | | | |
| Mortgage and other loan receivables | $ | 773,917 | | | $ | 787,515 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Other investments | 288,208 | | | 335,168 | | | | | | | | | | | | | |
| Reinsurance recoverable | 1,010,602 | | | 981,775 | | | | | | | | | | | | | |
| Total Insurance | $ | 2,072,727 | | | $ | 2,104,458 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Total Assets | $ | 30,340,099 | | | $ | 28,952,185 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | |
| Asset Management | | | | | | | | | | | | | | | |
| Debt Obligations of Consolidated CFEs | $ | 23,804,584 | | | $ | 22,273,242 | | | | | | | | | | | | | |
| Total Asset Management | $ | 23,804,584 | | | $ | 22,273,242 | | | | | | | | | | | | | |
| Insurance | | | | | | | | | | | | | | | |
| Policy liabilities | $ | 1,425,180 | | | $ | 1,410,951 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Total Insurance | $ | 1,425,180 | | | $ | 1,410,951 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Total Liabilities | $ | 25,229,764 | | | $ | 23,684,193 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
The following table presents the net realized and unrealized gains (losses) on financial instruments for which the fair value option was elected:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, 2022 | | | | |
| | | | | | | | | | | | | | Net Realized
Gains (Losses) | | Net Unrealized
Gains (Losses) | | Total | | | | |
| Assets | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Asset Management | | | | | | | | | | | | | | | | | | | | | | |
| Credit | | | | | | | | | | | | | | $ | (37,515) | | | $ | (15,834) | | | $ | (53,349) | | | | | |
| Investments of Consolidated CFEs | | | | | | | | | | | | | | 2,949 | | | (269,548) | | | (266,599) | | | | | |
| Real Assets | | | | | | | | | | | | | | 85 | | | 24,685 | | | 24,770 | | | | | |
| Equity Method - Other | | | | | | | | | | | | | | (16,333) | | | (45,468) | | | (61,801) | | | | | |
| Other Investments | | | | | | | | | | | | | | 6,308 | | | (7,685) | | | (1,377) | | | | | |
| Total Asset Management | | | | | | | | | | | | | | $ | (44,506) | | | $ | (313,850) | | | $ | (358,356) | | | | | |
| Insurance | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage and other loan receivables | | | | | | | | | | | | | | — | | | (27,015) | | | (27,015) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Other investments | | | | | | | | | | | | | | — | | | 27,737 | | | 27,737 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Total Insurance | | | | | | | | | | | | | | $ | — | | | $ | 722 | | | $ | 722 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Total Assets | | | | | | | | | | | | | | $ | (44,506) | | | $ | (313,128) | | | $ | (357,634) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | |
| Asset Management | | | | | | | | | | | | | | | | | | | | | | |
| Debt Obligations of Consolidated CFEs | | | | | | | | | | | | | | (785) | | | 226,058 | | | 225,273 | | | | | |
| Total Asset Management | | | | | | | | | | | | | | $ | (785) | | | $ | 226,058 | | | $ | 225,273 | | | | | |
| Insurance | | | | | | | | | | | | | | | | | | | | | | |
| Policy liabilities | | | | | | | | | | | | | | — | | | 42,419 | | | 42,419 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Total Insurance | | | | | | | | | | | | | | $ | — | | | $ | 42,419 | | | $ | 42,419 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Total Liabilities | | | | | | | | | | | | | | $ | (785) | | | $ | 268,477 | | | $ | 267,692 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, 2021 | | | | |
| | | | | | | | | | | | | | | Net Realized
Gains (Losses) | | Net Unrealized
Gains (Losses) | | Total | | | | |
| Assets | | | | | | | | | | | | | | | | | | | | | | |
| Asset Management | | | | | | | | | | | | | | | | | | | | | | |
| Credit | | | | | | | | | | | | | | $ | (15,689) | | | $ | (18,745) | | | $ | (34,434) | | | | | |
| Investments of Consolidated CFEs | | | | | | | | | | | | | | (2,628) | | | 128,143 | | | 125,515 | | | | | |
| Real Assets | | | | | | | | | | | | | | 47 | | | 727 | | | 774 | | | | | |
| Equity Method - Other | | | | | | | | | | | | | | 984 | | | 229,081 | | | 230,065 | | | | | |
| Other Investments | | | | | | | | | | | | | | 5,050 | | | 7,004 | | | 12,054 | | | | | |
| Total Asset Management | | | | | | | | | | | | | | $ | (12,236) | | | $ | 346,210 | | | $ | 333,974 | | | | | |
| Insurance | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage and other loan receivables | | | | | | | | | | | | | | — | | | 7,561 | | | 7,561 | | | | | |
| Other investments | | | | | | | | | | | | | | — | | | 3,866 | | | 3,866 | | | | | |
| Total Insurance | | | | | | | | | | | | | | — | | | 11,427 | | | 11,427 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Total Assets | | | | | | | | | | | | | | $ | (12,236) | | | $ | 357,637 | | | $ | 345,401 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | |
| Asset Management | | | | | | | | | | | | | | | | | | | | | | |
| Debt Obligations of Consolidated CFEs | | | | | | | | | | | | | | $ | (2,048) | | | $ | (44,096) | | | $ | (46,144) | | | | | |
| Total Asset Management | | | | | | | | | | | | | | $ | (2,048) | | | $ | (44,096) | | | $ | (46,144) | | | | | |
| Insurance | | | | | | | | | | | | | | | | | | | | | | |
| Policy liabilities | | | | | | | | | | | | | | $ | — | | | $ | (65,834) | | | $ | (65,834) | | | | | |
| Total Insurance | | | | | | | | | | | | | | $ | — | | | $ | (65,834) | | | $ | (65,834) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Total Liabilities | | | | | | | | | | | | | | $ | (2,048) | | | $ | (109,930) | | | $ | (111,978) | | | | | |
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| | | | | | | | | | Three Months Ended March 31, 2023 | | | | | | |
| | | | | | | | | | | | | | | Net Realized
Gains (Losses) | | Net Unrealized Gains (Losses) | | Total | | | | | | |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Asset Management | | | | | | | | | | | | | | | | | | | | | | | | |
| Credit | | | | | | | | | | | | | | $ | (7,753) | | | $ | (6,971) | | | $ | (14,724) | | | | | | | |
| Investments of Consolidated CFEs | | | | | | | | | | | | | | (5,017) | | | 317,881 | | | 312,864 | | | | | | | |
| Real Assets | | | | | | | | | | | | | | — | | | (8,303) | | | (8,303) | | | | | | | |
| Equity Method - Other | | | | | | | | | | | | | | 33,306 | | | (75,743) | | | (42,437) | | | | | | | |
| Other Investments | | | | | | | | | | | | | | 1,636 | | | 2,478 | | | 4,114 | | | | | | | |
| Total Asset Management | | | | | | | | | | | | | | $ | 22,172 | | | $ | 229,342 | | | $ | 251,514 | | | | | | | |
| Insurance | | | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage and other loan receivables | | | | | | | | | | | | | | $ | — | | | $ | (6,344) | | | $ | (6,344) | | | | | | | |
| Other investments | | | | | | | | | | | | | | — | | | (46,992) | | | (46,992) | | | | | | | |
| Total Insurance | | | | | | | | | | | | | | $ | — | | | $ | (53,336) | | | $ | (53,336) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total Assets | | | | | | | | | | | | | | $ | 22,172 | | | $ | 176,006 | | | $ | 198,178 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
| Asset Management | | | | | | | | | | | | | | | | | | | | | | | | |
| Debt Obligations of Consolidated CFEs | | | | | | | | | | | | | | $ | — | | | $ | (376,488) | | | $ | (376,488) | | | | | | | |
| Total Asset Management | | | | | | | | | | | | | | $ | — | | | $ | (376,488) | | | $ | (376,488) | | | | | | | |
| Insurance | | | | | | | | | | | | | | | | | | | | | | | | |
| Policy liabilities | | | | | | | | | | | | | | $ | — | | | $ | 594 | | | $ | 594 | | | | | | | |
| Total Insurance | | | | | | | | | | | | | | $ | — | | | $ | 594 | | | $ | 594 | | | | | | | |
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| Total Liabilities | | | | | | | | | | | | | | $ | — | | | $ | (375,894) | | | $ | (375,894) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Three Months Ended March 31, 2022 | | | | | | |
| | | | | | | | | | | | | | Net Realized
Gains (Losses) | | Net Unrealized
Gains (Losses) | | Total | | | | | | |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Asset Management | | | | | | | | | | | | | | | | | | | | | | | | |
| Credit | | | | | | | | | | | | | | $ | (37,515) | | | $ | (15,834) | | | $ | (53,349) | | | | | | | |
| Investments of Consolidated CFEs | | | | | | | | | | | | | | 2,949 | | | (269,548) | | | (266,599) | | | | | | | |
| Real Assets | | | | | | | | | | | | | | 85 | | | 24,685 | | | 24,770 | | | | | | | |
| Equity Method - Other | | | | | | | | | | | | | | (16,333) | | | (45,468) | | | (61,801) | | | | | | | |
| Other Investments | | | | | | | | | | | | | | 6,308 | | | (7,685) | | | (1,377) | | | | | | | |
| Total Asset Management | | | | | | | | | | | | | | $ | (44,506) | | | $ | (313,850) | | | $ | (358,356) | | | | | | | |
| Insurance | | | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage and other loan receivables | | | | | | | | | | | | | | $ | — | | | $ | (27,015) | | | $ | (27,015) | | | | | | | |
| Other investments | | | | | | | | | | | | | | — | | | 27,737 | | | 27,737 | | | | | | | |
| Total Insurance | | | | | | | | | | | | | | $ | — | | | $ | 722 | | | $ | 722 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total Assets | | | | | | | | | | | | | | $ | (44,506) | | | $ | (313,128) | | | $ | (357,634) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
| Asset Management | | | | | | | | | | | | | | | | | | | | | | | | |
| Debt Obligations of Consolidated CFEs | | | | | | | | | | | | | | $ | (785) | | | $ | 226,058 | | | 225,273 | | | | | | | |
| Total Asset Management | | | | | | | | | | | | | | $ | (785) | | | $ | 226,058 | | | $ | 225,273 | | | | | | | |
| Insurance | | | | | | | | | | | | | | | | | | | | | | | | |
| Policy liabilities | | | | | | | | | | | | | | $ | — | | | $ | 2,992 | | | $ | 2,992 | | | | | | | |
| Total Insurance | | | | | | | | | | | | | | $ | — | | | $ | 2,992 | | | $ | 2,992 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total Liabilities | | | | | | | | | | | | | | $ | (785) | | | $ | 229,050 | | | $ | 228,265 | | | | | | | |
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12. INSURANCE INTANGIBLES, UNEARNED REVENUE RESERVES AND UNEARNED FRONT-END LOADS
The following reflects the changesreconciliation of the components of insurance intangibles to the deferred policy acquisition costs ("DAC") asset:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| Balance, as of beginning of period | $ | 447,886 | | | $ | — | |
| | | |
| Deferrals | 114,935 | | | 76,694 | |
Amortized to expense during the period(1) | (9,343) | | | 798 | |
| Adjustment for unrealized investment-related losses (gains) during the period | (14,313) | | | — | |
| Balance, as of end of period | $ | 539,165 | | | $ | 77,492 | |
(1) These amounts aretotal balance reported within amortization of policy acquisition costs in the consolidated statements of operations.financial condition as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2023 | | 2022 |
| Deferred acquisition costs | $ | 930,468 | | | $ | 820,970 | |
| Value of business acquired | 1,293,927 | | | 1,316,529 | |
| Cost-of-reinsurance assets | 167,215 | | | 193,995 | |
| Total insurance intangibles | $ | 2,391,610 | | | $ | 2,331,494 | |
Deferred acquisition costs
The following tables reflect the deferred acquisition costs roll-forward by product category for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
| Fixed rate annuities | | Fixed indexed annuities | | Interest sensitive life | | Other | | Total |
| Balance, as of the beginning of the period | $ | 221,679 | | | $ | 367,813 | | | $ | 116,021 | | | $ | 115,457 | | | $ | 820,970 | |
| Capitalizations | 59,969 | | | 52,469 | | | 11,128 | | | 17,112 | | | 140,678 | |
| Amortization expense | (13,607) | | | (12,930) | | | (1,258) | | | (3,385) | | | (31,180) | |
| Balance, as of the end of the period | $ | 268,041 | | | $ | 407,352 | | | $ | 125,891 | | | $ | 129,184 | | | $ | 930,468 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| Fixed rate annuities | | Fixed indexed annuities | | Interest sensitive life | | Other | | Total |
| Balance, as of the beginning of the period | $ | 107,104 | | | $ | 179,449 | | | $ | 54,298 | | | $ | 56,730 | | | $ | 397,581 | |
| Capitalizations | 28,519 | | | 51,769 | | | 21,894 | | | 19,233 | | | 121,415 | |
| Amortization expense | (5,023) | | | (5,639) | | | (1,439) | | | (1,876) | | | (13,977) | |
| Balance, as of the end of the period | $ | 130,600 | | | $ | 225,579 | | | $ | 74,753 | | | $ | 74,087 | | | $ | 505,019 | |
Value of business acquired
The following reflects the changes totables reflect the value of business acquired, ("VOBA") asset:or “VOBA” asset roll-forward by product category for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
| Fixed rate annuities | | Fixed indexed annuities | | Interest sensitive life | | Variable annuities | | Other | | Total |
| Balance, as of the beginning of the period | $ | 48,762 | | | $ | 663,296 | | | $ | 276,795 | | | $ | 241,778 | | | $ | 85,898 | | | $ | 1,316,529 | |
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| Amortization expense | (972) | | | (10,358) | | | (3,048) | | | (6,370) | | | (1,854) | | | (22,602) | |
| | | | | | | | | | | |
| Balance, as of the end of the period | $ | 47,790 | | | $ | 652,938 | | | $ | 273,747 | | | $ | 235,408 | | | $ | 84,044 | | | $ | 1,293,927 | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| Balance, as of beginning of period | $ | 959,263 | | | $ | 1,024,520 | |
Amortized to expense during the period(1) | (17,144) | | | (12,182) | |
| | | |
| Balance, as of end of period | $ | 942,119 | | | $ | 1,012,338 | |
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| Three Months Ended March 31, 2022 |
| Fixed rate annuities | | Fixed indexed annuities | | Interest sensitive life | | Variable annuities | | Other | | Total |
| Balance, as of the beginning of the period | $ | 52,723 | | | $ | 709,271 | | | $ | 292,323 | | | $ | 269,172 | | | $ | 94,479 | | | $ | 1,417,968 | |
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| Amortization expense | (1,000) | | | (12,503) | | | (3,948) | | | (7,018) | | | (2,764) | | | (27,233) | |
| Balance, as of the end of the period | $ | 51,723 | | | $ | 696,768 | | | $ | 288,375 | | | $ | 262,154 | | | $ | 91,715 | | | $ | 1,390,735 | |
Notes to Financial Statements (Continued)
The following tables reflect the negative value of business acquired, or “negative VOBA” liability roll-forward by product category for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
| Fixed rate annuities | | Fixed indexed annuities | | Interest sensitive life | | Variable annuities | | Other | | Total |
| Balance, as of the beginning of the period | $ | 98,342 | | | $ | 145,610 | | | $ | 461,592 | | | $ | 99,776 | | | $ | 198,804 | | | $ | 1,004,124 | |
| | | | | | | | | | | |
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| Amortization expense | (8,720) | | | (10,036) | | | (8,144) | | | (2,423) | | | (5,349) | | | (34,672) | |
| Balance, as of the end of the period | $ | 89,622 | | | $ | 135,574 | | | $ | 453,448 | | | $ | 97,353 | | | $ | 193,455 | | | $ | 969,452 | |
(1) These amounts are reported within amortization of policy acquisition costs in the consolidated statements of operations. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| Fixed rate annuities | | Fixed indexed annuities | | Interest sensitive life | | Variable annuities | | Other | | Total |
| Balance, as of the beginning of the period | $ | 136,227 | | | $ | 184,664 | | | $ | 500,264 | | | $ | 109,826 | | | $ | 211,296 | | | $ | 1,142,277 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Amortization expense | (9,826) | | | (9,511) | | | (11,700) | | | (2,525) | | | (3,307) | | | (36,869) | |
| Balance, as of the end of the period | $ | 126,401 | | | $ | 175,153 | | | $ | 488,564 | | | $ | 107,301 | | | $ | 207,989 | | | $ | 1,105,408 | |
The following reflects the changes to the negative VOBA liability:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| Balance, as of beginning of period | $ | 1,118,716 | | | $ | 1,273,414 | |
Amortized to expense during the period(1) | (34,220) | | | (31,862) | |
| Balance, as of end of period | $ | 1,084,496 | | | $ | 1,241,552 | |
(1) These amounts are reported withinEstimated future amortization of policy acquisition costs in the consolidated statementsVOBA and Negative VOBA as of operations.March 31, 2023 is as follows:
| | | | | | | | | | | | | | | | | |
| Years | VOBA | | Negative VOBA | | Total, net |
| Remainder of 2023 | $ | 66,010 | | | $ | (91,650) | | | $ | (25,640) | |
| 2024 | 83,707 | | | (101,747) | | | (18,040) | |
| 2025 | 78,737 | | | (83,867) | | | (5,130) | |
| 2026 | 74,285 | | | (69,700) | | | 4,585 | |
| 2027 | 70,024 | | | (59,753) | | | 10,271 | |
| 2028 | 66,345 | | | (51,968) | | | 14,377 | |
| 2029 and thereafter | 854,819 | | | (510,767) | | | 344,052 | |
| Total | $ | 1,293,927 | | | $ | (969,452) | | | $ | 324,475 | |
The following reflects the changes to the unearnedUnearned revenue reserve ("URR")reserves and unearned front-end load ("UFEL):loads
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| Preneed |
| Balance, as of the beginning of the period | $ | 118,186 | | | $ | 55,510 | |
| Deferral | 17,791 | | | 16,686 | |
| Amortized to income during the year | (2,517) | | | (1,280) | |
| | | |
| Balance, as of the end of the period | $ | 133,460 | | | $ | 70,916 | |
Significant inputs, judgments, assumptions for DAC and related amortization amounts
Global Atlantic considers surrender rates, mortality rates, and other relevant policy decrements in determining the expected life of the contract. As a part of Global Atlantic's actual experience update for the three months ended March 31, 2023 and 2022, Global Atlantic observed that there was no significant change in relevant inputs, judgments, or assumptions requiring an update of the amortization rate for DAC and related amortization amounts.
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| Balance, as of beginning of period | $ | 33,603 | | | $ | — | |
| Deferrals | 16,686 | | | 9,575 | |
Amortized to revenue during the period(1) | (5,934) | | | (2,013) | |
| Adjustment for unrealized investment-related gains during the period | (40,577) | | | — | |
| Balance, as of end of period | $ | 3,778 | | | $ | 7,562 | |
(1) These amounts are reported within policy fees in the consolidated statements of operations.
13. REINSURANCE
Global Atlantic maintains a number of reinsurance treaties with third parties whereby Global Atlantic assumes fixed annuity variable annuity, payout annuity, universaland life variable universal life and term life insurance policies on a coinsurance, modified coinsurance andor funds withheld basis. Global Atlantic also maintains other reinsurance treaties including the cession of certain fixed annuity, variable annuity, payout annuity, universal life policies, individual disability income policies and discontinued accident and health insurance.
The effects of all reinsurance agreements on the consolidated statementstatements of financial condition were as follows:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Policy liabilities: | | | |
| Direct | $ | 68,444,765 | | | $ | 67,131,818 | |
| Assumed | 62,631,922 | | | 59,388,226 | |
| Total policy liabilities | 131,076,687 | | | 126,520,044 | |
Ceded(1) | (24,625,159) | | | (25,035,228) | |
| Net policy liabilities | $ | 106,451,528 | | | $ | 101,484,816 | |
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Policy liabilities: | | | |
| Direct | $ | 73,565,098 | | | $ | 71,833,991 | |
| Assumed | 67,564,876 | | | 65,946,938 | |
| Total policy liabilities | 141,129,974 | | | 137,780,929 | |
Ceded(1) | (25,900,544) | | | (25,755,283) | |
| Net policy liabilities | $ | 115,229,430 | | | $ | 112,025,646 | |
(1)Reported within reinsurance recoverable within the consolidated statementstatements of financial condition.
A key credit quality indicator is a counterparty’s A.M. Best financial strength rating.A.M. Best ratings are an independent opinion of a reinsurer’s ability to meet ongoing obligations to policyholders. Global Atlantic mitigates counterparty credit risk by requiring collateral and credit enhancements in various forms including engaging in funds withheld at interest and modified coinsurance transactions. The following shows the amortized cost basis of Global Atlantic’s reinsurance recoverable and funds withheld receivable at interest by credit quality indicator and any associated credit enhancements Global Atlantic has obtained to mitigate counterparty credit risk:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2022 | | As of December 31, 2021 |
A.M. Best Rating(1) | Reinsurance recoverable and funds withheld receivable at interest(2) | | Credit enhancements(3) | | Net reinsurance credit exposure(4) | | Reinsurance recoverable and funds withheld receivable at interest(2) | | Credit enhancements(3) | | Net reinsurance credit exposure(4) |
| A++ | $ | 8,810 | | | $ | — | | | $ | 8,810 | | | $ | 7,911 | | | $ | — | | | $ | 7,911 | |
| A+ | 1,977,750 | | | — | | | 1,977,750 | | | 1,989,426 | | | — | | | 1,989,426 | |
| A | 2,571,414 | | | — | | | 2,571,414 | | | 2,652,286 | | | — | | | 2,652,286 | |
| A- | 5,587,142 | | | 4,822,173 | | | 764,969 | | | 5,645,633 | | | 5,166,559 | | | 479,074 | |
| B++ | 37,176 | | | — | | | 37,176 | | | 33,410 | | | — | | | 33,410 | |
| B+ | 1,564 | | | — | | | 1,564 | | | 1,122 | | | — | | | 1,122 | |
| B | 9,290 | | | — | | | 9,290 | | | 9,227 | | | — | | | 9,227 | |
| B- | 1,850 | | | — | | | 1,850 | | | 1,274 | | | — | | | 1,274 | |
Not rated(5) | 17,430,904 | | | 16,959,558 | | | 471,346 | | | 17,698,613 | | | 18,323,795 | | | — | |
| Total | $ | 27,625,900 | | | $ | 21,781,731 | | | $ | 5,844,169 | | | $ | 28,038,902 | | | $ | 23,490,354 | | | $ | 5,173,730 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2023 | | As of December 31, 2022 |
A.M. Best Rating(1) | Reinsurance recoverable and funds withheld receivable at interest(2) | | Credit enhancements(3) | | Net reinsurance credit exposure(4) | | Reinsurance recoverable and funds withheld receivable at interest(2) | | Credit enhancements(3) | | Net reinsurance credit exposure(4) |
| A++ | $ | 82,004 | | | $ | — | | | $ | 82,004 | | | $ | 62,674 | | | $ | — | | | $ | 62,674 | |
| A+ | 1,902,082 | | | — | | | 1,902,082 | | | 1,849,918 | | | — | | | 1,849,918 | |
| A | 2,417,311 | | | — | | | 2,417,311 | | | 2,491,461 | | | — | | | 2,491,461 | |
| A- | 4,727,882 | | | 4,095,671 | | | 632,211 | | | 5,397,767 | | | 4,197,739 | | | 1,200,028 | |
| B++ | 29,788 | | | — | | | 29,788 | | | 37,939 | | | — | | | 37,939 | |
| B+ | — | | | — | | | — | | | — | | | — | | | — | |
| B | — | | | — | | | — | | | — | | | — | | | — | |
| B- | (221) | | | — | | | — | | | (221) | | | — | | | — | |
Not rated or private rating(5) | 19,771,749 | | | 18,900,024 | | | 871,725 | | | 20,994,058 | | | 18,541,678 | | | 2,452,380 | |
| Total | $ | 28,930,595 | | | $ | 22,995,695 | | | $ | 5,935,121 | | | $ | 30,833,596 | | | $ | 22,739,417 | | | $ | 8,094,400 | |
(1)Ratings are periodically updated (at least annually) as A.M. Best issues new ratings.
(2)At amortized cost, excluding any associated embedded derivative assets and liabilities.
(3)Includes funds withheld payable at interest and deferred intangible reinsurance assets and liabilities.
(4)Includes credit loss allowance of $28.1$8.8 million and $8.4$41.2 million as of March 31, 20222023 and December 31, 2021,2022, respectively, held against reinsurance recoverable.
(5)Includes $17.4$19.8 billion and $17.7$21.0 billion as of March 31, 20222023 and December 31, 2021,2022, respectively, associated with cessions to Ivy Re Limited a Bermuda insurance company and a subsidiaryIvy Re II Limited, wholly owned subsidiaries of an investment vehicleIvy Co-Invest Vehicle LLC and Ivy Co-Invest Vehicle II LLC, and collectively the “Ivy Vehicles,” which are co-investment vehicles that participatesparticipate in qualifying reinsurance transactions sourced by Global Atlantic.
As of both March 31, 20222023 and December 31, 2021,2022, Global Atlantic had $3.0$2.8 billion and $2.9 billion of funds withheld receivable at interest, with 6six counterparties related to modified coinsurance and funds withheld contracts.contracts, respectively. The assets supporting these receivables were held in trusts and not part of the respective counterparty’s general accounts.
Notes to Financial Statements (Continued)
The effects of reinsurance on the consolidated statements of operations were as follows:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
| Net premiums: | | | | | | | |
| Direct | | | | | $ | 32,653 | | | $ | 36,573 | |
| Assumed | | | | | 618,730 | | | 401,515 | |
| Ceded | | | | | (177,759) | | | (65,944) | |
| Net premiums | | | | | $ | 473,624 | | | $ | 372,144 | |
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
| Policy fees: | | | | | | | |
| Direct | | | | | $ | 227,857 | | | $ | 236,337 | |
| Assumed | | | | | 104,589 | | | 77,778 | |
| Ceded | | | | | (18,644) | | | (333) | |
| Net policy fees | | | | | $ | 313,802 | | | $ | 313,782 | |
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
| Premiums: | | | | | | | |
| Direct | | | | | $ | 36,573 | | | $ | 14,175 | |
Assumed(1) | | | | | 401,515 | | | 1,280,753 | |
| Ceded | | | | | (65,944) | | | (118,786) | |
| Net premiums | | | | | $ | 372,144 | | | $ | 1,176,142 | |
(1)Includes related party activity of $2.7 million for the three months ended March 31, 2021.
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
| Policy fees: | | | | | | | |
| Direct | | | | | $ | 240,991 | | | $ | 148,999 | |
Assumed(1) | | | | | 77,778 | | | 52,955 | |
| Ceded | | | | | (333) | | | (271) | |
| Net policy fees | | | | | $ | 318,436 | | | $ | 201,683 | |
(1)Includes related party activity of $2.1 million for the three months ended March 31, 2021.
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
| Policy benefits and claims: | | | | | | | |
| Direct | | | | | $ | 235,604 | | | $ | 182,801 | |
Assumed(1) | | | | | 604,233 | | | 1,467,127 | |
| Ceded | | | | | (113,777) | | | (164,610) | |
| Net policy benefits and claims | | | | | $ | 726,060 | | | $ | 1,485,318 | |
(1)Includes related party activity of $22.5 million for the three months ended March 31, 2021.
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
| Net policy benefits and claims: | | | | | | | |
| Direct | | | | | $ | 948,119 | | | $ | 4,462 | |
| Assumed | | | | | 1,016,936 | | | 600,219 | |
| Ceded | | | | | (438,001) | | | (91,503) | |
| Net policy benefits and claims | | | | | $ | 1,527,054 | | | $ | 513,178 | |
Global Atlantic holds collateral for and provides collateral to ourits reinsurance clients. Global Atlantic held $22.9$25.9 billion and $23.4$26.1 billion of collateral in the form of funds withheld payable on behalf of ourits reinsurers as of March 31, 20222023 and December 31, 2021,2022, respectively. As of both March 31, 20222023 and December 31, 2021,2022, reinsurers held collateral of $1.4 billion and $1.3 billion on behalf of Global Atlantic, respectively.Atlantic. A significant portion of the collateral that Global Atlantic provides to its reinsurance clients is provided in the form of assets held in a trust for the benefit of the counterparty. As of March 31, 20222023 and December 31, 2021,2022, these trusts held in excess of the $58.6$67.2 billion and $55.2$65.8 billion of assets it is required to hold in order to support reserves of $59.0$64.0 billion and $55.8$62.4 billion, respectively. Of the cash held in trust, Global Atlantic classified $159.7$43.5 million and $149.3$31.3 million as restricted as of March 31, 20222023 and December 31, 2021,2022, respectively.
14. NET INCOME (LOSS) ATTRIBUTABLE TO KKR & CO. INC. PER SHARE OF COMMON STOCK
For the three months ended March 31, 20222023 and 2021,2022, basic and diluted Net Income (Loss) attributable to KKR & Co. Inc. per share of common stock were calculated as follows:
| | | | | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 | | | | 2023 | | 2022 | |
| Net Income (Loss) Available to KKR & Co. Inc.
Common Stockholders - Basic | Net Income (Loss) Available to KKR & Co. Inc.
Common Stockholders - Basic | | | $ | (73,770) | | $ | 1,644,245 | | | Net Income (Loss) Available to KKR & Co. Inc.
Common Stockholders - Basic | | $ | 322,744 | | $ | (9,786) | | |
(+) Series C Mandatory Convertible Preferred Dividend (if dilutive) (1) | (+) Series C Mandatory Convertible Preferred Dividend (if dilutive) (1) | | | — | | 17,250 | | (+) Series C Mandatory Convertible Preferred Dividend (if dilutive) (1) | | — | | — | | |
Net Income (Loss) Available to KKR & Co. Inc.
Common Stockholders - Diluted | Net Income (Loss) Available to KKR & Co. Inc.
Common Stockholders - Diluted | | | $ | (73,770) | | $ | 1,661,495 | | | Net Income (Loss) Available to KKR & Co. Inc.
Common Stockholders - Diluted | | $ | 322,744 | | $ | (9,786) | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic Net Income (Loss) Per Share of Common Stock | | | | | | | | | | | | | | | | | |
| Weighted Average Shares of Common Stock Outstanding - Basic | | | | | | | | | | | | | 861,108,510 | | | 592,202,835 | | | |
Net Income (Loss) Attributable to KKR & Co. Inc.
Per Share of Common Stock - Basic | | | | | | | | | | | | | $ | 0.37 | | | $ | (0.02) | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Diluted Net Income (Loss) Per Share of Common Stock | | | | | | | | | | | | | | | | | |
| Weighted Average Shares of Common Stock Outstanding - Basic | | | | | | | | | | | | | 861,108,510 | | | 592,202,835 | | | |
| Incremental Common Shares: | | | | | | | | | | | | | | | | | |
Assumed vesting of dilutive equity awards (2) | | | | | | | | | | | | | 26,060,826 | | | — | | | |
Assumed conversion of Series C Mandatory Convertible Preferred Stock (1) | | | | | | | | | | | | | — | | | — | | | |
| Weighted Average Shares of Common Stock Outstanding - Diluted | | | | | | | | | | | | | 887,169,336 | | | 592,202,835 | | | |
Net Income (Loss) Attributable to KKR & Co. Inc.
Per Share of Common Stock - Diluted | | | | | | | | | | | | | $ | 0.36 | | | $ | (0.02) | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Basic Net Income (Loss) Per Share of Common Stock | | | | | | | | | | | | | |
| Weighted Average Shares of Common Stock Outstanding - Basic | | | | | | | | | 592,202,835 | | | 576,727,967 | | | |
Net Income (Loss) Attributable to KKR & Co. Inc.
Per Share of Common Stock - Basic | | | | | | | | | $ | (0.12) | | | $ | 2.85 | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Diluted Net Income (Loss) Per Share of Common Stock | | | | | | | | | | | | | |
| Weighted Average Shares of Common Stock Outstanding - Basic | | | | | | | | | 592,202,835 | | | 576,727,967 | | | |
| Incremental Common Shares: | | | | | | | | | | | | | |
Assumed vesting of dilutive equity awards (2) | | | | | | | | | — | | | 17,337,924 | | | |
Assumed conversion of Series C Mandatory Convertible Preferred Stock (1) | | | | | | | | | — | | | 26,822,600 | | | |
| Weighted Average Shares of Common Stock Outstanding - Diluted | | | | | | | | | 592,202,835 | | | 620,888,491 | | | |
Net Income (Loss) Attributable to KKR & Co. Inc.
Per Share of Common Stock - Diluted | | | | | | | | | $ | (0.12) | | | $ | 2.68 | | | |
| | | | | | | | | | | | | |
(1) For the three months ended March 31, 2023 and 2022, the impact of Series C Mandatory Convertible Preferred Stock is excluded from the calculation of Diluted Net Income (Loss) Attributable to KKR & Co. Inc. Per Share of Common Stock because inclusion of such shares would be anti-dilutive having the effect of decreasing the loss per share of common stock. For the three months ended March 31, 2021, the impact of Series C Mandatory Convertible Preferred Stock calculated under the if-converted method was dilutive,anti-dilutive, and as such (i) 26.8 million shares of common stock (assuming a conversion ratio based on the average volume weighted average price per share of common stock over each reporting period) were not included in the Weighted Average Shares of Common Stock Outstanding - Diluted and (ii) $17.3 million of Series C Mandatory Convertible Preferred dividends were not added back to Net Income (Loss) Available to KKR & Co. Inc. Common Stockholders - Diluted.
(2)For the three months ended March 31, 2021,2023, Weighted Average Shares of Common Stock Outstanding – Diluted includes unvested equity awards, including certain equity awards that have met their market price-based vesting condition but have not satisfied their service-based vesting condition, which have been granted under the Equity Incentive Plans. Vesting of these equity awards dilute equityholdersequity holders of KKR Group Partnership, including KKR & Co. Inc. and KKR Holdingsholders of exchangeable securities pro rata in accordance with their respective ownership interests in KKR Group Partnership. For the three months ended March 31, 2022, all unvested shares of common stockequity awards are excluded from the calculation of Diluted Net Income (Loss) Attributable to KKR & Co. Inc. Per Share of Common Stock because inclusion of such unvested shares of common stockequity awards would be anti-dilutive having the effect of decreasing the loss per share of common stock.
Notes to the calculation of the Net Income (Loss) Attributable to KKR & Co. Inc. Per Share of Common Stock – Diluted. For three months ended March 31, 2021 the Net Income (Loss) Attributable to KKR & Co. Inc. Per Share of Common Stock – Diluted was unchanged by the adoption of ASU 2020-06, and there was no impact to previously reported amounts.Financial Statements (Continued)
KKR Holdings Units
For the three months ended March 31, 20222023 and 20212022, KKR Holdings Units and vested restricted holdings units (as defined in Note 20 "Equity Based Compensation") have been excluded from the calculation of Net Income (Loss) Attributable to KKR & Co. Inc. Per Share of Common Stock - Diluted since the exchange of these units would not dilute KKR & Co. Inc.'s ownership interests in KKR Group Partnership. As of May 31, 2022, there are no outstanding KKR Holdings Units. See Note 1 "Organization" in our financial statements.
| | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, | | |
| | | | | | 2022 | | 2021 | | | | |
| Weighted Average KKR Holdings Units | | | | | 258,726,163 | | | 274,748,078 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, | | | | | | | |
| | | | | | | | | | 2023 | | 2022 | | | | | | | | | |
| Weighted Average KKR Holdings Units | | | | | | | | | — | | | 258,726,163 | | | | | | | | | | |
| Weighted Average Vested Restricted Holdings Units | | | | | | | | | 2,695,142 | | | 1,376,655 | | | | | | | | | | |
| Total | | | | | | | | | 2,695,142 | | | 260,102,818 | | | | | | | | | | |
Market Condition Awards
For the three months ended March 31, 2023 and 2022, and 2021, 17.022.5 million and 15.317.0 million, respectively, of unvested equity awards that are subject to market price based and service-based vesting conditions were excluded from the calculation of Net Income (Loss) Attributable to KKR & Co. Inc. Per Share of Common Stock - Diluted since the market price based vesting condition was not satisfied. See Note 1920 "Equity Based Compensation."Compensation" in our financial statements.
15. OTHER ASSETS AND ACCRUED EXPENSES AND OTHER LIABILITIES
Other Assets consist of the following:
| | | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| Asset Management | Asset Management | | | | Asset Management | | | |
Unsettled Investment Sales (1) | Unsettled Investment Sales (1) | $ | 200,402 | | | $ | 182,267 | | Unsettled Investment Sales (1) | $ | 138,125 | | | $ | 90,072 | |
| Receivables | Receivables | 82,966 | | | 81,133 | | Receivables | 32,577 | | | 26,119 | |
Due from Broker (2) | Due from Broker (2) | 28,899 | | | 365,053 | | Due from Broker (2) | 108,428 | | | 160,533 | |
| Deferred Tax Assets, net (See Note 18) | 95,533 | | | 85,770 | | |
| Deferred Tax Assets, net (See Note 19) | | Deferred Tax Assets, net (See Note 19) | 55,154 | | | 54,769 | |
| Interest Receivable | Interest Receivable | 147,124 | | | 144,221 | | Interest Receivable | 244,421 | | | 223,660 | |
Fixed Assets, net (3) | Fixed Assets, net (3) | 819,069 | | | 820,143 | | Fixed Assets, net (3) | 859,193 | | | 857,903 | |
Foreign Exchange Contracts and Options (4) | Foreign Exchange Contracts and Options (4) | 367,079 | | | 590,637 | | Foreign Exchange Contracts and Options (4) | 573,820 | | | 668,716 | |
| Goodwill (5) | Goodwill (5) | 83,500 | | | 83,500 | | Goodwill (5) | 587,698 | | | 594,270 | |
Intangible Assets (6) | | Intangible Assets (6) | 1,725,741 | | | 1,747,891 | |
| Derivative Assets | Derivative Assets | 5,294 | | | 491 | | Derivative Assets | 17,404 | | | 7,519 | |
| | Prepaid Taxes | Prepaid Taxes | 65,692 | | | 93,296 | | Prepaid Taxes | 62,030 | | | 68,107 | |
| Prepaid Expenses | Prepaid Expenses | 37,127 | | | 29,290 | | Prepaid Expenses | 53,156 | | | 48,233 | |
Operating Lease Right of Use Assets (6) | 220,458 | | | 228,363 | | |
Operating Lease Right of Use Assets (7) | | Operating Lease Right of Use Assets (7) | 348,026 | | | 344,022 | |
| Deferred Financing Costs | Deferred Financing Costs | 15,989 | | | 17,953 | | Deferred Financing Costs | 23,559 | | | 16,382 | |
| | Other | Other | 238,582 | | | 164,196 | | Other | 218,998 | | | 289,430 | |
| Total Asset Management | Total Asset Management | $ | 2,407,714 | | | $ | 2,886,313 | | Total Asset Management | $ | 5,048,330 | | | $ | 5,197,626 | |
| | Insurance | Insurance | | | | Insurance | |
Unsettled Investment Sales(1) | $ | 1,613,094 | | | $ | 941,427 | | |
Unsettled Investment Sales(1) and Derivative Collateral Receivables | | Unsettled Investment Sales(1) and Derivative Collateral Receivables | $ | 622,623 | | | $ | 663,280 | |
| Deferred Tax Assets, net | Deferred Tax Assets, net | 1,536,986 | | | 755,876 | | Deferred Tax Assets, net | 2,069,675 | | | 2,272,153 | |
| Derivative Assets | Derivative Assets | 1,024,589 | | | 1,295,950 | | Derivative Assets | 905,767 | | | 724,390 | |
| Accrued Investment Income | Accrued Investment Income | 898,120 | | | 817,486 | | Accrued Investment Income | 1,051,997 | | | 1,130,103 | |
Goodwill (8) | 501,496 | | | 501,496 | | |
Intangible Assets and Deferred Sales Inducements(7) | 289,412 | | | 293,824 | | |
Operating Lease Right of Use Assets(6) | 171,344 | | | 160,888 | | |
Goodwill(9) | | Goodwill(9) | 501,496 | | | 501,496 | |
Intangible Assets and Deferred Sales Inducements(8) | | Intangible Assets and Deferred Sales Inducements(8) | 271,765 | | | 276,176 | |
Operating Lease Right of Use Assets(7) | | Operating Lease Right of Use Assets(7) | 179,421 | | | 175,035 | |
| Premiums and Other Account Receivables | Premiums and Other Account Receivables | 117,997 | | | 86,524 | | Premiums and Other Account Receivables | 140,546 | | | 141,551 | |
| Other | Other | 96,576 | | | 96,093 | | Other | 145,652 | | | 121,114 | |
| Current Income Tax Recoverable | 53,161 | | | 103,954 | | |
| Prepaid Taxes | | Prepaid Taxes | 22,675 | | | 22,851 | |
| Market risk benefit asset | | Market risk benefit asset | 9,350 | | | 13,180 | |
| Total Insurance | Total Insurance | $ | 6,302,775 | | | $ | 5,053,518 | | Total Insurance | $ | 5,920,967 | | | $ | 6,041,329 | |
| | Total Other Assets | Total Other Assets | $ | 8,710,489 | | | $ | 7,939,831 | | Total Other Assets | $ | 10,969,297 | | | $ | 11,238,955 | |
(1)Represents amounts due from third parties for investments sold for which cash settlement has not occurred.
(2)Represents amounts held at clearing brokers resulting from securities transactions.
(3)Net of accumulated depreciation and amortization of $153.5$204.6 million and $141.6$188.8 million as of March 31, 20222023 and December 31, 2021,2022, respectively. Depreciation and amortization expense of $12.7$15.8 million and $11.0$12.7 million for the three months ended March 31, 20222023 and 2021,2022, respectively, are included in General, Administrative and Other in the accompanying consolidated statements of operations. Additionally, KKR’s fixed assets are predominantly located in the United States.
(4)Represents derivative financial instruments used to manage foreign exchange risk arising from certain foreign currency denominated investments. Such instruments are measured at fair value with changes in fair value recorded in Net Gains (Losses) from Investment Activities in the accompanying consolidated statements of operations. See Note 5 "Net Gains (Losses) from Investment Activities - Asset Management" in our financial statements for the net changes in fair value associated with these instruments.
(5)As of March 31, 2022,2023, the carrying value of goodwill is recorded and assessed for impairment at the reporting unit. As of March 31, 2023, there are approximately $(4.8) million of cumulative foreign currency translation adjustments included in AOCI related to the goodwill recorded as result of the acquisition of KJRM (see Note 3 "Acquisitions" in our financial statements).
(6)As of March 31, 2023, there are approximately $(16.3) million of cumulative foreign currency translation adjustments included in AOCI related to the intangible assets recorded as result of the acquisition of KJRM (see Note 3 "Acquisitions" in our financial statements).
(7)For Asset Management, non-cancelable operating leases consist of leases for office space in North America, Europe, Asia and Australia. KKR is the lessee under the terms of the operating leases. The operating lease cost was $12.2$15.7 million and $11.5$12.2 million for the three months ended March 31, 20222023 and 2021,2022, respectively. For Insurance, non-cancelable operating leases consist of leases for office space and land in the U.S. For the three months ended March 31, 20222023 and 2021,2022, the operating lease cost was $5.9$6.8 million and $2.6$5.9 million, respectively. Insurance lease right-of-use assets are reported net of $22.2$22.8 million and $22.7$21.8 million in deferred rent and lease incentives as of March 31, 20222023 and December 31, 2021, respectively. The weighted average remaining lease term was 26.9 years and 27.9 years as of March 31, 2022, and December 31, 2021, respectively.
Notes to Financial Statements (Continued)
(8)The definite life intangible assets are amortized by using the straight-line method over the useful life of the assets which is an average of 1615 years. The indefinite life intangible assets are not subject to amortization. The amortization expense of definite life intangible assets was $4.4 million and $2.5 million for both the three months ended March 31, 20222023 and 2021, respectively.2022.
(8)(9)The amounts include approximately $4.5 million of goodwill related to an immaterial acquisition of a residential mortgage platform, which Global Atlantic acquired in October 2021 for a purchase price consideration of $4.6 million.
Table The insurance segment reported a negative equity carrying amount as of ContentsMarch 31, 2023 and December 31, 2022 primarily due to unrealized losses on available-for-sale fixed maturity investment portfolio. Global Atlantic expects that substantially all of these unrealized losses will not be realized as it intends to hold these investments until recovery of the losses, which may be at maturity, as part of its asset liability cash-flow matching strategy. KKR evaluated qualitative factors, including market and economic conditions, industry-specific events and company-specific financial results, and determined that it was not more likely than not that goodwill was impaired.
Accrued Expenses and Other Liabilities consist of the following:
| | | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| Asset Management | Asset Management | | | | Asset Management | | | |
Amounts Payable to Carry Pool (1) | Amounts Payable to Carry Pool (1) | $ | 3,138,465 | | | $ | 3,650,312 | | Amounts Payable to Carry Pool (1) | $ | 1,957,104 | | | $ | 1,872,568 | |
Unsettled Investment Purchases (2) | Unsettled Investment Purchases (2) | 1,138,357 | | | 1,315,163 | | Unsettled Investment Purchases (2) | 605,769 | | | 416,822 | |
Securities Sold Short (3) | Securities Sold Short (3) | 136,128 | | | 249,383 | | Securities Sold Short (3) | 100,861 | | | 158,752 | |
| Derivative Liabilities | Derivative Liabilities | 28,077 | | | 45,003 | | Derivative Liabilities | 6,117 | | | 11,018 | |
| Accrued Compensation and Benefits | Accrued Compensation and Benefits | 438,550 | | | 210,789 | | Accrued Compensation and Benefits | 277,194 | | | 265,712 | |
| Interest Payable | Interest Payable | 161,358 | | | 162,801 | | Interest Payable | 397,899 | | | 363,849 | |
Foreign Exchange Contracts and Options (4) | Foreign Exchange Contracts and Options (4) | 239,875 | | | 319,511 | | Foreign Exchange Contracts and Options (4) | 276,405 | | | 406,746 | |
| Accounts Payable and Accrued Expenses | Accounts Payable and Accrued Expenses | 170,398 | | | 187,564 | | Accounts Payable and Accrued Expenses | 193,222 | | | 216,688 | |
| Taxes Payable | Taxes Payable | 104,796 | | | 42,745 | | Taxes Payable | 278,678 | | | 136,245 | |
| Uncertain Tax Positions | Uncertain Tax Positions | 54,975 | | | 78,226 | | Uncertain Tax Positions | 38,988 | | | 56,032 | |
| Unfunded Revolver Commitments | Unfunded Revolver Commitments | 64,556 | | | 64,276 | | Unfunded Revolver Commitments | 112,534 | | | 137,315 | |
Operating Lease Liabilities (5) | Operating Lease Liabilities (5) | 223,652 | | | 230,995 | | Operating Lease Liabilities (5) | 353,156 | | | 347,901 | |
| | Deferred Tax Liabilities, net (See Note 18) | 791,575 | | | 900,436 | | |
| Deferred Tax Liabilities, net (See Note 19) | | Deferred Tax Liabilities, net (See Note 19) | 1,693,513 | | | 1,667,740 | |
| Other Liabilities | Other Liabilities | 551,024 | | | 439,693 | | Other Liabilities | 1,501,307 | | | 414,387 | |
| Total Asset Management | Total Asset Management | $ | 7,241,786 | | | $ | 7,896,897 | | Total Asset Management | $ | 7,792,747 | | | $ | 6,471,775 | |
| | Insurance | Insurance | | Insurance | |
Unsettled Investment Purchases(2) | Unsettled Investment Purchases(2) | $ | 1,138,365 | | | $ | 395,722 | | Unsettled Investment Purchases(2) | $ | 476,863 | | | $ | 208,941 | |
| Collateral on Derivative Instruments | Collateral on Derivative Instruments | 894,687 | | | 1,086,061 | | Collateral on Derivative Instruments | 644,591 | | | 466,371 | |
| Accrued Expenses | Accrued Expenses | 753,160 | | | 747,237 | | Accrued Expenses | 644,556 | | | 600,633 | |
| Insurance Operations Balances in Course of Settlement | | Insurance Operations Balances in Course of Settlement | 129,404 | | | 949,383 | |
| Securities Sold Under Agreements to Repurchase | Securities Sold Under Agreements to Repurchase | 810,535 | | | 300,446 | | Securities Sold Under Agreements to Repurchase | 313,797 | | | 805,316 | |
| Derivative Liabilities | Derivative Liabilities | 462,202 | | | 145,163 | | Derivative Liabilities | 618,268 | | | 934,107 | |
| Accrued Employee Related Expenses | Accrued Employee Related Expenses | 248,861 | | | 280,668 | | Accrued Employee Related Expenses | 312,856 | | | 322,698 | |
Operating Lease Liabilities(5) | Operating Lease Liabilities(5) | 190,855 | | | 180,574 | | Operating Lease Liabilities(5) | 200,694 | | | 195,001 | |
| Tax Payable to Former Parent Company | Tax Payable to Former Parent Company | 64,886 | | | 74,423 | | Tax Payable to Former Parent Company | 60,498 | | | 67,086 | |
| Interest Payable | Interest Payable | 32,353 | | | 12,930 | | Interest Payable | 32,321 | | | 13,329 | |
| Accounts and Commissions Payable | Accounts and Commissions Payable | 15,196 | | | 26,054 | | Accounts and Commissions Payable | 20,558 | | | 25,261 | |
| Other Tax Related Liabilities | Other Tax Related Liabilities | 4,741 | | | 14,288 | | Other Tax Related Liabilities | 10,693 | | | 12,249 | |
| | Total Insurance | Total Insurance | $ | 4,615,841 | | | $ | 3,263,566 | | Total Insurance | $ | 3,465,099 | | | $ | 4,600,375 | |
| | Total Accrued Expenses and Other Liabilities | Total Accrued Expenses and Other Liabilities | $ | 11,857,627 | | | $ | 11,160,463 | | Total Accrued Expenses and Other Liabilities | $ | 11,257,846 | | | $ | 11,072,150 | |
|
(1)Represents the amount of carried interest payable to current and former KKR employees arising from KKR's investment funds and co-investment vehicles that provide for carried interest.
(2)Represents amounts owed to third parties for investment purchases for which cash settlement has not occurred.
(3)Represents the obligations of KKR to deliver a specified security at a future point in time. Such securities are measured at fair value with changes in fair value recorded in Net Gains (Losses) from Investment Activities in the accompanying consolidated statements of operations. See Note 5 "Net Gains (Losses) from Investment Activities - Asset Management" in our financial statements for the net changes in fair value associated with these instruments.
(4)Represents derivative financial instruments used to manage foreign exchange risk arising from certain foreign currency denominated investments. Such instruments are measured at fair value with changes in fair value recorded in Net Gains (Losses) from Investment Activities in the accompanying consolidated statements of operations. See Note 5 "Net Gains (Losses) from Investment Activities - Asset Management" in our financial statements for the net changes in fair value associated with these instruments.
Notes to Financial Statements (Continued)
(5)For Asset Management, operating leases for office space have remaining lease terms that range from approximately 1 year to 1416 years, some of which include options to extend the leases for upfrom 5 years to 310 years. The weighted average remaining lease terms were 9.410.2 years and 9.510.4 years as of March 31, 20222023 and December 31, 2021,2022, respectively. The weighted average discount rates were 1.2%2.6% and 1.2%2.5% as of March 31, 20222023 and December 31, 2021,2022, respectively. For Insurance, operating leases for office space have remaining lease terms that range from approximately 1 year to 12 years, some of which include options to extend the leases for up to 10 years. The weighted average remaining lease terms waswere 7.6 years and 7.87.0 years as of March 31, 20222023 and December 31, 2021,2022, respectively. The weighted average discount rate was 2.9%4.1% and 3.6% as of both March 31, 20222023 and December 31, 2021.2022, respectively. The weighted average remaining lease terms for land were 25.9 years and 26.9 years as of March 31, 2023 and December 31, 2022, respectively.
16. VARIABLE INTEREST ENTITIES
Consolidated VIEs
KKR consolidates certain variable interest entities ("VIEs")VIEs in which it is determined that KKR is the primary beneficiary. The consolidated VIEs are predominately CLOs and certain investment funds sponsored by KKR. The primary purpose of these VIEs is to provide strategy specific investment opportunities to earn investment gains, current income or both in exchange for management fees and performance income. KKR's investment strategies differ for these VIEs; however, the fundamental risks have similar characteristics, including loss of invested capital and loss of management fees and performance income. KKR does not provide performance guarantees and has no other financial obligation to provide funding to these consolidated VIEs, beyond amounts previously committed, if any. Furthermore, KKR consolidates certain VIEs, which are formed by Global Atlantic to hold investments, including investments in transportation, renewable energy, consumer and other loans and fixed maturity securities.
Unconsolidated VIEs
KKR holds variable interests in certain VIEs which are not consolidated as it has been determined that KKR is not the primary beneficiary. VIEs that are not consolidated predominantly include certain investment funds sponsored by KKR as well as certain investment partnerships where Global Atlantic retains an economic interest. KKR's investment strategies differ by investment fund; however, the fundamental risks have similar characteristics, including loss of invested capital and loss of management fees and performance income. KKR's maximum exposure to loss as a result of its investments in the unconsolidated investment funds is the carrying value of such investments, including KKR's capital interest and any unrealized carried interest. Accordingly, disaggregation of KKR's involvement by type of unconsolidated investment fund would not provide more useful information. For these unconsolidated investment funds in which KKR is the sponsor, KKR may have an obligation as general partner to provide commitments to such investment funds. As of March 31, 2022,2023, KKR's commitments to these unconsolidated investment funds were $4.9$3.4 billion. KKR has not provided any financial support other than its obligated amount as of March 31, 2022.2023. Additionally, Global Atlantic also has unfunded commitments of $23.7$24.3 million in relation to other limited partnership interests as of March 31, 2022.
As of March 31, 20222023 and December 31, 2021,2022, the maximum exposure to loss, before allocations to the carry pool and noncontrolling interests, if any, for those VIEs in which KKR is determined not to be the primary beneficiary but in which it has a variable interest is as follows:
| | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| Investments - Asset Management | $ | 10,254,226 | | | $ | 11,539,945 | |
| Due from (to) Affiliates, net | 1,027,639 | | | 1,046,210 | |
| Maximum Exposure to Loss - Asset Management | $ | 11,281,865 | | | $ | 12,586,155 | |
| | | |
| Other Investment in Partnership - Insurance | $ | 204,984 | | | $ | 190,106 | |
| Investment in Renewable Partnerships - Insurance | 30,194 | | | 30,760 | |
| Maximum Exposure to Loss- Insurance | $ | 235,178 | | | $ | 220,866 | |
| | | |
| Total Maximum Exposure to Loss | $ | 11,517,043 | | | $ | 12,807,021 | |
| | | |
| | | |
| | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| Investments - Asset Management | $ | 7,204,647 | | | $ | 6,862,712 | |
| Due from (to) Affiliates, net | 1,530,529 | | | 1,356,308 | |
| Maximum Exposure to Loss - Asset Management | $ | 8,735,176 | | | $ | 8,219,020 | |
| | | |
| Other Investment in Partnership - Insurance | $ | 251,049 | | | $ | 295,808 | |
| Investment in Renewable Partnerships - Insurance | 28,933 | | | 30,177 | |
| Maximum Exposure to Loss - Insurance | $ | 279,982 | | | $ | 325,985 | |
| | | |
| Total Maximum Exposure to Loss | $ | 9,015,158 | | | $ | 8,545,005 | |
| | | |
| | | |
17. DEBT OBLIGATIONS
Asset Management Debt Obligations
In Asset Management, KKR enters into credit agreements and issues debt for its general operating and investment purposes. KKR consolidates and reports debt obligations of KKR Financial Holdings LLC, a KKR subsidiary ("KFN"), which are non-recourse to KKR beyond the assets of KFN.
Certain of KKR's consolidated investment funds have entered into financing arrangements with financial institutions, generally to provide liquidity to such investment funds. These financing arrangements are generally not direct obligations of the general partners of KKR's investment funds (beyond KKR's capital interest) or its management companies. Such borrowings have varying maturities and bear interest at floating rates. Borrowings are generally secured by the investment purchased with the proceeds of the borrowing and/or the uncalled capital commitment of each respective fund. When an investment vehicle borrows, the proceeds are available only for use by that investment vehicle and are not available for the benefit of other investment vehicles or KKR. Collateral within each investment vehicle is also available only against borrowings by that investment vehicle and not against the borrowings of other investment vehicles or KKR.
In certain other cases, investments and other assets held directly by majority-owned consolidated investment vehicles and other entities have been funded with borrowings that are collateralized by the investments and assets they own. These borrowings are non-recourse to KKR beyond the investments or assets serving as collateral or the capital that KKR has committed to fund such investment vehicles. Such borrowings have varying maturities and generally bear interest at fixed rates.
In addition, consolidated CFEs issue debt securities to third-party investors which are collateralized by assets held by the CFE. Debt securities issued by CFEs are supported solely by the assets held at the CFEs and are not collateralized by assets of any other KKR entity. CFEs also may have warehouse facilities with banks to provide liquidity to the CFE. The CFE's debt obligations are non-recourse to KKR beyond the assets of the CFE.
KKR's Asset Management debt obligations consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2022 | | December 31, 2021 |
| | Financing Available | | Borrowing Outstanding | | Fair Value | | Financing Available | | Borrowing Outstanding | | Fair Value |
| Revolving Credit Facilities: | | | | | | | | | | | | |
| Corporate Credit Agreement | | $ | 1,000,000 | | | $ | — | | | $ | — | | | $ | 1,000,000 | | | $ | — | | | $ | — | |
| KCM Credit Agreement | | 728,493 | | | — | | | — | | | 728,799 | | | — | | | — | |
| KCM 364-Day Revolving Credit Agreement | | 750,000 | | | — | | | — | | | 750,000 | | | — | | | — | |
Notes Issued: (1) | | | | | | | | | | | | |
KKR ¥25 billion (or $205.0 million) 0.509% Notes Due 2023 | (4) | — | | | 204,706 | | | 204,479 | | | — | | | 216,881 | | | 216,818 | |
KKR ¥5 billion (or $41.0 million) 0.764% Notes Due 2025 | (4) | — | | | 40,661 | | | 40,881 | | | — | | | 43,082 | | | 43,452 | |
KKR €650 million (or $723.8 million) 1.625% Notes Due 2029 | (5) | — | | | 717,092 | | | 703,183 | | | — | | | 729,048 | | | 776,926 | |
| KKR $750 million 3.750% Notes Due 2029 | (4) | — | | | 743,555 | | | 766,035 | | | — | | | 743,333 | | | 825,540 | |
KKR ¥10.3 billion (or $84.5 million) 1.595% Notes Due 2038 | (4) | — | | | 83,473 | | | 83,191 | | | — | | | 88,505 | | | 92,198 | |
KKR $500 million 5.500% Notes Due 2043 (6) | (4) | — | | | 491,451 | | | 567,543 | | | — | | | 491,153 | | | 661,351 | |
KKR $1 billion 5.125% Notes Due 2044 (6) | (4) | — | | | 956,647 | | | 1,074,160 | | | — | | | 951,462 | | | 1,237,888 | |
| KKR $500 million 3.625% Notes Due 2050 | (4) | — | | | 492,553 | | | 447,275 | | | — | | | 492,486 | | | 535,550 | |
KKR $750 million 3.500% Notes Due 2050 (6) | (4) | — | | | 736,056 | | | 658,983 | | | — | | | 735,905 | | | 784,650 | |
| KKR $750 million 3.250% Notes Due 2051 | (4) | — | | | 739,569 | | | 629,693 | | | — | | | 739,481 | | | 747,900 | |
| KKR $500 million 4.625% Notes Due 2061 | (5) | — | | | 486,133 | | | 439,000 | | | — | | | 486,044 | | | 523,200 | |
| KFN $500 million 5.500% Notes Due 2032 | (2) | — | | | 495,147 | | | 466,871 | | | — | | | 495,025 | | | 487,779 | |
| KFN $120 million 5.200% Notes Due 2033 | (2) | — | | | 118,683 | | | 108,766 | | | — | | | 118,654 | | | 115,535 | |
KFN $70 million 5.400% Notes Due 2033 | (2) | — | | | 68,980 | | | 64,437 | | | — | | | 68,957 | | | 68,532 | |
KFN Issued Junior Subordinated Notes (3) | (2) | — | | | 236,467 | | | 186,989 | | | — | | | 236,138 | | | 178,335 | |
| | 2,478,493 | | | 6,611,173 | | | 6,441,486 | | | 2,478,799 | | | 6,636,154 | | | 7,295,654 | |
| | | | | | | | | | | | |
Other Debt Obligations(6) | | 5,685,293 | | | 29,501,699 | | | 29,501,699 | | | 4,941,755 | | | 30,033,601 | | | 30,033,601 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | $ | 8,163,786 | | | $ | 36,112,872 | | | $ | 35,943,185 | | | $ | 7,420,554 | | | $ | 36,669,755 | | | $ | 37,329,255 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2023 | | December 31, 2022 |
| | Financing Available | | Borrowing Outstanding | | Fair Value | | Financing Available | | Borrowing Outstanding | | Fair Value |
| Revolving Credit Facilities: | | | | | | | | | | | | |
| Corporate Credit Agreement | | $ | 1,500,000 | | | $ | — | | | $ | — | | | $ | 1,500,000 | | | $ | — | | | $ | — | |
KCM Credit Agreement (1) | | 727,303 | | | — | | | — | | | 723,132 | | | — | | | — | |
| KCM 364-Day Revolving Credit Agreement | | 750,000 | | | — | | | — | | | 750,000 | | | — | | | — | |
Notes Issued: (2) | | | | | | | | | | | | |
KKR ¥25 billion (or $188.5 million) 0.509% Notes Due 2023 (8) | (5) | — | | | — | | | — | | | — | | | 189,432 | | | 189,447 | |
KKR ¥5 billion (or $37.7 million) 0.764% Notes Due 2025 | (5) | — | | | 37,475 | | | 37,623 | | | — | | | 37,646 | | | 37,625 | |
KKR ¥36.4 billion (or $274.5 million) 1.054% Notes Due 2027 | (5) | — | | | 273,246 | | | 272,812 | | | — | | | 274,628 | | | 271,081 | |
KKR €650 million (or $706.9 million) 1.625% Notes Due 2029 | (6) | — | | | 701,176 | | | 564,264 | | | — | | | 687,928 | | | 565,003 | |
| KKR $750 million 3.750% Notes Due 2029 | (5) | — | | | 744,444 | | | 697,380 | | | — | | | 744,222 | | | 675,413 | |
KKR ¥4.9 billion (or $36.9 million) 1.244% Notes Due 2029 | (5) | — | | | 36,480 | | | 36,517 | | | — | | | 36,657 | | | 36,020 | |
| KKR $750 million 4.850% Notes Due 2032 | (5) | — | | | 741,877 | | | 722,010 | | | — | | | 741,655 | | | 701,610 | |
KKR ¥6.2 billion (or $46.7 million) 1.437% Notes Due 2032 | (5) | — | | | 46,199 | | | 45,789 | | | — | | | 46,431 | | | 44,800 | |
KKR ¥7.5 billion (or $56.6 million) 1.553% Notes Due 2034 | (5) | — | | | 55,919 | | | 54,887 | | | — | | | 56,204 | | | 53,477 | |
KKR ¥5.5 billion (or $41.5 million) 1.795% Notes Due 2037 | (5) | — | | | 40,887 | | | 39,932 | | | — | | | 41,097 | | | 38,550 | |
KKR ¥10.3 billion (or $77.7 million) 1.595% Notes Due 2038 | (5) | — | | | 76,737 | | | 72,191 | | | — | | | 77,134 | | | 69,565 | |
KKR $500 million 5.500% Notes Due 2043 (7) | (5) | — | | | 490,504 | | | 472,657 | | | — | | | 490,494 | | | 455,287 | |
KKR $1.0 billion 5.125% Notes Due 2044 (7) | (5) | — | | | 964,471 | | | 849,028 | | | — | | | 964,726 | | | 845,944 | |
| KKR $500 million 3.625% Notes Due 2050 | (5) | — | | | 492,819 | | | 343,530 | | | — | | | 492,753 | | | 343,490 | |
KKR $750 million 3.500% Notes Due 2050 (7) | (5) | — | | | 736,572 | | | 504,716 | | | — | | | 736,451 | | | 503,862 | |
| KKR $750 million 3.250% Notes Due 2051 | (5) | — | | | 739,920 | | | 474,023 | | | — | | | 739,832 | | | 475,920 | |
| KKR $500 million 4.625% Notes Due 2061 | (6) | — | | | 486,488 | | | 370,600 | | | — | | | 486,399 | | | 340,400 | |
| KFN $500 million 5.500% Notes Due 2032 | (3) | — | | | 495,632 | | | 437,614 | | | — | | | 495,511 | | | 417,551 | |
| KFN $120 million 5.200% Notes Due 2033 | (3) | — | | | 118,804 | | | 101,535 | | | — | | | 118,773 | | | 96,502 | |
KFN $70 million 5.400% Notes Due 2033 | (3) | — | | | 69,071 | | | 60,010 | | | — | | | 69,048 | | | 57,042 | |
KFN Issued Junior Subordinated Notes (4) | (3) | — | | | 237,798 | | | 194,541 | | | — | | | 237,471 | | | 189,673 | |
| | 2,977,303 | | | 7,586,519 | | | 6,351,659 | | | 2,973,132 | | | 7,764,492 | | | 6,408,262 | |
| | | | | | | | | | | | |
Other Debt Obligations(1)(7) | | 6,210,155 | | | 34,933,257 | | | 34,764,981 | | | 4,837,893 | | | 32,834,121 | | | 32,649,546 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | $ | 9,187,458 | | | $ | 42,519,776 | | | $ | 41,116,640 | | | $ | 7,811,025 | | | $ | 40,598,613 | | | $ | 39,057,808 | |
(1)(2)Borrowing outstanding includes: (i) unamortized note discount (net of premium), as applicable and (ii) unamortized debt issuance costs, as applicable. Financing costs related to the issuance of the notes have been deducted from the note liability and are being amortized over the life of the notes.
(2)(3)These debt obligations are classified as Level III within the fair value hierarchy and valued using the same valuation methodologies as KKR's Level III credit investments.
(3)(4)KKR consolidates KFN and reports KFN's outstanding $258.5 million aggregate principal amount of junior subordinated notes. The weighted average interest rate is 2.6%7.3% and 2.6%6.9% and the weighted average years to maturity is 14.513.5 years and 14.813.8 years as of March 31, 20222023 and December 31, 2021,2022, respectively.
(4)(5)The notes are classified as Level II within the fair value hierarchy and fair value is determined by third party broker quotes.
(5)(6)The notes are classified as Level I within the fair value hierarchy and fair value is determined by quoted prices in active markets since the debt is publicly listed.
(6)(7)As of March 31, 20222023 and December 31, 2021,2022, the borrowing outstanding and fair value reflects the elimination for the portion of these debt obligations that are held by Global Atlantic.
Notes to Financial Statements (Continued)
Asset Management Revolving Credit Facilities
KCM Short-Term Credit Agreement
On April 8, 2022,7, 2023, KKR Capital Markets Holdings L.P. and certain other capital markets subsidiaries (the "KCM Borrowers") entered intoreplaced their existing 364-day revolving credit agreement with a new 364-day revolving credit agreement (the "KCM Short-Term Credit Agreement”) with Mizuho Bank, Ltd., as administrative agent, and one or more lenders party thereto. The KCM Short-Term Credit Agreement replaces the prior 364-day revolving credit agreement, dated as of April 9, 2021,8, 2022, between the KCM Borrowers and the administrative agent, and one or more lenders party to the KCM Short-Term Agreement, which was terminated according to its terms on April 8, 2022.7, 2023. The KCM Short-Term Credit Agreement provides for revolving borrowings up to $750 million, expires on April 7, 2023,5, 2024, and ranks pari passu with the existing $750 million revolving credit facility provided by them for KKR's capital markets business (the "KCM Credit Agreement").
If a borrowing is made under the KCM Short-Term Credit Agreement, the interest rate will vary depending on the type of drawdown requested. If the borrowing is (i) denominated in U.S. dollars and a term rate, it will be based on the term Secured Overnight Financing Rate (SOFR)("SOFR"), (ii) denominated in euros, it will be based on EURIBOR and (iii) denominated in pounds sterling, it will be based on the Sterling Overnight Interbank Average Rate (SONIA), in each case, plus the applicable margin which ranges initially between 1.50% and 2.75%, depending on the duration of the loan. If the borrowing is an ABR Loan, it will be based on the greater of (i) the federal funds rate plus 0.50% and (ii) term SOFR for one-month tenor plus 1.00%, in each case, plus the applicable margin which ranges initially between 0.50% and 1.75% depending on the amount and nature of the loan. Borrowings under the KCM Short-Term Credit Agreement may only be used to facilitate the settlement of debt transactions syndicated by KKR's capital markets business. Obligations under the KCM Short-Term Credit Agreement are limited to the KCM Borrowers, which are solely entities involved in KKR's capital markets business, and liabilities under the KCM Short-Term Credit Agreement are non-recourse to other parts of KKR.
The KCM Short-Term Credit Agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including a financial covenant providing for a maximum debt to equity ratio for the KCM Borrowers. The KCM Borrowers' obligations under the KCM Short-Term Credit Agreement are secured by certain assets of the KCM Borrowers, including a pledge of equity interests of certain subsidiaries of the KCM Borrowers.
Asset Management Notes Issued and Repayments in 2023
On March 23, 2018, KKR Group Finance Co. IV LLC, an indirect subsidiary of KKR & Co. Inc., issued ¥40.3 billion aggregate principal amount of its (i) ¥25.0 billion 0.509% Senior Notes due 2023 (the "2023 Notes"), (ii) ¥5.0 billion 0.764% Senior Notes due 2025 (the "2025 Notes") and (iii) ¥10.3 billion 1.595% Senior Notes due 2038 (the "2038 Notes" and, together with the 2023 Notes and the 2025 Notes, the "JPY Notes"). On March 22, 2023, the 2023 Notes matured, and KKR Group Finance Co. IV LLC repaid the principal and accrued interest in full.
Other Asset Management Debt Obligations
As of March 31, 2022,2023, other debt obligations consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Financing Available | | Borrowing
Outstanding | | Fair Value | | Weighted
Average
Interest Rate | | Weighted Average Remaining Maturity in Years |
Financing Facilities of Consolidated Funds and Other (1) | $ | 5,685,293 | | | $ | 8,288,493 | | | $ | 8,288,493 | | | 3.5% | | 4.4 |
| Debt Obligations of Consolidated CLOs | — | | | 21,213,206 | | | 21,213,206 | | | (2) | | 10.5 |
| | $ | 5,685,293 | | | $ | 29,501,699 | | | $ | 29,501,699 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Financing Available | | Borrowing
Outstanding | | Fair Value | | Weighted
Average
Interest Rate | | Weighted Average Remaining Maturity in Years |
Financing Facilities of Consolidated Funds and Other (1) | $ | 6,210,155 | | | $ | 11,128,673 | | | $ | 10,960,397 | | | 5.9% | | 5.0 |
| Debt Obligations of Consolidated CLOs | — | | | 23,804,584 | | | 23,804,584 | | | (2) | | 9.6 |
| | $ | 6,210,155 | | | $ | 34,933,257 | | | $ | 34,764,981 | | | | | |
(1)Includes borrowings collateralized by fund investments, fund co-investments and other assets held by levered investment vehicles of $2.0$2.4 billion.
(2)The senior notes of the consolidated CLOs had a weighted average interest rate of 1.9%5.7%. The subordinated notes of the consolidated CLOs do not have contractual interest rates but instead receive a pro rata amount of the net distributions from the excess cash flows of the respective CLO vehicle. Accordingly, weighted average borrowing rates for the subordinated notes are based on cash distributions during the period, if any.
Debt obligations of consolidated CLOs are collateralized by assets held by each respective CLO vehicle and assets of one CLO vehicle may not be used to satisfy the liabilities of another. As of March 31, 2022,2023, the fair value of the consolidated CLO assets was $23.0$25.3 billion. This collateral consisted of Cash and Cash Equivalents, Investments, and Other Assets.
Notes to Financial Statements (Continued)
Insurance Debt Obligations
Global Atlantic's debt obligations consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| Financing Available | | Borrowing Outstanding | | Fair Value(2) | | Financing Available | | Borrowing Outstanding | | Fair Value(2) |
| Revolving Credit Facilities: | | | | | | | | | | | |
| Global Atlantic revolving credit facility, due August 2026 | $ | 800,000 | | | $ | 200,000 | | | $ | 200,000 | | | $ | 1,000,000 | | | $ | — | | | $ | — | |
| Notes Issued and Others: | | | | | | | | | | | |
| Global Atlantic senior notes, due October 2029 | | | 500,000 | | | 500,100 | | | | | 500,000 | | | 539,350 | |
| Global Atlantic senior notes, due June 2031 | | | 650,000 | | | 582,660 | | | | | 650,000 | | | 644,800 | |
| Global Atlantic subordinated debentures, due October 2051 | | | 750,000 | | | 710,625 | | | | | 750,000 | | | 761,475 | |
| | | 2,100,000 | | | $ | 1,993,385 | | | | | 1,900,000 | | | $ | 1,945,625 | |
Purchase accounting adjustments(1) | | | 45,618 | | | | | | | 51,050 | | | |
| Debt issuance costs, net of accumulated amortization | | | (18,413) | | | | | | | (18,675) | | | |
| Fair value loss (gain) of hedged debt obligations, recognized in earnings | | | (97,436) | | | | | | | (24,369) | | | |
| | | | $ | 2,029,769 | | | | | | | $ | 1,908,006 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| Financing Available | | Borrowing Outstanding | | Fair Value(2) | | Financing Available | | Borrowing Outstanding | | Fair Value(2) |
| Revolving Credit Facilities: | | | | | | | | | | | |
| Global Atlantic revolving credit facility, due August 2026 | $ | 600,000 | | | $ | 400,000 | | | $ | 400,000 | | | $ | 600,000 | | | $ | 400,000 | | | $ | 400,000 | |
| Notes Issued and Others: | | | | | | | | | | | |
| Global Atlantic senior notes, due October 2029 | | | 500,000 | | | 443,500 | | | | | 500,000 | | | 419,550 | |
| Global Atlantic senior notes, due June 2031 | | | 650,000 | | | 512,720 | | | | | 650,000 | | | 478,335 | |
| Global Atlantic subordinated debentures, due October 2051 | | | 750,000 | | | 603,075 | | | | | 750,000 | | | 572,475 | |
| | | 2,300,000 | | | $ | 1,959,295 | | | | | 2,300,000 | | | $ | 1,870,360 | |
Purchase accounting adjustments(1) | | | 42,507 | | | | | | | 43,285 | | | |
| Debt issuance costs, net of accumulated amortization | | | (17,356) | | | | | | | (17,623) | | | |
| Fair value loss (gain) of hedged debt obligations, recognized in earnings | | | (167,868) | | | | | | | (197,496) | | | |
| | | | $ | 2,157,283 | | | | | | | $ | 2,128,166 | | | |
(1)TheFor the three months ended March 31, 2023 and 2022, the amortization of the purchase accounting adjustments was $778 thousand and $5.4 million, and $2.0 million for the three months ended March 31, 2022 and 2021, respectively.
(2)These debt obligations are classified as Level III within the fair value hierarchy and valued using the same valuation methodologies as KKR's Level III credit investments.
Debt Covenants
Borrowings of KKR (including Global Atlantic) contain various debt covenants. These covenants do not, in management's opinion, materially restrict KKR's operating business or investment strategies as of March 31, 2022.2023. KKR (including Global Atlantic) was in compliance with such debt covenants in all material respects as of March 31, 2022.2023.
18. POLICY LIABILITIES
The following reflects the reconciliation of the components of policy liabilities to the total balance reported in the consolidated statements of financial condition as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Policyholders’ account balances | $ | 114,180,191 | | | $ | 112,281,236 | |
| Liability for future policy benefits | 15,134,462 | | | 14,445,920 | |
| Additional liability for annuitization, death, or other insurance benefits | 4,998,425 | | | 4,970,969 | |
| Market risk benefit liability | 764,407 | | | 682,038 | |
Other policy-related liabilities(1) | 6,052,489 | | | 5,400,766 | |
| Total policy liabilities | $ | 141,129,974 | | | $ | 137,780,929 | |
(1)Other policy-related liabilities as of March 31, 2023, and December 31, 2022, primarily consists of negative VOBA (both $1.0 billion, respectively), policy liabilities accounted under a fair value option (both $1.3 billion, respectively), embedded derivatives associated with contractholder deposit funds ($2.8 billion and $2.2 billion, respectively) and outstanding claims ($322.8 million and $253.7 million, respectively).
Notes to Financial Statements (Continued)
Policyholders’ account balances
The following reflects the policyholders’ account balances roll-forward for the three months ended March 31, 2023 and 2022, and the policyholders’ account balances weighted average crediting rating, net amount at risk, and cash surrender value as of those dates:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
| Fixed rate annuities | | Fixed indexed annuities | | Interest sensitive life | | Funding agreements | | Other(1) | | Total |
| Balance as of beginning of period | $ | 48,510,703 | | | $ | 29,123,926 | | | $ | 17,397,185 | | | $ | 7,535,489 | | | $ | 9,713,933 | | | $ | 112,281,236 | |
| Issuances and premiums received | 3,416,916 | | | 1,640,745 | | | 144,797 | | | — | | | 100,616 | | | 5,303,074 | |
| | | | | | | | | | | |
| Benefit payments, surrenders, and withdrawals | (2,329,373) | | | (937,627) | | | (230,514) | | | (224,107) | | | (401,156) | | | (4,122,777) | |
| | | | | | | | | | | |
Interest(2) | 340,106 | | | 114,739 | | | 107,298 | | | 51,423 | | | 74,209 | | | 687,775 | |
| Other, including changes in assumptions and fair value changes | (63,346) | | | (45,130) | | | (25,172) | | | 86,057 | | | 78,474 | | | 30,883 | |
| Balance as of end of period | $ | 49,875,006 | | | $ | 29,896,653 | | | $ | 17,393,594 | | | $ | 7,448,862 | | | $ | 9,566,076 | | | $ | 114,180,191 | |
| Less: reinsurance recoverable | (6,699,771) | | | (3,311,541) | | | (3,467,814) | | | — | | | (3,119,287) | | | (16,598,413) | |
| Balance as of end of period, net of reinsurance recoverable | $ | 43,175,235 | | | $ | 26,585,112 | | | $ | 13,925,780 | | | $ | 7,448,862 | | | $ | 6,446,789 | | | $ | 97,581,778 | |
| | | | | | | | | | | |
| Average interest rate | 2.85 | % | | 1.70 | % | | 3.09 | % | | 2.75 | % | | 2.69 | % | | 2.53 | % |
Net amount at risk, gross of reinsurance(3) | $ | — | | | $ | — | | | $ | 84,498,038 | | | $ | — | | | $ | 1,182,896 | | | $ | 85,680,934 | |
Cash surrender value(4) | $ | 40,420,172 | | | $ | 27,236,116 | | | $ | 12,948,054 | | | $ | — | | | $ | 4,744,008 | | | $ | 85,348,350 | |
_________________
(1)“Other” consists of activity related to payout annuities (without life contingencies), preneed, variable annuities and life products.
(2)Interest includes interest credited to policyholders’ account values, and interest accreted in other components of the policyholder account balance, including investment-type contract values, host amounts for contractholder deposits with embedded derivatives, funding agreements and other associated reserves.
(3)Net amount at risk represents the difference between the face value of the insurance policy and the reserve accumulated under that same policy.
(4)Cash surrender values are reported net of any applicable surrender charges, net of reinsurance.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| Fixed rate annuities | | Fixed indexed annuities | | Interest sensitive life | | Funding agreements | | Other(1) | | Total |
| Balance as of beginning of period | $ | 42,408,740 | | | $ | 25,204,787 | | | $ | 17,391,996 | | | $ | 6,014,553 | | | $ | 6,624,562 | | | $ | 97,644,638 | |
| Issuances and premiums received | 3,482,317 | | | 1,823,616 | | | 329,744 | | | 1,098,944 | | | 545,977 | | | 7,280,598 | |
| | | | | | | | | | | |
| Benefit payments, surrenders, and withdrawals | (1,419,191) | | | (471,071) | | | (151,078) | | | (21,380) | | | (192,667) | | | (2,255,387) | |
| | | | | | | | | | | |
Interest(2) | 226,379 | | | 62,588 | | | 132,030 | | | 20,688 | | | 47,750 | | | 489,435 | |
| Other, including changes in assumptions and fair value changes | (75,628) | | | (6,323) | | | (262,728) | | | (176,298) | | | (9,845) | | | (530,822) | |
| Balance as of end of period | $ | 44,622,617 | | | $ | 26,613,597 | | | $ | 17,439,964 | | | $ | 6,936,507 | | | $ | 7,015,777 | | | $ | 102,628,462 | |
| Less: reinsurance recoverable | (6,156,662) | | | (3,428,559) | | | (3,505,464) | | | — | | | (977,158) | | | (14,067,843) | |
| Balance as of end of period, net of reinsurance recoverable | $ | 38,465,955 | | | $ | 23,185,038 | | | $ | 13,934,500 | | | $ | 6,936,507 | | | $ | 6,038,619 | | | $ | 88,560,619 | |
| | | | | | | | | | | |
| Average interest rate | 2.18 | % | | 0.99 | % | | 3.09 | % | | 1.30 | % | | 2.82 | % | | 1.96 | % |
Net amount at risk, gross of reinsurance(3) | $ | — | | | $ | — | | | $ | 85,001,809 | | | $ | — | | | $ | 1,198,892 | | | $ | 86,200,701 | |
Cash surrender value(4) | $ | 36,377,347 | | | $ | 22,208,964 | | | $ | 13,596,619 | | | $ | — | | | $ | 3,667,881 | | | $ | 75,850,811 | |
_________________
(1)“Other” consists of activity related to payout annuities (without life contingencies), preneed, variable annuities and life products.
(2)Interest includes interest credited to policyholders’ account values, and interest accreted in other components of the policyholder account balance, including investment-type contract values, host amounts for contractholder deposits with embedded derivatives, funding agreements and other associated reserves.
(3)Net amount at risk represents the difference between the face value of the life insurance policy and the reserve accumulated under that same policy.
(4)Cash surrender values are reported net of any applicable surrender charges, net of reinsurance.
Notes to Financial Statements (Continued)
The following table presents the account values by range of guaranteed minimum crediting rates and the related range of difference, in basis points, between rates being credited to policyholders and the respective guaranteed minimums. Account values, as disclosed below differs from policyholder account balances as it excludes balances associated with index credits, contractholder deposit fund host balances, funding agreements, and other associated reserves. In addition, policyholder account balances include discounts and premiums on assumed business which are not reflected in account values.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2023 |
| Account values with adjustable crediting rates subject to guaranteed minimums: |
| Range of guaranteed minimum crediting rates: | At guaranteed minimum | | 1 - 49 bps above guaranteed minimum | | 50 - 99 bps above guaranteed minimum | | 100 - 150 bps above guaranteed minimum | | Greater than 150 bps above guaranteed minimum | | Total |
| Less than 1.00% | $ | 2,642,851 | | | $ | 24,180 | | | $ | 830,147 | | | $ | 4,508,872 | | | $ | 22,810,695 | | | $ | 30,816,745 | |
| 1.00% - 1.99% | 1,918,437 | | | 1,236,507 | | | 1,067,686 | | | 1,877,808 | | | 3,228,314 | | | 9,328,752 | |
| 2.00% - 2.99% | 1,045,214 | | | 49,926 | | | 10,330 | | | 18,721 | | | 599,005 | | | 1,723,196 | |
| 3.00% - 4.00% | 12,466,503 | | | 440,291 | | | 148,892 | | | 493,461 | | | 136,469 | | | 13,685,616 | |
| Greater than 4.00% | 7,712,398 | | | 1,645,085 | | | 64,073 | | | 5,978 | | | 55,589 | | | 9,483,123 | |
| Total | $ | 25,785,403 | | | $ | 3,395,989 | | | $ | 2,121,128 | | | $ | 6,904,840 | | | $ | 26,830,072 | | | $ | 65,037,432 | |
| Percentage of total | 40 | % | | 5 | % | | 3 | % | | 11 | % | | 41 | % | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2022 |
| Account values with adjustable crediting rates subject to guaranteed minimums: |
| Range of guaranteed minimum crediting rates: | At guaranteed minimum | | 1 - 49 bps above guaranteed minimum | | 50 - 99 bps above guaranteed minimum | | 100 - 150 bps above guaranteed minimum | | Greater than 150 bps above guaranteed minimum | | Total |
| Less than 1.00% | $ | 3,211,064 | | | $ | 25,500 | | | $ | 847,989 | | | $ | 4,669,081 | | | $ | 20,158,257 | | | $ | 28,911,891 | |
| 1.00% - 1.99% | 2,350,348 | | | 1,171,911 | | | 1,077,219 | | | 1,910,863 | | | 2,820,473 | | | 9,330,814 | |
| 2.00% - 2.99% | 1,096,383 | | | 53,360 | | | 9,747 | | | 1,222 | | | 590,032 | | | 1,750,744 | |
| 3.00% - 4.00% | 12,505,278 | | | 417,005 | | | 147,812 | | | 494,726 | | | 136,429 | | | 13,701,250 | |
| Greater than 4.00% | 7,822,274 | | | 1,596,918 | | | 65,498 | | | 6,087 | | | 55,589 | | | 9,546,366 | |
| Total | $ | 26,985,347 | | | $ | 3,264,694 | | | $ | 2,148,265 | | | $ | 7,081,979 | | | $ | 23,760,780 | | | $ | 63,241,065 | |
| Percentage of total | 43 | % | | 5 | % | | 3 | % | | 11 | % | | 38 | % | | 100 | % |
Liability for future policy benefits
The following tables summarize the balances of, and changes in, the liability for future policy benefits for traditional and limited-payment contracts for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended |
| March 31, 2023 | | March 31, 2022 |
| Payout annuities(1) | | Other(2) | | Total | | Payout annuities(1) | | Other(2) | | Total |
| Present value of expected net premiums | | | | | | | | | | | |
| Balance as of beginning of the period | $ | — | | | $ | (255,401) | | | $ | (255,401) | | | $ | — | | | $ | (329,716) | | | $ | (329,716) | |
| | | | | | | | | | | |
| Balance at original discount rate | $ | — | | | $ | (303,610) | | | $ | (303,610) | | | $ | — | | | $ | (334,780) | | | $ | (334,780) | |
| Effect of changes in cash flow assumptions | — | | | — | | | — | | | — | | | — | | | — | |
| Effect of actual variances from expected experience | — | | | 992 | | | 992 | | | — | | | 5,148 | | | 5,148 | |
| Adjusted beginning of period balance | — | | | (302,618) | | | (302,618) | | | — | | | (329,632) | | | (329,632) | |
| | | | | | | | | | | |
| Interest | — | | | (1,206) | | | (1,206) | | | — | | | (1,180) | | | (1,180) | |
| Net premiums collected | — | | | 8,283 | | | 8,283 | | | — | | | 9,815 | | | 9,815 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Ending balance at original discount rate | — | | | (295,541) | | | (295,541) | | | — | | | (320,997) | | | (320,997) | |
| Effect of changes in discount rate assumptions | — | | | 43,489 | | | 43,489 | | | — | | | 20,194 | | | 20,194 | |
| Balance as of the end of the period | $ | — | | | $ | (252,052) | | | $ | (252,052) | | | $ | — | | | $ | (300,803) | | | $ | (300,803) | |
| | | | | | | | | | | |
Notes to Financial Statements (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended |
| March 31, 2023 | | March 31, 2022 |
| Payout annuities(1) | | Other(2) | | Total | | Payout annuities(1) | | Other(2) | | Total |
| Present value of expected future policy benefits | | | | | | | | | | | |
| Balance as of beginning of the period | $ | 14,021,514 | | | $ | 679,807 | | | $ | 14,701,321 | | | $ | 16,302,904 | | | $ | 883,399 | | | $ | 17,186,303 | |
| | | | | | | | | | | |
| Balance at original discount rate | $ | 17,180,626 | | | $ | 806,555 | | | $ | 17,987,181 | | | $ | 16,443,480 | | | $ | 895,295 | | | $ | 17,338,775 | |
| Effect of changes in cash flow assumptions | — | | | — | | | — | | | — | | | — | | | — | |
| Effect of actual variances from expected experience | (7,777) | | | 3,539 | | | (4,238) | | | (606) | | | (3,733) | | | (4,339) | |
| Adjusted beginning of period balance | 17,172,849 | | | 810,094 | | | 17,982,943 | | | 16,442,874 | | | 891,562 | | | 17,334,436 | |
| Issuances | 559,421 | | | 15 | | | 559,436 | | | 332,874 | | | 2,463 | | | 335,337 | |
| Interest | 93,654 | | | 2,467 | | | 96,121 | | | 71,690 | | | 4,152 | | | 75,842 | |
| Benefit payments | (389,426) | | | (25,861) | | | (415,287) | | | (376,446) | | | (28,298) | | | (404,744) | |
| De-recognition (lapses and withdrawals) | — | | | — | | | — | | | — | | | (2,267) | | | (2,267) | |
| Ending balance at original discount rate | 17,436,498 | | | 786,715 | | | 18,223,213 | | | 16,470,992 | | | 867,612 | | | 17,338,604 | |
| Effect of changes in discount rate assumptions | (2,721,312) | | | (115,387) | | | (2,836,699) | | | (1,564,311) | | | (53,181) | | | (1,617,492) | |
| Balance as of the end of the period | 14,715,186 | | | 671,328 | | | 15,386,514 | | | 14,906,681 | | | 814,431 | | | 15,721,112 | |
| Net liability for future policy benefits | 14,715,186 | | | 419,276 | | | 15,134,462 | | | 14,906,681 | | | 513,628 | | | 15,420,309 | |
Less: reinsurance recoverable(3) | (7,636,570) | | | 1,750 | | | (7,634,820) | | | (7,906,865) | | | (4,609) | | | (7,911,474) | |
| Net liability for future policy benefits, net of reinsurance recoverables | $ | 7,078,616 | | | $ | 421,026 | | | $ | 7,499,642 | | | $ | 6,999,816 | | | $ | 509,019 | | | $ | 7,508,835 | |
_________________
(1)Payout annuities generally only have a single premium received at contract inception. As a result, the liability for future policy benefits generally would not reflect a present value for future premiums for payout annuities.
(2)“Other” consists of activity related to variable annuities, traditional life insurance, preneed insurance and fixed-rate annuity products.
(3)Reinsurance recoverables associated with the liability for future policy benefits is net of the effect of changes in discount rate assumptions of $237.1 million and $(814.3) million for the three months ended March 31, 2023 and 2022, respectively.
The following table summarizes the amount of gross premiums related to traditional and limited-payment contracts recognized in the consolidated statement of operations for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | |
| Gross premiums | | |
| Three months ended March 31, | | |
| 2023 | | 2022 | | | | |
| Payout annuities | $ | 492,727 | | | $ | 290,782 | | | | | |
| Other | 14,391 | | | 17,514 | | | | | |
| Total products | $ | 507,118 | | | $ | 308,296 | | | | | |
The following table reflects the weighted-average duration and weighted-average interest rates of the future policy benefit liability as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | |
| As of March 31, 2023 |
| Payout annuities | | Other |
| Weighted-average interest rates, original discount rate | 2.95 | % | | 2.52 | % |
| Weighted-average interest rates, current discount rate | 4.81 | % | | 4.80 | % |
| Weighted-average liability duration (years, current rates) | 8.53 | | 9.33 |
Notes to Financial Statements (Continued)
| | | | | | | | | | | |
| As of December 31, 2022 |
| Payout annuities | | Other |
| Weighted-average interest rates, original discount rate | 2.76 | % | | 2.50 | % |
| Weighted-average interest rates, current discount rate | 5.04 | % | | 5.03 | % |
| Weighted-average liability duration (years, current rates) | 8.39 | | 9.32 |
The following reflects the undiscounted ending balance of expected future gross premiums and expected future benefits and payments for traditional and limited-payment contracts, as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | |
| As of March 31, 2023 |
| Payout annuities | | Other |
| Expected future benefit payments, undiscounted | $ | 24,718,978 | | | $ | 957,987 | |
| Expected future benefit payments, discounted (original discount rate) | 17,436,498 | | | 786,715 | |
| Expected future benefit payments, discounted (current discount rate) | 14,715,186 | | | 671,328 | |
| | | |
| Expected future gross premiums, undiscounted | — | | | 506,463 | |
| Expected future gross premiums, discounted (original discount rate) | — | | | 415,515 | |
| Expected future gross premiums, discounted (current discount rate) | — | | | 341,251 | |
| | | | | | | | | | | |
| As of December 31, 2022 |
| Payout annuities | | Other |
| Expected future benefit payments, undiscounted | $ | 23,980,780 | | | $ | 986,614 | |
| Expected future benefit payments, discounted (original discount rate) | 17,321,202 | | | 812,773 | |
| Expected future benefit payments, discounted (current discount rate) | 14,021,514 | | | 680,807 | |
| | | |
| Expected future gross premiums, undiscounted | — | | | 524,122 | |
| Expected future gross premiums, discounted (original discount rate) | — | | | 431,466 | |
| Expected future gross premiums, discounted (current discount rate) | — | | | 356,968 | |
Significant inputs, judgments and assumptions in measuring future policyholder benefits
Significant policyholder behavior assumption inputs to the calculation of the liability for future policy benefits include discount rates, mortality and, for life insurance, lapse rates. Global Atlantic reviews all assumptions at least annually, and more frequently if necessary.
For the three months ended March 31, 2023 and 2022, Global Atlantic recognized $(206.3) million and $632.3 million in other comprehensive income, respectively, due to changes in the future policy benefits estimate from updating discount rates. During three months ended March 31, 2023 and 2022, there were no changes to the methods used to determine the discount rates.
Notes to Financial Statements (Continued)
Additional liability for annuitization, death, or other insurance benefits
The following tables reflect the additional liability for annuitization, death, or other insurance benefits roll-forward for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | |
| | | | | Three months ended |
| | | | | March 31, 2023 | | | | | | March 31, 2022 |
| Balance as of beginning of period | | | | | $ | 5,104,810 | | | | | | | $ | 4,832,678 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Effect of changes in experience | | | | | (21,177) | | | | | | | 18,338 | |
| Adjusted balance as of beginning of period | | | | | 5,083,633 | | | | | | | 4,851,016 | |
| Issuances | | | | | 5,684 | | | | | | | 5,356 | |
| Assessments | | | | | 85,683 | | | | | | | 123,692 | |
| Benefits paid | | | | | (84,913) | | | | | | | (115,920) | |
| Interest | | | | | 26,296 | | | | | | | 36,585 | |
| Balance as of end of period | | | | | 5,116,383 | | | | | | | 4,900,729 | |
| Less: impact of unrealized investment gain and losses | | | | | 117,958 | | | | | | | 86,032 | |
| Less: reinsurance recoverable, end of period | | | | | — | | | | | | | — | |
Balance, end of period, net of reinsurance recoverable and impact of unrealized investment
gains and losses | | | | | $ | 4,998,425 | | | | | | | $ | 4,814,697 | |
The additional liability for annuitization, death, or other insurance benefits relates primarily to secondary guarantees on certain interest-sensitive life products, and preneed insurance.
The following reflects the amount of gross assessments recognized for the additional liability for annuitization, death, or other insurance benefits in the consolidated statements of operations for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | |
| Gross assessments | | |
| Three months ended March 31, | | |
| 2023 | | 2022 | | | | |
| | | | | | | |
| | | | | | | |
| Total amount recognized within revenue in the consolidated statements of operations | $ | 146,376 | | | $ | 140,571 | | | | | |
The following reflects the weighted average duration and weighted average interest rate for the additional liability for annuitization, death, or other insurance benefits as of March 31, 2023 and December 31, 2022:
| | | | | | | | | |
| | | As of March 31, 2023 |
| | | |
| Weighted-average interest, current discount rate | | | 3.00 | % |
| Weighted-average liability duration (years) | | | 27.82 |
| | | | | | | | | |
| | | As of December 31, 2022 |
| | | |
| Weighted-average interest, current discount rate | | | 3.00 | % |
| Weighted-average liability duration (years) | | | 28.21 |
Significant inputs, judgments and assumptions used in measuring the additional liabilities for annuitization, death, or other insurance benefits
Significant policyholder behavior assumption inputs to the calculation of the additional liability for annuitization, death, or other insurance benefits include mortality and lapse rates. Global Atlantic reviews all assumptions at least annually, and more frequently if necessary.
Notes to Financial Statements (Continued)
Market risk benefits
The following table presents the balances of, and changes in, market risk benefits:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended |
| March 31, 2023 | | March 31, 2022 |
| Fixed-indexed annuity | | Variable- and other annuities | | Total | | Fixed-indexed annuity | | Variable- and other annuities | | Total |
| Balance as of beginning of period | $ | 548,536 | | | $ | 120,322 | | | $ | 668,858 | | | $ | 1,188,355 | | | $ | 255,048 | | | $ | 1,443,403 | |
| | | | | | | | | | | |
| Balance as of beginning of period, before impact of changes in instrument-specific credit risk | $ | 656,880 | | | $ | 150,633 | | | $ | 807,513 | | | $ | 1,183,116 | | | $ | 254,972 | | | $ | 1,438,088 | |
| Issuances | (36) | | | (9) | | | (45) | | | 364 | | | 42,006 | | | 42,370 | |
| Interest | 8,854 | | | 1,957 | | | 10,811 | | | 1,757 | | | 392 | | | 2,149 | |
| Attributed fees collected | 24,143 | | | 21,095 | | | 45,238 | | | 21,840 | | | 21,274 | | | 43,114 | |
| Benefit payments | (802) | | | (18) | | | (820) | | | (567) | | | (99) | | | (666) | |
| Effect of changes in interest rates | 71,737 | | | 49,005 | | | 120,742 | | | (188,551) | | | (126,547) | | | (315,098) | |
| Effect of changes in equity markets | (3,822) | | | (21,986) | | | (25,808) | | | 9,815 | | | 61,803 | | | 71,618 | |
| Effect of actual experience different from assumptions | 772 | | | (12,676) | | | (11,904) | | | 10,106 | | | (7,275) | | | 2,831 | |
| | | | | | | | | | | |
| Effect of changes in assumptions | — | | | — | | | — | | | — | | | — | | | — | |
| Balance as of end of period before impact of changes in instrument-specific credit risk | 757,726 | | | 188,001 | | | 945,727 | | | 1,037,880 | | | 246,526 | | | 1,284,406 | |
| Effect of changes in instrument-specific credit risk | (146,505) | | | (44,165) | | | (190,670) | | | (133,204) | | | (34,083) | | | (167,287) | |
| Balance as of end of period | 611,221 | | | 143,836 | | | 755,057 | | | 904,676 | | | 212,443 | | | 1,117,119 | |
| Less: reinsurance recoverable as of the end of the period | — | | | (14,913) | | | (14,913) | | | — | | | — | | | — | |
| Balance as of end of period, net of reinsurance recoverable | $ | 611,221 | | | $ | 128,923 | | | $ | 740,144 | | | $ | 904,676 | | | $ | 212,443 | | | $ | 1,117,119 | |
| | | | | | | | | | | |
| Net amount at risk | $ | 3,980,500 | | | $ | 1,277,299 | | | $ | 5,257,799 | | | $ | 3,376,844 | | | $ | 858,622 | | | $ | 4,235,466 | |
| Weighted-average attained age of contract holders (years) | 70 | | 71 | | 70 | | 70 | | 69 | | 70 |
The following reflects the reconciliation of the market risk benefits reflected in the preceding table to the amounts reported in an asset and liability position, respectively, in the consolidated statements of financial condition as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2023 | | As of December 31, 2022 |
| Asset | | Liability | | Net | | Asset | | Liability | | Net |
| Fixed-indexed annuities | $ | 9,279 | | | $ | 620,500 | | | $ | (611,221) | | | $ | 13,150 | | | $ | 561,686 | | | $ | (548,536) | |
| Variable- and other annuities | 71 | | | 143,907 | | | (143,836) | | | 30 | | | 120,352 | | | (120,322) | |
| Total | $ | 9,350 | | | $ | 764,407 | | | $ | (755,057) | | | $ | 13,180 | | | $ | 682,038 | | | $ | (668,858) | |
Significant inputs, judgments, and assumptions used in measuring market risk benefits
Significant policyholder behavior and other assumption inputs to the calculation of the market risk benefits include interest rates, instrument-specific credit risk, mortality rates, lapse rates and utilization rates. Global Atlantic reviews all assumptions at least annually, and more frequently if evidence suggests.
Separate account liabilities
Separate account assets and liabilities consist of investment accounts established and maintained by Global Atlantic for certain variable annuity and interest-sensitive life insurance contracts. Some of these contracts include minimum guarantees such as GMDBs and GMWBs that guarantee a minimum payment to the policyholder.
Notes to Financial Statements (Continued)
The assets that support these variable annuity and interest-sensitive life insurance contracts are measured at fair value and are reported as separate account assets on the consolidated statements of financial condition. An equivalent amount is reported as separate account liabilities. Market risk benefit assets and liabilities for minimum guarantees are valued and presented separately from separate account assets and separate account liabilities. For more information on market risk benefits see “–Market risk benefits” in this footnote. Policy charges assessed against the policyholders for mortality, administration and other services are included in “Policy fees” in the consolidated statements of operations.
The following table presents the balances of and changes in separate account liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | March 31, 2022 |
| Variable annuities | | Interest-sensitive life | | Total | | Variable annuities | | Interest-sensitive life | | Total |
| Balance as of beginning of period | $ | 3,627,769 | | | $ | 503,025 | | | $ | 4,130,794 | | | $ | 4,922,704 | | | $ | 663,724 | | | $ | 5,586,428 | |
| Premiums and deposits | 10,655 | | | 3,581 | | | 14,236 | | | 8,508 | | | 3,694 | | | 12,202 | |
| | | | | | | | | | | |
| Surrenders, withdrawals and benefit payments | (108,408) | | | (3,716) | | | (112,124) | | | (124,258) | | | (5,788) | | | (130,046) | |
| Investment performance | 141,071 | | | 31,944 | | | 173,015 | | | (313,829) | | | (39,746) | | | (353,575) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Other | (29,652) | | | (11,466) | | | (41,118) | | | (33,589) | | | (11,678) | | | (45,267) | |
| Balance as of end of period | $ | 3,641,435 | | | $ | 523,368 | | | $ | 4,164,803 | | | $ | 4,459,536 | | | $ | 610,206 | | | $ | 5,069,742 | |
| | | | | | | | | | | |
Cash surrender value as of end of period(1) | $ | 3,641,435 | | | $ | 523,368 | | | $ | 4,164,803 | | | $ | 4,459,536 | | | $ | 610,206 | | | $ | 5,069,742 | |
(1)Cash surrender value attributed to the separate accounts does not reflect the impact of surrender charges; surrender charges are attributed to policyholder account balances recorded in the general account.
The following table presents the aggregate fair value of assets, by major investment asset type, supporting separate accounts:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Asset type: | | | |
| Managed volatility equity/fixed income blended fund | $ | 2,221,153 | | | $ | 2,246,803 | |
| Equity | 1,686,721 | | | 1,634,357 | |
| Fixed income | 157,531 | | | 156,594 | |
| Money market | 98,667 | | | 92,284 | |
| Alternative | 731 | | | 756 | |
| Total assets supporting separate account liabilities | $ | 4,164,803 | | | $ | 4,130,794 | |
18.19. INCOME TAXES
KKR & Co. Inc. is a domestic corporation for U.S. federal income tax purposes and is subject to U.S. federal, state and local income taxes at the entity level on its share of taxable income. In addition, KKR Group Partnership and certain of its subsidiaries operate as partnerships for U.S. federal tax purposes but as taxable entities for certain state, local or non-U.S. tax purposes. Moreover, certain corporate subsidiaries of KKR, including certain Global Atlantic subsidiaries, are domestic corporations for U.S. federal income tax purposes and are subject to U.S. federal, state, and local income taxes. Income taxes reported in these consolidated financial statements include the taxes described in this paragraph.
The effective tax rates were (0.3)%36.4% and 10.1%2.8% for the three months ended March 31, 2023 and 2022, and 2021.respectively. The effective tax rate differs from the statutory rate primarily becausedue to the mix of asset management and insurance income (loss) along with a substantial portion of the reported net income (loss) before taxes is not being attributable to KKR but rather isbeing attributable to noncontrolling(i) third-party limited partner interests held in KKR’s consolidated entities by KKR's principals or by third parties.investment funds and (ii) exchangeable securities representing ownership interests in KKR Group Partnership,
Future realizationBased on all available evidence as of December 31, 2022, Global Atlantic concluded that a valuation allowance should be established on a portion of the deferred tax assets is dependent on KKR generating sufficient taxablerelated to unrealized tax capital losses that are not more-likely-than-not to be realized, which represents the portion of the portfolio Global Atlantic estimates it would not be able to hold to recovery. As of December 31, 2022, Global Atlantic recorded $89.3 million of valuation allowance allocated to other comprehensive income before the tax benefits are expected to expire. KKR considers projections of taxable income in evaluating its ability to utilize those deferred tax assets. In projecting its taxable income, KKR begins with historical results and incorporates assumptions concerning the amount and timing of future pretax operating income. Those assumptions require significant judgment and are consistentassociated with the plans and estimates that KKR uses to manage its business. Asunrealized tax capital losses in the available for sale securities portfolio. There was no change in the valuation allowance recorded as of March 31, 2022, $22.2 million2023. Based on available evidence and various assumptions as to the timing of income, KKR believes it is likely that all other deferred tax assets are not considered towill eventually be more likely than not to be realized prior to the expiration of the related loss carryforwards. For that portion of the total deferred tax asset, a valuation allowance has been recorded.
During the three months ended March 31, 2022,2023, there was a decrease of $21.2$9.3 million to KKR’s uncertain tax positions primarily due to the settlement of statelocal tax audits conducted for the years ended 2010 through 2014.
On August 16, 2022, the Inflation Reduction Act (the “IRA”) was signed into law. In general, the provisions of the IRA were effective as of January 1, 2023. The IRA includes a new 15% corporate minimum tax as well as a 1% excise tax on corporate stock repurchases completed after December 31, 2022. KKR reviewed the impact on income taxes and concluded there was no impact to the financial statements in the period ended March 31, 2023. KKR will continue to evaluate the potential future impacts of the IRA, and will continue to review and monitor the issuance of additional guidance.
19.20. EQUITY BASED COMPENSATION
Asset Management | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, | | |
| | | | | | 2023 | | 2022 | | | | | | |
KKR Equity Incentive Plan Awards(1) | | | | | $ | 129,272 | | | $ | 115,144 | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
KKR Equity Incentive Plan Awards
For the three months ended March 31, 2022 and 2021 KKR recorded equity based compensation expense of $115.1Includes $3.0 million and $64.5 million, respectively. For the three months ended March 31, 2022 and 2021, $2.1 million and $0.2 million of equity based compensation related to our insurance business for the three months ended March 31, 2023 and 2022, respectively.
Asset Management
KKR Equity Incentive Plan Awards
Under KKR's Equity Incentive Plans, KKR is permitted to grant equity awards representing ownership interests in KKR & Co. Inc. common stock. On March 29, 2019, the 2019 Equity Incentive Plan became effective. Following the effectiveness of the 2019 Equity Incentive Plan, KKR no longer makes further grants under the 2010 Equity Incentive Plan, and the 2019 Equity Incentive Plan became KKR's only plan for providing new equity-based awards by KKR & Co. Inc. Outstanding awards under the 2010 Equity Incentive Plan will remain outstanding, unchanged and subject to the terms of the 2010 Equity Incentive Plan and their respective equity award agreements, until the vesting, expiration or lapse of such awards in accordance with their terms. The total number of equity awards representing shares of common stock that may be issued under the 2019 Equity Incentive Plan is equivalent to 15% of the aggregate number of the shares of common stock and KKR Group Partnership Units (excluding KKR Group Partnership Units held by KKR & Co. Inc. or its wholly-owned subsidiaries), subject to annual adjustment. As of March 31, 2022, 72,237,3272023, 68,758,469 shares may be issued under the 2019 Equity Incentive Plan. Equity awards granted pursuant to the Equity Plans generally consist of (i) restricted stock units ("RSUs") that convert tointo shares of common stock of KKR & Co. Inc. (or cash equivalent) upon vesting and (ii) restricted holdings units ("RHUs") through KKR Holdings II L.P. that are exchangeable into shares of common stock of KKR & Co. Inc. upon vesting and certain other conditions. Vested awards under the Equity Incentive Plans dilute KKR & Co. Inc. common stockholders and KKR Holdings pro rata in accordance with their respective percentage interests in KKR Group Partnership.
Service-Vesting Awards
Under the Equity Incentive Plans, KKR grants RSUsrestricted stock units and RHUsrestricted holdings units that are subject to service-based vesting, typically over a three to five-year period from the date of grant (referred to hereafter as "Service-Vesting Awards"). In certain cases, these Service-Vesting Awards may have a percentage of the award that vests immediately upon grant. Additionally, some but not all Service-Vesting Awards are subject to transfer restrictions and/or minimum retained ownership requirements. The transfer restriction period, if applicable, lasts for (i) one year with respect to one-half of the interests vesting on any vesting date and (ii) two years with respect to the other one-half of the interests vesting on such vesting date. While providing services to KKR, some but not all of these awards are also subject to minimum retained ownership rules requiring the award recipient to continuously hold shares of common stock equivalents equal to at least 15% of their cumulatively vested awards that have or had the minimum retained ownership requirement. Holders of the Service-Vesting Awards do not participate in dividends until such awards have met their vesting requirements.
Expense associated with the vesting of these Service-Vesting Awards is based on the closing price of KKR & Co. Inc. common stock on the date of grant, discounted for the lack of participation rights in the expected dividends on unvested equity awards. Expense is recognized on a straight line basis over the life of the award and assumes a forfeiture rate of up to 7% annually based upon expected turnover by class of recipient.
As of March 31, 2022,2023, there was approximately $576.0$495.6 million of total estimated unrecognized expense related to unvested Service-Vesting Awards, which is expected to be recognized over the weighted average remaining requisite service period of 1.71.5 years.
Notes to Financial Statements (Continued)
A summary of the status of unvested Service-Vesting Awards granted under the Equity Incentive Plans from January 1, 20222023 through March 31, 20222023 is presented below:
| | | | Shares | | Weighted
Average Grant
Date Fair Value | | Shares | | Weighted
Average Grant
Date Fair Value |
| Balance, January 1, 2022 | 19,307,041 | | | $ | 41.21 | | |
| Balance, January 1, 2023 | | Balance, January 1, 2023 | 16,170,064 | | | $ | 45.82 | |
| Granted | Granted | 442,156 | | | 65.26 | | Granted | 143,064 | | | 49.76 | |
| Vested | Vested | (22,436) | | | 29.05 | | Vested | — | | | — | |
| Forfeitures | Forfeitures | (101,404) | | | 35.66 | | Forfeitures | (76,360) | | | 50.43 | |
| Balance, March 31, 2022 | 19,625,357 | | | $ | 41.79 | | |
| Balance, March 31, 2023 | | Balance, March 31, 2023 | 16,236,768 | | | $ | 45.83 | |
Market Condition Awards
Under the Equity Incentive Plans, KKR also grants RSUsrestricted stock units and RHUsrestricted holdings units that are subject to both a service-based vesting condition and a market price based vesting condition (referred to hereafter as "Market Condition Awards") for certain employees (other thanemployees. The following is a discussion of Market Condition Awards excluding the Co-CEO Awards, except where discussed below). below.
The number of Market Condition Awards (other than the Co-CEO awards) that will vest depend upon (i) the market price of KKR common stock reaching certain price targets that range from $45.00 to $140.00 and (ii) the employee being employed by KKR on a certain date, which typically is five and a half years from the date of grant (with exceptions for involuntary termination without cause, death and permanent disability). The market price vesting condition is met when the average closing price of KKR common stock during 20 consecutive trading days meets or exceeds the stock price targets. Holders of the Market Condition Awards do not participate in dividends until such awards have met both their service-based and market price based vesting requirements. Additionally, these awards are subject to additional transfer restrictions and minimum retained ownership requirements after vesting.
Due to the existence of the service requirement, the vesting period for these Market Condition Awards (other than the Co-CEO awards) is explicit, and as such, compensation expense will be recognized on (i) a straight-line basis over the period from the date of grant through the date the award recipient is required to be employed by KKR and (ii) assumes a forfeiture rate of up to 7% annually based upon expected turnover. The fair value of the awards granted are based on a Monte-CarloMonte Carlo simulation valuation model. In addition, the grant date fair value assumes that holders of the Market Condition Awards will not participate in dividends until such awards have met all of their vesting requirements.
Below is a summary of the grant date fair value based on the Monte Carlo simulation valuation model and the significant assumptions used to estimate the grant date fair value of these Market Condition Awards:
| | | | | | | | | | | | |
| Weighted
Average | | Range | |
| Grant Date Fair Value | $25.7025.29 | | $19.87 - $66.80 | |
| Closing KKR share price as of valuation date | $42.9943.89 | | $37.93 - $76.31 | |
| Risk Free Rate | 0.53%1.14% | | 0.41% - 1.40%3.86% | |
| Volatility | 28.07%30.07% | | 28.00% - 30.00%38.00% | |
| Dividend Yield | 1.41%1.39% | | 0.76% - 1.53% | |
| Expected Cost of Equity | 10.59%10.83% | | 9.13% - 10.76%11.80% | |
As of March 31, 2022,2023, there was approximately $374.7$384.4 million of total estimated unrecognized expense related to these unvested Market Condition Awards, which is expected to be recognized over the weighted average remaining requisite service period of 4.23.3 years.
Notes to Financial Statements (Continued)
A summary of the status of unvested Market Condition Awards granted under the Equity Incentive Plans from January 1, 20222023 through March 31, 20222023 is presented below:
| | | | Shares | | Weighted
Average Grant
Date Fair Value | | Shares | | Weighted
Average Grant
Date Fair Value |
| Balance, January 1, 2022 | 21,370,847 | | | $ | 25.03 | | |
| Balance, January 1, 2023 | | Balance, January 1, 2023 | 26,198,531 | | | $ | 25.30 | |
| Granted | Granted | 350,000 | | | 66.80 | | Granted | — | | | — | |
| Vested | Vested | — | | | — | | Vested | (130,000) | | | 20.49 | |
| Forfeitures | Forfeitures | — | | | — | | Forfeitures | (200,000) | | | 19.87 | |
| Balance, March 31, 2022 | 21,720,847 | | | $ | 25.70 | | |
| Balance, March 31, 2023 | | Balance, March 31, 2023 | 25,868,531 | | | $ | 25.37 | |
As of March 31, 2022, 19.72023, 19.0 million of these Market Condition awards have met their market price based vesting condition.
Co-CEO Awards
On December 9, 2021, the Board of Directors approved grants of 7.5 million RHUsrestricted holdings units to each of KKR’s Co-Chief Executive Officers that are subject to both a service-based vesting condition and a market price based vesting condition (referred to hereafter as "Co-CEOs Awards"). For both Co-Chief Executive Officers, 20% of the Co-CEOs Awards are eligible to vest at each of the following KKR common stock prices targets: $95.80, $105.80, $115.80, $125.80 and $135.80. The market price based vesting condition is met when the average closing price of KKR common stock during 20 consecutive trading days meets or exceeds the stock price targets. In addition to the market price based vesting conditions, in order for the Co-CEOs Awardsaward to vest, the Co-Chief Executive Officer is required to be employed by KKR on December 31, 2026 (with exceptions for involuntary termination without cause, death and permanent disability).
These awards will be automatically canceled and forfeited upon the earlier of thea Co-Chief Executive Officer’s termination of service (except for involuntary termination without cause, death or permanent disability) or the failure to meet the market price based vesting condition by December 31, 2028 (for which continued service is required if the market price vesting condition is met after December 31, 2026). Co-CEO Awards do not participate in dividends until such awards have met both their service-based and market price based vesting requirements. Additionally, these awards are subject to additional transfer restrictions and minimum retained ownership requirements after vesting.
Due to the existence of the service requirement, the vesting period for these Co-CEO Awards is explicit, and as such, compensation expense will be recognized on a straight-line basis over the period from the date of grant through December 31, 2026 given the derived service period is less than the explicit service period. The fair value of the awards granted are based on a Monte-CarloMonte Carlo simulation valuation model. In addition, the grant date fair value assumes that these Co-CEO Awards will not participate in dividends until such awards have met all of their vesting requirements.
Below is a summary of the grant date fair value based on the Monte Carlo simulation valuation model and the significant assumptions used to estimate the grant date fair value of these Co-CEO Awards:
| | | | | | | |
| Grant Date Fair Value | | $48.91 | |
| Closing KKR share price as of valuation date | | $75.76 | |
| Risk Free Rate | | 1.42%1.42 | % | |
| Volatility | | 28.0%28.0 | % | |
| Dividend Yield | | 0.77%0.77 | % | |
| Expected Cost of Equity | | 9.36%9.36 | % | |
As of March 31, 2022,2023, there was approximately $689.2$544.3 million of total estimated unrecognized expense related to these unvested Co-CEO Awards, which is expected to be recognized ratably from April 1, 20222023 to December 31, 2026. As of March 31, 2022,2023, none of these Co-CEO awards have met their market price based vesting condition.
KKR Holdings Awards
For the three months ended March 31, 2022 and 2021, KKR recorded equity based compensation expense of $19.8 million and $16.4 million, respectively.
KKR Holdings units are exchangeable for KKR Group Partnership Units and allow for their exchange into common stock of KKR & Co. Inc. on a 1-for-one basis. As of March 31, 2022 and 2021, KKR Holdings owned approximately 30.4% or 258,726,163 units and 32.1% or 273,367,712 units, respectively, of outstanding KKR Group Partnership Units. In the past, awards of KKR Holdings units generally had service-based vesting, typically over a three to five-year period from the date of grant, although some historical awards had a percentage of the award vested immediately upon grant. These awards also generally had transfer restrictions which last or had lasted for (i) one year with respect to one-half of the interests vesting on any vesting date and (ii) two years with respect to the other one-half of the interests vesting on such vesting date. While providing services to KKR, the recipients are also subject to minimum retained ownership rules requiring them to continuously hold 25% of their vested interests. Holders of KKR Holdings units are not entitled to participate in distributions made on KKR Group Partnership Units underlying their KKR Holdings units until such units are vested. As of March 31, 2022, all of the KKR Holdings units (except for less than 0.5% of the outstanding KKR Holdings units) have been granted, and certain Holdings units remain subject to vesting. All of these KKR Holdings units represent KKR Group Partnership units that are already outstanding, and therefore their vesting and allocations as described above do not represent any incremental dilution to KKR.
On October 8, 2021, as part of the transactions contemplated by the Reorganization, of the 3.3 million outstanding KKR Holdings units that remained unallocated as of September 30, 2021, KKR Holdings allocated 1,150,000 KKR Holdings units to each of KKR’s Co-CEOs, of which 70% vested immediately, on October 8, 2021, and the remaining 30% are subject to forfeiture if such Co-CEO is not employed by KKR on October 1, 2022 (except in the case of death or permanent disability). These KKR Holdings units (or shares of common stock to be received in respect thereof) are subject to customary one- and two-year transfer restrictions that will apply, as applicable, until October 1, 2023 and October 1, 2024. In addition, the legal vesting and delivery of certain awards of KKR Holdings units held by Messrs. Kravis, Roberts, Bae and Nuttall will be accelerated as part of the transactions contemplated by the Reorganization Agreement.
The fair value of awards granted out of KKR Holdings is generally based on the closing price of KKR & Co. Inc. common stock on the date of grant discounted for the lack of participation rights in the expected distributions on unvested units. KKR determined this to be the best evidence of fair value as KKR & Co. Inc. common stock is traded in an active market and has an observable market price. Additionally, a KKR Holdings unit is an instrument with terms and conditions similar to those of KKR & Co. Inc. common stock. Specifically, units in KKR Holdings and shares of KKR & Co. Inc. represent ownership interests in KKR Group Partnership Units and, subject to any vesting, minimum retained ownership requirements and transfer restrictions, each KKR Holdings unit is exchangeable into a KKR Group Partnership Unit and then into a share of KKR & Co. Inc. common stock on a 1-for-one basis.
KKR Holdings awards give rise to equity-based compensation in the consolidated statements of operations based on the grant-date fair value of the award discounted for the lack of participation rights in the expected distributions on unvested units. This discount is consistent with that noted above for shares issued under the Equity Incentive Plans. Expense is recognized on a straight line basis over the life of the award and assumes a forfeiture rate of up to 7% annually based on expected turnover by class of recipient.
As of March 31, 2022, there was approximately $40.0 million of estimated unrecognized expense, which is expected to be recognized ratably from April 1, 2022 to October 1, 2022.
A summary of the status of unvested awards granted under the KKR Holdings Plan from January 1, 2022 through March 31, 2022 is presented below:
| | | | | | | | | | | |
| | Units | | Weighted
Average Grant
Date Fair Value |
| Balance, January 1, 2022 | 4,600,000 | | | $ | 21.88 | |
| Granted | — | | | — | |
| Vested | — | | | — | |
| Forfeitures | — | | | — | |
| Balance, March 31, 2022 | 4,600,000 | | | $ | 21.88 | |
Insurance
Global Atlantic recognized $20.6$18.7 million and $7.4$20.6 million of expense related to equity-based compensation and long-term incentive awards for the three months ended March 31, 2023 and 2022, and 2021, respectively.
No equity-based compensation costs were capitalized during the three months ended March 31, 20222023 and 2021, respectively.2022.
Notes to Financial Statements (Continued)
Equity Classified Awards - KKR Equity Incentive Plan Awards
On February 1, 2021, in connection with the GA Acquisition, employees of Global Atlantic were awarded a one-time grant of RSUsrestricted stock units under the 2019 Equity Incentive Plan. These awards (i) are subject to service-based vesting conditions and (ii) expense associated with the vesting of these awards is based on the closing price of KKR & Co. Inc. common stock on the date of grant, consistent with other awards granted under the 2019 Equity Incentive Plan as described above.
On July 1, 2021, a grant of a Market Condition Award was made under the 2019 Equity Incentive Plan. This award is subject to meeting certain market price based vesting conditions of KKR common stock but has no service vesting condition. Expense associated with the grant date fair value of this award of $10.5 million was fully recognized in the three months ended September 30, 2021.
Global Atlantic recognized $2.1$3.0 million and $0.2$2.1 million of total equity-based compensation expense for the three months ended March 31, 20222023 and 20212022 associated with these awards, respectively.
Liability Classified Awards - Book Value Awards
On February 1, 2021, Global Atlantic adopted the Global Atlantic Financial Company Book Value Award Plan ("GA Book Value Plan") to enhance the ability of Global Atlantic to attract, motivate and retain its employees and to promote the success of the Global Atlantic business.
The GA Book Value Plan authorizes the grant of cash-settled awards ("book value awards") representing the right to receive 1one or more payments upon vesting equal to the product of an initial dollar value set by the award multiplied by a pre-determined formula as of each applicable vesting date. The predetermined formula is equal to the quotient determined by dividing the book value of 1one share of TGAFG on the applicable vesting date by the book value of a share on the original grant date, subject to adjustments. Book value awards generally vest in 3three equal, annual installments, subject to continued employment.
On February 1, 2021, under the terms of the GA Merger Agreement and in accordance with applicable plan documentation, former Global Atlantic restricted share awards that were unvested immediately prior to the closing of the GA Acquisition converted into the right to receive a number of book value awards under the GA Book Value Plan having the same value and the same vesting schedule as the former Global Atlantic restricted share awards immediately prior to the closing of the GA Acquisition.
An aggregate of 3,020,017 unvested former Global Atlantic restricted share awards having a fair value of $29.47 per share were converted to book value awards at an aggregate grant-date value of $89.0 million. On February 28, 2021, book value awards having an aggregate value of approximately $28.0 million vested as set forth in the former Global Atlantic grant agreements and resulted in a cash payment of $17.0 million to participants, net of applicable tax withholding.
Also in connection with the GA Acquisition, on February 1, 2021, Global Atlantic employees were issued a one-time grant of book value awards having an aggregate initial value of $23.0 million. These one-time book value awards vest over five (5) years, with the first 25% vesting on April 1, 2023 and the remainder vesting 25% annually on April 1 each subsequent year until fully vested, subject to continued employment. Global Atlantic is recording compensation expense over the vesting schedule of the awards, net of an estimated forfeiture rate of 4%.
On March 1, 2021, pursuant to the GA Book Value Plan, book value awards having an aggregate initial value of approximately $32 million were granted. Such book value awards generally vest annually over three years in equal increments, subject to continued employment. Global Atlantic is recording compensation expense over the vesting schedule of the awards, net of an estimated forfeiture rate of 4%.
Global Atlantic began recognizing long-term incentive expense for the book value awards described above at the grant dates, based on their initial value, net of a 4% estimated forfeiture rate. Global Atlantic adjusts expense periodically for changes in book value until the awards are settled or forfeited. Expense recognized on forfeited awards is reversed in the period of forfeiture. The table below presents the activity related to book value awards for the three months ended March 31, 20222023 and 2021:2022:
| | | Three Months Ended March 31, | | Three Months Ended |
| | 2022 | | 2021 | | March 31, 2023 | | March 31, 2022 |
| Outstanding amount as of beginning of period | Outstanding amount as of beginning of period | $ | 145,000 | | | $ | — | | Outstanding amount as of beginning of period | $ | 138,595 | | | $ | 145,000 | |
| Pre-acquisition awards converted to book-value awards on February 1, 2021 | — | | | 89,000 | | |
| | Granted | Granted | 20,205 | | | 53,969 | | Granted | 28,619 | | | 20,205 | |
| | Forfeited | Forfeited | (874) | | | (957) | | Forfeited | (494) | | | (874) | |
| | Vested and issued | Vested and issued | (39,029) | | | (30,280) | | Vested and issued | (27,057) | | | (39,029) | |
| | Outstanding amount as of end of period | Outstanding amount as of end of period | $ | 125,302 | | | $ | 111,732 | | Outstanding amount as of end of period | $ | 139,663 | | | $ | 125,302 | |
Global Atlantic recognized $18.5$15.7 million and $7.2$18.5 million of compensation expense for the three months ended March 31, 20222023 and 20212022 associated with these awards, respectively. As of March 31, 20222023 and December 31, 2021,2022, the remaining unamortized compensation expenses of $108.1$94.2 million and $99.6$98.1 million are expected to be recognized over a remaining average period of 2.652.34 years and 2.672.45 years, respectively.
GA Equity Incentive Plan Awards
On June 24, 2021, Global Atlantic issued 1,000 non-voting incentive shares to a Bermuda exempted partnership owned by certain Global Atlantic employees, who are eligible to receive incentive units under Global Atlantic's Senior Management Equity Incentive Plan ("GA Equity Incentive Plan"). These incentive units represent an interest in the receipt of certain amounts based on Global Atlantic's book value, market value, and AUM, in each case as derived in part from the value of TGAFG’s fully-diluted equity shares.
On June 24, 2021, Global Atlantic granted approximately 808 incentive units under the GA Equity Incentive Plan. The book value component of the incentive units vests 20% per year on the anniversary of the GA Acquisition Date, as long as the grantee remains then employed, and will be settled in cash. The market value and AUM components of the incentive units cliff vest upon the earlier to occur of (i) the fifth anniversary of the GA Acquisition Date, or (ii) a change of control, and will be settled in a variable number of TGAFG’s non-voting common shares. TGAFG shares issued under the AUM component of the Plan are exchangeable for shares of KKR. Except in the event of termination due to death or disability, generally, unvested market value and AUM amounts are forfeited upon a termination of employment.
The GA Equity Incentive Plan is accounted for as a hybrid compensation plan, consisting of one component most closely aligned with a profit-sharing plan under ASC 710, Compensation - General,, as well as other components within scope of ASC 718, Compensation - Stock Compensation,, in all cases with obligations liability-classified. Accordingly, with regard to awards within scope of ASC 710, Global Atlantic records expense based on payouts deemed to be probable and reasonably estimable based on the book value growth of Global Atlantic at the grant date and at each reporting period. For award components subject to liability-classification under ASC 718, Global Atlantic records expense, net of a 0% estimated forfeiture rate, based on the fair value of awards granted, with periodic adjustments to expense for changes in fair value, over the requisite 5-year service period.
The aggregate value of the GA Equity Incentive Plan awards at the initial date of grant was $197$197.0 million, based on the intrinsic value of the book value component ($5.0 million), as determined by applying the book value profit share percentage rate to Global Atlantic’s net book value growth at the date of grant, ($5 million) and the fair value of the market value and AUM components at the date of grant ($192192.0 million, collectively), based on the projected growth in value of each component over the 5-year vesting schedule and applying a forfeiture rate of 0%. Expense will beis remeasured accordingly at each reporting period and adjusted as needed until the awards are forfeited or settled.
During the three months ended March 31, 2023 and 2022, 77 and no incentive units were granted to employees, and approximately27 and 8 incentive units were forfeited.forfeited, respectively. As of March 31, 20222023 and December 31, 2021,2022, there were approximately 823895 and 831845 incentive units outstanding under the Plan, respectively.
Global Atlantic recorded compensation expense of $38.4 million and $17.3 million for the three months ended March 31, 2023 and 2022, respectively, related to periodic change in expense for the GA Units granted under the GA Equity Incentive Plan, with a corresponding offset to other liabilities. As of March 31, 20222023 and December 31, 2021,2022, there was approximately $97.8$108.7 million and $104.1$118.3 million of unrecognized expense related to the GA Units granted under the GA Equity Incentive Plan with a weighted average service period remaining of 3.842.84 years and 4.093.09 years, respectively.
20.21. RELATED PARTY TRANSACTIONS
Due from Affiliates consists of:
| | | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| Amounts due from unconsolidated investment funds | | Amounts due from unconsolidated investment funds | $ | 1,561,233 | | | $ | 1,401,766 | |
| Amounts due from portfolio companies | Amounts due from portfolio companies | $ | 188,394 | | | $ | 114,514 | | Amounts due from portfolio companies | 286,636 | | | 261,537 | |
| Amounts due from unconsolidated investment funds | 1,089,180 | | | 1,109,769 | | |
| | Due from Affiliates | Due from Affiliates | $ | 1,277,574 | | | $ | 1,224,283 | | Due from Affiliates | $ | 1,847,869 | | | $ | 1,663,303 | |
Due to Affiliates consists of:
| | | | March 31, 2022 | | December 31, 2021 | | | March 31, 2023 | | December 31, 2022 | |
| Amounts due to KKR Holdings - tax receivable agreement | $ | 396,127 | | | $ | 399,163 | | | |
Amounts due to current and former employees under the tax receivable agreement (1) | | Amounts due to current and former employees under the tax receivable agreement (1) | $ | 404,566 | | | $ | 420,599 | | |
| Amounts due to unconsolidated investment funds | Amounts due to unconsolidated investment funds | 61,541 | | | 63,559 | | | Amounts due to unconsolidated investment funds | 30,704 | | | 45,458 | | |
| | Due to Affiliates | Due to Affiliates | $ | 457,668 | | | $ | 462,722 | | | Due to Affiliates | $ | 435,270 | | | $ | 466,057 | | |
(1)See Note 1 "Organization" in our financial statements.
21.22. SEGMENT REPORTING
KKR operates through 2two reportable segments which are presented below and reflect how its chief operating decision-makers allocate resources and assess performance:
•Asset Management -the asset management business offers a broad range of investment management services to investment funds, vehicles and accounts (including Global Atlantic) and provides capital markets services to portfolio companies and third parties. This reportable segment also reflects how its business lines operate collaboratively with predominantly a single expense pool.
•Insurance - the insurance business is operated by Global Atlantic, which 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 generates income by earning a spread between its investment income and the cost of policyholder benefits.
KKR’s segment profitability measure used to make operating decisions and assess performance across KKR’s reportable segments is presented prior to giving effect to the allocation of income (loss) among KKR & Co. Inc., KKR Holdings and holders of otherany exchangeable securities, and the consolidation of the investment funds, vehicles and accounts that KKR advises, manages or sponsors (including CFEs). KKR's segment profitability measure excludes: (i) equity-based compensation charges, (ii) amortization of acquired intangibles, (iii) strategic transaction-relatedcorporate related charges and (iv) non-recurring items, if any. Strategic transaction-relatedcorporate related items arise from corporate actions and consist primarily of (i) impairments, (ii) non-monetary gains or losses on divestitures, (iii) transaction costs from strategic acquisitions, and (iv)(iii) depreciation on real estate that KKR owns and occupies. Inter-segment transactions are not eliminated from segment results when management considers those transactions in assessing the results of the respective segments. These transactions include (i) management fees earned by KKR as the investment adviser for Global Atlantic insurance companies and (ii) interest income and expense based on lending arrangements where one or more KKR subsidiaries borrow from a Global Atlantic insurance subsidiary. Inter-segment transactions are recorded by each segment based on the definitive documents that contain arms' length terms and comply with applicable regulatory requirements. Segment operating earnings for the Asset Managementasset management and Insuranceinsurance segments is further defined as follows:
•Asset Management Segment Operating Earnings is the segment profitability measure used to make operating decisions and to assess the performance of the Asset Management segment and is comprised of: (i) Fee Related Earnings, (ii) Realized Performance Income, (iii) Realized Performance Income Compensation, (iv) Realized Investment Income, and (v) Realized Investment Income Compensation. Asset Management Segment Operating Earnings excludes the impact of: (i) unrealized carried interest, (ii) net unrealized gains (losses) on investments, (ii) unrealized carried interest, and (iii) related unrealized performance income compensation.carried interest compensation (carry pool). Management fees earned by KKR as the adviser, manager or sponsor for its investment funds, vehicles and accounts, including its Global Atlantic insurance companies, are included in Asset Management Segment Operating Earnings.
•Insurance Segment Operating Earnings is the segment profitability measure used to make operating decisions and to assess the performance of the Insurance segmentsegment. This measure is presented before income taxes and is comprised of: (i) Net Investment Income, (ii) Net Cost of Insurance, (iii) General, Administrative, and Other Expenses, (iv) Income Taxes, and (v)(iv) Net Income Attributable to Noncontrolling Interests. The non-operating adjustments made to derive Insurance Segment Operating Earnings eliminateexcludes the impact of: (i) investment gains (losses) which include realized (gains) lossesgains (losses) related to asset/liability matching investments strategies (ii)and unrealized investment (gains) losses, (iii)gains (losses) and (ii) non-operating changes in policy liabilities and derivatives which includes (a) changes in the fair value of derivatives, embedded derivatives,market risk benefits and other policy liabilities measured at fair value and related benefit payments, (b) fees attributed to guaranteed benefits, (c) derivatives used to manage the risks associated with policy liabilities, for fixed-indexed annuities, indexed universal life contracts and variable annuities, and (iv) the associated income tax effects of all exclusions from Insurance Segment Operating Earnings except for equity-based compensation expense.(d) losses at contract issuance on payout annuities. Insurance Segment Operating Earnings includes (i) realized gains and losses not related to asset/liability matching investments strategies and (ii) the investment management fee expensescosts that are earned by KKR as the investment adviser of the Global Atlantic insurance companies.
Notes to Financial Statements (Continued)
Modification of Segment Information
In connection with the adoption of LDTI (see Note 2 in our financial statements), KKR reevaluated the manner in which it makes operational and resource deployment decisions and assesses the overall performance of KKR's business. Effective with the three months ended March 31, 2023, the items detailed below have changed with respect to the preparation of the reports used by KKR's chief operating decision makers. As a result, KKR has modified the presentation of its segment financial information effective as of and for the three months ended March 31, 2023 with retrospective application to all prior periods presented. The most significant changes are as follows:
(2)reporting on a pre-tax basis Insurance Segment Operating Earnings (which was previously reported on an after-tax basis).
Notes to Financial Statements (Continued)
Segment Presentation
The following tables set forth information regarding KKR's segment results:
| | | Three Months Ended March 31, | | | | Three Months Ended March 31, |
| | 2022 | | 2021 | | | | 2023 | | 2022 | |
| Asset Management | Asset Management | | | | | Asset Management | | | | | |
Management Fees (1) | Management Fees (1) | $ | 624,928 | | | $ | 439,740 | | | Management Fees (1) | | $ | 738,156 | | | $ | 624,928 | | |
| Transaction and Monitoring Fees, Net | Transaction and Monitoring Fees, Net | 306,038 | | | 135,677 | | | Transaction and Monitoring Fees, Net | | 142,179 | | | 306,038 | | |
| Fee Related Performance Revenues | Fee Related Performance Revenues | 12,051 | | | 10,296 | | | Fee Related Performance Revenues | | 21,741 | | | 12,051 | | |
| Fee Related Compensation | Fee Related Compensation | (212,220) | | | (131,785) | | | Fee Related Compensation | | (203,094) | | | (212,220) | | |
| Other Operating Expenses | Other Operating Expenses | (125,875) | | | (90,161) | | | Other Operating Expenses | | (150,404) | | | (125,875) | | |
| Fee Related Earnings | Fee Related Earnings | 604,922 | | | 363,767 | | | Fee Related Earnings | | 548,578 | | | 604,922 | | |
| Realized Performance Income | Realized Performance Income | 609,207 | | | 171,309 | | | Realized Performance Income | | 175,398 | | | 609,207 | | |
| Realized Performance Income Compensation | Realized Performance Income Compensation | (383,635) | | | (109,986) | | | Realized Performance Income Compensation | | (114,009) | | | (383,635) | | |
Realized Investment Income (2) | Realized Investment Income (2) | 349,354 | | | 461,273 | | | Realized Investment Income (2) | | 198,094 | | | 349,354 | | |
| Realized Investment Income Compensation | Realized Investment Income Compensation | (52,403) | | | (69,191) | | | Realized Investment Income Compensation | | (29,714) | | | (52,403) | | |
| Asset Management Segment Operating Earnings | Asset Management Segment Operating Earnings | 1,127,445 | | | 817,172 | | | Asset Management Segment Operating Earnings | | $ | 778,347 | | | $ | 1,127,445 | | |
| | Insurance | Insurance | | | Insurance | | | |
Net Investment Income (1) (2) | Net Investment Income (1) (2) | 862,414 | | | 445,898 | | | Net Investment Income (1) (2) | | $ | 1,271,255 | | | $ | 862,414 | | |
| Net Cost of Insurance | Net Cost of Insurance | (493,649) | | | (250,219) | | | Net Cost of Insurance | | (750,612) | | | (481,870) | | |
| General, Administrative and Other | General, Administrative and Other | (146,002) | | | (75,489) | | | General, Administrative and Other | | (196,714) | | | (146,412) | | |
| Pre-tax Insurance Operating Earnings | 222,763 | | | 120,190 | | | |
| Income Taxes | (34,106) | | | (16,626) | | | |
| Net Income Attributable to Noncontrolling Interest | (72,669) | | | (40,299) | | | |
| Pre-tax Operating Earnings | | Pre-tax Operating Earnings | | 323,929 | | | 234,132 | | |
| | Pre-tax Operating Earnings Attributable to Noncontrolling Interest | | Pre-tax Operating Earnings Attributable to Noncontrolling Interest | | (118,817) | | | (90,185) | | |
| Insurance Segment Operating Earnings | Insurance Segment Operating Earnings | 115,988 | | | 63,265 | | | Insurance Segment Operating Earnings | | $ | 205,112 | | | $ | 143,947 | | |
| | Total Segment Operating Earnings | Total Segment Operating Earnings | $ | 1,243,433 | | | $ | 880,437 | | | Total Segment Operating Earnings | | $ | 983,459 | | | $ | 1,271,392 | | |
| (1) Includes intersegment management fees of $59.0 million and $22.9 million for the three months ended March 31, 2022 and 2021, respectively. | |
(2) Includes intersegment interest expense and income of $25.8 million for the three months ended March 31, 2022. | |
(1) Includes intersegment management fees of $108.3 million and $59.0 million for the three months ended March 31, 2023 and 2022, respectively. | | (1) Includes intersegment management fees of $108.3 million and $59.0 million for the three months ended March 31, 2023 and 2022, respectively. |
(2) Includes intersegment interest expense and income of $44.8 million and $25.8 million for the three months ended March 31, 2023 and 2022, respectively. | | (2) Includes intersegment interest expense and income of $44.8 million and $25.8 million for the three months ended March 31, 2023 and 2022, respectively. |
| | | As of | | | | As of March 31, | |
| | March 31, 2022 | | March 31, 2021 | | | | 2023 | | 2022 | |
| Segment Assets: | Segment Assets: | | | | | Segment Assets: | | | | | |
| Asset Management | Asset Management | $ | 31,921,809 | | | $ | 28,247,535 | | | Asset Management | | $ | 30,661,383 | | | $ | 31,921,809 | | |
| Insurance | Insurance | 167,492,964 | | | 131,350,085 | | | Insurance | | 174,831,730 | | | 167,119,948 | | |
| Total Segment Assets | Total Segment Assets | $ | 199,414,773 | | | $ | 159,597,620 | | | Total Segment Assets | | $ | 205,493,113 | | | $ | 199,041,757 | | |
| | | Three Months Ended March 31, | | |
| Noncash expenses excluded from Segment Operating Earnings | 2022 | | 2021 | | |
| Equity Based Compensation and Other | | | | | |
| Asset Management | $ | 113,064 | | | $ | 64,317 | | | |
| Insurance | 31,711 | | | 7,411 | | | |
| Total Non-cash expenses | $ | 144,775 | | | $ | 71,728 | | | |
| | |
Reconciliations of Total Segment Amounts
The following tables reconcile the Segment Revenues, Segment Operating Earnings, and Segment Assets to their equivalent GAAP measure:
| | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
| | Total GAAP Revenues | Total GAAP Revenues | $ | 1,004,017 | | | $ | 4,563,006 | | | Total GAAP Revenues | $ | 3,127,482 | | | $ | 999,363 | | |
| Impact of Consolidation and Other | Impact of Consolidation and Other | 213,400 | | | 123,448 | | | Impact of Consolidation and Other | 209,778 | | | 213,400 | | |
| Asset Management Adjustments: | Asset Management Adjustments: | | | Asset Management Adjustments: | | |
| Capital Allocation-Based Income (GAAP) | 945,743 | | | (2,684,647) | | | |
| Capital Allocation-Based Income (Loss) (GAAP) | | Capital Allocation-Based Income (Loss) (GAAP) | (449,018) | | | 945,743 | | |
| Realized Carried Interest | Realized Carried Interest | 579,767 | | | 165,142 | | | Realized Carried Interest | 172,689 | | | 579,767 | | |
| Realized Investment Income | Realized Investment Income | 349,354 | | | 461,273 | | | Realized Investment Income | 198,094 | | | 349,354 | | |
| Capstone Fees | Capstone Fees | (15,485) | | | (20,080) | | | Capstone Fees | (19,805) | | | (15,485) | | |
| Expense Reimbursements | Expense Reimbursements | (41,303) | | | (27,729) | | | Expense Reimbursements | (15,544) | | | (41,303) | | |
| Insurance Adjustments: | Insurance Adjustments: | | | Insurance Adjustments: | | |
| Net Premiums | Net Premiums | (372,144) | | | (1,176,142) | | | Net Premiums | (473,624) | | | (372,144) | | |
| Policy Fees | Policy Fees | (318,436) | | | (201,683) | | | Policy Fees | (313,802) | | | (313,782) | | |
| Other Income | Other Income | (34,744) | | | (18,144) | | | Other Income | (37,158) | | | (34,744) | | |
| Investment Gains and Losses | 167,102 | | | 259,168 | | | |
| Derivative Gains and Losses | 286,721 | | | 220,581 | | | |
(Gains) Losses from Investments(1) | | (Gains) Losses from Investments(1) | 260,507 | | | 167,102 | | |
| Non-operating Changes in Policy Liabilities and Derivatives | | Non-operating Changes in Policy Liabilities and Derivatives | (112,776) | | | 286,721 | | |
Total Segment Revenues (1)(2) | Total Segment Revenues (1)(2) | $ | 2,763,992 | | | $ | 1,664,193 | | | Total Segment Revenues (1)(2) | $ | 2,546,823 | | | $ | 2,763,992 | | |
(1)Includes gains and losses on funds withheld receivables and payables embedded derivatives.
(2)Total Segment Revenues is comprised of (i) Management Fees, (ii) Transaction and Monitoring Fees, Net, (iii) Fee Related Performance Revenues, (iv) Realized Performance Income, (v) Realized Investment Income, and (vi) Net Investment Income.
| | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
| | Income (Loss) Before Tax (GAAP) | Income (Loss) Before Tax (GAAP) | $ | 1,099,436 | | | $ | 4,354,106 | | | Income (Loss) Before Tax (GAAP) | $ | 408,435 | | | $ | 1,289,039 | | |
| Impact of Consolidation and Other | Impact of Consolidation and Other | (1,232,320) | | | (1,375,375) | | | Impact of Consolidation and Other | 99,137 | | | (1,300,326) | | |
| Interest Expense | Interest Expense | 69,460 | | | 57,545 | | | Interest Expense | 85,500 | | | 69,460 | | |
Equity-based compensation - KKR Holdings | Equity-based compensation - KKR Holdings | 19,821 | | | 16,434 | | | Equity-based compensation - KKR Holdings | — | | | 19,821 | | |
| Asset Management Adjustments: | Asset Management Adjustments: | | | Asset Management Adjustments: | | |
| Unrealized (Gains) Losses | | Unrealized (Gains) Losses | 99,327 | | | 322,269 | | |
| Unrealized Carried Interest | Unrealized Carried Interest | 1,290,033 | | | (2,109,018) | | | Unrealized Carried Interest | (202,659) | | | 1,290,033 | | |
| Net Unrealized (Gains) Losses | 322,269 | | | (1,316,644) | | | |
| Unrealized Carried Interest Compensation (Carry Pool) | Unrealized Carried Interest Compensation (Carry Pool) | (513,987) | | | 896,907 | | | Unrealized Carried Interest Compensation (Carry Pool) | 83,830 | | | (513,987) | | |
| Strategic Corporate Transaction-Related Charges | 19,898 | | | 4,875 | | | |
| Strategic Corporate Related Charges | | Strategic Corporate Related Charges | 6,807 | | | 19,898 | | |
| Equity-based compensation | Equity-based compensation | 55,111 | | | 49,761 | | | Equity-based compensation | 59,017 | | | 55,111 | | |
| Equity-based compensation - Performance based | Equity-based compensation - Performance based | 57,953 | | | 14,556 | | | Equity-based compensation - Performance based | 67,273 | | | 57,953 | | |
Insurance Adjustments: | Insurance Adjustments: | | | Insurance Adjustments: | | |
| Net (Gains) Losses from Investments and Derivatives | 48,735 | | | 289,235 | | | |
| Strategic Corporate Transaction-Related Charges | 5,007 | | | 4,819 | | | |
| Equity-based and Other Compensation | 31,711 | | | 7,411 | | | |
| Amortization of Acquired Intangibles | 4,412 | | | 2,451 | | | |
| Income Taxes | (34,106) | | | (16,626) | | | |
(Gains) Losses from Investments(2)(3) | | (Gains) Losses from Investments(2)(3) | 131,114 | | | 129,032 | | |
Non-operating Changes in Policy Liabilities and Derivatives(2) | | Non-operating Changes in Policy Liabilities and Derivatives(2) | 106,491 | | | (192,201) | | |
Strategic Corporate Related Charges(2) | | Strategic Corporate Related Charges(2) | — | | | 3,079 | | |
Equity-based and Other Compensation(2) | | Equity-based and Other Compensation(2) | 36,393 | | | 19,498 | | |
Amortization of Acquired Intangibles(2) | | Amortization of Acquired Intangibles(2) | 2,794 | | | 2,713 | | |
| | Total Segment Operating Earnings | Total Segment Operating Earnings | $ | 1,243,433 | | | $ | 880,437 | | | Total Segment Operating Earnings | $ | 983,459 | | | $ | 1,271,392 | | |
|
(1)Represents equity-based compensation expense in connection with the allocation of units of KKR Holdings, which were not dilutive to common stockholders of KKR & Co. Inc.
(2)Amounts represent the portion allocable to KKR & Co. Inc.
(3)Includes gains and losses on funds withheld receivables and payables embedded derivatives.
| | | As of | | As of |
| | March 31, 2022 | | March 31, 2021 | | | March 31, 2023 | | March 31, 2022 | |
| Total GAAP Assets | Total GAAP Assets | $ | 266,290,981 | | | $ | 216,445,114 | | | Total GAAP Assets | $ | 282,610,589 | | | $ | 265,917,965 | | |
| Impact of Consolidation and Reclassifications | Impact of Consolidation and Reclassifications | (63,737,743) | | | (54,032,166) | | | Impact of Consolidation and Reclassifications | (75,160,372) | | | (63,737,743) | | |
| Carry Pool Reclassifications | Carry Pool Reclassifications | (3,138,465) | | | (2,815,328) | | | Carry Pool Reclassifications | (1,957,104) | | | (3,138,465) | | |
| | Total Segment Assets | Total Segment Assets | $ | 199,414,773 | | | $ | 159,597,620 | | | Total Segment Assets | $ | 205,493,113 | | | $ | 199,041,757 | | |
22.23. EQUITY
Stockholders' Equity
Common Stock
The common stock of KKR & Co. Inc. is entitled to vote as provided by its certificate of incorporation, Delaware General Corporation Law and the rules of the NYSE.New York Stock Exchange ("NYSE"). Subject to preferences that apply to shares of Series C Mandatory Convertible Preferred Stock and any other shares of preferred stock outstanding at the time on which dividends are payable, the holders of common stock are entitled to receive dividends out of funds legally available if the boardBoard of directors,Directors, in its discretion, determines to declare dividends and then only at the times and in the amounts that the boardBoard of directorsDirectors may determine. The common stock is not entitled to preemptive rights and is not subject to conversion, redemption or sinking fund provisions.
Series I and Series II Preferred Stock
Except for any distribution required by Delaware law to be made upon a dissolution event, the holders of Series I preferred stock and Series II preferred stock do not have any economic rights to receive dividends. Series I preferred stock is entitled to vote on various matters that may be submitted to vote of the stockholders and the other matters as set forth in the certificate of incorporation. For matters on which common stock is entitled to vote, so long as the ratio at which KKR Group Partnership Units are exchangeable for shares of common stock remains on a 1-for-one basis, Series II preferred stock will vote together with common stock as a single class and on an equivalent basis, except Series II preferred stock will vote separately as a class on any amendment to the certificate of incorporation that changes certain terms, rights or preferences of Series II preferred stock. Upon a dissolution event, each holder of Series I preferred stock will be entitled to a payment equal to $0.01 per share of Series I preferred stock and each holder of Series II preferred stock will be entitled to a payment equal to $0.000000001 per share of Series II preferred stock.
The Series II preferred stock will become eliminated upon the closing of the merger transactions contemplated by the Reorganization Agreement, subject to the satisfaction of the conditions to closing. The Series I preferred stock will becomebe eliminated upon the closing of the transactions contemplated to occur on the Sunset Date (as defined in the Reorganization Agreement)Note 1 "Organization"), which is scheduled to occur not later than December 31, 2026, subject to the closing of the prior merger transactions and the satisfaction of any other conditions to closing.2026.
Series C Mandatory Convertible Preferred Stock
On August 14, 2020, KKR & Co. Inc. issued 23,000,000 shares, or $1.15 billion aggregate liquidation preference, of its 6.00% Series C Mandatory Convertible Preferred Stock (the "Series C Mandatory Convertible Preferred Stock").
Unless converted or redeemed earlier in accordance with the terms of the Series C Mandatory Convertible Preferred Stock, each share of Series C Mandatory Convertible Preferred Stock will automatically convert on the mandatory conversion date, which is expected to be September 15, 2023, into between 1.1662 shares and 1.4285 shares of common stock, in each case, subject to customary anti-dilution adjustments described in the certificate of designations related to the Series C Mandatory Convertible Preferred Stock. The number of shares of common stock issuable upon conversion will be determined based on the average volume weighted average price per share of common stock over the 20 consecutive trading day period beginning on, and including, the 21st scheduled trading day immediately prior to September 15, 2023.
Dividends on the Series C Mandatory Convertible Preferred Stock will be payable on a cumulative basis when, as and if declared by our boardBoard of directors,Directors, or an authorized committee thereof, at an annual rate of 6.00% on the liquidation preference of $50.00 per share of Series C Mandatory Convertible Preferred Stock, and may be paid in cash or, subject to certain limitations, in shares of common stock or, subject to certain limitations, any combination of cash and shares of common stock. If declared, dividends on the Series C Mandatory Convertible Preferred Stock will be payable quarterly on March 15, June 15, September 15 and December 15 of each year to, and including, September 15, 2023, commencing on December 15, 2020.
Upon KKR & Co. Inc.’s voluntary or involuntary liquidation, winding-up or dissolution, each holder of the Series C Mandatory Convertible Preferred Stock would be entitled to receive a liquidation preference in the amount of $50.00 per share of Series C Mandatory Convertible Preferred Stock, plus an amount equal to accumulated and unpaid dividends on such shares, whether or not declared, to, but excluding, the date fixed for liquidation, winding-up or dissolution, to be paid out of KKR & Co. Inc.’s assets legally available for distribution to its stockholders after satisfaction of debt and other liabilities owed to KKR & Co. Inc.’s creditors and holders of shares of its stock ranking senior to the Series C Mandatory Convertible Preferred Stock and before any payment or distribution is made to holders of any stock ranking junior to the Series C Mandatory Convertible Preferred Stock, including, without limitation, common stock.
Notes to Financial Statements (Continued)
In connection with the issuance of the Series C Mandatory Convertible Preferred Stock, the limited partnership agreement of KKR Group Partnership was amended to provide for preferred units with economic terms designed to mirror those of the Series C Mandatory Convertible Preferred Stock.
Share Repurchase Program
On February 7, 2023, KKR announced an increase to the total available amount under its repurchase program to $500 million. As of May 5, 2023, there was approximately $468 million remaining under the program.
Under KKR's repurchase program, shares of common stock of KKR & Co. Inc. may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing, manner, price and amount of any repurchases will be determined by KKR in its discretion and will depend on a variety of factors, including legal requirements, price and economic and market conditions. In addition to the repurchases of common stock, the repurchase program will be used for the retirement (by cash settlement or the payment of tax withholding amounts upon net settlement) of equity awards granted pursuant to our Equity Incentive Plans representing the right to receive common stock. KKR expects that the program, which has no expiration date, will be in effect until the maximum approved dollar amount has been used. The program does not require KKR to repurchase or retire any specific number of shares of common stock or equity awards, respectively, and the program may be suspended, extended, modified or discontinued at any time. As of April 29, 2022, the remaining amount available under the repurchase program was approximately $108 million.
The following table presents KKR & Co. Inc. common stock that has been repurchased or equity awards retired under the repurchase program:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | | | | | 2022 | | 2021 | | | | |
| Shares of common stock repurchased | | | | | | | | | 5,191,174 | | | 1,501,558 | | | | | |
| Equity awards for common stock retired | | | | | | | | | — | | | 1,325,853 | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, | |
| | | | | 2023 | | 2022 | | | | | | | |
| Shares of common stock repurchased | | | | | — | | | 5,191,174 | | | | | | | | |
| Equity awards for common stock retired | | | | | — | | | — | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Noncontrolling Interests
Noncontrolling interests represent (i) noncontrolling interests in consolidated entities and (ii) noncontrolling interests held by KKR Holdings.
Noncontrolling Interests in Consolidated Entities and Other
Noncontrolling interests in consolidated entities represent the non-redeemable ownership interests in KKR that are held primarily by:
(i)third party fund investors in KKR's consolidated funds and certain other entities;
(ii)third parties entitled to up to 1% of the carried interest received by certain general partners of KKR's funds that have made investments on or prior to December 31, 2015;
(iii)certain former principals and their designees representing a portion of the carried interest received by the general partners of KKR's private equity funds that was allocated to them with respect to private equity investments made during such former principals' tenure with KKR prior to October 1, 2009;
(iv)certain current and former principals representing all of the capital invested by or on behalf of the general partners of KKR's private equity funds prior to October 1, 2009 and any returns thereon;
(v)third parties in KKR's Capital Markets business line;
(vi)holders of othercertain current and former employees who hold exchangeable securities, which consist of vested restricted holdings units granted under the 2019 Equity Plan that are exchangeable into shares of common stock of KKR & Co. Inc.;securities; and
(vii)third parties in KKR's insurance business including GA Rollover Investors, GA Co-Investors and third party investors in Global Atlantic's consolidated renewable energy entities and certain other entities.
Noncontrolling Interests held by KKR Holdings
Noncontrolling interests held by KKR Holdings consist of economic interests held by principals indirectly in KKR Group Partnership Units. Such principals receive financial benefits from KKR's business in the form of distributions received from KKR Holdings and through their direct and indirect participation in the value of KKR Group Partnership Units held by KKR Holdings. These financial benefits are not paid by KKR & Co. Inc. and are borne by KKR Holdings.Notes to Financial Statements (Continued)
The following tables present the calculation of total noncontrolling interests:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2022 |
| Noncontrolling Interests in Consolidated Entities and Other | | Noncontrolling Interests Held by KKR Holdings | | Total Noncontrolling Interests |
| Balance at the beginning of the period | $ | 32,043,699 | | | $ | 8,430,866 | | | $ | 40,474,565 | |
Net income (loss) attributable to noncontrolling interests (1) | 1,206,337 | | | (47,152) | | | 1,159,185 | |
Other comprehensive income (loss), net of tax (2) | (1,291,083) | | | (629,986) | | | (1,921,069) | |
| | | | | |
| Equity-based and other non-cash compensation | 63,571 | | | 19,821 | | | 83,392 | |
| Capital contributions | 3,579,591 | | | — | | | 3,579,591 | |
| Capital distributions | (1,831,897) | | | (41,976) | | | (1,873,873) | |
| | | | | |
| | | | | |
| Balance at the end of the period | $ | 33,770,218 | | | $ | 7,731,573 | | | $ | 41,501,791 | |
| | | | | | | | | |
| | | | | Three Months Ended March 31, 2023 |
| Balance at the beginning of the period (as previously reported) | | | | | $ | 35,778,000 | |
| Adoption of New Accounting Standard (See Note 2) | | | | | 632,858 | |
| Balance at the beginning of the period (as revised) | | | | | 36,410,858 | |
| Net income (loss) attributable to noncontrolling interests | | | | | (73,003) | |
| Other comprehensive income (loss), net of tax | | | | | 367,188 | |
| | | | | |
| Equity-based and other non-cash compensation | | | | | 76,596 | |
| Capital contributions | | | | | 2,468,778 | |
| Capital distributions | | | | | (1,840,303) | |
| Changes in Consolidation | | | | | (93,545) | |
| Balance at the end of the period | | | | | $ | 37,316,569 | |
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, 2021 |
| | Noncontrolling Interests in Consolidated Entities and Other | | Noncontrolling Interests Held by KKR Holdings | | Total Noncontrolling Interests |
| Balance at the beginning of the period | | $ | 20,570,716 | | | $ | 6,512,382 | | | $ | 27,083,098 | |
Net income (loss) attributable to noncontrolling interests (1) | | 1,241,877 | | | 1,003,654 | | | 2,245,531 | |
Other comprehensive income (loss), net of tax (2) | | (581,154) | | | (298,234) | | | (879,388) | |
Exchange of KKR Holdings Units to Common Stock (3) | | — | | | (56,903) | | | (56,903) | |
| Equity-based and other non-cash compensation | | 19,882 | | | 16,434 | | | 36,316 | |
| Capital contributions | | 4,009,967 | | | 25 | | | 4,009,992 | |
| Capital distributions | | (987,066) | | | (40,768) | | | (1,027,834) | |
Impact of Acquisition (4) | | 190,405 | | | — | | | 190,405 | |
| Changes in consolidation | | (66,488) | | | — | | | (66,488) | |
| Balance at the end of the period | | $ | 24,398,139 | | | $ | 7,136,590 | | | $ | 31,534,729 | |
| | | | | | | | | | | | |
| | | | | | |
| | | | | | Three Months Ended March 31, 2022 |
| Balance at the beginning of the period (as previously reported) | | | | | | $ | 40,474,565 | |
| Adoption of New Accounting Standard (See Note 2) | | | | | | 104,961 | |
| Balance at the beginning of the period (as revised) | | | | | | 40,579,526 | |
| Net income (loss) attributable to noncontrolling interests | | | | | | 1,244,987 | |
| Other comprehensive income (loss), net of tax | | | | | | (1,620,472) | |
| | | | | | |
| Equity-based and other non-cash compensation | | | | | | 83,392 | |
| Capital contributions | | | | | | 3,579,591 | |
| Capital distributions | | | | | | (1,873,873) | |
| | | | | | |
| Balance at the end of the period | | | | | | $ | 41,993,151 | |
(1)Refer to the table below for calculation of net income (loss) attributable to noncontrolling interests held by KKR Holdings.
(2)With respect to noncontrolling interests held by KKR Holdings, calculated on a pro rata basis based on the weighted average KKR Group Partnership Units held by KKR Holdings during the reporting period.
(3)Calculated based on the proportion of KKR Holdings units exchanged for KKR & Co. Inc. common stock. The exchange agreement with KKR Holdings provides for the exchange of KKR Group Partnership Units held by KKR Holdings for KKR & Co. Inc. common stock.
(4)Represents other noncontrolling interests at the GA Acquisition Date.
Net income (loss) attributable to each of KKR & Co. Inc. common stockholders, KKR Holdings and holders of other exchangeable securities, with the exception of certain tax assets and liabilities that are directly allocable to KKR & Co. Inc., is attributed based on the percentage of the weighted average KKR Group Partnership Units directly or indirectly held by them. However, primarily because of the (i) contribution of certain expenses borne entirely by KKR Holdings and holders of other exchangeable securities, (ii) the periodic exchange of KKR Holdings units and other exchangeable securities for KR & Co. Inc. common stock pursuant to the exchange agreement and (iii) the contribution of certain expenses borne entirely by KKR associated with the Equity Incentive Plans, equity allocations shown in the consolidated statement of changes in equity differ from their respective pro rata ownership interests in KKR's net assets.
The following table presents net income (loss) attributable to noncontrolling interests held by KKR Holdings:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Three Months Ended March 31, | | |
| | | | | | | | | 2022 | | 2021 | | | | |
| Net income (loss) | | | | | | | | $ | 1,102,602 | | | $ | 3,915,367 | | | | | |
| (-) Net income (loss) attributable to Redeemable Noncontrolling Interests | | | | | | | | (63) | | | — | | | | | |
| (-) Net income (loss) attributable to Noncontrolling Interests in consolidated entities and other | | | | | | | | 1,206,337 | | | 1,241,877 | | | | | |
| (-) Series A and B Preferred Stock Dividends | | | | | | | | — | | | 8,341 | | | | | |
| (-) Series C Mandatory Convertible Preferred Stock Dividends | | | | | | | | 17,250 | | | 17,250 | | | | | |
| (+) Income tax expense (benefit) attributable to KKR & Co. Inc. | | | | | | | | (34,144) | | | 462,930 | | | | | |
| | | | | | | | | | | | | | |
Net income (loss) attributable to KKR & Co. Inc.
Common Stockholders and KKR Holdings | | | | | | | | $ | (155,066) | | | $ | 3,110,829 | | | | | |
| | | | | | | | | | | | | | |
| Net income (loss) attributable to Noncontrolling Interests held by KKR Holdings | | | | | | | | $ | (47,152) | | | $ | 1,003,654 | | | | | |
23.24. REDEEMABLE NONCONTROLLING INTERESTS
(i) Noncontrolling interests of certain KKR investment funds and vehicles that are subject to periodic redemption by fund investors following the expiration of a specified period of time, or may be withdrawn subject to a redemption fee during the period when capital may not be otherwise withdrawn. Consolidated fund investor's interests subject to redemption as described above are presented as Redeemable Noncontrolling Interests in the accompanying consolidated statements of financial condition and presented as Net Income (Loss) Attributable to Redeemable Noncontrolling Interests in the accompanying consolidated statements of operations. When redeemable amounts become legally payable to fund investors, they are classified as a liability and included in Accounts Payable, Accrued Expenses and Other Liabilities in the accompanying consolidated statements of financial condition.
(ii) Global Atlantic has redeemable non-controllingnoncontrolling interests related to renewable energy entities of approximately $81.8$79.3 million and $82.5$82.7 million as of March 31, 20222023 and December 31, 20212022, respectively, as determined by the hypothetical liquidation at book value ("HLBV") method, respectively. The estimated redemption value of redeemable non-controllingnoncontrolling interests is calculated as the discounted cash flows subsequent to the expected flip date of the respective renewable energy entity. The flip date represents the date at which the allocation of income and cash flows among the investors in the entity is adjusted, pursuant to the redeemable non-controllingnoncontrolling interest investors having achieved an agreed-upon return. The flip date of renewable energy partnerships determines when the redeemable non-controllingnoncontrolling interests are eligible to be redeemed. Eligible redemption dates range from 2022January 1, 2028 to 2027.June 30, 2028. For the redeemable non-controllingnoncontrolling interests outstanding as of both March 31, 20222023 and December 31, 2021,2022, the estimated redemption value that would be due at the respective redemption dates is $5.3 million.
The following table presents the calculation of Redeemable Noncontrolling Interests:
| | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 | | |
| Balance at the beginning of the period | $ | 152,065 | | | 82,491 | | | |
| | | | | |
| Net income (loss) attributable to Redeemable Noncontrolling Interests | (7,303) | | | (63) | | | |
| Capital contributions | — | | | — | | | |
| Capital distributions | (636) | | | (635) | | | |
| Balance at the end of the period | $ | 144,126 | | | $ | 81,793 | | | |
24.
Notes to Financial Statements (Continued)
25. COMMITMENTS AND CONTINGENCIES
Funding Commitments and Others
As of March 31, 2022,2023, KKR had unfunded commitments consisting of $11.3$9.7 billion to its investment funds and vehicles. KKR has also agreed for certain of its investment vehicles to fund or otherwise be liable for a portion of their investment losses (up to a maximum of approximately $116$114 million) and/or to provide them with liquidity upon certain termination events (the maximum amount of which is unknown until the scheduled termination date of the investment vehicle).
In addition to these uncalled commitments and funding obligations to KKR's investment funds and vehicles, KKR has entered into contractual commitments primarily with respect to underwriting transactions, debt financing, revolving credit facilities, and syndications in KKR's Capital Markets business line. As of March 31, 2022,2023, these commitments amounted to $1.5 billion.$439.7 million. Whether these amounts are actually funded, in whole or in part, depends on the contractual terms of such commitments, including the satisfaction or waiver of any conditions to closing or funding. KKR's capital markets business has arrangements with third parties, which reduce its risk when underwriting certain debt transactions, and thus our unfunded commitments as of March 31, 20222023 have been reduced to reflect the amount to be funded by such third parties. In the case of purchases of investments or assets in our Principal Activities business line, the amount to be funded includes amounts that are intended to be syndicated to third parties, and the actual amounts to be funded may be less.
Global Atlantic has commitments to purchase or fund investments of $2.6$3.2 billion and $2.0$3.3 billion as of March 31, 20222023 and December 31, 2021,2022, respectively. These commitments include those related to commercial mortgage loans, other lending facilities and other investments. For those commitments that represent a contractual obligation to extend credit, Global Atlantic has recorded a liability of $14.9$63.8 million and $55.8 million for current expected credit losses as of March 31, 2022.2023 and December 31, 2022, respectively.
In addition, Global Atlantic has entered into certain forward flow agreements to purchase loans. Global Atlantic's obligations under these agreements are subject to change, curtailment, and cancellation based on various provisions including repricing mechanics, due diligence reviews, and performance or pool quality, among other factors.
Non-cancelable Operating Leases
KKR's non-cancelable operating leases consist of leases of office space around the world. There are no material rent holidays, contingent rent, rent concessions or leasehold improvement incentives associated with any of these property leases. In addition to base rentals, certain lease agreements are subject to escalation provisions and rent expense is recognized on a straight‑line basis over the term of the lease agreement.
Global Atlantic also enters into land leases for its consolidated investments in renewable energy.
Contingent Repayment Guarantees
The partnership documents governing KKR's carry-paying investment funds and vehicles generally include a "clawback" provision that, if triggered, may give rise to a contingent obligation requiring the general partner to return amounts to the fund for distribution to the fund investors at the end of the life of the fund. Under a clawback obligation, upon the liquidation of a fund, the general partner is required to return, typically on an after-tax basis, previously distributed carry to the extent that, due to the diminished performance of later investments, the aggregate amount of carry distributions received by the general partner during the term of the fund exceed the amount to which the general partner was ultimately entitled, including the effects of any performance thresholds.
As of March 31, 2022,2023, approximately $400$520 million of carried interest was subject to this clawback obligation, assuming that all applicable carry-paying funds and their alternative investment vehicles were liquidated at their March 31, 20222023 fair values. Although KKR would be required to remit the entire amount to fund investors that are entitled to receive the clawback payment, KKR would be entitled to seek reimbursement of approximately $160$210 million of that amount from KKR Associates Holdings, L.P., which is not a KKR subsidiary. As of March 31, 2022, KKR2023, Associates Holdings L.P. had access to cash reserves sufficient to reimburse the full $160$210 million that would be due to KKR. If the investments in all carrying-payingcarry-paying funds were to be liquidated at zero value, the clawback obligation would have been approximately $2.7$2.9 billion, and KKR would be entitled to seek reimbursement of approximately $1.1$1.2 billion of that amount from KKR Associates Holdings L.P.Holdings. KKR will acquire control of KKR Associates Holdings L.P. when a subsidiary of KKR becomes its general partner upon the closing of the transactions contemplated to occur on the Sunset Date (as defined in the Reorganization Agreement)Note 1 "Organization"), which is scheduled towill occur not later than December 31, 2026, subject2026.
Notes to the closing of the mergers contemplated by the Reorganization Agreement and the satisfaction of the other conditions to closing.Financial Statements (Continued)
Carried interest is recognized in the consolidated statements of operations based on the contractual conditions set forth in the agreements governing the fund as if the fund were terminated and liquidated at the reporting date and the fund's investments were realized at the then estimated fair values. Amounts earned pursuant to carried interest are earned by the general partner of those funds to the extent that cumulative investment returns are positive and where applicable, preferred return thresholds have been met. If these investment amounts earned decrease or turn negative in subsequent periods, recognized carried interest will be reversed and to the extent that the aggregate amount of carry distributions received by the general partner during the term of the fund exceed the amount to which the general partner was ultimately entitled, a clawback obligation would be recorded. For funds that are consolidated, this clawback obligation, if any, is reflected as an increase in noncontrolling interests in the consolidated statements of financial condition. For funds that are not consolidated, this clawback obligation, if any, is reflected as a reduction of KKR's investment balance as this is where carried interest is initially recorded.
Indemnifications and Other Guarantees
Asset Management Segment
KKR may incur contingent liabilities for claims that may be made against it in the future. KKR enters into contracts that contain a variety of representations, warranties and covenants, including indemnifications. For example, KKR (including KFN) and certain of KKR's investment funds have provided and provide certain credit support, such as indemnities and guarantees, relating to environmental and othera variety of matters, and have provided and provideincluding non-recourse carve-out guarantees for fraud, willful misconduct and other customary wrongful acts each in connection with the financing of (i) certain real estate investments that we have made, including KKR's corporate real estate, and certain real estate investments and for(ii) certain investment vehicles that KKR manages. KKR's maximum exposure under these arrangements is currently unknown and KKR's liabilities for these matters would require a claim to be made against KKR in the future.manages or sponsors.
KKR also has provided, and provides, credit support in connection with the Asset Management business, including:
i.to certain of its subsidiaries' obligations in connection with a limited number of investment vehicles that KKR manages. For example, KKR has guaranteed the obligations of a general partner to post collateral on behalf of its investment vehicle manages,
ii.in connection with such vehicle's derivative transactions. KKR also (i) provides credit support regarding repayment and funding obligations to third-party lenders toon behalf of certain of its employees, excluding its executive officers, in connection with their personal investments in KKR investment funds and in ana levered multi-asset investment vehicle, that includes third party investors and invests in KKR funds and alongside KKR funds and (ii) provides credit support
iii.to aone of its hedge fund partnership. KKRpartnerships,
iv.through a contingent guarantee of a subsidiary’s loan repayment obligations, which does not become effective unless and until its loan becomes accelerated due to certain specified events of default involving the investment vehicles managed by KJRM,
v.the obligations of our subsidiaries' funding obligations to our investment vehicles, and
vi.certain of our investment vehicles to fund or otherwise be liable for a portion of their investment losses and/or to provide them with liquidity upon certain termination events (the maximum amount of which is not a guarantor for any borrowings, credit facilities or debt securitiesunknown until the scheduled termination date of its Indian debt financing company.the investment vehicle).
KKR may also become liable for certain fees payable to sellers of businesses or assets if a transaction does not close, subject to certain conditions, if any, specified in the acquisition agreements for such businesses or assets.
Insurance Segment
The Global Atlantic business was formerly owned by The Goldman Sachs Group, Inc. (together with its subsidiaries, "Goldman Sachs"). In connection with the separation of Global Atlantic from Goldman Sachs in 2013, Global Atlantic entered into a tax benefit payment agreement with Goldman Sachs. Under the tax benefit payment agreement, Global Atlantic (Fin) Company ("GA FinCo")FinCo is obligated to make annual payments out of available cash, guaranteed by Global Atlantic Financial Group Limited ("GAFG"),GAFG, to Goldman Sachs over an approximately 25-year period totaling $214$214.0 million. As of March 31,
2022, 2023, the present value of the remaining amount to be paid is $64.9$60.5 million. Although these payments are subordinated and deferrable, deferral of these payments would result in restrictions on distributions by GA FinCo and GAFG.
In lieu of funding certain investments in loan facilities to third party borrowers in cash, Global Atlantic has arranged or participated in letters of credit issued by third-party banks on behalf of the borrowers in the amount of $39.7$29.7 million, as of March 31, 2022,2023, with expiration dates between October 2022May 2023 to DecemberSeptember 2024. Global Atlantic has available lines of credit that would allow for additional letters of credit to be issued on behalf of certain borrowers, up to $225.3$235.3 million, as of March 31, 2022.
Notes to Financial Statements (Continued)
2023. For accounting purposes, these letters of credit are considered guarantees of certain obligations of the borrowers. If a letter of credit were to be drawn, Global Atlantic would be obligated to repay the issuing third-party bank, and Global Atlantic would recognize a loan receivable from the borrowers on the consolidated statements of financial condition. Global Atlantic monitors the likelihood of these letters of credit being drawn, and any related contingent obligation. As of both March 31, 20222023 and December 31, 2021,2022, the expected credit loss on the contingent liability associated with these letters of credit was not material.
Unless otherwise stated above, KKR's maximum exposure under the arrangements described under this section “Indemnifications and Other Guarantees” are currently unknown as there are no stated or notional amounts included in these arrangements and KKR's liabilities for these matters would require a claim to be made against KKR in the future.
Litigation
From time to time, KKR (including Global Atlantic) is involved in various legal proceedings, lawsuits, arbitration and claims incidental to the conduct of KKR's businesses. KKR's asset management and insurance businesses are also subject to extensive regulation, which may result in regulatory proceedings against them.
In December 2017, KKR & Co. L.P. (which is now KKR &Group Co. Inc.) and its then Co-Chief Executive Officers were named as defendants in a lawsuit filed in Kentucky state court alleging, among other things, the violation of fiduciary and other duties in connection with certain separately managed accounts that Prisma Capital Partners LP, a former subsidiary of KKR, manages for the Kentucky Retirement Systems. Also named as defendants in the lawsuit are certain current and former trustees and officers of the Kentucky Retirement Systems, Prisma Capital Partners LP, and various other service providers to the Kentucky Retirement Systems and their related persons. KKR and other defendants’ motions to dismiss were denied by the trial court in November 2018, but in April 2019 the Kentucky Court of Appeals vacated the trial court's opinion and order denying the motions to dismiss the case for lack of standing. The decision of the Court of Appeals was appealed by plaintiffs to the Supreme Court of Kentucky. On July 9, 2020, the Supreme Court of Kentucky reversed the trial court's order and remanded the case to the trial court with direction to dismiss the complaint for lack of constitutional standing. On July 20, 2020, the Office of the Attorney General, on behalf of the Commonwealth of Kentucky, filed a motion to intervene as a plaintiff in the lawsuit and on July 21, 2020 filed a new lawsuit in the same Kentucky trial court making essentially the same allegations against the defendants, including KKR & Co. Inc. and Messrs. Kravis and Roberts. On July 29, 2020, certain private plaintiffs in the original lawsuit filed a motion to further amend their original complaint and to add new plaintiffs. On July 30, 2020, KKR and other defendants filed objections to the Attorney General’s motion to intervene. On December 28, 2020, the trial court dismissed the complaint filed by the original plaintiffs and denied their motion to amend their original complaint and add new plaintiffs, but granted the Office of the Attorney General’s motion to intervene. In January 2021, some of the attorneys for the private plaintiffs in the original lawsuit filed a new lawsuit, and a motion to intervene in the original lawsuit, on behalf of a new set of plaintiffs, who claim to be "Tier 3" members of Kentucky Retirement Systems, alleging substantially the same allegations as in the original lawsuit. The motion to intervene in the original lawsuit was denied. These "Tier 3" plaintiffs appealed the denial of their motion to intervene but then voluntarily dismissed their appeal on January 31, 2022. In addition, the Kentucky Retirement Systems had commissioned an investigation into certain matters alleged in the Attorney General's complaint. The trial court ordered that this investigation be completed by May 17, 2021, and the Attorney General was permitted to amend its complaint after reviewing the investigation's report within ten days of the Attorney General's receipt of it. On May 24, 2021, the Attorney General filed a First Amended Complaint on behalf of the Commonwealth of Kentucky. This complaint continues to name KKR & Co. L.P. and its then Co-Chief Executive Officers, as defendants, and makes similar allegations against them. KKR and the other defendants moved to dismiss the First Amended Complaint on July 30, 2021. The court held oral argument on these motions to dismiss on December 14, 2021. On July 9, 2021, the individual plaintiffs served an amended complaint, which purports to assert, on behalf of a class of beneficiaries of Kentucky Retirement Systems, direct claims for breach of fiduciary duty and civil violations under the Racketeer Influenced and Corrupt Organizations Act ("RICO"). This complaint was removed to the U.S. District Court for the Eastern District of Kentucky, which has entered an order staying this case until the completion of the Attorney General’s lawsuit on behalf of the Commonwealth.
On August 20, 2021, the same and other individual plaintiffs filed a second complaint in Kentucky state court, purportedly on behalf of Kentucky Retirement Systems' funds, alleging the same claims against KKR & Co. Inc. and Messrs. Kravis and Roberts as in the July 9th9th amended complaint but without the RICO or class action allegations. KKR and the other defendants have moved to dismiss the August 20th complaint.20, 2021 complaint by the Tier 3 plaintiffs, whose motions are awaiting a decision from the Kentucky state court. On March 24, 2022, in a separate declaratory judgment action brought by the Commonwealth of Kentucky regarding the enforceability of certain indemnification provisions available to KKR & Co. Inc. and Prisma Capital Partners LP, the Kentucky state court found that it has personal jurisdiction over KKR & Co. Inc., and this finding is currently being appealed by KKR.
new judge issued an order that held in abeyance the motions to dismiss filed by KKR and other defendants pending the outcome of appeals which challenge the trial court’s December 28, 2020 order granting the Attorney General’s motion to intervene. On April 14, 2023, the Kentucky Court of Appeals ruled in favor of KKR and the other defendants in their appeal of the trial court’s December 28, 2020 order granting the Kentucky Attorney General’s motion to intervene in the 2017 action, including that the trial court should have dismissed the entire 2017 action after the Kentucky Supreme Court’s 2020 decision. On May 4, 2023, the Attorney General filed a petition for rehearing with the Court of Appeals. The Court of Appeals’ April 14, 2023 decision does not dismiss the Kentucky Attorney General’s standalone lawsuit filed on July 21, 2020.
KKR (including Global Atlantic) currently is and expects to continue to become, from time to time, subject to examinations, inquiries and investigations by various U.S. and non-U.S. governmental and regulatory agencies, including but not limited to the SEC, U.S. Department of Justice, U.S. state attorney generals, Financial Industry Regulatory Authority ("FINRA"), the U.K. Financial Conduct Authority, Central Bank of Ireland, Monetary Authority of Singapore, U.S. state insurance regulatory authorities, and the Bermuda Monetary Authority. Such examinations, inquiries and investigations may result in the commencement of civil, criminal or administrative proceedings or fines against KKR or its personnel. KKR is presently subject to civil investigations and inquiries by the U.S. Department of Justice related to antitrust matters and by the SEC related to business-related electronic communications. KKR is currently cooperating with these civil investigations and inquiries.
Moreover, in the ordinary course of business, KKR (including Global Atlantic) is and can be both the defendant and the plaintiff in numerous lawsuits with respect to acquisitions, bankruptcy, insolvency and other events. Such lawsuits may involve claims that adversely affect the value of certain investments owned by KKR's funds and Global Atlantic's insurance companies.
KKR establishes an accrued liability for legal proceedings only when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. No loss contingency is recorded for matters where such losses are either not probable or reasonably estimable (or both) at the time of determination. Such matters may be subject to many uncertainties, including among others: (i) the proceedings may be in early stages; (ii) damages sought may be unspecified, unsupportable, unexplained or uncertain; (iii) discovery may not have been started or is incomplete; (iv) there may be uncertainty as to the outcome of pending appeals or motions; (v) there may be significant factual issues to be resolved or (vi) there may be novel legal issues or unsettled legal theories to be presented or a large number of parties. Consequently, management is unable to estimate a range of potential loss, if any, related to these matters. In addition, loss contingencies may be, in part or in whole, subject to insurance or other payments such as contributions and/or indemnity, which may reduce any ultimate loss. KKR has included in its financial statements the reserve for regulatory, litigation and related matters that Global Atlantic includes in its financial statements, including with respect to matters arising from the conversion of life insurance policies from systems previously managed by Athene Holdings Limited to the platform of one of Global Atlantic's third party service providers, Alliance-One, a subsidiary of DXC Technology Company.
It is not possible to predict the ultimate outcome of all pending legal proceedings, and some of the matters discussed above seek or may seek potentially large and/or indeterminate amounts. Based on information known by management, management has not concluded that the final resolutions of the matters above will have a material effect upon the financial statements. However, given the potentially large and/or indeterminate amounts sought or may be sought in certain of these matters and the inherent unpredictability of investigations and litigations, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on KKR's financial results in any particular period.
Other Financing Arrangements
Global Atlantic has financing arrangements with unaffiliated third parties to support the reserves of its affiliated captivespecial purpose reinsurers. Total fees expensed associated with these financing arrangements were $4.5$5.1 million and $4.0$4.5 million for the three months ended March 31, 20222023 and 2021,2022, respectively, and are included in insurance expenses in the consolidated statements of operations. As of both March 31, 20222023 and December 31, 2021,2022, the total capacity of the financing arrangements with third parties was $2.0$2.3 billion.
Other than the matters disclosed above, there were no outstanding or unpaid balances from the financing arrangements with unaffiliated third parties as of both March 31, 20222023 and December 31, 2021.2022.
Notes to Financial Statements (Continued)
25.26. SUBSEQUENT EVENTS
Common Stock Dividend
A dividend of $0.155$0.165 per share of common stock of KKR & Co. Inc. has been declared and was announced on May 3, 2022.8, 2023. This dividend will be paid on May 31, 2022June 6, 2023 to common stockholders of record as of the close of business on May 16, 2022. KKR Holdings will receive its pro rata share of the distribution from KKR Group Partnership.22, 2023.
Preferred Stock Dividends
A dividend of $0.75 per share of Series C Mandatory Convertible Preferred Stock has been declared and was announced on May 3, 20228, 2023 and set aside for payment. This dividend will be paid on June 15, 20222023 to holders of record of Series C Mandatory Convertible Preferred Stock as of the close of business on June 1, 2022.2023.
Yen Senior Notes
On April 26, 2022, KKR Group Finance Co. XI LLC, an indirect subsidiary of KKR & Co. Inc., completed the offering of (i) ¥36.4 billion aggregate principal amount of its 1.054% Senior Notes due 2027 (the “2027 Yen Notes”), (ii) ¥4.9 billion aggregate principal amount of its 1.244% Senior Notes due 2029 (the “2029 Yen Notes”), (iii) ¥6.2 billion aggregate principal amount of its 1.437% Senior Notes due 2032 (the “2032 Yen Notes”), (iv) ¥7.5 billion aggregate principal amount of its 1.553% Senior Notes due 2034 (the “2034 Yen Notes”), and (v) ¥5.5 billion aggregate principal amount of its 1.795% Senior Notes due 2037 (the “2037 Yen Notes” and, together with the 2027 Yen Notes, the 2029 Yen Notes, the 2032 Yen Notes and the 2034 Yen Notes, the “Yen Notes”). The Yen Notes are guaranteed by KKR & Co. Inc. and KKR Group Partnership. The Yen Notes were issued pursuant to an indenture, dated April 26, 2022, as supplemented by a first supplemental indenture, dated April 26, 2022.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements of KKR & Co. Inc., together with its consolidated subsidiaries, and the related notes included elsewhere in this report and our Annual Report, on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 28, 2022 (our "Annual Report"), including the audited consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained therein. In addition, this discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including those described under "Cautionary Note Regarding Forward-looking Statements" and "Business Environment" in this report and our Annual Report and "Risk Factors" in our Annual Report, and our other filings with the SEC. Actual results may differ materially from those contained in any forward-looking statements.
The unaudited condensed consolidated financial statements and the related notes included elsewhere in this report are hereafter referred to as the "financial statements." Additionally, the condensed consolidated statements of financial condition are referred to herein as the "consolidated statements of financial condition"; the condensed consolidated statements of operations are referred to herein as the "consolidated statements of operations"; the condensed consolidated statements of comprehensive income (loss) are referred to herein as the "consolidated statements of comprehensive income (loss)"; the condensed consolidated statements of changes in equity are referred to herein as the "consolidated statements of changes in equity"; and the condensed consolidated statements of cash flows are referred to herein as the "consolidated statements of cash flows."
References herein 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.
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. As of March 31, 2022,2023, we manage $479$510 billion of assets for our clients. Throughout our history, we have consistently been a leader in the private equity industry, having completed more than 650approximately 700 private equity investments in portfolio companies with a total transaction value in excess of $675$700 billion as of March 31, 2022.2023. 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 private equity, 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 March 31, 2022,2023, Global Atlantic served approximately three million policyholders.
Asset Management
Our asset management business offers a broad range of investment management services to fund investors around the world. In our asset management business, we have fourfive business lines: (1) Private Markets,Equity, (2) Public Markets,Real Assets, (3) Credit and Liquid Strategies, (4) Capital Markets, and (4)(5) Principal Activities.
In addition to the overviews of each of these business lines provided in this report, please also refer to our Annual Report. As an asset management firm, we earn fees, including management fees and 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 incometransaction fees 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
Table 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 March 31, 2022, 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" in our Annual Report. 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.Contents
Asset Management - Private Markets
Through our Private MarketsEquity 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 private equity, growth equity, and impact investments. We also manage and sponsor investment funds and companies that invest capital in real assets, such as infrastructure, real estate, and energy. Our Private MarketsEquity business line includes separately managed accounts that invest in multiple strategies, which may include our credit and real assets 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, or one of its subsidiaries.adviser. As of March 31, 2022,2023, our Private MarketsEquity business line had $268.2$165.8 billion of AUM, consisting of $152.9$115.9 billion in traditional private equity, (including$33.7 billion in core private equity and $16.1 billion in growth equity, which includes $3.9 billion of impact and core investments), $93.8 billion in real assets (including real estate, infrastructure and energy) and $21.5 billion in other related strategies.investments.
The table below presents information as of March 31, 2022,2023, relating to our current private equity and real asset funds and other investment vehicles reported in our Private MarketsEquity business line for which we have the ability to earn carried interest. This data does not reflect acquisitions or disposals of investments, changes in investment values, or distributions occurring after March 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Investment Period (1) | Amount ($ 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 and Growth Equity Funds | | | | | | | | | | | | |
| North America Fund XIII | 6/2021 | 6/2027 | $ | 18,400 | | $ | 18,400 | | 3% | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | |
| Americas Fund XII | 1/2017 | 6/2021 | 13,500 | | 1,701 | | 6% | 12,275 | | 4,712 | | 11,219 | | 23,039 | | 2,183 | | | |
| North America Fund XI | 9/2012 | 1/2017 | 8,718 | | 425 | | 3% | 9,752 | | 17,183 | | 3,453 | | 8,098 | | 920 | | | |
2006 Fund (4) | 9/2006 | 9/2012 | 17,642 | | 247 | | 2% | 17,309 | | 35,093 | | 1,483 | | 2,371 | | 230 | | | |
Millennium Fund (4) | 12/2002 | 12/2008 | 6,000 | | — | | 3% | 6,000 | | 14,123 | | — | | 6 | | 1 | | | |
| European Fund VI | 3/2022 | 3/2028 | 7,063 | | 7,063 | | 14% | — | | — | | — | | — | | — | | | |
| European Fund V | 3/2019 | 3/2022 | 6,357 | | 1,637 | | 2% | 4,789 | | 732 | | 4,640 | | 6,330 | | 340 | | | |
| European Fund IV | 12/2014 | 3/2019 | 3,514 | | 66 | | 6% | 3,577 | | 4,990 | | 1,838 | | 2,751 | | 173 | | | |
European Fund III (4) | 3/2008 | 3/2014 | 5,509 | | 149 | | 5% | 5,360 | | 10,604 | | 669 | | 152 | | (24) | | | |
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 | | 4% | 2,679 | | — | | 2,679 | | 3,060 | | 1 | | | |
| Asian Fund III | 4/2017 | 7/2020 | 9,000 | | 2,010 | | 6% | 7,393 | | 3,671 | | 6,660 | | 13,477 | | 1,217 | | | |
| Asian Fund II | 4/2013 | 4/2017 | 5,825 | | 34 | | 1% | 6,839 | | 5,946 | | 3,794 | | 3,284 | | (316) | | | |
Asian Fund (4) | 7/2007 | 4/2013 | 3,983 | | — | | 3% | 3,974 | | 8,728 | | 110 | | 22 | | 4 | | | |
China Growth Fund (4) | 11/2010 | 11/2016 | 1,010 | | — | | 1% | 1,010 | | 1,056 | | 330 | | 279 | | 3 | | | |
| Next Generation Technology Growth Fund II | 12/2019 | 12/2025 | 2,088 | | 597 | | 7% | 1,688 | | 259 | | 1,544 | | 2,459 | | 162 | | | |
| Next Generation Technology Growth Fund | 3/2016 | 12/2019 | 659 | | 4 | | 22% | 666 | | 810 | | 359 | | 1,285 | | 101 | | | |
| Health Care Strategic Growth Fund II | 5/2021 | 5/2027 | 3,789 | | 3,657 | | 4% | 132 | | — | | 132 | | 139 | | — | | | |
| Health Care Strategic Growth Fund | 12/2016 | 5/2021 | 1,331 | | 429 | | 11% | 1,032 | | 196 | | 924 | | 1,384 | | 66 | | | |
| Global Impact Fund | 2/2019 | 3/2022 | 1,242 | | 485 | | 8% | 907 | | 155 | | 813 | | 1,381 | | 106 | | | |
| Private Equity and Growth Equity Funds | | | 136,116 | | 48,960 | | | 91,133 | | 116,765 | | 40,647 | | 69,551 | | 5,167 | | | |
| | | | | | | | | | | | |
| Co-Investment Vehicles and Other | Various | Various | 14,236 | | 4,995 | | Various | 9,559 | | 7,289 | | 6,245 | | 9,051 | | 1,318 | | | |
| Core Investment Vehicles | Various | Various | 24,237 | | 13,310 | | 31% | 11,627 | | 712 | | 11,323 | | 18,825 | | 112 | | | |
| | | | | | | | | | | | |
| Total Private Equity, Growth Equity and Core Funds | | | 174,589 | | 67,265 | | | 112,319 | | 124,766 | | 58,215 | | 97,427 | | 6,597 | | | |
| | | | | | | | | | | | |
| Real Assets | | | | | | | | | | | | |
| Energy Income and Growth Fund II | 6/2018 | 3/2022 | 994 | | — | | 20% | 1,187 | | 193 | | 1,024 | | 1,393 | | 24 | | | |
| Energy Income and Growth Fund | 9/2013 | 6/2018 | 1,974 | | — | | 13% | 1,974 | | 932 | | 1,156 | | 880 | | — | | | |
Natural Resources Fund (4) | Various | Various | 887 | | — | | Various | 887 | | 123 | | 193 | | 63 | | — | | | |
| Global Energy Opportunities | Various | Various | 915 | | 62 | | Various | 519 | | 166 | | 324 | | 221 | | — | | | |
| Global Infrastructure Investors IV | 6/2021 | 6/2027 | 16,709 | | 16,709 | | 2% | — | | — | | — | | — | | 10 | | | |
| Global Infrastructure Investors III | 6/2018 | 6/2021 | 7,176 | | 1,820 | | 4% | 5,621 | | 1,175 | | 5,026 | | 5,567 | | 139 | | | |
| Global Infrastructure Investors II | 10/2014 | 6/2018 | 3,040 | | 124 | | 4% | 3,163 | | 4,246 | | 1,281 | | 1,813 | | 53 | | | |
| Global Infrastructure Investors | 9/2011 | 10/2014 | 1,040 | | — | | 5% | 1,050 | | 2,228 | | — | | — | | — | | | |
| Asia Pacific Infrastructure Investors | 1/2020 | 1/2026 | 3,792 | | 2,753 | | 7% | 1,324 | | 285 | | 1,161 | | 1,291 | | 33 | | | |
| Diversified Core Infrastructure Fund | 12/2020 | (5) | 7,240 | | 4,599 | | 7% | 2,649 | | 77 | | 2,641 | | 2,730 | | — | | | |
| Real Estate Partners Americas III | 12/2020 | 1/2025 | 4,253 | | 2,843 | | 5% | 1,410 | | 11 | | 1,399 | | 1,703 | | 43 | | | |
| Real Estate Partners Americas II | 5/2017 | 12/2020 | 1,921 | | 266 | | 8% | 1,892 | | 1,994 | | 813 | | 1,226 | | 160 | | | |
| Real Estate Partners Americas | 5/2013 | 5/2017 | 1,229 | | 139 | | 16% | 1,020 | | 1,405 | | 111 | | 61 | | 1 | | | |
| Real Estate Partners Europe II | 12/2019 | 4/2024 | 2,082 | | 766 | | 10% | 1,316 | | — | | 1,316 | | 1,618 | | 33 | | | |
| Real Estate Partners Europe | 9/2015 | 12/2019 | 710 | | 136 | | 10% | 652 | | 598 | | 283 | | 364 | | 21 | | | |
| Asia Real Estate Partners | 6/2019 | 6/2023 | 1,682 | | 1,326 | | 15% | 356 | | 3 | | 356 | | 486 | | 11 | | | |
| Real Estate Credit Opportunity Partners II | 4/2019 | 6/2022 | 950 | | 413 | | 5% | 560 | | 91 | | 560 | | 563 | | 10 | | | |
| Real Estate Credit Opportunity Partners | 2/2017 | 4/2019 | 1,130 | | 122 | | 4% | 1,008 | | 347 | | 1,008 | | 1,034 | | 9 | | | |
| Property Partners Americas | 12/2019 | (5) | 2,463 | | 241 | | 20% | 2,222 | | 89 | | 2,222 | | 2,981 | | 32 | | | |
| Co-Investment Vehicles and Other | Various | Various | 5,141 | | 754 | | Various | 4,134 | | 1,602 | | 3,618 | | 3,887 | | 14 | | | |
| Total Real Assets | | | 65,328 | | 33,073 | | | 32,944 | | 15,565 | | 24,492 | | 27,881 | | 593 | | | |
| | | | | | | | | | | | |
| Other | | | | | | | | | | | | |
Unallocated Commitments (6) | | | 3,011 | | 3,011 | | Various | — | | — | | — | | — | | — | | | |
| | | | | | | | | | | | |
| Private Markets Total | | | $ | 242,928 | | $ | 103,349 | | | $ | 145,263 | | $ | 140,331 | | $ | 82,707 | | $ | 125,308 | | $ | 7,190 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Investment Period | | Amount ($ in millions) |
| | Start Date(1) | End Date (2) | | Commitment (3) | Uncalled
Commitments | Percentage
Committed
by General
Partner | Invested | Realized | Remaining Cost (4) | Remaining
Fair Value | Gross Accrued Carried Interest |
| Private Equity Business Line | | | | | | | | | | | |
| North America Fund XIII | 8/2021 | 8/2027 | | $ | 18,400 | | $ | 12,250 | | 3% | $ | 6,150 | | $ | — | | $ | 6,150 | | $ | 6,572 | | $ | 2 | |
| Americas Fund XII | 5/2017 | 5/2021 | | 13,500 | | 1,579 | | 4% | 12,419 | | 5,788 | | 11,042 | | 17,941 | | 1,343 | |
| North America Fund XI | 11/2012 | 1/2017 | | 8,718 | | 156 | | 3% | 10,024 | | 22,643 | | 2,798 | | 3,584 | | 221 | |
2006 Fund (5) | 9/2006 | 9/2012 | | 17,642 | | 247 | | 2% | 17,309 | | 37,415 | | 19 | | 19 | | 7 | |
Millennium Fund (5) | 12/2002 | 12/2008 | | 6,000 | | — | | 3% | 6,000 | | 14,123 | | — | | 6 | | 1 | |
| European Fund VI | 6/2022 | 6/2028 | | 7,326 | | 7,326 | | 3% | — | | — | | — | | — | | — | |
| European Fund V | 7/2019 | 2/2022 | | 6,327 | | 1,025 | | 2% | 5,372 | | 917 | | 5,213 | | 6,101 | | 253 | |
| European Fund IV | 2/2015 | 3/2019 | | 3,512 | | 5 | | 6% | 3,637 | | 5,122 | | 1,848 | | 2,851 | | 196 | |
European Fund III (5) | 3/2008 | 3/2014 | | 5,504 | | 144 | | 5% | 5,360 | | 10,625 | | 590 | | 81 | | (32) | |
European Fund II (5) | 11/2005 | 10/2008 | | 5,751 | | — | | 2% | 5,751 | | 8,507 | | — | | 34 | | — | |
| Asian Fund IV | 7/2020 | 7/2026 | | 14,735 | | 9,768 | | 4% | 5,008 | | 41 | | 4,940 | | 5,805 | | 8 | |
| Asian Fund III | 8/2017 | 7/2020 | | 9,000 | | 1,373 | | 6% | 8,057 | | 5,031 | | 6,787 | | 11,043 | | 789 | |
| Asian Fund II | 10/2013 | 3/2017 | | 5,825 | | — | | 1% | 7,316 | | 6,467 | | 3,081 | | 2,156 | | (346) | |
Asian Fund (5) | 7/2007 | 4/2013 | | 3,983 | | — | | 3% | 3,974 | | 8,728 | | 110 | | 5 | | — | |
China Growth Fund (5) | 11/2010 | 11/2016 | | 1,010 | | — | | 1% | 1,010 | | 1,065 | | 322 | | 170 | | (17) | |
| Next Generation Technology Growth Fund III | 11/2022 | 11/2028 | | 2,524 | | 2,524 | | 8% | — | | — | | — | | — | | — | |
| Next Generation Technology Growth Fund II | 12/2019 | 5/2022 | | 2,088 | | 273 | | 7% | 2,012 | | 496 | | 1,812 | | 2,417 | | 136 | |
| Next Generation Technology Growth Fund | 3/2016 | 12/2019 | | 659 | | 5 | | 22% | 668 | | 1,036 | | 322 | | 899 | | 65 | |
| Health Care Strategic Growth Fund II | 5/2021 | 5/2027 | | 3,789 | | 3,331 | | 4% | 458 | | — | | 458 | | 473 | | — | |
| Health Care Strategic Growth Fund | 12/2016 | 4/2021 | | 1,331 | | 225 | | 11% | 1,236 | | 207 | | 1,106 | | 1,633 | | 72 | |
| Global Impact Fund II | 6/2022 | 6/2028 | | 2,094 | | 2,094 | | 7% | — | | — | | — | | — | | — | |
| Global Impact Fund | 2/2019 | 3/2022 | | 1,242 | | 266 | | 8% | 1,150 | | 324 | | 1,010 | | 1,506 | | 94 | |
| Co-Investment Vehicles and Other | Various | Various | | 17,471 | | 5,149 | | Various | 12,593 | | 7,980 | | 8,853 | | 11,012 | | 1,021 | |
| Core Investment Vehicles | Various | Various | | 24,759 | | 12,313 | | 30% | 13,070 | | 872 | | 12,712 | | 21,343 | | 114 | |
Unallocated Commitments (6) | N/A | N/A | | 3,914 | | 3,914 | | Various | — | | — | | — | | — | | — | |
| | | | | | | | | | | |
| Total Private Equity | | | | $ | 187,104 | | $ | 63,967 | | | $ | 128,574 | | $ | 137,387 | | $ | 69,173 | | $ | 95,651 | | $ | 3,927 | |
(1)The start date represents the date on which the general partner of the applicable fund commenced investmentstart of the fund's capitalinvestment period as defined in the fund's governing documents and may or may not be the same as the date upon which management fees begin to accrue. For further information on management fee calculations, see Note 2 "Summary of the first closing. Significant Accounting Policies" in our financial statements.
(2)The end date represents the earlier of (i) the date on which the general partnerend of the applicable fund was or will be required byfund's investment period as defined in 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,documents and (ii)is generally not the date upon which management fees cease to be paid. For further information on which the last investment was made.management fee calculations, see Note 2 "Summary of Significant Accounting Policies" in our financial statements.
(2)(3)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 March 31, 2022, in the case of uncalled commitments.2023.
(3)(4)The remaining cost represents the initial investment of the general partner and limited partners, reduced for returns of capital.
(4)(5)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.
(5)Open ended fund.
(6)"Unallocated Commitments" represent unallocated commitments received from our strategic investor partnerships.
Real Assets
Through our Real Assets business line, we manage and sponsor a group of real assets funds and accounts that invest capital in infrastructure, real estate, or energy. These funds and accounts are managed by Kohlberg Kravis Roberts & Co. L.P. or one of its subsidiaries. As of March 31, 2023, our Real Assets business line had $120.8 billion of AUM, consisting of $65.4 billion in real estate (of which $35.8 billion is real estate credit and $29.6 billion is real estate equity), $52.1 billion in infrastructure, and $3.3 billion in energy.
The table below presents information as of March 31, 2022,2023, relating to our current real asset funds for which we have the ability to earn carried interest. This data does not reflect acquisitions or disposals of investments, changes in investment values, or distributions occurring after March 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Investment Period | | Amount ($ in millions) |
| | Start Date (1) | End Date (2) | | Commitment (3) | Uncalled
Commitments | Percentage
Committed
by General
Partner | Invested | Realized | Remaining Cost (4) | Remaining
Fair Value | Gross Accrued Carried Interest |
| Real Assets Business Line | | | | | | | | | | | |
| Energy Income and Growth Fund II | 8/2018 | 8/2022 | | $ | 994 | | $ | — | | 20% | $ | 1,189 | | $ | 229 | | $ | 1,003 | | $ | 1,586 | | $ | 38 | |
| Energy Income and Growth Fund | 9/2013 | 6/2018 | | 1,974 | | — | | 13% | 1,974 | | 1,061 | | 1,001 | | 520 | | — | |
Natural Resources Fund (5) | Various | Various | | 887 | | — | | Various | 887 | | 132 | | 171 | | 37 | | — | |
| Global Energy Opportunities | Various | Various | | 915 | | 62 | | Various | 520 | | 190 | | 319 | | 185 | | — | |
| Global Infrastructure Investors IV | 8/2021 | 8/2027 | | 16,564 | | 9,688 | | 2% | 6,964 | | 88 | | 6,899 | | 7,226 | | 15 | |
| Global Infrastructure Investors III | 7/2018 | 6/2021 | | 7,161 | | 1,197 | | 4% | 6,230 | | 1,614 | | 5,432 | | 6,564 | | 263 | |
| Global Infrastructure Investors II | 12/2014 | 6/2018 | | 3,039 | | 127 | | 4% | 3,164 | | 4,723 | | 1,101 | | 1,605 | | 51 | |
| Global Infrastructure Investors | 9/2010 | 10/2014 | | 1,040 | | — | | 5% | 1,050 | | 2,228 | | — | | — | | — | |
| Asia Pacific Infrastructure Investors II | 9/2022 | 9/2028 | | 5,720 | | 5,720 | | 6% | — | | — | | — | | — | | — | |
| Asia Pacific Infrastructure Investors | 1/2020 | 9/2022 | | 3,792 | | 1,540 | | 7% | 2,536 | | 450 | | 2,275 | | 2,648 | | 87 | |
| Diversified Core Infrastructure Fund | 12/2020 | (6) | | 8,641 | | 2,065 | | 6% | 6,616 | | 244 | | 6,616 | | 6,878 | | — | |
| Real Estate Partners Americas III | 1/2021 | 1/2025 | | 4,253 | | 1,801 | | 5% | 2,529 | | 190 | | 2,431 | | 2,356 | | — | |
| Real Estate Partners Americas II | 5/2017 | 12/2020 | | 1,921 | | 233 | | 8% | 1,924 | | 2,489 | | 606 | | 653 | | 48 | |
| Real Estate Partners Americas | 5/2013 | 5/2017 | | 1,229 | | 135 | | 16% | 1,023 | | 1,408 | | 94 | | 55 | | (1) | |
| Real Estate Partners Europe II | 3/2020 | 3/2024 | | 2,055 | | 755 | | 10% | 1,444 | | 368 | | 1,277 | | 1,181 | | — | |
| Real Estate Partners Europe | 8/2015 | 12/2019 | | 706 | | 111 | | 9% | 673 | | 707 | | 231 | | 258 | | 4 | |
| Asia Real Estate Partners | 7/2019 | 7/2023 | | 1,682 | | 990 | | 15% | 699 | | 19 | | 671 | | 805 | | — | |
| Real Estate Credit Opportunity Partners II | 8/2019 | 6/2023 | | 950 | | 151 | | 5% | 821 | | 140 | | 821 | | 804 | | 8 | |
| Real Estate Credit Opportunity Partners | 2/2017 | 4/2019 | | 1,130 | | 122 | | 4% | 1,008 | | 440 | | 1,008 | | 1,009 | | 5 | |
| Property Partners Americas | 12/2019 | (6) | | 2,569 | | 46 | | 19% | 2,523 | | 159 | | 2,523 | | 2,823 | | — | |
| Co-Investment Vehicles and Other | Various | Various | | 6,234 | | 2,045 | | Various | 4,245 | | 1,615 | | 3,788 | | 3,437 | | 14 | |
| | | | | | | | | | | |
| Total Real Assets | | | | $ | 73,456 | | $ | 26,788 | | | $ | 48,019 | | $ | 18,494 | | $ | 38,267 | | $ | 40,630 | | $ | 532 | |
(1)The start date represents the start of the fund's investment period as defined in the fund's governing documents and may or may not be the same as the date upon which management fees begin to accrue. For further information on management fee calculations, see Note 2 "Summary of Significant Accounting Policies" in our financial statements.
(2)The end date represents the end of the fund's investment period as defined in the fund's governing documents and is generally not the date upon which management fees cease to be paid. For further information on management fee calculations, see Note 2 "Summary of Significant Accounting Policies" in our financial statements.
(3)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 the exchange rate that prevailed on March 31, 2023.
(4)The remaining cost represents the initial investment of the general partner and limited partners, reduced for returns of capital.
(5)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.
(6)Open-ended fund.
Private Equity and Real Asset Performance
The table below presents information as of March 31, 2023, relating to the historical performance of certain of our Private MarketsEquity and Real Assets investment vehicles since inception, which we believe illustrates the benefits of our investment approach. This data does not reflect additional capital raised since March 31, 2022,2023, or acquisitions or disposals of investments, changes in investment values, or distributions occurring after that date. However, theThe 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) |
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 | | | 35,093 | | 2,371 | | | 37,464 | | | 11.9 | % | 9.3 | % | | | 2.2 | |
| Asian Fund (2007) | 3,983 | | 3,974 | | | 8,728 | | 22 | | | 8,750 | | | 18.9 | % | 13.7 | % | | | 2.2 | |
| European Fund III (2008) | 5,509 | | 5,360 | | | 10,604 | | 152 | | | 10,756 | | | 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 | | 279 | | | 1,335 | | | 6.7 | % | 2.6 | % | | | 1.3 | |
| Natural Resources Fund (2010) | 887 | | 887 | | | 123 | | 63 | | | 186 | | | (24.0) | % | (25.7) | % | | | 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 | | | 17,183 | | 8,098 | | | 25,281 | | | 24.3 | % | 19.7 | % | | | 2.6 | |
| Asian Fund II (2013) | 5,825 | | 6,839 | | | 5,946 | | 3,284 | | | 9,230 | | | 8.6 | % | 6.8 | % | | | 1.3 | |
| Real Estate Partners Americas (2013) | 1,229 | | 1,020 | | | 1,405 | | 61 | | | 1,466 | | | 16.4 | % | 11.6 | % | | | 1.4 | |
| Energy Income and Growth Fund (2013) | 1,974 | | 1,974 | | | 932 | | 880 | | | 1,812 | | | (2.9) | % | (5.3) | % | | | 0.9 | |
| Global Infrastructure Investors II (2014) | 3,040 | | 3,163 | | | 4,246 | | 1,813 | | | 6,059 | | | 20.1 | % | 17.4 | % | | | 1.9 | |
| European Fund IV (2015) | 3,514 | | 3,577 | | | 4,990 | | 2,751 | | | 7,741 | | | 25.3 | % | 19.8 | % | | | 2.2 | |
| Real Estate Partners Europe (2015) | 710 | | 652 | | | 598 | | 364 | | | 962 | | | 15.2 | % | 10.6 | % | | | 1.5 | |
| Next Generation Technology Growth Fund (2016) | 659 | | 666 | | | 810 | | 1,285 | | | 2,095 | | | 38.9 | % | 33.3 | % | | | 3.1 | |
| Health Care Strategic Growth Fund (2016) | 1,331 | | 1,032 | | | 196 | | 1,384 | | | 1,580 | | | 29.1 | % | 18.3 | % | | | 1.5 | |
| Americas Fund XII (2017) | 13,500 | | 12,275 | | | 4,712 | | 23,039 | | | 27,751 | | | 40.1 | % | 33.1 | % | | | 2.3 | |
| Real Estate Credit Opportunity Partners (2017) | 1,130 | | 1,008 | | | 347 | | 1,034 | | | 1,381 | | | 9.8 | % | 8.5 | % | | | 1.4 | |
| Core Investment Vehicles (2017) | 24,237 | | 11,627 | | | 712 | | 18,825 | | | 19,537 | | | 25.8 | % | 24.4 | % | | | 1.7 | |
| Asian Fund III (2017) | 9,000 | | 7,393 | | | 3,671 | | 13,477 | | | 17,148 | | | 45.0 | % | 35.9 | % | | | 2.3 | |
| Real Estate Partners Americas II (2017) | 1,921 | | 1,892 | | | 1,994 | | 1,226 | | | 3,220 | | | 32.8 | % | 27.4 | % | | | 1.7 | |
| Global Infrastructure Investors III (2018) | 7,176 | | 5,621 | | | 1,175 | | 5,567 | | | 6,742 | | | 12.9 | % | 9.1 | % | | | 1.2 | |
| Global Impact Fund (2019) | 1,242 | | 907 | | | 155 | | 1,381 | | | 1,536 | | | 50.2 | % | 37.0 | % | | | 1.7 | |
| European Fund V (2019) | 6,357 | | 4,789 | | | 732 | | 6,330 | | | 7,062 | | | 36.5 | % | 28.8 | % | | | 1.5 | |
| Energy Income and Growth Fund II (2019) | 994 | | 1,187 | | | 193 | | 1,393 | | | 1,586 | | | 27.4 | % | 24.5 | % | | | 1.3 | |
| Asia Real Estate Partners (2019) | 1,682 | | 356 | | | 3 | | 486 | | | 489 | | | 44.2 | % | 19.0 | % | | | 1.4 | |
| Next Generation Technology Growth Fund II (2019) | 2,088 | | 1,688 | | | 259 | | 2,459 | | | 2,718 | | | 52.7 | % | 41.9 | % | | | 1.6 | |
| Real Estate Credit Opportunity Partners II (2019) | 950 | | 560 | | | 91 | | 563 | | | 654 | | | 13.9 | % | 12.5 | % | | | 1.2 | |
| Asia Pacific Infrastructure Investors (2020) | 3,792 | | 1,324 | | | 285 | | 1,291 | | | 1,576 | | | 27.2 | % | 15.3 | % | | | 1.2 | |
Asian Fund IV (2020) (3) | 14,735 | | 2,679 | | | — | | 3,060 | | | 3,060 | | | — | | — | | | | — | |
Real Estate Partners Americas III (2021) (3) | 4,253 | | 1,410 | | | 11 | | 1,703 | | | 1,714 | | | — | | — | | | | — | |
Real Estate Partners Europe II (2021) (3) | 2,082 | | 1,316 | | | — | | 1,618 | | | 1,618 | | | — | | — | | | | — | |
Health Care Strategic Growth Fund II (2021) (3) | 3,789 | | 132 | | | — | | 139 | | | 139 | | | — | | — | | | | — | |
Global Infrastructure Investors IV (2021) (3) | 16,709 | | — | | | — | | — | | | — | | | — | | — | | | | — | |
North America Fund XIII (2021) (3) | 18,400 | | — | | | — | | — | | | — | | | — | | — | | | | — | |
European Fund VI (2022) (3) | 7,063 | | — | | | — | | — | | | — | | | — | | — | | | | — | |
| Subtotal - Included Funds | 213,203 | | 129,461 | | | 140,066 | | 106,438 | | | 246,504 | | | 17.0 | % | 13.2 | % | | | 1.9 | |
| | | | | | | | | | | | | |
| All Funds | $ | 229,678 | | $ | 145,936 | | | $ | 190,335 | | $ | 106,438 | | | $ | 296,773 | | | 25.6 | % | 18.9 | % | | | 2.1 | |
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| | Amount | | Fair Value of Investments | | | | | | |
Private Equity and Real Assets Business Lines 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 | | | 37,415 | | 19 | | | 37,434 | | | 11.9 | % | 9.3 | % | 2.2 | |
| Asian Fund (2007) | 3,983 | | 3,974 | | | 8,728 | | 5 | | | 8,733 | | | 18.9 | % | 13.7 | % | 2.2 | |
| European Fund III (2008) | 5,504 | | 5,360 | | | 10,625 | | 81 | | | 10,706 | | | 16.4 | % | 11.3 | % | 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 | | | 1,065 | | 170 | | | 1,235 | | | 5.0 | % | 1.0 | % | 1.2 | |
| Natural Resources Fund (2010) | 887 | | 887 | | | 132 | | 37 | | | 169 | | | (24.4) | % | (26.2) | % | 0.2 | |
| Global Infrastructure Investors (2010) | 1,040 | | 1,050 | | | 2,228 | | — | | | 2,228 | | | 17.6 | % | 15.6 | % | 2.1 | |
| North America Fund XI (2012) | 8,718 | | 10,024 | | | 22,643 | | 3,584 | | | 26,227 | | | 24.1 | % | 19.6 | % | 2.6 | |
| Asian Fund II (2013) | 5,825 | | 7,316 | | | 6,467 | | 2,156 | | | 8,623 | | | 4.9 | % | 3.3 | % | 1.2 | |
| Real Estate Partners Americas (2013) | 1,229 | | 1,023 | | | 1,408 | | 55 | | | 1,463 | | | 16.1 | % | 11.3 | % | 1.4 | |
| Energy Income and Growth Fund (2013) | 1,974 | | 1,974 | | | 1,061 | | 520 | | | 1,581 | | | (5.8) | % | (8.4) | % | 0.8 | |
| Global Infrastructure Investors II (2014) | 3,039 | | 3,164 | | | 4,723 | | 1,605 | | | 6,328 | | | 19.9 | % | 17.2 | % | 2.0 | |
| European Fund IV (2015) | 3,512 | | 3,637 | | | 5,122 | | 2,851 | | | 7,973 | | | 23.9 | % | 18.6 | % | 2.2 | |
| Real Estate Partners Europe (2015) | 706 | | 673 | | | 707 | | 258 | | | 965 | | | 13.1 | % | 9.4 | % | 1.4 | |
| Next Generation Technology Growth Fund (2016) | 659 | | 668 | | | 1,036 | | 899 | | | 1,935 | | | 31.5 | % | 26.7 | % | 2.9 | |
| Health Care Strategic Growth Fund (2016) | 1,331 | | 1,236 | | | 207 | | 1,633 | | | 1,840 | | | 20.0 | % | 12.7 | % | 1.5 | |
| Americas Fund XII (2017) | 13,500 | | 12,419 | | | 5,788 | | 17,941 | | | 23,729 | | | 23.9 | % | 19.2 | % | 1.9 | |
| Real Estate Credit Opportunity Partners (2017) | 1,130 | | 1,008 | | | 440 | | 1,009 | | | 1,449 | | | 9.3 | % | 7.9 | % | 1.4 | |
| Core Investment Vehicles (2017) | 24,759 | | 13,070 | | | 872 | | 21,343 | | | 22,215 | | | 19.6 | % | 18.4 | % | 1.7 | |
| Asian Fund III (2017) | 9,000 | | 8,057 | | | 5,031 | | 11,043 | | | 16,074 | | | 29.4 | % | 22.8 | % | 2.0 | |
| Real Estate Partners Americas II (2017) | 1,921 | | 1,924 | | | 2,489 | | 653 | | | 3,142 | | | 27.6 | % | 22.9 | % | 1.6 | |
| Global Infrastructure Investors III (2018) | 7,161 | | 6,230 | | | 1,614 | | 6,564 | | | 8,178 | | | 13.5 | % | 10.1 | % | 1.3 | |
| Global Impact Fund (2019) | 1,242 | | 1,150 | | | 324 | | 1,506 | | | 1,830 | | | 28.3 | % | 20.8 | % | 1.6 | |
| European Fund V (2019) | 6,327 | | 5,372 | | | 917 | | 6,101 | | | 7,018 | | | 14.9 | % | 11.0 | % | 1.3 | |
| Energy Income and Growth Fund II (2018) | 994 | | 1,189 | | | 229 | | 1,586 | | | 1,815 | | | 22.9 | % | 20.5 | % | 1.5 | |
| Asia Real Estate Partners (2019) | 1,682 | | 699 | | | 19 | | 805 | | | 824 | | | 15.3 | % | 5.2 | % | 1.2 | |
| Next Generation Technology Growth Fund II (2019) | 2,088 | | 2,012 | | | 496 | | 2,417 | | | 2,913 | | | 23.4 | % | 17.9 | % | 1.4 | |
| Real Estate Credit Opportunity Partners II (2019) | 950 | | 821 | | | 140 | | 804 | | | 944 | | | 10.1 | % | 7.6 | % | 1.1 | |
| Asia Pacific Infrastructure Investors (2020) | 3,792 | | 2,536 | | | 450 | | 2,648 | | | 3,098 | | | 19.4 | % | 13.0 | % | 1.2 | |
| Asian Fund IV (2020) | 14,735 | | 5,008 | | | 41 | | 5,805 | | | 5,846 | | | 13.6 | % | 6.9 | % | 1.2 | |
| Real Estate Partners Europe II (2020) | 2,055 | | 1,444 | | | 368 | | 1,181 | | | 1,549 | | | 6.3 | % | 2.2 | % | 1.1 | |
| Real Estate Partners Americas III (2021) | 4,253 | | 2,529 | | | 190 | | 2,356 | | | 2,546 | | | 0.6 | % | (2.4) | % | 1.0 | |
Health Care Strategic Growth Fund II (2021) (3) | 3,789 | | 458 | | | — | | 473 | | | 473 | | | — | | — | | — | |
Global Infrastructure Investors IV (2021) (3) | 16,564 | | 6,964 | | | 88 | | 7,226 | | | 7,314 | | | — | | — | | — | |
North America Fund XIII (2021) (3) | 18,400 | | 6,150 | | | — | | 6,572 | | | 6,572 | | | — | | — | | — | |
European Fund VI (2022) (3) | 7,326 | | — | | | — | | — | | | — | | | — | | — | | — | |
Global Impact Fund II (2022) (3) | 2,094 | | — | | | — | | — | | | — | | | — | | — | | — | |
Asia Pacific Infrastructure Investors II (2022) (3) | 5,720 | | — | | | — | | — | | | — | | | — | | — | | — | |
Next Generation Technology Growth Fund III (2022) (3) | 2,524 | | — | | | — | | — | | | — | | | — | | — | | — | |
| Subtotal - Included Funds | 224,097 | | 153,377 | | | 154,651 | | 111,946 | | | 266,597 | | | 16.1 | % | 12.3 | % | 1.8 | |
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| All Funds | $ | 240,572 | | $ | 169,852 | | | $ | 204,920 | | $ | 111,946 | | | $ | 316,866 | | | 25.5 | % | 18.7 | % | 1.9 | |
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(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,not U.S. dollar-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 March 31, 2022, in the case of unfunded commitments.2023.
(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 March 31, 2022.2023. 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.
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 MarketsEquity and Real Assets 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 MarketsEquity and Real Assets 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 MarketsEquity and Real Assets 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 MarketsEquity and Real Assets 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.
Asset Management - Public Markets
Credit and Liquid Strategies
Through our Public MarketsCredit and Liquid Strategies business line, we report our credit and hedge funds platforms on a combined basis. As of March 31, 2023, our Credit and Liquid Strategies business line had $223.5 billion of AUM, comprised of $111.7 billion of assets managed in our leveraged credit strategies, $75.9 billion of assets managed in our private credit strategy, and $7.8 billion of assets managed in our SIG strategy, $26.4 billion of assets managed through our hedge fund platform, and $1.7 billion of assets managed in other Credit and Liquid Strategies strategies. We manage $108.6 billion of credit investments for our Global Atlantic insurance companies. Our BDC has approximately $16.1 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.
Credit
Our credit businessplatform invests capital in a broad range of corporate debt and collateral-backed investments across asset classes and capital structures. Our credit strategies are primarily 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 United Kingdom ("UK") Financial Conduct Authority (the "FCA"), and KKR Credit Advisors (Singapore) Pte. Ltd., which is regulated by the Monetary Authority of Singapore and also registered with the SEC.an SEC-registered investment adviser. We also jointly own with a third party FS/KKR Advisor, LLC, which is thean investment adviser forregistered with the SEC that provides investment advisory services to FS KKR Capital Corp. (NYSE: FSK), a publicly listed BDC. For further information regarding the legal entities involved in the Credit business development company (a “BDC”).
Our hedge funds platform consists of strategic partnerships with third-party hedge fund managersand the regulatory and legal requirements that apply to these entities and their activities, see "—Regulation" 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.
Creditour Annual Report.
Our credit business pursues investmentsa variety of investment strategies in two principal investment strategies: leveraged credit and alternative credit.
Leveraged Credit. Our leveraged credit strategy is principally directed at investingstrategies seek to primarily invest in leveraged loans high-yield(including revolving credit facilities), CLOs, high yield bonds, opportunistic credit, structured credit, stressed securities and revolvingilliquid credits. Within leveraged credit, investments.we manage both single-asset class and multi-asset class pools of capital. Our opportunistic credit strategy seeks to deploy capital across investment themes that seek to take advantage of credit market dislocations, spanning asset types and liquidity profiles. Our multi-asset credit strategy seeks to dynamically allocate across asset types in a broadly diversified strategy. Our revolving credit strategy invests in senior secured revolving credit facilities.
Alternative Credit.Our alternative credit strategy consists of our (i) private credit strategies and debt and equity(ii) investments sourcedoverseen 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 typically in the senior part of a company’s capital structure, junior 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 junior 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. Strategic Investments Group.Our SIG This strategy seeks to pursueprovide strategic capital solutions to high quality, mid-to-large cap companies and assets. The strategy pursues investments in corporate credit andas well as asset or real estate-backed credit, where we believe market volatility or other investment themes have created the opportunity to invest opportunistically across the capital structure and through market cycles 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.
PerformanceThe table below presents information as of March 31, 2023, relating to our current credit funds in our Credit and Liquid Strategies 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 March 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Investment Period | | Amount ($ in millions) |
| | Start Date (1) | End Date (2) | | Commitment (3) | Uncalled
Commitments | Percentage
Committed
by General
Partner | Invested | Realized | Remaining Cost (4) | Remaining
Fair Value | Gross Accrued Carried Interest |
| Credit and Liquid Strategies Business Line | | | | | | | | | | | |
| Dislocation Opportunities Fund | 8/2019 | 11/2021 | | $ | 2,967 | | $ | 587 | | 14% | $ | 2,380 | | $ | 898 | | $ | 1,842 | | $ | 1,907 | | $ | 45 | |
| Special Situations Fund II | 2/2015 | 3/2019 | | 3,525 | | 284 | | 9% | 3,241 | | 2,278 | | 1,449 | | 1,346 | | — | |
| Special Situations Fund | 1/2013 | 1/2016 | | 2,274 | | 1 | | 12% | 2,273 | | 1,775 | | 600 | | 410 | | — | |
| Mezzanine Partners | 7/2010 | 3/2015 | | 1,023 | | 33 | | 4% | 990 | | 1,165 | | 256 | | 142 | | (20) | |
| Asset-Based Finance Partners | 10/2020 | 7/2025 | | 2,059 | | 1,295 | | 7% | 764 | | 41 | | 764 | | 815 | | 14 | |
| Private Credit Opportunities Partners II | 12/2015 | 12/2020 | | 2,245 | | 412 | | 2% | 1,833 | | 784 | | 1,357 | | 1,260 | | — | |
| Lending Partners III | 4/2017 | 11/2021 | | 1,498 | | 607 | | 2% | 891 | | 611 | | 741 | | 757 | | 36 | |
| Lending Partners II | 6/2014 | 6/2017 | | 1,336 | | 157 | | 4% | 1,179 | | 1,192 | | 189 | | 86 | | — | |
| Lending Partners | 12/2011 | 12/2014 | | 460 | | 40 | | 15% | 420 | | 458 | | 29 | | 11 | | — | |
| Lending Partners Europe II | 5/2019 | 9/2023 | | 837 | | 158 | | 7% | 679 | | 95 | | 679 | | 685 | | 3 | |
| Lending Partners Europe | 3/2015 | 3/2019 | | 848 | | 184 | | 5% | 662 | | 391 | | 313 | | 234 | | — | |
| Asia Credit | 1/2021 | 5/2025 | | 1,084 | | 736 | | 9% | 348 | | 2 | | 348 | | 387 | | 5 | |
| Other Alternative Credit Vehicles | Various | Various | | 14,588 | | 7,201 | | Various | 7,541 | | 5,953 | | 3,806 | | 3,898 | | 8 | |
| | | | | | | | | | | |
| Total Credit and Liquid Strategies | | | | $ | 34,744 | | $ | 11,695 | | | $ | 23,201 | | $ | 15,643 | | $ | 12,373 | | $ | 11,938 | | $ | 91 | |
(1)The start date represents the start of the fund's investment period as defined in the fund's governing documents and may or may not be the same as the date upon which management fees begin to accrue. For further information on management fee calculations, see Note 2 "Summary of Significant Accounting Policies" in our financial statements.
(2)The end date represents the end of the fund's investment period as defined in the fund's governing documents and is generally not the date upon which management fees cease to be paid. For further information on management fee calculations, see Note 2 "Summary of Significant Accounting Policies" in our financial statements.
(3)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 the foreign exchange rate that prevailed on March 31, 2023.
(4)The remaining cost represents the initial investment of the general partner and limited partners, reduced for returns of capital.
The following table presents information regarding the larger leveraged credit strategies managed by KKR from inception to March 31, 2022.2023. 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
| | Leveraged Credit Strategy | Leveraged Credit Strategy | | Inception Date | | | Gross
Returns | | Net
Returns | | Benchmark (1) | | Benchmark
Gross
Returns | Leveraged Credit Strategy | | Inception Date | | | Gross
Returns | | Net
Returns | | Benchmark (1) | | Benchmark
Gross
Returns |
| Bank Loans Plus High Yield | Bank Loans Plus High Yield | | Jul 2008 | | | 7.12 | % | | 6.52 | % | | 65% S&P/LSTA Loan Index, 35% BoAML HY Master II Index (2) | | 5.68 | % | Bank Loans Plus High Yield | | Jul 2008 | | | 6.65 | % | | 6.05 | % | | 65% S&P/LSTA Loan Index, 35% BoAML HY Master II Index (2) | | 5.32% |
Opportunistic Credit (3) | Opportunistic Credit (3) | | May 2008 | | | 11.00 | % | | 9.30 | % | | 50% S&P/LSTA Loan Index, 50% BoAML HY Master II Index (3) | | 5.92 | % | Opportunistic Credit (3) | | May 2008 | | | 10.13 | % | | 8.51 | % | | 50% S&P/LSTA Loan Index, 50% BoAML HY Master II Index (3) | | 5.48% |
| Bank Loans | Bank Loans | | Apr 2011 | | | 5.22 | % | | 4.64 | % | | S&P/LSTA Loan Index (4) | | 4.16 | % | Bank Loans | | Apr 2011 | | | 5.08 | % | | 4.51 | % | | S&P/LSTA Loan Index (4) | | 4.03% |
| High-Yield | High-Yield | | Apr 2011 | | | 6.43 | % | | 5.85 | % | | BoAML HY Master II Index (5) | | 5.69 | % | High-Yield | | Apr 2011 | | | 5.57 | % | | 5.00 | % | | BoAML HY Master II Index (5) | | 4.89% |
| European Leveraged Loans (6) | European Leveraged Loans (6) | | Sep 2009 | | | 4.54 | % | | 4.02 | % | | CS Inst West European Leveraged Loan Index (7) | | 3.54 | % | European Leveraged Loans (6) | | Sep 2009 | | | 4.29 | % | | 3.77 | % | | CS Inst West European Leveraged Loan Index (7) | | 3.33% |
| European Credit Opportunities (6) | European Credit Opportunities (6) | | Sept 2007 | | | 5.86 | % | | 5.00 | % | | S&P European Leveraged Loans (All Loans) (8) | | 4.06 | % | European Credit Opportunities (6) | | Sept 2007 | | | 5.42 | % | | 4.43 | % | | S&P European Leveraged Loans (All Loans) (8) | | 3.84% |
|
(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.
(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 alternative credit investment funds where investors are subject tohave capital commitments from inception to March 31, 2022.2023. 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 | | | | | | | | | | | | | | 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 | |
Credit and Liquid Strategies
Investment Funds | | Credit and Liquid Strategies
Investment Funds | | Investment Period Start Date | | Commitment | | Invested (1) | | Realized (1) | | Unrealized | | Total
Value | | Gross IRR (2) | | Net IRR (2) | | Multiple of Invested Capital (3) | |
| ($ in Millions) | ($ in Millions) | ($ in Millions) | |
| Dislocation Opportunities Fund | Dislocation Opportunities Fund | | May 2020 | | $ | 2,967 | | | $ | 2,056 | | | $ | 177 | | | $ | 2,231 | | | $ | 2,408 | | | N/A | | N/A | | | N/A | | $ | 49 | | Dislocation Opportunities Fund | | Aug 2019 | | $ | 2,967 | | | $ | 2,380 | | | $ | 898 | | | $ | 1,907 | | | $ | 2,805 | | | 11.5 | % | | 9.0 | % | | 1.2 | | |
| Special Situations Fund II | Special Situations Fund II | | Dec 2014 | | 3,525 | | | 3,241 | | | 1,911 | | | 2,182 | | | 4,093 | | | 6.8 | % | | 4.9 | % | | | 1.3 | | | — | | Special Situations Fund II | | Feb 2015 | | 3,525 | | | 3,241 | | | 2,278 | | | 1,346 | | | 3,624 | | | 3.0 | % | | 1.0 | % | | 1.1 | | |
| Special Situations Fund | Special Situations Fund | | Dec 2012 | | 2,274 | | | 2,273 | | | 1,658 | | | 474 | | | 2,132 | | | (1.5) | % | | (3.4) | % | | | 0.9 | | | — | | Special Situations Fund | | Jan 2013 | | 2,274 | | | 2,273 | | | 1,775 | | | 410 | | | 2,185 | | | (0.8) | % | | (2.6) | % | | 1.0 | | |
| Mezzanine Partners | Mezzanine Partners | | Mar 2010 | | 1,023 | | | 990 | | | 1,097 | | | 203 | | | 1,300 | | | 9.2 | % | | 6.0 | % | | | 1.3 | | | (20) | | Mezzanine Partners | | July 2010 | | 1,023 | | | 990 | | | 1,165 | | | 142 | | | 1,307 | | | 9.1 | % | | 5.9 | % | | 1.3 | | |
| Asset-Based Finance Partners | | Asset-Based Finance Partners | | Oct 2020 | | 2,059 | | | 764 | | | 41 | | | 815 | | | 856 | | | 16.4 | % | | 11.5 | % | | 1.1 | | |
| Private Credit Opportunities Partners II | Private Credit Opportunities Partners II | | Dec 2015 | | 2,245 | | | 1,738 | | | 621 | | | 1,471 | | | 2,092 | | | 7.2 | % | | 5.6 | % | | | 1.2 | | | — | | Private Credit Opportunities Partners II | | Dec 2015 | | 2,245 | | | 1,833 | | | 784 | | | 1,260 | | | 2,044 | | | 3.6 | % | | 1.9 | % | | 1.1 | | |
| Lending Partners III | Lending Partners III | | Apr 2017 | | 1,498 | | | 741 | | | 301 | | | 819 | | | 1,120 | | | 15.8 | % | | 13.0 | % | | | 1.5 | | | 29 | | Lending Partners III | | Apr 2017 | | 1,498 | | | 891 | | | 611 | | | 757 | | | 1,368 | | | 15.3 | % | | 12.5 | % | | 1.5 | | |
| Lending Partners II | Lending Partners II | | Jun 2014 | | 1,336 | | | 1,179 | | | 1,149 | | | 134 | | | 1,283 | | | 3.2 | % | | 1.8 | % | | | 1.1 | | | — | | Lending Partners II | | Jun 2014 | | 1,336 | | | 1,179 | | | 1,192 | | | 86 | | | 1,278 | | | 3.0 | % | | 1.5 | % | | 1.1 | | |
| Lending Partners | Lending Partners | | Dec 2011 | | 460 | | | 419 | | | 451 | | | 19 | | | 470 | | | 3.5 | % | | 1.9 | % | | | 1.1 | | | — | | Lending Partners | | Dec 2011 | | 460 | | | 420 | | | 458 | | | 11 | | | 469 | | | 3.4 | % | | 1.8 | % | | 1.1 | | |
| Lending Partners Europe II | Lending Partners Europe II | | Jun 2019 | | 837 | | | 467 | | | 47 | | | 491 | | | 538 | | | 23.2 | % | | 17.1 | % | | | 1.2 | | | 2 | | Lending Partners Europe II | | May 2019 | | 837 | | | 679 | | | 95 | | | 685 | | | 780 | | | 15.0 | % | | 11.2 | % | | 1.1 | | |
| Lending Partners Europe | Lending Partners Europe | | Mar 2015 | | 848 | | | 662 | | | 375 | | | 258 | | | 633 | | | (1.5) | % | | (4.1) | % | | | 1.0 | | | — | | Lending Partners Europe | | Mar 2015 | | 848 | | | 662 | | | 391 | | | 234 | | | 625 | | | (1.7) | % | | (4.1) | % | | 0.9 | | |
| Asia Credit | | Asia Credit | | Jan 2021 | | 1,084 | | | 348 | | | 2 | | | 387 | | | 389 | | | 15.5 | % | | 10.3 | % | | 1.1 | | |
| Other Alternative Credit Vehicles | Other Alternative Credit Vehicles | | Various | | 14,588 | | | 6,560 | | | 4,696 | | | 4,179 | | | 8,875 | | | N/A | | N/A | | | N/A | | 122 | | Other Alternative Credit Vehicles | | Various | | 14,588 | | | 7,541 | | | 5,953 | | | 3,898 | | | 9,851 | | | N/A | | N/A | | N/A | |
| | All Funds | All Funds | | | | $ | 31,601 | | | $ | 20,326 | | | $ | 12,483 | | | $ | 12,461 | | | $ | 24,944 | | | | | | | | | $ | 182 | | All Funds | | | | $ | 34,744 | | | $ | 23,201 | | | $ | 15,643 | | | $ | 11,938 | | | $ | 27,581 | | | | | | | |
(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.fees and organizational expenses. Gross IRRs are calculated before giving effect to the allocation of carried interest and the payment of any applicable management fees.fees and organizational expenses.
(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, which could adversely impact our net income, cash flow, financial condition and prospects." and "Risk Factors—Risks Related to the Assets We Manage—Future results of our funds, our insurance subsidiaries or our balance sheet investments may be different than, and may not achieve the levels of, any of their historical returns" in our Annual Report.
Hedge FundsFund Platform
Our hedge fund 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. 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.
As of March 31, 2022, our Public Markets business line had $210.8 billion of AUM, comprised of $102.2 billion of assets managed in our leveraged credit strategies, $71.3 billion of assets managed in our private credit strategy, and $8.7 billion of assets managed in our SIG strategy, $27.0 billion of assets managed through our hedge fund platform, and $1.6 billion of assets managed in other Public Markets strategies. We manage $96.1 billion of credit investments for our Global Atlantic insurance companies, which are included in the amounts described in the preceding sentence. Our BDC has approximately $17.4 billion in assets under management, which is reflected in the AUM of our leveraged credit and private credit strategies above. We report all of the assets under management of our BDC in our AUM, but we report only a pro rata portion of the assets under management of our hedge fund partnerships based on our percentage ownership in them.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | AUM | | FPAUM | | Typical
Management
Fee Rate | | Incentive Fee /
Carried
Interest | | Preferred
Return | | Duration
of Capital |
| Leveraged Credit: | | | | | | | | | | | | |
| Leveraged Credit SMAs/Funds | | $ | 77,825 | | | $ | 75,906 | | | 0.15% - 1.10% | | Various (1) | | Various (1) | | Subject to redemptions |
| CLOs | | 22,730 | | | 22,730 | | | 0.40% - 0.50% | | Various (1) | | Various (1) | | 10-14 Years (2) |
| Total Leveraged Credit | | 100,555 | | | 98,636 | | | | | | | | | |
| | | | | | | | | | | | |
Alternative Credit: (3) | | | | | | | | | | | | |
| Private Credit | | 57,015 | | | 51,520 | | | 0.30% - 1.50% (4) | | 10.00 - 20.00% | | 5.00 - 8.00% | | 8-15 Years (2) |
| SIG | | 8,818 | | | 4,517 | | | 0.50% - 1.75% | | 10.00 - 20.00% | | 7.00 - 12.00% | | 7-15 Years (2) |
| Total Alternative Credit | | 65,833 | | | 56,037 | | | | | | | | | |
| | | | | | | | | | | | |
Hedge Funds (5) | | 27,008 | | | 27,008 | | | 0.50% - 2.00% | | Various (1) | | Various (1) | | Subject to redemptions |
BDCs (6) | | 17,423 | | | 17,423 | | | 0.60% | | 8.00% | | 7.00% | | Indefinite |
| | | | | | | | | | | | |
| Total | | $ | 210,819 | | | $ | 199,104 | | | | | | | | | |
(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 2022 and for separately managed accounts and funds investing in alternative credit strategies from 2009 through 2022.
(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.
Asset Management - Capital Markets
Our Capital Markets business line is comprised of our global capital markets business, which is integrated with KKR'sKKR’s other asset management business lines, and serves our firm, our funds, our portfolio companies and third-party clientscustomers 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 may 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 or lead 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,capital structuring, 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").
Asset Management - 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 MarketsEquity, Real Assets, and Credit Marketsand Liquid Strategies business lines.
Typically, the funds in our Private MarketsEquity, Real Assets, and Public MarketsCredit and Liquid Strategies 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. A substantial portion of our Principal Activities business line has been dedicated to support our core private equity strategy, where we have committed to fund investors to invest a significant amount of our own capital alongside their core private equity investments. 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 MarketsEquity, Real Assets, and Public MarketsCredit and Liquid Strategies funds as well as Principal Activities investments that do not involve our Private MarketsEquity, Real Assets, or Public MarketsCredit and Liquid Strategies 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.
The chart below presents the holdings of our Principal Activities business line by asset class as of March 31, 2022.
Holdings by Asset Class (1)
(1)General partner funded commitments into 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 our investments in 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.
Core Private Equity
As of March 31, 2023, core private equity investments account for over 30% of the investments on our balance sheet. Core private equity consists of investments anticipated to be held for a longer holding period and which possess a lower anticipated risk profile than our traditional private equity investments. Our core private equity investments are made in companies that, among other things, we believe are more stable, and typically with lower leverage over our holding period than those companies in which our traditional private equity investments are made. We believe our core private equity investments should generate earnings that compound over a long period of time. As of March 31, 2023, the fair value of our core private equity investments on the balance sheet was $5.7 billion, resulting in an inception to date gross IRR of 21%. Additionally, our core private equity portfolio is geographically diversified with 65%, 28%, and 7% (based on fair values) invested in North America, Europe, and the Asia-Pacific region, respectively. "Investments" as referenced above is a term used solely for purposes of financial presentation of a portion of our balance sheet and includes majority ownership of subsidiaries that operate our asset management, broker-dealer and other businesses, including the general partner interests of our investment funds.
Insurance
Our insurance business is operated by Global Atlantic, which we acquired on February 1, 2021. As of March 31, 2022,2023, KKR owns a 61.5%63.3% 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 U.S. 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 supportssupport 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 conditions.
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. Subject to changes in asset values, Global Atlantic'sAtlantic’s assets generally increase when individual marketmarkets sales and reinsurance transactions exceed run-off of in-force policies. Global Atlantic primarily generates income by earning a spread on assets under management, as the difference between its net investment income and the cost of policyholder benefits. Global Atlantic also earns fees paid by policyholders on certain types of contracts and fees paid by third-party investors, which are reported in the asset management segment. As of March 31, 2022,2023, Global Atlantic served approximately three million policyholders.
Global Atlantic inflows are derived from new business production in its individual and institutional markets channels. Global Atlantic expects new business production from its individual markets channel and certain institutional markets products to be largely consistent quarter over quarter while exhibiting growth over time, subject to market and business risks. In contrast, Global Atlantic expects block reinsurance transactions generated in the institutional markets channel to be episodic rather than steady quarter over quarter. Similarly, funding agreements issued in the funding agreement backed note ("FABN") program are subject to capital markets conditions and are not expected to be consistent quarter over quarter.
The following table represents Global Atlantic’s new business volumes by business and product for the three months ended March 31, 20222023 and 2021:2022:
| | | | | | | | | | | | | | | Three months ended March 31, |
| | Three Months Ended
March 31, 2022 | | Three Months Ended March 31, 2021(1) | | 2023 | | 2022 |
| ($ in millions) | ($ in millions) | | | | | ($ in millions) | | | | |
| Individual channel: | | |
| Individual market channel: | | Individual market channel: | |
| Fixed-rate annuities | Fixed-rate annuities | | $ | 1,039 | | | $ | 1,038 | | Fixed-rate annuities | | $ | 2,146 | | | $ | 1,039 | |
| Fixed-indexed annuities | Fixed-indexed annuities | | 904 | | | 595 | | Fixed-indexed annuities | | 1,065 | | | 904 | |
| Variable annuities | Variable annuities | | 11 | | | 8 | | Variable annuities | | 4 | | | 11 | |
| Total retirement products | | $ | 1,954 | | | $ | 1,641 | | |
Total retirement products(1) | | Total retirement products(1) | | $ | 3,215 | | | $ | 1,954 | |
| | Life insurance products | Life insurance products | | $ | 7 | | | $ | 6 | | Life insurance products | | $ | 4 | | | $ | 7 | |
| | Preneed life | Preneed life | | $ | 65 | | | $ | 38 | | Preneed life | | 75 | | | 65 | |
| | Institutional channel: | | |
| Institutional market channel: | | Institutional market channel: | |
| Block | Block | | $ | 2,777 | | | $ | 1,079 | | Block | | 79 | | | 2,777 | |
| Flow & pension risk transfer | Flow & pension risk transfer | | 1,699 | | | 764 | | Flow & pension risk transfer | | 2,430 | | | 1,699 | |
| Funding agreements | | 1,100 | | | — | | |
| Total institutional channel | | $ | 5,576 | | | $ | 1,843 | | |
Funding agreements(3) | | Funding agreements(3) | | — | | | 1,100 | |
Total institutional market channel(2) | | Total institutional market channel(2) | | $ | 2,509 | | | $ | 5,576 | |
_________________
Note:(1)New business volumes in individual markets are referred to as sales. In Global Atlantic's individual market channel, sales of annuities include all money paid into new and existing contracts. Individual market channel sales of traditional life insurance products are based on commissionable premium and individual market channel sales for preneed life are based on the face amount of insurance. Traditional lifeLife insurance product sales do not include the recurring premiums that policyholders may pay over time.
(2)New business volumevolumes from ourGlobal Atlantic’s institutional market channel isare based on the assets assumed, net of any ceding commission, and is beforegross of any retrocessionretrocessions to investment vehicles that participate in qualifying reinsurance transactions sourced by Global Atlantic.
(1)For the three month period ended March 31, 2021, the results of Global Atlantic's insurance operations included in our condensed consolidated results of operations are from February 1, 2021 through March 31, 2021.Atlantic and to other third party reinsurers.
The table below represents a breakdown of Global Atlantic’s policy liabilities by business and product type as of March 31, 2022,2023, separated by reserves originated through its individual and institutional markets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Reserves as of March 31, 2022 |
| Individual market | | Institutional market(4) | | Total | | Ceded | | Total, net | | Percentage of total |
| ($ in thousands, except percentages, if applicable) |
| Fixed-rate annuity | $ | 22,196,835 | | | $ | 43,022,317 | | | $ | 65,219,152 | | | $ | (15,416,304) | | | $ | 49,802,848 | | | 47.9 | % |
| Fixed-indexed annuity | 21,199,795 | | | 7,222,995 | | | 28,422,790 | | | (3,454,255) | | | 24,968,535 | | | 20.9 | % |
| Variable annuity | 3,086,313 | | | 3,715,421 | | | 6,801,734 | | | (643,895) | | | 6,157,839 | | | 5.0 | % |
| Indexed universal life | 12,188,443 | | | — | | | 12,188,443 | | | (72,575) | | | 12,115,868 | | | 9.0 | % |
| Preneed life | 2,857,392 | | | — | | | 2,857,392 | | | — | | | 2,857,392 | | | 2.1 | % |
Other life insurance(1) | 2,039,329 | | | 10,361,283 | | | 12,400,612 | | | (3,771,018) | | | 8,629,594 | | | 9.1 | % |
Funding agreements(2) | 2,205,897 | | | 4,730,611 | | | 6,936,508 | | | — | | | 6,936,508 | | | 5.1 | % |
| Closed block | — | | | 1,271,351 | | | 1,271,351 | | | (1,219,024) | | | 52,327 | | | 0.9 | % |
Other corporate(3) | — | | | 48,447 | | | 48,447 | | | (48,088) | | | 359 | | | — | % |
| Total reserves | $ | 65,774,004 | | | $ | 70,372,425 | | | $ | 136,146,429 | | | $ | (24,625,159) | | | $ | 111,521,270 | | | 100.0 | % |
| | | | | | | | | | | |
| Total general account | $ | 62,976,938 | | | $ | 68,099,749 | | | $ | 131,076,687 | | | $ | (24,625,159) | | | $ | 106,451,528 | | | 96.3 | % |
| Total separate account | 2,797,066 | | | 2,272,676 | | | 5,069,742 | | | — | | | 5,069,742 | | | 3.7 | % |
| Total reserves | $ | 65,774,004 | | | $ | 70,372,425 | | | $ | 136,146,429 | | | $ | (24,625,159) | | | $ | 111,521,270 | | | 100.0 | % |
_________________ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Reserves as of March 31, 2023 |
| Individual market | | Institutional market(4) | | Total | | Ceded | | Total, net | | Percentage of total |
| ($ in thousands, except percentages, if applicable) |
Fixed-rate annuity(1) | $ | 23,677,643 | | | $ | 26,355,768 | | | $ | 50,033,411 | | | $ | (6,673,549) | | | $ | 43,359,862 | | | 34.5 | % |
Fixed-indexed annuity(1) | 23,520,922 | | | 9,524,954 | | | 33,045,876 | | | (3,198,904) | | | 29,846,972 | | | 22.8 | % |
Payout annuities(1) | 456,206 | | | 16,749,610 | | | 17,205,816 | | | (8,374,110) | | | 8,831,706 | | | 11.8 | % |
| Variable annuities | 2,563,513 | | | 6,352,811 | | | 8,916,324 | | | (2,659,453) | | | 6,256,871 | | | 6.1 | % |
Interest sensitive life(1) | 13,782,847 | | | 10,006,220 | | | 23,789,067 | | | (3,733,171) | | | 20,055,896 | | | 16.4 | % |
Other life insurance(2) | 3,488,680 | | | 264,313 | | | 3,752,993 | | | (229,521) | | | 3,523,472 | | | 2.6 | % |
Funding agreements(3) | 1,951,431 | | | 5,497,431 | | | 7,448,862 | | | — | | | 7,448,862 | | | 5.1 | % |
| Closed block and other corporate products | 437 | | | 1,092,860 | | | 1,093,297 | | | (1,045,179) | | | 48,118 | | | 0.7 | % |
| | | | | | | | | | | |
| Total reserves | $ | 69,441,679 | | | $ | 75,843,967 | | | $ | 145,285,646 | | | $ | (25,913,887) | | | $ | 119,371,759 | | | 100.0 | % |
| | | | | | | | | | | |
| Total general account | $ | 67,159,216 | | | $ | 73,961,409 | | | $ | 141,120,625 | | | $ | (25,913,887) | | | $ | 115,206,738 | | | 97.1 | % |
| Total separate account | 2,282,463 | | | 1,882,558 | | | 4,165,021 | | | — | | | 4,165,021 | | | 2.9 | % |
| Total reserves | $ | 69,441,679 | | | $ | 75,843,967 | | | $ | 145,285,646 | | | $ | (25,913,887) | | | $ | 119,371,759 | | | 100.0 | % |
(1)“As of March 31, 2023, 75% of the account value in Global Atlantic's general account associated with its fixed-rate and fixed-annuity products, and 44% of account value in its general account associated with universal life products was protected by surrender charges.
(2)"Other life products”insurance” includes universal life, preneed, term and whole life insurance products.
(2)(3)"Funding agreements” includes funding agreements associated with Federal Home Loan Bank borrowings and under ourGlobal Atlantic's funding-agreement backed-notes program .
(3)“Other corporate” primarily includes accident & health reserves that Global Atlantic 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 March 31, 2022,2023, reserves sourced through for block, flow and PRT transactions were $51.1$48.5 billion, $6.8$14.2 billion, and $4.1$4.8 billion, respectively.
Business Environment
Economic and Market Conditions
ImpactOur asset management and insurance businesses are materially affected by the economic conditions of, COVID-19. The outbreak of COVID-19 continues to impact various countries throughout the world. For a description of the impact that COVID-19 had and mayfinancial markets in, the future have on our business, see "Risk Factors—Risks Related to Our Business—COVID-19 continues to impact the United States, the European Union, China, Japan, and other countries throughout the world, and it has caused and may further cause disruptions to our business and adversely affect our financial results" and "Risk Factors—Risks Related to the Assets We Manage—Our investments are impacted by various economic conditions and events outside of our control that are difficult to quantify or predict, which may have a significant impact on the valuation of our investments and, therefore, on the investment income we realize and our results of operations and financial condition" in our Annual Report.
Economic Conditions. As a global investment firm, we are affected by financial and economic conditions globally.countries. Global and regional economic conditions including those caused by the COVID-19 pandemic,can each have substantial impact on our business, financial condition and results of operations impactingin various ways, including the valuesvaluations of theour investments, we make, our ability to exit these investments profitably, our ability to raise capital from investors, and our ability to make new investments. Financial and economic conditions in the United States, European Union, China, Japan, and other major economies are significant contributors to the global economy.
During the period ended March 31, 2022,first quarter of 2023, many countries and regions, including the United States, showed signs of continued domesticslowing economic momentum, supported by strong consumer demand. Global trade, however,activity similar to what was a headwind forexperienced in the second half of 2022.During and after March 2023, materially adverse developments affected the banking industry, including U.S. regional banks and various global banking institutions based outside of the United States, as exports fell by 5.9% at an annualized rate duringwhich triggered market concerns about a larger scale potential banking crisis and a possible recession in the first quarter, hindered by ongoing supply chain tensions (including those dueUnited States and globally. There can be no assurance that there will not be additional bank failures or other issues in the broader U.S. or global financial system that could adversely affect our businesses to COVID-19 and the Russian invasionextent the occurrence of Ukraine) and more halting demand recoveries in Europe and Asia. Inflation also presented an economicthese events contribute to a contraction of credit availability, tightening of financial conditions and/or a significant deterioration of consumer confidence.
headwind during the period, as itAs in 2022, economic activity continued to acceleratebe adversely impacted by the effects of monetary and fiscal policy tightening as years of fiscal stimulus from already elevated levels, spurred by multiple factors including high commodity prices, a tight labor market,governments and low residential vacancy rates.accommodative monetary policy from global central banks began to wane and central banks took measures to combat significant inflationary pressures at multi-decade highs in many major economies around the world. Although inflation began to show signs of slowing in early 2023, inflation has continued to present headwinds for many countries and regional economies in which we operate. The U.S. Federal Reserve Board has signaled its intentioncontinued to tighten monetary conditions in response to higher inflation, and in March 2022 raisedraise interest rates for the first time since December 2018, leading to increased market volatility. The ongoing conflict in Ukraine has also contributed to higher market volatility globally. In the United States, real GDP contracted at a -1.4% seasonally-adjusted annualized rate in the quarter ended March 31, 2022, after expanding at a 6.9% seasonally-adjusted annualized rate in the quarter ended December 31, 2021; the U.S. unemployment rate was 3.6% as of March 31, 2022, down from 3.9% as of December 31, 2021; the U.S. core consumer price index rose 6.5% on a year-over-year basis as of March 31, 2022, up from 5.5% on a year-over-year basis as of December 31, 2021; and the effective federal funds rate set by the U.S. Federal Reserve was 0.3% as of March 31, 2022, up from 0.1% as of December 31, 2021.
During the period ended March 31, 2022, the euro area (also known as the eurozone) economy continued to expand despite headwinds from higher energy prices and the Russian invasion of Ukraine, which are expected to weigh increasingly on the outlook for European economic growth. The economic uncertainty caused by the ongoing conflict in Ukraine is significant. The reliability of future supplies of Russian oil and gas to Europe is under question. Importantly, a sudden disruption of energy flows could spur a contraction in European economic activity. Euro area real GDP rose by 0.2% on a seasonally-adjusted quarter-over-quarter basis in the quarter ended March 31, 2022, down from the 0.3% increase recorded in the quarter ended December 31, 2021. In addition, euro area unemployment was 6.8% as of March 31, 2022, down from 7.0% as of December 31, 2021; euro area core inflation was 2.9% on a year-over-year basis as of March 31, 2022, up from 2.6% on a year-over-year basis as of December 31, 2021; and the short-term benchmark interest rate set by the European Central Bank was 0.0% as of March 31, 2022, unchanged from December 31, 2021. As of March 31, 2022, we have no investments in any portfolio companies whose executive headquarters are located in Russia or Ukraine, and we believe that the direct exposure of our investment portfolio to Russia and Ukraine is insignificant.
During the period ended March 31, 2022, the Chinese economy faced serious headwinds from an ongoing slowdown in China’s property sector, as well as from the government’s zero-COVID policies. The government’s measures to contain COVID-19 outbreaks in Chinese cities are likely to weigh on Chinese growth throughout 2022. Furthermore, demand for China’s exports is beginning to slow, as manufacturing recovers in other parts of the world, particularly in areas with higher baseline levels of COVID-19 vaccinations and prior infections. Real GDP in China grew by 1.3% on a seasonally adjusted quarter-over-quarter basis in the quarter ended March 31, 2022, compared to growth of 1.5% reported for the quarter ended December 31, 2021. Estimated core inflation in China was 1.1% on a year-over-year basis as of March 31, 2022, down from 1.2% on a year-over-year basis as of December 31, 2021.
In Japan, the economic recovery from COVID-19 has slowed recently, with higher energy costs and a weaker currency presenting headwinds to GDP growth in the near term. In Japan, real GDP growth for the quarter ended March 31, 2022 is estimated to have been -0.1% on a seasonally-adjusted quarter-over-quarter basis, down from 1.1% in the quarter ended December 31, 2021; core inflation fell to -1.6% on a year-over-year basis as of March 31, 2022, down from -1.3% as of December 31, 2021; and the short-term benchmark interest rate set by the Bank of Japan was -0.1% as of March 31, 2022, unchanged from December 31, 2021.
These and other key issues could have repercussions across regional and global financial markets, which could adversely affect the valuations of our investments. In particular, in response to persistent inflationary pressure and central bank policy designed to combat inflation, short- and medium-term interest rates may rise, which may adversely impact equity and credit markets and in turn both increase volatility in equity and debt markets and reduce economic growth. As noted above, the U.S. Federal Reserve has recently raised interest rates and has indicated that it is prepared to take furtherdecisive action to manage inflation, including raising interest rates further and shrinkingfurther.However, even as the size ofFederal Reserve Board continued its quantitative tightening program designed to shrink its balance sheet, its emergency lending to address banking system stress in 2023 served as an expansionary force on its balance sheet. In addition, commodity prices are generally expected to rise in inflationary environments, and foreign exchange rates are often affected by countries’ monetary and fiscal responses to inflationary trends. The Russia-Ukraine conflict, including the sanctions imposed in response to Russia's invasion of Ukraine, have exacerbated and are likely to further exacerbate these issues and trends. Other key issues include (i) further developments regarding COVID-19, including the spread of variants such as Delta and Omicron, which may prolong the adverse economic impact of the pandemic on the U.S. and global economies, including supply chain disruptions that promote cost inflation for critical goods and labor shortages, (ii) geopolitical uncertainty such as U.S.-China relations, (iii) political uncertainty caused by, among other things, economic nationalist sentiments, tensions surrounding socioeconomic inequality issues, and partisan sentiments in the United States, all of which have potentially global ramifications with regards to policy, (iv) regulatory changes regarding, for example, taxation, international trade, cross-border investments, immigration, stimulus programs and rising levels of debt, (v) increased volatility and/or downturn in equity or credit markets, (vi) unexpected shifts in central banks' monetary policies, and (vii) technological advancements and innovations that may disrupt marketplaces and businesses. ForAs a further discussion of how market conditions may affect our businesses, 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 condition" in our Annual Report. In addition, the U.S. Congress is proposing (and after the date of this report may propose other) various significant changes in tax law, including significant changes in the way U.S. corporations like ourselves and many of our U.S. portfolio companies are taxed. If enacted, these changes could materially increase the amount of taxes we and our portfolio
companies are required to pay. See “Risk Factors—Risks Related to Our Business—Changes in relevant tax laws, regulations or treaties or an adverse interpretationresult of these itemsand other actions by tax authorities could adversely impact our effective tax rate and tax liability” in our Annual Report.
Equity and Credit Markets. Global equity and credit markets have a substantial effect on our financial condition and resultscentral banks, the combination of operations. In general, a climate of reasonable interesthigh rates and more muted, but persistently high, levels of liquidityinflation continued to put significant pressure on corporate profits and consumer balance sheets with inflation generally remaining elevated in the debt and equity capital markets provide a positive environment for us to generate attractive investment returns, which also impacts our ability to generate incentive fees and carried interest. Periods of volatility and dislocation in the capital markets raise substantial risks, but also can present us with opportunities to invest at reduced valuations that position us for future growth and investment returns. Low interest rates related to monetary stimulus and economic stagnation may negatively impact expected returns on all types of investments. absolute terms.
Higher interest rates in conjunction with slower growth or weaker currencies in some emerging market economies have caused, and may further cause, the default risk of these countries to increase, and this could impact the operations or value of our investments that operate in these regions. Areas that have ongoing central bank quantitative easing or tightening campaigns and comparatively lowaffecting their interest rates relative to the United States could potentially experience further currency volatility and weakness relative to the U.S. dollar. Relatedly, foreign exchange rates are often affected by countries’ monetary and fiscal responses to inflationary trends. Foreign exchange rates have a substantial impact on the valuations of our investments that are denominated in currencies other than the U.S. dollar. Currency volatility can also affect our businesses and investments that deal in cross-border trade.
With respectLabor disputes, shortages of material and skilled labor, work stoppages and increasing labor costs can also adversely impact us and the assets we manage. Despite various economic headwinds, several key economic indicators in the U.S., including employment, have demonstrated resilience in the first quarter of 2023. During the first quarter of 2023, growth in economic activity and demand for goods and services contributed to our insurance business, fluctuationssignificant inflationary pressures.Short-term significant supply chain complications that were persistent throughout much of 2022 began to ease in marketthe first quarter of 2023.However, various supply bottlenecks, such as those involving Russia-Ukraine supply chains and U.S. domestic and global semiconductor industry output shortages as a result of restrictions on trade with Chinese semiconductor companies, remain a long-term concern that could present inflation risk. These and related concerns, such as rising interest rates can expose Global Atlanticand geopolitical uncertainty in countries such as China, Russia, Belarus and the Ukraine, and pressures on labor supply, contributed to market volatility, equity and credit market declines.
In the risk of reduced income in respect of its investment portfolio, increases inEurozone, disruptions to European energy markets and the cost of acquiring or maintaining its insurance liabilities, increases in the cost of hedging, or other fluctuations in Global Atlantic's financial, capital and operating profile which materially andongoing Russia-Ukraine conflict continue to adversely affect the business. HigherEurozone economy. The ongoing Russia-Ukraine conflict, including the sanctions imposed in response to Russia's invasion of Ukraine and protectionist policies that persisted throughout 2022, have exacerbated and may further exacerbate these issues and trends globally, including by continuing to increase oil and gas prices and price volatility.
Economic conditions continued to vary, and often diverge, by country in Asia. In Japan, concerns of labor shortages, rising inflation, tightening monetary policy, higher energy costs, significant volatility in currency markets and a return of international tourism were points of focus in the first quarter of 2023. In China, inflation growth was more muted, export growth was strong and international travel was more limited.
Several relevant key economic indicators in the U.S. and in other countries and areas in which our business operates include:
•Inflation. The U.S. core consumer price index rose 5.6% on a year-over-year basis as of March 31, 2023, down from 5.7% on a year-over-year basis as of December 31, 2022. Euro Area core inflation was 5.7% as of March 31, 2023, up from 5.2% as of December 31, 2022. Core inflation in China was 0.7% on a year-over-year basis as of March 31, 2023, unchanged from December 31, 2022. In Japan, core inflation rose to 2.3% on a year-over-year basis as of March 31, 2023, up from 1.6% on a year-over-year basis as of December 31, 2022.
•Interest Rates. The effective federal funds rate set by the Federal Reserve Board was 4.83% as of March 31, 2023, up from 4.33% as of December 31, 2022. The Federal Reserve raised interest rates periodsby 25 basis points in February, and 25 basis points in March, leading to increased market volatility. The short-term benchmark interest rate set by the European Central Bank was 3.5% as of changesMarch 31, 2023, up from 2.5% as of December 31, 2022. The short-term benchmark interest rate set by The People's Bank of China (PBOC) was 4.35% as of March 31, 2023, unchanged from December 31, 2022. The short-term benchmark interest rate set by the Bank of Japan was -0.1% as of March 31, 2023, unchanged from December 31, 2022.
•GDP. In the United States, real GDP is estimated to have expanded by 1.3% for the quarter ended March 31, 2023, compared to an expansion of 2.6% for the quarter ended December 31, 2022. Euro Area real GDP is estimated to have decreased by 0.2% for the quarter ended March 31, 2023, up from 0.0% for the quarter ended December 31, 2022. Real GDP in ratesChina is estimated to have increased by 2.2% for the quarter ended March 31, 2023, compared to growth of 0.6% reported for the quarter ended December 31, 2022. In Japan, real GDP is estimated to have increased by 1.3% for the quarter ended March 31, 2023, up from 0.0% for the quarter ended December 31, 2022.
•Unemployment. The U.S. unemployment rate was 3.5% as of March 31, 2023, unchanged from December 31, 2022. Euro Area unemployment was 6.6% as of March 31, 2023, down from 6.7% as of December 31, 2022. The unemployment rate in China was 5.5% as of March 31, 2023, unchanged from December 31, 2022. In addition, the unemployment rate in Japan was 2.6% as of March 31, 2023, up from 2.5% as of December 31, 2022.
Market Conditions
Equity, credit, commodity and lower ratesforeign exchange markets in the United States and in other countries and areas in which we have made investments each may result in differing impactshave a material effect on Global Atlantic’s business. See "Risk Factors—Risks Related to Global Atlantic— Interest rate fluctuations and sustained periods of low or high interest rates could adversely affect Global Atlantic’s business,our financial condition liquidity,and results of operations, cash flows and prospects" in our Annual Report.
In our asset management business,segment, many of our investments are in equities, so a change in global equity prices or in market volatility directly impacts the value of our investments and our profitability as well as our ability to realize investment gains and the receptiveness of fund investors to our investment products. For the quarter ended March 31, 2022,Volatility across global equity and credit markets, were negative, with the S&P 500 down 4.6%alongside shifting liquidity conditions in new issue activity across equity and non-investment grade credit markets, have adversely impacted (and may continue to adversely impact) our financial results and the MSCI World Index down 5.0%volume of capital markets activity, the level of transaction fees that our Capital Markets business line is able to earn, the valuation of our portfolio companies, sale activity and investment proceeds we realize, and our ability or our decision to deploy our and our funds' capital. For our investments that are publicly listed and thus have readily observable market prices, global equity market price declines had (and may continue to have) a direct adverse impact on our investment valuations and the timing of our realization opportunities. For many other of our investments, these markets had an indirect materially adverse impact on many of our investment valuations as we typically utilize market multiples as a total return basis including dividends. Equitycritical input to ascertain fair value of our investments that do not have readily observable market volatility as evidencedprices.
In addition, many of our investments are in both non-investment grade and investment grade credit instruments. Many of our funds invest or have the flexibility to invest a significant portion of their assets in the equity, debt, loans or other securities of issuers that are based outside of the United States. A substantial amount of these investments consist of private equity investments made by the Chicago Board Options Exchange Market Volatility Index (VIX), a measure of volatility, ended at 20.6our private equity funds. For example, as of March 31, 2022, increasing from 17.2 as2023, approximately 50% of December 31, 2021. For the period between March 31, 2022 and April 30, 2022, global equity markets were negative, with the S&P 500 down 8.7% and the MSCI World Index down 8.3% on a total return basis including dividends. Equity market volatility as evidenced by VIX, ended at 33.4 as of April 30, 2022, increasing from 20.6 as of March 31, 2022. For a discussion of our valuation methods, see “Risk Factors—Risks Relatedcapital invested in those funds was attributable to the Assets We Manage—Our investments are impacted by various economic conditions and events outside of our control that are difficult to quantify or predict, which may have a significant impact on the valuation of our investments and, therefore, on the investment income we realize and our results of operations and financial condition” and see also “—Critical Accounting Policies—Fair Value Measurements—Level III Valuation Methodologies” in our Annual Report.non-U.S. investments. In our insurance business, a change in equity prices also impacts Global Atlantic’s equity-sensitive annuity and life insurance products, including with respect to hedging costs related to and fee-income earned on those products.
Many of our investments, particularly in asset management, are in non-investment grade credit instruments, and, particularly in insurance, in investment grade credit instruments. Our funds, our portfolio companies and Global Atlantic also rely on credit financing and the ability to refinance existing debt. Consequently, any decrease in the value of credit instruments that we have invested in or any increase in the cost of credit financing reduces our returns and decreases our net income.
Due Tightening liquidity conditions in part to holdingsequity and credit capital markets affect the availability and cost of capital for us and our portfolio companies, and the increased cost of credit instruments suchor degradation in debt financing terms may adversely impact our ability to identify, execute and exit investments on attractive terms. In addition, during periods of high interest rates, investors may favor certain investments like government debt, which they may view as CLOs onproducing a higher risk-adjusted returnover investments in our balance sheet,funds, particularly if the performancespread between these other investments and investments in our funds declines, which may adversely affect our ability to raise capital for new funds.
In our insurance segment, periods of the credit markets has had an amplified impact on our financial results,rising or higher interest rates as we directly bearare currently experiencing may result in differing impacts on Global Atlantic’s business. Periods of rising or higher interest rates can benefit Global Atlantic’s results of operations and financial condition because we generally expect the full extent of lossesyield on new investment purchases and income from credit instruments on our balance sheet. Credit markets canany floating rate investments held in Global Atlantic’s investment portfolio to increase as interest rates rise. Higher interest rates also impact valuations because a discounted cash flow analysis is generally used as one oftend to increase the methodologies to ascertain the fair value of our investments that do not have readily observable market prices. In addition, with respect to our credit instruments, tightening credit spreads are generally expected to lead to an increase, and widening credit spreads are generally expected to lead to a decrease, in the value of these credit investments, if not offset by hedging or other factors. In addition, the significant widening of credit spreads is also typically expected to negatively impact equity markets, which in turn would negatively impact our portfolio and us as noted above. Conversely, widening credit spreads may have a positive impact on our insurance business, as the margin Global Atlantic is able to earn between crediting rates offered on its insurance products and the investment income it earns from its credit investments should increase, and tightening credit spreads may negatively impact the pricing and therefore competitivenessdemand for certain of Global Atlantic’s products adversely impacting salesbecause the benefits and growth, or may negatively impact the margins thatsolutions Global Atlantic earns on salescan offer to clients may become more attractive, potentially resulting in higher new business volumes. Rising rates are also expected to result in decreases to certain policy liabilities as a result of new accounting guidance which Global Atlantic adopted effective January 1, 2023 (with a transition date of January 1, 2021) for insurance companies that issue or reinsure long-duration contracts such as life insurance and transactions.
During the quarter ended March 31, 2022, U.S.Higher interest rates can also have a negative impact on Global Atlantic. For example, higher policyholder surrenders may occur in response to rising interest rates as more attractive products become available to policyholders in a higher rate environment. The majority of our investments at Global Atlantic are in investment grade corporate bond spreads (BofA Merrill Lynch US Corporate Index) widened by 24 basis pointscredit instruments. Sales of those investments at a loss, for example to raise cash to meet policyholder obligations upon surrender earlier than expected maturity or as Global Atlantic rotates out of investments acquired with new reinsurance transactions to our desired asset mix during a period of rising or higher rates compared to when the investment was acquired, is expected to decrease our net income in that period and U.S. high-yield corporate bond spreads (BofAML HY Master II Index) widened by 33 basis points. The non-investment gradesuch decrease could be significant. Global Atlantic also expects that in a higher rate environment, Global Atlantic will generally have a higher cost of insurance on new business, including higher hedging costs, as the benefits to policyholders on new business will be generally higher. If Global Atlantic fails to adequately cash flow match liabilities sold with higher benefits and interest rates fall while Global Atlantic holds that liability, Global Atlantic may not generate its expected earnings on those liabilities. In addition, rising interest rates will decrease the fair value of Global Atlantic’s credit indices were down during the quarter ended March 31, 2022, with the S&P/LSTA Leveraged Loan Index down 0.1%investments and the BAML US High Yield Index down 4.5%. During the quarter ended March 31, 2022, 10-year government bond yields rose 83 basis points in the United States, rose 64 basis points in the United Kingdom, rose 73 basis points in Germany, rose 1 basis point in China, and rose 15 basis points in Japan. In the period between March 31, 2022 and April 30, 2022, U.S. investment grade corporate bond spreads (BofA Merrill Lynch US Corporate Index) widened by 19 basis points and U.S. high-yield corporate bond spreads (BofAML HY Master II Index) widened by 54 basis points. The non-investment grade credit indices were mixed in the period between March 31, 2022 and April 30, 2022,value of embedded derivatives associated with the S&P/LSTA Leveraged Loan Index up 0.2% and the BAML US High Yield Index down 3.6%. In the period between March 31, 2022 and April 30, 2022, 10-year government bond yields rose 60 basis points in the United States, rose 30 basis points in the United Kingdom, rose 39 basis points in Germany, rose 5 basis points in China, and rose 1 basis point in Japan. For a further discussionfunds withheld reinsurance transactions. Global Atlantic expects that substantially all of how market conditions may affect our businesses, see “Risk Factors—Risks Relatedits unrealized losses will not be realized as it intends to Our Business—Difficult market and economic conditions can adversely affect our business in many ways, including by reducing the value or performancehold these investments until recovery of the losses, which may be at maturity, as part of its asset liability cash-flow matching strategy. However, if the market, industry and company-specific factors relating to these investments that we managedeteriorate meaningfully, Global Atlantic may be required to recognize an impairment to goodwill and may realize losses as a result of credit defaults or by reducing the ability of our funds to raise or deploy capital, eachimpairments on investments, either of which could negatively impact our net income and cash flow and adversely affect our financial condition” and “Risk Factors—Risks Related to the Assets We Manage—Our investments are impacted by various economic conditions and events outside of our control that are difficult to quantify or predict, which may have a significant impactmaterial adverse effect on the valuation of our investments and, therefore, on the investment income we realize and our results of operations and financial condition” in our Annual Report.condition.
For further discussion of the impact of global credit markets on our financial condition and results of operations, see "Risk Factors—Risks Related to the Assets We Manage—Changes in the debt financing markets may negatively impact the ability of our investment funds, their portfolio companies and strategies pursued with our balance sheet assets to obtain attractive financing for their investments or to refinance existing debt and may increase the cost of such financing or refinancing if it is obtained, which could lead to lower-yielding investments and potentially decrease our net income," "Risk Factors—Risks Related to the Assets We Manage—Our investmentsIn addition, commodity prices are impacted by various economic conditions and events outside of our control that are difficult to quantify or predict, which may have a significant impact on the valuation of our investments and, therefore, on the investment income we realize and our results of operations and financial condition," "Risk Factors—Risks Related to the Assets We Manage—Our funds and our firm through our balance sheet may make a limited number of investments, or investments that are concentrated in certain issuers, geographic regions or asset types, which could negatively affect our performance or the performance of our funds to the extent those concentrated assets perform poorly" and "Risk Factors—Risks Related to Global Atlantic—Interest rate fluctuations and sustained periods of low or high interest rates could adversely affect Global Atlantic’s business, financial condition, liquidity, results of operations, cash flows and prospects" in our Annual Report. For a further discussion of our valuation methods, see "—Critical Accounting Policies—Fair Value Measurements—Level III Valuation Methodologies."
Foreign Exchange Rates. Foreign exchange rates have a substantial impact on the valuations of our investments that are denominated in currencies other than the U.S. dollar. Currency volatility can also affect our businesses and investments that deal in cross-border trade. The appreciation or depreciation of the U.S. dollar isgenerally expected to contribute to a decrease or increase, respectively,rise in the U.S. dollar value of our non-U.S. investments to the extent unhedged. In addition, an appreciating U.S. dollar would be expected to make the exports of U.S. based companies less competitive, which may lead to a decline in their export revenues, if any, while a depreciating U.S. dollar would be expected to have the opposite effect. Moreover, when selecting investments for our investment funds that are denominated in U.S. dollars, an appreciating U.S. dollar may create opportunities to invest at more attractive U.S. dollar prices in certain countries outside of the United States, while a depreciating U.S. dollar would be expected to have the opposite effect. For our investments denominated in currencies other than the U.S. dollar, the depreciation in such currencies will generally contribute to the decrease in the valuation of such investments, to the extent unhedged, and adversely affect the U.S. dollar equivalent revenues of portfolio companies with substantial revenues denominated in such currencies, while the appreciation in such currencies would be expected to have the opposite effect. For the quarter ended March 31, 2022, the euro fell 2.7%, the British pound fell 2.9%, the Japanese yen fell 5.4%, and the Chinese renminbi rose 0.3%, respectively, relative to the U.S. dollar. For additional information regarding our foreign exchange rate risk, see “Quantitative and Qualitative Disclosure About Market Risk—Exchange Rate Risk” in our Annual Report.
LIBOR Transition. On March 15, 2022, the Consolidated Appropriations Act of 2022, which includes the Adjustable Interest Rate (LIBOR) Act of 2021, was signed into law in the United States. This legislation establishes a uniform benchmark replacement mechanic for financial contracts that mature after June 30, 2023 which do not contain either clearly defined or practicable fallback provisions or are contractually silent on a benchmark replacement rate. The legislation also creates a safe harbor that shields involved parties from liability if they choose to utilize a replacement rate recommended by the Board of Governors of the Federal Reserve. For a discussion of the LIBOR transition that will impact certain debt obligations, see Note 2 "Summary of Significant Accounting Policies – Adoption of new accounting pronouncements—Reference rate reform" in our financial statements and for a discussion of the risks related to the LIBOR transition, see "Risk Factors – Risks Related toinflationary environments. Our Business – Transition away from LIBOR as a benchmark reference for interest rates may affect the cost of capital and requires
amending or restructuring existing debt instruments and related hedging arrangements for us, our investment funds and our portfolio companies, and may impact the value of floating rate securities or loans based on LIBOR that we or our investment funds have held, all of which may result in additional costs or adversely affect our or our funds’ liquidity, results of results of operations and financial condition" in our Annual Report on Form 10-K for the year ended December 31, 2021.
Commodity Markets. Our Private MarketsReal Assets business line portfolio contains energy real asset investments, and certain of our other Private MarketsEquity, Real Assets and Public MarketsCredit and Liquid Strategies business line strategies have investments in or related to the energy sector. The value of these investments is heavily influenced by the price of natural gas and oil. As noted above,Changes in foreign exchange rates, unless hedged, can materially impact various aspects of our business and financial results, including, but not limited to, the actions taken by Russiavaluations of our non-U.S. investments, the success of fundraising from non-U.S. investors, and the attractiveness of investment opportunities in countries outside of the United States.
Several relevant key market indicators in the Ukraine startingU.S. and in February 2022 have also causedother countries and areas which constitute our business environment include:
•Equity Markets. For the quarter ended March 31, 2023, global equity markets were positive, with the S&P 500 up 7.5% and the MSCI World Index up 7.9% on a total return basis including dividends. Equity market volatility inas evidenced by the commodities markets.Chicago Board Options Exchange Market Volatility Index (VIX), a measure of volatility, ended at 18.7 as of March 31, 2023, decreasing from 21.7 as of December 31, 2022.
•Credit Markets. During the quarter ended March 31, 2022,2023, U.S. investment grade corporate bond spreads (BofA Merrill Lynch US Corporate Index) widened by 7 basis points and U.S. high-yield corporate bond spreads (BofAML HY Master II Index) narrowed by 23 basis points. The non-investment grade credit indices were up during the quarter ended March 31, 2023, with the S&P/LSTA Leveraged Loan Index up 3.2% and the BAML US High Yield Index up 3.7%. During the quarter ended March 31, 2023, 10-year government bond yields fell 41 basis points in the United States, fell 18 basis points in the UK, fell 28 basis points in Germany, rose 2 basis points in China, and fell 7 basis points in Japan.
•Commodity Markets. During the quarter ended March 31, 2023, the 3-year forward price of WTI crude oil increaseddecreased approximately 16%5.1%, and the 3-year forward price of natural gas increased approximately 21%. The 3-year forward price of WTI crude oil increaseddecreased from approximately $63$4.99 per barrel to $73 per barrel, and the 3-year forward price of natural gas increased from approximately $3.13 per mcf to $3.77 per mcfMMBtu as of December 31, 2021 and2022 to $4.42 per MMBtu as of March 31, 2022, respectively.2023. The Japan spot LNG import price decreased to approximately $18.59 per MMBtu as of March 31, 2023 from approximately $28.46 per MMBtu as of December 31, 2022.
When commodity prices decline or if a decline is not offset by other factors, we would expectOther Trends, Uncertainties and Risks Related to Our Business
Please refer to the value"Risk Factors" section of our energy real asset investments to be adversely impacted, toAnnual Report for important additional detail regarding the extent unhedged. In general, we expect downward price movementsknown trends or uncertainties and competitive conditions that have had or that are reasonably likely to have a negativematerial favorable or unfavorable impact on our businesses, including the impact of economic and market conditions on valuations of investments. These known trends, uncertainties and competitive conditions should be read in conjunction with this Business Environment section and the entire Risk Factor section.
Basis of Accounting and Key Financial Measures under GAAP
We manage our business using certain financial measures and key operating metrics since we believe these metrics measure the productivity of our operating activities. We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). See Note 2 “ Summary of Significant Accounting Policies” in our financial statements and “Critical Accounting Policies and Estimates” contained in this section below. Our key Segment and non-GAAP financial measures and operating metrics are discussed below.
Adoption of New Accounting Standard
Effective January 1, 2023, we adopted new accounting guidance for insurance and reinsurance companies that issue long-duration contracts (“LDTI”) as of February 1, 2021, the date of the GA Acquisition, on a full retrospective basis. For a more detailed discussion of the adoption of the LDTI, see Note 2 "Summary of Significant Accounting Policies" in our financial statements included in this report.
Key Segment and Non-GAAP Performance Measures
The following key segment and non-GAAP performance measures are used by management in making operational and resource deployment decisions as well as assessing the performance of KKR's business. They include certain financial measures that are calculated and presented using methodologies other than in accordance with GAAP. These performance measures as described below are presented prior to giving effect to the allocation of income (loss) between KKR & Co. Inc. and holders of exchangeable securities and as such represent the entire KKR business in total. In addition, these performance measures are presented without giving effect to the consolidation of certain investment funds and collateralized financing entities ("CFEs") that KKR manages.
We believe that providing these segment and non-GAAP performance measures on a supplemental basis to our GAAP results is helpful to stockholders in assessing the overall performance of KKR's business. These non-GAAP measures should not be considered as a substitute for financial measures calculated in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP, where applicable are included under "—Analysis of Non-GAAP Performance Measures—Reconciliations to GAAP Measures."
Modification of Segment Information and Non-GAAP Measures
In connection with the adoption of LDTI (see Note 2 in our financial statements), KKR reevaluated the manner in which it makes operational and resource deployment decisions and assesses the overall performance of KKR's business. Effective with the three months ended March 31, 2023, the items detailed below have changed with respect to the preparation of the reports used by KKR's chief operating decision makers. As a result, KKR has modified the presentation of its segment financial information effective as of and for the three months ended March 31, 2023 with retrospective application to all prior periods presented. The most significant changes are as follows:
(1)implementation of the accounting changes as a result of LDTI within KKR’s Insurance Segment. KKR excludes (i) changes in the fair value of our energy portfolio, allmarket risk benefits and other things being equal, given those commodity pricespolicy liabilities and the associated derivatives, (ii) fees attributed to guaranteed benefits, and (iii) losses at contract issuance on payout annuities from the Insurance Segment Operating Earnings. These items are excluded from Insurance Segment Operating Earnings and we believe these items do not reflect the underlying performance of this business;
(2)Global Atlantic book value includes the impact of LDTI except for the impacts recorded in other comprehensive income, which are excluded from book value; and
(3)reporting on a pre-tax basis Insurance Segment Operating Earnings (which was previously reported on an input in our valuation models. The reverse is true for upward price movements. However, because we typically use near-term commodity derivative transactions to hedge our exposures, we expect long-term oilafter-tax basis).
We believe these adjustments and natural gas prices to be a more significant driverchanges reflect how management evaluates the Insurance business. We believe this approach enhances the transparency and visibility of the valuationdrivers of our energy investments in asset management than spot prices. In addition, to the extent energy real asset investmentsGlobal Atlantic’s underlying operating performance.
Fee Related Earnings, Asset Management Segment Operating Earnings, and Total Asset Management Segment Revenues are directly heldnot impacted by our balance sheet, price movements can have an amplified impact on our financial results, as we would directly bear the full extent of such gains or losses, subject to hedging. However, as of March 31, 2022, energy investments in oil and gas assets made up only approximately 1% of our assets under management, 1% of our total GAAP assets and 1% of our total segment assets. For additional information regarding our energy real assets, see "—Critical Accounting Policies—Fair Value Measurements—Level III Valuation Methodologies—Real Asset Investments" and see also "Risk Factors—Risks Related to the Assets We Manage—Our funds and our firm through our balance sheet may make a limited number of investments, or investments that are concentrated in certain issuers, geographic regions or asset types, which could negatively affect our performanceLDTI or the performance of our funds to the extent those concentrated assets perform poorly" in our Annual Report on Form 10-K for the year ended December 31, 2021.
Business Conditions
Our operating revenues consist of fees, performance incomeadjustments and investment income.
Our ability to grow our revenues depends in part on our ability to attract new capital and investors, our successful deployment of capital including from our balance sheet and our ability to realize investments at a profit.
Our ability to attract new capital and investors. Our ability to attract new capital and investors in our funds is driven, in part, by the extent to which they continue to see the alternative asset management industry generally, and our investment products specifically, as attractive means for capital appreciation or income. In addition, our ability to attract new capital and investors in our insurance business is driven, in part, by the extent to which they continue to see the life and annuity insurance industry generally, and in certain cases our re-insurance vehicles, as attractive means for capital appreciation or income. Since 2010, we have expanded into strategies such as real assets, credit, core, impact and, through hedge fund partnerships, hedge funds, and insurance. In several of our asset management strategies, our first time funds have begun raising successor funds, and we expect the cost of raising such successor funds to be lower. We have also reached out to new fund investors, including retail and high net worth investors. However, fundraising continues to be competitive. While our Asian Fund IV, European Fund V, North America Fund XIII, Real Estate Partners Americas III, Real Estate Partners Europe II, Global Infrastructure Investors IV, Next Generation Technology Growth Fund II and Health Care Strategic Growth Fund II exceeded the size of their respective predecessor funds, there is no assurance that fundraises for our other flagship investment funds or vehicles or for our newer strategies and their successor funds will experience similar success. If we are unable to successfully raise comparably sized or larger funds, our AUM, FPAUM, and associated fees attributable to new capital raised in future periods may be lower than in prior years. See "Risk Factors—Risks Related to Our Business—Our inability to raise additional or successor funds (or raise successor funds of a comparable size as our predecessor funds) could have a material adverse impact on our business" in our Annual Report on Form 10-K for the year ended December 31, 2021.
Our ability to successfully deploy capital. Our ability to maintain and grow our revenue base is dependent upon our ability to successfully deploy the capital available to us as well as our participation in capital markets transactions. Greater competition, high valuations, increased overall cost of credit and other general market conditions may impact our ability to identify and execute attractive investments. Additionally, because we seek to make investments that have an ability to achieve our targeted returns while taking on a reasonable level of risk, we may experience periods of reduced investment activity. Wechanges noted above.
As discussed in Note 2 "Summary of Significant Accounting Policies" in our financial statements, our historical consolidated GAAP financial results have been recast to reflect the adoption of LDTI on a full retrospective basis. Certain of our historical Non-GAAP measures have been recast to reflect the adoption of LDTI along with the adjustments and changes noted above.
After-tax Distributable Earnings
After-tax distributable earnings is a non-GAAP performance measure of KKR’s earnings, which is derived from KKR’s reported segment results. After-tax distributable earnings is used to assess the performance of KKR’s business operations and measures the earnings potentially available for distribution to its equity holders or reinvestment into its business. After-tax distributable earnings is equal to Distributable Operating Earnings less Interest Expense, Net Income Attributable to Noncontrolling Interests and Income Taxes on Operating Earnings. Series C Mandatory Convertible Preferred Stock dividends have been excluded from After-tax Distributable Earnings, because the definition of Adjusted Shares used to calculate After-tax Distributable Earnings per Adjusted Share assumes that all shares of Series C Mandatory Convertible Preferred Stock have been converted to shares of common stock of KKR & Co. Inc. Income Taxes on Operating Earnings represents the (i) amount of income taxes that would be paid assuming that all pre-tax Asset Management distributable earnings were allocated to KKR & Co. Inc. and taxed at the same effective rate, which assumes that all securities exchangeable into shares of common stock of KKR & Co. Inc. were exchanged and (ii) the amount of income taxes on Insurance Segment Operating Earnings. Income taxes on Insurance Segment Operating Earnings represent the total current and deferred tax expense or benefit on income before taxes adjusted to eliminate the impact of the tax expense or benefit associated with the non-operating adjustments. Income Taxes on Operating Earnings includes the benefit of tax deductions arising from equity-based compensation, which reduces operating income taxes during the period. Equity based compensation expense is excluded from After-tax Distributable Earnings, because (i) KKR believes that the cost of equity awards granted to employees does not contribute to the earnings potentially available for distributions to its equity holders or reinvestment into its business and (ii) excluding this expense makes KKR’s reporting metric more comparable to the corresponding metric presented by other publicly traded companies in KKR’s industry, which KKR believes enhances an investor’s ability to compare KKR’s performance to these other companies. If tax deductions from equity-based compensation were to be excluded from Income Taxes on Operating Earnings, KKR’s After-tax Distributable Earnings would be lower and KKR’s effective tax rate would appear to be higher, even though a lower amount of income taxes would have actually been paid or payable during the period. KKR separately discloses the amount of tax deduction from equity-based compensation for the period reported and the effect of its inclusion in After-tax Distributable Earnings for the period. KKR makes these adjustments when calculating After-tax Distributable Earnings in order to more accurately reflect the net realized earnings that are expected to be or become available for distribution to KKR’s equity holders or reinvestment into KKR’s business. However, After-tax Distributable Earnings does not represent and is not used to calculate actual dividends under KKR’s dividend policy, which is a fixed amount per period, and After-tax Distributable Earnings should not be viewed as a measure of KKR’s liquidity.
Book Value
Book Value is a non-GAAP performance measure of the net assets of KKR and is used by management primarily in assessing the unrealized value of KKR’s net assets presented on a basis that (i) excludes the net assets that are allocated to investors in KKR’s investment funds and other noncontrolling interest holders, (ii) includes the net assets that are attributable to certain securities exchangeable into shares of common stock of KKR & Co. Inc., and (iii) includes KKR’s ownership of the net assets of Global Atlantic. We believe this measure is useful to stockholders as it provides additional insight into the net assets of KKR excluding those net assets that are allocated to investors in KKR’s investment funds and other noncontrolling interest holders. KKR's book value includes the net impact of KKR's tax assets and liabilities as calculated under GAAP. Series C Mandatory Convertible Preferred Stock has been included in book value, because the definition of adjusted shares used to calculate book value per adjusted share assumes that all shares of Series C Mandatory Convertible Preferred Stock have been converted to shares of common stock of KKR & Co. Inc. To calculate Global Atlantic book value and to make it more comparable with the corresponding metric presented by other publicly traded companies in Global Atlantic’s industry, Global Atlantic book value excludes (i) accumulated other comprehensive income and (ii) accumulated change in fair value of reinsurance balances and related assets, net of income tax.
Distributable Operating Earnings
Distributable operating earnings is a non-GAAP performance measure that KKR believes is useful to stockholders as it provides a supplemental measure of our operating performance without taking into account items that KKR does not believe arise from or relate directly to KKR's operations. Distributable Operating Earnings excludes: (i) equity-based compensation charges, (ii) amortization of acquired intangibles, (iii) strategic corporate related charges and (iv) non-recurring items, if any. Strategic corporate related charges arise from corporate actions and consist primarily of (i) impairments, (ii) transaction costs from strategic acquisitions, and (iii) depreciation on real estate that KKR owns and occupies. Inter-segment transactions are not eliminated from segment results when management considers those transactions in assessing the results of the respective segments. These transactions include (i) management fees earned by KKR as the investment adviser for Global Atlantic insurance companies and (ii) interest income and expense based on lending arrangements where one or more KKR subsidiaries borrow from a Global Atlantic insurance subsidiary. Inter-segment transactions are recorded by each segment based on the definitive documents that contain arms' length terms and comply with applicable regulatory requirements. Distributable Operating Earnings represents operating earnings of KKR’s Asset Management and Insurance segments.
•Asset Management Segment Operating Earnings is the segment profitability measure used to make operating decisions and to assess the performance of the Asset Management segment and is comprised of: (i) Fee Related Earnings, (ii) Realized Performance Income, (iii) Realized Performance Income Compensation, (iv) Realized Investment Income, and (v) Realized Investment Income Compensation. Asset Management Segment Operating Earnings excludes the impact of: (i) unrealized gains (losses) on investments, (ii) unrealized carried interest, and (iii) related unrealized carried interest compensation (i.e. the carry pool). Management fees earned by KKR as the adviser, manager or sponsor for its investment funds, vehicles and accounts, including its Global Atlantic insurance companies, are included in Asset Management Segment Operating Earnings.
•Insurance Segment Operating Earnings is the segment profitability measure used to make operating decisions and to assess the performance of the Insurance segment. This measure is presented before income taxes and is comprised of: (i) Net Investment Income, (ii) Net Cost of Insurance, (iii) General, Administrative, and Other Expenses, and (iv) Net Income Attributable to Noncontrolling Interests. The non-operating adjustments made to derive Insurance Segment Operating Earnings excludes the impact of: (i) investment gains (losses) which include realized gains (losses) related to asset/liability matching investments strategies and unrealized investment gains (losses) and (ii) non-operating changes in policy liabilities and derivatives which includes (a) changes in the fair value of market risk benefits and other policy liabilities measured at fair value and related benefit payments, (b) fees attributed to guaranteed benefits, (c) derivatives used to manage the risks associated with policy liabilities, and (d) losses at contract issuance on payout annuities. Insurance Segment Operating Earnings includes (i) realized gains and losses not related to asset/liability matching investments strategies and (ii) the investment management costs that are earned by KKR as the investment adviser of the Global Atlantic insurance companies.
Fee Related Earnings
Fee related earnings is a performance measure used to assess the Asset Management segment’s generation of profits from revenues that are measured and received on a recurring basis and are not dependent on future realization events. KKR believes this measure is useful to stockholders as it provides additional insight into the profitability of KKR’s fee generating asset management and capital markets businesses and other recurring revenue streams. FRE equals (i) Management Fees, including fees paid by the Insurance segment to the Asset Management segment and fees paid by certain insurance co-investment vehicles, (ii) Transaction and Monitoring Fees, Net and (iii) Fee Related Performance Revenues, less (x) Fee Related Compensation, and (y) Other Operating Expenses.
•Fee Related Performance Revenues refers to the realized portion of Incentive Fees from certain AUM that has an indefinite term and for which there is no immediate requirement to return invested capital to investors upon the realization of investments. Fee related performance revenues consists of performance fees (i) to be received from our investment funds, vehicles and accounts on a recurring basis, and (ii) that are not dependent on a realization event involving investments held by the investment fund, vehicle or account.
•Fee Related Compensation refers to the compensation expense, excluding equity-based compensation, paid from (i) Management Fees, (ii) Transaction and Monitoring Fees, Net, and (iii) Fee Related Performance Revenues.
•Other Operating Expenses represents the sum of (i) occupancy and related charges and (ii) other operating expenses.
Total Asset Management Segment Revenues
Total Asset Management Segment Revenues is a performance measure that represents the realized revenues of the Asset Management segment (which excludes unrealized carried interest and unrealized net gains (losses) on investments) and is the sum of (i) Management Fees, (ii) Transaction and Monitoring Fees, Net, (iii) Fee Related Performance Revenues, (iv) Realized Performance Income, and (v) Realized Investment Income. KKR believes that this performance measure is useful to stockholders as it provides additional insight into the realized revenues generated by KKR's asset management segment.
Other Terms and Capital Metrics
Adjusted Shares
Adjusted shares represents shares of common stock of KKR & Co. Inc. outstanding under GAAP adjusted to include (i) the number of shares of common stock of KKR & Co. Inc. assumed to be issuable upon conversion of the Series C Mandatory Convertible Preferred Stock and (ii) certain securities exchangeable into shares of common stock of KKR & Co. Inc. Weighted average adjusted shares is used in the calculation of After-tax Distributable Earnings per Adjusted Share, and Adjusted Shares is used in the calculation of Book Value per Adjusted Share.
Assets Under Management
Assets under management represent the assets managed, advised or sponsored by KKR from which KKR is entitled to receive management fees or performance income (currently or upon a future event), general partner capital, and assets managed, advised or sponsored by our strategic BDC partnership and the hedge fund and other managers in which KKR holds an ownership interest. We believe this measure is useful to stockholders as it provides additional insight into the capital raising activities of KKR and its hedge fund and other managers and the overall activity in their investment funds and other managed or sponsored capital. KKR calculates the amount of AUM as of any date as the sum of: (i) the fair value of the investments of KKR's investment funds and certain co-investment vehicles; (ii) uncalled capital commitments from these funds, including uncalled capital commitments from which KKR is currently not earning management fees or performance income; (iii) the asset value of the Global Atlantic insurance companies; (iv) the par value of outstanding CLOs; (v) KKR's pro rata portion of the AUM of hedge fund and other managers in which KKR holds an ownership interest; (vi) all of the AUM of KKR's strategic BDC partnership; (vii) the acquisition cost of invested assets of certain non-US real estate investment trusts and (viii) the value of other assets managed or sponsored by KKR. The pro rata portion of the AUM of hedge fund and other managers is calculated based on KKR’s percentage ownership interest in such entities multiplied by such entity’s respective AUM. KKR's definition of AUM (i) is not based on any definition of AUM that may be set forth in the governing documents of the investment funds, vehicles, accounts or other entities whose capital is included in this definition, (ii) includes assets for which KKR does not act as an investment adviser, and (iii) is not calculated pursuant to any regulatory definitions.
Capital Invested
Capital invested is the aggregate amount of capital invested by (i) KKR’s investment funds and Global Atlantic insurance companies, (ii) KKR's Principal Activities business line as a co-investment, if any, alongside KKR’s investment funds, and (iii) KKR's Principal Activities business line in connection with a syndication transaction conducted by KKR's Capital Markets business line, if any. Capital invested is used as a measure of investment activity at KKR during a given period. We believe this measure is useful to stockholders as it provides a measure of capital deployment across KKR’s business lines. Capital invested includes investments made using investment financing arrangements like credit facilities, as applicable. Capital invested excludes (i) investments in certain leveraged credit strategies, (ii) capital invested by KKR’s Principal Activities business line that is not a co-investment alongside KKR’s investment funds, and (iii) capital invested by KKR’s Principal Activities business line that is not invested in connection with a syndication transaction by KKR’s Capital Markets business line. Capital syndicated by KKR's Capital Markets business line to third parties other than KKR’s investment funds or Principal Activities business line is not included in capital invested.
Fee Paying AUM
Fee paying AUM represents only the AUM from which KKR is entitled to receive management fees. We believe this measure is useful to stockholders as it provides additional insight into the capital base upon which KKR earns management fees. FPAUM is the sum of all of the individual fee bases that are used to calculate KKR's and its hedge fund and BDC partnership management fees and differs from AUM in the following respects: (i) assets and commitments from which KKR is not entitled to receive a management fee are excluded (e.g., assets and commitments with respect to which it is entitled to receive only performance income or is otherwise not currently entitled to receive a management fee) and (ii) certain assets, primarily in its private equity funds, are reflected based on capital commitments and invested capital as opposed to fair value because fees are not impacted by changes in the fair value of underlying investments.
Uncalled Commitments
Uncalled commitments is the aggregate amount of unfunded capital commitments that KKR’s investment funds and carry-paying co-investment vehicles have received from partners to contribute capital to fund future investments and the amount of uncalled commitments is not reduced by capital invested using borrowings under an investment fund’s subscription facility until capital is called from our fund investors. We believe this measure is useful to stockholders as it provides additional insight into the amount of capital that is available to KKR’s investment funds and carry paying co-investment vehicles to make future investments. Uncalled commitments are not reduced for investments completed using fund-level investment financing arrangements or investments we have committed to make but remain unfunded at the reporting date.
Condensed Consolidated Results of Operations (GAAP Basis - Unaudited)
The following is a discussion of our consolidated results of operations on a GAAP basis for the three months ended March 31, 2023 and 2022. You should read this discussion in conjunction with the financial statements and related notes included elsewhere in this report. For a more detailed discussion of the factors that affected our segment results in these periods, see "—Analysis of Segment Operating Results." See "Business Environment" for more information about factors that may impact our business, financial performance, operating results and valuations.
Effective January 1, 2023, we adopted new accounting guidance for insurance and reinsurance companies that issue long-duration contracts (“LDTI”) as of February 1, 2021, the date of the GA Acquisition, on a full retrospective basis. For a more detailed discussion of the adoption of LDTI, see Note 2 "Summary of Significant Accounting Policies" in our financial statements.
| | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Revenues | | | | | |
| Asset Management | | | | | |
| Fees and Other | $ | 677,016 | | | $ | 780,511 | | | $ | (103,495) | |
| Capital Allocation-Based Income (Loss) | 449,018 | | | (945,743) | | | 1,394,761 | |
| 1,126,034 | | | (165,232) | | | 1,291,266 | |
| Insurance | | | | | |
| Net Premiums | 473,624 | | | 372,144 | | | 101,480 | |
| Policy Fees | 313,802 | | | 313,782 | | | 20 | |
| Net Investment Income | 1,300,697 | | | 812,605 | | | 488,092 | |
| Net Investment-Related Gains (Losses) | (123,833) | | | (368,680) | | | 244,847 | |
| Other Income | 37,158 | | | 34,744 | | | 2,414 | |
| 2,001,448 | | | 1,164,595 | | | 836,853 | |
| Total Revenues | 3,127,482 | | | 999,363 | | | 2,128,119 | |
| | | | | |
| Expenses | | | | | |
| Asset Management | | | | | |
| Compensation and Benefits | 575,670 | | | 283,672 | | | 291,998 | |
| Occupancy and Related Charges | 22,149 | | | 18,149 | | | 4,000 | |
| General, Administrative and Other | 213,689 | | | 234,665 | | | (20,976) | |
| 811,508 | | | 536,486 | | | 275,022 | |
| Insurance | | | | | |
| Net Policy Benefits and Claims (including market risk benefit loss (gain) of $146,309 and $(195,683), respectively) | 1,527,054 | | | 513,178 | | | 1,013,876 | |
| Amortization of Policy Acquisition Costs | 44,211 | | | 11,422 | | | 32,789 | |
| Interest Expense | 40,261 | | | 13,219 | | | 27,042 | |
| Insurance Expenses | 225,318 | | | 115,803 | | | 109,515 | |
| General, Administrative and Other | 211,731 | | | 167,624 | | | 44,107 | |
| 2,048,575 | | | 821,246 | | | 1,227,329 | |
| Total Expenses | 2,860,083 | | | 1,357,732 | | | 1,502,351 | |
| | | | | |
| Investment Income (Loss) - Asset Management | | | | | |
| Net Gains (Losses) from Investment Activities | (159,409) | | | 914,261 | | | (1,073,670) | |
| Dividend Income | 148,167 | | | 662,350 | | | (514,183) | |
| Interest Income | 728,616 | | | 352,556 | | | 376,060 | |
| Interest Expense | (576,338) | | | (281,759) | | | (294,579) | |
| Total Investment Income (Loss) | 141,036 | | | 1,647,408 | | | (1,506,372) | |
| | | | | |
| Income (Loss) Before Taxes | 408,435 | | | 1,289,039 | | | (880,604) | |
| | | | | |
| Income Tax Expense (Benefit) | 148,747 | | | 36,651 | | | 112,096 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
| March 31, 2023 | | March 31, 2022 | | Change |
| ($ in thousands) |
| | | | | |
| Net Income (Loss) | 259,688 | | | 1,252,388 | | | (992,700) | |
| Net Income (Loss) Attributable to Redeemable Noncontrolling Interests | (7,303) | | | (63) | | | (7,240) | |
| Net Income (Loss) Attributable to Noncontrolling Interests | (73,003) | | | 1,244,987 | | | (1,317,990) | |
| Net Income (Loss) Attributable to KKR & Co. Inc. | 339,994 | | | 7,464 | | | 332,530 | |
| | | | | |
| | | | | |
| | | | | |
| Series C Mandatory Convertible Preferred Stock Dividends | 17,250 | | | 17,250 | | | — | |
| | | | | |
Net Income (Loss) Attributable to KKR & Co. Inc.
Common Stockholders | $ | 322,744 | | | $ | (9,786) | | | $ | 332,530 | |
Condensed Consolidated Results of Operations (GAAP Basis - Unaudited) - Asset Management
Revenues
For the three months ended March 31, 2023 and 2022, revenues consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Management Fees | | $ | 453,093 | | | $ | 398,046 | | | $ | 55,047 | |
| Fee Credits | | (57,531) | | | (187,745) | | | 130,214 | |
| Transaction Fees | | 209,839 | | | 466,966 | | | (257,127) | |
| Monitoring Fees | | 29,853 | | | 39,400 | | | (9,547) | |
| Incentive Fees | | 6,413 | | | 7,057 | | | (644) | |
| Expense Reimbursements | | 15,544 | | | 41,303 | | | (25,759) | |
| | | | | | |
| Consulting Fees | | 19,805 | | | 15,484 | | | 4,321 | |
| Total Fees and Other | | 677,016 | | | 780,511 | | | (103,495) | |
| | | | | | |
| Carried Interest | | 343,070 | | | (783,688) | | | 1,126,758 | |
| General Partner Capital Interest | | 105,948 | | | (162,055) | | | 268,003 | |
| Total Capital Allocation-Based Income (Loss) | | 449,018 | | | (945,743) | | | 1,394,761 | |
| | | | | | |
| Total Revenues - Asset Management | | $ | 1,126,034 | | | $ | (165,232) | | | $ | 1,291,266 | |
Fees and Other
Total Fees and Other for the three months ended March 31, 2023 decreased compared to the three months ended March 31, 2022 primarily as a result of the decrease in transaction fees, partially offset by the increase in management fees.
For a more detailed discussion of the factors that affected our transaction fees during the period, see "—Analysis of Asset Management Segment Operating Earnings."
The increase in management fees was primarily attributable to (i) management fees earned on new capital raised over the past twelve months at European Fund VI, Next Generation Technology Growth Fund III and Asia Pacific Infrastructure Investors II, and (ii) management fees earned on assets managed by KJRM, which is a Japanese REIT manager that we acquired in 2022. The increase was partially offset by catch-up management fees earned on new capital raised for Global Infrastructure Investors IV and North America Fund XIII in the first quarter of 2022 that was retroactive to the start of the
fund's investment period. There were no catch-up management fees earned in the first quarter of 2023 for Global Infrastructure Investors IV and North America Fund XIII.
Management fees due from consolidated investment funds and other vehicles are eliminated upon consolidation under GAAP. However, because these amounts are funded by, and earned from, noncontrolling interests, upon consolidation under GAAP, KKR's allocated share of the net income from the consolidated investment funds and other vehicles is increased by the amount of fees that are eliminated. Accordingly, net income (loss) attributable to KKR would be unchanged if such investment funds and other vehicles were not consolidated. For a more detailed discussion on the factors that affect our management fees during the period, see "—Analysis of Asset Management Segment Operating Earnings."
Fee credits decreased compared to the prior period as a result of a lower level of transaction fees in our Private Equity, Real Assets and Credit and Liquid Strategies business lines in the current period. Fee credits owed to consolidated investment funds are eliminated upon consolidation under GAAP. However, because these amounts are owed to noncontrolling interests, upon consolidation under GAAP, KKR's allocated share of the net income from the consolidated investment funds is decreased by the amount of fee credits that are eliminated. Accordingly, net income (loss) attributable to KKR would be unchanged if such investment funds and other vehicles were not consolidated. Transaction and monitoring fees earned from KKR portfolio companies are not eliminated upon consolidation because those fees are earned from companies which are not consolidated. Furthermore, transaction fees earned in our capital markets business are not shared with fund investors. Accordingly, certain transaction fees are reflected in our revenues without a corresponding fee credit.
Capital Allocation-Based Income (Loss)
Capital Allocation-Based Income (Loss) for the three months ended March 31, 2023 was positive primarily due to the net appreciation of the underlying investments at many of our unconsolidated carry earning investment funds, most notably Americas Fund XII, Global Infrastructure Investors III, and Asian Pacific Infrastructure Investors. Capital Allocation-Based Income (Loss) for the three months ended March 31, 2022 was negative primarily due to the net depreciation of the underlying investments at certain of our carry earning investment funds, most notably Americas Fund XII and Asian Fund II.
KKR calculates the carried interest that would be due to KKR for each investment fund, pursuant to the fund agreements, as if the fair value of the underlying investments were realized as of the reporting date, irrespective of whether such amounts have been realized. Since the fair value of the underlying investments varies between reporting periods, it is necessary to make adjustments to the amounts recorded as carried interest to reflect either (a) positive performance, resulting in an increase in the carried interest allocated to the general partner or (b) negative performance that would cause the amount due to KKR to be less than the amount previously recognized, resulting in a negative adjustment to carried interest allocated to the general partner. In each case, it is necessary to calculate the carried interest on cumulative results compared to the carried interest recorded to date and to make the required positive or negative adjustments.
Investment Income (Loss) - Asset Management
For additional information about net gains (losses) from investment activities, see Note 5 "Net Gains (Losses) from Investment Activities - Asset Management" in our financial statements.
Net Gains (Losses) from Investment Activities for the three months ended March 31, 2023
The net losses from investment activities for the three months ended March 31, 2023 were comprised of net realized gains of $99.4 million and net unrealized losses of $(258.8) million.
Investment gains and losses relating to our general partner capital interest in our unconsolidated funds are not reflected in our discussion and analysis of Net Gains (Losses) from Investment Activities. Our economics associated with these gains and losses are reflected in Capital Allocation-Based Income (Loss) as described above.
Realized Gains and Losses from Investment Activities
For the three months ended March 31, 2023, net realized gains related primarily to the sale of our investment in KnowBe4, Inc. (NASDAQ: KNBE), Flutter Entertainment PLC (LON: FLTR), and US Foods Holding Corp. (NYSE: USFD). Partially offsetting these realized gains were realized losses primarily relating to a realized loss on our alternative credit investment, Chembulk Group (transportation sector) as well as realized losses on certain foreign exchange forward contracts and losses from the sales of revolving credit facilities.
Unrealized Gains and Losses from Investment Activities
For the three months ended March 31, 2023, net unrealized losses were driven by mark-to-market losses primarily relating to (i) certain investments held by our consolidated real estate and energy funds, (ii) GenesisCare Pty Ltd. (health care sector) and Heartland Dental, LLC (health care sector), each of which are held in our consolidated core private equity funds, and (iii) debt obligations of our consolidated CLOs. These unrealized losses were partially offset by mark-to-market gains primarily relating to (i) BridgeBio Pharma, Inc. (NASDAQ: BBIO), (ii) Viridor Limited (Infrastructure: energy and energy transition sector) and FiberCop S.p.A (Infrastructure: telecommunications infrastructure sector) held in our consolidated core private equity funds and (iii) certain investments held in our consolidated CLOs.
Net Gains (Losses) from Investment Activities for the three months ended March 31, 2022
The net gains from investment activities for the three months ended March 31, 2022 were comprised of net realized gains of $279.6 million and net unrealized gains of $634.6 million.
Realized Gains and Losses from Investment Activities
For the three months ended March 31, 2022, net realized gains related primarily to the sales of our investments in Fiserv Inc. (NASDAQ: FISV) and Söderberg & Partners (financial services sector). Partially offsetting these realized gains were realized losses primarily relating to a real estate equity investment in one of our consolidated US real estate funds and certain investments held in our consolidated SIG funds.
Unrealized Gains and Losses from Investment Activities
For the three months ended March 31, 2022, net unrealized gains were driven primarily by mark-to-market gains from (i) Crescent Energy Company (NYSE: CRGY), (ii) Viridor Limited, and (iii) investments held in our consolidated real estate equity funds. These unrealized gains were partially offset by mark-to-market losses related to (i) certain investments held in our consolidated CLOs and SIG funds, (ii) OutSystems Holdings S.A (technology sector) and (iii) BridgeBio Pharma, Inc.
For a discussion of other factors that affected KKR's realized investment income, see "—Analysis of Asset Management Segment Operating Results". For additional information about net gains (losses) from investment activities, see Note 5 "Net Gains (Losses) from Investment Activities - Asset Management" in our financial statements.
Dividend Income
During the three months ended March 31, 2023, the most significant dividends received included (i) $29.6 million from certain investments held in our consolidated open-ended core infrastructure fund, Diversified Core Infrastructure Fund, (ii) $29.3 million from certain investments held in our consolidated real estate equity and credit funds and (iii) $17.4 million from certain investments held in our consolidated SIG funds. During the three months ended March 31, 2022, the most significant dividends received included $299.0 million from certain investments held in our consolidated core plus and opportunistic real estate equity funds and $86.6 million from our investment in Exact Group B.V. (technology sector) held in our consolidated core private equity funds.
Significant dividends from portfolio companies and consolidated funds are generally not recurring quarterly dividends, and while they may occur in the future, their size and frequency are variable. For a discussion of other factors that affected KKR's dividend income, see "—Analysis of Asset Management Segment Operating Results."
Interest Income
The increase in interest income during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to (i) the impact of closing CLOs that were consolidated subsequent to March 31, 2022, (ii) higher interest rates on floating rate investments held in consolidated CLOs, leveraged credit and alternative credit funds, and (ii) a higher level of interest income from certain of our consolidated leveraged credit and private credit funds, related to an increase in the amount of capital deployed. For a discussion of other factors that affected KKR's interest income, see "—Analysis of Asset Management Segment Operating Results."
Interest Expense
The increase in interest expense during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to (i) the increase in the amount of borrowings outstanding from certain consolidated funds and other vehicles, (ii) impact of closing CLOs that were consolidated subsequent to March 31, 2022, (iii) higher interest rates on floating rate debt obligations held in consolidated CLOs, and (iv) the impact of issuances of our senior notes after March 31, 2022. For a discussion of other factors that affected KKR's interest expense, see "—Analysis of Non-GAAP Performance Measures."
Expenses - Asset Management
Compensation and Benefits Expense
The increase in compensation and benefits expense during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to accrued carried interest compensation in the current period compared to the reversal of previously recognized carried interest compensation in the prior period. Partially offsetting the increase is a lower level of accrued discretionary cash compensation resulting from a lower level of asset management segment revenues in the current period.
General, Administrative and Other
The decrease in general, administrative and other expenses during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to a lower level of (i) expenses reimbursable by our investment funds and (ii) a lower level of placement fees incurred related to capital raising activities, partially offset by a higher level of professional fees, information technology, travel and other administrative costs in connection with the overall growth of the firm.
In reporting periods where there are lower levels of fundraising and, to the extent that we use third parties to assist in our capital raising efforts, our General, Administrative and Other expenses are expected to decrease accordingly. Similarly, our General, Administrative and Other expenses are expected to decrease during any periods where there are lower levels of professional and other fees incurred as part of due diligence related to strategic acquisitions and new product development.
Condensed Consolidated Results of Operations (GAAP Basis - Unaudited) - Insurance
Revenues
For the three months ended March 31, 2023 and 2022, revenues consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| | March 31, 2023 | | March 31, 2022 | | Change | | | | | | |
| ($ in thousands) |
| Net Premiums | $ | 473,624 | | | $ | 372,144 | | | $ | 101,480 | | | | | | | |
| Policy Fees | 313,802 | | | 313,782 | | | 20 | | | | | | | |
| Net Investment Income | 1,300,697 | | | 812,605 | | | 488,092 | | | | | | | |
| Net Investment-Related Losses | (123,833) | | | (368,680) | | | 244,847 | | | | | | | |
| Other Income | 37,158 | | | 34,744 | | | 2,414 | | | | | | | |
| Total Insurance Revenues | $ | 2,001,448 | | | $ | 1,164,595 | | | $ | 836,853 | | | | | | | |
Net Premiums
Net premiums increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to higher initial premiums related to a larger number of reinsurance transactions with life contingencies assumed during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. The increase was partially offset by higher retrocessions to third party reinsurers during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. The initial premiums on assumed reinsurance were offset by a comparable increase in policy reserves reported within net policy benefits and claims (as discussed below).
Net investment income
Net investment income increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) increased average assets under management due to growth in assets in Global Atlantic's institutional market channel as a result of new reinsurance transactions and individual market channel sales, (ii) growth in portfolio yields due to higher market interest rates on floating rate investments, and (iii) rotation into higher yielding assets during 2022.
Net investment-related losses
The components of net investment-related losses were as follows:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| ($ in thousands) |
| Funds withheld payable at interest embedded derivatives | $ | (430,235) | | | $ | 1,180,435 | | | $ | (1,610,670) | |
| Equity futures contracts | (40,825) | | | 79,796 | | | (120,621) | |
| Foreign currency forwards | 794 | | | 8,557 | | | (7,763) | |
| Credit risk contracts | (75) | | | (1,532) | | | 1,457 | |
| Equity index options | 83,887 | | | (223,366) | | | 307,253 | |
| Interest rate contracts | 68,996 | | | (150,176) | | | 219,172 | |
| Funds withheld receivable embedded derivatives | (30,767) | | | (33,980) | | | 3,213 | |
| | | | | |
| Net gains on derivative instruments | (348,225) | | | 859,734 | | | (1,207,959) | |
| Net other investment gains (losses) | 224,392 | | | (1,228,414) | | | 1,452,806 | |
| Net investment-related losses | $ | (123,833) | | | $ | (368,680) | | | $ | 244,847 | |
Net gains on derivative instruments
The decrease in the fair value of embedded derivatives on funds withheld at interest payable for the three months ended March 31, 2023 was primarily driven by the change in fair value of the underlying investments in the funds withheld at interest payable portfolio, which is primarily comprised of fixed maturity securities (designated as trading for accounting purposes), mortgage and other loan receivables, and other investments. The underlying investments in the funds withheld at interest payable portfolio increased in value in the three months ended March 31, 2023, primarily due to a decrease in market interest rates as compared to a decrease in value in the three months ended March 31, 2022, due to an increase in market interest rates.
The increase in the fair value of equity index options was primarily driven by the performance of the indexes upon which call options are based. Global Atlantic purchases equity index options to hedge the market risk of embedded derivatives in indexed universal life and fixed-indexed annuity products (the change in which is accounted for in net policy benefits and claims). The majority of Global Atlantic's equity index call options are based on the S&P 500 Index, which increased during the three months ended March 31, 2023, as compared to a decrease during the three months ended March 31, 2022.
The decrease in the fair value of equity futures contracts was driven primarily by the performance of equity markets. Global Atlantic purchases equity futures primarily to hedge the market risk in Global Atlantic's variable annuity products which are accounted for in net policy benefits and claims. The majority of Global Atlantic's equity futures are based on the S&P 500 Index, which increased during the three months ended March 31, 2023, as compared to a decrease during the three months ended March 31, 2022, resulting in respectively, a loss, and a gain, on equity futures contracts in the respective periods.
The increase in the fair value of interest rate contracts was driven by a decrease in market interest rates during the three months ended March 31, 2023 and an increase in market interest rates during the three months ended March 31, 2022, resulting in respectively, a gain and a loss, on interest rate contracts.
The increase in the fair value of embedded derivatives on funds withheld at interest receivable was primarily due to widening of credit spreads during both the three months ended March 31, 2023, and the three months ended March 31, 2022.
Net other investment losses
The components of net other investment losses were as follows:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| ($ in thousands) |
| Realized gains (losses) on investments not supporting asset-liability matching strategies | $ | — | | | $ | 14,964 | | | $ | (14,964) | |
| | | | | |
| Realized gains (losses) on available-for-sale fixed maturity debt securities | 3,432 | | | (243,350) | | | 246,782 | |
| Credit loss allowances | (148,429) | | | (29,897) | | | (118,532) | |
| Impairment of available-for-sale fixed maturity debt securities due to intent to sell | (26,741) | | | — | | | (26,741) | |
| Unrealized gains (losses) on fixed maturity securities classified as trading | 376,290 | | | (1,038,446) | | | 1,414,736 | |
| Unrealized gains (losses) on investments accounted under a fair-value option | (55,773) | | | (2,493) | | | (53,280) | |
| Unrealized gains (losses) on real estate investments recognized at fair value under investment company accounting | 63,192 | | | 77,692 | | | (14,500) | |
| Realized gains (losses) on funds withheld at interest payable portfolio | 3,980 | | | (26,387) | | | 30,367 | |
| Realized gains (losses) on funds withheld at interest receivable portfolio | 17,733 | | | 25,600 | | | (7,867) | |
| Other | (9,292) | | | (6,097) | | | (3,195) | |
| Net other investment gains (losses) | $ | 224,392 | | | $ | (1,228,414) | | | $ | 1,452,806 | |
The increase in net other investment gains for the three months ended March 31, 2023 as compared to net other investment losses for the three months ended March 31, 2022, were primarily due to (i) a decrease in unrealized losses on fixed maturity securities classified as trading which was primarily due to a decrease in interest rates during the three months ended March 31, 2023 as compared to an increase in interest rates during the three months ended March 31, 2022, (ii) a decrease in realized losses on available-for-sale fixed maturity debt securities which was primarily due to a decrease in portfolio rotation activity, and (iii) realized gains on funds withheld at interest payable portfolio.
Offsetting these gains were (i) an increase in credit loss allowances on fixed maturity securities and mortgage and other loan receivables in the three months ended March 31, 2023, which was primarily due to an increase in the overall credit risk of Global Atlantic's loan portfolio, (ii) impairments of available-for-sale securities in an unrealized loss position due to an intent to sell, and (iii) unrealized losses on investments accounted under a fair-value option during the three months ended March 31, 2023.
Expenses
Net policy benefits and claims
Net policy benefits and claims increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) a loss on market risk benefits due to an decrease in interest rates in the three months ended March 31, 2023, as compared to a gain on market risk benefits during the three months ended March 31, 2022 due to an increase in rates in the three months ended March, 31, 2022, (ii) an increase in net flows from both individual and institutional market channel sales, (iii) higher funding costs on new business, and (iv) higher initial reserves assumed related to an increase in new reinsurance transactions with life contingencies in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, and (v) an increase in the value of embedded derivatives in Global Atlantic's indexed universal life and fixed indexed annuity products, as a result of higher equity market returns (as discussed above under "Revenues–Net investment-related losses–Net gains on derivatives instruments," Global Atlantic purchases equity index options in order to hedge this risk, the fair value changes of which are accounted for in gains on derivative instruments, and generally offsetting the change in embedded derivative fair value reported in net policy benefits and claims).
Offsetting these increases was an decrease in variable annuity market risk benefit liabilities primarily due to higher equity market returns.
Amortization of policy acquisition costs
Amortization of policy acquisition costs increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to growth in Global Atlantic's individual market and institutional market channels.
Interestexpense
Interest expense increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) a net increase in debt outstanding, primarily due to draws on the revolving credit facility after March 31, 2022, and (ii) an increase in interest expense on floating rate debt (Global Atlantic's revolving facility and fixed-to-floating swaps on its fixed rate debt) due to higher market rates.
Insurance expenses
Insurance expenses increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to increased reinsurance transactions and increased commission expense related to increased sales in Global Atlantic's individual markets channel.
General, administrative and other
General, administrative and other expenses increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) increased interest expense due to higher interest rates and debt outstanding, (ii) increased employee compensation and benefits related expenses, (iii) increased professional service fees, and (iv) increased third-party administrator ("TPA”) policy servicing fees, all due to growth of the business.
Other Condensed Consolidated Results of Operations (GAAP Basis - Unaudited)
Income Tax Expense (Benefit)
Income tax expense increased for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022 primarily due to net operating income generated from asset management in the current period as compared to a net operating loss driven by net capital allocation-based losses in the prior period. The net operating income from Global Atlantic in the prior period largely offset the asset management net operating loss. For a discussion of factors that impacted KKR's tax provision, see Note 19 "Income Taxes" in our financial statements included elsewhere in this report. The amount of U.S. federal or state corporate income taxes we pay in future periods may be materially increased if adverse tax laws become enacted.
Net Income (Loss) Attributable to Noncontrolling Interests
Net loss attributable to noncontrolling interests for the three months ended March 31, 2023 was primarily due to (i) net losses from investment activities primarily at certain of our consolidated real estate and energy investment funds and (ii) a net loss in the current period allocable to interests that third party investors hold in Global Atlantic, partially offset by positive net income from asset management operations allocable to holders of certain securities exchangeable into shares of common stock of KKR & Co. Inc.
Net Income (Loss) Attributable to KKR & Co. Inc.
The net income attributable to KKR & Co. Inc. for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 increased due to net capital allocation-based income, partially offset by a lower level of transaction fees and accrued carried interest compensation, as described above.
Condensed Consolidated Statements of Financial Condition (GAAP Basis)
The following table provides our condensed consolidated statements of financial condition on a GAAP basis as of March 31, 2023 and December 31, 2022.
| | | | | | | | | | | | | | |
| (Amounts in thousands, except per share amounts) |
| | As of | | As of |
| | March 31, 2023 | | December 31, 2022 |
| | | | |
| Assets | | | | |
| Asset Management | | | | |
| Cash and Cash Equivalents | | $ | 5,576,121 | | | $ | 6,705,325 | |
| Investments | | 97,949,918 | | | 92,375,463 | |
| Other Assets | | 7,057,818 | | | 7,114,360 | |
| | 110,583,857 | | | 106,195,148 | |
| Insurance | | | | |
| Cash and Cash Equivalents | | 3,713,382 | | | 6,118,231 | |
| Investments | | 129,401,394 | | | 124,199,176 | |
| Other Assets | | 38,911,956 | | | 38,834,081 | |
| | 172,026,732 | | | 169,151,488 | |
| Total Assets | | $ | 282,610,589 | | $ | 275,346,636 |
| | | | |
| Liabilities and Equity | | | | |
| Asset Management | | | | |
| Debt Obligations | | $ | 42,519,776 | | | $ | 40,598,613 | |
| Other Liabilities | | 8,228,017 | | | 6,937,832 | |
| | 50,747,793 | | | 47,536,445 | |
| Insurance | | | | |
| Debt Obligations | | 2,157,283 | | | 2,128,166 | |
| Other Liabilities | | 172,582,137 | | | 170,311,335 | |
| | 174,739,420 | | | 172,439,501 | |
| Total Liabilities | | $ | 225,487,213 | | | $ | 219,975,946 | |
| | | | |
| Redeemable Noncontrolling Interests | | 144,126 | | | 152,065 | |
| | | | |
| Stockholders' Equity | | | | |
| | | | |
| Stockholders' Equity - Series C Mandatory Convertible Preferred Stock | | 1,115,792 | | | 1,115,792 | |
| Stockholders' Equity - Common Stock | | 18,546,889 | | | 17,691,975 | |
| Noncontrolling Interests | | 37,316,569 | | | 36,410,858 | |
| Total Equity | | 56,979,250 | | | 55,218,625 | |
| Total Liabilities and Equity | | $ | 282,610,589 | | | $ | 275,346,636 | |
| | | | |
KKR & Co. Inc. Stockholders' Equity - Common Stock
Per Outstanding Share of Common Stock | | $ | 21.54 | | | $ | 20.55 | |
| | | | |
KKR & Co. Inc. Stockholders’ Equity - Common Stock per Outstanding Share of Common Stock was $21.54 as of March 31, 2023, up from $20.55 as of December 31, 2022. The increase was primarily due to (i) unrealized gains on available-for-sale-securities from Global Atlantic that are recorded in other comprehensive income and (ii) net income attributable to KKR & Co. Inc. common stockholders during the first three months of 2023, partially offset by dividends to common stockholders.
Consolidated Statements of Cash Flows (GAAP Basis)
The following is a discussion of our consolidated cash flows for the three months ended March 31, 2023 and 2022. You should read this discussion in conjunction with the financial statements and related notes included elsewhere in this report.
The consolidated statements of cash flows include the cash flows of our consolidated entities, which include certain consolidated investment funds, CLOs and certain variable interest entities formed by Global Atlantic notwithstanding the fact that we may hold only a minority economic interest in those investment funds and CFEs. The assets of our consolidated investment funds and CFEs, on a gross basis, can be substantially larger than the assets of our business and, accordingly, could have a long-termsubstantial effect on the cash flows reflected in our consolidated statements of cash flows. The primary cash flow activities of our consolidated funds and CFEs involve: (i) capital contributions from fund investors; (ii) using the capital of fund investors to make investments; (iii) financing certain investments with indebtedness; (iv) generating cash flows through the realization of investments; and (v) distributing cash flows from the realization of investments to fund investors. Because our consolidated funds are treated as investment horizoncompanies for accounting purposes, certain of these cash flow amounts are included in our cash flows from operations.
Net Cash Provided (Used) by Operating Activities
Our net cash provided (used) by operating activities was $(1.9) billion and $0.9 billion during the three months ended March 31, 2023 and 2022, respectively. These amounts primarily included: (i) investments purchased (asset management), net of proceeds from investments (asset management) of $(4.7) billion and $(0.6) billion during the three months ended March 31, 2023 and 2022, respectively, (ii) net realized gains (losses) on asset management investments of $0.1 billion and $0.3 billion during the three months ended March 31, 2023 and 2022, respectively, (iii) change in unrealized gains (losses) on investments (asset management) of $(0.3) billion and $0.6 billion during the three months ended March 31, 2023 and 2022, respectively, (iv) capital allocation-based income (loss) of $0.4 billion and $(0.9) billion during the three months ended March 31, 2023 and 2022, respectively, (v) net realized gains (losses) on insurance operations of $(1.0) billion and $0.3 billion during the three months ended March 31, 2023 and 2022, respectively, and (vi) interest credited to policyholder account balances (net of policy fees) (insurance) of $0.6 billion and $0.5 billion during the three months ended March 31, 2023 and 2022, respectively. Investment funds are investment companies under GAAP and reflect their investments and other financial instruments at fair value.
Net Cash Provided (Used) by Investing Activities
Our net cash provided (used) by investing activities was $(3.8) billion and $(2.0) billion during the three months ended March 31, 2023 and 2022, respectively. Our investing activities included: (i) investments purchased (insurance), net of proceeds from investments (insurance), of $(3.8) billion and $(2.0) billion during the three months ended March 31, 2023 and 2022, respectively, and (ii) the purchase of fixed assets of $(23.2) million and $(11.9) million during the three months ended March 31, 2023 and 2022, respectively.
Net Cash Provided (Used) by Financing Activities
Our net cash provided (used) by financing activities was $2.1 billion and $4.1 billion during the three months ended March 31, 2023 and 2022, respectively. Our financing activities primarily included: (i) contributions by, net of distributions to, our noncontrolling and redeemable noncontrolling interests of $0.6 billion and $1.6 billion during the three months ended March 31, 2023 and 2022, respectively, (ii) proceeds received, net of repayment of debt obligations, of $1.5 billion and $31.5 million during the three months ended March 31, 2023 and 2022, respectively, (iii) additions to, net of withdrawals from, contractholder deposit funds of $0.5 billion and $2.4 billion during three months ended March 31, 2023 and 2022, respectively, (iv) common stock dividends of $(133.5) million and $(85.7) million during the three months ended March 31, 2023 and 2022, respectively, (v) repurchases of common stock of $(346.7) million during the three months ended March 31, 2022, and (vi) Series C Mandatory Convertible Preferred Stock dividends of $(17.3) million during each of the three months ended March 31, 2023 and 2022.
Analysis of Segment Operating Results
The following is a discussion of the results of our business on a segment basis for the three months ended March 31, 2023 and 2022. You should read this discussion in conjunction with the information included under "—Key Segment and Non- GAAP Performance Measures" and the financial statements and related notes included elsewhere in this report. See "— Business Environment" for more information about factors that may impact our business, financial performance, operating results and valuations.
Analysis of Asset Management Segment Operating Results
The following tables set forth information regarding KKR's asset management segment operating results and certain key capital deployedmetrics for the three months ended March 31, 2023 and 2022:
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| |
| | | | | | | |
| | Three Months Ended | |
| | March 31, 2023 | | March 31, 2022 | | Change | |
| | ($ in thousands) | |
| Management Fees | | $ | 738,156 | | | $ | 624,928 | | | $ | 113,228 | | |
| Transaction and Monitoring Fees, Net | | 142,179 | | | 306,038 | | | (163,859) | | |
| Fee Related Performance Revenues | | 21,741 | | | 12,051 | | | 9,690 | | |
| Fee Related Compensation | | (203,094) | | | (212,220) | | | 9,126 | | |
| Other Operating Expenses | | (150,404) | | | (125,875) | | | (24,529) | | |
| Fee Related Earnings | | 548,578 | | | 604,922 | | | (56,344) | | |
| Realized Performance Income | | 175,398 | | | 609,207 | | | (433,809) | | |
| Realized Performance Income Compensation | | (114,009) | | | (383,635) | | | 269,626 | | |
| Realized Investment Income | | 198,094 | | | 349,354 | | | (151,260) | | |
| Realized Investment Income Compensation | | (29,714) | | | (52,403) | | | 22,689 | | |
| Asset Management Segment Operating Earnings | | $ | 778,347 | | | $ | 1,127,445 | | | $ | (349,098) | | |
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Management Fees
The following table presents management fees by business line:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Management Fees | | | | | | |
| Private Equity | | $ | 316,341 | | | $ | 282,184 | | | $ | 34,157 | |
| Real Assets | | 193,365 | | | 153,813 | | | 39,552 | |
| Credit and Liquid Strategies | | 228,450 | | | 188,931 | | | 39,519 | |
| Total Management Fees | | $ | 738,156 | | | $ | 624,928 | | | $ | 113,228 | |
The increase in Private Equity management fees was primarily attributable to management fees earned on new capital raised over the past twelve months at European Fund VI, Next Generation Technology Growth Fund III, and Global Impact Fund II. The increase was partially offset by (i) catch-up management fees earned on new capital raised for North America Fund XIII in the first quarter of 2022 that was retroactive to the start of the fund's investment period, and (ii) a lower level of management fees from Asian Fund III due to the sale of investments that resulted in a decrease in its fee base, which is capital invested. There were no catch-up management fees earned in the first quarter of 2023 for North America Fund XIII. During the first quarter of 2023, approximately $9.0 million of management fees were earned on new capital raised that is retroactive to the start of the relevant fund's investment period.
The increase in Real Asset management fees was primarily attributable to (i) management fees earned on assets managed by KJRM, which we acquired in the second quarter of 2022, (ii) management fees earned from Asia Pacific Infrastructure Investors II, which entered its investment period in the third quarter of 2022 resulting in management fees now being earned on this capital, and (iii) a higher level of management fees earned from Global Atlantic due to an increase in assets being managed by KKR's Asset Management segment. The increase was partially offset by catch-up management fees earned on new capital raised for Global Infrastructure Investors IV in the first quarter of 2022 that was retroactive to the start of the fund's investment period. There were no catch-up management fees earned in the first quarter of 2023 for Global Infrastructure Investors IV.
The increase in Credit and Liquid Strategies management fees was primarily attributable to (i) a higher level of management fees earned from Global Atlantic due to an increase in assets being managed by KKR's Asset Management segment and the issuance of new CLOs over the past twelve months.
Transaction and Monitoring Fees, Net
The following table presents transaction and monitoring fees, net by business line:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Transaction and Monitoring Fees, Net | | | | | | |
| Private Equity | | $ | 34,274 | | | $ | 33,056 | | | $ | 1,218 | |
| Real Assets | | 5,734 | | | 7,630 | | | (1,896) | |
| Credit and Liquid Strategies | | 284 | | | 10,096 | | | (9,812) | |
| Capital Markets | | 101,887 | | | 255,256 | | | (153,369) | |
| Total Transaction and Monitoring Fees, Net | | $ | 142,179 | | | $ | 306,038 | | | $ | (163,859) | |
Our Private Equity, Real Assets and Credit and Liquid Strategies business lines separately earn transaction and monitoring fees from portfolio companies, and under the terms of the management agreements with certain of our investment funds, we are generally required to share all or a portion of such fees with our fund investors. In most funds, transaction and monitoring fees are credited against fund management fees up to 100% of the amount of the transaction and monitoring fees attributable to that fund, which results in a decrease of our monitoring and transaction fee income. Additionally, transaction fees are generally not earned with respect to energy and real estate investments. Our Capital Markets business line earns transaction fees, which are not shared with fund investors.
The decrease in transaction and monitoring fees, net is primarily due to a lower level of transaction fees earned in our Capital Markets business line. The decrease in capital markets transaction fees was primarily due to a decrease in the number of capital markets transactions for the three months ended March 31, 2023, compared to the three months ended March 31, 2022 reflecting reduced issuance levels across global equity and leveraged loan markets.Overall, we completed 42 capital markets transactions for the three months ended March 31, 2023, of which 9 represented equity offerings and 33 represented debt offerings, as compared to 87 transactions for the three months ended March 31, 2022, of which 11 represented equity offerings and 76 represented debt offerings. We earned fees in connection with underwriting, syndication and other capital markets services. While each of the capital markets transactions that we undertake in this business line is separately negotiated, our fee rates are generally higher with respect to underwriting or syndicating equity offerings than with respect to debt offerings, and the amount of fees that we earn for similar transactions generally correlates with overall transaction sizes.
Our capital markets fees are generated in connection with activity involving our private equity, real assets and credit funds as well as from third-party companies. For the three months ended March 31, 2023, approximately 14% of our transaction fees in our Capital Markets business line were earned from unaffiliated third parties as compared to approximately 19% for the three months ended March 31, 2022. Our transaction fees are comprised of fees earned in North America, Europe, and the Asia-Pacific region. For the three months ended March 31, 2023, approximately 59% of our transaction fees were generated outside of North America as compared to approximately 37% for the three months ended March 31, 2022. Our Capital Markets business line is dependent on the overall capital markets environment, which is influenced by equity prices, credit spreads, and volatility. Our Capital Markets business line does not generate monitoring fees.
Fee Related Performance Revenues
The following table presents fee related performance revenues by business line:
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Fee Related Performance Revenues | | | | | | |
| Private Equity | | $ | — | | | $ | — | | | $ | — | |
| Real Assets | | 3,704 | | | 2,317 | | | 1,387 | |
| Credit and Liquid Strategies | | 18,037 | | | 9,734 | | | 8,303 | |
| Total Fee Related Performance Revenues | | $ | 21,741 | | | $ | 12,051 | | | $ | 9,690 | |
Fee related performance revenues represent performance fees that are (i) expected to be received from our investment funds, vehicles and accounts on a recurring basis, and (ii) not dependent on a realization event involving investments held by the investment fund, vehicle or account. These performance fees are primarily earned from FS KKR Capital Corp. (NYSE: FSK) ("FSK") (our business development company), KKR Property Partners Americas ("KPPA") (our open-ended core plus real estate fund), KKR Real Estate Select Trust ("KREST") (our registered closed-end real estate equity fund), KKR Real Estate Finance Trust Inc. ("KREF") (our real estate credit investment trust), and KJRM (our Japanese real estate investment trust asset manager). Fee related performance revenues were higher for the three months ended March 31, 2023 compared to the prior period primarily due to an increase in performance revenues earned from FSK in the current period.
Fee Related Compensation
The decrease in fee related compensation for the three months ended March 31, 2023 compared to the prior period was primarily due to a lower level of compensation recorded in connection with the lower level of revenues included within fee related earnings.
Other Operating Expenses
The increase in other operating expenses for the three months ended March 31, 2023 compared to the prior period was primarily due to a higher level of professional fees, information technology, travel and other administrative costs in connection with the overall growth of the firm.
Fee Related Earnings
The decrease in fee related earnings for the three months ended March 31, 2023 compared to the prior period was primarily due to a lower level of transaction fees earned in our Capital Markets business line and higher level of operating expenses partially offset by a higher level of management fees across our Private Equity, Real Assets and Credit and Liquid Strategies business lines, as described above.
Realized Performance Income
The following table presents realized performance income by business line:
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Realized Performance Income | | | | | | |
| Private Equity | | $ | 163,052 | | | $ | 603,823 | | | $ | (440,771) | |
| Real Assets | | 9,686 | | | — | | | 9,686 | |
| Credit and Liquid Strategies | | 2,660 | | | 5,384 | | | (2,724) | |
| Total Realized Performance Income | | $ | 175,398 | | | $ | 609,207 | | | $ | (433,809) | |
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Private Equity | | | | | | |
| Core Investment Vehicles | | $ | 103,659 | | | $ | 262,219 | | | $ | (158,560) | |
| Global Impact Fund | | 20,257 | | | — | | | 20,257 | |
| Next Generation Technology Growth Fund | | 17,810 | | | — | | | 17,810 | |
| Americas Fund XII | | 14,714 | | | 83,016 | | | (68,302) | |
| 2006 Fund | | 4,271 | | | 33,458 | | | (29,187) | |
| North America Fund XI | | — | | | 119,942 | | | (119,942) | |
| Co-Investment Vehicles and Other | | 2,292 | | | 12,444 | | | (10,152) | |
| European Fund IV | | — | | | 68,688 | | | (68,688) | |
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Total Realized Carried Interest (1) | | 163,003 | | | 579,767 | | | (416,764) | |
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| Incentive Fees | | 49 | | | 24,056 | | | (24,007) | |
| Total Realized Performance Income | | $ | 163,052 | | | $ | 603,823 | | | $ | (440,771) | |
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Real Assets | | | | | | |
| Global Infrastructure Investors II | | $ | 9,686 | | | $ | — | | | $ | 9,686 | |
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Total Realized Carried Interest (1) | | 9,686 | | | — | | | 9,686 | |
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| Incentive Fees | | — | | | — | | | — | |
| Total Realized Performance Income | | $ | 9,686 | | | $ | — | | | $ | 9,686 | |
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Credit and Liquid Strategies | | | | | | |
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Total Realized Carried Interest (1) | | $ | — | | | $ | — | | | $ | — | |
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| Incentive Fees | | 2,660 | | | 5,384 | | | (2,724) | |
| Total Realized Performance Income | | $ | 2,660 | | | $ | 5,384 | | | $ | (2,724) | |
(1)The above tables exclude any one quarter may vary significantlyfunds for which there was no realized carried interest during both of the periods presented.
Realized performance income includes (i) realized carried interest from our carry earning funds and (ii) incentive fees not included in Fee Related Performance Revenues.
Realized carried interest in our Private Equity business line for the three months ended March 31, 2023 consisted primarily of (i) realized performance income from our core investment vehicles and (ii) realized proceeds from the capital deployedsale of our investment in KnowBe4, Inc. held by Global Impact Fund and Next Generation Technology Growth Fund.
Realized carried interest in our Private Equity business line for the three months ended March 31, 2022 consisted primarily of (i) realized performance income from our core investment vehicles and (ii) realized proceeds from a dividend received from our investment in Internet Brands, Inc. (technology sector) held by North America Fund XI and Americas Fund XII and the sale of our investment in Hensoldt AG (FRA: HAG) held by European Fund IV.
Realized carried interest in our Real Assets business line for the three months ended March 31, 2023 consisted primarily of realized proceeds from the sale of our investment in Telxius Telecom, S.A.U. (Infrastructure: telecommunications infrastructure sector) held by Global Infrastructure Investors II. During the three months ended March 31, 2022, there was no realized carried interest earned in our Real Assets business line.
During the three months ended March 31, 2023 and 2022, there was no realized carried interest earned in our Credit and Liquid Strategies business line.
Incentive fees consist of performance fees earned from (i) our hedge fund partnerships, (ii) investment management agreements with KKR sponsored investment vehicles, and (iii) investment management agreements to provide KKR’s investment strategies to funds managed by a UK investment fund manager.
Incentive fees in our Private Equity business line decreased for the three months ended March 31, 2023 compared to the prior period as a result of incentive fees not being earned from certain levered multi-asset investment vehicles in the current period. Incentive fees in our Credit and Liquid Strategies business line decreased for the three months ended March 31, 2023 compared to the prior period primarily as a result of a lower level of performance fees earned from a UK investment fund manager.
Realized Performance Income Compensation
The decrease in realized performance income compensation for the three months ended March 31, 2023 compared to the prior period was primarily due to a lower level of compensation recorded in connection with the lower level of realized performance income.
Realized Investment Income
The following table presents realized investment income in our Principal Activities business line:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Realized Investment Income | | | | | | |
| Net Realized Gains (Losses) | | $ | 91,907 | | | $ | 76,136 | | | $ | 15,771 | |
| Interest Income and Dividends | | 106,187 | | | 273,218 | | | (167,031) | |
| Total Realized Investment Income | | $ | 198,094 | | | $ | 349,354 | | | $ | (151,260) | |
The decrease in realized investment income is primarily due to a lower level of interest income and dividends, partially offset by a higher level of net realized gains. The amount of realized investment income depends on the transaction activity of our funds and balance sheet, which can vary from period to period.
For the three months ended March 31, 2023, net realized gains were comprised of realized gains primarily from the sale of our investments in KnowBe4, Inc. and Flutter Entertainment PLC. Partially offsetting these realized gains were realized losses, the most significant of which was a realized loss on our alternative credit investment, Chembulk Group, and realized losses from the sales of various revolving credit facilities.
For the three months ended March 31, 2022, net realized gains were comprised of realized gains primarily from the sale of our investments in Fiserv, Inc. and Hensoldt AG. Partially offsetting these realized gains were realized losses, the most significant of which was a realized loss of an alternative credit investment and real estate equity investment.
For the three months ended March 31, 2023, interest income and dividends were comprised of (i) $70.7 million of interest income, primarily from our investments in CLOs, and (ii) $35.5 million of dividend distributions primarily from our Americas real estate credit and equity investments, as well as a dividend distribution received from Resolution Life Holdings L.P. (financial services sector).
For the three months ended March 31, 2022, interest income and dividends were comprised of (i) $218.9 million of dividend income primarily from levered multi-asset investment vehicles and our investments in Exact Holdings B.V. and Internet Brands, Inc., and (ii) $54.3 million of interest income, primarily from our investments in CLOs. See "—Analysis of Non-GAAP Performance Measures—Non-GAAP Balance Sheet Measures."
Realized investment income (loss) includes the net income (loss) from KKR Capstone. For the quarter ended March 31, 2023, total fees attributable to KKR Capstone were $19.8 million and total expenses attributable to KKR Capstone were $19.6 million. For KKR Capstone-related adjustments in reconciling asset management segment revenues to GAAP revenues see "—Analysis of Non-GAAP Performance Measures—Reconciliations to GAAP Measures".
Based on information available as of the date of the filing of this report, we expect realized performance income and realized investment income to be approximately $125 million in the second quarter of 2023 relating to realized carried interest and realized investment income from completed, or signed and expected to be completed sales, partial sales or secondary sales subsequent to March 31, 2023 with respect to certain private equity portfolio companies and other investments. Some of these transactions are not complete, and are subject to the satisfaction of closing conditions, including, but not limited, to regulatory approvals; there can be no assurance if or when any of these transactions will be completed. The estimate disclosed above is not intended to predict or represent total realized performance income or total realized investment income for the full quarter ending June 30, 2023, because it does not include the results or impact of any other sources of income, including fee income, or expenses, and we may realize further gains or losses relating to total realized performance income and total realized investment income after the date of the filing of this report. Therefore, the actual realized carried interest and realized investment income for the quarter ended June 30, 2023 may be higher or lower than $125 million.
Realized Investment Income Compensation
The decrease in realized investment income compensation for the quarterlythree months ended March 31, 2023 compared to the prior period is primarily due to a lower level of compensation recorded in connection with the lower level of realized investment income.
Other Operating and Capital Metrics
The following table presents certain key operating and capital metrics as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | |
| | As of |
| | March 31, 2023 | | December 31, 2022 | | Change |
| | ($ in millions) |
| Assets Under Management | | $ | 510,069 | | | $ | 503,897 | | | $ | 6,172 | |
| Fee Paying Assets Under Management | | $ | 415,871 | | | $ | 411,923 | | | $ | 3,948 | |
| Uncalled Commitments | | $ | 106,266 | | | $ | 107,679 | | | $ | (1,413) | |
The following table presents one of our key capital metrics for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in millions) |
| Capital Invested | | $ | 9,767 | | | $ | 21,376 | | | $ | (11,609) | |
Assets Under Management
Private Equity
The following table reflects the changes in the AUM of our Private Equity business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 165,147 | |
| New Capital Raised | 349 | |
| |
| Distributions and Other | (1,227) | |
| Change in Value | 1,493 | |
| March 31, 2023 | $ | 165,762 | |
AUM of our Private Equity business line was $165.8 billion at March 31, 2023, an increase of $0.7 billion, compared to $165.1 billion at December 31, 2022.
The increase was primarily attributable to an appreciation in investment value from Americas Fund XII, Asian Fund IV, and North America Fund XIII. Partially offsetting this increase were distributions to fund investors primarily as a result of realized proceeds, most notably from Americas Fund XII, Next Generation Technology Growth Fund II, and Next Generation Technology Growth Fund.
For the three months ended March 31, 2023, the value of our traditional private equity investment portfolio increased 2%. This was comprised of a 15% increase in share prices of various publicly held investments and a 2% increase in value of our privately held investments. For the three months ended March 31, 2023, the value of our growth equity investment portfolio increased 1% and our core private equity investment portfolio remained flat.
The most significant increases in the value of our publicly held investments were increases in AppLovin Corporation (NASDAQ: APP), BridgeBio Pharma, Inc. and PropertyGuru Group Limited (NYSE: PGRU). These increases were partially offset by decreases in the value of certain publicly held investments, the most significant of which was Brightview Holdings, Inc. (NYSE: BV) and Indus Towers Limited (NSE: INDUSTOWER). The prices of publicly held companies may experience volatile changes following the reporting period. See "—Business Environment" for more information about the factors, such as volatility, that may impact our business, financial performance, operating results and valuations.
The most significant increases in the value of our privately held investments were increases in Cloudera, Inc. (technology sector), Magneti Marelli CK Holdings Co. (industrials sector), and OneStream Software, LLC (technology sector). These increases in value on our privately held investments were partially offset by decreases in the value of certain other privately held investments, the most significant of which were Bytedance Ltd. (technology sector), GenesisCare Pty Ltd., and Heartland Dental, LLC. The increased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) individual company performance and (ii) an increase in the value of market comparables. The decreased valuations of individual companies in our privately held investments, in the aggregate, generally related to an unfavorable business outlook. See "—Business Environment" for more information about the factors, that may impact our business, financial performance, operating results and valuations.
Real Assets
The following table reflects the changes in the AUM of our Real Assets business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 118,592 | |
| New Capital Raised | 2,613 | |
| |
| Distributions and Other | (1,468) | |
| Redemptions | (79) | |
| Change in Value | 1,148 | |
| March 31, 2023 | $ | 120,806 | |
| |
| |
| |
AUM of our Real Assets business line was $120.8 billion at March 31, 2023, an increase of $2.2 billion, compared to $118.6 billion at December 31, 2022.
The increase was primarily attributable to (i) new capital raised from a real estate credit separately managed account, Asia Real Estate Partners II, and our open-ended core infrastructure fund, Diversified Core Infrastructure Fund and (ii) the appreciation in investment value primarily from Global Infrastructure Investors III. Partially offsetting these increases were payments to Global Atlantic policyholders and distributions to fund investors as a result of realized proceeds, most notably distributions from Global Infrastructure Investors II.
For the three months ended March 31, 2023, the value of our infrastructure investment portfolio increased 6%, the value of our energy investment portfolio decreased by 9%, and the value of our opportunistic real estate equity investment portfolio decreased by 2%.
The most significant increases in value across our Real Asset portfolio were in Atlantic Aviation FBO Inc. (Infrastructure: transportation sector), First Gen Corporation (Infrastructure: power and utilities sector), and X-Elio Energy, S.L. (Infrastructure: power and utilities sector). These increases in value were partially offset by decreases in value relating primarily to various assets held in our energy portfolio, Colonial Enterprises, Inc. (Infrastructure: midstream sector), and various assets held in our real estate equity portfolio across all regions. The increased valuations of individual companies or assets in the aggregate, generally related to individual company or asset performance, and with respect to X-Elio Energy, S.L., an increase in valuation reflecting an agreement to exit this investment. The decreased valuations of individual companies or assets in the aggregate, generally related to an unfavorable business outlook. See "—Business Environment" for more information about the factors that may impact our business, financial performance, operating results and valuations.
Credit and Liquid Strategies
The following table reflects the changes in the AUM of our Credit and Liquid Strategies business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 220,158 | |
| New Capital Raised | 8,715 | |
| |
| |
| |
| Distributions and Other | (4,025) | |
| Redemptions | (2,533) | |
| Change in Value | 1,186 | |
| March 31, 2023 | $ | 223,501 | |
| |
| |
| |
AUM of our Credit and Liquid Strategies business line was $223.5 billion at March 31, 2023, an increase of $3.3 billion compared to $220.2 billion at December 31, 2022.
The increase was primarily attributable to (i) new capital raised from Global Atlantic, our hedge fund partnership, Marshall Wace, and the issuance of a new CLO, and to a lesser extent (ii) appreciation in investment value on assets managed across our leveraged and alternative credit investment funds. Partially offsetting these increases were (i) payments to Global Atlantic policyholders, (ii) redemptions at our hedge fund partnership, Marshall Wace, and (iii) distributions to fund investors at certain alternative credit funds.
See also "—Business Environment" for more information about the factors that may impact our business, financial performance, operating results and valuations and "—Credit and Liquid Strategies" for investment performance information for our leveraged and alternative credit strategies.
Fee Paying Assets Under Management
Private Equity
The following table reflects the changes in the FPAUM of our Private Equity business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 102,261 | |
| New Capital Raised | 1,407 | |
| |
| Distributions and Other | (1,401) | |
| |
| Change in Value | 56 | |
| March 31, 2023 | $ | 102,323 | |
FPAUM of our Private Equity business line was $102.3 billion at March 31, 2023, which remained flat compared to December 31, 2022.
New capital raised from European Fund VI, Next Generation Technology Growth Fund III, and Global Impact Fund II was primarily offset by the (i) reduction in fee base for European Fund III and China Growth Fund, which no longer pay management fees, and (ii) distributions to fund investors, primarily as a result of realized proceeds, most notably distributions from Americas Fund XII and Next Generation Technology Growth Fund II.
Uncalled commitments from private equity and multi-strategy investment funds from which KKR is currently not earning management fees amounted to approximately $17.9 billion at March 31, 2023, which includes capital commitments reserved for follow-on investments for funds that have completed their investment periods. This capital will generally begin to earn management fees upon deployment of the capital or upon the commencement of the fund's investment period. The average annual management fee rate associated with this capital is approximately 1.0%. The date on which we begin to earn fees (as specified above) is not guaranteed to occur and may not occur for an extended period of time. If and when such management fees are earned, a portion of existing FPAUM may cease paying fees or pay lower fees, thus offsetting a portion of any new management fees earned.
Real Assets
The following table reflects the changes in the FPAUM of our Real Assets business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 103,532 | |
| New Capital Raised | 3,434 | |
| |
| Distributions and Other | (1,271) | |
| Redemptions | (79) | |
| |
| Change in Value | 111 | |
| March 31, 2023 | $ | 105,727 | |
| |
| |
| |
FPAUM of our Real Assets business line was $105.7 billion at March 31, 2023, an increase of $2.2 billion, compared to $103.5 billion at December 31, 2022.
The increase was primarily attributable to new capital raised from Diversified Core Infrastructure Fund and Asia Pacific Infrastructure Investors II. Partially offsetting this increase were (i) payments to Global Atlantic policyholders, and (ii) distributions to fund investors as a result of realized proceeds, most notably distributions from Global Infrastructure Investors II.
Uncalled commitments from real assets investment funds from which KKR is currently not earning management fees amounted to approximately $8.7 billion at March 31, 2023, which includes capital commitments reserved for follow-on investments for funds that have completed their investment periods. This capital will generally begin to earn management fees upon deployment of the capital or upon the commencement of the fund's investment period. The average annual management fee rate associated with this capital is approximately 1.2%. The date on which we begin to earn fees (as specified above) is not guaranteed to occur and may not occur for an extended period of time. If and when such management fees are earned, a portion of existing FPAUM may cease paying fees or pay lower fees, thus offsetting a portion of any new management fees earned.
Credit and Liquid Strategies
The following table reflects the changes in the FPAUM of our Credit and Liquid Strategies business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 206,130 | |
| New Capital Raised | 8,496 | |
| |
| |
| |
| Distributions and Other | (5,228) | |
| Redemptions | (2,533) | |
| Change in Value | 956 | |
| March 31, 2023 | $ | 207,821 | |
| |
| |
| |
FPAUM of our Credit and Liquid Strategies business line was $207.8 billion at March 31, 2023, an increase of $1.7 billion, compared to $206.1 billion at December 31, 2022.
The increase was primarily attributable to (i) new capital raised from Global Atlantic, our hedge fund partnership, Marshall Wace, and the issuance of a new CLO, and to a lesser extent (ii) appreciation in investment value on assets managed across our leveraged and alternative credit investment funds. Partially offsetting these increases were (i) payments to Global Atlantic policyholders, (ii) redemptions at our hedge fund partnership, Marshall Wace, and (iii) distributions to fund investors at certain alternative credit funds.
Uncalled capital commitments from investment funds in our Credit and Liquid Strategies business line from which KKR is currently not earning management fees amounted to approximately $10.6 billion at March 31, 2023. This capital will generally begin to earn management fees upon deployment of the capital or upon the commencement of the fund's investment period. The average annual management fee rate associated with this capital is approximately 0.7%. The date on which we begin to earn fees (as specified above) is not guaranteed to occur and may not occur for an extended period of time. If and when such management fees are earned, which will occur over an extended period of time, a portion of existing FPAUM may cease paying fees or pay lower fees, thus offsetting a portion of any new management fees earned.
See "—Business Environment" for more information about the factors that may impact our business, financial performance, operating results and valuations.
Uncalled Commitments
Private Equity
As of March 31, 2023, our Private Equity business line had $64.1 billion of remaining uncalled commitments that could be called for investments in new transactions as compared to $65.9 billion as of December 31, 2022. The decrease was primarily attributable to capital called from fund investors to make investments during the period, which was partially offset by new capital commitments from fund investors.
Real Assets
As of March 31, 2023, our Real Assets business line had $27.7 billion of remaining uncalled commitments that could be called for investments in new transactions as compared to $27.5 billion as of December 31, 2022. The increase was primarily attributable to new capital commitments from fund investors, partially offset by capital called from fund investors to make investments during the period.
Credit and Liquid Strategies
As of March 31, 2023, our Credit and Liquid Strategies business line had $14.5 billion of remaining uncalled commitments that could be called for investments in new transactions as compared to $14.3 billion as of December 31, 2022. The increase was primarily attributable to new capital commitments from fund investors, which was partially offset by capital called from fund investors to make investments during the period.
Capital Invested
Private Equity
For the three months ended March 31, 2023, our Private Equity business line had $2.9 billion of capital invested as compared to $4.4 billion for the three months ended March 31, 2022. The decrease was driven primarily by a $2.4 billion decrease in capital invested in our traditional private equity strategy. During the three months ended March 31, 2023, 57% of capital deployed in private equity (including core and growth equity (including impact) investments) was in transactions in Europe, 39% was in North America, and 4% was in the Asia-Pacific region. The number of large private equity investments made in any given year. Reduced levelsquarterly or year-to-date period is volatile and, consequently, a significant amount of transaction activitycapital invested in one period or a few periods may not be indicative of a similar level of capital deployment in future periods.
Real Assets
For the three months ended March 31, 2023, our Real Assets business line had $4.7 billion of capital invested as compared to $9.0 billion for the three months ended March 31, 2022. The decrease was driven primarily by a $3.8 billion decrease in capital invested in our real estate strategy and a $1.2 billion decrease in our energy strategy. During the three months ended March 31, 2023, 59% of capital deployed in real assets was in transactions in Europe, 31% was in the Asia-Pacific region, and 10% was in North America. The number of large real asset investments made in any quarterly or year-to-date period is volatile and, consequently, a significant amount of capital invested in one period or a few periods may not be indicative of a similar level of capital deployment in future periods.
Credit and Liquid Strategies
For the three months ended March 31, 2023, our Credit and Liquid Strategies business line had $2.2 billion of capital invested as compared to $8.0 billion for the three months ended March 31, 2022. The decrease was primarily due to a lower level of capital deployed across our various private credit strategies. During the three months ended March 31, 2023, 79% of capital deployed was in transactions in North America, 19% was in Europe, and 2% was in the Asia-Pacific region.
Analysis of Insurance Segment Operating Results
Effective January 1 , 2023, we adopted new accounting guidance for insurance and reinsurance companies that issue long-duration contracts (“LDTI”) as of February 1, 2021, the date of the GA Acquisition, on a full retrospective basis. For a more detailed discussion of the adoption of the LDTI, see Note 2 "Summary of Significant Accounting Policies" in our financial statements.
The following tables set forth information regarding KKR's insurance segment operating results and certain key operating metrics as of and for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
| March 31, 2023 | | March 31, 2022 | | Change |
| ($ in thousands) |
| Net Investment Income | $ | 1,271,255 | | | $ | 862,414 | | | $ | 408,841 | |
| Net Cost of Insurance | (750,612) | | | (481,870) | | | (268,742) | |
| General, Administrative and Other | (196,714) | | | (146,412) | | | (50,302) | |
| Pre-tax Operating Earnings | 323,929 | | | 234,132 | | | 89,797 | |
| | | | | |
| Pre-tax Operating Earnings Attributable to Noncontrolling Interests | (118,817) | | | (90,185) | | | (28,632) | |
| Insurance Segment Operating Earnings | $ | 205,112 | | | $ | 143,947 | | | $ | 61,165 | |
Insurance segment operating earnings
Insurance segment operating earnings increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to higher net investment income resulting from an increase in assets under management due to growth of the business, and higher average yields. The increase was offset in part by (i) higher net cost of insurance, primarily due to the growth in both the individual market and institutional market channels and higher funding cost on new business and (ii) a corresponding increase in general and administrative expenses.
Net investment income
Net investment income increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) increased average assets under management due to growth in assets in the institutional market channel as a result of new reinsurance transactions and individual market channel sales from new business growth, (ii) increases in portfolio yields due to higher market interest rates on floating rate investments, and (iii) rotation into higher yielding assets. Offsetting these increases to net investment income was a decrease in variable investment income, primarily due to the non-recurrence of net realized gains from the sale of investments not related to asset/liability matching strategies.
Net cost of insurance
Net cost of insurance increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) growth in reserves in the institutional market as a result of new reinsurance transactions and in the individual market as a result of new business volumes, and (ii) higher funding costs on new business originated.
General, administrative and other expenses
General and administrative expenses increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) increased interest expense due to higher interest rates and debt outstanding, (ii) increased employee compensation and benefits-related expenses, (iii) increased professional service fees, and (iv) increased third-party administrator policy servicing fees, all due to growth of the business.
Net income attributable to noncontrolling interests
Net income (loss) attributable to noncontrolling interests increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 in proportion to the increase in insurance segment operating earnings for the comparable period. Net income attributable to noncontrolling interests represents the proportionate interest in the insurance segment operating earnings attributable to third party co-investors in Global Atlantic.
Analysis of Non-GAAP Performance Measures
Effective January 1 , 2023, we adopted new accounting guidance for insurance and reinsurance companies that issue long-duration contracts (“LDTI”) as of February 1, 2021, the date of the GA Acquisition, on a full retrospective basis. For a more detailed discussion of the adoption of the LDTI, see Note 2 "Summary of Significant Accounting Policies" in our financial statements.
The following is a discussion of our Non-GAAP performance measures for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | Three Months Ended | |
| | March 31, 2023 | | March 31, 2022 | | Change | |
| | ($ in thousands) | |
| Asset Management Segment Operating Earnings | | $ | 778,347 | | | $ | 1,127,445 | | | $ | (349,098) | | |
| Insurance Segment Operating Earnings | | 205,112 | | | 143,947 | | | 61,165 | | |
| Distributable Operating Earnings | | 983,459 | | | 1,271,392 | | | (287,933) | | |
| | | | | | | |
| Interest Expense | | (85,500) | | | (69,460) | | | (16,040) | | |
| | | | | | | |
| Net Income Attributable to Noncontrolling Interests | | (5,626) | | | (7,616) | | | 1,990 | | |
| Income Taxes on Operating Earnings | | (173,057) | | | (220,279) | | | 47,222 | | |
| After-tax Distributable Earnings | | $ | 719,276 | | | $ | 974,037 | | | $ | (254,761) | | |
| | | | | | | |
Distributable Operating Earnings
The decrease in distributable operating earnings for the three months ended March 31, 2023 compared to the prior period is primarily due to a lower level of asset management segment operating earnings, partially offset by a higher level of insurance segment operating earnings. For a discussion of the asset management and insurance segment operating earnings, see "—Analysis of Asset Management Segment Operating Results" and "—Analysis of Insurance Segment Operating Results."
After-tax Distributable Earnings
The decrease in after-tax distributable earnings for the three months ended March 31, 2023 compared to the prior period was primarily due to a lower level of distributable operating earnings and an increase in interest expense, partially offset by a decrease in income taxes on operating earnings, as discussed above.
Interest Expense
The increase in interest expense for the three months ended March 31, 2023 compared to the prior period was primarily due to issuances of debt securities by KKR's financing subsidiaries.
Income Taxes on Operating Earnings
The decrease in income taxes on operating earnings for the three months ended March 31, 2023 compared to the prior period was primarily due to a lower level of asset management segment operating earnings.
For the three months ended March 31, 2023 and 2022, the amount of the tax benefit from equity-based compensation included in income taxes paid was $13.7 million and $11.8 million, respectively. The inclusion of the tax benefit from equity-based compensation in After-tax Distributable Earnings had the effect of increasing this measure by 2% and 1%, respectively, for the three months ended March 31, 2023 and 2022.
Non-GAAP Balance Sheet Measures
Book Value
The following table presents our calculation of book value as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | |
| | | | | |
| | | As of |
| | | March 31, 2023 | | December 31, 2022 |
| | | ($ in thousands) |
| | | | | |
| (+) | Cash and Short-term Investments | | $ | 2,766,099 | | | $ | 3,256,515 | |
| (+) | Investments | | 17,955,482 | | | 17,628,327 | |
| (+) | Net Unrealized Carried Interest (1) | | 2,628,693 | | | 2,509,589 | |
| | | | | |
| (+) | Other Assets, Net (2) | | 7,311,109 | | | 6,979,235 | |
| (+) | Global Atlantic Book Value | | 4,391,813 | | | 4,409,873 | |
| | | | | |
| (-) | Debt Obligations - KKR (excluding KFN and Global Atlantic) | | 6,778,452 | | | 6,957,932 | |
| (-) | Debt Obligations - KFN | | 948,517 | | | 948,517 | |
| (-) | Tax Liabilities, Net | | 1,771,224 | | | 1,648,600 | |
| (-) | Other Liabilities | | 899,868 | | | 911,612 | |
| (-) | Noncontrolling Interests | | 29,288 | | | 32,843 | |
| | | | | |
| Book Value | | $ | 24,625,847 | | | $ | 24,284,035 | |
| | | | | |
| Book Value Per Adjusted Share | | $ | 27.65 | | | $ | 27.27 | |
| Adjusted Shares | | 890,621,712 | | | 890,628,190 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| |
|
(1)The following table provides net unrealized carried interest by business line:
| | | | | | | | | | | | | | |
| | As of |
| | March 31, 2023 | | December 31, 2022 |
| | ($ in thousands) |
| Private Equity Business Line | | $ | 2,231,530 | | | $ | 2,199,869 | |
| Real Assets Business Line | | 296,547 | | | 212,974 | |
| Credit and Liquid Strategies Business Line | | 100,616 | | | 96,746 | |
| Total | | $ | 2,628,693 | | | $ | 2,509,589 | |
(2)Other Assets, Net include our (i) ownership interest in FS/KKR Advisor, (ii) minority ownership interests in hedge fund partnerships, and (iii) the net assets of KJRM.
Book value increased 1% from December 31, 2022. The increase was primarily attributable to (i) an increase in net unrealized carried interest, most notably from Americas Fund XII, Global Infrastructure Investors III, and Asia Pacific Infrastructure Investors, and (ii) the positive impact of our after-tax distributable earnings recognized in the period. Partially offsetting these increases was the payment of dividends during the period. The value of our asset management segment investments remained flat in the period. For a further discussion, see "—Consolidated Results of Operations (GAAP Basis) - Asset Management—Investment Income (Loss) - Asset Management—Unrealized Gains and Losses from Investment Activities." For a discussion of the changes in our investment portfolio, see "—Analysis of Asset Management Segment Operating Results—Assets Under Management." For a discussion of factors that impacted KKR's after-tax distributable earnings, see "—Analysis of Non-GAAP Performance Measures—After-tax Distributable Earnings" and for more information about the factors that may impact our business, financial performance, operating results and valuations, see "—Business Environment."
The following table presents the holdings of our investments in the asset management segment by asset class as of March 31, 2023. To the extent investments are realized at values below their cost in future periods, after-tax distributable earnings would be adversely affected by the amount of such loss, if any, during the period in which the realization event occurs.
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| | As of March 31, 2023 |
| | ($ in thousands) |
Investments (1) | | Cost | | Fair Value | | Fair Value as a Percentage of
Total Investments |
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| Traditional Private Equity | | $ | 2,014,797 | | | $ | 3,391,315 | | | 18.9 | % |
| Core Private Equity | | 2,716,688 | | | 5,700,661 | | | 31.7 | % |
| Growth Equity | | 356,578 | | | 875,673 | | | 4.9 | % |
| Private Equity Total | | 5,088,063 | | | 9,967,649 | | | 55.5 | % |
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| Energy | | 849,164 | | | 841,978 | | | 4.7 | % |
| Real Estate | | 1,801,180 | | | 1,873,726 | | | 10.4 | % |
| Infrastructure | | 1,154,221 | | | 1,362,629 | | | 7.6 | % |
| Real Assets Total | | 3,804,565 | | | 4,078,333 | | | 22.7 | % |
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| Leveraged Credit | | 1,305,853 | | | 1,066,071 | | | 5.9 | % |
| Alternative Credit | | 849,719 | | | 900,032 | | | 5.0 | % |
| Credit Total | | 2,155,572 | | | 1,966,103 | | | 10.9 | % |
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| Other | | 2,297,519 | | | 1,943,397 | | | 10.9 | % |
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| Total Investments | | $ | 13,345,719 | | | $ | 17,955,482 | | | 100.0 | % |
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(1)Investments is a term used solely for purposes of financial presentation of a portion of KKR's balance sheet and includes majority ownership of subsidiaries that operate KKR's asset management and insurance businesses, including the general partner interests of KKR's investment funds. Investments presented are principally the assets measured at fair value that are held by KKR's asset management segment, which, among other things, does not include the underlying investments held by Global Atlantic and Marshall Wace.
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| | As of March 31, 2023 |
| | ($ in thousands) |
Top 20 Investments: (1) | | Cost | | Fair Value | | |
| USI, Inc. | | $ | 531,425 | | | $ | 1,300,380 | | | |
| PetVet Care Centers, LLC | | 243,211 | | | 1,143,092 | | | |
| Heartland Dental, LLC | | 320,656 | | | 769,574 | | | |
| Exact Group B.V. | | 213,362 | | | 568,585 | | | |
| Arnott's Biscuits Limited | | 250,841 | | | 468,984 | | | |
| 1-800 Contacts Inc. | | 300,178 | | | 405,243 | | | |
| Internet Brands, Inc. | | 340,312 | | | 372,628 | | | |
| Barracuda Networks, Inc. | | 343,092 | | | 343,092 | | | |
| ERM Worldwide Group Limited | | 228,710 | | | 343,065 | | | |
| IVIRMA Global SL | | 321,261 | | | 321,083 | | | |
| Teaching Strategies, LLC | | 307,162 | | | 307,162 | | | |
| Crescent Energy Company (NYSE: CRGY) | | 527,030 | | | 286,861 | | | |
| Roompot B.V. | | 193,578 | | | 259,599 | | | |
| Shriram General Insurance Co. | | 245,470 | | | 252,946 | | | |
| Resolution Life Group Holdings, L.P. | | 262,191 | | | 228,659 | | | |
| Atlantic Aviation FBO Inc. | | 170,274 | | | 203,570 | | | |
| BridgeBio Pharma, Inc. (NASDAQ: BBIO) | | 59,799 | | | 198,684 | | | |
| Viridor Limited | | 132,023 | | | 186,878 | | | |
| PortAventura | | 155,803 | | | 174,835 | | | |
| The Bay Clubs Company, LLC | | 160,127 | | | 160,127 | | | |
| Total Top 20 Investments | | $ | 5,306,505 | | | $ | 8,295,047 | | | |
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(1)This list of investments identifies the twenty largest companies or assets based on their fair values as of March 31, 2023. It does not deduct fund or vehicle level debt, if any, incurred in connection with funding the investment. This list excludes (i) investments expected to be syndicated, (ii) investments expected to be transferred in connection with a new fundraising, (iii) investments in funds and other entities that are owned by one or more third parties and established for the purpose of making investments and (iv) the portion of any investment that may be held through collateralized loan obligations or levered multi-asset investment vehicles, if any. For additional information about the asset classes of the investments held on KKR's balance sheet see "—Our Business—Principal Activities" for the "Holdings by Asset Class" pie chart. The fair value figures include the co-investment and the limited partner and/or general partner interests held by KKR in the underlying investment, if applicable.
With respect to KKR's book value relating to its insurance business, KKR includes Global Atlantic's book value, which consists of KKR's pro rata equity interest in Global Atlantic on a GAAP basis, excluding (i) accumulated other comprehensive income and (ii) accumulated change in fair value of reinsurance embedded derivative balances and related assets, net of income tax. KKR believes this presentation of Global Atlantic's book value is comparable with the corresponding metric presented by other publicly traded companies in Global Atlantic's industry. As of March 31, 2023, KKR's pro rata interest in Global Atlantic's book value was $4.4 billion. For more information about the composition and credit quality of Global Atlantic's investments on a consolidated basis, please see "—Global Atlantic's Investment Portfolio" below.
Global Atlantic's Investment Portfolio
As of March 31, 2023, 95% and 87% of Global Atlantic's available-for-sale ("AFS") fixed maturity securities were considered investment grade under ratings from the Securities Valuation Office of the NAIC and NRSROs, respectively. As of December 31, 2022, 95% and 85% of Global Atlantic's AFS fixed maturity securities were considered investment grade under ratings from NAIC and NRSROs, respectively. Securities where a rating by an NRSRO was not available are considered investment grade if they have an NAIC designation of “1” or “2.” The three largest asset categories in Global Atlantic's AFS fixed-maturity security portfolio as of March 31, 2023 were Corporate, RMBS and CMBS securities, comprising 31%, 5% and 5% of Global Atlantic's investment portfolio, respectively. Within these categories, 94%, 96% and 95% of Global Atlantic's Corporate, RMBS and CMBS securities, respectively, were investment grade according to NAIC ratings and 94%, 52% and 54% of its Corporate, RMBS and CMBS securities, respectively, were investment grade according to NRSRO ratings as of March 31, 2023. The three largest asset categories in Global Atlantic's AFS fixed-maturity security portfolio as of December 31, 2022 were Corporate, RMBS and CMBS securities, comprising 29%, 5% and 5% of Global Atlantic's investment portfolio, respectively. Within these categories, 94%, 95% and 95% of Global Atlantic's Corporate, RMBS and CMBS securities,
respectively, were investment grade according to NAIC ratings and 94%, 45% and 53% of its Corporate, RMBS and CMBS securities, respectively, were investment grade according to NRSRO ratings as of December 31, 2022. NRSRO and NAIC ratings have different methodologies. Global Atlantic believes the NAIC ratings methodology, which considers the likelihood of recovery of amortized cost as opposed to the recovery of all contractual payments including the principal at par, as the more appropriate way to view the ratings quality of its AFS fixed maturity portfolio since a large portion of its holdings were purchased at a significant discount to par value. The portion of Global Atlantic's investment portfolio consisting of floating rate assets was 30% and 29% as of March 31, 2023 and December 31, 2022, respectively.
Within the funds withheld receivable at interest portfolio, 97% of the fixed maturity securities were investment grade by NAIC designation as of both March 31, 2023 and December 31, 2022.
Trading fixed maturity securities back funds withheld payable at interest where the investment performance is ceded to reinsurers under the terms of the respective reinsurance agreements.
Credit quality of AFS fixed maturity securities
The Securities Valuation Office of the NAIC evaluates the AFS fixed maturity security investments of insurers for regulatory reporting and capital assessment purposes and assigns securities to one of six credit quality categories called “NAIC designations.” Using an internally developed rating is permitted by the NAIC if no rating is available. These designations are generally similar to the credit quality designations of NRSROs for marketable fixed maturity securities, except for certain structured securities as described below. NAIC designations of “1,” highest quality, and “2,” high quality, include fixed maturity securities generally considered investment grade by NRSROs. NAIC designations “3” through “6” include fixed maturity securities generally considered below investment grade by NRSROs.
Consistent with the NAIC Process and Procedures Manual, an NRSRO rating was assigned based on the following criteria: (i) the equivalent S&P rating where the security is rated by one NRSRO; (ii) the equivalent S&P rating of the lowest NRSRO when the security is rated by two NRSROs; and (iii) the equivalent S&P rating of the second lowest NRSRO if the security is rated by three or more NRSROs. If the lowest two NRSROs’ ratings are equal, then such rating will be the assigned rating. NRSROs’ ratings available for the periods presented were S&P, Fitch, Moody’s, DBRS, Inc. and Kroll Bond Rating Agency, Inc. If no rating is available from a rating agency, then an internally developed rating is used.
Substantially all of the AFS fixed maturity securities portfolio, 95% as of both March 31, 2023 and December 31, 2022 was invested in investment grade assets with a NAIC rating of 1 or 2.
The portion of the AFS fixed maturity securities portfolio that was considered below investment grade by NAIC designation was 5% as of both March 31, 2023 and December 31, 2022. Pursuant to Global Atlantic's investment guidelines, Global Atlantic actively monitors the percentage of its portfolio that is held in investments rated NAIC 3 or lower and must obtain an additional approval from Global Atlantic's management investment committee before making a significant investment in an asset rated NAIC 3 or lower.
Corporate fixed maturity securities
Global Atlantic maintains a diversified portfolio of corporate fixed maturity securities across industries and issuers. As of both March 31, 2023 and December 31, 2022, 59% of the AFS fixed maturity securities portfolio was invested in corporate fixed maturity securities. As of both March 31, 2023 and December 31, 2022, approximately, 5% of the portfolio is denominated in foreign currency.
As of both March 31, 2023 and December 31, 2022, 94% of the total fair value of corporate fixed maturity securities is rated NAIC investment grade and 94% is rated NRSROs investment grade, respectively.
Residential mortgage-backed securities
As of both March 31, 2023 and December 31, 2022, 10% of the AFS fixed maturity securities portfolio was invested in RMBS, respectively. RMBS are securities constructed from pools of residential mortgages and backed by payments from those pools. Excluding limitations on access to lending and other extraordinary economic conditions, Global Atlantic would expect prepayments of principal on the underlying loans to accelerate with decreases in market interest rates and diminish with increases in market interest rates.
The NAIC designations for RMBS, including prime, sub-prime, alt-A, and adjustable rate mortgages with variable payment options ("Option ARM"), are based upon a comparison of the bond’s amortized cost to the NAIC’s loss expectation for each security. Accordingly, an investment in the same security at a lower cost may result in a higher quality NAIC designation in recognition of the lower likelihood the investment would result in a realized loss. Prime residential mortgage lending includes loans to the most creditworthy borrowers with high quality credit profiles. Alt-A is a classification of mortgage loans where the risk profile of the borrower is between prime and sub-prime. Sub-prime mortgage lending is the origination of residential mortgage loans to borrowers with weak credit profiles.
As of March 31, 2023 and December 31, 2022, 91% and 90%, respectively, of RMBS securities that are below investment grade as rated by the NRSRO, carry an NAIC 1 ("highest quality") designation.
As of March 31, 2023, Alt-A, Option ARM, Re-Performing and Sub-prime represent 27%, 24%, 21% and 10% of the total RMBS portfolio ($7.0 billion), respectively. As of December 31, 2022, Alt-A, Option ARM, Re-Performing and Sub-prime represent 31%, 28%, 14% and 12% of the total RMBS portfolio ($6.4 billion), respectively.
Unrealized gains and losses for AFS fixed maturity securities
Global Atlantic's investments in AFS fixed maturity securities are reported at fair value with changes in fair value recorded in other comprehensive income as unrealized gains or losses, net of taxes and offsets. Unrealized gains and losses can be created by changes in interest rates or by changes in credit spreads.
As of March 31, 2023 and December 31, 2022, Global Atlantic had gross unrealized losses on below investment grade AFS fixed maturity securities of $925.0 million and $917.6 million based on NRSRO rating and $222.0 million and $224.9 million based on NAIC ratings, respectively. During the three months ended March 31, 2023, unrealized losses of $26.7 million were recognized in net income on these debt securities since, as of March 31, 2023, there were specific securities that, as of the balance sheet date, Global Atlantic intended to sell or Global Atlantic believed it was more likely than not that it will be required to sell before recovery of their cost or amortized cost basis. As of March 31, 2022, no loss was recognized as Global Atlantic did not believe there were specific securities that, as of that date, it intended to, or would be required to sell before recovery.
Mortgage and other loan receivables - Credit quality indicators
Mortgage and other loan receivables consist of commercial and residential mortgage loans, and other loan receivables. As of March 31, 2023 and December 31, 2022, 27% and 28%, respectively, of Global Atlantic's total investments consisted of mortgage and other loan receivables. Global Atlantic invests in U.S. mortgage loans, comprised of first lien and mezzanine real estate loans, residential mortgage loans, consumer loans, and other loan receivables.
Global Atlantic's commercial mortgage loans may also tendsbe rated based on NAIC designations, with designations “CM1” and “CM2” considered to be investment grade. As of March 31, 2023 and December 31, 2022, 89% and 88% of the commercial mortgage loan portfolio was rated investment grade based on NAIC designation, respectively. 99% of the commercial mortgage loan portfolio is in current status.
As of March 31, 2023, 96% of the residential mortgage loan portfolio is in current status, and approximately $221.0 million is 90 days or more past due (representing 2% of the total residential mortgage portfolio).
The loan-to-value ratio is expressed as a percentage of the current amount of the loan relative to the value of the underlying collateral. Approximately 84% of the commercial mortgage loans has a loan-to-value ratio of 70% or less and 2% has loan-to-value ratio over 90%.
Changing economic conditions affect Global Atlantic’s valuation of commercial mortgage loans. Changing vacancies and rents are incorporated into the discounted cash flow analysis that Global Atlantic performs for monitored loans and may contribute to the establishment of (or increase or decrease in) a commercial mortgage loan valuation allowance for losses. In addition, Global Atlantic continuously monitors its commercial mortgage loan portfolio to identify risk. Areas of emphasis are properties that have exposure to specific geographic events or have deteriorating credit.
The weighted average loan-to-value ratio for residential mortgage loans was 65% and 64% as of March 31, 2023 and December 31, 2022, respectively.
Global Atlantic's residential mortgage loan portfolio is comprised mainly of re-performing loans that were purchased at a discount after they were modified and returned to performing status, as well as prime jumbo loans and mortgage loans backed by single family rental properties. Global Atlantic has also extended financing to counterparties in the form of repurchase agreements secured by mortgage loans, including performing and non-performing mortgage loans.
Global Atlantic’s consumer loan portfolio is primarily comprised of home improvement loans, solar panel loans, student loans and auto loans. As of March 31, 2023, 97% of the consumer loan portfolio is in current status and approximately $35.2 million is 90 days or more past due (representing less than 1% of the total consumer loan portfolio).
Reconciliations to GAAP Measures
The following tables reconcile the most directly comparable financial measures calculated and presented in accordance with GAAP to KKR's non-GAAP financial measures for the three months ended March 31, 2023 and 2022:
Revenues
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| | Three Months Ended | | | | |
| | March 31, 2023 | | March 31, 2022 | | | | | | | | |
| | ($ in thousands) |
| Total GAAP Revenues | $ | 3,127,482 | | | $ | 999,363 | | | | | | | | | |
| Impact of Consolidation and Other | 209,778 | | | 213,400 | | | | | | | | | |
| Asset Management Adjustments: | | | | | | | | | | | |
| Capital Allocation-Based Income (Loss) (GAAP) | (449,018) | | | 945,743 | | | | | | | | | |
| Realized Carried Interest | 172,689 | | | 579,767 | | | | | | | | | |
| Realized Investment Income | 198,094 | | | 349,354 | | | | | | | | | |
| Capstone Fees | (19,805) | | | (15,485) | | | | | | | | | |
| Expense Reimbursements | (15,544) | | | (41,303) | | | | | | | | | |
| Insurance Adjustments: | | | | | | | | | | | |
| Net Premiums | (473,624) | | | (372,144) | | | | | | | | | |
| Policy Fees | (313,802) | | | (313,782) | | | | | | | | | |
| Other Income | (37,158) | | | (34,744) | | | | | | | | | |
(Gains) Losses from Investments (1) | 260,507 | | | 167,102 | | | | | | | | | |
| Non-operating Changes in Policy Liabilities and Derivatives | (112,776) | | | 286,721 | | | | | | | | | |
Total Segment Revenues (2) | $ | 2,546,823 | | | $ | 2,763,992 | | | | | | | | | |
(1)Includes (gains) losses on funds withheld receivables and payables embedded derivatives.
(2)Total Segment Revenues is comprised of (i) Management Fees, (ii) Transaction and Monitoring Fees, Net, (iii) Fee Related Performance Revenues, (iv) Realized Performance Income, (v) Realized Investment Income, and (vi) Net Investment Income.
Net Income (Loss) Attributable to KKR & Co. Inc. Common Stockholders | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| | March 31, 2023 | | March 31, 2022 | | | | | | |
| | ($ in thousands) |
Net Income (Loss) Attributable to KKR & Co. Inc.
Common Stockholders (GAAP) | $ | 322,744 | | | $ | (9,786) | | | | | | | |
| Preferred Stock Dividends | 17,250 | | | 17,250 | | | | | | | |
| Net Income (Loss) Attributable to Noncontrolling Interests | (80,306) | | | 1,244,924 | | | | | | | |
| Income Tax Expense (Benefit) | 148,747 | | | 36,651 | | | | | | | |
| Income (Loss) Before Tax (GAAP) | $ | 408,435 | | | $ | 1,289,039 | | | | | | | |
| Impact of Consolidation and Other | 93,511 | | | (1,307,942) | | | | | | | |
Equity-based Compensation - KKR Holdings(1) | — | | | 19,821 | | | | | | | |
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| Income Taxes on Operating Earnings | (173,057) | | | (220,279) | | | | | | | |
| Asset Management Adjustments: | | | | | | | | | |
| Unrealized (Gains) Losses | 99,327 | | | 322,269 | | | | | | | |
| Unrealized Carried Interest | (202,659) | | | 1,290,033 | | | | | | | |
| Unrealized Carried Interest Compensation (Carry Pool) | 83,830 | | | (513,987) | | | | | | | |
| Strategic Corporate Related Charges | 6,807 | | | 19,898 | | | | | | | |
| Equity-based Compensation | 59,017 | | | 55,111 | | | | | | | |
| Equity-based Compensation - Performance based | 67,273 | | | 57,953 | | | | | | | |
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Insurance Adjustments:(2) | | | | | | | | | |
(Gains) Losses from Investments(2)(3) | 131,114 | | | 129,032 | | | | | | | |
Non-operating Changes in Policy Liabilities and Derivatives(2) | 106,491 | | | (192,201) | | | | | | | |
Strategic Corporate Related Charges(2) | — | | | 3,079 | | | | | | | |
Equity-based and Other Compensation(2) | 36,393 | | | 19,498 | | | | | | | |
Amortization of Acquired Intangibles(2) | 2,794 | | | 2,713 | | | | | | | |
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| After-tax Distributable Earnings | $ | 719,276 | | | $ | 974,037 | | | | | | | |
| Interest Expense | 85,500 | | | 69,460 | | | | | | | |
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| Net Income Attributable to Noncontrolling Interests | 5,626 | | | 7,616 | | | | | | | |
| Income Taxes on Operating Earnings | 173,057 | | | 220,279 | | | | | | | |
| Distributable Operating Earnings | $ | 983,459 | | | $ | 1,271,392 | | | | | | | |
| Insurance Segment Operating Earnings | (205,112) | | | (143,947) | | | | | | | |
| Realized Performance Income | (175,398) | | | (609,207) | | | | | | | |
| Realized Performance Income Compensation | 114,009 | | | 383,635 | | | | | | | |
| Realized Investment Income | (198,094) | | | (349,354) | | | | | | | |
| Realized Investment Income Compensation | 29,714 | | | 52,403 | | | | | | | |
| Fee Related Earnings | $ | 548,578 | | | $ | 604,922 | | | | | | | |
| Insurance Segment Operating Earnings | 205,112 | | | 143,947 | | | | | | | |
| Realized Performance Income | 175,398 | | | 609,207 | | | | | | | |
| Realized Performance Income Compensation | (114,009) | | | (383,635) | | | | | | | |
| Realized Investment Income | 198,094 | | | 349,354 | | | | | | | |
| Realized Investment Income Compensation | (29,714) | | | (52,403) | | | | | | | |
| Depreciation and Amortization | 10,434 | | | 7,565 | | | | | | | |
| Adjusted EBITDA | $ | 993,893 | | | $ | 1,278,957 | | | | | | | |
(1)Represents equity-based compensation expense in connection with the allocation of KKR Holdings Units, which were not dilutive to common stockholders of KKR & Co. Inc.
(2)Amounts represent the portion allocable to KKR & Co. Inc.
(3)Includes (gains) losses on funds withheld receivables and payables embedded derivatives.
KKR & Co. Inc. Stockholders' Equity - Common Stock
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| As of |
| March 31, 2023 | | December 31, 2022 |
| ($ in thousands) |
| KKR & Co. Inc. Stockholders' Equity - Common Stock | $ | 18,546,889 | | | $ | 17,691,975 | |
| Series C Mandatory Convertible Preferred Stock | 1,115,792 | | | 1,115,792 | |
| Impact of Consolidation and Other | 398,751 | | | 399,318 | |
| Exchangeable Securities | 205,668 | | | 128,850 | |
| Accumulated Other Comprehensive Income (AOCI) and Other (Insurance) | 4,358,747 | | | 4,948,100 | |
| Book Value | $ | 24,625,847 | | | $ | 24,284,035 | |
The following table provides a reconciliation of KKR's GAAP Shares of Common Stock Outstanding to Adjusted Shares:
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| | As of |
| | March 31, 2023 | | December 31, 2022 |
| GAAP Shares of Common Stock Outstanding | 861,104,000 | | | 861,110,478 | |
| Adjustments: | | | |
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Exchangeable Securities (1) | 2,695,142 | | | 2,695,142 | |
Common Stock - Series C Mandatory Convertible Preferred Stock (2) | 26,822,570 | | | 26,822,570 | |
Adjusted Shares (3) | 890,621,712 | | | 890,628,190 | |
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Unvested Equity Awards and Exchangeable Securities (4) | 35,317,288 | | | 35,457,274 | |
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(1)Consists of vested restricted holdings units granted under our 2019 Equity Incentive Plan, which are exchangeable for shares of KKR & Co. Inc. common stock on a one-for-one basis.
(2)Assumes that all shares of Series C Mandatory Convertible Preferred Stock have been converted into shares of KKR & Co. Inc. common stock on March 31, 2023 and December 31, 2022.
(3)Amounts exclude unvested equity awards granted under our Equity Incentive Plans.
(4)Represents equity awards granted under our Equity Incentive Plans. Excludes market condition awards that did not meet their market-price based vesting conditions as of March 31, 2023 and December 31, 2022.
Liquidity
We manage our liquidity and capital requirements by (a) focusing on our cash flows before the consolidation of our funds and CFEs and the effect of changes in short term assets and liabilities, which we anticipate will be settled for cash within one year, and (b) seeking to maintain access to sufficient liquidity through various sources. The overall liquidity framework and cash management approach of our insurance business are also based on seeking to build an investment portfolio that is cash flow matched, providing cash inflows from insurance assets that meet our insurance companies' expected cash outflows to pay their liabilities. Our primary cash flow activities typically involve: (i) generating cash flow from operations; (ii) generating income from investment activities, by investing in investments that generate yield (namely interest and dividends), as well as through the sale of investments and other assets; (iii) funding capital commitments that we have made to, and advancing capital to, our funds and CLOs; (iv) developing and funding new investment strategies, investment products, and other growth initiatives, including acquisitions of other investments, assets, and businesses; (v) underwriting and funding capital commitments in our capital markets business; (vi) distributing cash flow to our stockholders and holders of our preferred stock; and (vii) paying borrowings, interest payments, and repayments under credit agreements, our senior and subordinated notes, and other borrowing arrangements. See "—Liquidity—Liquidity Needs—Dividends."
See "—Business Environment" for more information on factors that may impact our business, financial performance, operating results and valuations.
Sources of Liquidity
Our primary sources of liquidity consist of amounts received from: (i) our operating activities, including the fees earned from our funds, portfolio companies, and capital markets transactions; (ii) realizations on carried interest from our investment funds; (iii) interest and dividends from investments that generate yield, including our investments in CLOs; (iv) in our insurance business, cash inflows in respect of new premiums, policyholder deposits, reinsurance transactions and funding agreements, including through memberships in Federal Home Loan Banks; (v) realizations on and sales of investments and other assets, including the transfers of investments or other assets for fund formations (including CLOs and other investment vehicles); and (vi) borrowings, including advances under our revolving credit facilities, debt offerings, repurchase agreements, and other borrowing arrangements. In addition, we may generate cash proceeds from issuances of our or our subsidiaries' equity securities.
Many of our investment funds like our private equity and real assets funds provide for carried interest. With respect to our carry-paying investment funds, carried interest is eligible to be distributed to the general partner of the 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. Even after all of the preceding conditions are met, the general partner of the fund may, in its sole discretion, decide to defer the distribution of carried interest to it to a later date. In addition, these funds generally include what is called a “clawback” provision, which provides that the general partner must return any carried interest that is paid in excess of what the general partner is entitled to receive at the end of the term of the fund, as discussed further below.
As of March 31, 2023, certain of our investment funds had met the first and second criteria, as described above, but did not meet the third criteria. In these cases, carried interest accrues on the consolidated statement of operations, but will not be distributed in cash to us as the general partner of an investment fund upon a realization event. 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." When netting holes are present, realized gains on individual investments that would otherwise allow the general partner to receive carried interest distributions are instead used to return invested capital to our funds' limited partners in an amount equal to the netting hole. Once netting holes have been filled with either (a) return of capital equal to the netting hole for those investments where fair value is below cost or (b) increases in the fair value of those investments where fair value is below cost, then realized carried interest will be distributed to the general partner upon a realization event. A fund that is in a position to pay cash carry refers to a fund for which carried interest is expected to be paid to the general partner upon the next material realization event, which includes funds with no netting holes as well as funds with a netting hole that is sufficiently small in size such that the next material realization event would be expected to result in reduced potentialthe payment of carried interest. Strategic investor partnerships with fund investors may require netting across the various funds in which they invest, which may reduce the carried interest we otherwise would have earned if such fund investors were to have invested in our funds without the existence of the strategic investor partnership.
As of March 31, 2023, netting holes in excess of $50 million only existed at European Fund V and Health Care Growth Fund in the amounts of $86 million and $60 million, respectively. In accordance with the criteria set forth above, other funds currently have and may in the future develop netting holes, and netting holes for those and other funds may otherwise increase or decrease in the future. There are also investment gains, lower transaction feesfunds that are not accruing carried interest and lower feesdo not have a netting hole although they may be in a clawback position. If the investment fund has distributed carried interest, but subsequently does not have sufficient value to provide for the distribution of carried interest at the end of the life of the investment fund, the general partner is typically required to return previously distributed carried interest to the fund investors. Although our current and former employees who received distributions of carried interest subject to clawback are required to return them to KKR, it is KKR’s obligation to return carried interest subject to clawback to the fund investors. As of March 31, 2023, approximately $520 million of carried interest was subject to this clawback obligation, assuming that all applicable carry-paying funds and their alternative investment vehicles were liquidated at their March 31, 2023 fair values. As of March 31, 2023, Asian Fund II is the only investment fund with a clawback obligation in excess of $50 million. See Note 25 "Commitments and Contingencies—Contingent Repayment Guarantees" in our financial statements included elsewhere in this report for further information. See also the negative amounts included in the Carried Interest column in the table included in this Item 2 in “Asset Management—Private Equity” for further information on clawback obligations.
We have access to funding under various credit facilities, other borrowing arrangements and other sources of liquidity that we have entered into with major financial institutions or which we receive from the capital markets.
For a discussion of our debt obligations, including our debt securities, revolving credit agreements and loans, see Note 17 "Debt Obligations" in our financial statements.
Liquidity Needs
We expect that our (including Global Atlantic's) primary liquidity needs will consist of cash required to meet various obligations, including, without limitation, to:
•continue to support and grow our Asset Management business lines, including seeding new investment strategies, supporting capital commitments made by our vehicles to existing and future funds, co-investments and any net capital requirements of our capital markets companies and otherwise supporting the investment vehicles that we sponsor;
•continue to support and grow our insurance business;
•grow and expand our businesses generally, including by acquiring or launching new, complementary or adjacent businesses;
•warehouse investments in portfolio companies or other investments for the benefit of one or more of our funds, accounts or CLOs or other investment vehicles pending the contribution of committed capital by the fund investors in such vehicles, and advancing capital to them for operational or other needs;
•service debt obligations including the payment of obligations at maturity, on interest payment dates or upon redemption, as well as any contingent liabilities, including from litigation, that may give rise to future cash payments, including funding requirements to levered investment vehicles or structured transactions;
•fund cash operating expenses and contingencies, including for litigation matters and guarantees;
•pay corporate income taxes and other taxes;
•pay policyholders and amounts in our insurance business related to investment, reinvestment, reinsurance or funding agreement activity;
•pay amounts that may become due under our tax receivable agreement;
•pay cash dividends in accordance with our dividend policy for our common stock or the terms of our preferred stock, if any;
•underwrite commitments, advance loan proceeds and fund syndication commitments within our capital markets business;
•post or return collateral in respect of derivative contracts;
•acquire other assets for our Principal Activities business line, including other businesses, investments and assets, some of which may be required to satisfy regulatory requirements for our capital markets business line, whichor risk retention requirements for CLOs (to the extent they may earn feesapply);
•address capital needs of regulated subsidiaries as well as non-regulated subsidiaries; and
•repurchase shares of our common stock or retire equity awards pursuant to the share repurchase program or repurchase or redeem other securities issued by us.
For a discussion of KKR's share repurchase program, see Note 23 "Equity" in our financial statements.
Capital Commitments
The agreements governing our active investment funds generally require the syndication of equity or debt. In our insurance business, we deploy capital by investing in assets that are anticipated to generate net investment income in excessgeneral partners of the net costfunds to make minimum capital commitments to such funds, which generally range from 2% to 8% of insurance. Ifa fund's total capital commitments at final closing, but may be greater for certain funds (i) where we are unable to originate or source attractivepursuing newer strategies, (ii) where third party investor demand is limited, and (iii) where a larger commitment is consistent with the asset allocation strategy for our Principal Activities business line, including core investments the success and growth in revenues of our insurance business will be adversely impacted. See “Risk Factors—Risks Relatedexposure to the Assets We Manage—ChangesAsia-Pacific region.
The following table presents our uncalled commitments to our active investment funds and other vehicles as of March 31, 2023:
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| Uncalled
Commitments |
| Private Equity | ($ in millions) |
| Core Investment Vehicles | $ | 3,801 | |
| Asian Fund IV | 367 | |
| North America Fund XIII | 332 | |
| European Fund VI | 250 | |
| Next Generation Technology Growth Fund III | 196 | |
| Global Impact Fund II | 145 | |
| Health Care Strategic Growth Fund II | 124 | |
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| Other Private Equity Vehicles | 1,256 | |
| Total Private Equity Commitments | 6,471 | |
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| Real Assets | |
| Asia Pacific Infrastructure Investors II | 357 | |
| Global Infrastructure Investors IV | 272 | |
| Asia Real Estate Partners | 146 | |
| Real Estate Partners Americas III | 91 | |
| Real Estate Partners Europe II | 77 | |
| Diversified Core Infrastructure Fund | 13 | |
| Real Estate Credit Opportunity Partners II | 8 | |
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| Other Real Assets Vehicles | 1,025 | |
| Total Real Assets Commitments | 1,989 | |
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| Credit and Liquid Strategies | |
| Asia Credit | 96 | |
| Asset-Based Finance Partners | 87 | |
| Dislocation Opportunities Fund | 84 | |
| Lending Partners Europe II | 11 | |
| Lending Partners III | 10 | |
| Private Credit Opportunities Partners II | 8 | |
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| Other Credit and Liquid Strategies Vehicles | 911 | |
| Total Credit and Liquid Strategies Commitments | 1,207 | |
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| Total Uncalled Commitments | $ | 9,667 | |
Other Capital Commitments
In addition to the debt financing markets may negatively impact the ability ofuncalled commitments to our investment funds their portfolio companiesas shown above, KKR has entered into contractual capital commitments primarily with respect to underwriting transactions, debt financing, revolving credit facilities, and strategies pursuedequity syndications in our Capital Markets business line. As of March 31, 2023, these capital commitments amounted to $0.4 billion.
Whether these amounts are actually funded, in whole or in part, depends on the contractual terms of such capital commitments, including the satisfaction or waiver of any conditions to closing or funding. Our capital markets business has arrangements with third parties, which reduce our balance sheet assetsrisk under certain circumstances when underwriting certain debt transactions, and thus our unfunded capital commitments as of March 31, 2023 have been reduced to obtain attractive financing for theirreflect the amount to be funded by such third parties. In the case of purchases of investments or assets in our Principal Activities business line, the amount to refinance existing debtbe funded includes amounts that are intended to be syndicated to third parties, and the actual amounts to be funded may increase the cost of such financing or refinancing if it is obtained, which could leadbe less. For more information about our Capital Markets business line's risks, see "Risks Related to lower-yielding investments and potentially decrease our net income”Our Business—Our capital markets activities expose us to material risks" in our Annual ReportReport.
From time to time, we fund various underwriting, syndication and fronting commitments in our capital markets business in connection with the arranging or underwriting of loans, securities or other financial instruments, for which we may draw all or substantially all of our availability for borrowings under our available credit facilities. We generally expect these borrowings by our Capital Markets business line to be repaid promptly as these commitments are syndicated to third parties or otherwise fulfilled or terminated, although we may in some instances elect to retain a portion of the commitments for our own investment. For more information about our Capital Markets business line's risks, see "Risks Related to Our Business—Our capital markets activities expose us to material risks" in this report.
Tax Receivable Agreement
On May 30, 2022, KKR terminated the tax receivable agreement with KKR Holdings other than with respect to exchanges of KKR Holdings Units completed prior to such date. As of March 31, 2023, an undiscounted payable of $404.6 million has been recorded in due to affiliates in the financial statements representing management's best estimate of the amounts currently expected to be owed for certain exchanges of KKR Holdings Units that took place prior to the termination of the tax receivable agreement. As of March 31, 2023, approximately $76.7 million of cumulative cash payments have been made under the tax receivable agreement since inception.
Dividends and Stock Repurchases
A dividend of $0.165 per share of our common stock has been declared and will be paid on Form 10-KJune 6, 2023 to holders of record of our common stock as of the close of business on May 22, 2023.
A dividend of $0.75 per share of Series C Mandatory Convertible Preferred Stock has been declared and set aside for payment on June 15, 2023 to holders of record of Series C Mandatory Convertible Preferred Stock as of the close of business on June 1, 2023.
When KKR & Co. Inc. receives distributions from KKR Group Partnership, holders of exchangeable securities receive their pro rata share of such distributions from KKR Group Partnership.
The declaration and payment of dividends to our common stockholders will be at the sole discretion of our Board of Directors, and our dividend policy may be changed at any time. We announced on February 7, 2023 that our current dividend policy will be to pay dividends to holders of our common stock in an annual aggregate amount of $0.66 per share (or a quarterly dividend of $0.165 per share) beginning with the dividend that was announced with the results for the year ended December 31, 2021.
Our abilityfirst quarter of 2023.The declaration of dividends is subject to realize investments. Challenging marketthe discretion of our Board of Directors based on a number of factors, including KKR’s future financial performance and economic conditionsother considerations that the Board of Directors deems relevant, and compliance with the terms of KKR & Co. Inc.'s certificate of incorporation and applicable law. For U.S. federal income tax purposes, any dividends we pay (including dividends on our preferred stock) generally will be treated as qualified dividend income for U.S. individual stockholders to the extent paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. There can be no assurance that future dividends will be made as intended or at all or that any particular dividend policy for our common stock will be maintained. Furthermore, the declaration and payment of distributions by KKR Group Partnership and our other subsidiaries may adversely affectalso be subject to legal, contractual and regulatory restrictions, including restrictions contained in our ability to exitdebt agreements and realize value from our investments and result in lower-than-expected returns. Although the equity markets are not the only means by which we exit investments from our funds, the strength and liquidityterms of the U.S.preferred units of KKR Group Partnership.
Since 2015, KKR has repurchased, or retired equity awards representing, a total of 86.3 million shares of common stock for $2.2 billion, which equates to an average price of $25.90 per share. For further information, see "Part II—Item 2—Unregistered Sales of Equity Securities and relevant global equity markets generally, and the initial public offering market specifically, affect the valuationUse of and our ability to successfully exit, our equity positions in the portfolio companies of our funds in a timely manner. We may also realize investments through strategic sales. When financing is not available or becomes too costly, it may be more difficult to find a buyer that can successfully raise sufficient capital to purchase our investments. In addition, volatile debt and equity markets may also make the exit of our investments more difficult to execute. In our insurance business, we depend on the ability of our investments to generate their anticipated returns, through the payment of interest and dividends and interest as well as return of principal, in the amounts and at the times that we expect them to be made in order to manage our obligations to make payments to our policyholders. If policyholder behavior differs from our expectations, we may be forced to sell our investments earlier than we anticipated and during market conditions where we may realize losses on the investment. In addition, material delays in payments or impairments to our anticipated investment returns could have material adverse effects to our results of operations. For additional information about how business environment and market conditions affect Global Atlantic, see "—Global Atlantic's Investment Portfolio.Proceeds."
Contractual Obligations, Commitments and Contingencies
In the ordinary course of business, we (including Global Atlantic) and our consolidated funds and CFEs enter into contractual arrangements that may require future cash payments. Contractual arrangements include (1) commitments to fund the purchase of investments or other assets (including obligations to fund capital commitments as the general partner of our investment funds) or to fund collateral for derivative transactions or otherwise, (2) obligations arising under our senior notes, subordinated notes, and other indebtedness, (3) commitments by our capital markets business to underwrite transactions or to lend capital, (4) obligations arising under insurance policies written, (5) other contractual obligations, including servicing agreements with third-party administrators for insurance policy administration, and (6) commitments to fund the business, operations or investments of our subsidiaries. In addition, we may incur contingent liabilities for claims that may be made against us in the future. For more information about these contingent liabilities, please see Note 25 "Commitments and Contingencies" in our financial statements.
Off Balance Sheet Arrangements
We do not have any off-balance sheet financings or liabilities other than contractual commitments and other legal contingencies incurred in the normal course of our business.
Critical Accounting Policies and Estimates
The preparation of our financial statements in accordance with GAAP requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of fees, capital allocation-based income (loss), expenses, investment income, and income taxes. Our management bases these estimates and judgments on available information, historical experience and other assumptions that we believe are reasonable under the circumstances. However, these estimates, judgments and assumptions are often subjective and may be impacted negatively based on changing circumstances or changes in our analyses. If actual amounts are ultimately different from those estimated, judged or assumed, revisions are included in the financial statements in the period in which the actual amounts become known. We believe our critical accounting policies could potentially produce materially different results if we were to change underlying estimates, judgments or assumptions.
For a further discussion about our critical accounting policies, see Note 2 "Summary of Significant Accounting Policies" in our financial statements included in this report.
Basis of Accounting
We consolidate the financial results of KKR Group Partnership and its consolidated entities, which include the accounts of our investment advisers, broker-dealers, Global Atlantic’s insurance companies, the general partners of certain unconsolidated investment funds, general partners of consolidated investment funds and their respective consolidated investment funds and certain other entities including collateralized financing entities ("CFEs").
When an entity is consolidated, we reflect the accounts of the consolidated entity, including its assets, liabilities, revenues, expenses, investment income, cash flows and other amounts, on a gross basis. While the consolidation of an investment fund or entity does not have an effect on the amounts of Net Income Attributable to KKR or KKR's stockholders' equity that KKR reports, the consolidation does significantly impact the financial statement presentation under GAAP. This is due to the fact that the accounts of the consolidated entities are reflected on a gross basis while the allocable share of those amounts that are attributable to third parties are reflected as single line items. The single line items in which the accounts attributable to third parties are recorded are presented as noncontrolling interests on the consolidated statements of financial condition and net income (loss) attributable to noncontrolling interests on the consolidated statements of operations.
The presentation in the financial statements reflect the significant industry diversification of KKR by its acquisition of Global Atlantic. Global Atlantic operates an insurance business, and KKR operates an asset management business, each of which possess distinct characteristics. As a result, KKR developed a two-tiered presentation approach for the financial statements in this Management's Discussion and Analysis. KKR believes that these separate presentations provide a more informative view of the consolidated financial position and results of operations than traditional aggregated presentations. KKR believes that reporting Global Atlantic’s insurance operations separately is appropriate given, among other factors, the relative significance of Global Atlantic’s policy liabilities, which are not obligations of KKR (other than the insurance companies that issued them). If a traditional aggregated presentation were to be used, KKR would expect to eliminate or combine several identical or similar captions, which would condense the presentations but would reduce transparency. KKR also believes that using a traditional aggregated presentation would result in no new line items compared to the two-tier presentation included in the financial statements in this report. We acquired Global Atlantic on February 1, 2021; accordingly,
Consolidation
KKR consolidates all entities that it controls either through a majority voting interest or as the primary beneficiary of variable interest entities (“VIEs”). The following discussion is intended to provide supplemental information about how the application of consolidation principles impact our financial results, and management’s process for implementing those principles including areas of Global Atlantic's insurance operations included insignificant judgment. For a detailed description of our consolidated results of operations for the three months ended March 31, 2021 are from February 1, 2021 (the closing date of the acquisition) through March 31, 2021.
All the intercompany transactions have been eliminated.
The summary of the significant accounting policies has been organized considering the two-tiered approach described above and includes a section for common accounting policies and an accounting policy section for each of the two tiers when a policy is specific to one of the tiers.
For a further discussion about our critical accounting policies,on consolidation, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in the 2021 Form 10-K and Note 2 "Summary of Significant Accounting Policies" in our financial statements included in this report.
As part of its consolidation procedures, KKR evaluates: (1) whether it holds a variable interest in an entity, (2) whether the entity is a VIE, and (3) whether the KKR’s involvement would make it the primary beneficiary. The determination that KKR holds a controlling financial interest in an investment vehicle significantly changes the presentation of our consolidated financial statements.
The assessment of whether we consolidate an investment vehicle we manage requires the application of significant judgment. These judgments are applied both at the time we become involved with an investment vehicle and on an ongoing basis and include, but are not limited to:
•Determining whether a legal entity qualifies as a VIE - For those entities where KKR holds a variable interest, management determines whether each of these entities qualifies as a VIE and, if so, whether or not KKR is the primary beneficiary. The assessment of whether the entity is a VIE is generally performed qualitatively, which requires judgment. These judgments include: (a) determining whether the equity investment at risk is sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) evaluating whether the equity holders, as a group, can make decisions that have a significant effect on the economic performance of the entity, (c) determining whether two or more parties’ equity interests should be aggregated, and (d) determining whether the equity investors have proportionate voting rights to their obligations to absorb losses or rights to receive returns from an entity. Entities that do not qualify as VIEs are generally assessed for consolidation as voting interest entities. Under the voting interest entity model, KKR consolidates those entities it controls through a majority voting interest.
•Concluding whether KKR has an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE - As there is no explicit threshold in GAAP to define “potentially significant,” we must apply judgment and evaluate both quantitative and qualitative factors to conclude whether this threshold is met.
Changes to these judgments could result in a change in the consolidation conclusion for a legal entity.
Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions.
GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Investments and other financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination of fair values, as follows:
Level I
Pricing inputs are unadjusted, quoted prices in active markets for identical assets or liabilities as of the measurement date.
Level II
Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the measurement date, and fair value is determined through the use of models or other valuation methodologies.
Level III
Pricing inputs are unobservable for the financial instruments and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. The valuation of our Level III investments at March 31, 2023 represents management's best estimate of the amounts that we would anticipate realizing on the sale of these investments in an orderly transaction at such date.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Level III Valuation Methodologies
Our investments and financial instruments are impacted by various economic conditions and events outside of our control that are difficult to quantify or predict, which may have a significant impact on the valuation of our investments and, therefore, on the carried interest and investment income we realize. Additionally, a change in interest rates could have a significant impact on valuations.
Across the total Level III private equity investment portfolio (including core private equity investments), and including investments in both consolidated and unconsolidated investment funds, approximately 55% of the fair value is derived from investments that are valued based exactly 50% on market comparables and 50% on a discounted cash flow analysis. Less than 2% of the fair value of this Level III private equity investment portfolio is derived from investments that are valued either based 100% on market comparables or 100% on a discounted cash flow analysis. As of March 31, 2023, the overall weights ascribed to the market comparables methodology, the discounted cash flow methodology, and a methodology based on pending sales for this portfolio of Level III private equity investments were 38%, 54%, and 8%, respectively.
There is inherent uncertainty involved in the valuation of Level III investments, and there is no assurance that, upon liquidation, KKR will realize the values reflected in our valuations. Our valuations may differ significantly from the values that would have been used had an active market for the investments existed, and it is reasonably possible that the difference could be material. See "—Business Environment" for more information on factors that may impact our business, financial performance, operating results and valuations.
Key unobservable inputs that have a significant impact on our Level III valuations as described above are included in Note 10 "Fair Value Measurements" in our financial statements.
Level III Valuation Process
The valuation process involved for Level III measurements is completed on a quarterly basis and is designed to subject the valuation of Level III investments to an appropriate level of consistency, oversight, and review.
For private equity and real asset investments classified as Level III, investment professionals prepare preliminary valuations based on their evaluation of financial and operating data, company specific developments, market valuations of comparable companies and other factors. KKR begins its procedures to determine the fair values of its Level III assets approximately one month prior to the end of a reporting period, and KKR follows additional procedures to ensure that its determinations of fair value for its Level III assets are appropriate as of the relevant reporting date. These preliminary valuations are reviewed by an independent valuation firm engaged by KKR to perform certain procedures in order to assess the reasonableness of KKR's valuations annually for all Level III private equity and real asset investments and quarterly for investments other than certain investments, which have values less than preset value thresholds and which in the aggregate comprise less than 1% of the total value of KKR's Level III private equity and real asset investments. The valuations of certain real asset investments are determined solely by independent valuation firms without the preparation of preliminary valuations by our investment professionals, and instead such independent valuation firms rely on valuation information available to it as a broker or valuation firm. For credit investments, an independent valuation firm is generally engaged by KKR to assist with the valuations of most investments classified as Level III. The valuation firm either provides a value, provides a valuation range from which KKR's investment professionals select a point in the range to determine the valuation, or performs certain procedures in order to assess the reasonableness of KKR's valuations. After reflecting any input from the independent valuation firm, the valuation proposals are submitted for review and approval by KKR's valuation committees. As of March 31, 2023, less than 3% of the total value of our Level III credit investments were not valued with the engagement of an independent valuation firm.
For Level III investments in Asset Management, KKR has a global valuation committee that is responsible for coordinating and implementing the firm's valuation process to ensure consistency in the application of valuation principles across portfolio investments and between periods. The global valuation committee is assisted by the asset class-specific valuation committees that exist for private equity (including core equity investments and certain impact investments), growth equity (including certain impact investments), real estate, energy, infrastructure and credit. The asset class-specific valuation committees are responsible for the review and approval of all preliminary Level III valuations in their respective asset classes on a quarterly basis. The members of these valuation committees are comprised of investment professionals, including the heads of each respective strategy, and professionals from business operations functions such as legal, compliance and finance, who are not primarily responsible for the management of the investments. All Level III valuations for investments in Asset Management are also subject to approval by the global valuation committee, which is comprised of senior employees including investment professionals and professionals from business operations functions, and includes KKR's Co-Chief Executive Officers and its Chief Financial Measures UnderOfficer, Chief Legal Officer, General Counsel, and Chief Compliance Officer. When valuations are approved
by the global valuation committee after reflecting any input from it, the valuations of Level III investments, as well as the valuations of Level I and Level II investments, are presented to the Audit Committee of the Board of Directors of KKR & Co. Inc. and are then reported to the Board of Directors.
Level III investments held by Global Atlantic are valued on the basis of pricing services, broker-dealers or internal models. Global Atlantic performs a quantitative and qualitative analysis and review of the information and prices received from independent pricing services as well as broker-dealers to verify that it represents a reasonable estimate of fair value. As of March 31, 2023, approximately 89% of these investments were priced via external sources, while approximately 11% were valued on the basis of internal models. For all the internally developed models, Global Atlantic seeks to verify the reasonableness of fair values by analyzing the inputs and other assumptions used. These preliminary valuations are reviewed, based on certain thresholds, by an independent valuation firm engaged by Global Atlantic to perform certain procedures in order to assess the reasonableness of Global Atlantic's valuations. When valuations are approved by Global Atlantic's management, the valuations of its Level III investments, as well as the valuations of Level I and Level II investments, are presented to the Audit Committee of the Board of Directors of KKR & Co. Inc. and are then reported to the Board of Directors.
As of March 31, 2023, upon completion by, where applicable, independent valuation firms of certain limited procedures requested to be performed by them on certain Level III investments, the independent valuation firms concluded that the fair values, as determined by KKR (including Global Atlantic), of those investments reviewed by them were reasonable. The limited procedures did not involve an audit, review, compilation or any other form of examination or attestation under generally accepted auditing standards and were not conducted on all Level III investments. We are responsible for determining the fair value of investments in good faith, and the limited procedures performed by an independent valuation firm are supplementary to the inquiries and procedures that we are required to undertake to determine the fair value of the commensurate investments.
As described above, Level II and Level III investments were valued using internal models with significant unobservable inputs, and our determinations of the fair values of these investments may differ materially from the values that would have resulted if readily observable inputs had existed. Additional external factors may cause those values, and the values of investments for which readily observable inputs exist, to increase or decrease over time, which may create volatility in our earnings and the amounts of assets and stockholders' equity that we report from time to time.
Changes in the fair value of investments impacts the amount of carried interest that is recognized as well as the amount of investment income that is recognized for investments held directly in Asset Management and through our consolidated funds as described below. We estimate that an immediate 10% decrease in the fair value of investments held directly and through consolidated investment funds generally would result in a commensurate change in the amount of net gains (losses) from investment activities for investments held directly and through investment funds and a more significant impact to the amount of carried interest recognized, regardless of whether the investment was valued using observable market prices or management estimates with significant unobservable pricing inputs. With respect to consolidated investment funds, the impact that the consequential decrease in investment income would have on net income attributable to KKR would generally be significantly less than the amount described above, given that a majority of the change in fair value of our consolidated funds would be attributable to noncontrolling interests and therefore we are only impacted to the extent of our carried interest and our balance sheet investments. With respect to Insurance, a decrease in investment income for certain assets where investment gains and losses are recognized through the statement of operations would impact KKR only to the extent of our economic ownership interest in Global Atlantic.
As of March 31, 2023, there were no investments which represented greater than 5% of total investments on a GAAP basis. On a non-GAAP basis, as of March 31, 2023, investments which represented greater than 5% of total non-GAAP investments consisted of USI, Inc. (financial services sector) and PetVet Care Centers, LLC (health care sector) and valued at $1,300 million and $1,143 million, respectively. Our investment income on a GAAP basis and our book value can be impacted by volatility in the public markets related to our holdings of publicly traded securities, including our sizable holdings of Crescent Energy and BridgeBio Pharma, Inc. See "—Business Environment" for a discussion of factors that may impact the valuations of our investments, financial results, operating results and valuations, and "—Non-GAAP Balance Sheet Measures" for additional information regarding our largest holdings on a non-GAAP basis.
Business Combinations
KKR accounts for business combinations using the acquisition method of accounting, under which the purchase price of the acquisition is allocated to the assets acquired and liabilities assumed using the fair values determined by management as of the acquisition date.
Management’s determination of fair value of assets acquired and liabilities assumed at the acquisition date is based on the best information available in the circumstances and may incorporate management’s own assumptions and involve a significant degree of judgment. We use our best estimates and assumptions to accurately assign fair value to the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets. Examples of critical estimates in valuing certain of the intangible assets we have acquired include, but are not limited to, future expected cash inflows and outflows, future fundraising assumptions, expected useful life, discount rates and income tax rates. Our estimates for future cash flows are based on historical data, various internal estimates and certain external sources, and are based on assumptions that are consistent with the plans and estimates we are using to manage the underlying assets acquired. We estimate the useful lives of the intangible assets based on the expected period over which we anticipate generating economic benefit from the asset. We base our estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Unanticipated events and circumstances may occur that could affect the accuracy or validity of such assumptions, estimates or actual result.
Income Taxes
Significant judgment is required in estimating the provision for (benefit from) income taxes, current and deferred tax balances (including valuation allowance), accrued interest or penalties and uncertain tax positions. In evaluating these judgments, we consider, among other items, projections of taxable income (including the character of such income), beginning with historic results and incorporating assumptions of the amount of future pretax operating income. These assumptions about future taxable income require significant judgment and are consistent with the plans and estimates that KKR uses to manage its business. A portion of the deferred tax assets are not considered to be more likely than not to be realized. For that portion of the deferred tax assets for Global Atlantic, a valuation allowance has been recorded. Revisions in estimates and/or actual costs of a tax assessment may ultimately be materially different from the recorded accruals and unrecognized tax benefits, if any. Please see Note 19 "Income Taxes" in our financial statements in this report for further details.
Critical Accounting Policies and Estimates - Asset Management
The following discussion of key financial measures under GAAP is based on KKR's asset management business as of March 31, 2022.
Revenues
Fees and Other
Fees and other consist primarily of (i) management and incentive fees from providing investment management services to unconsolidated funds, CLOs, other vehicles, and separately managed accounts; (ii) transaction fees earned in connection with successful investment transactions and from capital markets activities; (iii) monitoring fees from providing services to portfolio companies; (iv) expense reimbursements from certain investment funds and portfolio companies; (v) revenue earned by oil and gas entities that are consolidated; and (vi)(v) consulting fees. These fees are based on the contractual terms of the governing agreements and are recognized when earned, which coincides with the period during which the related services are performed and in the case of transaction fees, upon closing of the transaction. Monitoring fees may provide for a termination payment following an initial public offering or change of control. These termination payments are recognized in the period when the related transaction closes.
Capital Allocation-Based Income (Loss)
Capital allocation-based income (loss) is earned from those arrangements whereby KKR serves as general partner and includes income or loss from KKR's capital interest as well as "carried interest" which entitles KKR to a disproportionate allocation of investment income or loss from an investment fund's limited partners.
Carried interest is recognized upon appreciation of the funds’ investment values above certain return hurdles set forth in their partnership agreement. KKR recognizes revenues attributable to capital allocation-based income based upon the amount that would be due pursuant to the fund partnership agreement at each period end as if the funds were terminated at that date. Accordingly, the amount recognized reflects KKR’s share of the gains and losses of the associated funds’ underlying investments measured at their then-current fair values relative to the fair values as of the end of the prior period. Because of the inherent uncertainty in measuring the fair value of investments in the absence of observable market prices as previously discussed, these estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and it is reasonably possible that the difference could be material.
Expenses
Compensation and Benefits
Compensation and Benefits expense includes (i) base cash compensation consisting of salaries and wages, (ii) benefits, (iii) carry pool allocations, (iv) equity-based compensation and (v) discretionary cash bonuses.
To supplement base cash compensation, benefits, carry pool allocations, and equity-based compensation, we typically pay discretionary cash bonuses, which are included in Compensation and Benefits expense in the consolidated statements of operations, based principally on the level of (i) management fees and other fee revenues (including incentive fees), (ii) realized carried interest and (iii) realized investment income earned during the year. The amounts paid as discretionary cash bonuses, if any, are at our sole discretion and vary from individual to individual and from period to period, including having no cash bonus. We accrue discretionary cash bonuses when payment becomes probable and reasonably estimable which is generally in the period when we make the decision to pay discretionary cash bonuses and is based upon a number of factors, including the recognition of fee revenues, realized carried interest, realized investment income and other factors determined during the year.
Beginning in 2021, we expect to pay our employees by assigning a percentage range to each component of asset management segment revenues. Based on the current components and blend of our asset management segment revenues on an annual basis, we expect to use approximately: (i) 20‐25% of fee related revenues, (ii) 60‐70% of realized carried interest and incentive fees not included in fee related performance revenues or earned from our hedge fund partnerships, and (iii) 10‐20% of realized investment income and hedge fund partnership incentive fees, to pay our asset management employees. Because these ranges are applied to applicable distributableasset management segment revenue components independently, and on an annual basis, the amount paid as a percentage of total distributable revenuesasset management segment revenue will vary and will, for example, likely be higher in a period with relatively higher realized carried interest and lower in a period with relatively lower realized carried interest. We decide whether to pay a discretionary cash bonus and determine the percentage of applicable revenue components to pay compensation only upon the
occurrence of the realization event. There is no contractual or other binding obligation that requires us to pay a discretionary cash bonus to the asset management employees, except in limited circumstances.
Assuming that we had accrued compensation of (i) 65% of the unrealized carried interest earned by the funds that allocate 40% and 43% to the carry pool and (ii) 15% of the unrealized net gains in our Principal Activities business line (in each case at the mid-point of the ranges above), KKR & Co. Inc. Stockholders’ Equity – Series I and II Preferred, Common Stock as of March 31, 20222023 would have been reduced by approximately $2.33$1.50 per share, compared to our reported $24.72$21.54 per share on such date, and our book value as of March 31, 20222023 would have been reduced by approximately $2.26$1.45 per adjusted share, compared to our reported book value of $28.45$27.65 per adjusted share on such date.
Carry Pool AllocationIncome Taxes
With respectSignificant judgment is required in estimating the provision for (benefit from) income taxes, current and deferred tax balances (including valuation allowance), accrued interest or penalties and uncertain tax positions. In evaluating these judgments, we consider, among other items, projections of taxable income (including the character of such income), beginning with historic results and incorporating assumptions of the amount of future pretax operating income. These assumptions about future taxable income require significant judgment and are consistent with the plans and estimates that KKR uses to our funds that provide for carried interest, we allocate amanage its business. A portion of the realizeddeferred tax assets are not considered to be more likely than not to be realized. For that portion of the deferred tax assets for Global Atlantic, a valuation allowance has been recorded. Revisions in estimates and/or actual costs of a tax assessment may ultimately be materially different from the recorded accruals and unrealized carriedunrecognized tax benefits, if any. Please see Note 19 "Income Taxes" in our financial statements in this report for further details.
Critical Accounting Policies and Estimates - Asset Management
Revenues
Fees and Other
Fees and other consist primarily of (i) management and incentive fees from providing investment management services to unconsolidated funds, CLOs, other vehicles, and separately managed accounts; (ii) transaction fees earned in connection with successful investment transactions and from capital markets activities; (iii) monitoring fees from providing services to portfolio companies; (iv) expense reimbursements from certain investment funds and portfolio companies; and (v) consulting fees. These fees are based on the contractual terms of the governing agreements and are recognized when earned, which coincides with the period during which the related services are performed and in the case of transaction fees, upon closing of the transaction. Monitoring fees may provide for a termination payment following an initial public offering or change of control. These termination payments are recognized in the period when the related transaction closes.
Transaction fee calculations and management fee calculations based on committed capital or invested capital typically do not require discretion and therefore do not require the use of significant estimates or judgments. Management fee calculations based on net asset value depend on the fair value of the underlying investments within the investment vehicles. Estimates and assumptions are made when determining the fair value of the underlying investments within the funds and could vary depending on the valuation methodology that is used as well as economic conditions.
Capital Allocation-Based Income (Loss)
Capital allocation-based income (loss) is earned from those arrangements whereby KKR serves as general partner and includes income or loss from KKR's capital interest that we earnas well as "carried interest" which entitles KKR to a disproportionate allocation of investment income or loss from an investment fund's limited partners.
Carried interest is recognized upon appreciation of the funds’ investment values above certain return hurdles set forth in their partnership agreement. KKR recognizes revenues attributable to capital allocation-based income based upon the amount that would be due pursuant to the fund partnership agreement at each period end as if the funds were terminated at that date. Accordingly, the amount recognized reflects KKR’s share of the gains and losses of the associated funds’ underlying investments measured at their then-current fair values relative to the fair values as of the end of the prior period. Because of the inherent uncertainty in measuring the fair value of investments in the absence of observable market prices as previously discussed, these estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and it is reasonably possible that the difference could be material.
Expenses
Compensation and Benefits
Compensation and Benefits expense includes (i) base cash compensation consisting of salaries and wages, (ii) benefits, (iii) carry pool established at KKR Associates Holdings L.P., which is not a KKR subsidiary, from which our asset management employeesallocations, (iv) equity-based compensation and certain other(v) discretionary cash bonuses.
To supplement base cash compensation, benefits, carry pool participantsallocations, and equity-based compensation, we typically pay discretionary cash bonuses, which are eligible to receive a carried interest allocation. The allocation is determined based upon a fixed arrangement between KKR Associates Holdingsincluded in Compensation and us, and we do not exercise discretion on whether to make an allocation toBenefits expense in the carry pool upon a realization event. These amounts are accounted for as compensatory profit sharing arrangements in Accrued Expenses and Other Liabilities within the accompanying consolidated statements of financial condition in conjunction withoperations, based principally on the related carried interest incomelevel of (i) management fees and are recorded as compensation expense. Upon a reversal of carried interest income, the related carry pool allocation, if any, is also reversed. Accordingly, such compensation expense is subject to both positive and negative adjustments.
In February 2021, with the approval of a majority of our independent directors, KKR amended the percentage of carried interest that is allocable to the carry pool to 65% for (i) current investment funds for which no or de minimis amounts of carried interest was accrued as of December 31, 2020 andother fee revenues (including incentive fees), (ii) all future funds. For all other funds, the percentage of carried interest remains 40% or 43%, as applicable. The percentage of carried interest allocable to the carry pool may be increased above 65% only with the approval of a majority of our independent directors. To account for the difference in the carry pool allocation percentages, we expect to use a portion of realized carried interest fromand (iii) realized investment income earned during the older funds equal to the difference between 65% and 40% or 43%, as applicable, to supplement the carry pool and to pay amounts as discretionary cash bonus compensation as described above to our asset management employees.year. The amounts paid as discretionary cash bonuses, if any, are at our sole discretion and vary from individual to individual and from period to period, including having no cash bonus at all for certain employees. See "—Critical Accounting Policies - Asset Management—Recognition of Carried Interestbonus. We accrue discretionary cash bonuses when payment becomes probable and reasonably estimable which is generally in the Statementperiod when we make the decision to pay discretionary cash bonuses and is based upon a number of Operations"factors, including the recognition of fee revenues, realized carried interest, realized investment income and "—Key Financial Measures Under GAAP - Asset Management—Expenses—Compensationother factors determined during the year.
Beginning in 2021, we expect to pay our employees by assigning a percentage range to each component of asset management segment revenues. Based on the current components and Benefits."blend of our asset management segment revenues on an annual basis, we expect to use approximately: (i) 20‐25% of fee related revenues, (ii) 60‐70% of realized carried interest and incentive fees not included in fee related performance revenues or earned from our hedge fund partnerships, and (iii) 10‐20% of realized investment income and hedge fund partnership incentive fees, to pay our asset management employees. Because these ranges are applied to applicable asset management segment revenue components independently, and on an annual basis, the amount paid as a percentage of total asset management segment revenue will vary and will, for example, likely be higher in a period with relatively higher realized carried interest and lower in a period with relatively lower realized carried interest. We decide whether to pay a discretionary cash bonus and determine the percentage of applicable revenue components to pay compensation only upon the occurrence of the realization event. There is no contractual or other binding obligation that requires us to pay a discretionary cash bonus to the asset management employees, except in limited circumstances.
OnAssuming that we had accrued compensation of (i) 65% of the Sunset Date (as definedunrealized carried interest earned by the funds that allocate 40% and 43% to the carry pool and (ii) 15% of the unrealized net gains in our Principal Activities business line (in each case at the Reorganization Agreement)mid-point of the ranges above), KKR will acquire control of KKR Associates Holdings and will commence making decisions regarding the allocation of carry proceeds pursuant to the limited partnership agreement of KKR Associates Holdings. Until the Sunset Date, our Co-Founders will continue to make decisions regarding the allocation of carry proceeds to themselves and others, pursuant to the limited partnership agreement of KKR Associates Holdings, provided that any allocation of carry proceeds to the Co-Founders will be on a percentage basis consistent with past practice.
Equity-based Compensation
In addition to the cash-based compensation and carry pool allocations as described above, employees receive equity awards under our& Co. Inc. Stockholders’ Equity Incentive Plans, most of which are subject to service-based vesting typically over a three to five-year period from the date of grant, and some of which are also subject to the achievement of market-based conditions. Certain of these awards are subject to post-vesting transfer restrictions and minimum retained ownership requirements.
General, Administrative and Other
General, administrative and other expense consists primarily of professional fees paid to legal advisors, accountants, advisors and consultants, insurance costs, travel and related expenses, communications and information services, depreciation and amortization charges, expenses incurred by oil and gas entities, CLOs and investment funds that are consolidated, costs incurred in connection with pursuing potential investments that do not result in completed transactions ("broken-deal expenses"), expense reimbursements, placement fees and other general operating expenses. A portion of these general administrative and other expenses, in particular broken-deal expenses, are borne by fund investors.
Investment Income (Loss)
Net Gains (Losses) from Investment Activities
Net gains (losses) from investment activities consist of realized and unrealized gains and losses arising from our investment activities as well as income earned from certain equity method investments. Fluctuations in net gains (losses) from investment activities between reporting periods is driven primarily by changes in the fair value of our investment portfolio as well as the realization of investments. The fair value of, as well as the ability to recognize gains from, our investments is significantly impacted by the global financial markets, which, in turn, affects the net gains (losses) from investment activities recognized in any given period. Upon the disposition of an investment, previously recognized unrealized gains and losses are reversed and an offsetting realized gain or loss is recognized in the current period. Since our investments are carried at fair value, fluctuations between periods could be significant due to changes to the inputs to our valuation process over time. For a further discussion of our fair value measurements and fair value of investments, see "—Critical Accounting Policies - Combined—Fair Value Measurements."
Dividend Income
Dividend income consists primarily of distributions that we and our consolidated investment funds receive from portfolio companies or real assets investments in which we and our consolidated investment funds invest. Dividend income is recognized primarily in connection with (i) dispositions of operations by portfolio companies, (ii) distributions of cash generated from operations from portfolio investments or real assets investments, and (iii) other significant refinancings undertaken by portfolio investments.
Interest Income
Interest income consists primarily of interest that is received on our credit instruments in which we and our consolidated investment funds, CLOs and other entities invest as well as interest on our cash and other investments.
Interest Expense
Interest expense is incurred from (i) debt issued by KKR, including debt issued by KFN, (ii) credit facilities entered into by KKR, (iii) debt securities issued by consolidated CFEs, (iv) financing arrangements at our majority owned investment vehicles that have been funded with borrowings that are collateralized by the investments and assets they own and (v) financing arrangements at our consolidated funds entered into primarily with the objective of managing cash flow. KFN's debt obligations are non-recourse to KKR beyond the assets of KFN. Debt securities issued by consolidated CFEs are supported solely by the investments held at the CFE and are not collateralized by assets of any other KKR entity. Our obligations under financing arrangements at our consolidated investment funds are generally limited to our pro rata equity interest in such funds. However, in some circumstances, we may provide limited guarantees of the obligations of our general partners in an amount equal to its pro rata equity interest in such funds. Our management companies bear no obligations with respect to financing arrangements at our consolidated funds. We also may provide other kinds of guarantees. See "—Liquidity."
Key Financial Measures Under GAAP - Insurance
The following discussion of key financial measures under GAAP is based on KKR's insurance business as conducted by Global Atlantic– Common Stock as of March 31, 2022.
Revenues
Premiums
Premiums primarily relate2023 would have been reduced by approximately $1.50 per share, compared to payout annuities with life contingenciesour reported $21.54 per share on such date, and whole life and term life insurance policies, recognized when due from the policyholders. Premiums areour book value as of March 31, 2023 would have been reduced by approximately $1.45 per adjusted share, compared to our reported net of premiums ceded under reinsurance agreements.
Policy fees
Policy fees include charges assessed against policyholder account balances for mortality, administration, separate account, benefit rider and surrender fees.
Net investment income
Net investment income reflects the income earned on our investments, net of any associated investment expenses (including management fees charged by the asset management segment) and net of ceded amounts under reinsurance agreements. Net investment income includes, amongst other things (i) interest earned on our fixed income available-for-sale and fixed-income trading investments, (ii) interest income and other related fees from our mortgage and other loan receivables, (iii) interest on funds withheld at interest receivables, (iv) proportional share of income from equity-method investments and (v) income from physical assets, such as renewable energy plants, railcars, and airplanes (net of depreciation and operating expenses).
Net investment-related gains
Net investment-related gains primarily consists of (i) realized gains and losses from the disposal of investments, including realized gains and losses on the disposal of investments not related to asset/liability matching strategies (“variable investment income”), (ii) unrealized gains and losses from investments held for trading, real estate investments accounted under investment company accounting, and investments with fair value re-measurements recognized in earnings as a result of the election of a fair-value option, (iii) unrealized gains and losses on funds withheld at interest receivable and payable, (iv) unrealized gains and losses from derivatives not designated in an hedging relationship and (v) allowances for credit losses, and other impairments of investments.
Other income
Other income is primarily comprised of expense allowances on ceded reinsurance, administration, management fees and distribution fees.
Expenses
Policy benefits and claims
Policy benefits and claims represent the current period expense associated with providing insurance benefits to policyholders, including claims and benefits paid, interest credited to policyholders, changes in policy liability reserves (including fair value reserves), amortization of cost of reinsurance liabilities, and amortization of deferred sales inducements.
Amortization of policy acquisition costs
Amortization of policy acquisition costs primarily consist of amortization ofbook value of business acquired and deferred policy acquisition costs.$27.65 per adjusted share on such date.
Insurance expense
Insurance expenses are primarily comprised of commissions expense, net of amounts capitalized, reinsurance ceding allowances, premium taxes, amortization of acquired intangibles and captive financing charges.
Interest expense
Interest expense is incurred from insurance segment debt issued, including related interest rate swaps, credit facilities and other financing agreements.
General, administrative and other
General, administrative and other expenses are primarily comprised of employee compensation and benefit expenses, third-party administrator ("TPA") policy servicing fees, administrative and professional services, and other operating expenses.
Other Key Financial Measures Under GAAP
Income TaxesOther Terms and Capital Metrics
KKR & Co. Inc. is a domestic corporation for U.S. federal income tax purposes and is subject to U.S. federal, state and local income taxes at the entity level on its share of taxable income. In addition, KKR Group Partnership and certain of its subsidiaries operate as partnerships for U.S. federal tax purposes but as taxable entities for certain state, local or non-U.S. tax purposes. Moreover, certain corporate subsidiaries of KKR, including certain Global Atlantic subsidiaries, are domestic corporations for U.S. federal income tax purposes and are subject to U.S. federal, state, and local income taxes.
Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining tax expense and in evaluating tax positions including evaluating uncertainties. We review our tax positions quarterly and adjust our tax balances as new information becomes available.
For a further discussion of our income tax policies, see Note 18 "Income Taxes" in our financial statements.
Net Income (Loss) Attributable to Noncontrolling Interests
Net income (loss) attributable to noncontrolling interests primarily represents the ownership interests that certain third parties hold in entities that are consolidated in the financial statements as well as the ownership interests in KKR Group Partnership that are held by KKR Holdings (and holders of other exchangeable securities). The allocable share of income and expense attributable to these interests is accounted for as net income (loss) attributable to noncontrolling interests. Given the consolidation of certain of our investment funds and the significant ownership interests in KKR Group Partnership held by KKR Holdings, we expect a portion of net income (loss) will continue to be attributed to noncontrolling interests in our business.
For a further discussion of our noncontrolling interests policies, see Note 22 "Equity" in the financial statements.
KeySegment and Non-GAAP Performance Measures
The following key segment and non-GAAP performance measures are used by management in making operational and resource deployment decisions as well as assessing the performance of KKR's businesses. They include certain financial measures that are calculated and presented using methodologies other than in accordance with GAAP. These performance measures as described below are presented prior to giving effect to the allocation of income (loss) between KKR & Co. Inc. and KKR Holdings L.P. (and holders of other exchangeable securities) and as such represent the entire KKR business in total. In addition, these performance measures are presented without giving effect to the consolidation of the investment funds and collateralized financing entities (“CFEs”) that KKR manages.
We believe that providing these segment and non-GAAP performance measures on a supplemental basis to our GAAP results is helpful to stockholders in assessing the overall performance of KKR's business. These non-GAAP measures should not be considered as a substitute for financial measures calculated in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP, where applicable are included under "—Reconciliations to GAAP Measures."
After-tax Distributable Earnings
After-tax distributable earnings is a non-GAAP performance measure of KKR’s earnings, which is derived from KKR’s reported segment results. After-tax distributable earnings is used to assess the performance of KKR’s business operations and measures the earnings potentially available for distribution to its equity holders or reinvestment into its business. After-tax distributable earnings is equal to Distributable Operating Earnings less Interest Expense, Series A and B Preferred Stock dividends (which have been redeemed), Net Income Attributable to Noncontrolling Interests and Income Taxes Paid. Series C Mandatory Convertible Preferred Stock dividends have been excluded from After-tax Distributable Earnings, because the definition of Adjusted Shares used to calculate After-tax Distributable Earnings per
Adjusted Share assumes that allshares represents shares of Series C Mandatory Convertible Preferred Stock have been converted to shares of common stock. Income Taxes Paid represents the implied amount of income taxes that would be paid assuming that all pre-tax distributable earnings were allocated to KKR & Co. Inc. and taxed at the same effective rate, which assumes that all units in KKR Holdings L.P. and other exchangeable securities were exchanged for common stock of KKR & Co. Inc. Income Taxes Paid includes amounts paid pursuantoutstanding under GAAP adjusted to include (i) the tax receivable agreementnumber of shares of common stock of KKR & Co. Inc. assumed to be issuable upon conversion of the Series C Mandatory Convertible Preferred Stock and (ii) certain securities exchangeable into shares of common stock of KKR & Co. Inc. Weighted average adjusted shares is used in the benefitcalculation of tax deductions arising from equity-based compensation, which
reduces income taxes paid or payable during the period. Equity-based compensation expense is excluded from After-tax Distributable Earnings because (i)per Adjusted Share, and Adjusted Shares is used in the calculation of Book Value per Adjusted Share.
Assets Under Management
Assets under management represent the assets managed, advised or sponsored by KKR believes that the cost of equity awards granted to employees does not contribute to the earnings potentially available for distributions to its equity holders or reinvestment into its business and (ii) excluding this expense makes KKR’s reporting metric more comparable to the corresponding metric presented by other publicly traded companies in KKR’s industry,from which KKR believes enhances an investor’s abilityis entitled to compare KKR’sreceive management fees or performance to these other companies. If tax deductions from equity-based compensation were to be excluded from Income Taxes Paid, KKR’s After-tax Distributable Earnings would be lowerincome (currently or upon a future event), general partner capital, and KKR’s effective tax rate would appear to be higher, even though a lower amount of income taxes would have actually been paidassets managed, advised or payable during the period. KKR separately discloses the amount of tax deduction from equity-based compensation for the period reportedsponsored by our strategic BDC partnership and the effect of its inclusionhedge fund and other managers in After-tax Distributable Earnings for the period.which KKR makes these adjustments when calculating After-tax Distributable Earnings in order to more accurately reflect the net realized earnings that are expected to be or become available for distribution to KKR’s equity holders or reinvestment into KKR’s business. However, After-tax Distributable Earnings does not represent and is not used to calculate actual dividends under KKR’s dividend policy, which is a fixed amount per period, and After-tax Distributable Earnings should not be viewed as a measure of KKR’s liquidity.
Book Value
Book Value is a non‐GAAP performance measure of the net assets of KKR and is used by management primarily in assessing the unrealized value of KKR’s net assets presented on a basis that (i) deconsolidates KKR’s investment funds and CFEs that KKR manages, (ii) includes the net assets that are attributable to KKR Holdings L.P., and (iii) includes KKR’sholds an ownership of the net assets of Global Atlantic.interest. We believe this measure is useful to stockholders as it provides additional insight into the net assetscapital raising activities of KKR excluding those net assets that are allocated toand its hedge fund and other managers and the investors of KKRoverall activity in their investment funds and other noncontrolling interest holders and tomanaged or sponsored capital. KKR calculates the holders of preferred stock. KKR's book value includes (x) the net impact of KKR's tax assets and liabilities as prepared under GAAP and (y) the implied amount of (1) tax assets and liabilities attributable to KKR Holdings L.P.AUM as if it was subject to corporate income taxes and (2)of any date as the recognition of deferred tax liabilities relating to certain assets of KKR Group Partnership L.P. that is expected to occur uponsum of: (i) the completion of the mergers contemplated by the Reorganization Agreement. Series C Mandatory Convertible Preferred Stock has been included in book value, because the definition of adjusted shares used to calculate book value per adjusted share assumes that all shares of Series C Mandatory Convertible Preferred Stock have been converted to shares of common stock. To calculate Global Atlantic book value and to make it more comparable with the corresponding metric presented by other publicly traded companies in Global Atlantic’s industry, Global Atlantic book value excludes (i) accumulated other comprehensive income and (ii) accumulated change in fair value of reinsurance balancesthe investments of KKR's investment funds and relatedcertain co-investment vehicles; (ii) uncalled capital commitments from these funds, including uncalled capital commitments from which KKR is currently not earning management fees or performance income; (iii) the asset value of the Global Atlantic insurance companies; (iv) the par value of outstanding CLOs; (v) KKR's pro rata portion of the AUM of hedge fund and other managers in which KKR holds an ownership interest; (vi) all of the AUM of KKR's strategic BDC partnership; (vii) the acquisition cost of invested assets net of income tax.certain non-US real estate investment trusts and (viii) the value of other assets managed or sponsored by KKR. The pro rata portion of the AUM of hedge fund and other managers is calculated based on KKR’s percentage ownership interest in such entities multiplied by such entity’s respective AUM. KKR's definition of AUM (i) is not based on any definition of AUM that may be set forth in the governing documents of the investment funds, vehicles, accounts or other entities whose capital is included in this definition, (ii) includes assets for which KKR does not act as an investment adviser, and (iii) is not calculated pursuant to any regulatory definitions.
Distributable Operating EarningsCapital Invested
Distributable operating earningsCapital invested is the aggregate amount of capital invested by (i) KKR’s investment funds and Global Atlantic insurance companies, (ii) KKR's Principal Activities business line as a non-GAAP performanceco-investment, if any, alongside KKR’s investment funds, and (iii) KKR's Principal Activities business line in connection with a syndication transaction conducted by KKR's Capital Markets business line, if any. Capital invested is used as a measure thatof investment activity at KKR believesduring a given period. We believe this measure is useful to stockholders as it provides a supplemental measure of our operating performance without taking into account itemscapital deployment across KKR’s business lines. Capital invested includes investments made using investment financing arrangements like credit facilities, as applicable. Capital invested excludes (i) investments in certain leveraged credit strategies, (ii) capital invested by KKR’s Principal Activities business line that KKR doesis not believe arise from or relate directly to KKR's operations. Distributable Operating Earnings is presented prior to giving effect to the allocation of income (loss) among KKR & Co. Inc., KKR Holdings L.P. and other exchangeable securities, and the consolidation of thea co-investment alongside KKR’s investment funds, vehicles and accounts that KKR advises, manages or sponsors (including collateralized financing entities). Distributable Operating Earnings excludes: (i) equity-based compensation charges, (ii) amortization of acquired intangibles, (iii) strategic corporate transaction-related charges and (iv) non-recurring items, if any. Strategic corporate transaction-related items arise from corporate actions and consist primarily of (i) impairments, (ii) non-monetary gains or losses on divestitures, (iii) transaction costs from strategic acquisitions, and (iv) depreciation on real estate that KKR owns and occupies. Inter-segment transactions are not eliminated from segment results when management considers those transactions in assessing the results of the respective segments. These transactions include (i) management fees earned by KKR as the investment adviser for Global Atlantic insurance companies and (ii) interest income and expense based on lending arrangements where one or more KKR subsidiaries borrow from a Global Atlantic insurance subsidiary. Inter-segment transactions are recorded by each segment based on the definitive documents that contain arms’ length terms and comply with applicable regulatory requirements. Distributable Operating Earnings represents operating earnings of KKR’s Asset Management and Insurance segments, which are comprised of the following:
•Asset Management Segment Operating Earnings is the segment profitability measure used to make operating decisions and to assess the performance of the Asset Management segment and is comprised of: (i) Fee Related Earnings, (ii) Realized Performance Income, (iii) Realized Performance Income Compensation, (iv) Realized Investment Income, and (v) Realized Investment Income Compensation. Asset Management Segment Operating Earnings excludes (i) unrealized carried interest, (ii) net unrealized gains (losses) on investments, and (iii) related unrealized performance income compensation. Management fees earnedcapital invested by KKR as the adviser, manager or sponsor for itsKKR’s Principal Activities business line that is not invested in connection with a syndication transaction by KKR’s Capital Markets business line. Capital syndicated by KKR's Capital Markets business line to third parties other than KKR’s investment funds vehicles and accounts, including management fees paid to KKR by Global Atlantic's insurance companies andor Principal Activities business line is not included in capital invested.
management fees paid to Global Atlantic by reinsurance investment vehicles, are included in Asset Management Segment Operating Earnings.
•Insurance Segment Operating Earnings is the segment profitability measure used to make operating decisions and to assess the performance of the Insurance segment and is comprised of: (i) Net Investment Income, (ii) Net Cost of Insurance, (iii) General, Administrative, and Other Expenses, (iv) Income Taxes, and (v) Net Income Attributable to Noncontrolling Interests. The non-operating adjustments made to derive Insurance Segment Operating Earnings eliminate the impact of: (i) realized (gains) losses related to asset/liability matching investments strategies, (ii) unrealized investment (gains) losses, (iii) changes in the fair value of derivatives, embedded derivatives, and fair value liabilities for fixed-indexed annuities, indexed universal life contracts and variable annuities, and (iv) the associated income tax effects of all exclusions from Insurance Segment Operating Earnings except for equity-based compensation expense. Insurance Segment Operating Earnings includes (i) realized gains and losses not related to asset/liability matching investments strategies, and (ii) the investment management fee expenses that are earned by KKR as the investment adviser of the Global Atlantic insurance companies.
Fee Related Earnings ("FRE")
Fee related earningspaying AUM represents only the AUM from which KKR is a performance measure usedentitled to assess the Asset Management segment’s generation of profits from revenues that are measured and received on a recurring basis and are not dependent on future realization events. KKR believesreceive management fees. We believe this measure is useful to stockholders as it provides additional insight into the profitabilitycapital base upon which KKR earns management fees. FPAUM is the sum of all of the individual fee bases that are used to calculate KKR's and its hedge fund and BDC partnership management fees and differs from AUM in the following respects: (i) assets and commitments from which KKR is not entitled to receive a management fee are excluded (e.g., assets and commitments with respect to which it is entitled to receive only performance income or is otherwise not currently entitled to receive a management fee) and (ii) certain assets, primarily in its private equity funds, are reflected based on capital commitments and invested capital as opposed to fair value because fees are not impacted by changes in the fair value of underlying investments.
Uncalled Commitments
Uncalled commitments is the aggregate amount of unfunded capital commitments that KKR’s investment funds and carry-paying co-investment vehicles have received from partners to contribute capital to fund future investments and the amount of uncalled commitments is not reduced by capital invested using borrowings under an investment fund’s subscription facility until capital is called from our fund investors. We believe this measure is useful to stockholders as it provides additional insight into the amount of capital that is available to KKR’s investment funds and carry paying co-investment vehicles to make future investments. Uncalled commitments are not reduced for investments completed using fund-level investment financing arrangements or investments we have committed to make but remain unfunded at the reporting date.
Condensed Consolidated Results of Operations (GAAP Basis - Unaudited)
The following is a discussion of our consolidated results of operations on a GAAP basis for the three months ended March 31, 2023 and 2022. You should read this discussion in conjunction with the financial statements and related notes included elsewhere in this report. For a more detailed discussion of the factors that affected our segment results in these periods, see "—Analysis of Segment Operating Results." See "Business Environment" for more information about factors that may impact our business, financial performance, operating results and valuations.
Effective January 1, 2023, we adopted new accounting guidance for insurance and reinsurance companies that issue long-duration contracts (“LDTI”) as of February 1, 2021, the date of the GA Acquisition, on a full retrospective basis. For a more detailed discussion of the adoption of LDTI, see Note 2 "Summary of Significant Accounting Policies" in our financial statements.
| | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Revenues | | | | | |
| Asset Management | | | | | |
| Fees and Other | $ | 677,016 | | | $ | 780,511 | | | $ | (103,495) | |
| Capital Allocation-Based Income (Loss) | 449,018 | | | (945,743) | | | 1,394,761 | |
| 1,126,034 | | | (165,232) | | | 1,291,266 | |
| Insurance | | | | | |
| Net Premiums | 473,624 | | | 372,144 | | | 101,480 | |
| Policy Fees | 313,802 | | | 313,782 | | | 20 | |
| Net Investment Income | 1,300,697 | | | 812,605 | | | 488,092 | |
| Net Investment-Related Gains (Losses) | (123,833) | | | (368,680) | | | 244,847 | |
| Other Income | 37,158 | | | 34,744 | | | 2,414 | |
| 2,001,448 | | | 1,164,595 | | | 836,853 | |
| Total Revenues | 3,127,482 | | | 999,363 | | | 2,128,119 | |
| | | | | |
| Expenses | | | | | |
| Asset Management | | | | | |
| Compensation and Benefits | 575,670 | | | 283,672 | | | 291,998 | |
| Occupancy and Related Charges | 22,149 | | | 18,149 | | | 4,000 | |
| General, Administrative and Other | 213,689 | | | 234,665 | | | (20,976) | |
| 811,508 | | | 536,486 | | | 275,022 | |
| Insurance | | | | | |
| Net Policy Benefits and Claims (including market risk benefit loss (gain) of $146,309 and $(195,683), respectively) | 1,527,054 | | | 513,178 | | | 1,013,876 | |
| Amortization of Policy Acquisition Costs | 44,211 | | | 11,422 | | | 32,789 | |
| Interest Expense | 40,261 | | | 13,219 | | | 27,042 | |
| Insurance Expenses | 225,318 | | | 115,803 | | | 109,515 | |
| General, Administrative and Other | 211,731 | | | 167,624 | | | 44,107 | |
| 2,048,575 | | | 821,246 | | | 1,227,329 | |
| Total Expenses | 2,860,083 | | | 1,357,732 | | | 1,502,351 | |
| | | | | |
| Investment Income (Loss) - Asset Management | | | | | |
| Net Gains (Losses) from Investment Activities | (159,409) | | | 914,261 | | | (1,073,670) | |
| Dividend Income | 148,167 | | | 662,350 | | | (514,183) | |
| Interest Income | 728,616 | | | 352,556 | | | 376,060 | |
| Interest Expense | (576,338) | | | (281,759) | | | (294,579) | |
| Total Investment Income (Loss) | 141,036 | | | 1,647,408 | | | (1,506,372) | |
| | | | | |
| Income (Loss) Before Taxes | 408,435 | | | 1,289,039 | | | (880,604) | |
| | | | | |
| Income Tax Expense (Benefit) | 148,747 | | | 36,651 | | | 112,096 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
| March 31, 2023 | | March 31, 2022 | | Change |
| ($ in thousands) |
| | | | | |
| Net Income (Loss) | 259,688 | | | 1,252,388 | | | (992,700) | |
| Net Income (Loss) Attributable to Redeemable Noncontrolling Interests | (7,303) | | | (63) | | | (7,240) | |
| Net Income (Loss) Attributable to Noncontrolling Interests | (73,003) | | | 1,244,987 | | | (1,317,990) | |
| Net Income (Loss) Attributable to KKR & Co. Inc. | 339,994 | | | 7,464 | | | 332,530 | |
| | | | | |
| | | | | |
| | | | | |
| Series C Mandatory Convertible Preferred Stock Dividends | 17,250 | | | 17,250 | | | — | |
| | | | | |
Net Income (Loss) Attributable to KKR & Co. Inc.
Common Stockholders | $ | 322,744 | | | $ | (9,786) | | | $ | 332,530 | |
Condensed Consolidated Results of Operations (GAAP Basis - Unaudited) - Asset Management
Revenues
For the three months ended March 31, 2023 and 2022, revenues consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Management Fees | | $ | 453,093 | | | $ | 398,046 | | | $ | 55,047 | |
| Fee Credits | | (57,531) | | | (187,745) | | | 130,214 | |
| Transaction Fees | | 209,839 | | | 466,966 | | | (257,127) | |
| Monitoring Fees | | 29,853 | | | 39,400 | | | (9,547) | |
| Incentive Fees | | 6,413 | | | 7,057 | | | (644) | |
| Expense Reimbursements | | 15,544 | | | 41,303 | | | (25,759) | |
| | | | | | |
| Consulting Fees | | 19,805 | | | 15,484 | | | 4,321 | |
| Total Fees and Other | | 677,016 | | | 780,511 | | | (103,495) | |
| | | | | | |
| Carried Interest | | 343,070 | | | (783,688) | | | 1,126,758 | |
| General Partner Capital Interest | | 105,948 | | | (162,055) | | | 268,003 | |
| Total Capital Allocation-Based Income (Loss) | | 449,018 | | | (945,743) | | | 1,394,761 | |
| | | | | | |
| Total Revenues - Asset Management | | $ | 1,126,034 | | | $ | (165,232) | | | $ | 1,291,266 | |
Fees and Other
Total Fees and Other for the three months ended March 31, 2023 decreased compared to the three months ended March 31, 2022 primarily as a result of the decrease in transaction fees, partially offset by the increase in management fees.
For a more detailed discussion of the factors that affected our transaction fees during the period, see "—Analysis of Asset Management Segment Operating Earnings."
The increase in management fees was primarily attributable to (i) management fees earned on new capital raised over the past twelve months at European Fund VI, Next Generation Technology Growth Fund III and Asia Pacific Infrastructure Investors II, and (ii) management fees earned on assets managed by KJRM, which is a Japanese REIT manager that we acquired in 2022. The increase was partially offset by catch-up management fees earned on new capital raised for Global Infrastructure Investors IV and North America Fund XIII in the first quarter of 2022 that was retroactive to the start of the
fund's investment period. There were no catch-up management fees earned in the first quarter of 2023 for Global Infrastructure Investors IV and North America Fund XIII.
Management fees due from consolidated investment funds and other vehicles are eliminated upon consolidation under GAAP. However, because these amounts are funded by, and earned from, noncontrolling interests, upon consolidation under GAAP, KKR's allocated share of the net income from the consolidated investment funds and other vehicles is increased by the amount of fees that are eliminated. Accordingly, net income (loss) attributable to KKR would be unchanged if such investment funds and other vehicles were not consolidated. For a more detailed discussion on the factors that affect our management fees during the period, see "—Analysis of Asset Management Segment Operating Earnings."
Fee credits decreased compared to the prior period as a result of a lower level of transaction fees in our Private Equity, Real Assets and Credit and Liquid Strategies business lines in the current period. Fee credits owed to consolidated investment funds are eliminated upon consolidation under GAAP. However, because these amounts are owed to noncontrolling interests, upon consolidation under GAAP, KKR's allocated share of the net income from the consolidated investment funds is decreased by the amount of fee generatingcredits that are eliminated. Accordingly, net income (loss) attributable to KKR would be unchanged if such investment funds and other vehicles were not consolidated. Transaction and monitoring fees earned from KKR portfolio companies are not eliminated upon consolidation because those fees are earned from companies which are not consolidated. Furthermore, transaction fees earned in our capital markets business are not shared with fund investors. Accordingly, certain transaction fees are reflected in our revenues without a corresponding fee credit.
Capital Allocation-Based Income (Loss)
Capital Allocation-Based Income (Loss) for the three months ended March 31, 2023 was positive primarily due to the net appreciation of the underlying investments at many of our unconsolidated carry earning investment funds, most notably Americas Fund XII, Global Infrastructure Investors III, and Asian Pacific Infrastructure Investors. Capital Allocation-Based Income (Loss) for the three months ended March 31, 2022 was negative primarily due to the net depreciation of the underlying investments at certain of our carry earning investment funds, most notably Americas Fund XII and Asian Fund II.
KKR calculates the carried interest that would be due to KKR for each investment fund, pursuant to the fund agreements, as if the fair value of the underlying investments were realized as of the reporting date, irrespective of whether such amounts have been realized. Since the fair value of the underlying investments varies between reporting periods, it is necessary to make adjustments to the amounts recorded as carried interest to reflect either (a) positive performance, resulting in an increase in the carried interest allocated to the general partner or (b) negative performance that would cause the amount due to KKR to be less than the amount previously recognized, resulting in a negative adjustment to carried interest allocated to the general partner. In each case, it is necessary to calculate the carried interest on cumulative results compared to the carried interest recorded to date and to make the required positive or negative adjustments.
Investment Income (Loss) - Asset Management
For additional information about net gains (losses) from investment activities, see Note 5 "Net Gains (Losses) from Investment Activities - Asset Management" in our financial statements.
Net Gains (Losses) from Investment Activities for the three months ended March 31, 2023
The net losses from investment activities for the three months ended March 31, 2023 were comprised of net realized gains of $99.4 million and net unrealized losses of $(258.8) million.
Investment gains and losses relating to our general partner capital interest in our unconsolidated funds are not reflected in our discussion and analysis of Net Gains (Losses) from Investment Activities. Our economics associated with these gains and losses are reflected in Capital Allocation-Based Income (Loss) as described above.
Realized Gains and Losses from Investment Activities
For the three months ended March 31, 2023, net realized gains related primarily to the sale of our investment in KnowBe4, Inc. (NASDAQ: KNBE), Flutter Entertainment PLC (LON: FLTR), and US Foods Holding Corp. (NYSE: USFD). Partially offsetting these realized gains were realized losses primarily relating to a realized loss on our alternative credit investment, Chembulk Group (transportation sector) as well as realized losses on certain foreign exchange forward contracts and losses from the sales of revolving credit facilities.
Unrealized Gains and Losses from Investment Activities
For the three months ended March 31, 2023, net unrealized losses were driven by mark-to-market losses primarily relating to (i) certain investments held by our consolidated real estate and energy funds, (ii) GenesisCare Pty Ltd. (health care sector) and Heartland Dental, LLC (health care sector), each of which are held in our consolidated core private equity funds, and (iii) debt obligations of our consolidated CLOs. These unrealized losses were partially offset by mark-to-market gains primarily relating to (i) BridgeBio Pharma, Inc. (NASDAQ: BBIO), (ii) Viridor Limited (Infrastructure: energy and energy transition sector) and FiberCop S.p.A (Infrastructure: telecommunications infrastructure sector) held in our consolidated core private equity funds and (iii) certain investments held in our consolidated CLOs.
Net Gains (Losses) from Investment Activities for the three months ended March 31, 2022
The net gains from investment activities for the three months ended March 31, 2022 were comprised of net realized gains of $279.6 million and net unrealized gains of $634.6 million.
Realized Gains and Losses from Investment Activities
For the three months ended March 31, 2022, net realized gains related primarily to the sales of our investments in Fiserv Inc. (NASDAQ: FISV) and Söderberg & Partners (financial services sector). Partially offsetting these realized gains were realized losses primarily relating to a real estate equity investment in one of our consolidated US real estate funds and certain investments held in our consolidated SIG funds.
Unrealized Gains and Losses from Investment Activities
For the three months ended March 31, 2022, net unrealized gains were driven primarily by mark-to-market gains from (i) Crescent Energy Company (NYSE: CRGY), (ii) Viridor Limited, and (iii) investments held in our consolidated real estate equity funds. These unrealized gains were partially offset by mark-to-market losses related to (i) certain investments held in our consolidated CLOs and SIG funds, (ii) OutSystems Holdings S.A (technology sector) and (iii) BridgeBio Pharma, Inc.
For a discussion of other factors that affected KKR's realized investment income, see "—Analysis of Asset Management Segment Operating Results". For additional information about net gains (losses) from investment activities, see Note 5 "Net Gains (Losses) from Investment Activities - Asset Management" in our financial statements.
Dividend Income
During the three months ended March 31, 2023, the most significant dividends received included (i) $29.6 million from certain investments held in our consolidated open-ended core infrastructure fund, Diversified Core Infrastructure Fund, (ii) $29.3 million from certain investments held in our consolidated real estate equity and credit funds and (iii) $17.4 million from certain investments held in our consolidated SIG funds. During the three months ended March 31, 2022, the most significant dividends received included $299.0 million from certain investments held in our consolidated core plus and opportunistic real estate equity funds and $86.6 million from our investment in Exact Group B.V. (technology sector) held in our consolidated core private equity funds.
Significant dividends from portfolio companies and consolidated funds are generally not recurring quarterly dividends, and while they may occur in the future, their size and frequency are variable. For a discussion of other factors that affected KKR's dividend income, see "—Analysis of Asset Management Segment Operating Results."
Interest Income
The increase in interest income during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to (i) the impact of closing CLOs that were consolidated subsequent to March 31, 2022, (ii) higher interest rates on floating rate investments held in consolidated CLOs, leveraged credit and alternative credit funds, and (ii) a higher level of interest income from certain of our consolidated leveraged credit and private credit funds, related to an increase in the amount of capital deployed. For a discussion of other factors that affected KKR's interest income, see "—Analysis of Asset Management Segment Operating Results."
Interest Expense
The increase in interest expense during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to (i) the increase in the amount of borrowings outstanding from certain consolidated funds and other vehicles, (ii) impact of closing CLOs that were consolidated subsequent to March 31, 2022, (iii) higher interest rates on floating rate debt obligations held in consolidated CLOs, and (iv) the impact of issuances of our senior notes after March 31, 2022. For a discussion of other factors that affected KKR's interest expense, see "—Analysis of Non-GAAP Performance Measures."
Expenses - Asset Management
Compensation and Benefits Expense
The increase in compensation and benefits expense during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to accrued carried interest compensation in the current period compared to the reversal of previously recognized carried interest compensation in the prior period. Partially offsetting the increase is a lower level of accrued discretionary cash compensation resulting from a lower level of asset management segment revenues in the current period.
General, Administrative and capital markets businessesOther
The decrease in general, administrative and other recurring revenue streams. FRE equalsexpenses during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to a lower level of (i) Management Fees, includingexpenses reimbursable by our investment funds and (ii) a lower level of placement fees paidincurred related to capital raising activities, partially offset by a higher level of professional fees, information technology, travel and other administrative costs in connection with the overall growth of the firm.
In reporting periods where there are lower levels of fundraising and, to the extent that we use third parties to assist in our capital raising efforts, our General, Administrative and Other expenses are expected to decrease accordingly. Similarly, our General, Administrative and Other expenses are expected to decrease during any periods where there are lower levels of professional and other fees incurred as part of due diligence related to strategic acquisitions and new product development.
Condensed Consolidated Results of Operations (GAAP Basis - Unaudited) - Insurance
Revenues
For the three months ended March 31, 2023 and 2022, revenues consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| | March 31, 2023 | | March 31, 2022 | | Change | | | | | | |
| ($ in thousands) |
| Net Premiums | $ | 473,624 | | | $ | 372,144 | | | $ | 101,480 | | | | | | | |
| Policy Fees | 313,802 | | | 313,782 | | | 20 | | | | | | | |
| Net Investment Income | 1,300,697 | | | 812,605 | | | 488,092 | | | | | | | |
| Net Investment-Related Losses | (123,833) | | | (368,680) | | | 244,847 | | | | | | | |
| Other Income | 37,158 | | | 34,744 | | | 2,414 | | | | | | | |
| Total Insurance Revenues | $ | 2,001,448 | | | $ | 1,164,595 | | | $ | 836,853 | | | | | | | |
Net Premiums
Net premiums increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to higher initial premiums related to a larger number of reinsurance transactions with life contingencies assumed during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. The increase was partially offset by higher retrocessions to third party reinsurers during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. The initial premiums on assumed reinsurance were offset by a comparable increase in policy reserves reported within net policy benefits and claims (as discussed below).
Net investment income
Net investment income increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) increased average assets under management due to growth in assets in Global Atlantic's institutional market channel as a result of new reinsurance transactions and individual market channel sales, (ii) growth in portfolio yields due to higher market interest rates on floating rate investments, and (iii) rotation into higher yielding assets during 2022.
Net investment-related losses
The components of net investment-related losses were as follows:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| ($ in thousands) |
| Funds withheld payable at interest embedded derivatives | $ | (430,235) | | | $ | 1,180,435 | | | $ | (1,610,670) | |
| Equity futures contracts | (40,825) | | | 79,796 | | | (120,621) | |
| Foreign currency forwards | 794 | | | 8,557 | | | (7,763) | |
| Credit risk contracts | (75) | | | (1,532) | | | 1,457 | |
| Equity index options | 83,887 | | | (223,366) | | | 307,253 | |
| Interest rate contracts | 68,996 | | | (150,176) | | | 219,172 | |
| Funds withheld receivable embedded derivatives | (30,767) | | | (33,980) | | | 3,213 | |
| | | | | |
| Net gains on derivative instruments | (348,225) | | | 859,734 | | | (1,207,959) | |
| Net other investment gains (losses) | 224,392 | | | (1,228,414) | | | 1,452,806 | |
| Net investment-related losses | $ | (123,833) | | | $ | (368,680) | | | $ | 244,847 | |
Net gains on derivative instruments
The decrease in the fair value of embedded derivatives on funds withheld at interest payable for the three months ended March 31, 2023 was primarily driven by the Insurance segmentchange in fair value of the underlying investments in the funds withheld at interest payable portfolio, which is primarily comprised of fixed maturity securities (designated as trading for accounting purposes), mortgage and other loan receivables, and other investments. The underlying investments in the funds withheld at interest payable portfolio increased in value in the three months ended March 31, 2023, primarily due to a decrease in market interest rates as compared to a decrease in value in the three months ended March 31, 2022, due to an increase in market interest rates.
The increase in the fair value of equity index options was primarily driven by the performance of the indexes upon which call options are based. Global Atlantic purchases equity index options to hedge the market risk of embedded derivatives in indexed universal life and fixed-indexed annuity products (the change in which is accounted for in net policy benefits and claims). The majority of Global Atlantic's equity index call options are based on the S&P 500 Index, which increased during the three months ended March 31, 2023, as compared to a decrease during the three months ended March 31, 2022.
The decrease in the fair value of equity futures contracts was driven primarily by the performance of equity markets. Global Atlantic purchases equity futures primarily to hedge the market risk in Global Atlantic's variable annuity products which are accounted for in net policy benefits and claims. The majority of Global Atlantic's equity futures are based on the S&P 500 Index, which increased during the three months ended March 31, 2023, as compared to a decrease during the three months ended March 31, 2022, resulting in respectively, a loss, and a gain, on equity futures contracts in the respective periods.
The increase in the fair value of interest rate contracts was driven by a decrease in market interest rates during the three months ended March 31, 2023 and an increase in market interest rates during the three months ended March 31, 2022, resulting in respectively, a gain and a loss, on interest rate contracts.
The increase in the fair value of embedded derivatives on funds withheld at interest receivable was primarily due to widening of credit spreads during both the three months ended March 31, 2023, and the three months ended March 31, 2022.
Net other investment losses
The components of net other investment losses were as follows:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| ($ in thousands) |
| Realized gains (losses) on investments not supporting asset-liability matching strategies | $ | — | | | $ | 14,964 | | | $ | (14,964) | |
| | | | | |
| Realized gains (losses) on available-for-sale fixed maturity debt securities | 3,432 | | | (243,350) | | | 246,782 | |
| Credit loss allowances | (148,429) | | | (29,897) | | | (118,532) | |
| Impairment of available-for-sale fixed maturity debt securities due to intent to sell | (26,741) | | | — | | | (26,741) | |
| Unrealized gains (losses) on fixed maturity securities classified as trading | 376,290 | | | (1,038,446) | | | 1,414,736 | |
| Unrealized gains (losses) on investments accounted under a fair-value option | (55,773) | | | (2,493) | | | (53,280) | |
| Unrealized gains (losses) on real estate investments recognized at fair value under investment company accounting | 63,192 | | | 77,692 | | | (14,500) | |
| Realized gains (losses) on funds withheld at interest payable portfolio | 3,980 | | | (26,387) | | | 30,367 | |
| Realized gains (losses) on funds withheld at interest receivable portfolio | 17,733 | | | 25,600 | | | (7,867) | |
| Other | (9,292) | | | (6,097) | | | (3,195) | |
| Net other investment gains (losses) | $ | 224,392 | | | $ | (1,228,414) | | | $ | 1,452,806 | |
The increase in net other investment gains for the three months ended March 31, 2023 as compared to net other investment losses for the three months ended March 31, 2022, were primarily due to (i) a decrease in unrealized losses on fixed maturity securities classified as trading which was primarily due to a decrease in interest rates during the three months ended March 31, 2023 as compared to an increase in interest rates during the three months ended March 31, 2022, (ii) a decrease in realized losses on available-for-sale fixed maturity debt securities which was primarily due to a decrease in portfolio rotation activity, and (iii) realized gains on funds withheld at interest payable portfolio.
Offsetting these gains were (i) an increase in credit loss allowances on fixed maturity securities and mortgage and other loan receivables in the three months ended March 31, 2023, which was primarily due to an increase in the overall credit risk of Global Atlantic's loan portfolio, (ii) impairments of available-for-sale securities in an unrealized loss position due to an intent to sell, and (iii) unrealized losses on investments accounted under a fair-value option during the three months ended March 31, 2023.
Expenses
Net policy benefits and claims
Net policy benefits and claims increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) a loss on market risk benefits due to an decrease in interest rates in the three months ended March 31, 2023, as compared to a gain on market risk benefits during the three months ended March 31, 2022 due to an increase in rates in the three months ended March, 31, 2022, (ii) an increase in net flows from both individual and institutional market channel sales, (iii) higher funding costs on new business, and (iv) higher initial reserves assumed related to an increase in new reinsurance transactions with life contingencies in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, and (v) an increase in the value of embedded derivatives in Global Atlantic's indexed universal life and fixed indexed annuity products, as a result of higher equity market returns (as discussed above under "Revenues–Net investment-related losses–Net gains on derivatives instruments," Global Atlantic purchases equity index options in order to hedge this risk, the fair value changes of which are accounted for in gains on derivative instruments, and generally offsetting the change in embedded derivative fair value reported in net policy benefits and claims).
Offsetting these increases was an decrease in variable annuity market risk benefit liabilities primarily due to higher equity market returns.
Amortization of policy acquisition costs
Amortization of policy acquisition costs increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to growth in Global Atlantic's individual market and institutional market channels.
Interestexpense
Interest expense increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) a net increase in debt outstanding, primarily due to draws on the revolving credit facility after March 31, 2022, and (ii) an increase in interest expense on floating rate debt (Global Atlantic's revolving facility and fixed-to-floating swaps on its fixed rate debt) due to higher market rates.
Insurance expenses
Insurance expenses increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to increased reinsurance transactions and increased commission expense related to increased sales in Global Atlantic's individual markets channel.
General, administrative and other
General, administrative and other expenses increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) increased interest expense due to higher interest rates and debt outstanding, (ii) increased employee compensation and benefits related expenses, (iii) increased professional service fees, and (iv) increased third-party administrator ("TPA”) policy servicing fees, all due to growth of the business.
Other Condensed Consolidated Results of Operations (GAAP Basis - Unaudited)
Income Tax Expense (Benefit)
Income tax expense increased for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022 primarily due to net operating income generated from asset management in the current period as compared to a net operating loss driven by net capital allocation-based losses in the prior period. The net operating income from Global Atlantic in the prior period largely offset the asset management net operating loss. For a discussion of factors that impacted KKR's tax provision, see Note 19 "Income Taxes" in our financial statements included elsewhere in this report. The amount of U.S. federal or state corporate income taxes we pay in future periods may be materially increased if adverse tax laws become enacted.
Net Income (Loss) Attributable to Noncontrolling Interests
Net loss attributable to noncontrolling interests for the three months ended March 31, 2023 was primarily due to (i) net losses from investment activities primarily at certain of our consolidated real estate and energy investment funds and (ii) a net loss in the current period allocable to interests that third party investors hold in Global Atlantic, partially offset by positive net income from asset management operations allocable to holders of certain securities exchangeable into shares of common stock of KKR & Co. Inc.
Net Income (Loss) Attributable to KKR & Co. Inc.
The net income attributable to KKR & Co. Inc. for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 increased due to net capital allocation-based income, partially offset by a lower level of transaction fees and accrued carried interest compensation, as described above.
Condensed Consolidated Statements of Financial Condition (GAAP Basis)
The following table provides our condensed consolidated statements of financial condition on a GAAP basis as of March 31, 2023 and December 31, 2022.
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| (Amounts in thousands, except per share amounts) |
| | As of | | As of |
| | March 31, 2023 | | December 31, 2022 |
| | | | |
| Assets | | | | |
| Asset Management | | | | |
| Cash and Cash Equivalents | | $ | 5,576,121 | | | $ | 6,705,325 | |
| Investments | | 97,949,918 | | | 92,375,463 | |
| Other Assets | | 7,057,818 | | | 7,114,360 | |
| | 110,583,857 | | | 106,195,148 | |
| Insurance | | | | |
| Cash and Cash Equivalents | | 3,713,382 | | | 6,118,231 | |
| Investments | | 129,401,394 | | | 124,199,176 | |
| Other Assets | | 38,911,956 | | | 38,834,081 | |
| | 172,026,732 | | | 169,151,488 | |
| Total Assets | | $ | 282,610,589 | | $ | 275,346,636 |
| | | | |
| Liabilities and Equity | | | | |
| Asset Management | | | | |
| Debt Obligations | | $ | 42,519,776 | | | $ | 40,598,613 | |
| Other Liabilities | | 8,228,017 | | | 6,937,832 | |
| | 50,747,793 | | | 47,536,445 | |
| Insurance | | | | |
| Debt Obligations | | 2,157,283 | | | 2,128,166 | |
| Other Liabilities | | 172,582,137 | | | 170,311,335 | |
| | 174,739,420 | | | 172,439,501 | |
| Total Liabilities | | $ | 225,487,213 | | | $ | 219,975,946 | |
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| Redeemable Noncontrolling Interests | | 144,126 | | | 152,065 | |
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| Stockholders' Equity | | | | |
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| Stockholders' Equity - Series C Mandatory Convertible Preferred Stock | | 1,115,792 | | | 1,115,792 | |
| Stockholders' Equity - Common Stock | | 18,546,889 | | | 17,691,975 | |
| Noncontrolling Interests | | 37,316,569 | | | 36,410,858 | |
| Total Equity | | 56,979,250 | | | 55,218,625 | |
| Total Liabilities and Equity | | $ | 282,610,589 | | | $ | 275,346,636 | |
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KKR & Co. Inc. Stockholders' Equity - Common Stock
Per Outstanding Share of Common Stock | | $ | 21.54 | | | $ | 20.55 | |
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KKR & Co. Inc. Stockholders’ Equity - Common Stock per Outstanding Share of Common Stock was $21.54 as of March 31, 2023, up from $20.55 as of December 31, 2022. The increase was primarily due to (i) unrealized gains on available-for-sale-securities from Global Atlantic that are recorded in other comprehensive income and (ii) net income attributable to KKR & Co. Inc. common stockholders during the first three months of 2023, partially offset by dividends to common stockholders.
Consolidated Statements of Cash Flows (GAAP Basis)
The following is a discussion of our consolidated cash flows for the three months ended March 31, 2023 and 2022. You should read this discussion in conjunction with the financial statements and related notes included elsewhere in this report.
The consolidated statements of cash flows include the cash flows of our consolidated entities, which include certain consolidated investment funds, CLOs and certain variable interest entities formed by Global Atlantic notwithstanding the fact that we may hold only a minority economic interest in those investment funds and CFEs. The assets of our consolidated investment funds and CFEs, on a gross basis, can be substantially larger than the assets of our business and, accordingly, could have a substantial effect on the cash flows reflected in our consolidated statements of cash flows. The primary cash flow activities of our consolidated funds and CFEs involve: (i) capital contributions from fund investors; (ii) using the capital of fund investors to make investments; (iii) financing certain investments with indebtedness; (iv) generating cash flows through the realization of investments; and (v) distributing cash flows from the realization of investments to fund investors. Because our consolidated funds are treated as investment companies for accounting purposes, certain of these cash flow amounts are included in our cash flows from operations.
Net Cash Provided (Used) by Operating Activities
Our net cash provided (used) by operating activities was $(1.9) billion and $0.9 billion during the three months ended March 31, 2023 and 2022, respectively. These amounts primarily included: (i) investments purchased (asset management), net of proceeds from investments (asset management) of $(4.7) billion and $(0.6) billion during the three months ended March 31, 2023 and 2022, respectively, (ii) net realized gains (losses) on asset management investments of $0.1 billion and $0.3 billion during the three months ended March 31, 2023 and 2022, respectively, (iii) change in unrealized gains (losses) on investments (asset management) of $(0.3) billion and $0.6 billion during the three months ended March 31, 2023 and 2022, respectively, (iv) capital allocation-based income (loss) of $0.4 billion and $(0.9) billion during the three months ended March 31, 2023 and 2022, respectively, (v) net realized gains (losses) on insurance operations of $(1.0) billion and $0.3 billion during the three months ended March 31, 2023 and 2022, respectively, and (vi) interest credited to policyholder account balances (net of policy fees) (insurance) of $0.6 billion and $0.5 billion during the three months ended March 31, 2023 and 2022, respectively. Investment funds are investment companies under GAAP and reflect their investments and other financial instruments at fair value.
Net Cash Provided (Used) by Investing Activities
Our net cash provided (used) by investing activities was $(3.8) billion and $(2.0) billion during the three months ended March 31, 2023 and 2022, respectively. Our investing activities included: (i) investments purchased (insurance), net of proceeds from investments (insurance), of $(3.8) billion and $(2.0) billion during the three months ended March 31, 2023 and 2022, respectively, and (ii) the purchase of fixed assets of $(23.2) million and $(11.9) million during the three months ended March 31, 2023 and 2022, respectively.
Net Cash Provided (Used) by Financing Activities
Our net cash provided (used) by financing activities was $2.1 billion and $4.1 billion during the three months ended March 31, 2023 and 2022, respectively. Our financing activities primarily included: (i) contributions by, net of distributions to, our noncontrolling and redeemable noncontrolling interests of $0.6 billion and $1.6 billion during the three months ended March 31, 2023 and 2022, respectively, (ii) proceeds received, net of repayment of debt obligations, of $1.5 billion and $31.5 million during the three months ended March 31, 2023 and 2022, respectively, (iii) additions to, net of withdrawals from, contractholder deposit funds of $0.5 billion and $2.4 billion during three months ended March 31, 2023 and 2022, respectively, (iv) common stock dividends of $(133.5) million and $(85.7) million during the three months ended March 31, 2023 and 2022, respectively, (v) repurchases of common stock of $(346.7) million during the three months ended March 31, 2022, and (vi) Series C Mandatory Convertible Preferred Stock dividends of $(17.3) million during each of the three months ended March 31, 2023 and 2022.
Analysis of Segment Operating Results
The following is a discussion of the results of our business on a segment basis for the three months ended March 31, 2023 and 2022. You should read this discussion in conjunction with the information included under "—Key Segment and Non- GAAP Performance Measures" and the financial statements and related notes included elsewhere in this report. See "— Business Environment" for more information about factors that may impact our business, financial performance, operating results and valuations.
Analysis of Asset Management Segment Operating Results
The following tables set forth information regarding KKR's asset management segment operating results and certain key capital metrics for the three months ended March 31, 2023 and 2022:
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| |
| | | | | | | |
| | Three Months Ended | |
| | March 31, 2023 | | March 31, 2022 | | Change | |
| | ($ in thousands) | |
| Management Fees | | $ | 738,156 | | | $ | 624,928 | | | $ | 113,228 | | |
| Transaction and Monitoring Fees, Net | | 142,179 | | | 306,038 | | | (163,859) | | |
| Fee Related Performance Revenues | | 21,741 | | | 12,051 | | | 9,690 | | |
| Fee Related Compensation | | (203,094) | | | (212,220) | | | 9,126 | | |
| Other Operating Expenses | | (150,404) | | | (125,875) | | | (24,529) | | |
| Fee Related Earnings | | 548,578 | | | 604,922 | | | (56,344) | | |
| Realized Performance Income | | 175,398 | | | 609,207 | | | (433,809) | | |
| Realized Performance Income Compensation | | (114,009) | | | (383,635) | | | 269,626 | | |
| Realized Investment Income | | 198,094 | | | 349,354 | | | (151,260) | | |
| Realized Investment Income Compensation | | (29,714) | | | (52,403) | | | 22,689 | | |
| Asset Management Segment Operating Earnings | | $ | 778,347 | | | $ | 1,127,445 | | | $ | (349,098) | | |
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Management Fees
The following table presents management fees by business line:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Management Fees | | | | | | |
| Private Equity | | $ | 316,341 | | | $ | 282,184 | | | $ | 34,157 | |
| Real Assets | | 193,365 | | | 153,813 | | | 39,552 | |
| Credit and Liquid Strategies | | 228,450 | | | 188,931 | | | 39,519 | |
| Total Management Fees | | $ | 738,156 | | | $ | 624,928 | | | $ | 113,228 | |
The increase in Private Equity management fees was primarily attributable to management fees earned on new capital raised over the past twelve months at European Fund VI, Next Generation Technology Growth Fund III, and Global Impact Fund II. The increase was partially offset by (i) catch-up management fees earned on new capital raised for North America Fund XIII in the first quarter of 2022 that was retroactive to the start of the fund's investment period, and (ii) a lower level of management fees from Asian Fund III due to the sale of investments that resulted in a decrease in its fee base, which is capital invested. There were no catch-up management fees earned in the first quarter of 2023 for North America Fund XIII. During the first quarter of 2023, approximately $9.0 million of management fees were earned on new capital raised that is retroactive to the start of the relevant fund's investment period.
The increase in Real Asset management fees was primarily attributable to (i) management fees earned on assets managed by KJRM, which we acquired in the second quarter of 2022, (ii) management fees earned from Asia Pacific Infrastructure Investors II, which entered its investment period in the third quarter of 2022 resulting in management fees now being earned on this capital, and (iii) a higher level of management fees earned from Global Atlantic due to an increase in assets being managed by KKR's Asset Management segment. The increase was partially offset by catch-up management fees earned on new capital raised for Global Infrastructure Investors IV in the first quarter of 2022 that was retroactive to the start of the fund's investment period. There were no catch-up management fees earned in the first quarter of 2023 for Global Infrastructure Investors IV.
The increase in Credit and Liquid Strategies management fees was primarily attributable to (i) a higher level of management fees earned from Global Atlantic due to an increase in assets being managed by KKR's Asset Management segment and fees paid by certain insurance co-investment vehicles, (ii) the issuance of new CLOs over the past twelve months.
Transaction and Monitoring Fees, Net
The following table presents transaction and (iii) monitoring fees, net by business line:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Transaction and Monitoring Fees, Net | | | | | | |
| Private Equity | | $ | 34,274 | | | $ | 33,056 | | | $ | 1,218 | |
| Real Assets | | 5,734 | | | 7,630 | | | (1,896) | |
| Credit and Liquid Strategies | | 284 | | | 10,096 | | | (9,812) | |
| Capital Markets | | 101,887 | | | 255,256 | | | (153,369) | |
| Total Transaction and Monitoring Fees, Net | | $ | 142,179 | | | $ | 306,038 | | | $ | (163,859) | |
Our Private Equity, Real Assets and Credit and Liquid Strategies business lines separately earn transaction and monitoring fees from portfolio companies, and under the terms of the management agreements with certain of our investment funds, we are generally required to share all or a portion of such fees with our fund investors. In most funds, transaction and monitoring fees are credited against fund management fees up to 100% of the amount of the transaction and monitoring fees attributable to that fund, which results in a decrease of our monitoring and transaction fee income. Additionally, transaction fees are generally not earned with respect to energy and real estate investments. Our Capital Markets business line earns transaction fees, which are not shared with fund investors.
The decrease in transaction and monitoring fees, net is primarily due to a lower level of transaction fees earned in our Capital Markets business line. The decrease in capital markets transaction fees was primarily due to a decrease in the number of capital markets transactions for the three months ended March 31, 2023, compared to the three months ended March 31, 2022 reflecting reduced issuance levels across global equity and leveraged loan markets.Overall, we completed 42 capital markets transactions for the three months ended March 31, 2023, of which 9 represented equity offerings and 33 represented debt offerings, as compared to 87 transactions for the three months ended March 31, 2022, of which 11 represented equity offerings and 76 represented debt offerings. We earned fees in connection with underwriting, syndication and other capital markets services. While each of the capital markets transactions that we undertake in this business line is separately negotiated, our fee rates are generally higher with respect to underwriting or syndicating equity offerings than with respect to debt offerings, and the amount of fees that we earn for similar transactions generally correlates with overall transaction sizes.
Our capital markets fees are generated in connection with activity involving our private equity, real assets and credit funds as well as from third-party companies. For the three months ended March 31, 2023, approximately 14% of our transaction fees in our Capital Markets business line were earned from unaffiliated third parties as compared to approximately 19% for the three months ended March 31, 2022. Our transaction fees are comprised of fees earned in North America, Europe, and the Asia-Pacific region. For the three months ended March 31, 2023, approximately 59% of our transaction fees were generated outside of North America as compared to approximately 37% for the three months ended March 31, 2022. Our Capital Markets business line is dependent on the overall capital markets environment, which is influenced by equity prices, credit spreads, and volatility. Our Capital Markets business line does not generate monitoring fees.
Fee Related Performance Revenues less (x) Fee Related Compensation, and (y) Other Operating Expenses.
•Fee Related Performance Revenues refers to the realized portion of Incentive Fees from certain AUM that has an indefinite term and for which there is no immediate requirement to return invested capital to investors upon the realization of investments. Fee-relatedThe following table presents fee related performance revenues consists ofby business line:
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Fee Related Performance Revenues | | | | | | |
| Private Equity | | $ | — | | | $ | — | | | $ | — | |
| Real Assets | | 3,704 | | | 2,317 | | | 1,387 | |
| Credit and Liquid Strategies | | 18,037 | | | 9,734 | | | 8,303 | |
| Total Fee Related Performance Revenues | | $ | 21,741 | | | $ | 12,051 | | | $ | 9,690 | |
Fee related performance revenues represent performance fees that are (i) expected to be received from our investment funds, vehicles and accounts on a recurring basis, and (ii) that are not dependent on a realization event involving investments held by the investment fund, vehicle or account. These performance fees are primarily earned from FS KKR Capital Corp. (NYSE: FSK) ("FSK") (our business development company), KKR Property Partners Americas ("KPPA") (our open-ended core plus real estate fund), KKR Real Estate Select Trust ("KREST") (our registered closed-end real estate equity fund), KKR Real Estate Finance Trust Inc. ("KREF") (our real estate credit investment trust), and KJRM (our Japanese real estate investment trust asset manager). Fee related performance revenues were higher for the three months ended March 31, 2023 compared to the prior period primarily due to an increase in performance revenues earned from FSK in the current period.
•Fee Related Compensation refers
The decrease in fee related compensation for the three months ended March 31, 2023 compared to the prior period was primarily due to a lower level of compensation recorded in connection with the lower level of revenues included within fee related earnings.
Other Operating Expenses
The increase in other operating expenses for the three months ended March 31, 2023 compared to the prior period was primarily due to a higher level of professional fees, information technology, travel and other administrative costs in connection with the overall growth of the firm.
Fee Related Earnings
The decrease in fee related earnings for the three months ended March 31, 2023 compared to the prior period was primarily due to a lower level of transaction fees earned in our Capital Markets business line and higher level of operating expenses partially offset by a higher level of management fees across our Private Equity, Real Assets and Credit and Liquid Strategies business lines, as described above.
Realized Performance Income
The following table presents realized performance income by business line:
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Realized Performance Income | | | | | | |
| Private Equity | | $ | 163,052 | | | $ | 603,823 | | | $ | (440,771) | |
| Real Assets | | 9,686 | | | — | | | 9,686 | |
| Credit and Liquid Strategies | | 2,660 | | | 5,384 | | | (2,724) | |
| Total Realized Performance Income | | $ | 175,398 | | | $ | 609,207 | | | $ | (433,809) | |
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Private Equity | | | | | | |
| Core Investment Vehicles | | $ | 103,659 | | | $ | 262,219 | | | $ | (158,560) | |
| Global Impact Fund | | 20,257 | | | — | | | 20,257 | |
| Next Generation Technology Growth Fund | | 17,810 | | | — | | | 17,810 | |
| Americas Fund XII | | 14,714 | | | 83,016 | | | (68,302) | |
| 2006 Fund | | 4,271 | | | 33,458 | | | (29,187) | |
| North America Fund XI | | — | | | 119,942 | | | (119,942) | |
| Co-Investment Vehicles and Other | | 2,292 | | | 12,444 | | | (10,152) | |
| European Fund IV | | — | | | 68,688 | | | (68,688) | |
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Total Realized Carried Interest (1) | | 163,003 | | | 579,767 | | | (416,764) | |
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| Incentive Fees | | 49 | | | 24,056 | | | (24,007) | |
| Total Realized Performance Income | | $ | 163,052 | | | $ | 603,823 | | | $ | (440,771) | |
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Real Assets | | | | | | |
| Global Infrastructure Investors II | | $ | 9,686 | | | $ | — | | | $ | 9,686 | |
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Total Realized Carried Interest (1) | | 9,686 | | | — | | | 9,686 | |
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| Incentive Fees | | — | | | — | | | — | |
| Total Realized Performance Income | | $ | 9,686 | | | $ | — | | | $ | 9,686 | |
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Credit and Liquid Strategies | | | | | | |
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Total Realized Carried Interest (1) | | $ | — | | | $ | — | | | $ | — | |
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| Incentive Fees | | 2,660 | | | 5,384 | | | (2,724) | |
| Total Realized Performance Income | | $ | 2,660 | | | $ | 5,384 | | | $ | (2,724) | |
(1)The above tables exclude any funds for which there was no realized carried interest during both of the periods presented.
Realized performance income includes (i) realized carried interest from our carry earning funds and (ii) incentive fees not included in Fee Related Performance Revenues.
Realized carried interest in our Private Equity business line for the three months ended March 31, 2023 consisted primarily of (i) realized performance income from our core investment vehicles and (ii) realized proceeds from the sale of our investment in KnowBe4, Inc. held by Global Impact Fund and Next Generation Technology Growth Fund.
Realized carried interest in our Private Equity business line for the three months ended March 31, 2022 consisted primarily of (i) realized performance income from our core investment vehicles and (ii) realized proceeds from a dividend received from our investment in Internet Brands, Inc. (technology sector) held by North America Fund XI and Americas Fund XII and the sale of our investment in Hensoldt AG (FRA: HAG) held by European Fund IV.
Realized carried interest in our Real Assets business line for the three months ended March 31, 2023 consisted primarily of realized proceeds from the sale of our investment in Telxius Telecom, S.A.U. (Infrastructure: telecommunications infrastructure sector) held by Global Infrastructure Investors II. During the three months ended March 31, 2022, there was no realized carried interest earned in our Real Assets business line.
During the three months ended March 31, 2023 and 2022, there was no realized carried interest earned in our Credit and Liquid Strategies business line.
Incentive fees consist of performance fees earned from (i) our hedge fund partnerships, (ii) investment management agreements with KKR sponsored investment vehicles, and (iii) investment management agreements to provide KKR’s investment strategies to funds managed by a UK investment fund manager.
Incentive fees in our Private Equity business line decreased for the three months ended March 31, 2023 compared to the prior period as a result of incentive fees not being earned from certain levered multi-asset investment vehicles in the current period. Incentive fees in our Credit and Liquid Strategies business line decreased for the three months ended March 31, 2023 compared to the prior period primarily as a result of a lower level of performance fees earned from a UK investment fund manager.
Realized Performance Income Compensation
The decrease in realized performance income compensation for the three months ended March 31, 2023 compared to the prior period was primarily due to a lower level of compensation recorded in connection with the lower level of realized performance income.
Realized Investment Income
The following table presents realized investment income in our Principal Activities business line:
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Realized Investment Income | | | | | | |
| Net Realized Gains (Losses) | | $ | 91,907 | | | $ | 76,136 | | | $ | 15,771 | |
| Interest Income and Dividends | | 106,187 | | | 273,218 | | | (167,031) | |
| Total Realized Investment Income | | $ | 198,094 | | | $ | 349,354 | | | $ | (151,260) | |
The decrease in realized investment income is primarily due to a lower level of interest income and dividends, partially offset by a higher level of net realized gains. The amount of realized investment income depends on the transaction activity of our funds and balance sheet, which can vary from period to period.
For the three months ended March 31, 2023, net realized gains were comprised of realized gains primarily from the sale of our investments in KnowBe4, Inc. and Flutter Entertainment PLC. Partially offsetting these realized gains were realized losses, the most significant of which was a realized loss on our alternative credit investment, Chembulk Group, and realized losses from the sales of various revolving credit facilities.
For the three months ended March 31, 2022, net realized gains were comprised of realized gains primarily from the sale of our investments in Fiserv, Inc. and Hensoldt AG. Partially offsetting these realized gains were realized losses, the most significant of which was a realized loss of an alternative credit investment and real estate equity investment.
For the three months ended March 31, 2023, interest income and dividends were comprised of (i) $70.7 million of interest income, primarily from our investments in CLOs, and (ii) $35.5 million of dividend distributions primarily from our Americas real estate credit and equity investments, as well as a dividend distribution received from Resolution Life Holdings L.P. (financial services sector).
For the three months ended March 31, 2022, interest income and dividends were comprised of (i) $218.9 million of dividend income primarily from levered multi-asset investment vehicles and our investments in Exact Holdings B.V. and Internet Brands, Inc., and (ii) $54.3 million of interest income, primarily from our investments in CLOs. See "—Analysis of Non-GAAP Performance Measures—Non-GAAP Balance Sheet Measures."
Realized investment income (loss) includes the net income (loss) from KKR Capstone. For the quarter ended March 31, 2023, total fees attributable to KKR Capstone were $19.8 million and total expenses attributable to KKR Capstone were $19.6 million. For KKR Capstone-related adjustments in reconciling asset management segment revenues to GAAP revenues see "—Analysis of Non-GAAP Performance Measures—Reconciliations to GAAP Measures".
Based on information available as of the date of the filing of this report, we expect realized performance income and realized investment income to be approximately $125 million in the second quarter of 2023 relating to realized carried interest and realized investment income from completed, or signed and expected to be completed sales, partial sales or secondary sales subsequent to March 31, 2023 with respect to certain private equity portfolio companies and other investments. Some of these transactions are not complete, and are subject to the satisfaction of closing conditions, including, but not limited, to regulatory approvals; there can be no assurance if or when any of these transactions will be completed. The estimate disclosed above is not intended to predict or represent total realized performance income or total realized investment income for the full quarter ending June 30, 2023, because it does not include the results or impact of any other sources of income, including fee income, or expenses, and we may realize further gains or losses relating to total realized performance income and total realized investment income after the date of the filing of this report. Therefore, the actual realized carried interest and realized investment income for the quarter ended June 30, 2023 may be higher or lower than $125 million.
Realized Investment Income Compensation
The decrease in realized investment income compensation for the three months ended March 31, 2023 compared to the prior period is primarily due to a lower level of compensation recorded in connection with the lower level of realized investment income.
Other Operating and Capital Metrics
The following table presents certain key operating and capital metrics as of March 31, 2023 and December 31, 2022:
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| | As of |
| | March 31, 2023 | | December 31, 2022 | | Change |
| | ($ in millions) |
| Assets Under Management | | $ | 510,069 | | | $ | 503,897 | | | $ | 6,172 | |
| Fee Paying Assets Under Management | | $ | 415,871 | | | $ | 411,923 | | | $ | 3,948 | |
| Uncalled Commitments | | $ | 106,266 | | | $ | 107,679 | | | $ | (1,413) | |
The following table presents one of our key capital metrics for the three months ended March 31, 2023 and 2022:
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in millions) |
| Capital Invested | | $ | 9,767 | | | $ | 21,376 | | | $ | (11,609) | |
Assets Under Management
Private Equity
The following table reflects the changes in the AUM of our Private Equity business line from December 31, 2022 to March 31, 2023:
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| ($ in millions) |
| December 31, 2022 | $ | 165,147 | |
| New Capital Raised | 349 | |
| |
| Distributions and Other | (1,227) | |
| Change in Value | 1,493 | |
| March 31, 2023 | $ | 165,762 | |
AUM of our Private Equity business line was $165.8 billion at March 31, 2023, an increase of $0.7 billion, compared to $165.1 billion at December 31, 2022.
The increase was primarily attributable to an appreciation in investment value from Americas Fund XII, Asian Fund IV, and North America Fund XIII. Partially offsetting this increase were distributions to fund investors primarily as a result of realized proceeds, most notably from Americas Fund XII, Next Generation Technology Growth Fund II, and Next Generation Technology Growth Fund.
For the three months ended March 31, 2023, the value of our traditional private equity investment portfolio increased 2%. This was comprised of a 15% increase in share prices of various publicly held investments and a 2% increase in value of our privately held investments. For the three months ended March 31, 2023, the value of our growth equity investment portfolio increased 1% and our core private equity investment portfolio remained flat.
The most significant increases in the value of our publicly held investments were increases in AppLovin Corporation (NASDAQ: APP), BridgeBio Pharma, Inc. and PropertyGuru Group Limited (NYSE: PGRU). These increases were partially offset by decreases in the value of certain publicly held investments, the most significant of which was Brightview Holdings, Inc. (NYSE: BV) and Indus Towers Limited (NSE: INDUSTOWER). The prices of publicly held companies may experience volatile changes following the reporting period. See "—Business Environment" for more information about the factors, such as volatility, that may impact our business, financial performance, operating results and valuations.
The most significant increases in the value of our privately held investments were increases in Cloudera, Inc. (technology sector), Magneti Marelli CK Holdings Co. (industrials sector), and OneStream Software, LLC (technology sector). These increases in value on our privately held investments were partially offset by decreases in the value of certain other privately held investments, the most significant of which were Bytedance Ltd. (technology sector), GenesisCare Pty Ltd., and Heartland Dental, LLC. The increased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) individual company performance and (ii) an increase in the value of market comparables. The decreased valuations of individual companies in our privately held investments, in the aggregate, generally related to an unfavorable business outlook. See "—Business Environment" for more information about the factors, that may impact our business, financial performance, operating results and valuations.
Real Assets
The following table reflects the changes in the AUM of our Real Assets business line from December 31, 2022 to March 31, 2023:
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| ($ in millions) |
| December 31, 2022 | $ | 118,592 | |
| New Capital Raised | 2,613 | |
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| Distributions and Other | (1,468) | |
| Redemptions | (79) | |
| Change in Value | 1,148 | |
| March 31, 2023 | $ | 120,806 | |
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AUM of our Real Assets business line was $120.8 billion at March 31, 2023, an increase of $2.2 billion, compared to $118.6 billion at December 31, 2022.
The increase was primarily attributable to (i) new capital raised from a real estate credit separately managed account, Asia Real Estate Partners II, and our open-ended core infrastructure fund, Diversified Core Infrastructure Fund and (ii) the appreciation in investment value primarily from Global Infrastructure Investors III. Partially offsetting these increases were payments to Global Atlantic policyholders and distributions to fund investors as a result of realized proceeds, most notably distributions from Global Infrastructure Investors II.
For the three months ended March 31, 2023, the value of our infrastructure investment portfolio increased 6%, the value of our energy investment portfolio decreased by 9%, and the value of our opportunistic real estate equity investment portfolio decreased by 2%.
The most significant increases in value across our Real Asset portfolio were in Atlantic Aviation FBO Inc. (Infrastructure: transportation sector), First Gen Corporation (Infrastructure: power and utilities sector), and X-Elio Energy, S.L. (Infrastructure: power and utilities sector). These increases in value were partially offset by decreases in value relating primarily to various assets held in our energy portfolio, Colonial Enterprises, Inc. (Infrastructure: midstream sector), and various assets held in our real estate equity portfolio across all regions. The increased valuations of individual companies or assets in the aggregate, generally related to individual company or asset performance, and with respect to X-Elio Energy, S.L., an increase in valuation reflecting an agreement to exit this investment. The decreased valuations of individual companies or assets in the aggregate, generally related to an unfavorable business outlook. See "—Business Environment" for more information about the factors that may impact our business, financial performance, operating results and valuations.
Credit and Liquid Strategies
The following table reflects the changes in the AUM of our Credit and Liquid Strategies business line from December 31, 2022 to March 31, 2023:
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| ($ in millions) |
| December 31, 2022 | $ | 220,158 | |
| New Capital Raised | 8,715 | |
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| Distributions and Other | (4,025) | |
| Redemptions | (2,533) | |
| Change in Value | 1,186 | |
| March 31, 2023 | $ | 223,501 | |
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AUM of our Credit and Liquid Strategies business line was $223.5 billion at March 31, 2023, an increase of $3.3 billion compared to $220.2 billion at December 31, 2022.
The increase was primarily attributable to (i) new capital raised from Global Atlantic, our hedge fund partnership, Marshall Wace, and the issuance of a new CLO, and to a lesser extent (ii) appreciation in investment value on assets managed across our leveraged and alternative credit investment funds. Partially offsetting these increases were (i) payments to Global Atlantic policyholders, (ii) redemptions at our hedge fund partnership, Marshall Wace, and (iii) distributions to fund investors at certain alternative credit funds.
See also "—Business Environment" for more information about the factors that may impact our business, financial performance, operating results and valuations and "—Credit and Liquid Strategies" for investment performance information for our leveraged and alternative credit strategies.
Fee Paying Assets Under Management
Private Equity
The following table reflects the changes in the FPAUM of our Private Equity business line from December 31, 2022 to March 31, 2023:
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| ($ in millions) |
| December 31, 2022 | $ | 102,261 | |
| New Capital Raised | 1,407 | |
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| Distributions and Other | (1,401) | |
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| Change in Value | 56 | |
| March 31, 2023 | $ | 102,323 | |
FPAUM of our Private Equity business line was $102.3 billion at March 31, 2023, which remained flat compared to December 31, 2022.
New capital raised from European Fund VI, Next Generation Technology Growth Fund III, and Global Impact Fund II was primarily offset by the (i) reduction in fee base for European Fund III and China Growth Fund, which no longer pay management fees, and (ii) distributions to fund investors, primarily as a result of realized proceeds, most notably distributions from Americas Fund XII and Next Generation Technology Growth Fund II.
Uncalled commitments from private equity and multi-strategy investment funds from which KKR is currently not earning management fees amounted to approximately $17.9 billion at March 31, 2023, which includes capital commitments reserved for follow-on investments for funds that have completed their investment periods. This capital will generally begin to earn management fees upon deployment of the capital or upon the commencement of the fund's investment period. The average annual management fee rate associated with this capital is approximately 1.0%. The date on which we begin to earn fees (as specified above) is not guaranteed to occur and may not occur for an extended period of time. If and when such management fees are earned, a portion of existing FPAUM may cease paying fees or pay lower fees, thus offsetting a portion of any new management fees earned.
Real Assets
The following table reflects the changes in the FPAUM of our Real Assets business line from December 31, 2022 to March 31, 2023:
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| ($ in millions) |
| December 31, 2022 | $ | 103,532 | |
| New Capital Raised | 3,434 | |
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| Distributions and Other | (1,271) | |
| Redemptions | (79) | |
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| Change in Value | 111 | |
| March 31, 2023 | $ | 105,727 | |
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FPAUM of our Real Assets business line was $105.7 billion at March 31, 2023, an increase of $2.2 billion, compared to $103.5 billion at December 31, 2022.
The increase was primarily attributable to new capital raised from Diversified Core Infrastructure Fund and Asia Pacific Infrastructure Investors II. Partially offsetting this increase were (i) payments to Global Atlantic policyholders, and (ii) distributions to fund investors as a result of realized proceeds, most notably distributions from Global Infrastructure Investors II.
Uncalled commitments from real assets investment funds from which KKR is currently not earning management fees amounted to approximately $8.7 billion at March 31, 2023, which includes capital commitments reserved for follow-on investments for funds that have completed their investment periods. This capital will generally begin to earn management fees upon deployment of the capital or upon the commencement of the fund's investment period. The average annual management fee rate associated with this capital is approximately 1.2%. The date on which we begin to earn fees (as specified above) is not guaranteed to occur and may not occur for an extended period of time. If and when such management fees are earned, a portion of existing FPAUM may cease paying fees or pay lower fees, thus offsetting a portion of any new management fees earned.
Credit and Liquid Strategies
The following table reflects the changes in the FPAUM of our Credit and Liquid Strategies business line from December 31, 2022 to March 31, 2023:
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| ($ in millions) |
| December 31, 2022 | $ | 206,130 | |
| New Capital Raised | 8,496 | |
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| Distributions and Other | (5,228) | |
| Redemptions | (2,533) | |
| Change in Value | 956 | |
| March 31, 2023 | $ | 207,821 | |
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FPAUM of our Credit and Liquid Strategies business line was $207.8 billion at March 31, 2023, an increase of $1.7 billion, compared to $206.1 billion at December 31, 2022.
The increase was primarily attributable to (i) new capital raised from Global Atlantic, our hedge fund partnership, Marshall Wace, and the issuance of a new CLO, and to a lesser extent (ii) appreciation in investment value on assets managed across our leveraged and alternative credit investment funds. Partially offsetting these increases were (i) payments to Global Atlantic policyholders, (ii) redemptions at our hedge fund partnership, Marshall Wace, and (iii) distributions to fund investors at certain alternative credit funds.
Uncalled capital commitments from investment funds in our Credit and Liquid Strategies business line from which KKR is currently not earning management fees amounted to approximately $10.6 billion at March 31, 2023. This capital will generally begin to earn management fees upon deployment of the capital or upon the commencement of the fund's investment period. The average annual management fee rate associated with this capital is approximately 0.7%. The date on which we begin to earn fees (as specified above) is not guaranteed to occur and may not occur for an extended period of time. If and when such management fees are earned, which will occur over an extended period of time, a portion of existing FPAUM may cease paying fees or pay lower fees, thus offsetting a portion of any new management fees earned.
See "—Business Environment" for more information about the factors that may impact our business, financial performance, operating results and valuations.
Uncalled Commitments
Private Equity
As of March 31, 2023, our Private Equity business line had $64.1 billion of remaining uncalled commitments that could be called for investments in new transactions as compared to $65.9 billion as of December 31, 2022. The decrease was primarily attributable to capital called from fund investors to make investments during the period, which was partially offset by new capital commitments from fund investors.
Real Assets
As of March 31, 2023, our Real Assets business line had $27.7 billion of remaining uncalled commitments that could be called for investments in new transactions as compared to $27.5 billion as of December 31, 2022. The increase was primarily attributable to new capital commitments from fund investors, partially offset by capital called from fund investors to make investments during the period.
Credit and Liquid Strategies
As of March 31, 2023, our Credit and Liquid Strategies business line had $14.5 billion of remaining uncalled commitments that could be called for investments in new transactions as compared to $14.3 billion as of December 31, 2022. The increase was primarily attributable to new capital commitments from fund investors, which was partially offset by capital called from fund investors to make investments during the period.
Capital Invested
Private Equity
For the three months ended March 31, 2023, our Private Equity business line had $2.9 billion of capital invested as compared to $4.4 billion for the three months ended March 31, 2022. The decrease was driven primarily by a $2.4 billion decrease in capital invested in our traditional private equity strategy. During the three months ended March 31, 2023, 57% of capital deployed in private equity (including core and growth equity (including impact) investments) was in transactions in Europe, 39% was in North America, and 4% was in the Asia-Pacific region. The number of large private equity investments made in any quarterly or year-to-date period is volatile and, consequently, a significant amount of capital invested in one period or a few periods may not be indicative of a similar level of capital deployment in future periods.
Real Assets
For the three months ended March 31, 2023, our Real Assets business line had $4.7 billion of capital invested as compared to $9.0 billion for the three months ended March 31, 2022. The decrease was driven primarily by a $3.8 billion decrease in capital invested in our real estate strategy and a $1.2 billion decrease in our energy strategy. During the three months ended March 31, 2023, 59% of capital deployed in real assets was in transactions in Europe, 31% was in the Asia-Pacific region, and 10% was in North America. The number of large real asset investments made in any quarterly or year-to-date period is volatile and, consequently, a significant amount of capital invested in one period or a few periods may not be indicative of a similar level of capital deployment in future periods.
Credit and Liquid Strategies
For the three months ended March 31, 2023, our Credit and Liquid Strategies business line had $2.2 billion of capital invested as compared to $8.0 billion for the three months ended March 31, 2022. The decrease was primarily due to a lower level of capital deployed across our various private credit strategies. During the three months ended March 31, 2023, 79% of capital deployed was in transactions in North America, 19% was in Europe, and 2% was in the Asia-Pacific region.
Analysis of Insurance Segment Operating Results
Effective January 1 , 2023, we adopted new accounting guidance for insurance and reinsurance companies that issue long-duration contracts (“LDTI”) as of February 1, 2021, the date of the GA Acquisition, on a full retrospective basis. For a more detailed discussion of the adoption of the LDTI, see Note 2 "Summary of Significant Accounting Policies" in our financial statements.
The following tables set forth information regarding KKR's insurance segment operating results and certain key operating metrics as of and for the three months ended March 31, 2023 and 2022:
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| Three Months Ended |
| March 31, 2023 | | March 31, 2022 | | Change |
| ($ in thousands) |
| Net Investment Income | $ | 1,271,255 | | | $ | 862,414 | | | $ | 408,841 | |
| Net Cost of Insurance | (750,612) | | | (481,870) | | | (268,742) | |
| General, Administrative and Other | (196,714) | | | (146,412) | | | (50,302) | |
| Pre-tax Operating Earnings | 323,929 | | | 234,132 | | | 89,797 | |
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| Pre-tax Operating Earnings Attributable to Noncontrolling Interests | (118,817) | | | (90,185) | | | (28,632) | |
| Insurance Segment Operating Earnings | $ | 205,112 | | | $ | 143,947 | | | $ | 61,165 | |
Insurance segment operating earnings
Insurance segment operating earnings increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to higher net investment income resulting from an increase in assets under management due to growth of the business, and higher average yields. The increase was offset in part by (i) higher net cost of insurance, primarily due to the growth in both the individual market and institutional market channels and higher funding cost on new business and (ii) a corresponding increase in general and administrative expenses.
Net investment income
Net investment income increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) increased average assets under management due to growth in assets in the institutional market channel as a result of new reinsurance transactions and individual market channel sales from new business growth, (ii) increases in portfolio yields due to higher market interest rates on floating rate investments, and (iii) rotation into higher yielding assets. Offsetting these increases to net investment income was a decrease in variable investment income, primarily due to the non-recurrence of net realized gains from the sale of investments not related to asset/liability matching strategies.
Net cost of insurance
Net cost of insurance increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) growth in reserves in the institutional market as a result of new reinsurance transactions and in the individual market as a result of new business volumes, and (ii) higher funding costs on new business originated.
General, administrative and other expenses
General and administrative expenses increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) increased interest expense excludingdue to higher interest rates and debt outstanding, (ii) increased employee compensation and benefits-related expenses, (iii) increased professional service fees, and (iv) increased third-party administrator policy servicing fees, all due to growth of the business.
Net income attributable to noncontrolling interests
Net income (loss) attributable to noncontrolling interests increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 in proportion to the increase in insurance segment operating earnings for the comparable period. Net income attributable to noncontrolling interests represents the proportionate interest in the insurance segment operating earnings attributable to third party co-investors in Global Atlantic.
Analysis of Non-GAAP Performance Measures
Effective January 1 , 2023, we adopted new accounting guidance for insurance and reinsurance companies that issue long-duration contracts (“LDTI”) as of February 1, 2021, the date of the GA Acquisition, on a full retrospective basis. For a more detailed discussion of the adoption of the LDTI, see Note 2 "Summary of Significant Accounting Policies" in our financial statements.
The following is a discussion of our Non-GAAP performance measures for the three months ended March 31, 2023 and 2022:
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| | Three Months Ended | |
| | March 31, 2023 | | March 31, 2022 | | Change | |
| | ($ in thousands) | |
| Asset Management Segment Operating Earnings | | $ | 778,347 | | | $ | 1,127,445 | | | $ | (349,098) | | |
| Insurance Segment Operating Earnings | | 205,112 | | | 143,947 | | | 61,165 | | |
| Distributable Operating Earnings | | 983,459 | | | 1,271,392 | | | (287,933) | | |
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| Interest Expense | | (85,500) | | | (69,460) | | | (16,040) | | |
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| Net Income Attributable to Noncontrolling Interests | | (5,626) | | | (7,616) | | | 1,990 | | |
| Income Taxes on Operating Earnings | | (173,057) | | | (220,279) | | | 47,222 | | |
| After-tax Distributable Earnings | | $ | 719,276 | | | $ | 974,037 | | | $ | (254,761) | | |
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Distributable Operating Earnings
The decrease in distributable operating earnings for the three months ended March 31, 2023 compared to the prior period is primarily due to a lower level of asset management segment operating earnings, partially offset by a higher level of insurance segment operating earnings. For a discussion of the asset management and insurance segment operating earnings, see "—Analysis of Asset Management Segment Operating Results" and "—Analysis of Insurance Segment Operating Results."
After-tax Distributable Earnings
The decrease in after-tax distributable earnings for the three months ended March 31, 2023 compared to the prior period was primarily due to a lower level of distributable operating earnings and an increase in interest expense, partially offset by a decrease in income taxes on operating earnings, as discussed above.
Interest Expense
The increase in interest expense for the three months ended March 31, 2023 compared to the prior period was primarily due to issuances of debt securities by KKR's financing subsidiaries.
Income Taxes on Operating Earnings
The decrease in income taxes on operating earnings for the three months ended March 31, 2023 compared to the prior period was primarily due to a lower level of asset management segment operating earnings.
For the three months ended March 31, 2023 and 2022, the amount of the tax benefit from equity-based compensation included in income taxes paid was $13.7 million and $11.8 million, respectively. The inclusion of the tax benefit from equity-based compensation in After-tax Distributable Earnings had the effect of increasing this measure by 2% and 1%, respectively, for the three months ended March 31, 2023 and 2022.
Non-GAAP Balance Sheet Measures
Book Value
The following table presents our calculation of book value as of March 31, 2023 and December 31, 2022:
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| (+) | Cash and Short-term Investments | | $ | 2,766,099 | | | $ | 3,256,515 | |
| (+) | Investments | | 17,955,482 | | | 17,628,327 | |
| (+) | Net Unrealized Carried Interest (1) | | 2,628,693 | | | 2,509,589 | |
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| (+) | Other Assets, Net (2) | | 7,311,109 | | | 6,979,235 | |
| (+) | Global Atlantic Book Value | | 4,391,813 | | | 4,409,873 | |
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| (-) | Debt Obligations - KKR (excluding KFN and Global Atlantic) | | 6,778,452 | | | 6,957,932 | |
| (-) | Debt Obligations - KFN | | 948,517 | | | 948,517 | |
| (-) | Tax Liabilities, Net | | 1,771,224 | | | 1,648,600 | |
| (-) | Other Liabilities | | 899,868 | | | 911,612 | |
| (-) | Noncontrolling Interests | | 29,288 | | | 32,843 | |
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| Book Value | | $ | 24,625,847 | | | $ | 24,284,035 | |
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| Book Value Per Adjusted Share | | $ | 27.65 | | | $ | 27.27 | |
| Adjusted Shares | | 890,621,712 | | | 890,628,190 | |
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(1)The following table provides net unrealized carried interest by business line:
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| | As of |
| | March 31, 2023 | | December 31, 2022 |
| | ($ in thousands) |
| Private Equity Business Line | | $ | 2,231,530 | | | $ | 2,199,869 | |
| Real Assets Business Line | | 296,547 | | | 212,974 | |
| Credit and Liquid Strategies Business Line | | 100,616 | | | 96,746 | |
| Total | | $ | 2,628,693 | | | $ | 2,509,589 | |
(2)Other Assets, Net include our (i) ownership interest in FS/KKR Advisor, (ii) minority ownership interests in hedge fund partnerships, and (iii) the net assets of KJRM.
Book value increased 1% from December 31, 2022. The increase was primarily attributable to (i) an increase in net unrealized carried interest, most notably from Americas Fund XII, Global Infrastructure Investors III, and Asia Pacific Infrastructure Investors, and (ii) the positive impact of our after-tax distributable earnings recognized in the period. Partially offsetting these increases was the payment of dividends during the period. The value of our asset management segment investments remained flat in the period. For a further discussion, see "—Consolidated Results of Operations (GAAP Basis) - Asset Management—Investment Income (Loss) - Asset Management—Unrealized Gains and Losses from Investment Activities." For a discussion of the changes in our investment portfolio, see "—Analysis of Asset Management Segment Operating Results—Assets Under Management." For a discussion of factors that impacted KKR's after-tax distributable earnings, see "—Analysis of Non-GAAP Performance Measures—After-tax Distributable Earnings" and for more information about the factors that may impact our business, financial performance, operating results and valuations, see "—Business Environment."
The following table presents the holdings of our investments in the asset management segment by asset class as of March 31, 2023. To the extent investments are realized at values below their cost in future periods, after-tax distributable earnings would be adversely affected by the amount of such loss, if any, during the period in which the realization event occurs.
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| | As of March 31, 2023 |
| | ($ in thousands) |
Investments (1) | | Cost | | Fair Value | | Fair Value as a Percentage of
Total Investments |
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| Traditional Private Equity | | $ | 2,014,797 | | | $ | 3,391,315 | | | 18.9 | % |
| Core Private Equity | | 2,716,688 | | | 5,700,661 | | | 31.7 | % |
| Growth Equity | | 356,578 | | | 875,673 | | | 4.9 | % |
| Private Equity Total | | 5,088,063 | | | 9,967,649 | | | 55.5 | % |
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| Energy | | 849,164 | | | 841,978 | | | 4.7 | % |
| Real Estate | | 1,801,180 | | | 1,873,726 | | | 10.4 | % |
| Infrastructure | | 1,154,221 | | | 1,362,629 | | | 7.6 | % |
| Real Assets Total | | 3,804,565 | | | 4,078,333 | | | 22.7 | % |
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| Leveraged Credit | | 1,305,853 | | | 1,066,071 | | | 5.9 | % |
| Alternative Credit | | 849,719 | | | 900,032 | | | 5.0 | % |
| Credit Total | | 2,155,572 | | | 1,966,103 | | | 10.9 | % |
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| Other | | 2,297,519 | | | 1,943,397 | | | 10.9 | % |
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| Total Investments | | $ | 13,345,719 | | | $ | 17,955,482 | | | 100.0 | % |
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(1)Investments is a term used solely for purposes of financial presentation of a portion of KKR's balance sheet and includes majority ownership of subsidiaries that operate KKR's asset management and insurance businesses, including the general partner interests of KKR's investment funds. Investments presented are principally the assets measured at fair value that are held by KKR's asset management segment, which, among other things, does not include the underlying investments held by Global Atlantic and Marshall Wace.
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| | As of March 31, 2023 |
| | ($ in thousands) |
Top 20 Investments: (1) | | Cost | | Fair Value | | |
| USI, Inc. | | $ | 531,425 | | | $ | 1,300,380 | | | |
| PetVet Care Centers, LLC | | 243,211 | | | 1,143,092 | | | |
| Heartland Dental, LLC | | 320,656 | | | 769,574 | | | |
| Exact Group B.V. | | 213,362 | | | 568,585 | | | |
| Arnott's Biscuits Limited | | 250,841 | | | 468,984 | | | |
| 1-800 Contacts Inc. | | 300,178 | | | 405,243 | | | |
| Internet Brands, Inc. | | 340,312 | | | 372,628 | | | |
| Barracuda Networks, Inc. | | 343,092 | | | 343,092 | | | |
| ERM Worldwide Group Limited | | 228,710 | | | 343,065 | | | |
| IVIRMA Global SL | | 321,261 | | | 321,083 | | | |
| Teaching Strategies, LLC | | 307,162 | | | 307,162 | | | |
| Crescent Energy Company (NYSE: CRGY) | | 527,030 | | | 286,861 | | | |
| Roompot B.V. | | 193,578 | | | 259,599 | | | |
| Shriram General Insurance Co. | | 245,470 | | | 252,946 | | | |
| Resolution Life Group Holdings, L.P. | | 262,191 | | | 228,659 | | | |
| Atlantic Aviation FBO Inc. | | 170,274 | | | 203,570 | | | |
| BridgeBio Pharma, Inc. (NASDAQ: BBIO) | | 59,799 | | | 198,684 | | | |
| Viridor Limited | | 132,023 | | | 186,878 | | | |
| PortAventura | | 155,803 | | | 174,835 | | | |
| The Bay Clubs Company, LLC | | 160,127 | | | 160,127 | | | |
| Total Top 20 Investments | | $ | 5,306,505 | | | $ | 8,295,047 | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
(1)This list of investments identifies the twenty largest companies or assets based on their fair values as of March 31, 2023. It does not deduct fund or vehicle level debt, if any, incurred in connection with funding the investment. This list excludes (i) investments expected to be syndicated, (ii) investments expected to be transferred in connection with a new fundraising, (iii) investments in funds and other entities that are owned by one or more third parties and established for the purpose of making investments and (iv) the portion of any investment that may be held through collateralized loan obligations or levered multi-asset investment vehicles, if any. For additional information about the asset classes of the investments held on KKR's balance sheet see "—Our Business—Principal Activities" for the "Holdings by Asset Class" pie chart. The fair value figures include the co-investment and the limited partner and/or general partner interests held by KKR in the underlying investment, if applicable.
With respect to KKR's book value relating to its insurance business, KKR includes Global Atlantic's book value, which consists of KKR's pro rata equity interest in Global Atlantic on a GAAP basis, excluding (i) accumulated other comprehensive income and (ii) accumulated change in fair value of reinsurance embedded derivative balances and related assets, net of income tax. KKR believes this presentation of Global Atlantic's book value is comparable with the corresponding metric presented by other publicly traded companies in Global Atlantic's industry. As of March 31, 2023, KKR's pro rata interest in Global Atlantic's book value was $4.4 billion. For more information about the composition and credit quality of Global Atlantic's investments on a consolidated basis, please see "—Global Atlantic's Investment Portfolio" below.
Global Atlantic's Investment Portfolio
As of March 31, 2023, 95% and 87% of Global Atlantic's available-for-sale ("AFS") fixed maturity securities were considered investment grade under ratings from the Securities Valuation Office of the NAIC and NRSROs, respectively. As of December 31, 2022, 95% and 85% of Global Atlantic's AFS fixed maturity securities were considered investment grade under ratings from NAIC and NRSROs, respectively. Securities where a rating by an NRSRO was not available are considered investment grade if they have an NAIC designation of “1” or “2.” The three largest asset categories in Global Atlantic's AFS fixed-maturity security portfolio as of March 31, 2023 were Corporate, RMBS and CMBS securities, comprising 31%, 5% and 5% of Global Atlantic's investment portfolio, respectively. Within these categories, 94%, 96% and 95% of Global Atlantic's Corporate, RMBS and CMBS securities, respectively, were investment grade according to NAIC ratings and 94%, 52% and 54% of its Corporate, RMBS and CMBS securities, respectively, were investment grade according to NRSRO ratings as of March 31, 2023. The three largest asset categories in Global Atlantic's AFS fixed-maturity security portfolio as of December 31, 2022 were Corporate, RMBS and CMBS securities, comprising 29%, 5% and 5% of Global Atlantic's investment portfolio, respectively. Within these categories, 94%, 95% and 95% of Global Atlantic's Corporate, RMBS and CMBS securities,
respectively, were investment grade according to NAIC ratings and 94%, 45% and 53% of its Corporate, RMBS and CMBS securities, respectively, were investment grade according to NRSRO ratings as of December 31, 2022. NRSRO and NAIC ratings have different methodologies. Global Atlantic believes the NAIC ratings methodology, which considers the likelihood of recovery of amortized cost as opposed to the recovery of all contractual payments including the principal at par, as the more appropriate way to view the ratings quality of its AFS fixed maturity portfolio since a large portion of its holdings were purchased at a significant discount to par value. The portion of Global Atlantic's investment portfolio consisting of floating rate assets was 30% and 29% as of March 31, 2023 and December 31, 2022, respectively.
Within the funds withheld receivable at interest portfolio, 97% of the fixed maturity securities were investment grade by NAIC designation as of both March 31, 2023 and December 31, 2022.
Trading fixed maturity securities back funds withheld payable at interest where the investment performance is ceded to reinsurers under the terms of the respective reinsurance agreements.
Credit quality of AFS fixed maturity securities
The Securities Valuation Office of the NAIC evaluates the AFS fixed maturity security investments of insurers for regulatory reporting and capital assessment purposes and assigns securities to one of six credit quality categories called “NAIC designations.” Using an internally developed rating is permitted by the NAIC if no rating is available. These designations are generally similar to the credit quality designations of NRSROs for marketable fixed maturity securities, except for certain structured securities as described below. NAIC designations of “1,” highest quality, and “2,” high quality, include fixed maturity securities generally considered investment grade by NRSROs. NAIC designations “3” through “6” include fixed maturity securities generally considered below investment grade by NRSROs.
Consistent with the NAIC Process and Procedures Manual, an NRSRO rating was assigned based on the following criteria: (i) the equivalent S&P rating where the security is rated by one NRSRO; (ii) the equivalent S&P rating of the lowest NRSRO when the security is rated by two NRSROs; and (iii) the equivalent S&P rating of the second lowest NRSRO if the security is rated by three or more NRSROs. If the lowest two NRSROs’ ratings are equal, then such rating will be the assigned rating. NRSROs’ ratings available for the periods presented were S&P, Fitch, Moody’s, DBRS, Inc. and Kroll Bond Rating Agency, Inc. If no rating is available from a rating agency, then an internally developed rating is used.
Substantially all of the AFS fixed maturity securities portfolio, 95% as of both March 31, 2023 and December 31, 2022 was invested in investment grade assets with a NAIC rating of 1 or 2.
The portion of the AFS fixed maturity securities portfolio that was considered below investment grade by NAIC designation was 5% as of both March 31, 2023 and December 31, 2022. Pursuant to Global Atlantic's investment guidelines, Global Atlantic actively monitors the percentage of its portfolio that is held in investments rated NAIC 3 or lower and must obtain an additional approval from Global Atlantic's management investment committee before making a significant investment in an asset rated NAIC 3 or lower.
Corporate fixed maturity securities
Global Atlantic maintains a diversified portfolio of corporate fixed maturity securities across industries and issuers. As of both March 31, 2023 and December 31, 2022, 59% of the AFS fixed maturity securities portfolio was invested in corporate fixed maturity securities. As of both March 31, 2023 and December 31, 2022, approximately, 5% of the portfolio is denominated in foreign currency.
As of both March 31, 2023 and December 31, 2022, 94% of the total fair value of corporate fixed maturity securities is rated NAIC investment grade and 94% is rated NRSROs investment grade, respectively.
Residential mortgage-backed securities
As of both March 31, 2023 and December 31, 2022, 10% of the AFS fixed maturity securities portfolio was invested in RMBS, respectively. RMBS are securities constructed from pools of residential mortgages and backed by payments from those pools. Excluding limitations on access to lending and other extraordinary economic conditions, Global Atlantic would expect prepayments of principal on the underlying loans to accelerate with decreases in market interest rates and diminish with increases in market interest rates.
The NAIC designations for RMBS, including prime, sub-prime, alt-A, and adjustable rate mortgages with variable payment options ("Option ARM"), are based upon a comparison of the bond’s amortized cost to the NAIC’s loss expectation for each security. Accordingly, an investment in the same security at a lower cost may result in a higher quality NAIC designation in recognition of the lower likelihood the investment would result in a realized loss. Prime residential mortgage lending includes loans to the most creditworthy borrowers with high quality credit profiles. Alt-A is a classification of mortgage loans where the risk profile of the borrower is between prime and sub-prime. Sub-prime mortgage lending is the origination of residential mortgage loans to borrowers with weak credit profiles.
As of March 31, 2023 and December 31, 2022, 91% and 90%, respectively, of RMBS securities that are below investment grade as rated by the NRSRO, carry an NAIC 1 ("highest quality") designation.
As of March 31, 2023, Alt-A, Option ARM, Re-Performing and Sub-prime represent 27%, 24%, 21% and 10% of the total RMBS portfolio ($7.0 billion), respectively. As of December 31, 2022, Alt-A, Option ARM, Re-Performing and Sub-prime represent 31%, 28%, 14% and 12% of the total RMBS portfolio ($6.4 billion), respectively.
Unrealized gains and losses for AFS fixed maturity securities
Global Atlantic's investments in AFS fixed maturity securities are reported at fair value with changes in fair value recorded in other comprehensive income as unrealized gains or losses, net of taxes and offsets. Unrealized gains and losses can be created by changes in interest rates or by changes in credit spreads.
As of March 31, 2023 and December 31, 2022, Global Atlantic had gross unrealized losses on below investment grade AFS fixed maturity securities of $925.0 million and $917.6 million based on NRSRO rating and $222.0 million and $224.9 million based on NAIC ratings, respectively. During the three months ended March 31, 2023, unrealized losses of $26.7 million were recognized in net income on these debt securities since, as of March 31, 2023, there were specific securities that, as of the balance sheet date, Global Atlantic intended to sell or Global Atlantic believed it was more likely than not that it will be required to sell before recovery of their cost or amortized cost basis. As of March 31, 2022, no loss was recognized as Global Atlantic did not believe there were specific securities that, as of that date, it intended to, or would be required to sell before recovery.
Mortgage and other loan receivables - Credit quality indicators
Mortgage and other loan receivables consist of commercial and residential mortgage loans, and other loan receivables. As of March 31, 2023 and December 31, 2022, 27% and 28%, respectively, of Global Atlantic's total investments consisted of mortgage and other loan receivables. Global Atlantic invests in U.S. mortgage loans, comprised of first lien and mezzanine real estate loans, residential mortgage loans, consumer loans, and other loan receivables.
Global Atlantic's commercial mortgage loans may also be rated based on NAIC designations, with designations “CM1” and “CM2” considered to be investment grade. As of March 31, 2023 and December 31, 2022, 89% and 88% of the commercial mortgage loan portfolio was rated investment grade based on NAIC designation, respectively. 99% of the commercial mortgage loan portfolio is in current status.
As of March 31, 2023, 96% of the residential mortgage loan portfolio is in current status, and approximately $221.0 million is 90 days or more past due (representing 2% of the total residential mortgage portfolio).
The loan-to-value ratio is expressed as a percentage of the current amount of the loan relative to the value of the underlying collateral. Approximately 84% of the commercial mortgage loans has a loan-to-value ratio of 70% or less and 2% has loan-to-value ratio over 90%.
Changing economic conditions affect Global Atlantic’s valuation of commercial mortgage loans. Changing vacancies and rents are incorporated into the discounted cash flow analysis that Global Atlantic performs for monitored loans and may contribute to the establishment of (or increase or decrease in) a commercial mortgage loan valuation allowance for losses. In addition, Global Atlantic continuously monitors its commercial mortgage loan portfolio to identify risk. Areas of emphasis are properties that have exposure to specific geographic events or have deteriorating credit.
The weighted average loan-to-value ratio for residential mortgage loans was 65% and 64% as of March 31, 2023 and December 31, 2022, respectively.
Global Atlantic's residential mortgage loan portfolio is comprised mainly of re-performing loans that were purchased at a discount after they were modified and returned to performing status, as well as prime jumbo loans and mortgage loans backed by single family rental properties. Global Atlantic has also extended financing to counterparties in the form of repurchase agreements secured by mortgage loans, including performing and non-performing mortgage loans.
Global Atlantic’s consumer loan portfolio is primarily comprised of home improvement loans, solar panel loans, student loans and auto loans. As of March 31, 2023, 97% of the consumer loan portfolio is in current status and approximately $35.2 million is 90 days or more past due (representing less than 1% of the total consumer loan portfolio).
Reconciliations to GAAP Measures
The following tables reconcile the most directly comparable financial measures calculated and presented in accordance with GAAP to KKR's non-GAAP financial measures for the three months ended March 31, 2023 and 2022:
Revenues
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | |
| | March 31, 2023 | | March 31, 2022 | | | | | | | | |
| | ($ in thousands) |
| Total GAAP Revenues | $ | 3,127,482 | | | $ | 999,363 | | | | | | | | | |
| Impact of Consolidation and Other | 209,778 | | | 213,400 | | | | | | | | | |
| Asset Management Adjustments: | | | | | | | | | | | |
| Capital Allocation-Based Income (Loss) (GAAP) | (449,018) | | | 945,743 | | | | | | | | | |
| Realized Carried Interest | 172,689 | | | 579,767 | | | | | | | | | |
| Realized Investment Income | 198,094 | | | 349,354 | | | | | | | | | |
| Capstone Fees | (19,805) | | | (15,485) | | | | | | | | | |
| Expense Reimbursements | (15,544) | | | (41,303) | | | | | | | | | |
| Insurance Adjustments: | | | | | | | | | | | |
| Net Premiums | (473,624) | | | (372,144) | | | | | | | | | |
| Policy Fees | (313,802) | | | (313,782) | | | | | | | | | |
| Other Income | (37,158) | | | (34,744) | | | | | | | | | |
(Gains) Losses from Investments (1) | 260,507 | | | 167,102 | | | | | | | | | |
| Non-operating Changes in Policy Liabilities and Derivatives | (112,776) | | | 286,721 | | | | | | | | | |
Total Segment Revenues (2) | $ | 2,546,823 | | | $ | 2,763,992 | | | | | | | | | |
(1)Includes (gains) losses on funds withheld receivables and payables embedded derivatives.
(2)Total Segment Revenues is comprised of (i) Management Fees, (ii) Transaction and Monitoring Fees, Net, and (iii) Fee Related Performance Revenues.Revenues, (iv) Realized Performance Income, (v) Realized Investment Income, and (vi) Net Investment Income.
Net Income (Loss) Attributable to KKR & Co. Inc. Common Stockholders | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| | March 31, 2023 | | March 31, 2022 | | | | | | |
| | ($ in thousands) |
Net Income (Loss) Attributable to KKR & Co. Inc.
Common Stockholders (GAAP) | $ | 322,744 | | | $ | (9,786) | | | | | | | |
| Preferred Stock Dividends | 17,250 | | | 17,250 | | | | | | | |
| Net Income (Loss) Attributable to Noncontrolling Interests | (80,306) | | | 1,244,924 | | | | | | | |
| Income Tax Expense (Benefit) | 148,747 | | | 36,651 | | | | | | | |
| Income (Loss) Before Tax (GAAP) | $ | 408,435 | | | $ | 1,289,039 | | | | | | | |
| Impact of Consolidation and Other | 93,511 | | | (1,307,942) | | | | | | | |
Equity-based Compensation - KKR Holdings(1) | — | | | 19,821 | | | | | | | |
| | | | | | | | | |
| Income Taxes on Operating Earnings | (173,057) | | | (220,279) | | | | | | | |
| Asset Management Adjustments: | | | | | | | | | |
| Unrealized (Gains) Losses | 99,327 | | | 322,269 | | | | | | | |
| Unrealized Carried Interest | (202,659) | | | 1,290,033 | | | | | | | |
| Unrealized Carried Interest Compensation (Carry Pool) | 83,830 | | | (513,987) | | | | | | | |
| Strategic Corporate Related Charges | 6,807 | | | 19,898 | | | | | | | |
| Equity-based Compensation | 59,017 | | | 55,111 | | | | | | | |
| Equity-based Compensation - Performance based | 67,273 | | | 57,953 | | | | | | | |
| | | | | | | | | |
Insurance Adjustments:(2) | | | | | | | | | |
(Gains) Losses from Investments(2)(3) | 131,114 | | | 129,032 | | | | | | | |
Non-operating Changes in Policy Liabilities and Derivatives(2) | 106,491 | | | (192,201) | | | | | | | |
Strategic Corporate Related Charges(2) | — | | | 3,079 | | | | | | | |
Equity-based and Other Compensation(2) | 36,393 | | | 19,498 | | | | | | | |
Amortization of Acquired Intangibles(2) | 2,794 | | | 2,713 | | | | | | | |
| | | | | | | | | |
| After-tax Distributable Earnings | $ | 719,276 | | | $ | 974,037 | | | | | | | |
| Interest Expense | 85,500 | | | 69,460 | | | | | | | |
| | | | | | | | | |
| Net Income Attributable to Noncontrolling Interests | 5,626 | | | 7,616 | | | | | | | |
| Income Taxes on Operating Earnings | 173,057 | | | 220,279 | | | | | | | |
| Distributable Operating Earnings | $ | 983,459 | | | $ | 1,271,392 | | | | | | | |
| Insurance Segment Operating Earnings | (205,112) | | | (143,947) | | | | | | | |
| Realized Performance Income | (175,398) | | | (609,207) | | | | | | | |
| Realized Performance Income Compensation | 114,009 | | | 383,635 | | | | | | | |
| Realized Investment Income | (198,094) | | | (349,354) | | | | | | | |
| Realized Investment Income Compensation | 29,714 | | | 52,403 | | | | | | | |
| Fee Related Earnings | $ | 548,578 | | | $ | 604,922 | | | | | | | |
| Insurance Segment Operating Earnings | 205,112 | | | 143,947 | | | | | | | |
| Realized Performance Income | 175,398 | | | 609,207 | | | | | | | |
| Realized Performance Income Compensation | (114,009) | | | (383,635) | | | | | | | |
| Realized Investment Income | 198,094 | | | 349,354 | | | | | | | |
| Realized Investment Income Compensation | (29,714) | | | (52,403) | | | | | | | |
| Depreciation and Amortization | 10,434 | | | 7,565 | | | | | | | |
| Adjusted EBITDA | $ | 993,893 | | | $ | 1,278,957 | | | | | | | |
(1)Represents equity-based compensation expense in connection with the allocation of KKR Holdings Units, which were not dilutive to common stockholders of KKR & Co. Inc.
(2)Amounts represent the portion allocable to KKR & Co. Inc.
(3)Includes (gains) losses on funds withheld receivables and payables embedded derivatives.
KKR & Co. Inc. Stockholders' Equity - Common Stock
| | | | | | | | | | | |
| As of |
| March 31, 2023 | | December 31, 2022 |
| ($ in thousands) |
| KKR & Co. Inc. Stockholders' Equity - Common Stock | $ | 18,546,889 | | | $ | 17,691,975 | |
| Series C Mandatory Convertible Preferred Stock | 1,115,792 | | | 1,115,792 | |
| Impact of Consolidation and Other | 398,751 | | | 399,318 | |
| Exchangeable Securities | 205,668 | | | 128,850 | |
| Accumulated Other Comprehensive Income (AOCI) and Other (Insurance) | 4,358,747 | | | 4,948,100 | |
| Book Value | $ | 24,625,847 | | | $ | 24,284,035 | |
The following table provides a reconciliation of KKR's GAAP Shares of Common Stock Outstanding to Adjusted Shares:
| | | | | | | | | | | |
| | As of |
| | March 31, 2023 | | December 31, 2022 |
| GAAP Shares of Common Stock Outstanding | 861,104,000 | | | 861,110,478 | |
| Adjustments: | | | |
| | | |
Exchangeable Securities (1) | 2,695,142 | | | 2,695,142 | |
Common Stock - Series C Mandatory Convertible Preferred Stock (2) | 26,822,570 | | | 26,822,570 | |
Adjusted Shares (3) | 890,621,712 | | | 890,628,190 | |
| | | |
| | | |
| | | |
| | | |
Unvested Equity Awards and Exchangeable Securities (4) | 35,317,288 | | | 35,457,274 | |
| | | |
(1)Consists of vested restricted holdings units granted under our 2019 Equity Incentive Plan, which are exchangeable for shares of KKR & Co. Inc. common stock on a one-for-one basis.
(2)Assumes that all shares of Series C Mandatory Convertible Preferred Stock have been converted into shares of KKR & Co. Inc. common stock on March 31, 2023 and December 31, 2022.
(3)Amounts exclude unvested equity awards granted under our Equity Incentive Plans.
(4)Represents equity awards granted under our Equity Incentive Plans. Excludes market condition awards that did not meet their market-price based vesting conditions as of March 31, 2023 and December 31, 2022.
Liquidity
We manage our liquidity and capital requirements by (a) focusing on our cash flows before the consolidation of our funds and CFEs and the effect of changes in short term assets and liabilities, which we anticipate will be settled for cash within one year, and (b) seeking to maintain access to sufficient liquidity through various sources. The overall liquidity framework and cash management approach of our insurance business are also based on seeking to build an investment portfolio that is cash flow matched, providing cash inflows from insurance assets that meet our insurance companies' expected cash outflows to pay their liabilities. Our primary cash flow activities typically involve: (i) generating cash flow from operations; (ii) generating income from investment activities, by investing in investments that generate yield (namely interest and dividends), as well as through the sale of investments and other assets; (iii) funding capital commitments that we have made to, and advancing capital to, our funds and CLOs; (iv) developing and funding new investment strategies, investment products, and other growth initiatives, including acquisitions of other investments, assets, and businesses; (v) underwriting and funding capital commitments in our capital markets business; (vi) distributing cash flow to our stockholders and holders of our preferred stock; and (vii) paying borrowings, interest payments, and repayments under credit agreements, our senior and subordinated notes, and other borrowing arrangements. See "—Liquidity—Liquidity Needs—Dividends."
See "—Business Environment" for more information on factors that may impact our business, financial performance, operating results and valuations.
Sources of Liquidity
Our primary sources of liquidity consist of amounts received from: (i) our operating activities, including the fees earned from our funds, portfolio companies, and capital markets transactions; (ii) realizations on carried interest from our investment funds; (iii) interest and dividends from investments that generate yield, including our investments in CLOs; (iv) in our insurance business, cash inflows in respect of new premiums, policyholder deposits, reinsurance transactions and funding agreements, including through memberships in Federal Home Loan Banks; (v) realizations on and sales of investments and other assets, including the transfers of investments or other assets for fund formations (including CLOs and other investment vehicles); and (vi) borrowings, including advances under our revolving credit facilities, debt offerings, repurchase agreements, and other borrowing arrangements. In addition, we may generate cash proceeds from issuances of our or our subsidiaries' equity securities.
Many of our investment funds like our private equity and real assets funds provide for carried interest. With respect to our carry-paying investment funds, carried interest is eligible to be distributed to the general partner of the 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. Even after all of the preceding conditions are met, the general partner of the fund may, in its sole discretion, decide to defer the distribution of carried interest to it to a later date. In addition, these funds generally include what is called a “clawback” provision, which provides that the general partner must return any carried interest that is paid in excess of what the general partner is entitled to receive at the end of the term of the fund, as discussed further below.
As of March 31, 2023, certain of our investment funds had met the first and second criteria, as described above, but did not meet the third criteria. In these cases, carried interest accrues on the consolidated statement of operations, but will not be distributed in cash to us as the general partner of an investment fund upon a realization event. 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." When netting holes are present, realized gains on individual investments that would otherwise allow the general partner to receive carried interest distributions are instead used to return invested capital to our funds' limited partners in an amount equal to the netting hole. Once netting holes have been filled with either (a) return of capital equal to the netting hole for those investments where fair value is below cost or (b) increases in the fair value of those investments where fair value is below cost, then realized carried interest will be distributed to the general partner upon a realization event. A fund that is in a position to pay cash carry refers to a fund for which carried interest is expected to be paid to the general partner upon the next material realization event, which includes funds with no netting holes as well as funds with a netting hole that is sufficiently small in size such that the next material realization event would be expected to result in the payment of carried interest. Strategic investor partnerships with fund investors may require netting across the various funds in which they invest, which may reduce the carried interest we otherwise would have earned if such fund investors were to have invested in our funds without the existence of the strategic investor partnership.
As of March 31, 2023, netting holes in excess of $50 million only existed at European Fund V and Health Care Growth Fund in the amounts of $86 million and $60 million, respectively. In accordance with the criteria set forth above, other funds currently have and may in the future develop netting holes, and netting holes for those and other funds may otherwise increase or decrease in the future. There are also investment funds that are not accruing carried interest and do not have a netting hole although they may be in a clawback position. If the investment fund has distributed carried interest, but subsequently does not have sufficient value to provide for the distribution of carried interest at the end of the life of the investment fund, the general partner is typically required to return previously distributed carried interest to the fund investors. Although our current and former employees who received distributions of carried interest subject to clawback are required to return them to KKR, it is KKR’s obligation to return carried interest subject to clawback to the fund investors. As of March 31, 2023, approximately $520 million of carried interest was subject to this clawback obligation, assuming that all applicable carry-paying funds and their alternative investment vehicles were liquidated at their March 31, 2023 fair values. As of March 31, 2023, Asian Fund II is the only investment fund with a clawback obligation in excess of $50 million. See Note 25 "Commitments and Contingencies—Contingent Repayment Guarantees" in our financial statements included elsewhere in this report for further information. See also the negative amounts included in the Carried Interest column in the table included in this Item 2 in “Asset Management—Private Equity” for further information on clawback obligations.
We have access to funding under various credit facilities, other borrowing arrangements and other sources of liquidity that we have entered into with major financial institutions or which we receive from the capital markets.
For a discussion of our debt obligations, including our debt securities, revolving credit agreements and loans, see Note 17 "Debt Obligations" in our financial statements.
Liquidity Needs
We expect that our (including Global Atlantic's) primary liquidity needs will consist of cash required to meet various obligations, including, without limitation, to:
•continue to support and grow our Asset Management business lines, including seeding new investment strategies, supporting capital commitments made by our vehicles to existing and future funds, co-investments and any net capital requirements of our capital markets companies and otherwise supporting the investment vehicles that we sponsor;
•continue to support and grow our insurance business;
•grow and expand our businesses generally, including by acquiring or launching new, complementary or adjacent businesses;
•warehouse investments in portfolio companies or other investments for the benefit of one or more of our funds, accounts or CLOs or other investment vehicles pending the contribution of committed capital by the fund investors in such vehicles, and advancing capital to them for operational or other needs;
•service debt obligations including the payment of obligations at maturity, on interest payment dates or upon redemption, as well as any contingent liabilities, including from litigation, that may give rise to future cash payments, including funding requirements to levered investment vehicles or structured transactions;
•fund cash operating expenses and contingencies, including for litigation matters and guarantees;
•pay corporate income taxes and other taxes;
•pay policyholders and amounts in our insurance business related to investment, reinvestment, reinsurance or funding agreement activity;
•pay amounts that may become due under our tax receivable agreement;
•pay cash dividends in accordance with our dividend policy for our common stock or the terms of our preferred stock, if any;
•underwrite commitments, advance loan proceeds and fund syndication commitments within our capital markets business;
•post or return collateral in respect of derivative contracts;
•acquire other assets for our Principal Activities business line, including other businesses, investments and assets, some of which may be required to satisfy regulatory requirements for our capital markets business or risk retention requirements for CLOs (to the extent they may apply);
•address capital needs of regulated subsidiaries as well as non-regulated subsidiaries; and
•repurchase shares of our common stock or retire equity awards pursuant to the share repurchase program or repurchase or redeem other securities issued by us.
For a discussion of KKR's share repurchase program, see Note 23 "Equity" in our financial statements.
Capital Commitments
The agreements governing our active investment funds generally require the general partners of the funds to make minimum capital commitments to such funds, which 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 the asset allocation strategy for our Principal Activities business line, including core investments and exposure to the Asia-Pacific region.
The following table presents our uncalled commitments to our active investment funds and other vehicles as of March 31, 2023:
| | | | | |
| Uncalled
Commitments |
| Private Equity | ($ in millions) |
| Core Investment Vehicles | $ | 3,801 | |
| Asian Fund IV | 367 | |
| North America Fund XIII | 332 | |
| European Fund VI | 250 | |
| Next Generation Technology Growth Fund III | 196 | |
| Global Impact Fund II | 145 | |
| Health Care Strategic Growth Fund II | 124 | |
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| Other Private Equity Vehicles | 1,256 | |
| Total Private Equity Commitments | 6,471 | |
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| Real Assets | |
| Asia Pacific Infrastructure Investors II | 357 | |
| Global Infrastructure Investors IV | 272 | |
| Asia Real Estate Partners | 146 | |
| Real Estate Partners Americas III | 91 | |
| Real Estate Partners Europe II | 77 | |
| Diversified Core Infrastructure Fund | 13 | |
| Real Estate Credit Opportunity Partners II | 8 | |
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| Other Real Assets Vehicles | 1,025 | |
| Total Real Assets Commitments | 1,989 | |
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| Credit and Liquid Strategies | |
| Asia Credit | 96 | |
| Asset-Based Finance Partners | 87 | |
| Dislocation Opportunities Fund | 84 | |
| Lending Partners Europe II | 11 | |
| Lending Partners III | 10 | |
| Private Credit Opportunities Partners II | 8 | |
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| Other Credit and Liquid Strategies Vehicles | 911 | |
| Total Credit and Liquid Strategies Commitments | 1,207 | |
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| Total Uncalled Commitments | $ | 9,667 | |
Other Operating ExpensesCapital Commitments
In addition to the uncalled commitments to our investment funds as shown above, KKR has entered into contractual capital commitments primarily with respect to underwriting transactions, debt financing, revolving credit facilities, and equity syndications in our Capital Markets business line. As of March 31, 2023, these capital commitments amounted to $0.4 billion.
Whether these amounts are actually funded, in whole or in part, depends on the contractual terms of such capital commitments, including the satisfaction or waiver of any conditions to closing or funding. Our capital markets business has arrangements with third parties, which reduce our risk under certain circumstances when underwriting certain debt transactions, and thus our unfunded capital commitments as of March 31, 2023 have been reduced to reflect the amount to be funded by such third parties. In the case of purchases of investments or assets in our Principal Activities business line, the amount to be funded includes amounts that are intended to be syndicated to third parties, and the actual amounts to be funded may be less. For more information about our Capital Markets business line's risks, see "Risks Related to Our Business—Our capital markets activities expose us to material risks" in our Annual Report.
From time to time, we fund various underwriting, syndication and fronting commitments in our capital markets business in connection with the arranging or underwriting of loans, securities or other financial instruments, for which we may draw all or substantially all of our availability for borrowings under our available credit facilities. We generally expect these borrowings by our Capital Markets business line to be repaid promptly as these commitments are syndicated to third parties or otherwise fulfilled or terminated, although we may in some instances elect to retain a portion of the commitments for our own investment. For more information about our Capital Markets business line's risks, see "Risks Related to Our Business—Our capital markets activities expose us to material risks" in this report.
Tax Receivable Agreement
On May 30, 2022, KKR terminated the tax receivable agreement with KKR Holdings other than with respect to exchanges of KKR Holdings Units completed prior to such date. As of March 31, 2023, an undiscounted payable of $404.6 million has been recorded in due to affiliates in the financial statements representing management's best estimate of the amounts currently expected to be owed for certain exchanges of KKR Holdings Units that took place prior to the termination of the tax receivable agreement. As of March 31, 2023, approximately $76.7 million of cumulative cash payments have been made under the tax receivable agreement since inception.
Dividends and Stock Repurchases
A dividend of $0.165 per share of our common stock has been declared and will be paid on June 6, 2023 to holders of record of our common stock as of the close of business on May 22, 2023.
A dividend of $0.75 per share of Series C Mandatory Convertible Preferred Stock has been declared and set aside for payment on June 15, 2023 to holders of record of Series C Mandatory Convertible Preferred Stock as of the close of business on June 1, 2023.
When KKR & Co. Inc. receives distributions from KKR Group Partnership, holders of exchangeable securities receive their pro rata share of such distributions from KKR Group Partnership.
The declaration and payment of dividends to our common stockholders will be at the sole discretion of our Board of Directors, and our dividend policy may be changed at any time. We announced on February 7, 2023 that our current dividend policy will be to pay dividends to holders of our common stock in an annual aggregate amount of $0.66 per share (or a quarterly dividend of $0.165 per share) beginning with the dividend that was announced with the results for the first quarter of 2023.The declaration of dividends is subject to the discretion of our Board of Directors based on a number of factors, including KKR’s future financial performance and other considerations that the Board of Directors deems relevant, and compliance with the terms of KKR & Co. Inc.'s certificate of incorporation and applicable law. For U.S. federal income tax purposes, any dividends we pay (including dividends on our preferred stock) generally will be treated as qualified dividend income for U.S. individual stockholders to the extent paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. There can be no assurance that future dividends will be made as intended or at all or that any particular dividend policy for our common stock will be maintained. Furthermore, the declaration and payment of distributions by KKR Group Partnership and our other subsidiaries may also be subject to legal, contractual and regulatory restrictions, including restrictions contained in our debt agreements and the terms of the preferred units of KKR Group Partnership.
Since 2015, KKR has repurchased, or retired equity awards representing, a total of 86.3 million shares of common stock for $2.2 billion, which equates to an average price of $25.90 per share. For further information, see "Part II—Item 2—Unregistered Sales of Equity Securities and Use of Proceeds."
Contractual Obligations, Commitments and Contingencies
In the ordinary course of business, we (including Global Atlantic) and our consolidated funds and CFEs enter into contractual arrangements that may require future cash payments. Contractual arrangements include (1) commitments to fund the purchase of investments or other assets (including obligations to fund capital commitments as the general partner of our investment funds) or to fund collateral for derivative transactions or otherwise, (2) obligations arising under our senior notes, subordinated notes, and other indebtedness, (3) commitments by our capital markets business to underwrite transactions or to lend capital, (4) obligations arising under insurance policies written, (5) other contractual obligations, including servicing agreements with third-party administrators for insurance policy administration, and (6) commitments to fund the business, operations or investments of our subsidiaries. In addition, we may incur contingent liabilities for claims that may be made against us in the future. For more information about these contingent liabilities, please see Note 25 "Commitments and Contingencies" in our financial statements.
Off Balance Sheet Arrangements
We do not have any off-balance sheet financings or liabilities other than contractual commitments and other legal contingencies incurred in the normal course of our business.
Critical Accounting Policies and Estimates
The preparation of our financial statements in accordance with GAAP requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of fees, capital allocation-based income (loss), expenses, investment income, and income taxes. Our management bases these estimates and judgments on available information, historical experience and other assumptions that we believe are reasonable under the circumstances. However, these estimates, judgments and assumptions are often subjective and may be impacted negatively based on changing circumstances or changes in our analyses. If actual amounts are ultimately different from those estimated, judged or assumed, revisions are included in the financial statements in the period in which the actual amounts become known. We believe our critical accounting policies could potentially produce materially different results if we were to change underlying estimates, judgments or assumptions.
For a further discussion about our critical accounting policies, see Note 2 "Summary of Significant Accounting Policies" in our financial statements included in this report.
Basis of Accounting
We consolidate the financial results of KKR Group Partnership and its consolidated entities, which include the accounts of our investment advisers, broker-dealers, Global Atlantic’s insurance companies, the general partners of certain unconsolidated investment funds, general partners of consolidated investment funds and their respective consolidated investment funds and certain other entities including CFEs.
When an entity is consolidated, we reflect the accounts of the consolidated entity, including its assets, liabilities, revenues, expenses, investment income, cash flows and other amounts, on a gross basis. While the consolidation of an investment fund or entity does not have an effect on the amounts of Net Income Attributable to KKR or KKR's stockholders' equity that KKR reports, the consolidation does significantly impact the financial statement presentation under GAAP. This is due to the fact that the accounts of the consolidated entities are reflected on a gross basis while the allocable share of those amounts that are attributable to third parties are reflected as single line items. The single line items in which the accounts attributable to third parties are recorded are presented as noncontrolling interests on the consolidated statements of financial condition and net income (loss) attributable to noncontrolling interests on the consolidated statements of operations.
The presentation in the financial statements reflect the significant industry diversification of KKR by its acquisition of Global Atlantic. Global Atlantic operates an insurance business, and KKR operates an asset management business, each of which possess distinct characteristics. As a result, KKR developed a two-tiered presentation approach for the financial statements in this Management's Discussion and Analysis. KKR believes that these separate presentations provide a more informative view of the consolidated financial position and results of operations than traditional aggregated presentations. KKR believes that reporting Global Atlantic’s insurance operations separately is appropriate given, among other factors, the relative significance of Global Atlantic’s policy liabilities, which are not obligations of KKR (other than the insurance companies that issued them). If a traditional aggregated presentation were to be used, KKR would expect to eliminate or combine several identical or similar captions, which would condense the presentations but would reduce transparency. KKR also believes that using a traditional aggregated presentation would result in no new line items compared to the two-tier presentation included in the financial statements in this report.
Consolidation
KKR consolidates all entities that it controls either through a majority voting interest or as the primary beneficiary of variable interest entities (“VIEs”). The following discussion is intended to provide supplemental information about how the application of consolidation principles impact our financial results, and management’s process for implementing those principles including areas of significant judgment. For a detailed description of our accounting policy on consolidation, see Note 2 "Summary of Significant Accounting Policies" in our financial statements included in this report.
As part of its consolidation procedures, KKR evaluates: (1) whether it holds a variable interest in an entity, (2) whether the entity is a VIE, and (3) whether the KKR’s involvement would make it the primary beneficiary. The determination that KKR holds a controlling financial interest in an investment vehicle significantly changes the presentation of our consolidated financial statements.
The assessment of whether we consolidate an investment vehicle we manage requires the application of significant judgment. These judgments are applied both at the time we become involved with an investment vehicle and on an ongoing basis and include, but are not limited to:
•Determining whether our management fees, carried interests or incentive fees represent variable interests - We make judgments as to whether the fees we earn are commensurate with the level of effort required for those fees and at market rates. In making this judgment, we consider, among other things, the extent of third party investment in the entity and the terms of any other interests we hold in the VIE.
•Determining whether a legal entity qualifies as a VIE - For those entities where KKR holds a variable interest, management determines whether each of these entities qualifies as a VIE and, if so, whether or not KKR is the primary beneficiary. The assessment of whether the entity is a VIE is generally performed qualitatively, which requires judgment. These judgments include: (a) determining whether the equity investment at risk is sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) evaluating whether the equity holders, as a group, can make decisions that have a significant effect on the economic performance of the entity, (c) determining whether two or more parties’ equity interests should be aggregated, and (d) determining whether the equity investors have proportionate voting rights to their obligations to absorb losses or rights to receive returns from an entity. Entities that do not qualify as VIEs are generally assessed for consolidation as voting interest entities. Under the voting interest entity model, KKR consolidates those entities it controls through a majority voting interest.
•Concluding whether KKR has an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE - As there is no explicit threshold in GAAP to define “potentially significant,” we must apply judgment and evaluate both quantitative and qualitative factors to conclude whether this threshold is met.
Changes to these judgments could result in a change in the consolidation conclusion for a legal entity.
Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions.
GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Investments and other financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination of fair values, as follows:
Level I
Pricing inputs are unadjusted, quoted prices in active markets for identical assets or liabilities as of the measurement date.
Level II
Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the measurement date, and fair value is determined through the use of models or other valuation methodologies.
Level III
Pricing inputs are unobservable for the financial instruments and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. The valuation of our Level III investments at March 31, 2023 represents management's best estimate of the sumamounts that we would anticipate realizing on the sale of (i) occupancythese investments in an orderly transaction at such date.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Level III Valuation Methodologies
Our investments and financial instruments are impacted by various economic conditions and events outside of our control that are difficult to quantify or predict, which may have a significant impact on the valuation of our investments and, therefore, on the carried interest and investment income we realize. Additionally, a change in interest rates could have a significant impact on valuations.
Across the total Level III private equity investment portfolio (including core private equity investments), and including investments in both consolidated and unconsolidated investment funds, approximately 55% of the fair value is derived from investments that are valued based exactly 50% on market comparables and 50% on a discounted cash flow analysis. Less than 2% of the fair value of this Level III private equity investment portfolio is derived from investments that are valued either based 100% on market comparables or 100% on a discounted cash flow analysis. As of March 31, 2023, the overall weights ascribed to the market comparables methodology, the discounted cash flow methodology, and a methodology based on pending sales for this portfolio of Level III private equity investments were 38%, 54%, and 8%, respectively.
There is inherent uncertainty involved in the valuation of Level III investments, and there is no assurance that, upon liquidation, KKR will realize the values reflected in our valuations. Our valuations may differ significantly from the values that would have been used had an active market for the investments existed, and it is reasonably possible that the difference could be material. See "—Business Environment" for more information on factors that may impact our business, financial performance, operating results and valuations.
Key unobservable inputs that have a significant impact on our Level III valuations as described above are included in Note 10 "Fair Value Measurements" in our financial statements.
Level III Valuation Process
The valuation process involved for Level III measurements is completed on a quarterly basis and is designed to subject the valuation of Level III investments to an appropriate level of consistency, oversight, and review.
For private equity and real asset investments classified as Level III, investment professionals prepare preliminary valuations based on their evaluation of financial and operating data, company specific developments, market valuations of comparable companies and other factors. KKR begins its procedures to determine the fair values of its Level III assets approximately one month prior to the end of a reporting period, and KKR follows additional procedures to ensure that its determinations of fair value for its Level III assets are appropriate as of the relevant reporting date. These preliminary valuations are reviewed by an independent valuation firm engaged by KKR to perform certain procedures in order to assess the reasonableness of KKR's valuations annually for all Level III private equity and real asset investments and quarterly for investments other than certain investments, which have values less than preset value thresholds and which in the aggregate comprise less than 1% of the total value of KKR's Level III private equity and real asset investments. The valuations of certain real asset investments are determined solely by independent valuation firms without the preparation of preliminary valuations by our investment professionals, and instead such independent valuation firms rely on valuation information available to it as a broker or valuation firm. For credit investments, an independent valuation firm is generally engaged by KKR to assist with the valuations of most investments classified as Level III. The valuation firm either provides a value, provides a valuation range from which KKR's investment professionals select a point in the range to determine the valuation, or performs certain procedures in order to assess the reasonableness of KKR's valuations. After reflecting any input from the independent valuation firm, the valuation proposals are submitted for review and approval by KKR's valuation committees. As of March 31, 2023, less than 3% of the total value of our Level III credit investments were not valued with the engagement of an independent valuation firm.
For Level III investments in Asset Management, KKR has a global valuation committee that is responsible for coordinating and implementing the firm's valuation process to ensure consistency in the application of valuation principles across portfolio investments and between periods. The global valuation committee is assisted by the asset class-specific valuation committees that exist for private equity (including core equity investments and certain impact investments), growth equity (including certain impact investments), real estate, energy, infrastructure and credit. The asset class-specific valuation committees are responsible for the review and approval of all preliminary Level III valuations in their respective asset classes on a quarterly basis. The members of these valuation committees are comprised of investment professionals, including the heads of each respective strategy, and professionals from business operations functions such as legal, compliance and finance, who are not primarily responsible for the management of the investments. All Level III valuations for investments in Asset Management are also subject to approval by the global valuation committee, which is comprised of senior employees including investment professionals and professionals from business operations functions, and includes KKR's Co-Chief Executive Officers and its Chief Financial Officer, Chief Legal Officer, General Counsel, and Chief Compliance Officer. When valuations are approved
by the global valuation committee after reflecting any input from it, the valuations of Level III investments, as well as the valuations of Level I and Level II investments, are presented to the Audit Committee of the Board of Directors of KKR & Co. Inc. and are then reported to the Board of Directors.
Level III investments held by Global Atlantic are valued on the basis of pricing services, broker-dealers or internal models. Global Atlantic performs a quantitative and qualitative analysis and review of the information and prices received from independent pricing services as well as broker-dealers to verify that it represents a reasonable estimate of fair value. As of March 31, 2023, approximately 89% of these investments were priced via external sources, while approximately 11% were valued on the basis of internal models. For all the internally developed models, Global Atlantic seeks to verify the reasonableness of fair values by analyzing the inputs and other assumptions used. These preliminary valuations are reviewed, based on certain thresholds, by an independent valuation firm engaged by Global Atlantic to perform certain procedures in order to assess the reasonableness of Global Atlantic's valuations. When valuations are approved by Global Atlantic's management, the valuations of its Level III investments, as well as the valuations of Level I and Level II investments, are presented to the Audit Committee of the Board of Directors of KKR & Co. Inc. and are then reported to the Board of Directors.
As of March 31, 2023, upon completion by, where applicable, independent valuation firms of certain limited procedures requested to be performed by them on certain Level III investments, the independent valuation firms concluded that the fair values, as determined by KKR (including Global Atlantic), of those investments reviewed by them were reasonable. The limited procedures did not involve an audit, review, compilation or any other form of examination or attestation under generally accepted auditing standards and were not conducted on all Level III investments. We are responsible for determining the fair value of investments in good faith, and the limited procedures performed by an independent valuation firm are supplementary to the inquiries and procedures that we are required to undertake to determine the fair value of the commensurate investments.
As described above, Level II and Level III investments were valued using internal models with significant unobservable inputs, and our determinations of the fair values of these investments may differ materially from the values that would have resulted if readily observable inputs had existed. Additional external factors may cause those values, and the values of investments for which readily observable inputs exist, to increase or decrease over time, which may create volatility in our earnings and the amounts of assets and stockholders' equity that we report from time to time.
Changes in the fair value of investments impacts the amount of carried interest that is recognized as well as the amount of investment income that is recognized for investments held directly in Asset Management and through our consolidated funds as described below. We estimate that an immediate 10% decrease in the fair value of investments held directly and through consolidated investment funds generally would result in a commensurate change in the amount of net gains (losses) from investment activities for investments held directly and through investment funds and a more significant impact to the amount of carried interest recognized, regardless of whether the investment was valued using observable market prices or management estimates with significant unobservable pricing inputs. With respect to consolidated investment funds, the impact that the consequential decrease in investment income would have on net income attributable to KKR would generally be significantly less than the amount described above, given that a majority of the change in fair value of our consolidated funds would be attributable to noncontrolling interests and therefore we are only impacted to the extent of our carried interest and our balance sheet investments. With respect to Insurance, a decrease in investment income for certain assets where investment gains and losses are recognized through the statement of operations would impact KKR only to the extent of our economic ownership interest in Global Atlantic.
As of March 31, 2023, there were no investments which represented greater than 5% of total investments on a GAAP basis. On a non-GAAP basis, as of March 31, 2023, investments which represented greater than 5% of total non-GAAP investments consisted of USI, Inc. (financial services sector) and PetVet Care Centers, LLC (health care sector) and valued at $1,300 million and $1,143 million, respectively. Our investment income on a GAAP basis and our book value can be impacted by volatility in the public markets related chargesto our holdings of publicly traded securities, including our sizable holdings of Crescent Energy and (ii) otherBridgeBio Pharma, Inc. See "—Business Environment" for a discussion of factors that may impact the valuations of our investments, financial results, operating expenses.results and valuations, and "—Non-GAAP Balance Sheet Measures" for additional information regarding our largest holdings on a non-GAAP basis.
Business Combinations
KKR accounts for business combinations using the acquisition method of accounting, under which the purchase price of the acquisition is allocated to the assets acquired and liabilities assumed using the fair values determined by management as of the acquisition date.
Management’s determination of fair value of assets acquired and liabilities assumed at the acquisition date is based on the best information available in the circumstances and may incorporate management’s own assumptions and involve a significant degree of judgment. We use our best estimates and assumptions to accurately assign fair value to the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets. Examples of critical estimates in valuing certain of the intangible assets we have acquired include, but are not limited to, future expected cash inflows and outflows, future fundraising assumptions, expected useful life, discount rates and income tax rates. Our estimates for future cash flows are based on historical data, various internal estimates and certain external sources, and are based on assumptions that are consistent with the plans and estimates we are using to manage the underlying assets acquired. We estimate the useful lives of the intangible assets based on the expected period over which we anticipate generating economic benefit from the asset. We base our estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Unanticipated events and circumstances may occur that could affect the accuracy or validity of such assumptions, estimates or actual result.
Other Terms and Capital Metrics
Adjusted Shares
Adjusted shares represents shares of common stock of KKR & Co. Inc. outstanding under GAAP adjusted to include shares issuable upon exchange of all units of KKR Holdings L.P. and other exchangeable securities and(i) the number of shares of common stock of KKR & Co. Inc. assumed to be issuable upon conversion of the Series C Mandatory Convertible Preferred Stock.Stock and (ii) certain securities exchangeable into shares of common stock of KKR & Co. Inc. Weighted average adjusted shares is used in the calculation of After-tax Distributable Earnings per Adjusted Share, and Adjusted Shares is used in the calculation of Book Value per Adjusted Share.
Assets Under Management ("AUM")
Assets under management represent the assets managed, advised or sponsored by KKR from which KKR is entitled to receive management fees or performance income (currently or upon a future event), general partner capital, and assets managed, advised or sponsored by our strategic BDC partnership and the hedge fund and other managers in which KKR holds an ownership interest. We believe this measure is useful to stockholders as it provides additional insight into the capital raising activities of KKR and its hedge fund and other managers and the overall activity in their investment funds and other managed or sponsored capital. KKR calculates the amount of AUM as of any date as the sum of: (i) the fair value of the investments of KKR's investment funds and the Global Atlantic insurance companies;certain co-investment vehicles; (ii) uncalled capital commitments from these funds, including uncalled capital commitments from which KKR is currently not earning management fees or performance income; (iii) the fairasset value of investments in KKR's co-investment vehicles;the Global Atlantic insurance companies; (iv) the par value of outstanding CLOs; (v) KKR's pro rata portion of the AUM of hedge fund and other managers in which KKR holds an ownership interest; (vi) all of the AUM of KKR's strategic BDC partnership; and (vii) the fairacquisition cost of invested assets of certain non-US real estate investment trusts and (viii) the value of other assets managed or sponsored by KKR. The pro rata portion of the
AUM of hedge fund and other managers is calculated based on KKR’s percentage ownership interest in such entities multiplied by such entity’s respective AUM. KKR's definition of AUM (i) is not based on any definition of AUM that may be set forth in the governing documents of the investment funds, vehicles, accounts or other entities whose capital is included in this definition, (ii) includes assets for which KKR does not act as an investment adviser, and (iii) is not calculated pursuant to any regulatory definitions.
Capital Invested
Capital invested is the aggregate amount of capital invested by (i) KKR’s investment funds and Global Atlantic'sAtlantic insurance companies, (ii) KKR's Principal Activities business line as a co-investment, if any, alongside KKR’s investment funds, and (iii) KKR's Principal Activities business line in connection with a syndication transaction conducted by KKR's Capital Markets business line, if any. Capital invested is used as a measure of investment activity at KKR during a given period. We believe this measure is useful to stockholders as it provides a measure of capital deployment across KKR’s business lines. Capital invested includes investments made using investment financing arrangements like credit facilities, as applicable. Capital invested excludes (i) investments in certain leveraged credit strategies, (ii) capital invested by KKR’s Principal Activities business line that is not a co-investment alongside KKR’s investment funds, and (iii) capital invested by KKR’s Principal Activities business line that is not invested in connection with a syndication transaction by KKR’s Capital Markets business line. Capital syndicated by KKR's Capital Markets business line to third parties other than KKR’s investment funds or Principal Activities business line is not included in capital invested.
Fee Paying AUM ("FPAUM")
Fee paying AUM represents only the AUM from which KKR is entitled to receive management fees. We believe this measure is useful to stockholders as it provides additional insight into the capital base upon which KKR earns management fees. FPAUM is the sum of all of the individual fee bases that are used to calculate KKR's and its hedge fund and BDC partnership management fees and differs from AUM in the following respects: (i) assets and commitments from which KKR is not entitled to receive a management fee are excluded (e.g., assets and commitments with respect to which it is entitled to receive only performance income or is otherwise not currently entitled to receive a management fee) and (ii) certain assets, primarily in its private equity funds, are reflected based on capital commitments and invested capital as opposed to fair value because fees are not impacted by changes in the fair value of underlying investments.
Uncalled Commitments
Uncalled commitments is the aggregate amount of unfunded capital commitments that KKR’s investment funds and carry-paying co-investment vehicles have received from partners to contribute capital to fund future investments.investments and the amount of uncalled commitments is not reduced by capital invested using borrowings under an investment fund’s subscription facility until capital is called from our fund investors. We believe this measure is useful to stockholders as it provides additional insight into the amount of capital that is available to KKR’s investment funds and carry paying co-investment vehicles to make future investments. Uncalled commitments are not reduced for investments completed using fund-level investment financing arrangements or investments we have committed to make but remain unfunded at the reporting date.
Condensed Consolidated Results of Operations (GAAP Basis - Unaudited)
The following is a discussion of our consolidated results of operations on a GAAP basis for the three months ended March 31, 20222023 and 2021.2022. You should read this discussion in conjunction with the financial statements and related notes included elsewhere in this report. For a more detailed discussion of the factors that affected our segment results in these periods, see "—Analysis of Segment Operating Results." See "—Business"Business Environment" for more information about factors that may impact our business, financial performance, operating results and valuations.
The presentationEffective January 1, 2023, we adopted new accounting guidance for insurance and reinsurance companies that issue long-duration contracts (“LDTI”) as of our consolidated results of operations that follows reflects the significant industry diversification of KKR by its acquisition of Global Atlantic. Global Atlantic operates an insurance business, and KKR operates an asset management business, each of which possess distinct characteristics. As a result, KKR developed a two-tiered presentation approach, where Global Atlantic's insurance business is presented separately from KKR's asset management business. Additionally, for the quarter ended March 31, 2021 the results of Global Atlantic's insurance operations included in our consolidated results of operations are from February 1, 2021, (closingthe date of the acquisition) through March 31, 2021.GA Acquisition, on a full retrospective basis. For a more detailed discussion of the adoption of LDTI, see Note 2 "Summary of Significant Accounting Policies" in our financial statements.
| | | | Three Months Ended | | Three Months Ended |
| | | March 31, 2022 | | March 31, 2021 | | Change | | March 31, 2023 | | March 31, 2022 | | Change |
| | | ($ in thousands) | | ($ in thousands) |
| Revenues | Revenues | | | | | Revenues | | | | |
| Asset Management | Asset Management | | Asset Management | |
| Fees and Other | Fees and Other | $ | 780,511 | | | $ | 493,311 | | | $ | 287,200 | | Fees and Other | $ | 677,016 | | | $ | 780,511 | | | $ | (103,495) | |
| Capital Allocation-Based Income (Loss) | Capital Allocation-Based Income (Loss) | (945,743) | | | 2,684,647 | | | (3,630,390) | | Capital Allocation-Based Income (Loss) | 449,018 | | | (945,743) | | | 1,394,761 | |
| | (165,232) | | | 3,177,958 | | | (3,343,190) | | | 1,126,034 | | | (165,232) | | | 1,291,266 | |
| Insurance | Insurance | | | | | | Insurance | | | | | |
| Net Premiums | Net Premiums | 372,144 | | | 1,176,142 | | | (803,998) | | Net Premiums | 473,624 | | | 372,144 | | | 101,480 | |
| Policy Fees | Policy Fees | 318,436 | | | 201,683 | | | 116,753 | | Policy Fees | 313,802 | | | 313,782 | | | 20 | |
| Net Investment Income | Net Investment Income | 812,605 | | | 444,781 | | | 367,824 | | Net Investment Income | 1,300,697 | | | 812,605 | | | 488,092 | |
| Net Investment-Related Gains (Losses) | Net Investment-Related Gains (Losses) | (368,680) | | | (455,702) | | | 87,022 | | Net Investment-Related Gains (Losses) | (123,833) | | | (368,680) | | | 244,847 | |
| Other Income | Other Income | 34,744 | | | 18,144 | | | 16,600 | | Other Income | 37,158 | | | 34,744 | | | 2,414 | |
| | 1,169,249 | | | 1,385,048 | | | (215,799) | | | 2,001,448 | | | 1,164,595 | | | 836,853 | |
| Total Revenues | Total Revenues | 1,004,017 | | | 4,563,006 | | | (3,558,989) | | Total Revenues | 3,127,482 | | | 999,363 | | | 2,128,119 | |
| | Expenses | Expenses | | Expenses | |
| Asset Management | Asset Management | | Asset Management | |
| Compensation and Benefits | Compensation and Benefits | 283,672 | | | 1,306,797 | | | (1,023,125) | | Compensation and Benefits | 575,670 | | | 283,672 | | | 291,998 | |
| Occupancy and Related Charges | Occupancy and Related Charges | 18,149 | | | 15,200 | | | 2,949 | | Occupancy and Related Charges | 22,149 | | | 18,149 | | | 4,000 | |
| General, Administrative and Other | General, Administrative and Other | 234,665 | | | 166,997 | | | 67,668 | | General, Administrative and Other | 213,689 | | | 234,665 | | | (20,976) | |
| | 536,486 | | | 1,488,994 | | | (952,508) | | | 811,508 | | | 536,486 | | | 275,022 | |
| Insurance | Insurance | | | | | | Insurance | | | | | |
| Policy Benefits and Claims | 726,060 | | | 1,485,318 | | | (759,258) | | |
| Net Policy Benefits and Claims (including market risk benefit loss (gain) of $146,309 and $(195,683), respectively) | | Net Policy Benefits and Claims (including market risk benefit loss (gain) of $146,309 and $(195,683), respectively) | 1,527,054 | | | 513,178 | | | 1,013,876 | |
| Amortization of Policy Acquisition Costs | Amortization of Policy Acquisition Costs | (7,733) | | | (20,478) | | | 12,745 | | Amortization of Policy Acquisition Costs | 44,211 | | | 11,422 | | | 32,789 | |
| Interest Expense | Interest Expense | 13,219 | | | 10,672 | | | 2,547 | | Interest Expense | 40,261 | | | 13,219 | | | 27,042 | |
| Insurance Expenses | Insurance Expenses | 116,743 | | | 52,084 | | | 64,659 | | Insurance Expenses | 225,318 | | | 115,803 | | | 109,515 | |
| General, Administrative and Other | General, Administrative and Other | 167,214 | | | 79,955 | | | 87,259 | | General, Administrative and Other | 211,731 | | | 167,624 | | | 44,107 | |
| | 1,015,503 | | | 1,607,551 | | | (592,048) | | | 2,048,575 | | | 821,246 | | | 1,227,329 | |
| Total Expenses | Total Expenses | 1,551,989 | | | 3,096,545 | | | (1,544,556) | | Total Expenses | 2,860,083 | | | 1,357,732 | | | 1,502,351 | |
| | Investment Income (Loss) - Asset Management | Investment Income (Loss) - Asset Management | | Investment Income (Loss) - Asset Management | |
| Net Gains (Losses) from Investment Activities | Net Gains (Losses) from Investment Activities | 914,261 | | | 2,696,200 | | | (1,781,939) | | Net Gains (Losses) from Investment Activities | (159,409) | | | 914,261 | | | (1,073,670) | |
| Dividend Income | Dividend Income | 662,350 | | | 75,746 | | | 586,604 | | Dividend Income | 148,167 | | | 662,350 | | | (514,183) | |
| Interest Income | Interest Income | 352,556 | | | 367,455 | | | (14,899) | | Interest Income | 728,616 | | | 352,556 | | | 376,060 | |
| Interest Expense | Interest Expense | (281,759) | | | (251,756) | | | (30,003) | | Interest Expense | (576,338) | | | (281,759) | | | (294,579) | |
| Total Investment Income (Loss) | Total Investment Income (Loss) | 1,647,408 | | | 2,887,645 | | | (1,240,237) | | Total Investment Income (Loss) | 141,036 | | | 1,647,408 | | | (1,506,372) | |
| | Income (Loss) Before Taxes | Income (Loss) Before Taxes | 1,099,436 | | | 4,354,106 | | | (3,254,670) | | Income (Loss) Before Taxes | 408,435 | | | 1,289,039 | | | (880,604) | |
| | Income Tax Expense (Benefit) | Income Tax Expense (Benefit) | (3,166) | | | 438,739 | | | (441,905) | | Income Tax Expense (Benefit) | 148,747 | | | 36,651 | | | 112,096 | |
|
| | | Three Months Ended | | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change | | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) | | ($ in thousands) |
| | Net Income (Loss) | Net Income (Loss) | 1,102,602 | | | 3,915,367 | | | (2,812,765) | | Net Income (Loss) | 259,688 | | | 1,252,388 | | | (992,700) | |
| Net Income (Loss) Attributable to Redeemable Noncontrolling Interests | Net Income (Loss) Attributable to Redeemable Noncontrolling Interests | (63) | | | — | | | (63) | | Net Income (Loss) Attributable to Redeemable Noncontrolling Interests | (7,303) | | | (63) | | | (7,240) | |
| Net Income (Loss) Attributable to Noncontrolling Interests | Net Income (Loss) Attributable to Noncontrolling Interests | 1,159,185 | | | 2,245,531 | | | (1,086,346) | | Net Income (Loss) Attributable to Noncontrolling Interests | (73,003) | | | 1,244,987 | | | (1,317,990) | |
| Net Income (Loss) Attributable to KKR & Co. Inc. | Net Income (Loss) Attributable to KKR & Co. Inc. | (56,520) | | | 1,669,836 | | | (1,726,356) | | Net Income (Loss) Attributable to KKR & Co. Inc. | 339,994 | | | 7,464 | | | 332,530 | |
| | Series A Preferred Stock Dividends | — | | | 5,822 | | | (5,822) | | |
| Series B Preferred Stock Dividends | — | | | 2,519 | | | (2,519) | | |
| | Series C Mandatory Convertible Preferred Stock Dividends | Series C Mandatory Convertible Preferred Stock Dividends | 17,250 | | | 17,250 | | | — | | Series C Mandatory Convertible Preferred Stock Dividends | 17,250 | | | 17,250 | | | — | |
| Net Income (Loss) Attributable to KKR & Co. Inc.
Common Stockholders | Net Income (Loss) Attributable to KKR & Co. Inc.
Common Stockholders | $ | (73,770) | | | $ | 1,644,245 | | | $ | (1,718,015) | | Net Income (Loss) Attributable to KKR & Co. Inc.
Common Stockholders | $ | 322,744 | | | $ | (9,786) | | | $ | 332,530 | |
Condensed Consolidated Results of Operations (GAAP Basis - Unaudited) - Asset Management
Revenues
For the three months ended March 31, 20222023 and 2021,2022, revenues consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | March 31, 2022 | | March 31, 2021 | | Change |
| | ($ in thousands) |
| Management Fees | | $ | 398,046 | | | $ | 276,181 | | | $ | 121,865 | |
| Fee Credits | | (187,745) | | | (35,398) | | | (152,347) | |
| Transaction Fees | | 466,966 | | | 165,893 | | | 301,073 | |
| Monitoring Fees | | 39,400 | | | 35,388 | | | 4,012 | |
| Incentive Fees | | 7,057 | | | 3,438 | | | 3,619 | |
| Expense Reimbursements | | 41,303 | | | 27,729 | | | 13,574 | |
| | | | | | |
| Consulting Fees | | 15,484 | | | 20,080 | | | (4,596) | |
| Total Fees and Other | | 780,511 | | | 493,311 | | | 287,200 | |
| | | | | | |
| Carried Interest | | (783,688) | | | 2,140,426 | | | (2,924,114) | |
| General Partner Capital Interest | | (162,055) | | | 544,221 | | | (706,276) | |
| Total Capital Allocation-Based Income (Loss) | | (945,743) | | | 2,684,647 | | | (3,630,390) | |
| | | | | | |
| Total Revenues - Asset Management | | $ | (165,232) | | | $ | 3,177,958 | | | $ | (3,343,190) | |
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Management Fees | | $ | 453,093 | | | $ | 398,046 | | | $ | 55,047 | |
| Fee Credits | | (57,531) | | | (187,745) | | | 130,214 | |
| Transaction Fees | | 209,839 | | | 466,966 | | | (257,127) | |
| Monitoring Fees | | 29,853 | | | 39,400 | | | (9,547) | |
| Incentive Fees | | 6,413 | | | 7,057 | | | (644) | |
| Expense Reimbursements | | 15,544 | | | 41,303 | | | (25,759) | |
| | | | | | |
| Consulting Fees | | 19,805 | | | 15,484 | | | 4,321 | |
| Total Fees and Other | | 677,016 | | | 780,511 | | | (103,495) | |
| | | | | | |
| Carried Interest | | 343,070 | | | (783,688) | | | 1,126,758 | |
| General Partner Capital Interest | | 105,948 | | | (162,055) | | | 268,003 | |
| Total Capital Allocation-Based Income (Loss) | | 449,018 | | | (945,743) | | | 1,394,761 | |
| | | | | | |
| Total Revenues - Asset Management | | $ | 1,126,034 | | | $ | (165,232) | | | $ | 1,291,266 | |
Fees and Other
Total Fees and Other for the three months ended March 31, 2022 increased2023 decreased compared to the three months ended March 31, 20212022 primarily as a result of the increasedecrease in transaction fees, andpartially offset by the increase in management fees.
For a more detailed discussion of the factors that affected our transaction fees during the period, see "—Analysis of Asset Management Segment Operating Earnings."
The increase in management fees was primarily dueattributable to (i) management fees earned from North Americaon new capital raised over the past twelve months at European Fund XIII,VI, Next Generation Technology Growth Fund III and Asia Pacific Infrastructure Investors II, and (ii) management fees earned on assets managed by KJRM, which is a Japanese REIT manager that we acquired in 2022. The increase was partially offset by catch-up management fees earned on new capital raised for Global Infrastructure Investors IV and Health Care Strategic GrowthNorth America Fund II, each of which entered its investment periodXIII in the secondfirst quarter of 2021. These increases2022 that was retroactive to the start of the
fund's investment period. There were partially offset primarily by a decrease inno catch-up management fees earned from Americas Fund XII as a result of entering its post-investment period in the secondfirst quarter of 2021, which now earns fees based on capital invested rather than capital committed2023 for Global Infrastructure Investors IV and at a lower fee rate.
Management fees due from consolidated investment funds and other vehicles are eliminated upon consolidation under GAAP. However, because these amounts are funded by, and earned from, noncontrolling interests, upon consolidation under GAAP, KKR's allocated share of the net income from the consolidated investment funds and other vehicles is increased by the amount of fees that are eliminated. Accordingly, the elimination of these fees does not impact the net income (loss) attributable to KKR or KKR stockholders' equity.would be unchanged if such investment funds and other vehicles were not consolidated. For a more detailed discussion on the factors that affect our management fees during the period, including the fees earned from unconsolidated investment funds and other vehicles see "—Analysis of Asset Management Segment Operating Earnings."
Fee credits increaseddecreased compared to the prior period as a result of a higherlower level of transaction fees in our Private MarketsEquity, Real Assets and Public MarketsCredit and Liquid Strategies business lines.lines in the current period. Fee credits owed to consolidated investment funds and other vehicles are eliminated upon consolidation under GAAP. However, because these amounts are owed to noncontrolling interests, upon consolidation under GAAP, KKR's allocated share of the net income from the consolidated investment funds and other vehicles is decreased by the amount of fee credits that are eliminated. Accordingly, the elimination of these fee credits does not impact the net income (loss) attributable to KKR or KKR stockholders' equity.
would be unchanged if such investment funds and other vehicles were not consolidated. Transaction and monitoring fees are earned from KKR portfolio companies and are not eliminated upon consolidation because thesethose fees are earned from companies which are not consolidated. Furthermore, transaction fees earned in our Capital Marketscapital markets business line are not shared with fund investors. Accordingly, certain transaction fees are reflected in our revenues without a corresponding fee credit.
Capital Allocation-Based Income (Loss)
Capital Allocation-Based Income (Loss) for the three months ended March 31,202231, 2023 was positive primarily due to the net appreciation of the underlying investments at many of our unconsolidated carry earning investment funds, most notably Americas Fund XII, Global Infrastructure Investors III, and Asian Pacific Infrastructure Investors. Capital Allocation-Based Income (Loss) for the three months ended March 31, 2022 was negative primarily due to the net depreciation of the underlying investments at certain of our carry earning investment funds, most notably Americas Fund XII and Asian Fund II. Capital Allocation-Based Income (Loss) for the three months ended March 31, 2021 was positive due to the net appreciation of the underlying investments at our carry earning investment funds, most notably Americas Fund XII, North America Fund XI and 2006 Fund.
KKR generally calculates the carried interest that would be due to KKR for each investment fund, pursuant to the fund agreements, as if the fair value of the underlying investments were realized as of suchthe reporting date, irrespective of whether such amounts have been realized. AsSince the fair value of the underlying investments varies between reporting periods, it is necessary to make adjustments to the amounts recorded as carried interest to reflect either (a) positive performance, resulting in an increase in the carried interest allocated to the general partner or (b) negative performance that would cause the amount due to KKR to be less than the amount previously recognized, resulting in a negative adjustment to carried interest allocated to the general partner. In each case, it is necessary to calculate the carried interest on cumulative results compared to the carried interest recorded to date and to make the required positive or negative adjustments. Additionally, unrealized carried interest and general partner capital interest reverse upon a realization, and unrealized carried interest and general partner capital interest can be negative if the amount of realized carried interest exceeds total unrealized carried interest generated in the period.
Investment Income (Loss) - Asset Management
Net Gains (Losses) from Investment Activities
For additional information about net gains (losses) from investment activities, see Note 5 "Net Gains (Losses) from Investment Activities - Asset Management" in our financial statements.
Net Gains (Losses) from Investment Activities for the three months ended March 31, 20222023
The net gainslosses from investment activities for the three months ended March 31, 20222023 were comprised of net realized gains of $279.6$99.4 million and net unrealized gainslosses of $634.6$(258.8) million.
Investment gains and losses relating to our general partner capital interest in our unconsolidated funds are not reflected in our discussion and analysis of Net Gains (Losses) from Investment Activities. Our economics associated with these gains and losses are reflected in Capital Allocation-Based Income (Loss) as described above.
Realized Gains and Losses from Investment Activities
For the three months ended March 31, 2023, net realized gains related primarily to the sale of our investment in KnowBe4, Inc. (NASDAQ: KNBE), Flutter Entertainment PLC (LON: FLTR), and US Foods Holding Corp. (NYSE: USFD). Partially offsetting these realized gains were realized losses primarily relating to a realized loss on our alternative credit investment, Chembulk Group (transportation sector) as well as realized losses on certain foreign exchange forward contracts and losses from the sales of revolving credit facilities.
Unrealized Gains and Losses from Investment Activities
For the three months ended March 31, 2023, net unrealized losses were driven by mark-to-market losses primarily relating to (i) certain investments held by our consolidated real estate and energy funds, (ii) GenesisCare Pty Ltd. (health care sector) and Heartland Dental, LLC (health care sector), each of which are held in our consolidated core private equity funds, and (iii) debt obligations of our consolidated CLOs. These unrealized losses were partially offset by mark-to-market gains primarily relating to (i) BridgeBio Pharma, Inc. (NASDAQ: BBIO), (ii) Viridor Limited (Infrastructure: energy and energy transition sector) and FiberCop S.p.A (Infrastructure: telecommunications infrastructure sector) held in our consolidated core private equity funds and (iii) certain investments held in our consolidated CLOs.
Net Gains (Losses) from Investment Activities for the three months ended March 31, 2022
The net gains from investment activities for the three months ended March 31, 2022 were comprised of net realized gains of $279.6 million and net unrealized gains of $634.6 million.
Realized Gains and Losses from Investment Activities
For the three months ended March 31, 2022, net realized gains related primarily to the sales of our investments in Fiserv Inc. (NASDAQ: FISV) and Söderberg & Partners (financial services sector). Partially offsetting these realized gains were realized losses primarily relating to a real estate equity investment in one of our consolidated US real estate funds and certain investments held in our consolidated SIG funds.
Unrealized Gains and Losses from Investment Activities
For the three months ended March 31, 2022, net unrealized gains were driven primarily by mark-to-market gains from (i) Crescent Energy Company (NYSE: CRGY), (ii) Viridor Limited, (infrastructure), and (iii) investments held in our consolidated real estate equity funds. These unrealized gains were partially offset by mark-to-market losses related to (i) certain investments held in our consolidated CLOs and SIG funds, (ii) OutSystems Holdings S.A (technology sector) and (iii) BridgeBio Pharma, Inc. (NASDAQ: BBIO).
For a discussion of other factors that affected KKR's realized investment income, for the three months ended March 31, 2022, see "—Analysis of Asset Management Segment Operating Results."
NetResults". For additional information about net gains (losses) from investment activities, see Note 5 "Net Gains (Losses) from Investment Activities for- Asset Management" in our financial statements.
Dividend Income
During the three months ended March 31, 2021
The net gains2023, the most significant dividends received included (i) $29.6 million from investment activities for the three months ended March 31, 2021 were comprised of net realized gains of $584.4 million and net unrealized gains of $2,111.8 million.
Realized Gains and Losses from Investment Activities
For the three months ended March 31, 2021, net realized gains related primarily to the (i) sale of our investment in Flutter Entertainment PLC (LON: FLTR), (ii) partial sale of our investment in BridgeBio Pharma, Inc., and (iii) sale of our investment in American Equity Investment Life Holding Company (NYSE: AEL). Partially offsetting these realized gains were realized losses primarily relating to certain investments held in our consolidated special situations funds.
Unrealized Gains and Lossesopen-ended core infrastructure fund, Diversified Core Infrastructure Fund, (ii) $29.3 million from Investment Activities
For the three months ended March 31, 2021, net unrealized gains were driven primarily by (i) mark-to-market gains from private equity, growth equity and core investments held by KKR and certain consolidated funds, the most significant of which were OutSystems Holdings S.A, PetVet Care Centers, LLC (healthcare sector), and USI, Inc. (financial services sector) and (ii) mark-to-market gains for certain investments held in our consolidated energy funds, special situationsreal estate equity and credit funds and CLOs. These unrealized gains were partially offset by (i) mark-to-market losses(iii) $17.4 million from certain investments held in our investment in BridgeBio Pharma, Inc. and (ii) the reversal of previously recognized unrealized gains relating to the realization activity described above.
For a discussion of other factors that affected KKR's realized investment income for the three months ended March 31, 2022, see "—Analysis of Asset Management Segment Operating Results."
Dividend Income
consolidated SIG funds. During the three months ended March 31, 2022, the most significant dividends received included approximately $299.0 million from certain investments held in our consolidated real estate core plus and opportunistic real estate equity funds and $86.6 million from our investment in Exact Group B.V. (technology sector) held in our consolidated core vehicles. During the three months ended March 31, 2021, the most significant dividends received included $26.6 million from investments held in our consolidated real estate funds and a dividend of $17.7 million from our investment in US Foods Holding Corp. (NYSE: USFD), which is held by a consolidated fund.
Significant dividends from portfolio companies and consolidated funds are generally not recurring quarterly dividends, and while they may occur in the future, their size and frequency are variable. For a discussion of other factors that affected KKR's dividend income, see "—Analysis of Asset Management Segment Operating Results."
Interest Income
The decreaseincrease in interest income during the three months ended March 31, 20222023 compared to the three months ended March 31, 20212022 was primarily due to the deconsolidation of KKR Real Estate Finance Trust Inc. (NYSE: KREF) ("KREF") in the fourth quarter of 2021, partial offset by (i) the impact of closing additional CLOs that arewere consolidated subsequent to March 31, 20212022, (ii) higher interest rates on floating rate investments held in consolidated CLOs, leveraged credit and alternative credit funds, and (ii) a higher level of interest income from investments held in certain of our consolidated alternativeleveraged credit and private credit funds, primarily related to an increase in the amount of capital deployed. For a discussion of other factors that affected KKR's interest income, see "—Analysis of Asset Management Segment Operating Results."
Interest Expense
The increase in interest expense during the three months ended March 31, 20222023 compared to the three months ended March 31, 20212022 was primarily due to (i) the (i) increase in the amount of borrowings outstanding from certain consolidated funds and other vehicles, (ii) impact of closing additional CLOs that arewere consolidated subsequent to March 31, 2021,2022, (iii) higher interest rates on floating rate debt obligations held in consolidated CLOs, and (iii)(iv) the impact of issuances of our senior notes subsequent toafter March 31, 2021. Partially offsetting these increases was the deconsolidation of KREF in the fourth quarter of 2021.2022. For a discussion of other factors that affected KKR's interest expense, see "—Analysis of Non-GAAP Performance Measures."
Expenses - Asset Management
Compensation and Benefits Expense
The decreaseincrease in compensation and benefits expense during the three months ended March 31, 20222023 compared to the three months ended March 31, 20212022 was primarily due to accrued carried interest compensation in the current period compared to the reversal of previously recognized accrued carried interest compensation partially offset by (i) higher equity-based compensation charges and (ii)in the prior period. Partially offsetting the increase is a higherlower level of accrued discretionary cash compensation accrued resulting from a higherlower level of fee revenue and realized performance incomeasset management segment revenues in the current period.
General, Administrative and Other
The increasedecrease in general, administrative and other expenses during the three months ended March 31, 20222023 compared to the three months ended March 31, 20212022 was primarily due to a higherlower level of (i) expenses at our consolidated funds and investment vehicles, (ii) strategic corporate transaction-related charges, (iii) expenses reimbursable by our investment funds (iv)and (ii) a lower level of placement fees incurred related to capital raising activities, for various private markets funds and (v)partially offset by a higher level of professional fees, information technology, travel and other administrative costs in connection with the overall growth of the firm.
In reporting periods where there are lower levels of fundraising and, to the extent that we use third parties to assist in our capital raising efforts, our General, Administrative and Other expenses are expected to decrease accordingly. Similarly, our General, Administrative and Other expenses are expected to decrease during any periods where there are lower levels of professional and other fees incurred as part of due diligence related to strategic acquisitions and new product development.
Condensed Consolidated Results of Operations (GAAP Basis - Unaudited) - Insurance
As discussed above, our Insurance segment consists solely of the operations of Global Atlantic, which was acquired on February 1, 2021. Accordingly, prior periods have been excluded for Insurance segment results. For the three month period ended March 31, 2021, the results of Global Atlantic's insurance operations included in our condensed consolidated results of operations are from February 1, 2021 through March 31, 2021.
Revenues
For the three months ended March 31, 2023 and 2022, revenues consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| | March 31, 2022 | | March 31, 2021 | | Change | | | | | | |
| ($ in thousands) |
| Net Premiums | $ | 372,144 | | | $ | 1,176,142 | | | $ | (803,998) | | | | | | | |
| Policy Fees | 318,436 | | | 201,683 | | | 116,753 | | | | | | | |
| Net Investment Income | 812,605 | | | 444,781 | | | 367,824 | | | | | | | |
| Net Investment-Related Losses | (368,680) | | | (455,702) | | | 87,022 | | | | | | | |
| Other Income | 34,744 | | | 18,144 | | | 16,600 | | | | | | | |
| Total Insurance Revenues | $ | 1,169,249 | | | $ | 1,385,048 | | | $ | (215,799) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| | March 31, 2023 | | March 31, 2022 | | Change | | | | | | |
| ($ in thousands) |
| Net Premiums | $ | 473,624 | | | $ | 372,144 | | | $ | 101,480 | | | | | | | |
| Policy Fees | 313,802 | | | 313,782 | | | 20 | | | | | | | |
| Net Investment Income | 1,300,697 | | | 812,605 | | | 488,092 | | | | | | | |
| Net Investment-Related Losses | (123,833) | | | (368,680) | | | 244,847 | | | | | | | |
| Other Income | 37,158 | | | 34,744 | | | 2,414 | | | | | | | |
| Total Insurance Revenues | $ | 2,001,448 | | | $ | 1,164,595 | | | $ | 836,853 | | | | | | | |
Net Premiums
Net premiums decreasedincreased for the three months ended March 31, 20222023 as compared to the prior period primarily due to lower initial premiums related to fewer new reinsurance transactions with life contingencies assumed in the three months ended March 31, 2022 primarily due to higher initial premiums related to a larger number of reinsurance transactions with life contingencies assumed during the three months ended March 31, 2023 as compared to the prior period. Thesethree months ended March 31, 2022. The increase was partially offset by higher retrocessions to third party reinsurers during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. The initial premiums areon assumed reinsurance were offset by a comparable increase in policy reserves reported within net policy benefits and claims (as discussed below).
Policy fees increased for the three months ended March 31, 2022 as compared to the prior period primarily due to (i) one less monthNet investment income
Net investment income increased for the three months ended March 31, 20222023 as compared to the prior periodthree months ended March 31, 2022 primarily due to (i) one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021 and (ii) increased average assets under management due to growth in our Institutional segment assets in Global Atlantic's institutional market channel as a result of new reinsurance transactions and Individual sales.
individual market channel sales, (ii) growth in portfolio yields due to higher market interest rates on floating rate investments, and (iii) rotation into higher yielding assets during 2022. Net investment-related losses
The components of net investment-related losses were as follows:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change |
| ($ in thousands) |
| Equity index options | $ | (223,366) | | | $ | 104,021 | | | $ | (327,387) | |
| Funds withheld payable at interest embedded derivatives | 1,180,435 | | | 313,230 | | | 867,205 | |
| Funds withheld receivable embedded derivatives | (33,980) | | | 55,883 | | | (89,863) | |
| Equity future contracts | 79,796 | | | (69,583) | | | 149,379 | |
| Interest rate contracts | (150,176) | | | (266,731) | | | 116,555 | |
| Foreign currency forwards | 8,557 | | | 1,810 | | | 6,747 | |
| Credit risk contracts | (1,532) | | | (36) | | | (1,496) | |
| Other | — | | | 9,938 | | | (9,938) | |
| Net gains on derivative instruments | 859,734 | | | 148,532 | | | 711,202 | |
| Net other investment gains (losses) | (1,228,414) | | | (604,234) | | | (624,180) | |
| Net investment-related gains (losses) | $ | (368,680) | | | $ | (455,702) | | | $ | 87,022 | |
| | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| ($ in thousands) |
| Funds withheld payable at interest embedded derivatives | $ | (430,235) | | | $ | 1,180,435 | | | $ | (1,610,670) | |
| Equity futures contracts | (40,825) | | | 79,796 | | | (120,621) | |
| Foreign currency forwards | 794 | | | 8,557 | | | (7,763) | |
| Credit risk contracts | (75) | | | (1,532) | | | 1,457 | |
| Equity index options | 83,887 | | | (223,366) | | | 307,253 | |
| Interest rate contracts | 68,996 | | | (150,176) | | | 219,172 | |
| Funds withheld receivable embedded derivatives | (30,767) | | | (33,980) | | | 3,213 | |
| | | | | |
| Net gains on derivative instruments | (348,225) | | | 859,734 | | | (1,207,959) | |
| Net other investment gains (losses) | 224,392 | | | (1,228,414) | | | 1,452,806 | |
| Net investment-related losses | $ | (123,833) | | | $ | (368,680) | | | $ | 244,847 | |
Net lossesgains on derivative instruments
The increasedecrease in the fair value of embedded derivatives on funds withheld at interest payable for the three months ended March 31, 2023 was primarily driven by the change in fair value of the underlying investments in the funds withheld payable at interest payable portfolio, which is primarily comprised of fixed maturity securities (designated as trading for accounting purposes).
, mortgage and other loan receivables, and other investments. The increaseunderlying investments in the fairfunds withheld at interest payable portfolio increased in value of equity futures andin the three months ended March 31, 2023, primarily due to a decrease in market interest rate contracts were driven primarily by the performance of equity markets and interest rates. Global Atlantic purchases equity futures primarilyrates as compared to hedge the market riska decrease in our variable annuity products which are accounted forvalue in policy benefits and claims. The majority of Global Atlantic's equity futures are based on the S&P 500 Index, which decreased during the three months ended March 31, 2022, as compareddue to an increase during the three months ended March 31, 2021, resulting in respectively, a gain, and a loss, on equity futures contracts in the respective periods. Marketmarket interest rates increased during both the three months ended March 31, 2022 and the three months ended March 31, 2021, resulting in a loss on interest rate contracts.rates.
The decreaseincrease in the fair value of equity index options was primarily driven by the performance of the indexes upon which call options are based. Global Atlantic purchases equity index options to hedge the market risk of embedded derivatives in indexed universal life and fixed-indexed annuity products (the change in which is accounted for in net policy benefits and claims). The majority of Global Atlantic's equity index call options are based on the S&P 500 index,Index, which decreasedincreased during the three months ended March 31, 2023, as compared to a decrease during the three months ended March 31, 2022.
The decrease in the fair value of equity futures contracts was driven primarily by the performance of equity markets. Global Atlantic purchases equity futures primarily to hedge the market risk in Global Atlantic's variable annuity products which are accounted for in net policy benefits and claims. The majority of Global Atlantic's equity futures are based on the S&P 500 Index, which increased during the three months ended March 31, 2023, as compared to a decrease during the three months ended March 31, 2022, as compared toresulting in respectively, a loss, and a gain, on equity futures contracts in the respective periods.
The increase in the fair value of interest rate contracts was driven by a decrease in market interest rates during the three months ended March 31, 2021.2023 and an increase in market interest rates during the three months ended March 31, 2022, resulting in respectively, a gain and a loss, on interest rate contracts.
The decreaseincrease in the fair value of embedded derivatives on funds withheld at interest receivable was primarily due to widening of credit spreads during both the three months ended March 31, 2022, as compared to2023, and the tightening of credit spreads during three months ended March 31, 2021.2022.
Net other investment losses
The components of net other investment losses were as follows:
| | | | Three Months Ended | | Three Months Ended |
| | | March 31, 2022 | | March 31, 2021 | | Change | | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) | | ($ in thousands) |
| Realized gains (losses) on investments not supporting asset-liability matching strategies | Realized gains (losses) on investments not supporting asset-liability matching strategies | $ | 14,964 | | | $ | — | | | $ | 14,964 | | Realized gains (losses) on investments not supporting asset-liability matching strategies | $ | — | | | $ | 14,964 | | | $ | (14,964) | |
| Realized gains (losses) on equity investments | — | | | 2,243 | | | (2,243) | | |
| | Realized gains (losses) on available-for-sale fixed maturity debt securities | Realized gains (losses) on available-for-sale fixed maturity debt securities | (243,350) | | | (45,640) | | | (197,710) | | Realized gains (losses) on available-for-sale fixed maturity debt securities | 3,432 | | | (243,350) | | | 246,782 | |
| Credit loss allowances | Credit loss allowances | (29,897) | | | (219,601) | | | 189,704 | | Credit loss allowances | (148,429) | | | (29,897) | | | (118,532) | |
| Impairment of available-for-sale fixed maturity debt securities due to intent to sell | | Impairment of available-for-sale fixed maturity debt securities due to intent to sell | (26,741) | | | — | | | (26,741) | |
| Unrealized gains (losses) on fixed maturity securities classified as trading | Unrealized gains (losses) on fixed maturity securities classified as trading | (1,038,446) | | | (317,052) | | | (721,394) | | Unrealized gains (losses) on fixed maturity securities classified as trading | 376,290 | | | (1,038,446) | | | 1,414,736 | |
| Unrealized gains (losses) on investments classified as trading or accounted under a fair-value option | (2,493) | | | (12,166) | | | 9,673 | | |
| Unrealized gains (losses) on investments accounted under a fair-value option | | Unrealized gains (losses) on investments accounted under a fair-value option | (55,773) | | | (2,493) | | | (53,280) | |
| Unrealized gains (losses) on real estate investments recognized at fair value under investment company accounting | Unrealized gains (losses) on real estate investments recognized at fair value under investment company accounting | 77,692 | | | — | | | 77,692 | | Unrealized gains (losses) on real estate investments recognized at fair value under investment company accounting | 63,192 | | | 77,692 | | | (14,500) | |
| Realized gains (losses) on funds withheld at interest payable portfolio | Realized gains (losses) on funds withheld at interest payable portfolio | (26,387) | | | (7,378) | | | (19,009) | | Realized gains (losses) on funds withheld at interest payable portfolio | 3,980 | | | (26,387) | | | 30,367 | |
| Realized gains (losses) on funds withheld at interest receivable portfolio | Realized gains (losses) on funds withheld at interest receivable portfolio | 25,600 | | | 354 | | | 25,246 | | Realized gains (losses) on funds withheld at interest receivable portfolio | 17,733 | | | 25,600 | | | (7,867) | |
| Other | Other | (6,097) | | | (4,994) | | | (1,103) | | Other | (9,292) | | | (6,097) | | | (3,195) | |
| Net other investment gains (losses) | Net other investment gains (losses) | $ | (1,228,414) | | | $ | (604,234) | | | $ | (624,180) | | Net other investment gains (losses) | $ | 224,392 | | | $ | (1,228,414) | | | $ | 1,452,806 | |
The increase in net other investment gains for the three months ended March 31, 2023 as compared to net other investment losses for the three months ended March 31, 2022, were primarily due to (i) the increasea decrease in unrealized losses on fixed maturity securities classified as trading iswhich was primarily driven bydue to a decrease in interest rates during the three months ended March 31, 2023 as compared to an increase in interest rates and widening credit spreads induring the current period, andthree months ended March 31, 2022, (ii) the increasea decrease in realized losses on available-for-sale fixed maturity debt securities iswhich was primarily due to a decrease in portfolio rotations in a higherrotation activity, and (iii) realized gains on funds withheld at interest rate environment.payable portfolio.
Offsetting these lossesgains were (i) a higheran increase in credit loss allowanceallowances on fixed maturity securities and mortgage and other loan receivables in the prior periodthree months ended March 31, 2023, which was primarily due to an increase in the recognitionoverall credit risk of Global Atlantic's loan portfolio, (ii) impairments of available-for-sale securities in an initial credit loanunrealized loss allowance uponposition due to an intent to sell, and (iii) unrealized losses on investments accounted under a fair-value option during the adoption of the current expected credit loss accounting standard concurrent with the GA Acquisition,three months ended March 31, 2023.
Expenses
Net policy benefits and (ii) unrealized gains on real estate investments recognized at fair value under investment company accounting.claims
Other income
Other incomeNet policy benefits and claims increased for the three months ended March 31, 20222023 as compared to the prior period primarily due to (i) one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021 and (ii) increased administration, management and distribution fees earned from an increase in the volume of ceded reinsurance.
Expenses
Policy benefits and claims
Policy benefits and claims decreased for the three months ended March 31, 2022 as compared to the prior period primarily due to (i) lowera loss on market risk benefits due to an decrease in interest rates in the three months ended March 31, 2023, as compared to a gain on market risk benefits during the three months ended March 31, 2022 due to an increase in rates in the three months ended March, 31, 2022, (ii) an increase in net flows from both individual and institutional market channel sales, (iii) higher funding costs on new business, and (iv) higher initial reserves assumed related to feweran increase in new reinsurance transactions with life contingencies in the three months ended March 31, 20222023 as compared to the prior period,three months ended March 31, 2022, and (ii) a decrease(v) an increase in the value of embedded derivatives in ourGlobal Atlantic's indexed universal life and fixed indexed annuity products, as a result of lowerhigher equity market returns (as discussed above under "–"Revenues–Net investment-related losses–GainsNet gains on derivatives instruments," Global Atlantic purchases equity index options in order to hedge this risk, the fair value changes of which are accounted for in gains on derivative instruments, and generally offsetting the change in embedded derivative fair value reported in net policy benefits and claims). This
Offsetting these increases was an decrease was offset by (i) one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021, (ii) an increase in net flows from both individual and institutional channel sales, and (iii) an increase in variable annuity reservesmarket risk benefit liabilities primarily due to lowerhigher equity market returns.
Amortization of policy acquisition costs
Amortization of policy acquisition costs increased for the three months ended March 31, 20222023 as compared to the prior periodthree months ended March 31, 2022 primarily due to (i) a decrease in the net benefit (that is, a reduction to expense) from the amortization of the net negative insurance intangibles recognized as part of purchase accounting of the GA Acquisition, as the underlying business runs off, and (ii) growth in ourGlobal Atlantic's individual markets channel. Offsetting these increases in expense was (i) a decrease of amortization due to realized investment lossesmarket and (ii) the impact of one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021.institutional market channels.
Interestexpense
Interest expense increased for the three months ended March 31, 20222023 as compared to the prior periodthree months ended March 31, 2022 primarily due to (i) a net increase in debt outstanding, primarily due to draws on the issuance of new senior and subordinated notes, partially offset by the pay-down of other debtrevolving credit facility after March 31, 2022, and (ii) the impact of one less month of activity reportedan increase in the prior period as a result of the GA Acquisition having occurredinterest expense on February 1, 2021.floating rate debt (Global Atlantic's revolving facility and fixed-to-floating swaps on its fixed rate debt) due to higher market rates.
Insurance expenses
Insurance expenses increased for the three months ended March 31, 20222023 as compared to the prior periodthree months ended March 31, 2022 primarily due to (i) one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021, (ii)increased reinsurance transactions and increased commission expense related to increased sales in ourGlobal Atlantic's individual market and increased reinsurance transactions and (iii) increased reinsurance ceding expense allowances paid for policy administration services as a result of an increase in reinsurance transactions.markets channel.
General, administrative and other
General, administrative and other expenses increased for the three months ended March 31, 20222023 as compared to the prior periodthree months ended March 31, 2022 primarily due to (i) one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021,increased interest expense due to higher interest rates and debt outstanding, (ii) increased employee compensation and benefits-relatedbenefits related expenses, (iii) increased professional service fees, and (iv) increased third-party administrator ("TPA"TPA”) policy servicing fees, all due to growth of the business, and (v) travel returning to pre-pandemic levels.business.
Other Condensed Consolidated Results of Operations (GAAP Basis - Unaudited)
Income Tax Expense (Benefit)
ForIncome tax expense increased for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022 primarily due to net operating income tax benefit was $3.2 million compared to an income tax expense of $438.7 milliongenerated from asset management in the prior period. In the current period a deferred tax benefit was generated primarily dueas compared to a net operating loss driven by net capital allocation-based losses. Our effective tax rate under GAAP forlosses in the three months ended March 31, 2022 was (0.3)%.prior period. The net operating income from Global Atlantic in the prior period largely offset the asset management net operating loss. For a discussion of factors that impacted KKR's tax provision, see Note 1819 "Income Taxes" to thein our financial statements included elsewhere in this report. The amount of U.S. federal or state corporate income taxes we pay in future periods may be materially increased if adverse tax laws become enacted. See “—Business Environment— Economic and Market Conditions” in this report.
Net Income (Loss) Attributable to Noncontrolling Interests
Net Income (Loss)loss attributable to noncontrolling interests for the three months ended March 31, 2022 relates primarily to net income (loss) attributable to (i) interests of KKR Holdings and other exchangeable securities representing ownership interests in KKR Group Partnership, (ii) third-party limited partner interests in consolidated investment funds and (iii) interests that co-investors and rollover investors hold in Global Atlantic. Net income (loss) attributable to noncontrolling interests for the three months ended March 31, 2022 decreased compared to the prior period2023 was primarily due to (i) a lower levelnet losses from investment activities primarily at certain of net income generated during the current period allocable to the holders of the noncontrolling interests in our consolidated real estate and energy investment funds and (ii) a net loss attributable to interests of KKR Holdings and other exchangeable securities in the current period.
Net Income (Loss) Attributable to KKR & Co. Inc.
Net LossThe net income attributable to KKR & Co. Inc. for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 was primarilyincreased due to (i) net capital allocation-based lossesincome, partially offset by a higherlower level of transaction fees and a reversal of previously recognized accrued carried interest compensation, as described above.
Condensed Consolidated Statements of Financial Condition (GAAP Basis - Unaudited)Basis)
The following table provides the Condensed Consolidated Statementsour condensed consolidated statements of Financial Conditionfinancial condition on a GAAP basis as of March 31, 20222023 and December 31, 2021.2022.
| | (Amounts in thousands, except per share amounts) | (Amounts in thousands, except per share amounts) | (Amounts in thousands, except per share amounts) |
| | As of | | As of | | As of | | As of |
| | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| | Assets | Assets | | Assets | |
| Asset Management | Asset Management | | Asset Management | |
| Cash and Cash Equivalents | Cash and Cash Equivalents | | $ | 8,324,897 | | | $ | 6,699,668 | | Cash and Cash Equivalents | | $ | 5,576,121 | | | $ | 6,705,325 | |
| Investments | Investments | | 88,770,480 | | | 88,775,514 | | Investments | | 97,949,918 | | | 92,375,463 | |
| Other Assets | Other Assets | | 3,789,249 | | | 4,244,894 | | Other Assets | | 7,057,818 | | | 7,114,360 | |
| | 100,884,626 | | | 99,720,076 | | | 110,583,857 | | | 106,195,148 | |
| Insurance | Insurance | | | | | Insurance | | | | |
| Cash and Cash Equivalents | Cash and Cash Equivalents | | 4,590,032 | | | 3,391,934 | | Cash and Cash Equivalents | | 3,713,382 | | | 6,118,231 | |
| Investments | Investments | | 122,799,871 | | | 123,763,675 | | Investments | | 129,401,394 | | | 124,199,176 | |
| Other Assets | Other Assets | | 38,016,452 | | | 37,409,755 | | Other Assets | | 38,911,956 | | | 38,834,081 | |
| | 165,406,355 | | | 164,565,364 | | | 172,026,732 | | | 169,151,488 | |
| Total Assets | Total Assets | | $ | 266,290,981 | | $ | 264,285,440 | Total Assets | | $ | 282,610,589 | | $ | 275,346,636 |
| | Liabilities and Equity | Liabilities and Equity | | Liabilities and Equity | |
| Asset Management | Asset Management | | Asset Management | |
| Debt Obligations | Debt Obligations | | $ | 36,112,872 | | | $ | 36,669,755 | | Debt Obligations | | $ | 42,519,776 | | | $ | 40,598,613 | |
| Other Liabilities | Other Liabilities | | 7,699,454 | | | 8,359,619 | | Other Liabilities | | 8,228,017 | | | 6,937,832 | |
| | 43,812,326 | | | 45,029,374 | | | 50,747,793 | | | 47,536,445 | |
| Insurance | Insurance | | | | | Insurance | | | | |
| Debt Obligations | Debt Obligations | | 2,029,769 | | | 1,908,006 | | Debt Obligations | | 2,157,283 | | | 2,128,166 | |
| Other Liabilities | Other Liabilities | | 163,151,015 | | | 159,208,840 | | Other Liabilities | | 172,582,137 | | | 170,311,335 | |
| | 165,180,784 | | | 161,116,846 | | | 174,739,420 | | | 172,439,501 | |
| Total Liabilities | Total Liabilities | | $ | 208,993,110 | | | $ | 206,146,220 | | Total Liabilities | | $ | 225,487,213 | | | $ | 219,975,946 | |
| | Redeemable Noncontrolling Interests | Redeemable Noncontrolling Interests | | 81,793 | | | 82,491 | | Redeemable Noncontrolling Interests | | 144,126 | | | 152,065 | |
| | Stockholders' Equity | Stockholders' Equity | | Stockholders' Equity | |
| KKR & Co. Inc. Stockholders' Equity - Series A and B Preferred Stock | | — | | | — | | |
| KKR & Co. Inc. Stockholders' Equity - Series C Mandatory Convertible Preferred Stock | | 1,115,792 | | | 1,115,792 | | |
| KKR & Co. Inc. Stockholders' Equity - Series I and II Preferred Stock, Common Stock | | 14,598,495 | | | 16,466,372 | | |
| | Stockholders' Equity - Series C Mandatory Convertible Preferred Stock | | Stockholders' Equity - Series C Mandatory Convertible Preferred Stock | | 1,115,792 | | | 1,115,792 | |
| Stockholders' Equity - Common Stock | | Stockholders' Equity - Common Stock | | 18,546,889 | | | 17,691,975 | |
| Noncontrolling Interests | Noncontrolling Interests | | 41,501,791 | | | 40,474,565 | | Noncontrolling Interests | | 37,316,569 | | | 36,410,858 | |
| Total Equity | Total Equity | | 57,216,078 | | | 58,056,729 | | Total Equity | | 56,979,250 | | | 55,218,625 | |
| Total Liabilities and Equity | Total Liabilities and Equity | | $ | 266,290,981 | | | $ | 264,285,440 | | Total Liabilities and Equity | | $ | 282,610,589 | | | $ | 275,346,636 | |
| KKR & Co. Inc. Stockholders' Equity - Common Stock
Per Outstanding Share of Common Stock | KKR & Co. Inc. Stockholders' Equity - Common Stock
Per Outstanding Share of Common Stock | | $ | 24.72 | | | $ | 27.64 | | KKR & Co. Inc. Stockholders' Equity - Common Stock
Per Outstanding Share of Common Stock | | $ | 21.54 | | | $ | 20.55 | |
|
KKR & Co. Inc. Stockholders’ Equity - Common Stock per Outstanding Share of Common Stock was $24.72$21.54 as of March 31, 2022, down2023, up from $27.64$20.55 as of December 31, 2021.2022. The decreaseincrease was primarily due to the (i) unrealized lossesgains on available-for-sale-securities from Global Atlantic that are recorded in other comprehensive income and (ii) repurchases of common stock, (iii) dividends to common stockholders and (iv) net lossincome attributable to KKR & Co. Inc. common stockholders during the first three months ended March 31, 2022.of 2023, partially offset by dividends to common stockholders.
Condensed Consolidated Statements of Cash Flows (GAAP Basis - Unaudited)
Basis)
The following is a discussion of our consolidated cash flows for the three months ended March 31, 20222023 and 2021.2022. You should read this discussion in conjunction with the financial statements and related notes included elsewhere in this report.
The consolidated statements of cash flows include the cash flows of our consolidated entities, which include certain consolidated investment funds, CLOs and certain variable interest entities formed by Global Atlantic notwithstanding the fact that we may hold only a minority economic interest in those investment funds and CFEs. The assets of our consolidated investment funds and CFEs, on a gross basis, can be substantially larger than the assets of our business and, accordingly, could have a substantial effect on the cash flows reflected in our consolidated statements of cash flows. The primary cash flow activities of our consolidated funds and CFEs involve: (i) capital contributions from fund investors; (ii) using the capital of fund investors to make investments; (iii) financing certain investments with indebtedness; (iv) generating cash flows through the realization of investments; and (v) distributing cash flows from the realization of investments to fund investors. Because our consolidated funds are treated as investment companies for accounting purposes, certain of these cash flow amounts are included in our cash flows from operations.
Net Cash Provided (Used) by Operating Activities
Our net cash provided (used) by operating activities was $0.9$(1.9) billion and $(0.1)$0.9 billion during the three months ended March 31, 20222023 and 2021,2022, respectively. These amounts primarily included: (i) investments purchased (asset management), net of proceeds from investments (asset management) of $(0.6)$(4.7) billion and $(1.3)$(0.6) billion during the three months ended March 31, 20222023 and 2021,2022, respectively, (ii) net realized gains (losses) on asset management investments of $279.6 million$0.1 billion and $584.4 million$0.3 billion during the three months ended March 31, 20222023 and 2021,2022, respectively, (iii) change in unrealized gains (losses) on asset management investments (asset management) of $0.6$(0.3) billion and $2.1$0.6 billion during the three months ended March 31, 20222023 and 2021,2022, respectively, (iv) capital allocation-based income (loss) of $(0.9)$0.4 billion and $2.7$(0.9) billion during the three months ended March 31, 2023 and 2022, and 2021, respectively, and (v) net realized gains (losses) on insurance operations of $75.0 million$(1.0) billion and $(441.6) million$0.3 billion during the three months ended March 31, 2023 and 2022, respectively, and 2021.(vi) interest credited to policyholder account balances (net of policy fees) (insurance) of $0.6 billion and $0.5 billion during the three months ended March 31, 2023 and 2022, respectively. Investment funds are investment companies under GAAP and reflect their investments and other financial instruments at fair value.
Net Cash Provided (Used) by Investing Activities
Our net cash provided (used) by investing activities was $(2.0)$(3.8) billion and $(0.4)$(2.0) billion during the three months ended March 31, 20222023 and 2021,2022, respectively. Our investing activities included: (i) investments purchased (insurance), net of proceeds from investments (insurance), of $(2.0)$(3.8) billion and $(.04)$(2.0) billion during the three months ended March 31, 2023 and 2022, respectively, and 2021, (ii) acquisitions, net of cash acquired of $(415.6) million during three months ended March 31, 2021 and (iii) the purchase of fixed assets of $(11.9)$(23.2) million and $(27.7)$(11.9) million during the three months ended March 31, 2023 and 2022, and 2021, respectively.
Net Cash Provided (Used) by Financing Activities
Our net cash provided (used) by financing activities was $4.1$2.1 billion and $4.5$4.1 billion during the three months ended March 31, 20222023 and 2021,2022, respectively. Our financing activities primarily included: (i) contributions by, net of distributions to, our noncontrolling and redeemable noncontrolling interests of $1.6$0.6 billion and $2.1$1.6 billion during the three months ended March 31, 20222023 and 2021,2022, respectively, (ii) proceeds received, net of repayment of debt obligations, of $0.03$1.5 billion and $1.6 billion$31.5 million during the three months ended March 31, 20222023 and 2021,2022, respectively, (iii) additions to, net of withdrawals from, contractholder deposit funds of $2.4$0.5 billion and $1.0$2.4 billion during three months ended March 31, 2023 and 2022, and 2021,respectively, (iv) common stock dividends of $(133.5) million and $(85.7) million during the three months ended March 31, 2023 and $(77.8)2022, respectively, (v) repurchases of common stock of $(346.7) million during the three months ended March 31, 2022, and 2021, respectively; (v) net delivery of common stock of $(55.9) million during the three months ended March 31, 2021, respectively; (vi) repurchases of common stock of $(346.7) million and $(71.4) million during the three months ended March 31, 2022 and 2021, respectively; (vii) Series A and B Preferred Stock dividends of $(8.3) million during the three months ended March 31, 2021; (viii) Series C Mandatory Convertible Preferred Stock dividends of $(17.3) million during each of the three months ended March 31, 20222023 and 2021, respectively; and (ix) private placement share issuance of $38.5 million during three months ended March 31, 2021.
Analysis of Segment Operating Results
The following is a discussion of the results of our business on a segment basis for the three months ended March 31, 20222023 and 2021.2022. You should read this discussion in conjunction with the information included under "—Key Segment and Non-GAAPNon- GAAP Performance Measures and Other Terms and Operating Metrics"Measures" and the financial statements and related notes included elsewhere in this report. See "—Business Environment" for more information about factors that may impact our business, financial performance, operating results and valuations.
In connection with our acquisition of Global Atlantic on February 1, 2021, management reevaluated the manner in which we manage and assess the performance of our business and allocate resources. As a result, we introduced a new Insurance segment in 2021 and report segment results for two operating and reportable segments: Asset Management and Insurance. See Note 21 "Segment Reporting" in our financial statements.
For the quarter ended March 31, 2021 the results of our Insurance segment are from February 1, 2021 (closing date of the acquisition) through March 31, 2021.
Analysis of Asset Management Segment Operating Results
The following tables set forth information regarding KKR's Asset Managementasset management segment operating results and certain key capital metrics for the three months ended March 31, 20222023 and 2021:2022:
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| | Three Months Ended | |
| | March 31, 2022 | | March 31, 2021 | | Change | |
| | ($ in thousands) | |
| Management Fees | | $ | 624,928 | | | $ | 439,740 | | | $ | 185,188 | | |
| Transaction and Monitoring Fees, Net | | 306,038 | | | 135,677 | | | 170,361 | | |
| Fee Related Performance Revenues | | 12,051 | | | 10,296 | | | 1,755 | | |
| Fee Related Compensation | | (212,220) | | | (131,785) | | | (80,435) | | |
| Other Operating Expenses | | (125,875) | | | (90,161) | | | (35,714) | | |
| Fee Related Earnings | | 604,922 | | | 363,767 | | | 241,155 | | |
| Realized Performance Income | | 609,207 | | | 171,309 | | | 437,898 | | |
| Realized Performance Income Compensation | | (383,635) | | | (109,986) | | | (273,649) | | |
| Realized Investment Income | | 349,354 | | | 461,273 | | | (111,919) | | |
| Realized Investment Income Compensation | | (52,403) | | | (69,191) | | | 16,788 | | |
| Asset Management Segment Operating Earnings | | $ | 1,127,445 | | | $ | 817,172 | | | $ | 310,273 | | |
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| | March 31, 2023 | | March 31, 2022 | | Change | |
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| Management Fees | | $ | 738,156 | | | $ | 624,928 | | | $ | 113,228 | | |
| Transaction and Monitoring Fees, Net | | 142,179 | | | 306,038 | | | (163,859) | | |
| Fee Related Performance Revenues | | 21,741 | | | 12,051 | | | 9,690 | | |
| Fee Related Compensation | | (203,094) | | | (212,220) | | | 9,126 | | |
| Other Operating Expenses | | (150,404) | | | (125,875) | | | (24,529) | | |
| Fee Related Earnings | | 548,578 | | | 604,922 | | | (56,344) | | |
| Realized Performance Income | | 175,398 | | | 609,207 | | | (433,809) | | |
| Realized Performance Income Compensation | | (114,009) | | | (383,635) | | | 269,626 | | |
| Realized Investment Income | | 198,094 | | | 349,354 | | | (151,260) | | |
| Realized Investment Income Compensation | | (29,714) | | | (52,403) | | | 22,689 | | |
| Asset Management Segment Operating Earnings | | $ | 778,347 | | | $ | 1,127,445 | | | $ | (349,098) | | |
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Management Fees
The following table presents management fees by business line:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change |
| | ($ in thousands) |
| Management Fees | | | | | | |
| Private Markets | | $ | 435,997 | | | $ | 286,967 | | | $ | 149,030 | |
| Public Markets | | 188,931 | | | 152,773 | | | 36,158 | |
| Total Management Fees | | $ | 624,928 | | | $ | 439,740 | | | $ | 185,188 | |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Management Fees | | | | | | |
| Private Equity | | $ | 316,341 | | | $ | 282,184 | | | $ | 34,157 | |
| Real Assets | | 193,365 | | | 153,813 | | | 39,552 | |
| Credit and Liquid Strategies | | 228,450 | | | 188,931 | | | 39,519 | |
| Total Management Fees | | $ | 738,156 | | | $ | 624,928 | | | $ | 113,228 | |
The increase in Private MarketsEquity management fees was primarily dueattributable to management fees earned fromon new capital raised over the past twelve months at European Fund VI, Next Generation Technology Growth Fund III, and Global Impact Fund II. The increase was partially offset by (i) catch-up management fees earned on new capital raised for North America Fund XIII Global Infrastructure Investors IV, and Health Care Strategic Growth Fund II, each of which entered its investment period in the second quarter of 2021. These increases were partially offset by a decrease in management fees earned by Americas Fund XII and European Fund V as a result of entering their post-investment periods in the second quarter of 2021 and the first quarter of 2022 respectively,that was retroactive to the start of the fund's investment period, and now earns fees based on capital invested rather than capital committed and at(ii) a lower level of management fees from Asian Fund III due to the sale of investments that resulted in a decrease in its fee rate.base, which is capital invested. There were no catch-up management fees earned in the first quarter of 2023 for North America Fund XIII. During the first quarter of 2023, approximately $9.0 million of management fees were earned on new capital raised that is retroactive to the start of the relevant fund's investment period.
The increase in Public MarketsReal Asset management fees was primarily attributable to greater overall FPAUM at (i) management fees earned on assets managed by KJRM, which we acquired in the second quarter of 2022, (ii) management fees earned from Asia Pacific Infrastructure Investors II, which entered its investment period in the third quarter of 2022 resulting in management fees now being earned on this capital, and (iii) a higher level of management fees earned from Global Atlantic (ii) our opportunistic credit, private creditdue to an increase in assets being managed by KKR's Asset Management segment. The increase was partially offset by catch-up management fees earned on new capital raised for Global Infrastructure Investors IV in the first quarter of 2022 that was retroactive to the start of the fund's investment period. There were no catch-up management fees earned in the first quarter of 2023 for Global Infrastructure Investors IV.
The increase in Credit and dislocation opportunities strategiesLiquid Strategies management fees was primarily attributable to (i) a higher level of management fees earned from Global Atlantic due to an increase in assets being managed by KKR's Asset Management segment and (iii) our hedge fund partnership, Marshall Wace.
Transaction and Monitoring Fees, Net
The following table presents transaction and monitoring fees, net by business line:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Transaction and Monitoring Fees, Net | | | | | | |
| Private Equity | | $ | 34,274 | | | $ | 33,056 | | | $ | 1,218 | |
| Real Assets | | 5,734 | | | 7,630 | | | (1,896) | |
| Credit and Liquid Strategies | | 284 | | | 10,096 | | | (9,812) | |
| Capital Markets | | 101,887 | | | 255,256 | | | (153,369) | |
| Total Transaction and Monitoring Fees, Net | | $ | 142,179 | | | $ | 306,038 | | | $ | (163,859) | |
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| | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change |
| | ($ in thousands) |
| Transaction and Monitoring Fees, Net | | | | | | |
| Private Markets | | $ | 40,686 | | | $ | 22,462 | | | $ | 18,224 | |
| Public Markets | | 10,096 | | | 1,030 | | | 9,066 | |
| Capital Markets | | 255,256 | | | 112,185 | | | 143,071 | |
| Total Transaction and Monitoring Fees, Net | | $ | 306,038 | | | $ | 135,677 | | | $ | 170,361 | |
Our Private Equity, Real Assets and Credit and Liquid Strategies business lines separately earn transaction and monitoring fees from portfolio companies, and under the terms of the management agreements with certain of our investment funds, we are generally required to share all or a portion of such fees with our fund investors. In most funds, transaction and monitoring fees are credited against fund management fees up to 100% of the amount of the transaction and monitoring fees attributable to that fund, which results in a decrease of our monitoring and transaction fee income. Additionally, transaction fees are generally not earned with respect to energy and real estate investments. Our Capital Markets business line earns transaction fees, which are not shared with fund investors.
The increasedecrease in transaction and monitoring fees, net is primarily due to a lower level of transaction fees earned in our Capital Markets business line. The decrease in capital markets transaction fees was primarily due to an increasea decrease in the number and average size of capital markets transactions for the three months ended March 31, 2022,2023, compared to the three months ended March 31, 2021. 2022 reflecting reduced issuance levels across global equity and leveraged loan markets.Overall, we completed 8742 capital markets transactions for the three months ended March 31, 2023, of which 9 represented equity offerings and 33 represented debt offerings, as compared to 87 transactions for the three months ended March 31, 2022, of which 11 represented equity offerings and 76 represented debt offerings, as compared to 57 transactions for the three months ended March 31, 2021, of which 11 represented equity offerings and 46 represented debt offerings. We earned fees in connection with underwriting, syndication and other capital markets services. While each of the capital markets transactions that we undertake in this business line is separately negotiated, our fee rates are generally higher with respect to underwriting or syndicating equity offerings than with respect to debt offerings, and the amount of fees that we earn for similar transactions generally correlates with overall transaction sizes.
Our capital markets fees are generated in connection with activity involving our Private Marketsprivate equity, real assets and Public Markets business linescredit funds as well as from third-party companies. For the three months ended March 31, 2022,2023, approximately 19%14% of our transaction fees in our Capital Markets business line were earned from unaffiliated third parties as compared to approximately 26%19% for the three months ended March 31, 2021.2022. Our transaction fees are comprised of fees earned fromin North America, Europe, and the Asia-Pacific region. For the three months ended March 31, 2022,2023, approximately 37%59% of our transaction fees were generated outside of North America as compared to approximately 32%37% for the three months ended March 31, 2021.2022. Our Capital Markets business line is dependent on the overall capital markets environment, which is influenced by equity prices, credit spreads, and market volatility. Our Capital Markets business line does not generate monitoring fees.
Our Private Markets and Public Markets business lines separately earn transaction and monitoring fees from portfolio companies, and under the terms of the management agreements with certain of our investment funds, we are required to share all or a portion of such fees with our fund investors.
The increase in Private Markets transaction and monitoring fees, net, was primarily attributable to an increase in net transaction fees. During the three months ended March 31, 2022, there were 28 transaction fee-generating investments that paid an average fee of $7.3 million compared to 19 transaction fee-generating investments that paid an average fee of $2.0 million during the three months ended March 31, 2021. For the three months ended March 31, 2022, approximately 47% of these transaction fees were paid by companies in North America, 31% were paid from companies in the Asia-Pacific region, and 22% were paid from companies in Europe. Transaction fees vary by investment based upon a number of factors, the most significant of which are transaction size, the particular agreements as to the amount of the fees, the complexity of the transaction, and KKR's role in the transaction. Additionally, transaction fees are generally not earned with respect to energy and real estate investments.
Fee Related Performance Revenues
The following table presents fee related performance revenues by business line:
| | | Three Months Ended | | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change | | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) | | ($ in thousands) |
| Fee Related Performance Revenues | Fee Related Performance Revenues | | Fee Related Performance Revenues | |
| Private Markets | | $ | 2,317 | | | $ | 1,552 | | | $ | 765 | | |
| Public Markets | | 9,734 | | | 8,744 | | | 990 | | |
| Private Equity | | Private Equity | | $ | — | | | $ | — | | | $ | — | |
| Real Assets | | Real Assets | | 3,704 | | | 2,317 | | | 1,387 | |
| Credit and Liquid Strategies | | Credit and Liquid Strategies | | 18,037 | | | 9,734 | | | 8,303 | |
| Total Fee Related Performance Revenues | Total Fee Related Performance Revenues | | $ | 12,051 | | | $ | 10,296 | | | $ | 1,755 | | Total Fee Related Performance Revenues | | $ | 21,741 | | | $ | 12,051 | | | $ | 9,690 | |
Fee related performance revenues earned in our Private Markets and Public Markets business lines represent realized incentiveperformance fees that are (i) are measured andexpected to be received from anour investment fund, vehicle or accountfunds, vehicles and accounts on a recurring basis, and (ii) do not require thedependent on a realization of theevent involving investments held by the investment fund, vehicle or account. These incentiveperformance fees are primarily earned from our BDC and our investment inFS KKR Capital Corp. (NYSE: FSK) ("FSK") (our business development company), KKR Property Partners Americas ("KPPA") (our open-ended core plus real estate fund), KKR Real Estate Select Trust ("KREST") (our registered closed-end real estate equity fund), KKR Real Estate Finance Trust Inc. ("KREST"KREF") (our real estate credit investment trust), and KJRM (our Japanese real estate investment trust asset manager). Fee related performance revenues were higher for the three months ended March 31, 20222023 compared to the prior period primarily due to investment performance.
Fee Related Compensation
The increasedecrease in fee related compensation for the three months ended March 31, 20222023 compared to the prior period was primarily due to a higherlower level of compensation recorded in connection with the higherlower level of revenues included within fee related earnings.
Other Operating Expenses
The increase in other operating expenses for the three months ended March 31, 20222023 compared to the prior period was primarily due to a higher level of (i) professional fees, information technology, travel and other administrative costs in connection with the overall growth of the firm and (ii) placement fees related to capital raising activities.
Fee Related Earnings
The increasedecrease in fee related earnings for the three months ended March 31, 20222023 compared to the prior period was primarily due to a lower level of transaction fees earned in our Capital Markets business line and higher level of management fees and transaction fees,operating expenses partially offset by a higher level of fee related compensationmanagement fees across our Private Equity, Real Assets and other operating expenses,Credit and Liquid Strategies business lines, as described above.
Realized Performance Income
The following table presents realized performance income by business line:
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| | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change |
| | ($ in thousands) |
| Realized Performance Income | | | | | | |
| Private Markets | | $ | 603,823 | | | $ | 166,418 | | | $ | 437,405 | |
| Public Markets | | 5,384 | | | 4,891 | | | 493 | |
| Total Realized Performance Income | | $ | 609,207 | | | $ | 171,309 | | | $ | 437,898 | |
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Realized Performance Income | | | | | | |
| Private Equity | | $ | 163,052 | | | $ | 603,823 | | | $ | (440,771) | |
| Real Assets | | 9,686 | | | — | | | 9,686 | |
| Credit and Liquid Strategies | | 2,660 | | | 5,384 | | | (2,724) | |
| Total Realized Performance Income | | $ | 175,398 | | | $ | 609,207 | | | $ | (433,809) | |
| | | Three Months Ended | | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change | | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) | | ($ in thousands) |
| Private Markets | | |
| Private Equity | | Private Equity | |
| Core Investment Vehicles | Core Investment Vehicles | | $ | 262,219 | | | $ | 80,937 | | | $ | 181,282 | | Core Investment Vehicles | | $ | 103,659 | | | $ | 262,219 | | | $ | (158,560) | |
| Global Impact Fund | | Global Impact Fund | | 20,257 | | | — | | | 20,257 | |
| Next Generation Technology Growth Fund | | Next Generation Technology Growth Fund | | 17,810 | | | — | | | 17,810 | |
| Americas Fund XII | | Americas Fund XII | | 14,714 | | | 83,016 | | | (68,302) | |
| 2006 Fund | | 2006 Fund | | 4,271 | | | 33,458 | | | (29,187) | |
| North America Fund XI | North America Fund XI | | 119,942 | | | 44,881 | | | 75,061 | | North America Fund XI | | — | | | 119,942 | | | (119,942) | |
| Americas Fund XII | | 83,016 | | | — | | | 83,016 | | |
| Co-Investment Vehicles and Other | | Co-Investment Vehicles and Other | | 2,292 | | | 12,444 | | | (10,152) | |
| European Fund IV | European Fund IV | | 68,688 | | | — | | | 68,688 | | European Fund IV | | — | | | 68,688 | | | (68,688) | |
| 2006 Fund | | 33,458 | | | 19,960 | | | 13,498 | | |
| Co-Investment Vehicles and Other | | 12,444 | | | 15,533 | | | (3,089) | | |
| Real Estate Partners Europe | | — | | | 3,478 | | | (3,478) | | |
| European Fund III | | — | | | 353 | | | (353) | | |
| Total Realized Carried Interest (1) | Total Realized Carried Interest (1) | | 579,767 | | | 165,142 | | | 414,625 | | Total Realized Carried Interest (1) | | 163,003 | | | 579,767 | | | (416,764) | |
| | Incentive Fees | Incentive Fees | | 24,056 | | | 1,276 | | | 22,780 | | Incentive Fees | | 49 | | | 24,056 | | | (24,007) | |
| Total Realized Performance Income | Total Realized Performance Income | | $ | 603,823 | | | $ | 166,418 | | | $ | 437,405 | | Total Realized Performance Income | | $ | 163,052 | | | $ | 603,823 | | | $ | (440,771) | |
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Real Assets | | | | | | |
| Global Infrastructure Investors II | | $ | 9,686 | | | $ | — | | | $ | 9,686 | |
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Total Realized Carried Interest (1) | | 9,686 | | | — | | | 9,686 | |
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| Incentive Fees | | — | | | — | | | — | |
| Total Realized Performance Income | | $ | 9,686 | | | $ | — | | | $ | 9,686 | |
| | | Three Months Ended | | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change | | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) | | ($ in thousands) |
| Public Markets | | |
| Credit and Liquid Strategies | | Credit and Liquid Strategies | |
| Total Realized Carried Interest (1) | Total Realized Carried Interest (1) | | $ | — | | | $ | — | | | $ | — | | Total Realized Carried Interest (1) | | $ | — | | | $ | — | | | $ | — | |
| | Incentive Fees | Incentive Fees | | 5,384 | | | 4,891 | | | 493 | | Incentive Fees | | 2,660 | | | 5,384 | | | (2,724) | |
| Total Realized Performance Income | Total Realized Performance Income | | $ | 5,384 | | | $ | 4,891 | | | $ | 493 | | Total Realized Performance Income | | $ | 2,660 | | | $ | 5,384 | | | $ | (2,724) | |
(1)The above tables exclude any funds for which there was no realized carried interest during both of the periods presented.
Realized performance income includes (i) realized carried interest from our carry earning funds and (ii) incentive fees not included in Fee Related Performance Revenues.
Realized carried interest in our Private MarketsEquity business line for the three months ended March 31, 2022 consisted primarily of (i) realized performance income from our core investment vehicles and (ii) realized proceeds from dividendsa dividend received from our investment in Internet Brands, Inc. (technology sector) held by North America Fund XI and salesAmericas Fund XII and the sale of our investmentsinvestment in Hensoldt AG (FRA: HAG) and Resource Environmental Solutions, LLC (energy sector).held by European Fund IV.
Realized carried interest in our Private MarketsReal Assets business line for the three months ended March 31, 20212023 consisted primarily of (i) realized performance incomeproceeds from our core investment vehicles, (ii) dividends received fromthe sale of our investment in Internet Brands, Inc. and (iii) realized gains from the partial sale of our investments in BridgeBio Pharma, Inc. and Academy Sports & Outdoors Inc. (NASDAQ: ASO).
Telxius Telecom, S.A.U. (Infrastructure: telecommunications infrastructure sector) held by Global Infrastructure Investors II. During the three months ended March 31, 2022, and March 31, 2021, there was no realized carried interest earned in our Public MarketsReal Assets business line.
Incentive fees earned in our Private Markets and Public Markets business lines consist of incentiveperformance fees earned from (i) our hedge fund partnerships, (ii) investment management agreements with KKR sponsored investment vehicles, and (iii) investment management agreements involving third party asset management firm not involvingto provide KKR’s investment strategies to funds managed by a hedgeUK investment fund partnership. Inmanager.
Incentive fees in our Private Markets, the increase in incentive feesEquity business line decreased for the three months ended March 31, 20222023 compared to the prior period was primarily attributable toas a result of incentive fees not being earned this period from certain levered multi-asset investment vehicles.vehicles in the current period. Incentive fees in our Credit and Liquid Strategies business line decreased for the three months ended March 31, 2023 compared to the prior period primarily as a result of a lower level of performance fees earned from a UK investment fund manager.
Realized Performance Income Compensation
The increasedecrease in realized performance income compensation for the three months ended March 31, 20222023 compared to the prior period was primarily due to a higherlower level of compensation recorded in connection with the higherlower level of realized performance income.
Realized Investment Income
The following table presents realized investment income in our Principal Activities business line:
| | | Three Months Ended | | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change | | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) | | ($ in thousands) |
| Realized Investment Income | Realized Investment Income | | Realized Investment Income | |
| Net Realized Gains (Losses) | Net Realized Gains (Losses) | | $ | 76,136 | | | $ | 373,120 | | | $ | (296,984) | | Net Realized Gains (Losses) | | $ | 91,907 | | | $ | 76,136 | | | $ | 15,771 | |
| Interest Income and Dividends | Interest Income and Dividends | | 273,218 | | | 88,153 | | | 185,065 | | Interest Income and Dividends | | 106,187 | | | 273,218 | | | (167,031) | |
| Total Realized Investment Income | Total Realized Investment Income | | $ | 349,354 | | | $ | 461,273 | | | $ | (111,919) | | Total Realized Investment Income | | $ | 198,094 | | | $ | 349,354 | | | $ | (151,260) | |
The decrease in realized investment income is primarily due to a lower level of net realized gainsinterest income and dividends, partially offset by a higher level of interest income and dividends.net realized gains. The amount of realized investment income depends on the transaction activity of our funds and balance sheet, which can vary from period to period.
For the three months ended March 31, 2023, net realized gains were comprised of realized gains primarily from the sale of our investments in KnowBe4, Inc. and Flutter Entertainment PLC. Partially offsetting these realized gains were realized losses, the most significant of which was a realized loss on our alternative credit investment, Chembulk Group, and realized losses from the sales of various revolving credit facilities.
For the three months ended March 31, 2022, net realized gains were comprised of realized gains primarily from the sale of our Private Markets investments in Fiserv, Inc. and Hensoldt AG. Partially offsetting these realized gains were realized losses, the most significant of which was a realized loss of an alternative credit investment and real estate equity investment.
For the three months ended March 31, 2021, net realized gains2023, interest income and dividends were comprised of realized gains(i) $70.7 million of interest income, primarily from the partial sales of our Private Markets investments in Flutter Entertainment PLCCLOs, and BridgeBio Pharma Inc. Partially offsetting these realized gains were realized losses, the most significant(ii) $35.5 million of which wasdividend distributions primarily from our Americas real estate credit and equity investments, as well as a realized loss on the sale of an investment in our special situations funds.dividend distribution received from Resolution Life Holdings L.P. (financial services sector).
For the three months ended March 31, 2022, interest income and dividends were comprised of (i) $218.9 million of dividend income primarily from levered multi-asset investment vehicles and our investments in Exact Holdings B.V. and Internet Brands, Inc., and (ii) $54.3 million of interest income, primarily from our investments in CLOs.
For the three months ended March 31, 2021, interest income and dividends were comprised primarily of (i) $44.5 million of dividend income primarily from our investments in Internet Brands, Inc. and US Foods Holding Corp. as well as distributions received from our real estate investments including our investment in KREF and (ii) $43.7 million of interest income primarily from our investments in CLOs. See "—Analysis of Non-GAAP Performance Measures—Non-GAAP Balance Sheet Measures."
Realized investment income (loss) includes the net income (loss) from KKR Capstone. For the quarter ended March 31, 2023, total fees attributable to KKR Capstone were $19.8 million and total expenses attributable to KKR Capstone were $19.6 million. For KKR Capstone-related adjustments in reconciling asset management segment revenues to GAAP revenues see "—Analysis of Non-GAAP Performance Measures—Reconciliations to GAAP Measures".
Based on information available as of the date of the filing of this report, we expect realized performance income and realized investment income to be greater than $600approximately $125 million in the second quarter of 20222023 relating to realized carried interest and realized investment income from completed, or signed and expected to be completed sales, partial sales or secondary sales subsequent to March 31, 20222023 with respect to certain private equity portfolio companies and other investments. Some of these transactions are not complete, and are subject to the satisfaction of closing conditions, including, but not limited, to regulatory approvals; there can be no assurance if or when any of these transactions will be completed.
Prior The estimate disclosed above is not intended to the acquisition of KKR Capstone on January 1, 2020, (i) KKR Capstone's financial results were consolidated with KKR's financial results in accordance with GAAP, and as such the fees and expenses attributable to KKR Capstone were included in KKR's consolidated revenues and expenses, and (ii) KKR Capstone's financial results were excluded from KKR's non-GAAP financial measures, because KKR presented its non-GAAP financial measures prior to the effect to the consolidation of certain entities that were not subsidiaries of KKR. Following the acquisition of KKR Capstone on January 1, 2020, after-tax distributable earnings includes the netpredict or represent total realized performance income (loss) from KKR Capstone withinor total realized investment income (loss).
Forfor the full quarter ending June 30, 2023, because it does not include the results or impact of any other sources of income, including fee income, or expenses, and we may realize further gains or losses relating to total realized performance income and total realized investment income after the date of the filing of this report. Therefore, the actual realized carried interest and realized investment income for the quarter ended March 31, 2022, total fees attributable to KKR Capstone were $15.5 million, total expenses attributable to KKR Capstone were $18.7 million and income taxes and other income attributable to Capstone were $(0.2)June 30, 2023 may be higher or lower than $125 million. For KKR Capstone-related adjustments in reconciling Asset Management segment revenues to GAAP revenues see "—Analysis of Non-GAAP Performance Measures—Reconciliations to GAAP Measures".
Realized Investment Income Compensation
The decrease in realized investment income compensation for the three months ended March 31, 20222023 compared to the prior period is primarily due to a lower level of compensation recorded in connection with the lower level of realized investment income.
Other Operating and Capital MeasuresMetrics
The following table presents certain key operating and capital metrics as of March 31, 20222023 and December 31, 2021:2022:
| | | | | | | | | | | | | | | | | | | | |
| | As of |
| | March 31, 2022 | | December 31, 2021 | | Change |
| | ($ in millions) |
| Assets Under Management | | $ | 479,032 | | | $ | 470,555 | | | $ | 8,477 | |
| Fee Paying Assets Under Management | | $ | 371,176 | | | $ | 357,389 | | | $ | 13,787 | |
| Uncalled Commitments | | $ | 114,836 | | | $ | 111,822 | | | $ | 3,014 | |
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| | As of |
| | March 31, 2023 | | December 31, 2022 | | Change |
| | ($ in millions) |
| Assets Under Management | | $ | 510,069 | | | $ | 503,897 | | | $ | 6,172 | |
| Fee Paying Assets Under Management | | $ | 415,871 | | | $ | 411,923 | | | $ | 3,948 | |
| Uncalled Commitments | | $ | 106,266 | | | $ | 107,679 | | | $ | (1,413) | |
The following table presents one of our key capital metrics for the three months ended March 31, 20222023 and 2021:2022:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 | | Change |
| | ($ in millions) |
| Capital Invested | | $ | 21,376 | | | $ | 6,892 | | | $ | 14,484 | |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in millions) |
| Capital Invested | | $ | 9,767 | | | $ | 21,376 | | | $ | (11,609) | |
Assets Under Management
Private Markets
The following table reflects the changes in the AUM of our Private Markets AUMEquity business line from December 31, 20212022 to March 31, 2022:2023:
| | | | | |
| | ($ in millions) |
December 31, 20212022 | $ | 257,048165,147 | |
| New Capital Raised | 17,295349 | |
| |
| Distributions and Other | (4,283)(1,227) | |
| Change in Value | (1,847)1,493 | |
March 31, 20222023 | $ | 268,213165,762 | |
AUM for theof our Private MarketsEquity business line was $268.2$165.8 billion at March 31, 2022,2023, an increase of $11.2$0.7 billion, compared to $257.0$165.1 billion at December 31, 2021.2022.
The increase was primarily attributable to new capital raised by Global Atlantic, Europeanan appreciation in investment value from Americas Fund VI,XII, Asian Fund IV, and IndiGrid, an asset management firm that KKR owns in India.North America Fund XIII. Partially offsetting these increasesthis increase were distributions to fund investors primarily as a result of realized proceeds, most notably from North America Fund XI, Americas Fund XII, Next Generation Technology Growth Fund II, and European Fund IV and to a lesser extent a decrease in investment value from Americas Fund XII, Global Atlantic under our investment management agreements with Global Atlantic's insurance companies, and Asian Fund II.Next Generation Technology Growth Fund.
For the three months ended March 31, 2022, the value of our traditional private equity investment portfolio decreased 5%. This was comprised of a 26% decrease in share prices of various publicly held or publicly indexed investments and a 3% increase in value of our privately held investments, as discussed further below. See "—Business Environment" for more information about certain factors that impact our business, financial performance, operating results and valuations.
The most significant decreases in share prices of various publicly held or publicly indexed investments were decreases in Applovin Corporation (NASDAQ: APP), Max Healthcare Institute Limited (NSE: MAXHEALTH), and PHC Holdings Corporation (TYO: 6523). These decreases were partially offset by increases in share prices of various publicly held investments, the most significant of which was an increase in Crescent Energy Company, Hensoldt AG and US Foods Holdings Corp. The prices of publicly held or publicly indexed companies may experience volatile changes following the reporting period.
The most significant increases in value of our privately held investments related to Internet Brands, Inc., Viridor Limited, and Wella Co. (consumer products sector). These increases in value were partially offset by decreases in value relating primarily to Magnetti Marelli (industrial sector), Outsystems Holdings S.A., and Koki Holdings Co., Ltd. (industrial sector). The increased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) individual company performance, (ii) an increase in the value of market comparables, and with respect to Internet Brands, an increase in valuation reflecting an agreement to monetize a portion of the company. The decreased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) an unfavorable business outlook and (ii) a decrease in the value of market comparables, both influenced by economic outlook and market environment.
For the three months ended March 31, 2021,2023, the value of our traditional private equity investment portfolio increased 19%2%. This was comprised of a 21% increase in value of our privately held investments and a 10%15% increase in share prices of various publicly held or publicly indexedinvestments and a 2% increase in value of our privately held investments.
The most significant increases in the value of our publicly held investments were increases in AppLovin Corporation (NASDAQ: APP), BridgeBio Pharma, Inc. and PropertyGuru Group Limited (NYSE: PGRU). These increases were partially offset by decreases in the value of certain publicly held investments, the most significant of which was Brightview Holdings, Inc. (NYSE: BV) and Indus Towers Limited (NSE: INDUSTOWER). The prices of publicly held companies may experience volatile changes following the reporting period. See "—Business Environment" for more information about the factors, such as volatility, that may impact our business, financial performance, operating results and valuations.
The most significant increases in the value of our privately held investments related to AppLovin Corporation,were increases in Cloudera, Inc. (technology sector), Magneti Marelli CK Holdings Co. (industrials sector), and OneStream Software, LLC (technology sector), and OutSystems Holdings S.A.. These increases in value on our privately held investments were partially offset by decreases in the value relating primarily to Colonial Enterprises, Inc. (infrastructure), Goodpack Limited (packagingof certain other privately held investments, the most significant of which were Bytedance Ltd. (technology sector), GenesisCare Pty Ltd., and Channel Control Merchants (retail sector).Heartland Dental, LLC. The increased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) individual company performance and (ii) an increase in the value of market comparables and (iii) transactional activity in the quarter related to new rounds of funding.comparables. The decreased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) an unfavorable business outlookoutlook. See "—Business Environment" for more information about the factors, that may impact our business, financial performance, operating results and (ii) a decrease in the value of market comparables, both influenced from the impact of COVID-19 on the economic outlook and overall market environment.valuations.
The most significant increases in share prices of various publicly held or publicly indexed investments were increases in Max Healthcare Institute Limited, Fiserv, Inc. and Academy Sports & Outdoor Inc. These increases were partially offset by decreases in share prices of various publicly held investments, the most significant of which were decreases in BridgeBio Pharma, Inc. and Laureate Education, Inc. (NASDAQ: LAUR).
Certain investments included in our AUM are denominated in currencies other than the U.S. dollar. Those investments expose our AUM to the risk that the value of the investments will be affected by changes in exchange rates between the currency in which the investments are denominated and the currency in which the investments are made. We generally seek to reduce these risks by employing hedging transactions in connection with certain investments, including using foreign currency options and foreign exchange forward contracts to reduce exposure to changes in exchange rates when a meaningful amount of capital has been invested in currencies other than the currencies in which the investments are denominated. We do not, however, hedge our currency exposure in all currencies or for all investments. See "Quantitative and Qualitative Disclosures about Market Risk—Exchange Rate Risk" and "Risk Factors—Risks Related to theReal Assets We Manage—We make investments in companies that are based outside of the United States, which may expose us to additional risks not typically associated with investing in companies that are based in the United States" in our Annual Report on Form 10-K for the year ended December 31, 2021.
Public Markets
The following table reflects the changes in the AUM of our Public Markets AUMReal Assets business line from December 31, 20212022 to March 31, 2022: 2023:
| | | | | |
| | ($ in millions) |
December 31, 20212022 | $ | 213,507118,592 | |
| New Capital Raised | 8,9352,613 | |
| |
| Distributions and Other | (1,468) | |
| Redemptions | (79) | |
| Change in Value | 1,148 | |
| March 31, 2023 | $ | 120,806 | |
| |
| |
| |
AUM of our Real Assets business line was $120.8 billion at March 31, 2023, an increase of $2.2 billion, compared to $118.6 billion at December 31, 2022.
The increase was primarily attributable to (i) new capital raised from a real estate credit separately managed account, Asia Real Estate Partners II, and our open-ended core infrastructure fund, Diversified Core Infrastructure Fund and (ii) the appreciation in investment value primarily from Global Infrastructure Investors III. Partially offsetting these increases were payments to Global Atlantic policyholders and distributions to fund investors as a result of realized proceeds, most notably distributions from Global Infrastructure Investors II.
For the three months ended March 31, 2023, the value of our infrastructure investment portfolio increased 6%, the value of our energy investment portfolio decreased by 9%, and the value of our opportunistic real estate equity investment portfolio decreased by 2%.
The most significant increases in value across our Real Asset portfolio were in Atlantic Aviation FBO Inc. (Infrastructure: transportation sector), First Gen Corporation (Infrastructure: power and utilities sector), and X-Elio Energy, S.L. (Infrastructure: power and utilities sector). These increases in value were partially offset by decreases in value relating primarily to various assets held in our energy portfolio, Colonial Enterprises, Inc. (Infrastructure: midstream sector), and various assets held in our real estate equity portfolio across all regions. The increased valuations of individual companies or assets in the aggregate, generally related to individual company or asset performance, and with respect to X-Elio Energy, S.L., an increase in valuation reflecting an agreement to exit this investment. The decreased valuations of individual companies or assets in the aggregate, generally related to an unfavorable business outlook. See "—Business Environment" for more information about the factors that may impact our business, financial performance, operating results and valuations.
Credit and Liquid Strategies
The following table reflects the changes in the AUM of our Credit and Liquid Strategies business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 220,158 | |
| New Capital Raised | 8,715 | |
| |
| |
| |
| Distributions and Other | (4,280)(4,025) | |
| Redemptions | (1,933)(2,533) | |
| Change in Value | (5,410)1,186 | |
March 31, 20222023 | $ | 210,819223,501 | |
| |
| |
| |
AUM inof our Public MarketsCredit and Liquid Strategies business line totaled $210.8was $223.5 billion at March 31, 2022, a decrease2023, an increase of $2.7$3.3 billion compared to $213.5$220.2 billion at December 31, 2021.
The decreaseincrease was primarily attributable to (i) new capital raised from Global Atlantic, our hedge fund partnership, Marshall Wace, and the issuance of a declinenew CLO, and to a lesser extent (ii) appreciation in investment value inon assets managed across our leveraged and alternative credit portfolio, including forinvestment funds. Partially offsetting these increases were (i) payments to Global Atlantic underpolicyholders, (ii) redemptions at our investment management agreements with Global Atlantic's insurance companies, (ii)hedge fund partnership, Marshall Wace, and (iii) distributions to fund investors at certain liquidalternative credit funds.
See also "—Business Environment" for more information about the factors that may impact our business, financial performance, operating results and valuations and "—Credit and Liquid Strategies" for investment performance information for our leveraged and alternative credit funds, (iii) payments to Global Atlantic policyholders and (iv) redemptions at our hedge fund partnerships. Partially offsetting these decreases was new capital raised by our hedge fund partnerships, Global Atlantic and across various liquid and alternative credit funds.strategies.
Fee Paying Assets Under Management
Private Markets
The following table reflects the changes in the FPAUM of our Private Markets FPAUMEquity business line from December 31, 20212022 to March 31, 2022:2023:
| | | | | |
| | ($ in millions) |
December 31, 20212022 | $ | 154,855102,261 | |
| New Capital Raised | 22,9071,407 | |
| |
| Distributions and Other | (2,813)(1,401) | |
Net Changes in Fee Base of Certain Funds | (1,318) | |
| Change in Value | (1,559)56 | |
March 31, 20222023 | $ | 172,072102,323 | |
FPAUM inof our Private MarketsEquity business line was $172.1$102.3 billion at March 31, 2022, an increase of $17.2 billion,2023, which remained flat compared to $154.9 billion at December 31, 2021.2022.
The increase was primarily attributable to newNew capital raised byfrom European Fund VI, Next Generation Technology Growth Fund III, and Global Atlantic,Impact Fund II was primarily offset by the (i) reduction in fee base for European Fund III and IndiGrid, an assetChina Growth Fund, which no longer pay management firm that KKR owns in India. Partially offsetting this increase were (i)fees, and (ii) distributions to fund investors, primarily as a result of realized proceeds, most notably distributions from North AmericaAmericas Fund XI, (ii) payments to Global Atlantic policyholders (iii) a decrease in investment value for Global Atlantic under our investment management agreements with Global Atlantic's insurance companiesXII and (iv) net change in fee baseNext Generation Technology Growth Fund II.
Uncalled capital commitments from Private Marketsprivate equity and multi-strategy investment funds from which KKR is currently not earning management fees amounted to approximately $28.7$17.9 billion at March 31, 2022,2023, which includes capital commitments reserved for follow-on investments for funds that have completed their investment periods. This capital will generally begin to earn management fees upon deployment of the capital or upon the commencement of the fund's investment period. The average annual management fee rate associated with this capital is approximately 1.0%. We willThe date on which we begin to earn fees (as specified above) is not begin earning fees on this capital until it is deployed or the related investment period commences, neither of which is guaranteed to occur and which may not occur for an extended period of time. If and when such management fees are earned, a portion of existing FPAUM may cease paying fees or pay lower fees, thus offsetting a portion of any new management fees earned.
Public MarketsReal Assets
The following table reflects the changes in the FPAUM of our Public Markets FPAUMReal Assets business line from December 31, 20212022 to March 31, 2022: 2023:
| | | | | |
| | ($ in millions) |
December 31, 20212022 | $ | 202,534103,532 | |
| New Capital Raised | 7,4453,434 | |
| |
| |
| |
| Distributions and Other | (3,591)(1,271) | |
| Redemptions | (1,933)(79) | |
| |
| Change in Value | (5,351)111 | |
March 31, 20222023 | $ | 199,104105,727 | |
| |
| |
| |
FPAUM inof our Public MarketsReal Assets business line was $199.1$105.7 billion at March 31, 2022, a decrease2023, an increase of $3.4$2.2 billion, compared to $202.5$103.5 billion at December 31, 2021.
The decreaseincrease was primarily attributable to new capital raised from Diversified Core Infrastructure Fund and Asia Pacific Infrastructure Investors II. Partially offsetting this increase were (i) a decline in investment value in assets managed across our credit portfolio, including for Global Atlantic under our investment management agreements with Global Atlantic's insurance companies, (ii) distributions to fund investors at certain alternative credit funds, (iii) payments to Global Atlantic policyholders, and (iv) redemptions at our hedge(ii) distributions to fund partnerships. Partially offsetting these decreases was new capital raised by our hedge fund partnerships,investors as a result of realized proceeds, most notably distributions from Global Atlantic and across various liquid and alternative credit funds.
Uncalled capital commitments from Public Marketsreal assets investment funds from which KKR is currently not earning management fees amounted to approximately $7.3$8.7 billion at March 31, 2022.2023, which includes capital commitments reserved for follow-on investments for funds that have completed their investment periods. This capital will generally begin to earn management fees upon deployment of the capital or upon the commencement of the fund's investment period. The average annual management fee rate associated with this capital is approximately 0.9%1.2%. WeThe date on which we begin to earn fees (as specified above) is not guaranteed to occur and may not occur for an extended period of time. If and when such management fees are earned, a portion of existing FPAUM may cease paying fees or pay lower fees, thus offsetting a portion of any new management fees earned.
Credit and Liquid Strategies
The following table reflects the changes in the FPAUM of our Credit and Liquid Strategies business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 206,130 | |
| New Capital Raised | 8,496 | |
| |
| |
| |
| Distributions and Other | (5,228) | |
| Redemptions | (2,533) | |
| Change in Value | 956 | |
| March 31, 2023 | $ | 207,821 | |
| |
| |
| |
FPAUM of our Credit and Liquid Strategies business line was $207.8 billion at March 31, 2023, an increase of $1.7 billion, compared to $206.1 billion at December 31, 2022.
The increase was primarily attributable to (i) new capital raised from Global Atlantic, our hedge fund partnership, Marshall Wace, and the issuance of a new CLO, and to a lesser extent (ii) appreciation in investment value on assets managed across our leveraged and alternative credit investment funds. Partially offsetting these increases were (i) payments to Global Atlantic policyholders, (ii) redemptions at our hedge fund partnership, Marshall Wace, and (iii) distributions to fund investors at certain alternative credit funds.
Uncalled capital commitments from investment funds in our Credit and Liquid Strategies business line from which KKR is currently not earning management fees amounted to approximately $10.6 billion at March 31, 2023. This capital will notgenerally begin earningto earn management fees onupon deployment of the capital or upon the commencement of the fund's investment period. The average annual management fee rate associated with this capital until it is deployed or the related investment period commences, neither ofapproximately 0.7%. The date on which we begin to earn fees (as specified above) is not guaranteed to occur.occur and may not occur for an extended period of time. If and when such management fees are earned, which will occur over an extended period of time, a portion of existing FPAUM may cease paying fees or pay lower fees, thus offsetting a portion of any new management fees earned.
Uncalled Commitments
Private Markets
As of March 31, 2022,2023, our Private MarketsEquity business line had $103.5$64.1 billion of remaining uncalled capital commitments that could be called for investments in new transactions as compared to $101.5$65.9 billion as of December 31, 2021.2022. The decrease was primarily attributable to capital called from fund investors to make investments during the period, which was partially offset by new capital commitments from fund investors.
Real Assets
As of March 31, 2023, our Real Assets business line had $27.7 billion of remaining uncalled commitments that could be called for investments in new transactions as compared to $27.5 billion as of December 31, 2022. The increase was primarily attributable to new capital commitments from fund investors, partially offset by capital called from fund investors to make investments during the period.
Credit and Liquid Strategies
As of March 31, 2023, our Credit and Liquid Strategies business line had $14.5 billion of remaining uncalled commitments that could be called for investments in new transactions as compared to $14.3 billion as of December 31, 2022. The increase was primarily attributable to new capital commitments from fund investors, which was partially offset by capital called from fund investors to make investments during the period.
Public Markets
As of March 31, 2022, our Public Markets business line had $11.4 billion of remaining uncalled capital commitments that could be called for investments in new transactions as compared to $10.3 billion as of December 31, 2021. The increase was primarily attributable to new commitments from fund investors, which was partially offset by capital called from fund investors to make investments during the period.
Capital Invested
Private MarketsEquity
For the three months ended March 31, 2022,2023, our Private MarketsEquity business line had $13.4$2.9 billion of capital invested as compared to $4.0$4.4 billion for the three months ended March 31, 2021.2022. The increasedecrease was driven primarily by a $6.9$2.4 billion increasedecrease in capital invested in our real assets strategies and a $2.5 billion increase in capital invested in ourtraditional private equity strategies (including core and growth equity (including impact) investments). Generally, the portfolio companies acquired through our private equity funds have higher transaction values and result in higher capital invested relative to transactions in our real assets funds. The number of large private equity investments made in any quarter is volatile and consequently, a significant amount of capital invested in one quarter or a few quarters may not be indicative of a similar level of capital deployment in future quarters.strategy. During the three months ended March 31, 2022, 36%2023, 57% of capital deployed in private equity (including core and growth equity (including impact) investments) was in transactions in Europe, 39% was in North America, 34%and 4% was in the Asia-Pacific region,region. The number of large private equity investments made in any quarterly or year-to-date period is volatile and, 30% wasconsequently, a significant amount of capital invested in Europe.one period or a few periods may not be indicative of a similar level of capital deployment in future periods.
Public MarketsReal Assets
For the three months ended March 31, 2022, Public Markets2023, our Real Assets business line had $8.0$4.7 billion of capital invested as compared to $2.9$9.0 billion for the three months ended March 31, 2021.2022. The increasedecrease was driven primarily by a $3.8 billion decrease in capital invested in our real estate strategy and a $1.2 billion decrease in our energy strategy. During the three months ended March 31, 2023, 59% of capital deployed in real assets was in transactions in Europe, 31% was in the Asia-Pacific region, and 10% was in North America. The number of large real asset investments made in any quarterly or year-to-date period is volatile and, consequently, a significant amount of capital invested in one period or a few periods may not be indicative of a similar level of capital deployment in future periods.
Credit and Liquid Strategies
For the three months ended March 31, 2023, our Credit and Liquid Strategies business line had $2.2 billion of capital invested as compared to $8.0 billion for the three months ended March 31, 2022. The decrease was primarily due to a higherlower level of (i) capital deployed under our investment management agreements with Global Atlantic's insurance companies and (ii) capital deployed across our various private credit strategies. During the three months ended March 31, 2022, 86%2023, 79% of capital deployed was in transactions in North America, 9%19% was in Europe, and 5%2% was in the Asia-Pacific region.
Analysis of Insurance Segment Operating Results
The following tables set forth information regarding KKR's insurance segment operating results and certain key operating metrics as of and forincrease in interest expense during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to (i) the increase in the amount of borrowings outstanding from certain consolidated funds and 2021:other vehicles, (ii) impact of closing CLOs that were consolidated subsequent to March 31, 2022, (iii) higher interest rates on floating rate debt obligations held in consolidated CLOs, and (iv) the impact of issuances of our senior notes after March 31, 2022. For a discussion of other factors that affected KKR's interest expense, see "—Analysis of Non-GAAP Performance Measures."
Expenses - Asset Management
Compensation and Benefits Expense
The increase in compensation and benefits expense during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to accrued carried interest compensation in the current period compared to the reversal of previously recognized carried interest compensation in the prior period. Partially offsetting the increase is a lower level of accrued discretionary cash compensation resulting from a lower level of asset management segment revenues in the current period.
General, Administrative and Other
The decrease in general, administrative and other expenses during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to a lower level of (i) expenses reimbursable by our investment funds and (ii) a lower level of placement fees incurred related to capital raising activities, partially offset by a higher level of professional fees, information technology, travel and other administrative costs in connection with the overall growth of the firm.
In reporting periods where there are lower levels of fundraising and, to the extent that we use third parties to assist in our capital raising efforts, our General, Administrative and Other expenses are expected to decrease accordingly. Similarly, our General, Administrative and Other expenses are expected to decrease during any periods where there are lower levels of professional and other fees incurred as part of due diligence related to strategic acquisitions and new product development.
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
| March 31, 2022 | | March 31, 2021 | | Change |
| ($ in thousands) |
| Net Investment Income | $ | 862,414 | | | $ | 445,898 | | | $ | 416,516 | |
| Net Cost of Insurance | (493,649) | | | (250,219) | | | (243,430) | |
| General, Administrative and Other | (146,002) | | | (75,489) | | | (70,513) | |
| Pre-tax Insurance Operating Earnings | 222,763 | | | 120,190 | | | 102,573 | |
| Income Taxes | (34,106) | | | (16,626) | | | (17,480) | |
| Net Income Attributable to Noncontrolling Interests | (72,669) | | | (40,299) | | | (32,370) | |
| Insurance Segment Operating Earnings | $ | 115,988 | | | $ | 63,265 | | | $ | 52,723 | |
Insurance segment operating earningsRevenues
Insurance segment operating earnings | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| | March 31, 2023 | | March 31, 2022 | | Change | | | | | | |
| ($ in thousands) |
| Net Premiums | $ | 473,624 | | | $ | 372,144 | | | $ | 101,480 | | | | | | | |
| Policy Fees | 313,802 | | | 313,782 | | | 20 | | | | | | | |
| Net Investment Income | 1,300,697 | | | 812,605 | | | 488,092 | | | | | | | |
| Net Investment-Related Losses | (123,833) | | | (368,680) | | | 244,847 | | | | | | | |
| Other Income | 37,158 | | | 34,744 | | | 2,414 | | | | | | | |
| Total Insurance Revenues | $ | 2,001,448 | | | $ | 1,164,595 | | | $ | 836,853 | | | | | | | |
Net Premiums
Net premiums increased for the three months ended March 31, 20222023 as compared to the prior periodthree months ended March 31, 2022 primarily due to (i) one less monthhigher initial premiums related to a larger number of activity reported inreinsurance transactions with life contingencies assumed during the prior periodthree months ended March 31, 2023 as a result ofcompared to the GA Acquisition having occurred on February 1, 2021, and (ii) higher net investment income resulting from an increase in average assets under management due to growth of the business.three months ended March 31, 2022. The increase was partially offset in part by (i) higher net cost of insurance, primarily dueretrocessions to third party reinsurers during the three months ended March 31, 2023 as compared to the growth in both our individual market and institutional market channels, (ii) correspondingthree months ended March 31, 2022. The initial premiums on assumed reinsurance were offset by a comparable increase in generalpolicy reserves reported within net policy benefits and administrative expenses and (iii) an increase in income tax expense.claims (as discussed below).
Net investment income
Net investment income increased for the three months ended March 31, 20222023 as compared to the prior periodthree months ended March 31, 2022 primarily due to (i) one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021, (ii) increased average assets under management due to growth in our Institutional segment assets in Global Atlantic's institutional market channel as a result of new reinsurance transactions and new Individualindividual market channel sales, (ii) growth in portfolio yields due to higher market interest rates on floating rate investments, and (iii) rotation into higher yielding assets during 2022.
Net investment-related losses
The components of net investment-related losses were as follows:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| ($ in thousands) |
| Funds withheld payable at interest embedded derivatives | $ | (430,235) | | | $ | 1,180,435 | | | $ | (1,610,670) | |
| Equity futures contracts | (40,825) | | | 79,796 | | | (120,621) | |
| Foreign currency forwards | 794 | | | 8,557 | | | (7,763) | |
| Credit risk contracts | (75) | | | (1,532) | | | 1,457 | |
| Equity index options | 83,887 | | | (223,366) | | | 307,253 | |
| Interest rate contracts | 68,996 | | | (150,176) | | | 219,172 | |
| Funds withheld receivable embedded derivatives | (30,767) | | | (33,980) | | | 3,213 | |
| | | | | |
| Net gains on derivative instruments | (348,225) | | | 859,734 | | | (1,207,959) | |
| Net other investment gains (losses) | 224,392 | | | (1,228,414) | | | 1,452,806 | |
| Net investment-related losses | $ | (123,833) | | | $ | (368,680) | | | $ | 244,847 | |
Net gains on derivative instruments
The decrease in the fair value of embedded derivatives on funds withheld at interest payable for the three months ended March 31, 2023 was primarily driven by the change in fair value of the underlying investments in the funds withheld at interest payable portfolio, which is primarily comprised of fixed maturity securities (designated as trading for accounting purposes), mortgage and other loan receivables, and other investments. The underlying investments in the funds withheld at interest payable portfolio increased in value in the three months ended March 31, 2023, primarily due to a decrease in market interest rates as compared to a decrease in value in the three months ended March 31, 2022, due to an increase in market interest rates.
The increase in the fair value of equity index options was primarily driven by the performance of the indexes upon which call options are based. Global Atlantic purchases equity index options to hedge the market risk of embedded derivatives in indexed universal life and fixed-indexed annuity products (the change in which is accounted for in net policy benefits and claims). The majority of Global Atlantic's equity index call options are based on the S&P 500 Index, which increased during the three months ended March 31, 2023, as compared to a decrease during the three months ended March 31, 2022.
The decrease in the fair value of equity futures contracts was driven primarily by the performance of equity markets. Global Atlantic purchases equity futures primarily to hedge the market risk in Global Atlantic's variable annuity products which are accounted for in net policy benefits and claims. The majority of Global Atlantic's equity futures are based on the S&P 500 Index, which increased during the three months ended March 31, 2023, as compared to a decrease during the three months ended March 31, 2022, resulting in respectively, a loss, and a gain, on equity futures contracts in the respective periods.
The increase in the fair value of interest rate contracts was driven by a decrease in market interest rates during the three months ended March 31, 2023 and an increase in market interest rates during the three months ended March 31, 2022, resulting in respectively, a gain and a loss, on interest rate contracts.
The increase in the fair value of embedded derivatives on funds withheld at interest receivable was primarily due to widening of credit spreads during both the three months ended March 31, 2023, and the three months ended March 31, 2022.
Net other investment income fromlosses
The components of net other investment losses were as follows:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| ($ in thousands) |
| Realized gains (losses) on investments not supporting asset-liability matching strategies | $ | — | | | $ | 14,964 | | | $ | (14,964) | |
| | | | | |
| Realized gains (losses) on available-for-sale fixed maturity debt securities | 3,432 | | | (243,350) | | | 246,782 | |
| Credit loss allowances | (148,429) | | | (29,897) | | | (118,532) | |
| Impairment of available-for-sale fixed maturity debt securities due to intent to sell | (26,741) | | | — | | | (26,741) | |
| Unrealized gains (losses) on fixed maturity securities classified as trading | 376,290 | | | (1,038,446) | | | 1,414,736 | |
| Unrealized gains (losses) on investments accounted under a fair-value option | (55,773) | | | (2,493) | | | (53,280) | |
| Unrealized gains (losses) on real estate investments recognized at fair value under investment company accounting | 63,192 | | | 77,692 | | | (14,500) | |
| Realized gains (losses) on funds withheld at interest payable portfolio | 3,980 | | | (26,387) | | | 30,367 | |
| Realized gains (losses) on funds withheld at interest receivable portfolio | 17,733 | | | 25,600 | | | (7,867) | |
| Other | (9,292) | | | (6,097) | | | (3,195) | |
| Net other investment gains (losses) | $ | 224,392 | | | $ | (1,228,414) | | | $ | 1,452,806 | |
The increase in net other investment gains for the three months ended March 31, 2023 as compared to net other investment losses for the three months ended March 31, 2022, were primarily due to (i) a decrease in unrealized losses on fixed maturity securities classified as trading which was primarily due to a decrease in interest rates during the three months ended March 31, 2023 as compared to an increase in interest rates during the three months ended March 31, 2022, (ii) a decrease in realized losses on available-for-sale fixed maturity debt securities which was primarily due to a decrease in portfolio rotation activity, and (iii) realized gains fromon funds withheld at interest payable portfolio.
Offsetting these gains were (i) an increase in credit loss allowances on fixed maturity securities and mortgage and other loan receivables in the salethree months ended March 31, 2023, which was primarily due to an increase in the overall credit risk of real estate investments.Global Atlantic's loan portfolio, (ii) impairments of available-for-sale securities in an unrealized loss position due to an intent to sell, and (iii) unrealized losses on investments accounted under a fair-value option during the three months ended March 31, 2023.
Expenses
Net cost of insurancepolicy benefits and claims
Net cost of insurancepolicy benefits and claims increased for the three months ended March 31, 20222023 as compared to the prior periodthree months ended March 31, 2022 primarily due to (i) one less month of activity reporteda loss on market risk benefits due to an decrease in interest rates in the prior periodthree months ended March 31, 2023, as compared to a gain on market risk benefits during the three months ended March 31, 2022 due to an increase in rates in the three months ended March, 31, 2022, (ii) an increase in net flows from both individual and institutional market channel sales, (iii) higher funding costs on new business, and (iv) higher initial reserves assumed related to an increase in new reinsurance transactions with life contingencies in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, and (v) an increase in the value of embedded derivatives in Global Atlantic's indexed universal life and fixed indexed annuity products, as a result of higher equity market returns (as discussed above under "Revenues–Net investment-related losses–Net gains on derivatives instruments," Global Atlantic purchases equity index options in order to hedge this risk, the GA Acquisition having occurredfair value changes of which are accounted for in gains on February 1, 2021, (ii)derivative instruments, and generally offsetting the change in embedded derivative fair value reported in net policy benefits and claims).
Offsetting these increases was an decrease in variable annuity market risk benefit liabilities primarily due to higher equity market returns.
Amortization of policy acquisition costs
Amortization of policy acquisition costs increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to growth in our Institutional segmentGlobal Atlantic's individual market and institutional market channels.
Interestexpense
Interest expense increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) a result of new reinsurance transactionsnet increase in debt outstanding, primarily due to draws on the revolving credit facility after March 31, 2022, and (iii) new Individual sales.(ii) an increase in interest expense on floating rate debt (Global Atlantic's revolving facility and fixed-to-floating swaps on its fixed rate debt) due to higher market rates.
General, administrative and otherInsurance expenses
General and administrativeInsurance expenses increased for the three months ended March 31, 20222023 as compared to the prior periodthree months ended March 31, 2022 primarily due to increased reinsurance transactions and increased commission expense related to increased sales in Global Atlantic's individual markets channel.
General, administrative and other
General, administrative and other expenses increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) one less month of activity reported in the prior period as a result of the GA Acquisition having occurred on February 1, 2021,increased interest expense due to higher interest rates and debt outstanding, (ii) increased employee compensation and benefits related expenses, (iii) increased professional service fees, and (iv) increased third-party administrator ("TPA"TPA”) policy servicing fees, all due to growth of the business.
Other Condensed Consolidated Results of Operations (GAAP Basis - Unaudited)
Income Tax Expense (Benefit)
Income tax expense increased for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022 primarily due to net operating income generated from asset management in the current period as compared to a net operating loss driven by net capital allocation-based losses in the prior period. The net operating income from Global Atlantic in the prior period largely offset the asset management net operating loss. For a discussion of factors that impacted KKR's tax provision, see Note 19 "Income Taxes" in our financial statements included elsewhere in this report. The amount of U.S. federal or state corporate income taxes we pay in future periods may be materially increased if adverse tax laws become enacted.
Net Income (Loss) Attributable to Noncontrolling Interests
Net loss attributable to noncontrolling interests for the three months ended March 31, 2023 was primarily due to (i) net losses from investment activities primarily at certain of our consolidated real estate and energy investment funds and (ii) a net loss in the current period allocable to interests that third party investors hold in Global Atlantic, partially offset by positive net income from asset management operations allocable to holders of certain securities exchangeable into shares of common stock of KKR & Co. Inc.
Net Income (Loss) Attributable to KKR & Co. Inc.
The net income attributable to KKR & Co. Inc. for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 increased due to net capital allocation-based income, partially offset by a lower level of transaction fees and accrued carried interest compensation, as described above.
Condensed Consolidated Statements of Financial Condition (GAAP Basis)
The following table provides our condensed consolidated statements of financial condition on a GAAP basis as of March 31, 2023 and December 31, 2022.
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| (Amounts in thousands, except per share amounts) |
| | As of | | As of |
| | March 31, 2023 | | December 31, 2022 |
| | | | |
| Assets | | | | |
| Asset Management | | | | |
| Cash and Cash Equivalents | | $ | 5,576,121 | | | $ | 6,705,325 | |
| Investments | | 97,949,918 | | | 92,375,463 | |
| Other Assets | | 7,057,818 | | | 7,114,360 | |
| | 110,583,857 | | | 106,195,148 | |
| Insurance | | | | |
| Cash and Cash Equivalents | | 3,713,382 | | | 6,118,231 | |
| Investments | | 129,401,394 | | | 124,199,176 | |
| Other Assets | | 38,911,956 | | | 38,834,081 | |
| | 172,026,732 | | | 169,151,488 | |
| Total Assets | | $ | 282,610,589 | | $ | 275,346,636 |
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| Liabilities and Equity | | | | |
| Asset Management | | | | |
| Debt Obligations | | $ | 42,519,776 | | | $ | 40,598,613 | |
| Other Liabilities | | 8,228,017 | | | 6,937,832 | |
| | 50,747,793 | | | 47,536,445 | |
| Insurance | | | | |
| Debt Obligations | | 2,157,283 | | | 2,128,166 | |
| Other Liabilities | | 172,582,137 | | | 170,311,335 | |
| | 174,739,420 | | | 172,439,501 | |
| Total Liabilities | | $ | 225,487,213 | | | $ | 219,975,946 | |
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| Redeemable Noncontrolling Interests | | 144,126 | | | 152,065 | |
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| Stockholders' Equity | | | | |
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| Stockholders' Equity - Series C Mandatory Convertible Preferred Stock | | 1,115,792 | | | 1,115,792 | |
| Stockholders' Equity - Common Stock | | 18,546,889 | | | 17,691,975 | |
| Noncontrolling Interests | | 37,316,569 | | | 36,410,858 | |
| Total Equity | | 56,979,250 | | | 55,218,625 | |
| Total Liabilities and Equity | | $ | 282,610,589 | | | $ | 275,346,636 | |
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KKR & Co. Inc. Stockholders' Equity - Common Stock
Per Outstanding Share of Common Stock | | $ | 21.54 | | | $ | 20.55 | |
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KKR & Co. Inc. Stockholders’ Equity - Common Stock per Outstanding Share of Common Stock was $21.54 as of March 31, 2023, up from $20.55 as of December 31, 2022. The increase was primarily due to (i) unrealized gains on available-for-sale-securities from Global Atlantic that are recorded in other comprehensive income and (ii) net income attributable to KKR & Co. Inc. common stockholders during the first three months of 2023, partially offset by dividends to common stockholders.
Consolidated Statements of Cash Flows (GAAP Basis)
The following is a discussion of our consolidated cash flows for the three months ended March 31, 2023 and 2022. You should read this discussion in conjunction with the financial statements and related notes included elsewhere in this report.
The consolidated statements of cash flows include the cash flows of our consolidated entities, which include certain consolidated investment funds, CLOs and certain variable interest entities formed by Global Atlantic notwithstanding the fact that we may hold only a minority economic interest in those investment funds and CFEs. The assets of our consolidated investment funds and CFEs, on a gross basis, can be substantially larger than the assets of our business and, accordingly, could have a substantial effect on the cash flows reflected in our consolidated statements of cash flows. The primary cash flow activities of our consolidated funds and CFEs involve: (i) capital contributions from fund investors; (ii) using the capital of fund investors to make investments; (iii) financing certain investments with indebtedness; (iv) generating cash flows through the realization of investments; and (v) travel returningdistributing cash flows from the realization of investments to pre-pandemic levels.fund investors. Because our consolidated funds are treated as investment companies for accounting purposes, certain of these cash flow amounts are included in our cash flows from operations.
Income taxesNet Cash Provided (Used) by Operating Activities
Our net cash provided (used) by operating activities was $(1.9) billion and $0.9 billion during the three months ended March 31, 2023 and 2022, respectively. These amounts primarily included: (i) investments purchased (asset management), net of proceeds from investments (asset management) of $(4.7) billion and $(0.6) billion during the three months ended March 31, 2023 and 2022, respectively, (ii) net realized gains (losses) on asset management investments of $0.1 billion and $0.3 billion during the three months ended March 31, 2023 and 2022, respectively, (iii) change in unrealized gains (losses) on investments (asset management) of $(0.3) billion and $0.6 billion during the three months ended March 31, 2023 and 2022, respectively, (iv) capital allocation-based income (loss) of $0.4 billion and $(0.9) billion during the three months ended March 31, 2023 and 2022, respectively, (v) net realized gains (losses) on insurance operations of $(1.0) billion and $0.3 billion during the three months ended March 31, 2023 and 2022, respectively, and (vi) interest credited to policyholder account balances (net of policy fees) (insurance) of $0.6 billion and $0.5 billion during the three months ended March 31, 2023 and 2022, respectively. Investment funds are investment companies under GAAP and reflect their investments and other financial instruments at fair value.
Net Cash Provided (Used) by Investing Activities
Our net cash provided (used) by investing activities was $(3.8) billion and $(2.0) billion during the three months ended March 31, 2023 and 2022, respectively. Our investing activities included: (i) investments purchased (insurance), net of proceeds from investments (insurance), of $(3.8) billion and $(2.0) billion during the three months ended March 31, 2023 and 2022, respectively, and (ii) the purchase of fixed assets of $(23.2) million and $(11.9) million during the three months ended March 31, 2023 and 2022, respectively.
Net Cash Provided (Used) by Financing Activities
Our net cash provided (used) by financing activities was $2.1 billion and $4.1 billion during the three months ended March 31, 2023 and 2022, respectively. Our financing activities primarily included: (i) contributions by, net of distributions to, our noncontrolling and redeemable noncontrolling interests of $0.6 billion and $1.6 billion during the three months ended March 31, 2023 and 2022, respectively, (ii) proceeds received, net of repayment of debt obligations, of $1.5 billion and $31.5 million during the three months ended March 31, 2023 and 2022, respectively, (iii) additions to, net of withdrawals from, contractholder deposit funds of $0.5 billion and $2.4 billion during three months ended March 31, 2023 and 2022, respectively, (iv) common stock dividends of $(133.5) million and $(85.7) million during the three months ended March 31, 2023 and 2022, respectively, (v) repurchases of common stock of $(346.7) million during the three months ended March 31, 2022, and (vi) Series C Mandatory Convertible Preferred Stock dividends of $(17.3) million during each of the three months ended March 31, 2023 and 2022.
InsuranceAnalysis of Segment Operating Results
The following is a discussion of the results of our business on a segment income tax expense reflects the annual estimated effective tax ratebasis for the insurancethree months ended March 31, 2023 and 2022. You should read this discussion in conjunction with the information included under "—Key Segment and Non- GAAP Performance Measures" and the financial statements and related notes included elsewhere in this report. See "— Business Environment" for more information about factors that may impact our business, financial performance, operating results and valuations.
Analysis of Asset Management Segment Operating Results
The following tables set forth information regarding KKR's asset management segment operating results and certain key capital metrics for the three months ended March 31, 2023 and 2022:
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| | Three Months Ended | |
| | March 31, 2023 | | March 31, 2022 | | Change | |
| | ($ in thousands) | |
| Management Fees | | $ | 738,156 | | | $ | 624,928 | | | $ | 113,228 | | |
| Transaction and Monitoring Fees, Net | | 142,179 | | | 306,038 | | | (163,859) | | |
| Fee Related Performance Revenues | | 21,741 | | | 12,051 | | | 9,690 | | |
| Fee Related Compensation | | (203,094) | | | (212,220) | | | 9,126 | | |
| Other Operating Expenses | | (150,404) | | | (125,875) | | | (24,529) | | |
| Fee Related Earnings | | 548,578 | | | 604,922 | | | (56,344) | | |
| Realized Performance Income | | 175,398 | | | 609,207 | | | (433,809) | | |
| Realized Performance Income Compensation | | (114,009) | | | (383,635) | | | 269,626 | | |
| Realized Investment Income | | 198,094 | | | 349,354 | | | (151,260) | | |
| Realized Investment Income Compensation | | (29,714) | | | (52,403) | | | 22,689 | | |
| Asset Management Segment Operating Earnings | | $ | 778,347 | | | $ | 1,127,445 | | | $ | (349,098) | | |
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Management Fees
The following table presents management fees by business line:
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Management Fees | | | | | | |
| Private Equity | | $ | 316,341 | | | $ | 282,184 | | | $ | 34,157 | |
| Real Assets | | 193,365 | | | 153,813 | | | 39,552 | |
| Credit and Liquid Strategies | | 228,450 | | | 188,931 | | | 39,519 | |
| Total Management Fees | | $ | 738,156 | | | $ | 624,928 | | | $ | 113,228 | |
The increase in Private Equity management fees was primarily attributable to management fees earned on new capital raised over the past twelve months at European Fund VI, Next Generation Technology Growth Fund III, and Global Impact Fund II. The increase was partially offset by (i) catch-up management fees earned on new capital raised for North America Fund XIII in the first quarter of 2022 that was retroactive to the start of the fund's investment period, and (ii) a lower level of management fees from Asian Fund III due to the sale of investments that resulted in a decrease in its fee base, which is capital invested. There were no catch-up management fees earned in the first quarter of 2023 for North America Fund XIII. During the first quarter of 2023, approximately $9.0 million of management fees were earned on new capital raised that is retroactive to the start of the relevant fund's investment period.
The increase in Real Asset management fees was primarily attributable to (i) management fees earned on assets managed by KJRM, which we acquired in the second quarter of 2022, (ii) management fees earned from Asia Pacific Infrastructure Investors II, which entered its investment period in the third quarter of 2022 resulting in management fees now being earned on this capital, and (iii) a higher level of management fees earned from Global Atlantic due to an operating basis, includingincrease in assets being managed by KKR's Asset Management segment. The increase was partially offset by catch-up management fees earned on new capital raised for Global Infrastructure Investors IV in the benefitfirst quarter of 2022 that was retroactive to the start of the fund's investment tax credits.period. There were no catch-up management fees earned in the first quarter of 2023 for Global Infrastructure Investors IV.
The increase in Credit and Liquid Strategies management fees was primarily attributable to (i) a higher level of management fees earned from Global Atlantic due to an increase in assets being managed by KKR's Asset Management segment and the issuance of new CLOs over the past twelve months.
Transaction and Monitoring Fees, Net
The following table presents transaction and monitoring fees, net by business line:
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Transaction and Monitoring Fees, Net | | | | | | |
| Private Equity | | $ | 34,274 | | | $ | 33,056 | | | $ | 1,218 | |
| Real Assets | | 5,734 | | | 7,630 | | | (1,896) | |
| Credit and Liquid Strategies | | 284 | | | 10,096 | | | (9,812) | |
| Capital Markets | | 101,887 | | | 255,256 | | | (153,369) | |
| Total Transaction and Monitoring Fees, Net | | $ | 142,179 | | | $ | 306,038 | | | $ | (163,859) | |
Our Private Equity, Real Assets and Credit and Liquid Strategies business lines separately earn transaction and monitoring fees from portfolio companies, and under the terms of the management agreements with certain of our investment funds, we are generally required to share all or a portion of such fees with our fund investors. In most funds, transaction and monitoring fees are credited against fund management fees up to 100% of the amount of the transaction and monitoring fees attributable to that fund, which results in a decrease of our monitoring and transaction fee income. Additionally, transaction fees are generally not earned with respect to energy and real estate investments. Our Capital Markets business line earns transaction fees, which are not shared with fund investors.
Our capital markets fees are generated in connection with activity involving our private equity, real assets and credit funds as well as from third-party companies. For the three months ended March 31, 2023, approximately 14% of our transaction fees in our Capital Markets business line were earned from unaffiliated third parties as compared to approximately 19% for the three months ended March 31, 2022. Our transaction fees are comprised of fees earned in North America, Europe, and the Asia-Pacific region. For the three months ended March 31, 2023, approximately 59% of our transaction fees were generated outside of North America as compared to approximately 37% for the three months ended March 31, 2022. Our Capital Markets business line is dependent on the overall capital markets environment, which is influenced by equity prices, credit spreads, and volatility. Our Capital Markets business line does not generate monitoring fees.
Fee Related Performance Revenues
The following table presents fee related performance revenues by business line:
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Fee Related Performance Revenues | | | | | | |
| Private Equity | | $ | — | | | $ | — | | | $ | — | |
| Real Assets | | 3,704 | | | 2,317 | | | 1,387 | |
| Credit and Liquid Strategies | | 18,037 | | | 9,734 | | | 8,303 | |
| Total Fee Related Performance Revenues | | $ | 21,741 | | | $ | 12,051 | | | $ | 9,690 | |
Fee related performance revenues represent performance fees that are (i) expected to be received from our investment funds, vehicles and accounts on a recurring basis, and (ii) not dependent on a realization event involving investments held by the investment fund, vehicle or account. These performance fees are primarily earned from FS KKR Capital Corp. (NYSE: FSK) ("FSK") (our business development company), KKR Property Partners Americas ("KPPA") (our open-ended core plus real estate fund), KKR Real Estate Select Trust ("KREST") (our registered closed-end real estate equity fund), KKR Real Estate Finance Trust Inc. ("KREF") (our real estate credit investment trust), and KJRM (our Japanese real estate investment trust asset manager). Fee related performance revenues were higher for the three months ended March 31, 2023 compared to the prior period primarily due to an increase in performance revenues earned from FSK in the current period.
Fee Related Compensation
The decrease in fee related compensation for the three months ended March 31, 2023 compared to the prior period was primarily due to a lower level of compensation recorded in connection with the lower level of revenues included within fee related earnings.
Other Operating Expenses
The increase in other operating expenses for the three months ended March 31, 2023 compared to the prior period was primarily due to a higher level of professional fees, information technology, travel and other administrative costs in connection with the overall growth of the firm.
Fee Related Earnings
The decrease in fee related earnings for the three months ended March 31, 2023 compared to the prior period was primarily due to a lower level of transaction fees earned in our Capital Markets business line and higher level of operating expenses partially offset by a higher level of management fees across our Private Equity, Real Assets and Credit and Liquid Strategies business lines, as described above.
Realized Performance Income
The following table presents realized performance income by business line:
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Realized Performance Income | | | | | | |
| Private Equity | | $ | 163,052 | | | $ | 603,823 | | | $ | (440,771) | |
| Real Assets | | 9,686 | | | — | | | 9,686 | |
| Credit and Liquid Strategies | | 2,660 | | | 5,384 | | | (2,724) | |
| Total Realized Performance Income | | $ | 175,398 | | | $ | 609,207 | | | $ | (433,809) | |
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Private Equity | | | | | | |
| Core Investment Vehicles | | $ | 103,659 | | | $ | 262,219 | | | $ | (158,560) | |
| Global Impact Fund | | 20,257 | | | — | | | 20,257 | |
| Next Generation Technology Growth Fund | | 17,810 | | | — | | | 17,810 | |
| Americas Fund XII | | 14,714 | | | 83,016 | | | (68,302) | |
| 2006 Fund | | 4,271 | | | 33,458 | | | (29,187) | |
| North America Fund XI | | — | | | 119,942 | | | (119,942) | |
| Co-Investment Vehicles and Other | | 2,292 | | | 12,444 | | | (10,152) | |
| European Fund IV | | — | | | 68,688 | | | (68,688) | |
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Total Realized Carried Interest (1) | | 163,003 | | | 579,767 | | | (416,764) | |
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| Incentive Fees | | 49 | | | 24,056 | | | (24,007) | |
| Total Realized Performance Income | | $ | 163,052 | | | $ | 603,823 | | | $ | (440,771) | |
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Real Assets | | | | | | |
| Global Infrastructure Investors II | | $ | 9,686 | | | $ | — | | | $ | 9,686 | |
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Total Realized Carried Interest (1) | | 9,686 | | | — | | | 9,686 | |
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| Incentive Fees | | — | | | — | | | — | |
| Total Realized Performance Income | | $ | 9,686 | | | $ | — | | | $ | 9,686 | |
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Credit and Liquid Strategies | | | | | | |
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Total Realized Carried Interest (1) | | $ | — | | | $ | — | | | $ | — | |
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| Incentive Fees | | 2,660 | | | 5,384 | | | (2,724) | |
| Total Realized Performance Income | | $ | 2,660 | | | $ | 5,384 | | | $ | (2,724) | |
(1)The above tables exclude any funds for which there was no realized carried interest during both of the periods presented.
Realized performance income includes (i) realized carried interest from our carry earning funds and (ii) incentive fees not included in Fee Related Performance Revenues.
Realized carried interest in our Private Equity business line for the three months ended March 31, 2023 consisted primarily of (i) realized performance income from our core investment vehicles and (ii) realized proceeds from the sale of our investment in KnowBe4, Inc. held by Global Impact Fund and Next Generation Technology Growth Fund.
Realized carried interest in our Private Equity business line for the three months ended March 31, 2022 consisted primarily of (i) realized performance income from our core investment vehicles and (ii) realized proceeds from a dividend received from our investment in Internet Brands, Inc. (technology sector) held by North America Fund XI and Americas Fund XII and the sale of our investment in Hensoldt AG (FRA: HAG) held by European Fund IV.
Net income (loss) attributable to non-controlling interests
Net income (loss) attributable to non-controlling interests increasedRealized carried interest in our Real Assets business line for the three months ended March 31, 2022 as compared to2023 consisted primarily of realized proceeds from the prior period proportional to the increase in insurance segment operating earnings for the comparable period. Net income (loss) attributable to non-controlling interests represent the proportionate interest in the insurance segment operating earnings attributable to rollover and other co-investors in Global Atlantic.
Analysis of Non-GAAP Performance Measures
The following is a discussionsale of our Non-GAAPinvestment in Telxius Telecom, S.A.U. (Infrastructure: telecommunications infrastructure sector) held by Global Infrastructure Investors II. During the three months ended March 31, 2022, there was no realized carried interest earned in our Real Assets business line.
During the three months ended March 31, 2023 and 2022, there was no realized carried interest earned in our Credit and Liquid Strategies business line.
Incentive fees consist of performance measuresfees earned from (i) our hedge fund partnerships, (ii) investment management agreements with KKR sponsored investment vehicles, and (iii) investment management agreements to provide KKR’s investment strategies to funds managed by a UK investment fund manager.
Incentive fees in our Private Equity business line decreased for the three months ended March 31, 20222023 compared to the prior period as a result of incentive fees not being earned from certain levered multi-asset investment vehicles in the current period. Incentive fees in our Credit and 2021:
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| | Three Months Ended | |
| | March 31, 2022 | | March 31, 2021 | | Change | |
| | ($ in thousands) | |
| Asset Management Segment Operating Earnings | | $ | 1,127,445 | | | $ | 817,172 | | | $ | 310,273 | | |
| Insurance Segment Operating Earnings | | 115,988 | | | 63,265 | | | 52,723 | | |
| Distributable Operating Earnings | | 1,243,433 | | | 880,437 | | | 362,996 | | |
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| Interest Expense | | (69,460) | | | (57,545) | | | (11,915) | | |
| Preferred Dividends | | — | | | (8,341) | | | 8,341 | | |
| Net Income Attributable to Noncontrolling Interests | | (7,616) | | | (3,192) | | | (4,424) | | |
| Income Taxes Paid | | (197,842) | | | (151,120) | | | (46,722) | | |
| After-tax Distributable Earnings | | $ | 968,515 | | | $ | 660,239 | | | $ | 308,276 | | |
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For the quarter ended March 31, 2021 the results of our Insurance Segment above are from February 1, 2021 (closing date of the acquisition) through March 31, 2021.
Distributable Operating Earnings
The increase in distributable operating earningsLiquid Strategies business line decreased for the three months ended March 31, 2023 compared to the prior period primarily as a result of a lower level of performance fees earned from a UK investment fund manager.
Realized Performance Income Compensation
The decrease in realized performance income compensation for the three months ended March 31, 2023 compared to the prior period was primarily due to a lower level of compensation recorded in connection with the lower level of realized performance income.
Realized Investment Income
The following table presents realized investment income in our Principal Activities business line:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Realized Investment Income | | | | | | |
| Net Realized Gains (Losses) | | $ | 91,907 | | | $ | 76,136 | | | $ | 15,771 | |
| Interest Income and Dividends | | 106,187 | | | 273,218 | | | (167,031) | |
| Total Realized Investment Income | | $ | 198,094 | | | $ | 349,354 | | | $ | (151,260) | |
The decrease in realized investment income is primarily due to a lower level of interest income and dividends, partially offset by a higher level of net realized gains. The amount of realized investment income depends on the transaction activity of our funds and balance sheet, which can vary from period to period.
For the three months ended March 31, 2023, net realized gains were comprised of realized gains primarily from the sale of our investments in KnowBe4, Inc. and Flutter Entertainment PLC. Partially offsetting these realized gains were realized losses, the most significant of which was a realized loss on our alternative credit investment, Chembulk Group, and realized losses from the sales of various revolving credit facilities.
For the three months ended March 31, 2022, net realized gains were comprised of realized gains primarily from the sale of our investments in Fiserv, Inc. and Hensoldt AG. Partially offsetting these realized gains were realized losses, the most significant of which was a realized loss of an alternative credit investment and real estate equity investment.
For the three months ended March 31, 2023, interest income and dividends were comprised of (i) $70.7 million of interest income, primarily from our investments in CLOs, and (ii) $35.5 million of dividend distributions primarily from our Americas real estate credit and equity investments, as well as a dividend distribution received from Resolution Life Holdings L.P. (financial services sector).
For the three months ended March 31, 2022, interest income and dividends were comprised of (i) $218.9 million of dividend income primarily from levered multi-asset investment vehicles and our investments in Exact Holdings B.V. and Internet Brands, Inc., and (ii) $54.3 million of interest income, primarily from our investments in CLOs. See "—Analysis of Non-GAAP Performance Measures—Non-GAAP Balance Sheet Measures."
Realized investment income (loss) includes the net income (loss) from KKR Capstone. For the quarter ended March 31, 2023, total fees attributable to KKR Capstone were $19.8 million and total expenses attributable to KKR Capstone were $19.6 million. For KKR Capstone-related adjustments in reconciling asset management segment revenues to GAAP revenues see "—Analysis of Non-GAAP Performance Measures—Reconciliations to GAAP Measures".
Based on information available as of the date of the filing of this report, we expect realized performance income and realized investment income to be approximately $125 million in the second quarter of 2023 relating to realized carried interest and realized investment income from completed, or signed and expected to be completed sales, partial sales or secondary sales subsequent to March 31, 2023 with respect to certain private equity portfolio companies and other investments. Some of these transactions are not complete, and are subject to the satisfaction of closing conditions, including, but not limited, to regulatory approvals; there can be no assurance if or when any of these transactions will be completed. The estimate disclosed above is not intended to predict or represent total realized performance income or total realized investment income for the full quarter ending June 30, 2023, because it does not include the results or impact of any other sources of income, including fee income, or expenses, and we may realize further gains or losses relating to total realized performance income and total realized investment income after the date of the filing of this report. Therefore, the actual realized carried interest and realized investment income for the quarter ended June 30, 2023 may be higher or lower than $125 million.
Realized Investment Income Compensation
The decrease in realized investment income compensation for the three months ended March 31, 2023 compared to the prior period is primarily due to a higherlower level of compensation recorded in connection with the lower level of realized investment income.
Other Operating and Capital Metrics
The following table presents certain key operating and capital metrics as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | |
| | As of |
| | March 31, 2023 | | December 31, 2022 | | Change |
| | ($ in millions) |
| Assets Under Management | | $ | 510,069 | | | $ | 503,897 | | | $ | 6,172 | |
| Fee Paying Assets Under Management | | $ | 415,871 | | | $ | 411,923 | | | $ | 3,948 | |
| Uncalled Commitments | | $ | 106,266 | | | $ | 107,679 | | | $ | (1,413) | |
The following table presents one of our key capital metrics for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in millions) |
| Capital Invested | | $ | 9,767 | | | $ | 21,376 | | | $ | (11,609) | |
Assets Under Management
Private Equity
The following table reflects the changes in the AUM of our Private Equity business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 165,147 | |
| New Capital Raised | 349 | |
| |
| Distributions and Other | (1,227) | |
| Change in Value | 1,493 | |
| March 31, 2023 | $ | 165,762 | |
AUM of our Private Equity business line was $165.8 billion at March 31, 2023, an increase of $0.7 billion, compared to $165.1 billion at December 31, 2022.
The increase was primarily attributable to an appreciation in investment value from Americas Fund XII, Asian Fund IV, and North America Fund XIII. Partially offsetting this increase were distributions to fund investors primarily as a result of realized proceeds, most notably from Americas Fund XII, Next Generation Technology Growth Fund II, and Next Generation Technology Growth Fund.
For the three months ended March 31, 2023, the value of our traditional private equity investment portfolio increased 2%. This was comprised of a 15% increase in share prices of various publicly held investments and a 2% increase in value of our privately held investments. For the three months ended March 31, 2023, the value of our growth equity investment portfolio increased 1% and our core private equity investment portfolio remained flat.
The most significant increases in the value of our publicly held investments were increases in AppLovin Corporation (NASDAQ: APP), BridgeBio Pharma, Inc. and PropertyGuru Group Limited (NYSE: PGRU). These increases were partially offset by decreases in the value of certain publicly held investments, the most significant of which was Brightview Holdings, Inc. (NYSE: BV) and Indus Towers Limited (NSE: INDUSTOWER). The prices of publicly held companies may experience volatile changes following the reporting period. See "—Business Environment" for more information about the factors, such as volatility, that may impact our business, financial performance, operating results and valuations.
The most significant increases in the value of our privately held investments were increases in Cloudera, Inc. (technology sector), Magneti Marelli CK Holdings Co. (industrials sector), and OneStream Software, LLC (technology sector). These increases in value on our privately held investments were partially offset by decreases in the value of certain other privately held investments, the most significant of which were Bytedance Ltd. (technology sector), GenesisCare Pty Ltd., and Heartland Dental, LLC. The increased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) individual company performance and (ii) an increase in the value of market comparables. The decreased valuations of individual companies in our privately held investments, in the aggregate, generally related to an unfavorable business outlook. See "—Business Environment" for more information about the factors, that may impact our business, financial performance, operating results and valuations.
Real Assets
The following table reflects the changes in the AUM of our Real Assets business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 118,592 | |
| New Capital Raised | 2,613 | |
| |
| Distributions and Other | (1,468) | |
| Redemptions | (79) | |
| Change in Value | 1,148 | |
| March 31, 2023 | $ | 120,806 | |
| |
| |
| |
AUM of our Real Assets business line was $120.8 billion at March 31, 2023, an increase of $2.2 billion, compared to $118.6 billion at December 31, 2022.
The increase was primarily attributable to (i) new capital raised from a real estate credit separately managed account, Asia Real Estate Partners II, and our open-ended core infrastructure fund, Diversified Core Infrastructure Fund and (ii) the appreciation in investment value primarily from Global Infrastructure Investors III. Partially offsetting these increases were payments to Global Atlantic policyholders and distributions to fund investors as a result of realized proceeds, most notably distributions from Global Infrastructure Investors II.
For the three months ended March 31, 2023, the value of our infrastructure investment portfolio increased 6%, the value of our energy investment portfolio decreased by 9%, and the value of our opportunistic real estate equity investment portfolio decreased by 2%.
The most significant increases in value across our Real Asset Management segmentportfolio were in Atlantic Aviation FBO Inc. (Infrastructure: transportation sector), First Gen Corporation (Infrastructure: power and utilities sector), and X-Elio Energy, S.L. (Infrastructure: power and utilities sector). These increases in value were partially offset by decreases in value relating primarily to various assets held in our energy portfolio, Colonial Enterprises, Inc. (Infrastructure: midstream sector), and various assets held in our real estate equity portfolio across all regions. The increased valuations of individual companies or assets in the aggregate, generally related to individual company or asset performance, and with respect to X-Elio Energy, S.L., an increase in valuation reflecting an agreement to exit this investment. The decreased valuations of individual companies or assets in the aggregate, generally related to an unfavorable business outlook. See "—Business Environment" for more information about the factors that may impact our business, financial performance, operating earningsresults and Insurance segmentvaluations.
Credit and Liquid Strategies
The following table reflects the changes in the AUM of our Credit and Liquid Strategies business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 220,158 | |
| New Capital Raised | 8,715 | |
| |
| |
| |
| Distributions and Other | (4,025) | |
| Redemptions | (2,533) | |
| Change in Value | 1,186 | |
| March 31, 2023 | $ | 223,501 | |
| |
| |
| |
AUM of our Credit and Liquid Strategies business line was $223.5 billion at March 31, 2023, an increase of $3.3 billion compared to $220.2 billion at December 31, 2022.
The increase was primarily attributable to (i) new capital raised from Global Atlantic, our hedge fund partnership, Marshall Wace, and the issuance of a new CLO, and to a lesser extent (ii) appreciation in investment value on assets managed across our leveraged and alternative credit investment funds. Partially offsetting these increases were (i) payments to Global Atlantic policyholders, (ii) redemptions at our hedge fund partnership, Marshall Wace, and (iii) distributions to fund investors at certain alternative credit funds.
See also "—Business Environment" for more information about the factors that may impact our business, financial performance, operating earnings. Forresults and valuations and "—Credit and Liquid Strategies" for investment performance information for our leveraged and alternative credit strategies.
Fee Paying Assets Under Management
Private Equity
The following table reflects the changes in the FPAUM of our Private Equity business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 102,261 | |
| New Capital Raised | 1,407 | |
| |
| Distributions and Other | (1,401) | |
| |
| Change in Value | 56 | |
| March 31, 2023 | $ | 102,323 | |
FPAUM of our Private Equity business line was $102.3 billion at March 31, 2023, which remained flat compared to December 31, 2022.
New capital raised from European Fund VI, Next Generation Technology Growth Fund III, and Global Impact Fund II was primarily offset by the (i) reduction in fee base for European Fund III and China Growth Fund, which no longer pay management fees, and (ii) distributions to fund investors, primarily as a discussionresult of realized proceeds, most notably distributions from Americas Fund XII and Next Generation Technology Growth Fund II.
Uncalled commitments from private equity and multi-strategy investment funds from which KKR is currently not earning management fees amounted to approximately $17.9 billion at March 31, 2023, which includes capital commitments reserved for follow-on investments for funds that have completed their investment periods. This capital will generally begin to earn management fees upon deployment of the Asset Managementcapital or upon the commencement of the fund's investment period. The average annual management fee rate associated with this capital is approximately 1.0%. The date on which we begin to earn fees (as specified above) is not guaranteed to occur and Insurance segmentmay not occur for an extended period of time. If and when such management fees are earned, a portion of existing FPAUM may cease paying fees or pay lower fees, thus offsetting a portion of any new management fees earned.
Real Assets
The following table reflects the changes in the FPAUM of our Real Assets business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 103,532 | |
| New Capital Raised | 3,434 | |
| |
| Distributions and Other | (1,271) | |
| Redemptions | (79) | |
| |
| Change in Value | 111 | |
| March 31, 2023 | $ | 105,727 | |
| |
| |
| |
FPAUM of our Real Assets business line was $105.7 billion at March 31, 2023, an increase of $2.2 billion, compared to $103.5 billion at December 31, 2022.
The increase was primarily attributable to new capital raised from Diversified Core Infrastructure Fund and Asia Pacific Infrastructure Investors II. Partially offsetting this increase were (i) payments to Global Atlantic policyholders, and (ii) distributions to fund investors as a result of realized proceeds, most notably distributions from Global Infrastructure Investors II.
Uncalled commitments from real assets investment funds from which KKR is currently not earning management fees amounted to approximately $8.7 billion at March 31, 2023, which includes capital commitments reserved for follow-on investments for funds that have completed their investment periods. This capital will generally begin to earn management fees upon deployment of the capital or upon the commencement of the fund's investment period. The average annual management fee rate associated with this capital is approximately 1.2%. The date on which we begin to earn fees (as specified above) is not guaranteed to occur and may not occur for an extended period of time. If and when such management fees are earned, a portion of existing FPAUM may cease paying fees or pay lower fees, thus offsetting a portion of any new management fees earned.
Credit and Liquid Strategies
The following table reflects the changes in the FPAUM of our Credit and Liquid Strategies business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 206,130 | |
| New Capital Raised | 8,496 | |
| |
| |
| |
| Distributions and Other | (5,228) | |
| Redemptions | (2,533) | |
| Change in Value | 956 | |
| March 31, 2023 | $ | 207,821 | |
| |
| |
| |
FPAUM of our Credit and Liquid Strategies business line was $207.8 billion at March 31, 2023, an increase of $1.7 billion, compared to $206.1 billion at December 31, 2022.
The increase was primarily attributable to (i) new capital raised from Global Atlantic, our hedge fund partnership, Marshall Wace, and the issuance of a new CLO, and to a lesser extent (ii) appreciation in investment value on assets managed across our leveraged and alternative credit investment funds. Partially offsetting these increases were (i) payments to Global Atlantic policyholders, (ii) redemptions at our hedge fund partnership, Marshall Wace, and (iii) distributions to fund investors at certain alternative credit funds.
Uncalled capital commitments from investment funds in our Credit and Liquid Strategies business line from which KKR is currently not earning management fees amounted to approximately $10.6 billion at March 31, 2023. This capital will generally begin to earn management fees upon deployment of the capital or upon the commencement of the fund's investment period. The average annual management fee rate associated with this capital is approximately 0.7%. The date on which we begin to earn fees (as specified above) is not guaranteed to occur and may not occur for an extended period of time. If and when such management fees are earned, which will occur over an extended period of time, a portion of existing FPAUM may cease paying fees or pay lower fees, thus offsetting a portion of any new management fees earned.
See "—Business Environment" for more information about the factors that may impact our business, financial performance, operating earnings, see "—Analysisresults and valuations.
Uncalled Commitments
Private Equity
As of Asset Management Segment Operating ResultsMarch 31, 2023, our Private Equity business line had $64.1 billion of remaining uncalled commitments that could be called for investments in new transactions as compared to $65.9 billion as of December 31, 2022. The decrease was primarily attributable to capital called from fund investors to make investments during the period, which was partially offset by new capital commitments from fund investors.
Real Assets
As of March 31, 2023, our Real Assets business line had $27.7 billion of remaining uncalled commitments that could be called for investments in new transactions as compared to $27.5 billion as of December 31, 2022. The increase was primarily attributable to new capital commitments from fund investors, partially offset by capital called from fund investors to make investments during the period.
Credit and AnalysisLiquid Strategies
As of Insurance Segment Operating Results."March 31, 2023, our Credit and Liquid Strategies business line had $14.5 billion of remaining uncalled commitments that could be called for investments in new transactions as compared to $14.3 billion as of December 31, 2022. The increase was primarily attributable to new capital commitments from fund investors, which was partially offset by capital called from fund investors to make investments during the period.
Capital Invested
Private Equity
For the three months ended March 31, 2023, our Private Equity business line had $2.9 billion of capital invested as compared to $4.4 billion for the three months ended March 31, 2022. The decrease was driven primarily by a $2.4 billion decrease in capital invested in our traditional private equity strategy. During the three months ended March 31, 2023, 57% of capital deployed in private equity (including core and growth equity (including impact) investments) was in transactions in Europe, 39% was in North America, and 4% was in the Asia-Pacific region. The number of large private equity investments made in any quarterly or year-to-date period is volatile and, consequently, a significant amount of capital invested in one period or a few periods may not be indicative of a similar level of capital deployment in future periods.
Real Assets
For the three months ended March 31, 2023, our Real Assets business line had $4.7 billion of capital invested as compared to $9.0 billion for the three months ended March 31, 2022. The decrease was driven primarily by a $3.8 billion decrease in capital invested in our real estate strategy and a $1.2 billion decrease in our energy strategy. During the three months ended March 31, 2023, 59% of capital deployed in real assets was in transactions in Europe, 31% was in the Asia-Pacific region, and 10% was in North America. The number of large real asset investments made in any quarterly or year-to-date period is volatile and, consequently, a significant amount of capital invested in one period or a few periods may not be indicative of a similar level of capital deployment in future periods.
Credit and Liquid Strategies
For the three months ended March 31, 2023, our Credit and Liquid Strategies business line had $2.2 billion of capital invested as compared to $8.0 billion for the three months ended March 31, 2022. The decrease was primarily due to a lower level of capital deployed across our various private credit strategies. During the three months ended March 31, 2023, 79% of capital deployed was in transactions in North America, 19% was in Europe, and 2% was in the Asia-Pacific region.
Interest Expense
The increase in interest expense during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to (i) the increase in the amount of borrowings outstanding from certain consolidated funds and other vehicles, (ii) impact of closing CLOs that were consolidated subsequent to March 31, 2022, (iii) higher interest rates on floating rate debt obligations held in consolidated CLOs, and (iv) the impact of issuances of our senior notes after March 31, 2022. For a discussion of other factors that affected KKR's interest expense, see "—Analysis of Non-GAAP Performance Measures."
Expenses - Asset Management
Compensation and Benefits Expense
The increase in compensation and benefits expense during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to accrued carried interest compensation in the current period compared to the reversal of previously recognized carried interest compensation in the prior period. Partially offsetting the increase is a lower level of accrued discretionary cash compensation resulting from a lower level of asset management segment revenues in the current period.
General, Administrative and Other
The decrease in general, administrative and other expenses during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to a lower level of (i) expenses reimbursable by our investment funds and (ii) a lower level of placement fees incurred related to capital raising activities, partially offset by a higher level of professional fees, information technology, travel and other administrative costs in connection with the overall growth of the firm.
In reporting periods where there are lower levels of fundraising and, to the extent that we use third parties to assist in our capital raising efforts, our General, Administrative and Other expenses are expected to decrease accordingly. Similarly, our General, Administrative and Other expenses are expected to decrease during any periods where there are lower levels of professional and other fees incurred as part of due diligence related to strategic acquisitions and new product development.
Condensed Consolidated Results of Operations (GAAP Basis - Unaudited) - Insurance
Revenues
For the three months ended March 31, 2023 and 2022, revenues consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| | March 31, 2023 | | March 31, 2022 | | Change | | | | | | |
| ($ in thousands) |
| Net Premiums | $ | 473,624 | | | $ | 372,144 | | | $ | 101,480 | | | | | | | |
| Policy Fees | 313,802 | | | 313,782 | | | 20 | | | | | | | |
| Net Investment Income | 1,300,697 | | | 812,605 | | | 488,092 | | | | | | | |
| Net Investment-Related Losses | (123,833) | | | (368,680) | | | 244,847 | | | | | | | |
| Other Income | 37,158 | | | 34,744 | | | 2,414 | | | | | | | |
| Total Insurance Revenues | $ | 2,001,448 | | | $ | 1,164,595 | | | $ | 836,853 | | | | | | | |
Net Premiums
Net premiums increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to higher initial premiums related to a larger number of reinsurance transactions with life contingencies assumed during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. The increase was partially offset by higher retrocessions to third party reinsurers during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. The initial premiums on assumed reinsurance were offset by a comparable increase in policy reserves reported within net policy benefits and claims (as discussed below).
Net investment income
Net investment income increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) increased average assets under management due to growth in assets in Global Atlantic's institutional market channel as a result of new reinsurance transactions and individual market channel sales, (ii) growth in portfolio yields due to higher market interest rates on floating rate investments, and (iii) rotation into higher yielding assets during 2022.
Net investment-related losses
The components of net investment-related losses were as follows:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| ($ in thousands) |
| Funds withheld payable at interest embedded derivatives | $ | (430,235) | | | $ | 1,180,435 | | | $ | (1,610,670) | |
| Equity futures contracts | (40,825) | | | 79,796 | | | (120,621) | |
| Foreign currency forwards | 794 | | | 8,557 | | | (7,763) | |
| Credit risk contracts | (75) | | | (1,532) | | | 1,457 | |
| Equity index options | 83,887 | | | (223,366) | | | 307,253 | |
| Interest rate contracts | 68,996 | | | (150,176) | | | 219,172 | |
| Funds withheld receivable embedded derivatives | (30,767) | | | (33,980) | | | 3,213 | |
| | | | | |
| Net gains on derivative instruments | (348,225) | | | 859,734 | | | (1,207,959) | |
| Net other investment gains (losses) | 224,392 | | | (1,228,414) | | | 1,452,806 | |
| Net investment-related losses | $ | (123,833) | | | $ | (368,680) | | | $ | 244,847 | |
Net gains on derivative instruments
The decrease in the fair value of embedded derivatives on funds withheld at interest payable for the three months ended March 31, 2023 was primarily driven by the change in fair value of the underlying investments in the funds withheld at interest payable portfolio, which is primarily comprised of fixed maturity securities (designated as trading for accounting purposes), mortgage and other loan receivables, and other investments. The underlying investments in the funds withheld at interest payable portfolio increased in value in the three months ended March 31, 2023, primarily due to a decrease in market interest rates as compared to a decrease in value in the three months ended March 31, 2022, due to an increase in market interest rates.
The increase in the fair value of equity index options was primarily driven by the performance of the indexes upon which call options are based. Global Atlantic purchases equity index options to hedge the market risk of embedded derivatives in indexed universal life and fixed-indexed annuity products (the change in which is accounted for in net policy benefits and claims). The majority of Global Atlantic's equity index call options are based on the S&P 500 Index, which increased during the three months ended March 31, 2023, as compared to a decrease during the three months ended March 31, 2022.
The decrease in the fair value of equity futures contracts was driven primarily by the performance of equity markets. Global Atlantic purchases equity futures primarily to hedge the market risk in Global Atlantic's variable annuity products which are accounted for in net policy benefits and claims. The majority of Global Atlantic's equity futures are based on the S&P 500 Index, which increased during the three months ended March 31, 2023, as compared to a decrease during the three months ended March 31, 2022, resulting in respectively, a loss, and a gain, on equity futures contracts in the respective periods.
The increase in the fair value of interest rate contracts was driven by a decrease in market interest rates during the three months ended March 31, 2023 and an increase in market interest rates during the three months ended March 31, 2022, resulting in respectively, a gain and a loss, on interest rate contracts.
The increase in the fair value of embedded derivatives on funds withheld at interest receivable was primarily due to widening of credit spreads during both the three months ended March 31, 2023, and the three months ended March 31, 2022.
Net other investment losses
The components of net other investment losses were as follows:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| ($ in thousands) |
| Realized gains (losses) on investments not supporting asset-liability matching strategies | $ | — | | | $ | 14,964 | | | $ | (14,964) | |
| | | | | |
| Realized gains (losses) on available-for-sale fixed maturity debt securities | 3,432 | | | (243,350) | | | 246,782 | |
| Credit loss allowances | (148,429) | | | (29,897) | | | (118,532) | |
| Impairment of available-for-sale fixed maturity debt securities due to intent to sell | (26,741) | | | — | | | (26,741) | |
| Unrealized gains (losses) on fixed maturity securities classified as trading | 376,290 | | | (1,038,446) | | | 1,414,736 | |
| Unrealized gains (losses) on investments accounted under a fair-value option | (55,773) | | | (2,493) | | | (53,280) | |
| Unrealized gains (losses) on real estate investments recognized at fair value under investment company accounting | 63,192 | | | 77,692 | | | (14,500) | |
| Realized gains (losses) on funds withheld at interest payable portfolio | 3,980 | | | (26,387) | | | 30,367 | |
| Realized gains (losses) on funds withheld at interest receivable portfolio | 17,733 | | | 25,600 | | | (7,867) | |
| Other | (9,292) | | | (6,097) | | | (3,195) | |
| Net other investment gains (losses) | $ | 224,392 | | | $ | (1,228,414) | | | $ | 1,452,806 | |
The increase in net other investment gains for the three months ended March 31, 2023 as compared to net other investment losses for the three months ended March 31, 2022, were primarily due to (i) a decrease in unrealized losses on fixed maturity securities classified as trading which was primarily due to a decrease in interest rates during the three months ended March 31, 2023 as compared to an increase in interest rates during the three months ended March 31, 2022, (ii) a decrease in realized losses on available-for-sale fixed maturity debt securities which was primarily due to a decrease in portfolio rotation activity, and (iii) realized gains on funds withheld at interest payable portfolio.
Offsetting these gains were (i) an increase in credit loss allowances on fixed maturity securities and mortgage and other loan receivables in the three months ended March 31, 2023, which was primarily due to an increase in the overall credit risk of Global Atlantic's loan portfolio, (ii) impairments of available-for-sale securities in an unrealized loss position due to an intent to sell, and (iii) unrealized losses on investments accounted under a fair-value option during the three months ended March 31, 2023.
Expenses
Net policy benefits and claims
Net policy benefits and claims increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) a loss on market risk benefits due to an decrease in interest rates in the three months ended March 31, 2023, as compared to a gain on market risk benefits during the three months ended March 31, 2022 due to an increase in rates in the three months ended March, 31, 2022, (ii) an increase in net flows from both individual and institutional market channel sales, (iii) higher funding costs on new business, and (iv) higher initial reserves assumed related to an increase in new reinsurance transactions with life contingencies in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, and (v) an increase in the value of embedded derivatives in Global Atlantic's indexed universal life and fixed indexed annuity products, as a result of higher equity market returns (as discussed above under "Revenues–Net investment-related losses–Net gains on derivatives instruments," Global Atlantic purchases equity index options in order to hedge this risk, the fair value changes of which are accounted for in gains on derivative instruments, and generally offsetting the change in embedded derivative fair value reported in net policy benefits and claims).
Offsetting these increases was an decrease in variable annuity market risk benefit liabilities primarily due to higher equity market returns.
Amortization of policy acquisition costs
Amortization of policy acquisition costs increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to growth in Global Atlantic's individual market and institutional market channels.
Interestexpense
Interest expense increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) a net increase in debt outstanding, primarily due to draws on the revolving credit facility after March 31, 2022, and (ii) an increase in interest expense on floating rate debt (Global Atlantic's revolving facility and fixed-to-floating swaps on its fixed rate debt) due to higher market rates.
Insurance expenses
Insurance expenses increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to increased reinsurance transactions and increased commission expense related to increased sales in Global Atlantic's individual markets channel.
General, administrative and other
General, administrative and other expenses increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) increased interest expense due to higher interest rates and debt outstanding, (ii) increased employee compensation and benefits related expenses, (iii) increased professional service fees, and (iv) increased third-party administrator ("TPA”) policy servicing fees, all due to growth of the business.
Other Condensed Consolidated Results of Operations (GAAP Basis - Unaudited)
Income Tax Expense (Benefit)
Income tax expense increased for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022 primarily due to net operating income generated from asset management in the current period as compared to a net operating loss driven by net capital allocation-based losses in the prior period. The net operating income from Global Atlantic in the prior period largely offset the asset management net operating loss. For a discussion of factors that impacted KKR's tax provision, see Note 19 "Income Taxes" in our financial statements included elsewhere in this report. The amount of U.S. federal or state corporate income taxes we pay in future periods may be materially increased if adverse tax laws become enacted.
Net Income (Loss) Attributable to Noncontrolling Interests
Net loss attributable to noncontrolling interests for the three months ended March 31, 2023 was primarily due to (i) net losses from investment activities primarily at certain of our consolidated real estate and energy investment funds and (ii) a net loss in the current period allocable to interests that third party investors hold in Global Atlantic, partially offset by positive net income from asset management operations allocable to holders of certain securities exchangeable into shares of common stock of KKR & Co. Inc.
Net Income (Loss) Attributable to KKR & Co. Inc.
The net income attributable to KKR & Co. Inc. for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 increased due to net capital allocation-based income, partially offset by a lower level of transaction fees and accrued carried interest compensation, as described above.
Condensed Consolidated Statements of Financial Condition (GAAP Basis)
The following table provides our condensed consolidated statements of financial condition on a GAAP basis as of March 31, 2023 and December 31, 2022.
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| (Amounts in thousands, except per share amounts) |
| | As of | | As of |
| | March 31, 2023 | | December 31, 2022 |
| | | | |
| Assets | | | | |
| Asset Management | | | | |
| Cash and Cash Equivalents | | $ | 5,576,121 | | | $ | 6,705,325 | |
| Investments | | 97,949,918 | | | 92,375,463 | |
| Other Assets | | 7,057,818 | | | 7,114,360 | |
| | 110,583,857 | | | 106,195,148 | |
| Insurance | | | | |
| Cash and Cash Equivalents | | 3,713,382 | | | 6,118,231 | |
| Investments | | 129,401,394 | | | 124,199,176 | |
| Other Assets | | 38,911,956 | | | 38,834,081 | |
| | 172,026,732 | | | 169,151,488 | |
| Total Assets | | $ | 282,610,589 | | $ | 275,346,636 |
| | | | |
| Liabilities and Equity | | | | |
| Asset Management | | | | |
| Debt Obligations | | $ | 42,519,776 | | | $ | 40,598,613 | |
| Other Liabilities | | 8,228,017 | | | 6,937,832 | |
| | 50,747,793 | | | 47,536,445 | |
| Insurance | | | | |
| Debt Obligations | | 2,157,283 | | | 2,128,166 | |
| Other Liabilities | | 172,582,137 | | | 170,311,335 | |
| | 174,739,420 | | | 172,439,501 | |
| Total Liabilities | | $ | 225,487,213 | | | $ | 219,975,946 | |
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| Redeemable Noncontrolling Interests | | 144,126 | | | 152,065 | |
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| Stockholders' Equity | | | | |
| | | | |
| Stockholders' Equity - Series C Mandatory Convertible Preferred Stock | | 1,115,792 | | | 1,115,792 | |
| Stockholders' Equity - Common Stock | | 18,546,889 | | | 17,691,975 | |
| Noncontrolling Interests | | 37,316,569 | | | 36,410,858 | |
| Total Equity | | 56,979,250 | | | 55,218,625 | |
| Total Liabilities and Equity | | $ | 282,610,589 | | | $ | 275,346,636 | |
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KKR & Co. Inc. Stockholders' Equity - Common Stock
Per Outstanding Share of Common Stock | | $ | 21.54 | | | $ | 20.55 | |
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KKR & Co. Inc. Stockholders’ Equity - Common Stock per Outstanding Share of Common Stock was $21.54 as of March 31, 2023, up from $20.55 as of December 31, 2022. The increase was primarily due to (i) unrealized gains on available-for-sale-securities from Global Atlantic that are recorded in other comprehensive income and (ii) net income attributable to KKR & Co. Inc. common stockholders during the first three months of 2023, partially offset by dividends to common stockholders.
Consolidated Statements of Cash Flows (GAAP Basis)
The following is a discussion of our consolidated cash flows for the three months ended March 31, 2023 and 2022. You should read this discussion in conjunction with the financial statements and related notes included elsewhere in this report.
The consolidated statements of cash flows include the cash flows of our consolidated entities, which include certain consolidated investment funds, CLOs and certain variable interest entities formed by Global Atlantic notwithstanding the fact that we may hold only a minority economic interest in those investment funds and CFEs. The assets of our consolidated investment funds and CFEs, on a gross basis, can be substantially larger than the assets of our business and, accordingly, could have a substantial effect on the cash flows reflected in our consolidated statements of cash flows. The primary cash flow activities of our consolidated funds and CFEs involve: (i) capital contributions from fund investors; (ii) using the capital of fund investors to make investments; (iii) financing certain investments with indebtedness; (iv) generating cash flows through the realization of investments; and (v) distributing cash flows from the realization of investments to fund investors. Because our consolidated funds are treated as investment companies for accounting purposes, certain of these cash flow amounts are included in our cash flows from operations.
Net Cash Provided (Used) by Operating Activities
Our net cash provided (used) by operating activities was $(1.9) billion and $0.9 billion during the three months ended March 31, 2023 and 2022, respectively. These amounts primarily included: (i) investments purchased (asset management), net of proceeds from investments (asset management) of $(4.7) billion and $(0.6) billion during the three months ended March 31, 2023 and 2022, respectively, (ii) net realized gains (losses) on asset management investments of $0.1 billion and $0.3 billion during the three months ended March 31, 2023 and 2022, respectively, (iii) change in unrealized gains (losses) on investments (asset management) of $(0.3) billion and $0.6 billion during the three months ended March 31, 2023 and 2022, respectively, (iv) capital allocation-based income (loss) of $0.4 billion and $(0.9) billion during the three months ended March 31, 2023 and 2022, respectively, (v) net realized gains (losses) on insurance operations of $(1.0) billion and $0.3 billion during the three months ended March 31, 2023 and 2022, respectively, and (vi) interest credited to policyholder account balances (net of policy fees) (insurance) of $0.6 billion and $0.5 billion during the three months ended March 31, 2023 and 2022, respectively. Investment funds are investment companies under GAAP and reflect their investments and other financial instruments at fair value.
Net Cash Provided (Used) by Investing Activities
Our net cash provided (used) by investing activities was $(3.8) billion and $(2.0) billion during the three months ended March 31, 2023 and 2022, respectively. Our investing activities included: (i) investments purchased (insurance), net of proceeds from investments (insurance), of $(3.8) billion and $(2.0) billion during the three months ended March 31, 2023 and 2022, respectively, and (ii) the purchase of fixed assets of $(23.2) million and $(11.9) million during the three months ended March 31, 2023 and 2022, respectively.
Net Cash Provided (Used) by Financing Activities
Our net cash provided (used) by financing activities was $2.1 billion and $4.1 billion during the three months ended March 31, 2023 and 2022, respectively. Our financing activities primarily included: (i) contributions by, net of distributions to, our noncontrolling and redeemable noncontrolling interests of $0.6 billion and $1.6 billion during the three months ended March 31, 2023 and 2022, respectively, (ii) proceeds received, net of repayment of debt obligations, of $1.5 billion and $31.5 million during the three months ended March 31, 2023 and 2022, respectively, (iii) additions to, net of withdrawals from, contractholder deposit funds of $0.5 billion and $2.4 billion during three months ended March 31, 2023 and 2022, respectively, (iv) common stock dividends of $(133.5) million and $(85.7) million during the three months ended March 31, 2023 and 2022, respectively, (v) repurchases of common stock of $(346.7) million during the three months ended March 31, 2022, and (vi) Series C Mandatory Convertible Preferred Stock dividends of $(17.3) million during each of the three months ended March 31, 2023 and 2022.
Analysis of Segment Operating Results
The following is a discussion of the results of our business on a segment basis for the three months ended March 31, 2023 and 2022. You should read this discussion in conjunction with the information included under "—Key Segment and Non- GAAP Performance Measures" and the financial statements and related notes included elsewhere in this report. See "— Business Environment" for more information about factors that may impact our business, financial performance, operating results and valuations.
Analysis of Asset Management Segment Operating Results
The following tables set forth information regarding KKR's asset management segment operating results and certain key capital metrics for the three months ended March 31, 2023 and 2022:
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| |
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| | Three Months Ended | |
| | March 31, 2023 | | March 31, 2022 | | Change | |
| | ($ in thousands) | |
| Management Fees | | $ | 738,156 | | | $ | 624,928 | | | $ | 113,228 | | |
| Transaction and Monitoring Fees, Net | | 142,179 | | | 306,038 | | | (163,859) | | |
| Fee Related Performance Revenues | | 21,741 | | | 12,051 | | | 9,690 | | |
| Fee Related Compensation | | (203,094) | | | (212,220) | | | 9,126 | | |
| Other Operating Expenses | | (150,404) | | | (125,875) | | | (24,529) | | |
| Fee Related Earnings | | 548,578 | | | 604,922 | | | (56,344) | | |
| Realized Performance Income | | 175,398 | | | 609,207 | | | (433,809) | | |
| Realized Performance Income Compensation | | (114,009) | | | (383,635) | | | 269,626 | | |
| Realized Investment Income | | 198,094 | | | 349,354 | | | (151,260) | | |
| Realized Investment Income Compensation | | (29,714) | | | (52,403) | | | 22,689 | | |
| Asset Management Segment Operating Earnings | | $ | 778,347 | | | $ | 1,127,445 | | | $ | (349,098) | | |
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Management Fees
The following table presents management fees by business line:
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Management Fees | | | | | | |
| Private Equity | | $ | 316,341 | | | $ | 282,184 | | | $ | 34,157 | |
| Real Assets | | 193,365 | | | 153,813 | | | 39,552 | |
| Credit and Liquid Strategies | | 228,450 | | | 188,931 | | | 39,519 | |
| Total Management Fees | | $ | 738,156 | | | $ | 624,928 | | | $ | 113,228 | |
The increase in Private Equity management fees was primarily attributable to management fees earned on new capital raised over the past twelve months at European Fund VI, Next Generation Technology Growth Fund III, and Global Impact Fund II. The increase was partially offset by (i) catch-up management fees earned on new capital raised for North America Fund XIII in the first quarter of 2022 that was retroactive to the start of the fund's investment period, and (ii) a lower level of management fees from Asian Fund III due to the sale of investments that resulted in a decrease in its fee base, which is capital invested. There were no catch-up management fees earned in the first quarter of 2023 for North America Fund XIII. During the first quarter of 2023, approximately $9.0 million of management fees were earned on new capital raised that is retroactive to the start of the relevant fund's investment period.
The increase in Real Asset management fees was primarily attributable to (i) management fees earned on assets managed by KJRM, which we acquired in the second quarter of 2022, (ii) management fees earned from Asia Pacific Infrastructure Investors II, which entered its investment period in the third quarter of 2022 resulting in management fees now being earned on this capital, and (iii) a higher level of management fees earned from Global Atlantic due to an increase in assets being managed by KKR's Asset Management segment. The increase was partially offset by catch-up management fees earned on new capital raised for Global Infrastructure Investors IV in the first quarter of 2022 that was retroactive to the start of the fund's investment period. There were no catch-up management fees earned in the first quarter of 2023 for Global Infrastructure Investors IV.
The increase in Credit and Liquid Strategies management fees was primarily attributable to (i) a higher level of management fees earned from Global Atlantic due to an increase in assets being managed by KKR's Asset Management segment and the issuance of new CLOs over the past twelve months.
Transaction and Monitoring Fees, Net
The following table presents transaction and monitoring fees, net by business line:
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Transaction and Monitoring Fees, Net | | | | | | |
| Private Equity | | $ | 34,274 | | | $ | 33,056 | | | $ | 1,218 | |
| Real Assets | | 5,734 | | | 7,630 | | | (1,896) | |
| Credit and Liquid Strategies | | 284 | | | 10,096 | | | (9,812) | |
| Capital Markets | | 101,887 | | | 255,256 | | | (153,369) | |
| Total Transaction and Monitoring Fees, Net | | $ | 142,179 | | | $ | 306,038 | | | $ | (163,859) | |
Our Private Equity, Real Assets and Credit and Liquid Strategies business lines separately earn transaction and monitoring fees from portfolio companies, and under the terms of the management agreements with certain of our investment funds, we are generally required to share all or a portion of such fees with our fund investors. In most funds, transaction and monitoring fees are credited against fund management fees up to 100% of the amount of the transaction and monitoring fees attributable to that fund, which results in a decrease of our monitoring and transaction fee income. Additionally, transaction fees are generally not earned with respect to energy and real estate investments. Our Capital Markets business line earns transaction fees, which are not shared with fund investors.
The decrease in transaction and monitoring fees, net is primarily due to a lower level of transaction fees earned in our Capital Markets business line. The decrease in capital markets transaction fees was primarily due to a decrease in the number of capital markets transactions for the three months ended March 31, 2023, compared to the three months ended March 31, 2022 reflecting reduced issuance levels across global equity and leveraged loan markets.Overall, we completed 42 capital markets transactions for the three months ended March 31, 2023, of which 9 represented equity offerings and 33 represented debt offerings, as compared to 87 transactions for the three months ended March 31, 2022, of which 11 represented equity offerings and 76 represented debt offerings. We earned fees in connection with underwriting, syndication and other capital markets services. While each of the capital markets transactions that we undertake in this business line is separately negotiated, our fee rates are generally higher with respect to underwriting or syndicating equity offerings than with respect to debt offerings, and the amount of fees that we earn for similar transactions generally correlates with overall transaction sizes.
Our capital markets fees are generated in connection with activity involving our private equity, real assets and credit funds as well as from third-party companies. For the three months ended March 31, 2023, approximately 14% of our transaction fees in our Capital Markets business line were earned from unaffiliated third parties as compared to approximately 19% for the three months ended March 31, 2022. Our transaction fees are comprised of fees earned in North America, Europe, and the Asia-Pacific region. For the three months ended March 31, 2023, approximately 59% of our transaction fees were generated outside of North America as compared to approximately 37% for the three months ended March 31, 2022. Our Capital Markets business line is dependent on the overall capital markets environment, which is influenced by equity prices, credit spreads, and volatility. Our Capital Markets business line does not generate monitoring fees.
Fee Related Performance Revenues
The following table presents fee related performance revenues by business line:
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Fee Related Performance Revenues | | | | | | |
| Private Equity | | $ | — | | | $ | — | | | $ | — | |
| Real Assets | | 3,704 | | | 2,317 | | | 1,387 | |
| Credit and Liquid Strategies | | 18,037 | | | 9,734 | | | 8,303 | |
| Total Fee Related Performance Revenues | | $ | 21,741 | | | $ | 12,051 | | | $ | 9,690 | |
Fee related performance revenues represent performance fees that are (i) expected to be received from our investment funds, vehicles and accounts on a recurring basis, and (ii) not dependent on a realization event involving investments held by the investment fund, vehicle or account. These performance fees are primarily earned from FS KKR Capital Corp. (NYSE: FSK) ("FSK") (our business development company), KKR Property Partners Americas ("KPPA") (our open-ended core plus real estate fund), KKR Real Estate Select Trust ("KREST") (our registered closed-end real estate equity fund), KKR Real Estate Finance Trust Inc. ("KREF") (our real estate credit investment trust), and KJRM (our Japanese real estate investment trust asset manager). Fee related performance revenues were higher for the three months ended March 31, 2023 compared to the prior period primarily due to an increase in performance revenues earned from FSK in the current period.
Fee Related Compensation
The decrease in fee related compensation for the three months ended March 31, 2023 compared to the prior period was primarily due to a lower level of compensation recorded in connection with the lower level of revenues included within fee related earnings.
Other Operating Expenses
The increase in other operating expenses for the three months ended March 31, 2023 compared to the prior period was primarily due to a higher level of professional fees, information technology, travel and other administrative costs in connection with the overall growth of the firm.
Fee Related Earnings
The decrease in fee related earnings for the three months ended March 31, 2023 compared to the prior period was primarily due to a lower level of transaction fees earned in our Capital Markets business line and higher level of operating expenses partially offset by a higher level of management fees across our Private Equity, Real Assets and Credit and Liquid Strategies business lines, as described above.
Realized Performance Income
The following table presents realized performance income by business line:
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Realized Performance Income | | | | | | |
| Private Equity | | $ | 163,052 | | | $ | 603,823 | | | $ | (440,771) | |
| Real Assets | | 9,686 | | | — | | | 9,686 | |
| Credit and Liquid Strategies | | 2,660 | | | 5,384 | | | (2,724) | |
| Total Realized Performance Income | | $ | 175,398 | | | $ | 609,207 | | | $ | (433,809) | |
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Private Equity | | | | | | |
| Core Investment Vehicles | | $ | 103,659 | | | $ | 262,219 | | | $ | (158,560) | |
| Global Impact Fund | | 20,257 | | | — | | | 20,257 | |
| Next Generation Technology Growth Fund | | 17,810 | | | — | | | 17,810 | |
| Americas Fund XII | | 14,714 | | | 83,016 | | | (68,302) | |
| 2006 Fund | | 4,271 | | | 33,458 | | | (29,187) | |
| North America Fund XI | | — | | | 119,942 | | | (119,942) | |
| Co-Investment Vehicles and Other | | 2,292 | | | 12,444 | | | (10,152) | |
| European Fund IV | | — | | | 68,688 | | | (68,688) | |
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Total Realized Carried Interest (1) | | 163,003 | | | 579,767 | | | (416,764) | |
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| Incentive Fees | | 49 | | | 24,056 | | | (24,007) | |
| Total Realized Performance Income | | $ | 163,052 | | | $ | 603,823 | | | $ | (440,771) | |
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Real Assets | | | | | | |
| Global Infrastructure Investors II | | $ | 9,686 | | | $ | — | | | $ | 9,686 | |
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Total Realized Carried Interest (1) | | 9,686 | | | — | | | 9,686 | |
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| Incentive Fees | | — | | | — | | | — | |
| Total Realized Performance Income | | $ | 9,686 | | | $ | — | | | $ | 9,686 | |
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Credit and Liquid Strategies | | | | | | |
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Total Realized Carried Interest (1) | | $ | — | | | $ | — | | | $ | — | |
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| Incentive Fees | | 2,660 | | | 5,384 | | | (2,724) | |
| Total Realized Performance Income | | $ | 2,660 | | | $ | 5,384 | | | $ | (2,724) | |
(1)The above tables exclude any funds for which there was no realized carried interest during both of the periods presented.
Realized performance income includes (i) realized carried interest from our carry earning funds and (ii) incentive fees not included in Fee Related Performance Revenues.
Realized carried interest in our Private Equity business line for the three months ended March 31, 2023 consisted primarily of (i) realized performance income from our core investment vehicles and (ii) realized proceeds from the sale of our investment in KnowBe4, Inc. held by Global Impact Fund and Next Generation Technology Growth Fund.
Realized carried interest in our Private Equity business line for the three months ended March 31, 2022 consisted primarily of (i) realized performance income from our core investment vehicles and (ii) realized proceeds from a dividend received from our investment in Internet Brands, Inc. (technology sector) held by North America Fund XI and Americas Fund XII and the sale of our investment in Hensoldt AG (FRA: HAG) held by European Fund IV.
Realized carried interest in our Real Assets business line for the three months ended March 31, 2023 consisted primarily of realized proceeds from the sale of our investment in Telxius Telecom, S.A.U. (Infrastructure: telecommunications infrastructure sector) held by Global Infrastructure Investors II. During the three months ended March 31, 2022, there was no realized carried interest earned in our Real Assets business line.
During the three months ended March 31, 2023 and 2022, there was no realized carried interest earned in our Credit and Liquid Strategies business line.
Incentive fees consist of performance fees earned from (i) our hedge fund partnerships, (ii) investment management agreements with KKR sponsored investment vehicles, and (iii) investment management agreements to provide KKR’s investment strategies to funds managed by a UK investment fund manager.
Incentive fees in our Private Equity business line decreased for the three months ended March 31, 2023 compared to the prior period as a result of incentive fees not being earned from certain levered multi-asset investment vehicles in the current period. Incentive fees in our Credit and Liquid Strategies business line decreased for the three months ended March 31, 2023 compared to the prior period primarily as a result of a lower level of performance fees earned from a UK investment fund manager.
Realized Performance Income Compensation
The decrease in realized performance income compensation for the three months ended March 31, 2023 compared to the prior period was primarily due to a lower level of compensation recorded in connection with the lower level of realized performance income.
Realized Investment Income
The following table presents realized investment income in our Principal Activities business line:
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| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in thousands) |
| Realized Investment Income | | | | | | |
| Net Realized Gains (Losses) | | $ | 91,907 | | | $ | 76,136 | | | $ | 15,771 | |
| Interest Income and Dividends | | 106,187 | | | 273,218 | | | (167,031) | |
| Total Realized Investment Income | | $ | 198,094 | | | $ | 349,354 | | | $ | (151,260) | |
The decrease in realized investment income is primarily due to a lower level of interest income and dividends, partially offset by a higher level of net realized gains. The amount of realized investment income depends on the transaction activity of our funds and balance sheet, which can vary from period to period.
For the three months ended March 31, 2023, net realized gains were comprised of realized gains primarily from the sale of our investments in KnowBe4, Inc. and Flutter Entertainment PLC. Partially offsetting these realized gains were realized losses, the most significant of which was a realized loss on our alternative credit investment, Chembulk Group, and realized losses from the sales of various revolving credit facilities.
For the three months ended March 31, 2022, net realized gains were comprised of realized gains primarily from the sale of our investments in Fiserv, Inc. and Hensoldt AG. Partially offsetting these realized gains were realized losses, the most significant of which was a realized loss of an alternative credit investment and real estate equity investment.
For the three months ended March 31, 2023, interest income and dividends were comprised of (i) $70.7 million of interest income, primarily from our investments in CLOs, and (ii) $35.5 million of dividend distributions primarily from our Americas real estate credit and equity investments, as well as a dividend distribution received from Resolution Life Holdings L.P. (financial services sector).
For the three months ended March 31, 2022, interest income and dividends were comprised of (i) $218.9 million of dividend income primarily from levered multi-asset investment vehicles and our investments in Exact Holdings B.V. and Internet Brands, Inc., and (ii) $54.3 million of interest income, primarily from our investments in CLOs. See "—Analysis of Non-GAAP Performance Measures—Non-GAAP Balance Sheet Measures."
Realized investment income (loss) includes the net income (loss) from KKR Capstone. For the quarter ended March 31, 2023, total fees attributable to KKR Capstone were $19.8 million and total expenses attributable to KKR Capstone were $19.6 million. For KKR Capstone-related adjustments in reconciling asset management segment revenues to GAAP revenues see "—Analysis of Non-GAAP Performance Measures—Reconciliations to GAAP Measures".
Based on information available as of the date of the filing of this report, we expect realized performance income and realized investment income to be approximately $125 million in the second quarter of 2023 relating to realized carried interest and realized investment income from completed, or signed and expected to be completed sales, partial sales or secondary sales subsequent to March 31, 2023 with respect to certain private equity portfolio companies and other investments. Some of these transactions are not complete, and are subject to the satisfaction of closing conditions, including, but not limited, to regulatory approvals; there can be no assurance if or when any of these transactions will be completed. The estimate disclosed above is not intended to predict or represent total realized performance income or total realized investment income for the full quarter ending June 30, 2023, because it does not include the results or impact of any other sources of income, including fee income, or expenses, and we may realize further gains or losses relating to total realized performance income and total realized investment income after the date of the filing of this report. Therefore, the actual realized carried interest and realized investment income for the quarter ended June 30, 2023 may be higher or lower than $125 million.
Realized Investment Income Compensation
The decrease in realized investment income compensation for the three months ended March 31, 2023 compared to the prior period is primarily due to a lower level of compensation recorded in connection with the lower level of realized investment income.
Other Operating and Capital Metrics
The following table presents certain key operating and capital metrics as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | |
| | As of |
| | March 31, 2023 | | December 31, 2022 | | Change |
| | ($ in millions) |
| Assets Under Management | | $ | 510,069 | | | $ | 503,897 | | | $ | 6,172 | |
| Fee Paying Assets Under Management | | $ | 415,871 | | | $ | 411,923 | | | $ | 3,948 | |
| Uncalled Commitments | | $ | 106,266 | | | $ | 107,679 | | | $ | (1,413) | |
The following table presents one of our key capital metrics for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 | | Change |
| | ($ in millions) |
| Capital Invested | | $ | 9,767 | | | $ | 21,376 | | | $ | (11,609) | |
Assets Under Management
Private Equity
The following table reflects the changes in the AUM of our Private Equity business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 165,147 | |
| New Capital Raised | 349 | |
| |
| Distributions and Other | (1,227) | |
| Change in Value | 1,493 | |
| March 31, 2023 | $ | 165,762 | |
AUM of our Private Equity business line was $165.8 billion at March 31, 2023, an increase of $0.7 billion, compared to $165.1 billion at December 31, 2022.
The increase was primarily attributable to an appreciation in investment value from Americas Fund XII, Asian Fund IV, and North America Fund XIII. Partially offsetting this increase were distributions to fund investors primarily as a result of realized proceeds, most notably from Americas Fund XII, Next Generation Technology Growth Fund II, and Next Generation Technology Growth Fund.
For the three months ended March 31, 2023, the value of our traditional private equity investment portfolio increased 2%. This was comprised of a 15% increase in share prices of various publicly held investments and a 2% increase in value of our privately held investments. For the three months ended March 31, 2023, the value of our growth equity investment portfolio increased 1% and our core private equity investment portfolio remained flat.
The most significant increases in the value of our publicly held investments were increases in AppLovin Corporation (NASDAQ: APP), BridgeBio Pharma, Inc. and PropertyGuru Group Limited (NYSE: PGRU). These increases were partially offset by decreases in the value of certain publicly held investments, the most significant of which was Brightview Holdings, Inc. (NYSE: BV) and Indus Towers Limited (NSE: INDUSTOWER). The prices of publicly held companies may experience volatile changes following the reporting period. See "—Business Environment" for more information about the factors, such as volatility, that may impact our business, financial performance, operating results and valuations.
The most significant increases in the value of our privately held investments were increases in Cloudera, Inc. (technology sector), Magneti Marelli CK Holdings Co. (industrials sector), and OneStream Software, LLC (technology sector). These increases in value on our privately held investments were partially offset by decreases in the value of certain other privately held investments, the most significant of which were Bytedance Ltd. (technology sector), GenesisCare Pty Ltd., and Heartland Dental, LLC. The increased valuations of individual companies in our privately held investments, in the aggregate, generally related to (i) individual company performance and (ii) an increase in the value of market comparables. The decreased valuations of individual companies in our privately held investments, in the aggregate, generally related to an unfavorable business outlook. See "—Business Environment" for more information about the factors, that may impact our business, financial performance, operating results and valuations.
Real Assets
The following table reflects the changes in the AUM of our Real Assets business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 118,592 | |
| New Capital Raised | 2,613 | |
| |
| Distributions and Other | (1,468) | |
| Redemptions | (79) | |
| Change in Value | 1,148 | |
| March 31, 2023 | $ | 120,806 | |
| |
| |
| |
AUM of our Real Assets business line was $120.8 billion at March 31, 2023, an increase of $2.2 billion, compared to $118.6 billion at December 31, 2022.
The increase was primarily attributable to (i) new capital raised from a real estate credit separately managed account, Asia Real Estate Partners II, and our open-ended core infrastructure fund, Diversified Core Infrastructure Fund and (ii) the appreciation in investment value primarily from Global Infrastructure Investors III. Partially offsetting these increases were payments to Global Atlantic policyholders and distributions to fund investors as a result of realized proceeds, most notably distributions from Global Infrastructure Investors II.
For the three months ended March 31, 2023, the value of our infrastructure investment portfolio increased 6%, the value of our energy investment portfolio decreased by 9%, and the value of our opportunistic real estate equity investment portfolio decreased by 2%.
The most significant increases in value across our Real Asset portfolio were in Atlantic Aviation FBO Inc. (Infrastructure: transportation sector), First Gen Corporation (Infrastructure: power and utilities sector), and X-Elio Energy, S.L. (Infrastructure: power and utilities sector). These increases in value were partially offset by decreases in value relating primarily to various assets held in our energy portfolio, Colonial Enterprises, Inc. (Infrastructure: midstream sector), and various assets held in our real estate equity portfolio across all regions. The increased valuations of individual companies or assets in the aggregate, generally related to individual company or asset performance, and with respect to X-Elio Energy, S.L., an increase in valuation reflecting an agreement to exit this investment. The decreased valuations of individual companies or assets in the aggregate, generally related to an unfavorable business outlook. See "—Business Environment" for more information about the factors that may impact our business, financial performance, operating results and valuations.
Credit and Liquid Strategies
The following table reflects the changes in the AUM of our Credit and Liquid Strategies business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 220,158 | |
| New Capital Raised | 8,715 | |
| |
| |
| |
| Distributions and Other | (4,025) | |
| Redemptions | (2,533) | |
| Change in Value | 1,186 | |
| March 31, 2023 | $ | 223,501 | |
| |
| |
| |
AUM of our Credit and Liquid Strategies business line was $223.5 billion at March 31, 2023, an increase of $3.3 billion compared to $220.2 billion at December 31, 2022.
The increase was primarily attributable to (i) new capital raised from Global Atlantic, our hedge fund partnership, Marshall Wace, and the issuance of a new CLO, and to a lesser extent (ii) appreciation in investment value on assets managed across our leveraged and alternative credit investment funds. Partially offsetting these increases were (i) payments to Global Atlantic policyholders, (ii) redemptions at our hedge fund partnership, Marshall Wace, and (iii) distributions to fund investors at certain alternative credit funds.
See also "—Business Environment" for more information about the factors that may impact our business, financial performance, operating results and valuations and "—Credit and Liquid Strategies" for investment performance information for our leveraged and alternative credit strategies.
Fee Paying Assets Under Management
Private Equity
The following table reflects the changes in the FPAUM of our Private Equity business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 102,261 | |
| New Capital Raised | 1,407 | |
| |
| Distributions and Other | (1,401) | |
| |
| Change in Value | 56 | |
| March 31, 2023 | $ | 102,323 | |
FPAUM of our Private Equity business line was $102.3 billion at March 31, 2023, which remained flat compared to December 31, 2022.
New capital raised from European Fund VI, Next Generation Technology Growth Fund III, and Global Impact Fund II was primarily offset by the (i) reduction in fee base for European Fund III and China Growth Fund, which no longer pay management fees, and (ii) distributions to fund investors, primarily as a result of realized proceeds, most notably distributions from Americas Fund XII and Next Generation Technology Growth Fund II.
Uncalled commitments from private equity and multi-strategy investment funds from which KKR is currently not earning management fees amounted to approximately $17.9 billion at March 31, 2023, which includes capital commitments reserved for follow-on investments for funds that have completed their investment periods. This capital will generally begin to earn management fees upon deployment of the capital or upon the commencement of the fund's investment period. The average annual management fee rate associated with this capital is approximately 1.0%. The date on which we begin to earn fees (as specified above) is not guaranteed to occur and may not occur for an extended period of time. If and when such management fees are earned, a portion of existing FPAUM may cease paying fees or pay lower fees, thus offsetting a portion of any new management fees earned.
Real Assets
The following table reflects the changes in the FPAUM of our Real Assets business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 103,532 | |
| New Capital Raised | 3,434 | |
| |
| Distributions and Other | (1,271) | |
| Redemptions | (79) | |
| |
| Change in Value | 111 | |
| March 31, 2023 | $ | 105,727 | |
| |
| |
| |
FPAUM of our Real Assets business line was $105.7 billion at March 31, 2023, an increase of $2.2 billion, compared to $103.5 billion at December 31, 2022.
The increase was primarily attributable to new capital raised from Diversified Core Infrastructure Fund and Asia Pacific Infrastructure Investors II. Partially offsetting this increase were (i) payments to Global Atlantic policyholders, and (ii) distributions to fund investors as a result of realized proceeds, most notably distributions from Global Infrastructure Investors II.
Uncalled commitments from real assets investment funds from which KKR is currently not earning management fees amounted to approximately $8.7 billion at March 31, 2023, which includes capital commitments reserved for follow-on investments for funds that have completed their investment periods. This capital will generally begin to earn management fees upon deployment of the capital or upon the commencement of the fund's investment period. The average annual management fee rate associated with this capital is approximately 1.2%. The date on which we begin to earn fees (as specified above) is not guaranteed to occur and may not occur for an extended period of time. If and when such management fees are earned, a portion of existing FPAUM may cease paying fees or pay lower fees, thus offsetting a portion of any new management fees earned.
Credit and Liquid Strategies
The following table reflects the changes in the FPAUM of our Credit and Liquid Strategies business line from December 31, 2022 to March 31, 2023:
| | | | | |
| ($ in millions) |
| December 31, 2022 | $ | 206,130 | |
| New Capital Raised | 8,496 | |
| |
| |
| |
| Distributions and Other | (5,228) | |
| Redemptions | (2,533) | |
| Change in Value | 956 | |
| March 31, 2023 | $ | 207,821 | |
| |
| |
| |
FPAUM of our Credit and Liquid Strategies business line was $207.8 billion at March 31, 2023, an increase of $1.7 billion, compared to $206.1 billion at December 31, 2022.
The increase was primarily attributable to (i) new capital raised from Global Atlantic, our hedge fund partnership, Marshall Wace, and the issuance of a new CLO, and to a lesser extent (ii) appreciation in investment value on assets managed across our leveraged and alternative credit investment funds. Partially offsetting these increases were (i) payments to Global Atlantic policyholders, (ii) redemptions at our hedge fund partnership, Marshall Wace, and (iii) distributions to fund investors at certain alternative credit funds.
Uncalled capital commitments from investment funds in our Credit and Liquid Strategies business line from which KKR is currently not earning management fees amounted to approximately $10.6 billion at March 31, 2023. This capital will generally begin to earn management fees upon deployment of the capital or upon the commencement of the fund's investment period. The average annual management fee rate associated with this capital is approximately 0.7%. The date on which we begin to earn fees (as specified above) is not guaranteed to occur and may not occur for an extended period of time. If and when such management fees are earned, which will occur over an extended period of time, a portion of existing FPAUM may cease paying fees or pay lower fees, thus offsetting a portion of any new management fees earned.
See "—Business Environment" for more information about the factors that may impact our business, financial performance, operating results and valuations.
Uncalled Commitments
Private Equity
As of March 31, 2023, our Private Equity business line had $64.1 billion of remaining uncalled commitments that could be called for investments in new transactions as compared to $65.9 billion as of December 31, 2022. The decrease was primarily attributable to capital called from fund investors to make investments during the period, which was partially offset by new capital commitments from fund investors.
Real Assets
As of March 31, 2023, our Real Assets business line had $27.7 billion of remaining uncalled commitments that could be called for investments in new transactions as compared to $27.5 billion as of December 31, 2022. The increase was primarily attributable to new capital commitments from fund investors, partially offset by capital called from fund investors to make investments during the period.
Credit and Liquid Strategies
As of March 31, 2023, our Credit and Liquid Strategies business line had $14.5 billion of remaining uncalled commitments that could be called for investments in new transactions as compared to $14.3 billion as of December 31, 2022. The increase was primarily attributable to new capital commitments from fund investors, which was partially offset by capital called from fund investors to make investments during the period.
Capital Invested
Private Equity
For the three months ended March 31, 2023, our Private Equity business line had $2.9 billion of capital invested as compared to $4.4 billion for the three months ended March 31, 2022. The decrease was driven primarily by a $2.4 billion decrease in capital invested in our traditional private equity strategy. During the three months ended March 31, 2023, 57% of capital deployed in private equity (including core and growth equity (including impact) investments) was in transactions in Europe, 39% was in North America, and 4% was in the Asia-Pacific region. The number of large private equity investments made in any quarterly or year-to-date period is volatile and, consequently, a significant amount of capital invested in one period or a few periods may not be indicative of a similar level of capital deployment in future periods.
Real Assets
For the three months ended March 31, 2023, our Real Assets business line had $4.7 billion of capital invested as compared to $9.0 billion for the three months ended March 31, 2022. The decrease was driven primarily by a $3.8 billion decrease in capital invested in our real estate strategy and a $1.2 billion decrease in our energy strategy. During the three months ended March 31, 2023, 59% of capital deployed in real assets was in transactions in Europe, 31% was in the Asia-Pacific region, and 10% was in North America. The number of large real asset investments made in any quarterly or year-to-date period is volatile and, consequently, a significant amount of capital invested in one period or a few periods may not be indicative of a similar level of capital deployment in future periods.
Credit and Liquid Strategies
For the three months ended March 31, 2023, our Credit and Liquid Strategies business line had $2.2 billion of capital invested as compared to $8.0 billion for the three months ended March 31, 2022. The decrease was primarily due to a lower level of capital deployed across our various private credit strategies. During the three months ended March 31, 2023, 79% of capital deployed was in transactions in North America, 19% was in Europe, and 2% was in the Asia-Pacific region.
Analysis of Insurance Segment Operating Results
Effective January 1 , 2023, we adopted new accounting guidance for insurance and reinsurance companies that issue long-duration contracts (“LDTI”) as of February 1, 2021, the date of the GA Acquisition, on a full retrospective basis. For a more detailed discussion of the adoption of the LDTI, see Note 2 "Summary of Significant Accounting Policies" in our financial statements.
The following tables set forth information regarding KKR's insurance segment operating results and certain key operating metrics as of and for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
| March 31, 2023 | | March 31, 2022 | | Change |
| ($ in thousands) |
| Net Investment Income | $ | 1,271,255 | | | $ | 862,414 | | | $ | 408,841 | |
| Net Cost of Insurance | (750,612) | | | (481,870) | | | (268,742) | |
| General, Administrative and Other | (196,714) | | | (146,412) | | | (50,302) | |
| Pre-tax Operating Earnings | 323,929 | | | 234,132 | | | 89,797 | |
| | | | | |
| Pre-tax Operating Earnings Attributable to Noncontrolling Interests | (118,817) | | | (90,185) | | | (28,632) | |
| Insurance Segment Operating Earnings | $ | 205,112 | | | $ | 143,947 | | | $ | 61,165 | |
Insurance segment operating earnings
Insurance segment operating earnings increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to higher net investment income resulting from an increase in assets under management due to growth of the business, and higher average yields. The increase was offset in part by (i) higher net cost of insurance, primarily due to the growth in both the individual market and institutional market channels and higher funding cost on new business and (ii) a corresponding increase in general and administrative expenses.
Net investment income
Net investment income increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) increased average assets under management due to growth in assets in the institutional market channel as a result of new reinsurance transactions and individual market channel sales from new business growth, (ii) increases in portfolio yields due to higher market interest rates on floating rate investments, and (iii) rotation into higher yielding assets. Offsetting these increases to net investment income was a decrease in variable investment income, primarily due to the non-recurrence of net realized gains from the sale of investments not related to asset/liability matching strategies.
Net cost of insurance
Net cost of insurance increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) growth in reserves in the institutional market as a result of new reinsurance transactions and in the individual market as a result of new business volumes, and (ii) higher funding costs on new business originated.
General, administrative and other expenses
General and administrative expenses increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to (i) increased interest expense due to higher interest rates and debt outstanding, (ii) increased employee compensation and benefits-related expenses, (iii) increased professional service fees, and (iv) increased third-party administrator policy servicing fees, all due to growth of the business.
Net income attributable to noncontrolling interests
Net income (loss) attributable to noncontrolling interests increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 in proportion to the increase in insurance segment operating earnings for the comparable period. Net income attributable to noncontrolling interests represents the proportionate interest in the insurance segment operating earnings attributable to third party co-investors in Global Atlantic.
Analysis of Non-GAAP Performance Measures
Effective January 1 , 2023, we adopted new accounting guidance for insurance and reinsurance companies that issue long-duration contracts (“LDTI”) as of February 1, 2021, the date of the GA Acquisition, on a full retrospective basis. For a more detailed discussion of the adoption of the LDTI, see Note 2 "Summary of Significant Accounting Policies" in our financial statements.
The following is a discussion of our Non-GAAP performance measures for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | Three Months Ended | |
| | March 31, 2023 | | March 31, 2022 | | Change | |
| | ($ in thousands) | |
| Asset Management Segment Operating Earnings | | $ | 778,347 | | | $ | 1,127,445 | | | $ | (349,098) | | |
| Insurance Segment Operating Earnings | | 205,112 | | | 143,947 | | | 61,165 | | |
| Distributable Operating Earnings | | 983,459 | | | 1,271,392 | | | (287,933) | | |
| | | | | | | |
| Interest Expense | | (85,500) | | | (69,460) | | | (16,040) | | |
| | | | | | | |
| Net Income Attributable to Noncontrolling Interests | | (5,626) | | | (7,616) | | | 1,990 | | |
| Income Taxes on Operating Earnings | | (173,057) | | | (220,279) | | | 47,222 | | |
| After-tax Distributable Earnings | | $ | 719,276 | | | $ | 974,037 | | | $ | (254,761) | | |
| | | | | | | |
Distributable Operating Earnings
The decrease in distributable operating earnings for the three months ended March 31, 2023 compared to the prior period is primarily due to a lower level of asset management segment operating earnings, partially offset by a higher level of insurance segment operating earnings. For a discussion of the asset management and insurance segment operating earnings, see "—Analysis of Asset Management Segment Operating Results" and "—Analysis of Insurance Segment Operating Results."
After-tax Distributable Earnings
The decrease in after-tax distributable earnings for the three months ended March 31, 2023 compared to the prior period was primarily due to a lower level of distributable operating earnings and an increase in interest expense, partially offset by a decrease in income taxes on operating earnings, as discussed above.
Interest Expense
The increase in interest expense for the three months ended March 31, 2022 compared to the prior period is due primarily to debt issuances by KKR's financing subsidiaries subsequent to March 31, 2021.
Income Taxes Paid
The increase in income taxes paid for the three months ended March 31, 20222023 compared to the prior period was primarily due to the higher levelissuances of Asset Management segment operating earnings.debt securities by KKR's financing subsidiaries.
After-tax DistributableIncome Taxes on Operating Earnings
The increasedecrease in after-tax distributableincome taxes on operating earnings for the three months ended March 31, 20222023 compared to the prior period was primarily due primarily to a higherlower level of distributableasset management segment operating earnings, partially offset by an increase in income taxes paidearnings.
For the three months ended March 31, 2023 and interest expense, as described above.
The2022, the amount of the tax benefit from equity-based compensation included in income taxes paid for the three months ended March 31, 2022was $13.7 million and 2021 was $11.8 million, and $43.0 million, respectively, and itsrespectively. The inclusion of the tax benefit from equity-based compensation in after-tax distributable earningsAfter-tax Distributable Earnings had the effect of increasing this measure by 1%2% and 7%1%, respectively.
Non-GAAP Balance Sheet Measures
Book Value
The following table presents our calculation of book value as of March 31, 20222023 and December 31, 2021:2022:
| | | | As of | | As of |
| | | | March 31, 2022 | | December 31, 2021 | | | | March 31, 2023 | | December 31, 2022 |
| | | | ($ in thousands) | | | | ($ in thousands) |
| | (+) | (+) | Cash and Short-term Investments | | $ | 4,830,014 | | | $ | 4,869,203 | | (+) | Cash and Short-term Investments | | $ | 2,766,099 | | | $ | 3,256,515 | |
| (+) | (+) | Investments | | 17,987,229 | | | 17,763,542 | | (+) | Investments | | 17,955,482 | | | 17,628,327 | |
| (+) | (+) | Net Unrealized Carried Interest (1) | | 4,194,193 | | | 4,967,401 | | (+) | Net Unrealized Carried Interest (1) | | 2,628,693 | | | 2,509,589 | |
| | (+) | (+) | Other Assets (2) | | 4,910,373 | | | 4,706,108 | | (+) | Other Assets, Net (2) | | 7,311,109 | | | 6,979,235 | |
| (+) | (+) | Global Atlantic Book Value | | 3,425,241 | | | 3,372,498 | | (+) | Global Atlantic Book Value | | 4,391,813 | | | 4,409,873 | |
| | (-) | (-) | Debt Obligations - KKR (excluding KFN and Global Atlantic) | | 5,804,287 | | | 5,836,267 | | (-) | Debt Obligations - KKR (excluding KFN and Global Atlantic) | | 6,778,452 | | | 6,957,932 | |
| (-) | (-) | Debt Obligations - KFN | | 948,517 | | | 948,517 | | (-) | Debt Obligations - KFN | | 948,517 | | | 948,517 | |
| (-) | (-) | Tax Liabilities, Net | | 2,583,489 | | | 2,697,317 | | (-) | Tax Liabilities, Net | | 1,771,224 | | | 1,648,600 | |
| (-) | (-) | Other Liabilities | | 1,020,430 | | | 774,711 | | (-) | Other Liabilities | | 899,868 | | | 911,612 | |
| (-) | (-) | Noncontrolling Interests | | 29,950 | | | 33,058 | | (-) | Noncontrolling Interests | | 29,288 | | | 32,843 | |
| | | Book Value | | $ | 24,960,377 | | | $ | 25,388,882 | | | Book Value | | $ | 24,625,847 | | | $ | 24,284,035 | |
| | | Book Value Per Adjusted Share | | $ | 28.45 | | | $ | 28.77 | | | Book Value Per Adjusted Share | | $ | 27.65 | | | $ | 27.27 | |
| | Adjusted Shares | | 877,397,862 | | | 882,589,036 | | | Adjusted Shares | | 890,621,712 | | | 890,628,190 | |
| | |
(1)The following table provides net unrealized carried interest by business line:
| | | | | | | | | | | | | | |
| | As of |
| | March 31, 2022 | | December 31, 2021 |
| | ($ in thousands) |
| Private Markets Business Line | | $ | 4,088,533 | | | $ | 4,856,843 | |
| Public Markets Business Line | | 105,660 | | | 110,558 | |
| Total | | $ | 4,194,193 | | | $ | 4,967,401 | |
| | | | | | | | | | | | | | |
| | As of |
| | March 31, 2023 | | December 31, 2022 |
| | ($ in thousands) |
| Private Equity Business Line | | $ | 2,231,530 | | | $ | 2,199,869 | |
| Real Assets Business Line | | 296,547 | | | 212,974 | |
| Credit and Liquid Strategies Business Line | | 100,616 | | | 96,746 | |
| Total | | $ | 2,628,693 | | | $ | 2,509,589 | |
(2)Other Assets, Net include KKR'sour (i) ownership interest in FS/KKR Advisor, and(ii) minority ownership interests in hedge fund partnerships.partnerships, and (iii) the net assets of KJRM.
Book value per adjusted share decreased (1)%increased 1% from December 31, 2021.2022. The decreaseincrease was primarily attributable to (i) a reductionan increase in net unrealized carried interest, from our carried interest eligible investment funds, most notably from Americas Fund XII, Global Infrastructure Investors III, and Asian Fund II,Asia Pacific Infrastructure Investors, and (ii) repurchases of our common stock, and (iii) payment of dividends during the period. Partially offsetting these decreases was the positive impact of our after-tax distributable earnings recognized in the period. Partially offsetting these increases was the payment of dividends during the period.
With respect to book value relating to the Asset Management business, for the three months ended March 31, 2022, the The value of the Asset Managementour asset management segment balance sheet portfolioinvestments remained flat and KKR's traditional private equity portfolio decreased by 5%.in the period. For a further discussion, see "—Unaudited Consolidated Results of Operations (GAAP Basis) - Asset Management—Investment Income (Loss) - Asset Management—Unrealized Gains and Losses from Investment Activities." For a discussion of the changes in KKR's private equityour investment portfolio, see "—Analysis of Asset Management Segment Operating Results—Assets Under Management." For a discussion of factors that impacted KKR's after-tax distributable earnings, see "—Analysis of Non-GAAP Performance Measures—After-tax Distributable Earnings" and for more information about the factors that may impact our business, financial performance, operating results and valuations, see "—Business Environment."
The following table presents the holdings of our investments in the Asset Managementasset management segment by asset class as of March 31, 2022.2023. To the extent investments are realized at values below their cost in future periods, after-tax distributable earnings would be adversely affected by the amount of such loss, if any, during the period in which the realization event occurs.
| | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2022 |
| | ($ in thousands) |
Investments (1) | | Cost | | Fair Value | | Fair Value as a Percentage of
Total Investments |
| | | | | | |
| Private Equity | | $ | 2,074,296 | | | $ | 4,394,266 | | | 24.4 | % |
| Core Private Equity | | 2,699,724 | | | 5,477,426 | | | 30.5 | % |
| Growth | | 299,662 | | | 855,865 | | | 4.8 | % |
| Private Equity, Core & Growth Total | | 5,073,682 | | | 10,727,557 | | | 59.6 | % |
| | | | | | |
| Energy | | 917,409 | | | 977,350 | | | 5.4 | % |
| Real Estate | | 2,092,721 | | | 2,523,561 | | | 14.0 | % |
| Infrastructure | | 672,591 | | | 838,403 | | | 4.7 | % |
| Real Assets Total | | 3,682,721 | | | 4,339,314 | | | 24.1 | % |
| | | | | | |
| Leveraged Credit | | 1,079,195 | | | 1,049,791 | | | 5.8 | % |
| Alternative Credit | | 838,108 | | | 979,936 | | | 5.4 | % |
| Credit Total | | 1,917,303 | | | 2,029,727 | | | 11.3 | % |
| | | | | | |
| Other | | 980,869 | | | 890,631 | | | 5.0 | % |
| | | | | | |
| Total Investments | | $ | 11,654,575 | | | $ | 17,987,229 | | | 100.0 | % |
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| | As of March 31, 2023 |
| | ($ in thousands) |
Investments (1) | | Cost | | Fair Value | | Fair Value as a Percentage of
Total Investments |
| | | | | | |
| Traditional Private Equity | | $ | 2,014,797 | | | $ | 3,391,315 | | | 18.9 | % |
| Core Private Equity | | 2,716,688 | | | 5,700,661 | | | 31.7 | % |
| Growth Equity | | 356,578 | | | 875,673 | | | 4.9 | % |
| Private Equity Total | | 5,088,063 | | | 9,967,649 | | | 55.5 | % |
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| Energy | | 849,164 | | | 841,978 | | | 4.7 | % |
| Real Estate | | 1,801,180 | | | 1,873,726 | | | 10.4 | % |
| Infrastructure | | 1,154,221 | | | 1,362,629 | | | 7.6 | % |
| Real Assets Total | | 3,804,565 | | | 4,078,333 | | | 22.7 | % |
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| Leveraged Credit | | 1,305,853 | | | 1,066,071 | | | 5.9 | % |
| Alternative Credit | | 849,719 | | | 900,032 | | | 5.0 | % |
| Credit Total | | 2,155,572 | | | 1,966,103 | | | 10.9 | % |
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| Other | | 2,297,519 | | | 1,943,397 | | | 10.9 | % |
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| Total Investments | | $ | 13,345,719 | | | $ | 17,955,482 | | | 100.0 | % |
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(1)Investments is a term used solely for purposes of financial presentation of a portion of KKR's balance sheet and includes majority ownership of subsidiaries that operate KKR's asset management and insurance businesses, including the general partner interests of KKR's investment funds. Investments presented are principally the assets measured at fair value that are held by KKR's asset management segment, which, among other things, does not include the underlying investments held by Global Atlantic and Marshall Wace.
| | | | | | | As of March 31, 2022 | | As of March 31, 2023 |
| | ($ in thousands) | | ($ in thousands) |
Top 20 Investments: (1) | Top 20 Investments: (1) | | Cost | | Fair Value | | Top 20 Investments: (1) | | Cost | | Fair Value | |
| USI, Inc. | | USI, Inc. | | $ | 531,425 | | | $ | 1,300,380 | | |
| PetVet Care Centers, LLC | PetVet Care Centers, LLC | | $ | 243,211 | | | $ | 1,216,055 | | | PetVet Care Centers, LLC | | 243,211 | | | 1,143,092 | | |
| USI, Inc. | | 531,425 | | | 1,094,073 | | | |
| Heartland Dental, LLC | Heartland Dental, LLC | | 320,656 | | | 833,705 | | | Heartland Dental, LLC | | 320,656 | | | 769,574 | | |
| Fiserv, Inc. (NASDAQ: FISV) | | 309,988 | | | 697,578 | | | |
| Exact Group B.V. | Exact Group B.V. | | 213,362 | | | 478,966 | | | Exact Group B.V. | | 213,362 | | | 568,585 | | |
| Arnott's Biscuits Limited | Arnott's Biscuits Limited | | 250,841 | | | 452,008 | | | Arnott's Biscuits Limited | | 250,841 | | | 468,984 | | |
| 1-800 Contacts Inc. | | 1-800 Contacts Inc. | | 300,178 | | | 405,243 | | |
| Internet Brands, Inc. | | Internet Brands, Inc. | | 340,312 | | | 372,628 | | |
| Barracuda Networks, Inc. | | Barracuda Networks, Inc. | | 343,092 | | | 343,092 | | |
| ERM Worldwide Group Limited | | ERM Worldwide Group Limited | | 228,710 | | | 343,065 | | |
| IVIRMA Global SL | | IVIRMA Global SL | | 321,261 | | | 321,083 | | |
| Teaching Strategies, LLC | | Teaching Strategies, LLC | | 307,162 | | | 307,162 | | |
| Crescent Energy Company (NYSE: CRGY) | Crescent Energy Company (NYSE: CRGY) | | 561,818 | | | 439,388 | | | Crescent Energy Company (NYSE: CRGY) | | 527,030 | | | 286,861 | | |
| 1-800 Contacts Inc. | | 300,178 | | | 360,214 | | | |
| Teaching Strategies, LLC | | 307,162 | | | 307,162 | | | |
| Roompot B.V. | | Roompot B.V. | | 193,578 | | | 259,599 | | |
| Shriram General Insurance Co. | | Shriram General Insurance Co. | | 245,470 | | | 252,946 | | |
| Resolution Life Group Holdings, L.P. | Resolution Life Group Holdings, L.P. | | 262,191 | | | 304,136 | | | Resolution Life Group Holdings, L.P. | | 262,191 | | | 228,659 | | |
| Roompot B.V. | | 193,578 | | | 258,973 | | | |
| KKR Real Estate Finance Trust Inc. (NYSE: KREF) | | 231,563 | | | 238,625 | | | |
| ERM Worldwide Group Limited | | 228,710 | | | 228,710 | | | |
| Atlantic Aviation FBO Inc. | | Atlantic Aviation FBO Inc. | | 170,274 | | | 203,570 | | |
| BridgeBio Pharma, Inc. (NASDAQ: BBIO) | | BridgeBio Pharma, Inc. (NASDAQ: BBIO) | | 59,799 | | | 198,684 | | |
| Viridor Limited | Viridor Limited | | 154,390 | | | 226,392 | | | Viridor Limited | | 132,023 | | | 186,878 | | |
| AppLovin Corporation (NASDAQ: APP) | | 15,495 | | | 218,854 | | | |
| GenesisCare Pty Ltd. | | 177,059 | | | 177,059 | | | |
| Veresen Midstream | | 92,674 | | | 154,228 | | | |
| PortAventura | | PortAventura | | 155,803 | | | 174,835 | | |
| The Bay Clubs Company, LLC | The Bay Clubs Company, LLC | | 139,001 | | | 152,901 | | | The Bay Clubs Company, LLC | | 160,127 | | | 160,127 | | |
| Atlantic Aviation FBO Inc. | | 127,914 | | | 145,279 | | | |
| Kokusai Electric Corporation | | 10,206 | | | 143,540 | | | |
| Total Top 20 Investments | Total Top 20 Investments | | $ | 4,671,422 | | | $ | 8,127,846 | | | Total Top 20 Investments | | $ | 5,306,505 | | | $ | 8,295,047 | | |
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(1)This list of investments identifies the twenty largest companies or assets based on their fair values as of March 31, 2022.2023. It does not deduct fund or vehicle level debt, if any, incurred in connection with funding the investment. This list excludes (i) investments expected to be syndicated, (ii) investments expected to be transferred in connection with a new fundraising, (iii) investments in funds and other entities that are owned by one or more third parties and established for the purpose of making investments and (iv) the portion of any investment that may be held through collateralized loan obligations or levered multi-asset investment vehicles, if any. For additional information about the asset classes of the investments held on KKR's balance sheet see "—Our Business—Principal Activities" for the "Holdings by Asset Class" pie chart. The fair value figures include the co-investment and the limited partner and/or general partner interests held by KKR in the underlying investment, if applicable.
With respect to KKR's book value relating to its insurance business, KKR includes Global Atlantic's book value, which consists of KKR's pro rata equity interest in Global Atlantic on a GAAP basis, excluding (i) accumulated other comprehensive income and (ii) accumulated change in fair value of reinsurance embedded derivative balances and related assets, net of deferred acquisition costs and income tax. KKR believes this presentation of Global Atlantic's book value is comparable with the corresponding metric presented by other publicly traded companies in Global Atlantic's industry. As of March 31, 2022,2023, KKR's pro rata interest in Global Atlantic's book value was $3.4$4.4 billion. For more information about the composition and credit quality of Global Atlantic's investments on a consolidated basis, please see "—Global Atlantic's Investment Portfolio" below.
Global Atlantic's Investment Portfolio
As of March 31, 2022, 96%2023, 95% and 86%87% of Global Atlantic's AFSavailable-for-sale ("AFS") fixed maturity securities were considered investment grade under ratings from the Securities Valuation Office of the National Association of Insurance Commissioners ("NAIC")NAIC and nationally recognized statistical rating organizations ("NRSROs"),NRSROs, respectively. As of December 31, 2021, 97%2022, 95% and 87%85% of Global Atlantic's AFS fixed maturity securities were considered investment grade under ratings from NAIC and nationally recognized statistical rating organizations ("NRSROs"),NRSROs, respectively. Securities where a rating by an NRSRO was not available are considered investment grade if they have an NAIC designation of “1” or “2.” The three largest asset categories in Global Atlantic's AFS fixed-maturity security portfolio as of March 31, 20222023 were Corporate, RMBS and CMBS securities, comprising 31%, 6%5% and 5% of Global Atlantic's investment portfolio, respectively. Within these categories, 95%94%, 97%96% and 99%95% of Global Atlantic's Corporate, RMBS and CMBS securities, respectively, were investment grade according to NAIC ratings and 95%94%, 39%52% and 52%54% of its Corporate, RMBS and CMBS securities, respectively, were investment grade according to NRSRO ratings as of March 31, 2022.2023. The three largest asset categories in Global Atlantic's available-for-saleAFS fixed-maturity security portfolio as of December 31, 20212022 were Corporate, RMBS and CMBS securities, comprising 34%29%, 6%5% and 5% of Global Atlantic's investment portfolio, respectively. Within these categories, 95%94%, 96%95% and 99%95% of Global Atlantic's Corporate, RMBS and CMBS securities,
CMBS securities, respectively, were investment grade according to NAIC ratings and 95%94%, 38%45% and 62%53% of its Corporate, RMBS and CMBS securities, respectively, were investment grade according to NRSRO ratings as of December 31, 2021.2022. NRSRO and NAIC ratings have different methodologies. Global Atlantic believes the NAIC ratings methodology, which considers the likelihood of recovery of amortized cost as opposed to the recovery of all contractual payments including the principal at par, as the more appropriate way to view the ratings quality of its AFS fixed maturity portfolio since a large portion of its holdings were purchased at a significant discount to par value. The portion of Global Atlantic's AFS fixed maturityinvestment portfolio consisting of floating rate assets was 39%30% and 36%29% as of March 31, 20222023 and December 31, 2021,2022, respectively.
Within the funds withheld receivable at interest portfolio, 96%97% of the fixed maturity securities were investment grade by NAIC designation as of both March 31, 20222023 and December 31, 2021.2022.
Trading fixed maturity securities back funds withheld payable at interest where the investment performance is ceded to reinsurers under the terms of the respective reinsurance agreements.
Credit quality of AFS fixed maturity securities
The Securities Valuation Office of the NAIC evaluates the AFS fixed maturity security investments of insurers for regulatory reporting and capital assessment purposes and assigns securities to one of six credit quality categories called “NAIC designations.” Using an internally developed rating is permitted by the NAIC if no rating is available. These designations are generally similar to the credit quality designations of NRSROs for marketable fixed maturity securities, except for certain structured securities as described below. NAIC designations of “1,” highest quality, and “2,” high quality, include fixed maturity securities generally considered investment grade by NRSROs. NAIC designations “3” through “6” include fixed maturity securities generally considered below investment grade by NRSROs.
Consistent with the NAIC Process and Procedures Manual, an NRSRO rating was assigned based on the following criteria: (i) the equivalent S&P rating where the security is rated by one NRSRO; (ii) the equivalent S&P rating of the lowest NRSRO when the security is rated by two NRSROs; and (iii) the equivalent S&P rating of the second lowest NRSRO if the security is rated by three or more NRSROs. If the lowest two NRSROs’ ratings are equal, then such rating will be the assigned rating. NRSROs’ ratings available for the periods presented were S&P, Fitch, Moody’s, DBRS, Inc. and Kroll Bond Rating Agency, Inc. If no rating is available from a rating agency, then an internally developed rating is used.
Substantially all of the AFS fixed maturity securities portfolio, 96% and 97%95% as of both March 31, 20222023 and December 31, 2021, respectively, were2022 was invested in investment grade assets with a NAIC rating of 1 or 2.
The portion of the AFS fixed maturity securities portfolio that was considered below investment grade by NAIC designation was 4% and 3%5% as of both March 31, 20222023 and December 31, 2021, respectively.2022. Pursuant to Global Atlantic's investment guidelines, Global Atlantic actively monitors the percentage of its portfolio that is held in investments rated NAIC 3 or lower and must obtain an additional approval from Global Atlantic's management investment committee before making a significant investment in an asset rated NAIC 3 or lower.
As of March 31, 2022 and December 31, 2021, the non-rated AFS fixed-maturity securities include $145.5 million and $118.8 million, respectively, of private placement securities for which Global Atlantic has not sought individual ratings from the NRSROs.
Corporate fixed maturity securities
Global Atlantic maintains a diversified portfolio of corporate fixed maturity securities across industries and issuers. As of both March 31, 20222023 and December 31, 2021, 58% and 60%, respectively,2022, 59% of the AFS fixed maturity securities portfolio was invested in corporate fixed maturity securities. As of both March 31, 2023 and December 31, 2022, approximately, 5% of the portfolio is denominated in foreign currency.
As of both March 31, 20222023 and December 31, 2021, 95%2022, 94% of the total fair value of corporate fixed maturity securities is rated NAIC investment grade and 95%94% is rated NRSROs investment grade. grade, respectively.
Residential mortgage-backed securities
As of both March 31, 20222023 and December 31, 2021, 11%2022, 10% of the AFS fixed maturity securities portfolio was invested in RMBS.RMBS, respectively. RMBS are securities constructed from pools of residential mortgages and backed by payments from those pools. Excluding limitations on access to lending and other extraordinary economic conditions, Global Atlantic would expect prepayments of principal on the underlying loans to accelerate with decreases in market interest rates and diminish with increases in market interest rates.
The NAIC designations for RMBS, including prime, sub-prime, alt-A, and adjustable rate mortgages with variable payment options ("Option ARM"), are based upon a comparison of the bond’s amortized cost to the NAIC’s loss expectation for each security. Accordingly, an investment in the same security at a lower cost may result in a higher quality NAIC designation in recognition of the lower likelihood the investment would result in a realized loss. Prime residential mortgage lending includes loans to the most creditworthy borrowers with high quality credit profiles. Alt-A is a classification of mortgage loans where the risk profile of the borrower is between prime and sub-prime. Sub-prime mortgage lending is the origination of residential mortgage loans to borrowers with weak credit profiles.
As of March 31, 20222023 and December 31, 2021, 94%2022, 91% and 93%90%, respectively, of RMBS securities that are below investment grade as rated by the NRSRO, carry an NAIC 1 ("highest quality") designation.
As of March 31, 2023, Alt-A, Option ARM, Re-Performing and Sub-prime represent 27%, 24%, 21% and 10% of the total RMBS portfolio ($7.0 billion), respectively. As of December 31, 2022, Alt-A, Option ARM, Re-Performing and Sub-prime represent 33%31%, 30%28%, 14% and 12% of the total RMBS portfolio ($7.2 billion), respectively. As of December 31, 2021, Alt-A, Option ARM, Re-Performing and Sub-prime represent 33%, 30%, 14% and 12% of the total RMBS portfolio ($7.76.4 billion), respectively.
Unrealized gains and losses for AFS fixed maturity securities
Global Atlantic's investments in AFS fixed maturity securities are reported at fair value with changes in fair value recorded in other comprehensive income as unrealized gains or losses, net of taxes and offsets. Unrealized gains and losses can be created by changes in interest rates or by changes in credit spreads.
As of March 31, 20222023 and December 31, 2021,2022, Global Atlantic had gross unrealized losses on below investment grade AFS fixed maturity securities of $222.9$925.0 million and $80.3$917.6 million based on NRSRO rating and $22.9$222.0 million and $13.5$224.9 million based on NAIC ratings, respectively. During the three months ended March 31, 2023, unrealized losses of $26.7 million were recognized in net income on these debt securities since, as of March 31, 2023, there were specific securities that, as of the balance sheet date, Global Atlantic intended to sell or Global Atlantic believed it was more likely than not that it will be required to sell before recovery of their cost or amortized cost basis. As of March 31, 2022, no loss was recognized as Global Atlantic did not believe there were specific securities that, as of that date, it intended to, or would be required to sell before recovery.
Mortgage and other loan receivables - Credit quality indicators
Mortgage and other loan receivables consist of commercial and residential mortgage loans, and other loan receivables. As of March 31, 20222023 and December 31, 2021, 25%2022, 27% and 23%28%, respectively, of Global Atlantic's total investments consisted of mortgage and other loan receivables. Global Atlantic invests in U.S. mortgage loans, comprised of first lien and mezzanine real estate loans, residential mortgage loans, consumer loans, and other loan receivables.
Global Atlantic's commercial mortgage loans may also be rated based on NAIC designations, with designations “CM1” and “CM2” considered to be investment grade. As of both March 31, 20222023 and December 31, 2021, 96%2022, 89% and 88% of the commercial mortgage loan portfolio was rated investment grade based on NAIC designation. 100%designation, respectively. 99% of the commercial mortgage loan portfolio is in current status.
As of March 31, 2022, 95%2023, 96% of the residential mortgage loan portfolio is in current status, and approximately $213.1$221.0 million is over 90 days or more past due (representing 2% of the total residential mortgage portfolio).
The loan-to-value ratio is expressed as a percentage of the current amount of the loan relative to the value of the underlying collateral. Approximately 84% of the commercial mortgage loans has a loan-to-value ratio of 70% or less and a 0.2%2% has loan-to-value ratio over 90%.
Changing economic conditions affect Global Atlantic’s valuation of commercial mortgage loans. Changing vacancies and rents are incorporated into the discounted cash flow analysis that Global Atlantic performs for monitored loans and may contribute to the establishment of (or increase or decrease in) a commercial mortgage loan valuation allowance for losses. In addition, Global Atlantic continuously monitors its commercial mortgage loan portfolio to identify risk. Areas of emphasis are properties that have exposure to specific geographic events or have deteriorating credit.
The weighted average loan-to-value ratio for residential mortgage loans was 66%65% and 68%64% as of March 31, 20222023 and December 31, 2021,2022, respectively.
Global Atlantic's residential mortgage loan portfolio is comprised mainly of re-performing loans that were purchased at a discount after they were modified and returned to performing status, as well as prime jumbo loans and mortgage loans backed by single family rental properties. Global Atlantic has also extended financing to counterparties in the form of repurchase agreements secured by mortgage loans, including performing and non-performing mortgage loans.
Global Atlantic’s consumer loan portfolio is primarily comprised of home improvement loans, solar panel loans, student loans and auto loans.
Table As of ContentsMarch 31, 2023, 97% of the consumer loan portfolio is in current status and approximately $35.2 million is 90 days or more past due (representing less than 1% of the total consumer loan portfolio).Reconciliations to GAAP Measures
The following tables reconcile the most directly comparable financial measures calculated and presented in accordance with GAAP to KKR's non-GAAP financial measures for the three months ended March 31, 20222023 and 2021:2022:
Revenues
| | | | Three Months Ended | | | Three Months Ended | |
| | | March 31, 2022 | | March 31, 2021 | | | March 31, 2023 | | March 31, 2022 | |
| | | ($ in thousands) | | ($ in thousands) |
| Total GAAP Revenues | Total GAAP Revenues | $ | 1,004,017 | | | $ | 4,563,006 | | | Total GAAP Revenues | $ | 3,127,482 | | | $ | 999,363 | | |
| Impact of Consolidation and Other | Impact of Consolidation and Other | 213,400 | | | 123,448 | | | Impact of Consolidation and Other | 209,778 | | | 213,400 | | |
| Asset Management Adjustments: | Asset Management Adjustments: | | | Asset Management Adjustments: | | |
| Capital Allocation-Based Income (GAAP) | 945,743 | | | (2,684,647) | | | |
| Capital Allocation-Based Income (Loss) (GAAP) | | Capital Allocation-Based Income (Loss) (GAAP) | (449,018) | | | 945,743 | | |
| Realized Carried Interest | Realized Carried Interest | 579,767 | | | 165,142 | | | Realized Carried Interest | 172,689 | | | 579,767 | | |
| Realized Investment Income | Realized Investment Income | 349,354 | | | 461,273 | | | Realized Investment Income | 198,094 | | | 349,354 | | |
| Capstone Fees | Capstone Fees | (15,485) | | | (20,080) | | | Capstone Fees | (19,805) | | | (15,485) | | |
| Expense Reimbursements | Expense Reimbursements | (41,303) | | | (27,729) | | | Expense Reimbursements | (15,544) | | | (41,303) | | |
| Insurance Adjustments: | Insurance Adjustments: | | | Insurance Adjustments: | | |
| Net Premiums | Net Premiums | (372,144) | | | (1,176,142) | | | Net Premiums | (473,624) | | | (372,144) | | |
| Policy Fees | Policy Fees | (318,436) | | | (201,683) | | | Policy Fees | (313,802) | | | (313,782) | | |
| Other Income | Other Income | (34,744) | | | (18,144) | | | Other Income | (37,158) | | | (34,744) | | |
| Investment Gains and Losses | 167,102 | | | 259,168 | | | |
| Derivative Gains and Losses | 286,721 | | | 220,581 | | | |
(Gains) Losses from Investments (1) | | (Gains) Losses from Investments (1) | 260,507 | | | 167,102 | | |
| Non-operating Changes in Policy Liabilities and Derivatives | | Non-operating Changes in Policy Liabilities and Derivatives | (112,776) | | | 286,721 | | |
Total Segment Revenues (1)(2) | Total Segment Revenues (1)(2) | $ | 2,763,992 | | | $ | 1,664,193 | | | Total Segment Revenues (1)(2) | $ | 2,546,823 | | | $ | 2,763,992 | | |
(1)Includes (gains) losses on funds withheld receivables and payables embedded derivatives.
(2)Total Segment Revenues is comprised of (i) Management Fees, (ii) Transaction and Monitoring Fees, Net, (iii) Fee Related Performance Revenues, (iv) Realized Performance Income, (v) Realized Investment Income, and (vi) Net Investment Income.
Net Income (Loss) Attributable to KKR & Co. Inc. Common Stockholders | | | Three Months Ended | | | Three Months Ended | |
| | | March 31, 2022 | | March 31, 2021 | | | March 31, 2023 | | March 31, 2022 | |
| | | ($ in thousands) | | ($ in thousands) |
| Net Income (Loss) Attributable to KKR & Co. Inc. Common Stockholders (GAAP) | Net Income (Loss) Attributable to KKR & Co. Inc. Common Stockholders (GAAP) | $ | (73,770) | | | $ | 1,644,245 | | | Net Income (Loss) Attributable to KKR & Co. Inc.
Common Stockholders (GAAP) | $ | 322,744 | | | $ | (9,786) | | |
| Preferred Stock Dividends | Preferred Stock Dividends | 17,250 | | | 25,591 | | | Preferred Stock Dividends | 17,250 | | | 17,250 | | |
| Net Income (Loss) Attributable to Noncontrolling Interests | Net Income (Loss) Attributable to Noncontrolling Interests | 1,159,122 | | | 2,245,531 | | | Net Income (Loss) Attributable to Noncontrolling Interests | (80,306) | | | 1,244,924 | | |
| Income Tax Expense (Benefit) | Income Tax Expense (Benefit) | (3,166) | | | 438,739 | | | Income Tax Expense (Benefit) | 148,747 | | | 36,651 | | |
| Income (Loss) Before Tax (GAAP) | Income (Loss) Before Tax (GAAP) | $ | 1,099,436 | | | $ | 4,354,106 | | | Income (Loss) Before Tax (GAAP) | $ | 408,435 | | | $ | 1,289,039 | | |
| Impact of Consolidation and Other | Impact of Consolidation and Other | (1,239,936) | | | (1,378,567) | | | Impact of Consolidation and Other | 93,511 | | | (1,307,942) | | |
Equity-based Compensation - KKR Holdings | Equity-based Compensation - KKR Holdings | 19,821 | | | 16,434 | | | Equity-based Compensation - KKR Holdings | — | | | 19,821 | | |
| Preferred Stock Dividends | — | | | (8,341) | | | |
| Income Taxes Paid | (197,842) | | | (151,120) | | | |
| | Income Taxes on Operating Earnings | | Income Taxes on Operating Earnings | (173,057) | | | (220,279) | | |
| Asset Management Adjustments: | Asset Management Adjustments: | | | Asset Management Adjustments: | | |
| Unrealized (Gains) Losses | | Unrealized (Gains) Losses | 99,327 | | | 322,269 | | |
| Unrealized Carried Interest | Unrealized Carried Interest | 1,290,033 | | | (2,109,018) | | | Unrealized Carried Interest | (202,659) | | | 1,290,033 | | |
| Net Unrealized (Gains) Losses | 322,269 | | | (1,316,644) | | | |
| Unrealized Carried Interest Compensation (Carry Pool) | Unrealized Carried Interest Compensation (Carry Pool) | (513,987) | | | 896,907 | | | Unrealized Carried Interest Compensation (Carry Pool) | 83,830 | | | (513,987) | | |
| Strategic Corporate Transaction-Related Charges | 19,898 | | | 4,875 | | | |
| Strategic Corporate Related Charges | | Strategic Corporate Related Charges | 6,807 | | | 19,898 | | |
| Equity-based Compensation | Equity-based Compensation | 55,111 | | | 49,761 | | | Equity-based Compensation | 59,017 | | | 55,111 | | |
| Equity-based Compensation - Performance based | Equity-based Compensation - Performance based | 57,953 | | | 14,556 | | | Equity-based Compensation - Performance based | 67,273 | | | 57,953 | | |
| Insurance Adjustments: | Insurance Adjustments: | | | Insurance Adjustments: | | |
| Net (Gains) Losses from Investments and Derivatives | 48,735 | | | 289,235 | | | |
| Strategic Corporate Transaction-Related Charges | 5,007 | | | 4,819 | | | |
| Equity-based and Other Compensation | 31,711 | | | 7,411 | | | |
| Amortization of Acquired Intangibles | 4,412 | | | 2,451 | | | |
| Income Taxes | (34,106) | | | (16,626) | | | |
(Gains) Losses from Investments(2)(3) | | (Gains) Losses from Investments(2)(3) | 131,114 | | | 129,032 | | |
Non-operating Changes in Policy Liabilities and Derivatives(2) | | Non-operating Changes in Policy Liabilities and Derivatives(2) | 106,491 | | | (192,201) | | |
Strategic Corporate Related Charges(2) | | Strategic Corporate Related Charges(2) | — | | | 3,079 | | |
Equity-based and Other Compensation(2) | | Equity-based and Other Compensation(2) | 36,393 | | | 19,498 | | |
Amortization of Acquired Intangibles(2) | | Amortization of Acquired Intangibles(2) | 2,794 | | | 2,713 | | |
| | After-tax Distributable Earnings | After-tax Distributable Earnings | $ | 968,515 | | | $ | 660,239 | | | After-tax Distributable Earnings | $ | 719,276 | | | $ | 974,037 | | |
| Interest Expense | Interest Expense | 69,460 | | | 57,545 | | | Interest Expense | 85,500 | | | 69,460 | | |
| Preferred Stock Dividends | — | | | 8,341 | | | |
| | Net Income Attributable to Noncontrolling Interests | Net Income Attributable to Noncontrolling Interests | 7,616 | | | 3,192 | | | Net Income Attributable to Noncontrolling Interests | 5,626 | | | 7,616 | | |
| Income Taxes Paid | 197,842 | | | 151,120 | | | |
| Income Taxes on Operating Earnings | | Income Taxes on Operating Earnings | 173,057 | | | 220,279 | | |
| Distributable Operating Earnings | Distributable Operating Earnings | $ | 1,243,433 | | | $ | 880,437 | | | Distributable Operating Earnings | $ | 983,459 | | | $ | 1,271,392 | | |
| Insurance Segment Operating Earnings | Insurance Segment Operating Earnings | (115,988) | | | (63,265) | | | Insurance Segment Operating Earnings | (205,112) | | | (143,947) | | |
| Realized Performance Income | Realized Performance Income | (609,207) | | | (171,309) | | | Realized Performance Income | (175,398) | | | (609,207) | | |
| Realized Performance Income Compensation | Realized Performance Income Compensation | 383,635 | | | 109,986 | | | Realized Performance Income Compensation | 114,009 | | | 383,635 | | |
| Realized Investment Income | Realized Investment Income | (349,354) | | | (461,273) | | | Realized Investment Income | (198,094) | | | (349,354) | | |
| Realized Investment Income Compensation | Realized Investment Income Compensation | 52,403 | | | 69,191 | | | Realized Investment Income Compensation | 29,714 | | | 52,403 | | |
| Fee Related Earnings | Fee Related Earnings | $ | 604,922 | | | $ | 363,767 | | | Fee Related Earnings | $ | 548,578 | | | $ | 604,922 | | |
| Insurance Segment Operating Earnings | Insurance Segment Operating Earnings | 115,988 | | | 63,265 | | | Insurance Segment Operating Earnings | 205,112 | | | 143,947 | | |
| Realized Performance Income | Realized Performance Income | 609,207 | | | 171,309 | | | Realized Performance Income | 175,398 | | | 609,207 | | |
| Realized Performance Income Compensation | Realized Performance Income Compensation | (383,635) | | | (109,986) | | | Realized Performance Income Compensation | (114,009) | | | (383,635) | | |
| Realized Investment Income | Realized Investment Income | 349,354 | | | 461,273 | | | Realized Investment Income | 198,094 | | | 349,354 | | |
| Realized Investment Income Compensation | Realized Investment Income Compensation | (52,403) | | | (69,191) | | | Realized Investment Income Compensation | (29,714) | | | (52,403) | | |
| Depreciation and Amortization | Depreciation and Amortization | 7,565 | | | 6,164 | | | Depreciation and Amortization | 10,434 | | | 7,565 | | |
| Adjusted EBITDA | Adjusted EBITDA | $ | 1,250,998 | | | $ | 886,601 | | | Adjusted EBITDA | $ | 993,893 | | | $ | 1,278,957 | | |
(2)Amounts represent the portion allocable to KKR & Co. Inc.
(3)Includes (gains) losses on funds withheld receivables and payables embedded derivatives.
KKR & Co. Inc. Stockholders' Equity - Common Stock
| | | | | | | | | | | |
| As of |
| March 31, 2022 | | December 31, 2021 |
| ($ in thousands) |
| KKR & Co. Inc. Stockholders' Equity - Series I and II Preferred Stock, Common Stock | $ | 14,598,495 | | | $ | 16,466,372 | |
| Series C Mandatory Convertible Preferred Stock | 1,115,792 | | | 1,115,792 | |
Impact of Consolidation and Other (1) | (997,841) | | | (1,048,569) | |
| KKR Holdings and Other Exchangeable Securities | 7,955,606 | | | 8,595,510 | |
| Accumulated Other Comprehensive Income (AOCI) and Other (Insurance) | 2,288,325 | | | 259,777 | |
| Book Value | $ | 24,960,377 | | | $ | 25,388,882 | |
(1) Includes an adjustment to book value to reflect the implied amount of (1) tax assets and liabilities attributable to KKR Holdings L.P. as if it was subject to corporate income taxes and (2) the recognition of deferred tax liabilities relating to certain assets of KKR Group Partnership L.P. that is expected to occur upon the completion of the mergers contemplated by the Reorganization Agreement. The impact of this adjustment was a reduction to book value of $1,333 million and $1,396 million as of March 31, 2022 and December 31, 2021, respectively.
| | | | | | | | | | | |
| As of |
| March 31, 2023 | | December 31, 2022 |
| ($ in thousands) |
| KKR & Co. Inc. Stockholders' Equity - Common Stock | $ | 18,546,889 | | | $ | 17,691,975 | |
| Series C Mandatory Convertible Preferred Stock | 1,115,792 | | | 1,115,792 | |
| Impact of Consolidation and Other | 398,751 | | | 399,318 | |
| Exchangeable Securities | 205,668 | | | 128,850 | |
| Accumulated Other Comprehensive Income (AOCI) and Other (Insurance) | 4,358,747 | | | 4,948,100 | |
| Book Value | $ | 24,625,847 | | | $ | 24,284,035 | |
The following table provides a reconciliation of KKR's GAAP Shares of Common Stock Outstanding to Adjusted Shares:
| | | | As of | | As of |
| | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| GAAP Shares of Common Stock Outstanding | GAAP Shares of Common Stock Outstanding | 590,472,444 | | | 595,663,618 | | GAAP Shares of Common Stock Outstanding | 861,104,000 | | | 861,110,478 | |
| Adjustments: | Adjustments: | | Adjustments: | |
| KKR Holdings Units | 258,726,163 | | | 258,726,163 | | |
Other Exchangeable Securities (1) | 1,376,655 | | | 1,376,655 | | |
| Exchangeable Securities (1) | | Exchangeable Securities (1) | 2,695,142 | | | 2,695,142 | |
Common Stock - Series C Mandatory Convertible Preferred Stock (2) | Common Stock - Series C Mandatory Convertible Preferred Stock (2) | 26,822,600 | | | 26,822,600 | | Common Stock - Series C Mandatory Convertible Preferred Stock (2) | 26,822,570 | | | 26,822,570 | |
Adjusted Shares (3) | Adjusted Shares (3) | 877,397,862 | | | 882,589,036 | | Adjusted Shares (3) | 890,621,712 | | | 890,628,190 | |
| | Unvested Shares of Common Stock and Other Exchangeable Securities (4) | 39,551,313 | | | 39,000,561 | | |
Unvested Equity Awards and Exchangeable Securities (4) | | Unvested Equity Awards and Exchangeable Securities (4) | 35,317,288 | | | 35,457,274 | |
|
(1)Consists of vested restricted holdings units granted under our 2019 Equity Incentive Plan, which are exchangeable for shares of KKR & Co. Inc. common stock on a one-for-one basis.
(2)Assumes that all shares of Series C Mandatory Convertible Preferred Stock have been converted into shares of KKR & Co. Inc. common stock on March 31, 20222023 and December 31, 2021.2022.
(3)Amounts exclude unvested equity awards granted under our Equity Incentive Plans.
(4)Represents equity awards granted under our Equity Incentive Plans. The issuance of common stock of KKR & Co. Inc. pursuant to equity awards under our Equity Incentive Plans dilutes KKR common stockholders and KKR Holdings pro rata in accordance with their respective ownership interests in the KKR business. Excludes market condition awards that did not meet their market-price based vesting conditions as of March 31, 20222023 and December 31, 2021.2022.
Liquidity
We manage our liquidity and capital requirements by (i)(a) focusing on our cash flows before the consolidation of our funds and CFEs and the effect of changes in short term assets and liabilities, which we anticipate will be settled for cash within one year, and (ii)(b) seeking to maintain access to sufficient liquidity through various sources. The overall liquidity framework and cash management approach of our insurance business are also based on seeking to build an investment portfolio that is cash flow matched, providing cash inflows from insurance assets that meet our insurance companies' expected cash outflows to pay their liabilities. Our primary cash flow activities typically involve: (i) generating cash flow from operations; (ii) generating income from investment activities, by investing in investments that generate yield (namely interest and dividends), as well as through the sale of investments and other assets; (iii) funding capital commitments that we have made to, and advancing capital to, our funds and CLOs; (iv) developing and funding new investment strategies, investment products, and other growth initiatives, including acquisitions of other investments, assets, and businesses; (v) underwriting and funding capital commitments in our capital markets business; (vi) distributing cash flow to our stockholders and holders of our preferred stock; and (vii) paying borrowings, interest payments, and repayments under credit agreements, our senior and subordinated notes, and other borrowing arrangements. See "—Liquidity—Liquidity Needs—Dividends."
See "—Business Environment" for more information on factors that may impact our business, financial performance, operating results and valuations.
Sources of Liquidity
Our primary sources of liquidity consist of amounts received from: (i) our operating activities, including the fees earned from our funds, portfolio companies, and capital markets transactions; (ii) realizations on carried interest from our investment funds; (iii) interest and dividends from investments that generate yield, including our investments in CLOs; (iv) in our insurance business, cash inflows in respect of new premiums, policyholder deposits, reinsurance transactions and funding agreements, including through memberships in Federal Home Loan Banks; (v) realizations on and sales of investments and other assets, including the transfers of investments or other assets for fund formations (including CLOs and other investment vehicles); and (vi) borrowings, including advances under our revolving credit facilities, debt offerings, committed repurchase agreements, uncommitted financing, and other borrowing arrangements. In addition, we may generate cash proceeds from issuances of our or our subsidiaries' equity securities.
Many of our investment funds like our private equity and real assets funds provide for carried interest. With respect to our private equitycarry-paying investment funds, carried interest is eligible to be distributed to the general partner of a private equitythe fund with a clawback provision 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. Even after all of the preceding conditions are met, the general partner of the fund may, in its sole discretion, decide to defer the distribution of carried interest to it to a later date. In addition, these funds generally include what is called a “clawback” provision, which provides that the general partner must return any carried interest that is paid in excess of what the general partner is entitled to receive at the end of the term of the fund, as discussed further below.
As of March 31, 2022,2023, certain of our investment funds had met the first and second criteria, as described above, but did not meet the third criteria. In these cases, carried interest accrues on the consolidated statement of operations, but will not be distributed in cash to us as the general partner of an investment fund upon a realization event. 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." When netting holes are present, realized gains on individual investments that would otherwise allow the general partner to receive carried interest distributions are instead used to return invested capital to our funds' limited partners in an amount equal to the netting hole. Once netting holes have been filled with either (a) return of capital equal to the netting hole for those investments where fair value is below cost or (b) increases in the fair value of those investments where fair value is below cost, then realized carried interest will be distributed to the general partner upon a realization event. A fund that is in a position to pay cash carry refers to a fund for which carried interest is expected to be paid to the general partner upon the next material realization event, which includes funds with no netting holes as well as funds with a netting hole that is sufficiently small in size such that the next material realization event would be expected to result in the payment of carried interest. Strategic investor partnerships with fund investors may require netting across the various funds in which they invest, which may reduce the carried interest we otherwise would have earned if such fund investors were to have invested in our funds without the existence of the strategic investor partnership. See "Risk Factors—Risks Related to Our Business—Strategic investor partnerships have longer investment periods and invest in multiple strategies, which may increase the possibility of a 'netting hole,' which will result in less carried interest for us, as well as clawback liabilities" in our Annual Report on Form 10-K for the year ended December 31, 2021.
As of March 31, 2022,2023, netting holes in excess of $50 million only existed at noneEuropean Fund V and Health Care Growth Fund in the amounts of our private equity funds.$86 million and $60 million, respectively. In accordance with the criteria set forth above, other funds currently have and may in the future develop netting holes, and netting holes for those and other funds may otherwise increase or decrease in the future.
We have access to funding under various credit facilities, other borrowing arrangements and other sources of liquidity that we have entered into with major financial institutions or which we receive from the capital markets.
For a discussion of our debt obligations, including our debt securities, revolving credit agreements and loans, see Note 17 "Debt Obligations" in our financial statements.
Liquidity Needs
We expect that our (including Global Atlantic's) primary liquidity needs will consist of cash required to meet various obligations, including, without limitation, to:
•continue to support and grow our Asset Management business lines, including funding ourseeding new investment strategies, supporting capital commitments made by our vehicles to existing and future funds, pay the costs related to fundraisingco-investments and launchingany net capital requirements of new strategies,our capital markets companies and otherwise supporting the investment vehicles whichthat we sponsor
•continue to support and grow our insurance business;
•grow and expand our businesses generally, including by acquiring or launching new, complementary or adjacent businesses;
•seedwarehouse investments in portfolio companies or warehouseother investments for the benefit of new strategiesone or more of our funds, includingaccounts or CLOs or other investment vehicles pending the contribution of committed capital by the fund investors in such funds,vehicles, and advancing capital to our fundsthem for operational or other needs;
•pay interest expense;
•service debt obligations including the payment of obligations uponat maturity, on interest payment dates or upon redemption, as well as any contingent liabilities, including from litigation, that may give rise to future cash payments, including funding requirements to levered investment vehicles or structured transactions;
•fund cash operating expenses and contingencies, including for litigation matters and guarantees;
•pay corporate income taxes and other taxes;
•pay policyholders and amounts in our insurance business related to investment, reinvestment, reinsurance or funding agreement activity;
•pay amounts that may become due under our tax receivable agreement with KKR Holdings;
•pay cash dividends in accordance with our dividend policy for our common stock or the terms of our preferred stock;
•underwrite commitments, advance loan proceeds and fund syndication commitments within our capital markets business, and fund any net capital or regulatory requirements of our capital markets companies;
•post or return collateral in respect of derivative contracts;
•support and acquire other assets for our Principal Activities business line, including other businesses, investments and assets, some of which may be required to satisfy regulatory requirements for our capital markets business or risk retention requirements for CLOs (to the extent they may apply); and
•repurchase KKR'sshares of our common stock or retire equity awards pursuant to the share repurchase program or repurchase or redeem other securities issued by KKR.
For a discussion of KKR's share repurchase program, see Note 2223 "Equity" in our financial statements.
Capital Commitments
The agreements governing our active investment funds generally require the general partners of the funds to make minimum capital commitments to such funds, which 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 the asset allocation strategy for our Principal Activities business line, including core investments and exposure to the Asia-Pacific region.
The following table presents our uncalled commitments to our active investment funds and other vehicles as of March 31, 2022:2023:
| | | | | |
| | Uncalled
Commitments |
Private MarketsEquity | ($ in millions) |
| Core Investment Vehicles | $ | 4,1963,801 | |
EuropeanAsian Fund VIIV | 1,000367 | |
| North America Fund XIII | 500332 | |
Global Infrastructure Investors IV | 464 | |
AsianEuropean Fund IV | 376 | |
Diversified Core InfrastructureVI | 250 | |
Asia Real Estate PartnersNext Generation Technology Growth Fund III | 196 | |
Asia Pacific Infrastructure InvestorsGlobal Impact Fund II | 174 | |
Asian Fund III | 144 | |
Real Estate Partners Americas III | 143145 | |
| Health Care Strategic Growth Fund II | 137124 | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Americas Fund XIIOther Private Equity Vehicles | 931,256 | |
| Total Private Equity Commitments | 6,471 | |
| |
| Real Assets | |
| Asia Pacific Infrastructure Investors II | 357 | |
| Global Infrastructure Investors IV | 272 | |
| Asia Real Estate Partners | 146 | |
| Real Estate Partners Americas III | 8591 | |
| Real Estate Partners Europe II | 7677 | |
Next Generation Technology Growth Fund II | 57 | |
Health Care Strategic GrowthDiversified Core Infrastructure Fund | 49 | |
European Fund V | 42 | |
Global Impact Fund | 39 | |
Real Estate Partners Americas II | 2613 | |
| Real Estate Credit Opportunity Partners II | 228 | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Other Private MarketsReal Assets Vehicles | 2,0511,025 | |
Total Private MarketsReal Assets Commitments | 10,1201,989 | |
| |
Public MarketsCredit and Liquid Strategies | |
| Asia Credit | 96 | |
| Asset-Based Finance Partners | 87 | |
Dislocation Opportunities fundFund | 123 | |
Special Situations Fund II | 2584 | |
| Lending Partners Europe II | 2411 | |
| Lending Partners III | 1310 | |
| Private Credit Opportunities Partners II | 108 | |
Lending Partners Europe | 9 |
| |
| |
| |
| |
| |
| |
Other Public MarketsCredit and Liquid Strategies Vehicles | 999911 | |
Total Public MarketsCredit and Liquid Strategies Commitments | 1,2031,207 | |
| |
| Total Uncalled Commitments | $ | 11,3239,667 | |
Other Capital Commitments
In addition to the uncalled commitments to our investment funds as shown above, KKR has entered into contractual capital commitments primarily with respect to underwriting transactions, debt financing, revolving credit facilities, and equity syndications in our Capital Markets business line. As of March 31, 2022,2023, these capital commitments amounted to $1.5$0.4 billion.
Whether these amounts are actually funded, in whole or in part, depends on the contractual terms of such capital commitments, including the satisfaction or waiver of any conditions to closing or funding. Our capital markets business has arrangements with third parties, which reduce our risk under certain circumstances when underwriting certain debt transactions, and thus our unfunded capital commitments as of March 31, 20222023 have been reduced to reflect the amount to be funded by such third parties. In the case of purchases of investments or assets in our Principal Activities business line, the amount to be funded includes amounts that are intended to be syndicated to third parties, and the actual amounts to be funded may be less. For more information about our capital marketsCapital Markets business line's risks, see "Risks Related to Our Business—Our capital markets activities expose us to risks, and our risk management strategy may not be effective or sufficient"material risks" in our Annual Report on Form 10-KReport.
From time to time, we fund various underwriting, syndication and fronting commitments in our capital markets business in connection with the arranging or underwriting of loans, securities or other financial instruments, for which we may draw all or substantially all of our availability for borrowings under our available credit facilities. We generally expect these borrowings by our Capital Markets business line to be repaid promptly as these commitments are syndicated to third parties or otherwise fulfilled or terminated, although we may in some instances elect to retain a portion of the year ended December 31, 2021.commitments for our own investment. For more information about our Capital Markets business line's risks, see "Risks Related to Our Business—Our capital markets activities expose us to material risks" in this report.
Tax Receivable Agreement
We are required to acquireOn May 30, 2022, KKR Group Partnership Units from time to time pursuant to our exchange agreement with KKR Holdings, which is expected to result in an increase in our tax basis ofterminated the assets of KKR Group Partnership at the time of an exchange of KKR Group Partnership Units. We have entered into a tax receivable agreement with KKR Holdings which requires usother than with respect to pay toexchanges of KKR Holdings orUnits completed prior to current and former limited partners who have exchanged KKR Holdings units for KKR's common stock as transferees of KKR Group Partnership Units, 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that we realize as a result of the increase in tax basis described above, as well as 85% of the amount of any such savings we realize as a result of increases in tax basis that arise due to future payments under the tax receivable agreement.date. As of March 31, 2022,2023, an undiscounted payable of $396.1$404.6 million has been recorded in due to affiliates in the financial statements representing management's best estimate of the amounts currently expected to be owed underfor certain exchanges of KKR Holdings Units that took place prior to the termination of the tax receivable agreement. As of March 31, 2022,2023, approximately $60.4$76.7 million of cumulative cash payments have been made under the tax receivable agreement.
Following the closing of the merger transactions contemplated by the Reorganization Agreement, there will be no more exchanges of KKR Group Partnership Units held by KKR Holdings. Additionally, the tax receivable agreement will terminate upon the closing of the mergers contemplated by the Reorganization Agreement, except that the obligations of KKR to make payments under the tax receivable agreement will remain outstanding until paid in full for certain exchanges that took place prior to the termination of the tax receivable agreement. Although our employees who hold restricted holdings units under our 2019 Equity Plan (which includes limited partner interests in KKR Holdings II) will be entitled to exchange those interests for common stock pursuant to the exchange agreement, there will be no payments due for any of those exchanges under the tax receivable agreement.
Dividends and Stock Repurchases
A dividend of $0.155$0.165 per share of our common stock has been declared and will be paid on May 31, 2022June 6, 2023 to holders of record of our common stock as of the close of business on May 16, 2022.22, 2023.
A dividend of $0.75 per share of Series C Mandatory Convertible Preferred Stock has been declared and set aside for payment on June 15, 20222023 to holders of record of Series C Mandatory Convertible Preferred Stock as of the close of business on June 1, 2022.2023.
When KKR & Co. Inc. receives distributions from KKR Group Partnership, other equityholders in KKR Group Partnership including KKR Holdingsholders of exchangeable securities receive their pro rata share of such distributions from KKR Group Partnership.
The declaration and payment of dividends to our common stockholders will be at the sole discretion of our boardBoard of directors,Directors, and our dividend policy may be changed at any time. TheWe announced on February 7, 2023 that our current dividend policy will be to pay dividends to holders of our common stock in an annual aggregate amount of $0.66 per share (or a quarterly dividend of $0.165 per share) beginning with the dividend that was announced with the results for the first quarter of 2023.The declaration of dividends is subject to the discretion of our boardBoard of directorsDirectors based on a number of factors, including KKR’s future financial performance and other considerations that the boardBoard of Directors deems relevant, and compliance with the terms of KKR & Co. Inc.'s certificate of incorporation and applicable law. For U.S. federal income tax purposes, any dividends we pay (including dividends on our preferred stock) generally will be treated as qualified dividend income for U.S. individual stockholders to the extent paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. There can be no assurance that future dividends will be made as intended or at all or that any particular dividend policy for our common stock will be maintained. Furthermore, the declaration and payment of distributions by KKR Group Partnership and our other subsidiaries may also be subject to legal, contractual and regulatory restrictions, including restrictions contained in our debt agreements and the terms of the preferred units of KKR Group Partnership.
Since 2015, KKR has repurchased, or retired equity awards representing, a total of 86.3 million shares of common stock for $2.2 billion, which equates to an average price of $25.90 per share. For further information, see "Part II—Item 2—Unregistered Sales of Equity Securities and Use of Proceeds."
Other Liquidity Needs
From time to time, we fund various underwriting, syndication and fronting commitments in our capital markets business in connection with the arranging or underwriting of loans, securities or other financial instruments, for which we may draw all or substantially all of our availability for borrowings under our available credit facilities. We generally expect these borrowings by our Capital Markets business line to be repaid promptly as these commitments are syndicated to third parties or otherwise fulfilled or terminated, although we may in some instances elect to retain a portion of the commitments for our own investment. For more information about our Capital Markets business line's risks, see "Risks Related to Our Business—Our capital markets activities expose us to risks, and our risk management strategy may not be effective or sufficient" in our Annual Report on Form 10-K for the year ended December 31, 2021.
Contractual Obligations, Commitments and Contingencies
In the ordinary course of business, we (including Global Atlantic) and our consolidated funds and CFEs enter into contractual arrangements that may require future cash payments. Contractual arrangements include (1) commitments to fund the purchase of investments or other assets (including obligations to fund capital commitments as the general partner of our investment funds) or to fund collateral for derivative transactions or otherwise, (2) obligations arising under our senior notes, subordinated notes, and other indebtedness, (3) commitments by our capital markets business to underwrite transactions or to lend capital, (4) obligations arising under insurance policies written, (5) other contractual obligations, including servicing agreements with third-party administrators for insurance policy administration, and (6) commitments to fund the business, operations or investments of our subsidiaries.
We In addition, we may incur contingent liabilities for claims that may be made against us in the future. We enter into contracts that contain a variety of representations, warrantiesFor more information about these contingent liabilities, please see Note 25 "Commitments and covenants, including indemnifications. For example, certain of our investment funds and KKR have provided certain indemnities relating to environmental and other matters and have provided nonrecourse carve-out guarantees for violations of bankruptcy remoteness restrictions and for fraud, willful misconduct and other wrongful acts, each in connection with the financing of (i) certain real estate investments that we have made, including KKR's corporate real estate, and (ii) certain investment vehicles we manage or sponsor. KKR has also (i) provided credit support regarding repayment and funding obligations to third party lenders on behalf of certain employees, excluding executive officers, in connection with their personal investments in KKR investment funds and a levered multi-asset investment vehicle and (ii) provided credit support to one of our hedge fund partnerships. We have also indemnified employees and non-employees against potential liabilities, in connection with their service as described under "Certain Relationships and Related Transactions, and Director Independence—Indemnification of Directors, Officers and Others"Contingencies" in our Annual Report on Form 10-K for the year ended December 31, 2021. In addition, we have also provided credit support to certainfinancial statements.
The partnership documents governing our carry-paying funds generally include a "clawback" provision that, if triggered, may give rise to a contingent obligation requiring the general partner to return amounts to the fund for distribution to the fund investors at the end of the life of the fund. See Note 24 "Commitments and Contingencies—Contingent Repayment Guarantees" to our financial statements included elsewhere in this report for further information on KKR's potential clawback obligations.
Off Balance Sheet Arrangements
We do not have any off-balance sheet financings or liabilities other than contractual commitments and other legal contingencies incurred in the normal course of our business.
Critical Accounting Policies and Estimates
The preparation of our financial statements in accordance with GAAP requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of fees, capital allocation-based income (loss), expenses, investment income, and investment income.income taxes. Our management bases these estimates and judgments on available information, historical experience and other assumptions that we believe are reasonable under the circumstances. However, these estimates, judgments and assumptions are often subjective and may be impacted negatively based on changing circumstances or changes in our analyses. If actual amounts are ultimately different from those estimated, judged or assumed, revisions are included in the financial statements in the period in which the actual amounts become known. We believe our critical accounting policies could potentially produce materially different results if we were to change underlying estimates, judgments or assumptions.
For a further discussion about our critical accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in the 2021 Form 10-K and Note 2 "Summary of Significant Accounting Policies" in our financial statements.statements included in this report.
We consolidate the financial results of KKR Group Partnership and its consolidated entities, which include the accounts of our investment advisers, broker-dealers, Global Atlantic’s insurance companies, the general partners of certain unconsolidated investment funds, general partners of consolidated investment funds and their respective consolidated investment funds and certain other entities including CFEs.
Recently Issued Accounting PronouncementsWhen an entity is consolidated, we reflect the accounts of the consolidated entity, including its assets, liabilities, revenues, expenses, investment income, cash flows and other amounts, on a gross basis. While the consolidation of an investment fund or entity does not have an effect on the amounts of Net Income Attributable to KKR or KKR's stockholders' equity that KKR reports, the consolidation does significantly impact the financial statement presentation under GAAP. This is due to the fact that the accounts of the consolidated entities are reflected on a gross basis while the allocable share of those amounts that are attributable to third parties are reflected as single line items. The single line items in which the accounts attributable to third parties are recorded are presented as noncontrolling interests on the consolidated statements of financial condition and net income (loss) attributable to noncontrolling interests on the consolidated statements of operations.
The presentation in the financial statements reflect the significant industry diversification of KKR by its acquisition of Global Atlantic. Global Atlantic operates an insurance business, and KKR operates an asset management business, each of which possess distinct characteristics. As a result, KKR developed a two-tiered presentation approach for the financial statements in this Management's Discussion and Analysis. KKR believes that these separate presentations provide a more informative view of the consolidated financial position and results of operations than traditional aggregated presentations. KKR believes that reporting Global Atlantic’s insurance operations separately is appropriate given, among other factors, the relative significance of Global Atlantic’s policy liabilities, which are not obligations of KKR (other than the insurance companies that issued them). If a traditional aggregated presentation were to be used, KKR would expect to eliminate or combine several identical or similar captions, which would condense the presentations but would reduce transparency. KKR also believes that using a traditional aggregated presentation would result in no new line items compared to the two-tier presentation included in the financial statements in this report.
Consolidation
KKR consolidates all entities that it controls either through a majority voting interest or as the primary beneficiary of variable interest entities (“VIEs”). The following discussion is intended to provide supplemental information about how the application of consolidation principles impact our financial results, and management’s process for implementing those principles including areas of significant judgment. For a full discussiondetailed description of recently issuedour accounting pronouncements,policy on consolidation, see Note 2 "Summary of Significant Accounting Policies" in our financial statements included in this report.
As part of its consolidation procedures, KKR evaluates: (1) whether it holds a variable interest in an entity, (2) whether the entity is a VIE, and (3) whether the KKR’s involvement would make it the primary beneficiary. The determination that KKR holds a controlling financial interest in an investment vehicle significantly changes the presentation of our consolidated financial statements.
The assessment of whether we consolidate an investment vehicle we manage requires the application of significant judgment. These judgments are applied both at the time we become involved with an investment vehicle and on an ongoing basis and include, but are not limited to:
•Determining whether our management fees, carried interests or incentive fees represent variable interests - We make judgments as to whether the fees we earn are commensurate with the level of effort required for those fees and at market rates. In making this judgment, we consider, among other things, the extent of third party investment in the entity and the terms of any other interests we hold in the VIE.
•Determining whether a legal entity qualifies as a VIE - For those entities where KKR holds a variable interest, management determines whether each of these entities qualifies as a VIE and, if so, whether or not KKR is the primary beneficiary. The assessment of whether the entity is a VIE is generally performed qualitatively, which requires judgment. These judgments include: (a) determining whether the equity investment at risk is sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) evaluating whether the equity holders, as a group, can make decisions that have a significant effect on the economic performance of the entity, (c) determining whether two or more parties’ equity interests should be aggregated, and (d) determining whether the equity investors have proportionate voting rights to their obligations to absorb losses or rights to receive returns from an entity. Entities that do not qualify as VIEs are generally assessed for consolidation as voting interest entities. Under the voting interest entity model, KKR consolidates those entities it controls through a majority voting interest.
•Concluding whether KKR has an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE - As there is no explicit threshold in GAAP to define “potentially significant,” we must apply judgment and evaluate both quantitative and qualitative factors to conclude whether this threshold is met.
Changes to these judgments could result in a change in the consolidation conclusion for a legal entity.
Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions.
GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Investments and other financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination of fair values, as follows:
Level I
Pricing inputs are unadjusted, quoted prices in active markets for identical assets or liabilities as of the measurement date.
Level II
Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the measurement date, and fair value is determined through the use of models or other valuation methodologies.
Level III
Pricing inputs are unobservable for the financial instruments and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. The valuation of our Level III investments at March 31, 20222023 represents management's best estimate of the amounts that we would anticipate realizing on the sale of these investments in an orderly transaction at such date.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Level III Valuation Methodologies
Our investments and financial instruments are impacted by various economic conditions and events outside of our control that are difficult to quantify or predict, which may have a significant impact on the valuation of our investments and, therefore, on the carried interest and investment income we realize. Additionally, a change in interest rates could have a significant impact on valuations.
Across the total Level III private equity investment portfolio (including core private equity investments), and including investments in both consolidated and unconsolidated investment funds, approximately 50%55% of the fair value is derived from investments that are valued based exactly 50% on market comparables and 50% on a discounted cash flow analysis. Less than 5%2% of the fair value of this Level III private equity investment portfolio is derived from investments that are valued either based 100% on market comparables or 100% on a discounted cash flow analysis. As of March 31, 2022,2023, the overall weights ascribed to the market comparables methodology, the discounted cash flow methodology, and a methodology based on pending sales for this portfolio of Level III private equity investments were 36%38%, 51%54%, and 13%8%, respectively.
There is inherent uncertainty involved in the valuation of Level III investments, and there is no assurance that, upon liquidation, KKR will realize the values reflected in our valuations. Our valuations may differ significantly from the values that would have been used had an active market for the investments existed, and it is reasonably possible that the difference could be material. See "—Business Environment" for more information on factors that may impact our business, financial performance, operating results and valuations.
Key unobservable inputs that have a significant impact on our Level III valuations as described above are included in Note 10 "Fair Value Measurements" in our financial statements.
Level III Valuation Process
The valuation process involved for Level III measurements is completed on a quarterly basis and is designed to subject the valuation of Level III investments to an appropriate level of consistency, oversight, and review.
For Private Marketsprivate equity and real asset investments classified as Level III, investment professionals prepare preliminary valuations based on their evaluation of financial and operating data, company specific developments, market valuations of comparable companies and other factors. KKR begins its procedures to determine the fair values of its Level III assets approximately one month prior to the end of a reporting period, and KKR follows additional procedures to ensure that its determinations of fair value for its Level III assets are appropriate as of the relevant reporting date. These preliminary valuations are reviewed by an independent valuation firm engaged by KKR to perform certain procedures in order to assess the reasonableness of KKR's valuations annually for all Level III private equity and real asset investments in Private Markets and quarterly for investments other than certain investments, which have values less than preset value thresholds and which in the aggregate comprise less than 1% of the total value of KKR's Level III Private Marketsprivate equity and real asset investments. The valuations of certain real asset investments are determined solely by independent valuation firms without the preparation of preliminary valuations by our investment professionals, and instead such independent valuation firms rely on valuation information available to it as a broker or valuation firm. For credit investments, in Public Markets, an independent valuation firm is generally engaged by KKR to assist with the valuations of most investments classified as Level III. The valuation firm either provides a value, provides a valuation range from which KKR's investment professionals select a point in the range to determine the valuation, or performs certain procedures in order to assess the reasonableness of KKR's valuations. After reflecting any input from the independent valuation firm, the valuation proposals are submitted for review and approval by KKR's valuation committees. As of March 31, 2022,2023, less than 3% of the total value of our Level III credit investments were not valued with the engagement of an independent valuation firm.
For Level III investments in Asset Management, KKR has a global valuation committee that is responsible for coordinating and implementing the firm's valuation process to ensure consistency in the application of valuation principles across portfolio investments and between periods. The global valuation committee is assisted by the asset class-specific valuation committees that exist for private equity (including core equity investments and certain impact investments), growth equity (including certain impact investments), real estate, energy, infrastructure and credit. The asset class-specific valuation committees are responsible for the review and approval of all preliminary Level III valuations in their respective asset classes on a quarterly basis. The members of these valuation committees are comprised of investment professionals, including the heads of each respective strategy, and professionals from business operations functions such as legal, compliance and finance, who are not primarily responsible for the management of the investments. All Level III valuations for investments in Asset Management are also subject to approval by the global valuation committee, which is comprised of senior employees including investment professionals and professionals from business operations functions, and includes one of KKR's Co-Chief Executive Officers and its Chief Financial Officer, Chief Legal Officer, General Counsel, and Chief Compliance Officer. When valuations are approved
by the global valuation committee after reflecting any input from it, the valuations of Level III investments, as well as the valuations of Level I and Level II investments, are presented to the Audit Committee of the Board of Directors of KKR & Co. Inc. and are then reported to the Board of Directors.
Level III investments held by Global Atlantic are valued on the basis of pricing services, reputable broker-dealers or internal models. Global Atlantic performs a quantitative and qualitative analysis and review of the information and prices received from independent pricing services as well as broker-dealers to verify that it represents a reasonable estimate of fair value. As of March 31, 2023, approximately 89% of these investments were priced via external sources, while approximately 11% were valued on the basis of internal models. For all the internally developed models, Global Atlantic seeks to verify the reasonableness of fair values by analyzing the inputs and other assumptions used. AsThese preliminary valuations are reviewed, based on certain thresholds, by an independent valuation firm engaged by Global Atlantic to perform certain procedures in order to assess the reasonableness of March 31, 2022, approximately 66% of these investments were priced via external sources, while approximately 34% were valued on the basis of internal models.Global Atlantic's valuations. When valuations are approved by Global Atlantic's management, the valuations of its Level III investments, as well as the valuations of Level I and Level II investments, are presented to the Audit Committee of the Board of Directors of KKR & Co. Inc. and are then reported to the Board of Directors.
As of March 31, 2022,2023, upon completion by, where applicable, independent valuation firms of certain limited procedures requested to be performed by them on certain Level III investments, the independent valuation firms concluded that the fair values, as determined by KKR (including Global Atlantic), of those investments reviewed by them were reasonable. The limited procedures did not involve an audit, review, compilation or any other form of examination or attestation under generally accepted auditing standards and were not conducted on all Level III investments. We are responsible for determining the fair value of investments in good faith, and the limited procedures performed by an independent valuation firm are supplementary to the inquiries and procedures that we are required to undertake to determine the fair value of the commensurate investments.
As described above, Level II and Level III investments were valued using internal models with significant unobservable inputs, and our determinations of the fair values of these investments may differ materially from the values that would have resulted if readily observable inputs had existed. Additional external factors may cause those values, and the values of investments for which readily observable inputs exist, to increase or decrease over time, which may create volatility in our earnings and the amounts of assets and stockholders' equity that we report from time to time.
Changes in the fair value of investments impacts the amount of carried interest that is recognized as well as the amount of investment income that is recognized for investments held directly in Asset Management and through our consolidated funds as described below. We estimate that an immediate 10% decrease in the fair value of investments held directly and through consolidated investment funds generally would result in a commensurate change in the amount of net gains (losses) from investment activities for investments held directly and through investment funds and a more significant impact to the amount of carried interest recognized, regardless of whether the investment was valued using observable market prices or management estimates with significant unobservable pricing inputs. With respect to consolidated investment funds, the impact that the consequential decrease in investment income would have on net income attributable to KKR would generally be significantly less than the amount described above, given that a majority of the change in fair value of our consolidated funds would be attributable to noncontrolling interests and therefore we are only impacted to the extent of our carried interest and our balance sheet investments. With respect to Insurance, a decrease in investment income for certain assets where investment gains and losses are recognized through the statement of operations would impact KKR only to the extent of our economic ownership interest in Global Atlantic.
As of March 31, 2022,2023, there were no investments which represented greater than 5%of total investments on a GAAP basis. On a non-GAAP basis, as of March 31, 2022,2023, investments which represented greater than 5% of total non-GAAP investments consisted of USI, Inc. (financial services sector) and PetVet Care Centers, LLC (health care sector) and USI, Inc. valued at $1,216.1$1,300 million and $1,094.1$1,143 million, respectively. Our investment income on a GAAP basis and our book value can be impacted by volatility in the public markets related to our holdings of publicly traded securities, including our sizable holdings of Fiserv, Inc., Crescent Energy Company, KREF, and AppLovin Corporation.BridgeBio Pharma, Inc. See "—Business Environment" for a discussion of factors that may impact the valuations of our investments, financial results, operating results and valuations, and "—Non-GAAP Balance Sheet Measures" for additional information regarding our largest holdings on a non-GAAP basis.
KKR accounts for business combinations using the acquisition method of accounting, under which the purchase price of the acquisition is allocated to the assets acquired and liabilities assumed using the fair values determined by management as of the acquisition date.
Management’s determination of fair value of assets acquired and liabilities assumed at the acquisition date is based on the best information available in the circumstances and may incorporate management’s own assumptions and involve a significant degree of judgment. We use our best estimates and assumptions to accurately assign fair value to the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets. Examples of critical estimates in valuing certain of the intangible assets we have acquired include, but are not limited to, future expected cash inflows and outflows, future fundraising assumptions, expected useful life, discount rates and income tax rates. Our estimates for future cash flows are based on historical data, various internal estimates and certain external sources, and are based on assumptions that are consistent with the plans and estimates we are using to manage the underlying assets acquired. We estimate the useful lives of the intangible assets based on the expected period over which we anticipate generating economic benefit from the asset. We base our estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Unanticipated events and circumstances may occur that could affect the accuracy or validity of such assumptions, estimates or actual result.
Income Taxes
Significant judgment is required in estimating the provision for (benefit from) income taxes, current and deferred tax balances (including valuation allowance), accrued interest or penalties and uncertain tax positions. In evaluating these judgments, we consider, among other items, projections of taxable income (including the character of such income), beginning with historic results and incorporating assumptions of the amount of future pretax operating income. These assumptions about future taxable income require significant judgment and are consistent with the plans and estimates that KKR uses to manage its business. A portion of the deferred tax assets are not considered to be more likely than not to be realized. For that portion of the deferred tax assets for Global Atlantic, a valuation allowance has been recorded. Revisions in estimates and/or actual costs of a tax assessment may ultimately be materially different from the recorded accruals and unrecognized tax benefits, if any. Please see Note 19 "Income Taxes" in our financial statements in this report for further details.
Critical Accounting Policies and Estimates - Asset Management
Revenues
Fees and Other
Fees and other consist primarily of (i) management and incentive fees from providing investment management services to unconsolidated funds, CLOs, other vehicles, and separately managed accounts; (ii) transaction fees earned in connection with successful investment transactions and from capital markets activities; (iii) monitoring fees from providing services to portfolio companies; (iv) expense reimbursements from certain investment funds and portfolio companies; and (v) consulting fees. These fees are based on the contractual terms of the governing agreements and are recognized when earned, which coincides with the period during which the related services are performed and in the case of transaction fees, upon closing of the transaction. Monitoring fees may provide for a termination payment following an initial public offering or change of control. These termination payments are recognized in the period when the related transaction closes.
Transaction fee calculations and management fee calculations based on committed capital or invested capital typically do not require discretion and therefore do not require the use of significant estimates or judgments. Management fee calculations based on net asset value depend on the fair value of the underlying investments within the investment vehicles. Estimates and assumptions are made when determining the fair value of the underlying investments within the funds and could vary depending on the valuation methodology that is used as well as economic conditions.
Capital Allocation-Based Income (Loss)
Capital allocation-based income (loss) is earned from those arrangements whereby KKR serves as general partner and includes income or loss from KKR's capital interest as well as "carried interest" which entitles KKR to a disproportionate allocation of investment income or loss from an investment fund's limited partners.
Carried interest is recognized upon appreciation of the funds’ investment values above certain return hurdles set forth in their partnership agreement. KKR recognizes revenues attributable to capital allocation-based income based upon the amount that would be due pursuant to the fund partnership agreement at each period end as if the funds were terminated at that date. Accordingly, the amount recognized reflects KKR’s share of the gains and losses of the associated funds’ underlying investments measured at their then-current fair values relative to the fair values as of the end of the prior period. Because of the inherent uncertainty in measuring the fair value of investments in the absence of observable market prices as previously discussed, these estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and it is reasonably possible that the difference could be material.
Expenses
Compensation and Benefits
Compensation and Benefits expense includes (i) base cash compensation consisting of salaries and wages, (ii) benefits, (iii) carry pool allocations, (iv) equity-based compensation and (v) discretionary cash bonuses.
To supplement base cash compensation, benefits, carry pool allocations, and equity-based compensation, we typically pay discretionary cash bonuses, which are included in Compensation and Benefits expense in the consolidated statements of operations, based principally on the level of (i) management fees and other fee revenues (including incentive fees), (ii) realized carried interest and (iii) realized investment income earned during the year. The amounts paid as discretionary cash bonuses, if any, are at our sole discretion and vary from individual to individual and from period to period, including having no cash bonus. We accrue discretionary cash bonuses when payment becomes probable and reasonably estimable which is generally in the period when we make the decision to pay discretionary cash bonuses and is based upon a number of factors, including the recognition of fee revenues, realized carried interest, realized investment income and other factors determined during the year.
Beginning in 2021, we expect to pay our employees by assigning a percentage range to each component of asset management segment revenues. Based on the current components and blend of our asset management segment revenues on an annual basis, we expect to use approximately: (i) 20‐25% of fee related revenues, (ii) 60‐70% of realized carried interest and incentive fees not included in fee related performance revenues or earned from our hedge fund partnerships, and (iii) 10‐20% of realized investment income and hedge fund partnership incentive fees, to pay our asset management employees. Because these ranges are applied to applicable asset management segment revenue components independently, and on an annual basis, the amount paid as a percentage of total asset management segment revenue will vary and will, for example, likely be higher in a period with relatively higher realized carried interest and lower in a period with relatively lower realized carried interest. We decide whether to pay a discretionary cash bonus and determine the percentage of applicable revenue components to pay compensation only upon the occurrence of the realization event. There is no contractual or other binding obligation that requires us to pay a discretionary cash bonus to the asset management employees, except in limited circumstances.
Assuming that we had accrued compensation of (i) 65% of the unrealized carried interest earned by the funds that allocate 40% and 43% to the carry pool and (ii) 15% of the unrealized net gains in our Principal Activities business line (in each case at the mid-point of the ranges above), KKR & Co. Inc. Stockholders’ Equity – Common Stock as of March 31, 2023 would have been reduced by approximately $1.50 per share, compared to our reported $21.54 per share on such date, and our book value as of March 31, 2023 would have been reduced by approximately $1.45 per adjusted share, compared to our reported book value of $27.65 per adjusted share on such date.
Carry Pool Allocation
With respect to our funds that provide for carried interest, we allocate a portion of the realized and unrealized carried interest that we earn to a carry pool established at Associates Holdings, which is not a KKR subsidiary, from which our asset management employees and certain other carry pool participants are eligible to receive a carried interest allocation. The allocation is determined based upon a fixed arrangement between Associates Holdings and us, and we do not exercise discretion on whether to make an allocation to the carry pool upon a realization event. These amounts are accounted for as compensatory profit sharing arrangements in Accrued Expenses and Other Liabilities within the accompanying consolidated statements of financial condition in conjunction with the related carried interest income and are recorded as compensation expense. Upon a reversal of carried interest income, the related carry pool allocation, if any, is also reversed. Accordingly, such compensation expense is subject to both positive and negative adjustments.
In February 2021, with the approval of a majority of our independent directors, KKR amended the percentage of carried interest that is allocable to the carry pool to 65% for (i) current investment funds for which no or de minimis amounts of carried interest was accrued as of December 31, 2020 and (ii) all future funds. For all other funds, the percentage of carried interest remains 40% or 43%, as applicable. The percentage of carried interest allocable to the carry pool may be increased above 65% only with the approval of a majority of our independent directors. To account for the difference in the carry pool allocation percentages, we expect to use a portion of realized carried interest from the older funds equal to the difference between 65% and 40% or 43%, as applicable, to supplement the carry pool and to pay amounts as discretionary cash bonus compensation as described above to our asset management employees. The amounts paid as discretionary cash bonuses, if any, are at our discretion and vary from individual to individual and from period to period, including having no cash bonus at all for certain employees. See "—Revenues—Capital Allocation-Based Income (Loss)" and "—Compensation and Benefits" above.
On the Sunset Date (which will not be later than December 31, 2026), KKR will acquire control of Associates Holdings and will commence making decisions regarding the allocation of carry proceeds pursuant to the limited partnership agreement of Associates Holdings. Until the Sunset Date, our Co-Founders will continue to make decisions regarding the allocation of carry proceeds to themselves and others, pursuant to the limited partnership agreement of Associates Holdings, provided that any allocation of carry proceeds to the Co-Founders will be on a percentage basis consistent with past practice. For additional information about the Sunset Date and the Reorganization Agreement, see Note 1 "Organization" in our financial statements included in this report.
Equity-based Compensation
In addition to the cash-based compensation and carry pool allocations as described above, employees receive equity awards under our Equity Incentive Plans, most of which are subject to service-based vesting typically over a three to five-year period from the date of grant, and some of which are also subject to the achievement of market-based conditions. Certain of these awards are subject to post-vesting transfer restrictions and minimum retained ownership requirements.
Compensation expense relating to the issuance of equity-based awards is measured at fair value on the grant date. In determining the aggregate fair value of any award grants, we make judgments as to the grant-date fair value, particularly for certain restricted units with a vesting condition based upon market conditions, whose grant date fair values are based on a probability distributed Monte-Carlo simulation. See Note 20 "Equity Based Compensation,” in our financial statements included in this report for further discussion and activity of these awards.
Investment Income (Loss) -Net Gains (Losses) from Investment Activities
Net gains (losses) from investment activities consist of realized and unrealized gains and losses arising from our investment activities as well as income earned from certain equity method investments. Fluctuations in net gains (losses) from investment activities between reporting periods is driven primarily by changes in the fair value of our investment portfolio as well as the realization of investments. The fair value of, as well as the ability to recognize gains from, our investments is significantly impacted by the global financial markets, which, in turn, affects the net gains (losses) from investment activities recognized in any given period. Upon the disposition of an investment, previously recognized unrealized gains and losses are reversed and an offsetting realized gain or loss is recognized in the current period. Since our investments are carried at fair value, fluctuations between periods could be significant due to changes to the inputs to our valuation process over time. For a further discussion of our fair value measurements and fair value of investments, see the above "—Critical Accounting Policies and Estimates—Fair Value Measurements."
Critical Accounting Policies and Estimates – Insurance
Policy liabilities
Policy liabilities, or collectively, “reserves,” are the portion of past premiums or assessments received that are set aside to meet future policy and contract obligations as they become due. Interest accrues on the reserves and on future premiums, which may also be available to pay for future obligations. Global Atlantic establishes reserves to pay future policy benefits, claims, and certain expenses for its life policies and annuity contracts.
Global Atlantic's reserves are estimated based on models that include many actuarial assumptions and projections. These assumptions and projections, which are inherently uncertain, involve significant judgment, including assumptions as to the levels and/or timing of premiums, benefits, claims, expenses, interest credits, investment results (including equity market returns), mortality, longevity, and persistency.
The assumptions on which reserves are based are intended to represent an estimation of experience for the period that policy benefits are payable. Global Atlantic reviews the adequacy of its reserves and the assumptions underlying those reserves at least annually. Global Atlantic cannot, however, determine with precision the amount or the timing of actual benefit payments. If actual experience is better than or equal to the assumptions, then reserves would be adequate to provide for future benefits and expenses. If experience is worse than the assumptions, additional reserves may be required to meet future policy and contract obligations. This would result in a charge to Global Atlantic's net income during the period in which excess benefits are paid or an increase in reserves occurs.
For a majority of Global Atlantic's in-force policies, including its interest-sensitive life policies and most annuity contracts, the base policy reserve is equal to the account value. For these products, the account value represents Global Atlantic's obligation to repay to the policyholder the amounts held with us on deposit. However, there are several significant blocks of business where policy reserves, in addition to the account value, are explicitly calculated, including variable annuities, fixed-indexed annuities, interest-sensitive life products (including those with secondary guarantees), and preneed policies.
The critical accounting estimates and related sensitivities, reported below have been updated from those reported in the Annual Report to reflect the impact from the adoption of LDTI (see Note 2 "Summary of Significant Accounting Policies" in our financial statements included in this report.)
Market risk benefits
Market risk benefits are contracts or contract features that both provide protection to the policyholder from other-than-nominal capital market risk and expose Global Atlantic to other-than-nominal capital market risk. Market risk benefits include certain contract features on fixed annuity and variable annuity products, including minimum guarantees to policyholders, such as guaranteed minimum death benefits (GMDBs), guaranteed minimum withdrawal benefits (GMWBs), and long-term care benefits (i.e., capped at the return of account value plus one or two times the account value).
Some of Global Atlantic's variable annuity and fixed-indexed annuity contracts contain a GMDB feature that provides a guarantee that the benefit received at death will be no less than a prescribed minimum amount, even if the account balance is reduced to zero. This amount is based on either the net deposits paid into the contract, the net deposits accumulated at a specified rate, the highest historical account value on a contract anniversary, or sometimes a combination of these values. If the GMDB is higher than the current account value at the time of death, Global Atlantic incurs a cost equal to the difference.
Global Atlantic issues fixed-indexed annuity and variable annuity contracts with a guaranteed minimum withdrawal feature. GMWB are an optional benefit where the contract owner is entitled to withdraw a maximum amount of their benefit base each year.
Once exercised, living benefit features provide annuity policyholders with a minimum guaranteed stream of income for life. A policyholder’s annual income benefit is generally based on an annual withdrawal percentage multiplied by the benefit base. The benefit base is defined in the policy and is generally the initial premium, reduced by any partial withdrawals and increased by a defined percentage, formula or index credits. Any living benefit payments are first deducted from the account value. Global Atlantic is responsible for paying any excess guaranteed living benefits still owed after the account value has reached zero.
The ultimate cost of these benefits will depend on the level of market returns and the level of contractual guarantees, as well as policyholder behavior, including surrenders, withdrawals, and benefit utilization. For Global Atlantic's fixed-indexed annuity products, costs also include certain non-guaranteed terms that impact the ultimate cost, such as caps on crediting rates that Global Atlantic can, in its discretion, reset annually.
See Note 18 — “Policy liabilities” for additional information.
As of March 31, 2023, the net market risk liability balance totaled $740.1 million. As of March 31, 2023, the liability balances for market risk benefits were $611.2 million for fixed-indexed annuities and $128.9 million for variable and other annuities. The increase (decrease) to the net market risk benefit liability balance as a result of hypothetical changes in interest rates, equity market prices, policyholder behavior and annual equity growth is summarized in the table below. This sensitivity considers the direct effect of such changes only and not changes in any other assumptions used in or items considered in the measurement of such balances.
| | | | | | | | | | | | | | | | | | |
| | As of March 31, 2023 | | |
| | Fixed-indexed annuity | | Other | | | | |
| ($ in thousands) | | | | | | | | |
| Balance | | $ | 611,221 | | | $ | 128,923 | | | | | |
| Hypothetical change: | | | | | | | | |
| +50 bps interest rates | | (108,273) | | | (50,798) | | | | | |
| -50 bps interest rates | | 120,421 | | | 59,420 | | | | | |
| +50 bps credit spreads | | (115,572) | | | (23,006) | | | | | |
| -50 bps credit spreads | | 130,017 | | | 25,373 | | | | | |
| +10% equity market prices | | (37,232) | | | (39,460) | | | | | |
| -10% equity market prices | | 20,904 | | | 43,997 | | | | | |
| 95% of expected mortality | | 38,351 | | | 7,007 | | | | | |
| 105% of expected mortality | | (36,098) | | | (6,402) | | | | | |
| 90% of expected surrenders | | 14,853 | | | 7,667 | | | | | |
| 110% of expected surrenders | | (14,190) | | | (7,220) | | | | | |
________________Note: Hypothetical changes to the market risk benefits liability balance do not reflect the impact of related hedges.
Policy liabilities accounted for under a fair value option
Variable annuity contracts offered and assumed by Global Atlantic provides the contractholder with a GMDB. The liabilities for these benefits are included in policy liabilities. Global Atlantic elected the fair value option to measure the liability for certain of these variable annuity contracts valued at $378.7 million as March 31, 2023. Fair value is calculated as the present value of the estimated death benefits less the present value of the GMDB fees, using 1,000 risk neutral scenarios. Global Atlantic discounts the cash flows using the U.S. Treasury rates plus an adjustment for instrument-specific credit risk in the consolidated statement of financial condition. The change in the liabilities for these benefits is included in policy benefits and claims in the consolidated statement of operations.
As of March 31, 2023, variable annuities accounted for using the fair value option totaled $378.7 million. The increase (decrease) in the reserves for variable annuities accounted for using the fair value option as a result of hypothetical changes in interest rates, non-performance risk premium, and equity market prices is summarized in the table below. This sensitivity considers the direct effect of such changes only and not changes in any other assumptions used in or items considered in the measurement of such balances.
| | | | | | | | | | | | |
| | As of March 31, 2023 | | |
| | Variable annuities | | | | |
| ($ in thousands) | | | | | | |
| Balance | | $ | 378,721 | | | | | |
| Hypothetical change: | | | | | | |
| +50 bps interest rates | | (20,755) | | | | | |
| -50 bps interest rates | | 22,373 | | | | | |
| +50 bps credit spreads | | (14,360) | | | | | |
| -50 bps credit spreads | | 14,857 | | | | | |
| +10% equity market prices | | (18,918) | | | | | |
| -10% equity market prices | | 21,597 | | | | | |
| 95% of expected mortality | | (6,603) | | | | | |
| 105% of expected mortality | | 6,336 | | | | | |
| 90% of expected surrenders | | 710 | | | | | |
| 110% of expected surrenders | | (716) | | | | | |
________________Note: Hypothetical changes to the liability balances do not reflect the impact of related hedges.
Liability for future policyholder benefits
A liability for future policy benefits, which is the present value of estimated future policy benefits to be paid to or on behalf of policyholders and certain related expenses less the present value of estimated future net premiums to be collected from policyholders, is accrued as premium revenue is recognized. The liability is estimated using current assumptions that include mortality, lapses, and expenses. These current assumptions are based on judgments that consider Global Atlantic’s historical experience, industry data, and other factors, and are updated quarterly and the current period change in the liability is recognized as a separate component of benefit expense in the consolidated income statement.
As of March 31, 2023, the liability for future policy benefits totaled $7.5 billion, net of reinsurance, split between $7.1 billion associated with payout annuity products, and $421.0 million of life and other insurance products. The increase (decrease) as a result of hypothetical changes in projected assessments, interest rates, equity market prices, and annual equity growth, is summarized in the table below. This sensitivity considers the direct effect of such changes only and not changes in any other assumptions used in or items considered in the measurement of such balances.
| | | | | | | | | | | | | | | | | | |
| | As of March 31, 2023 | | |
| | Payout annuities | | Life and other | | | | |
| ($ in thousands) | | | | | | | | |
| Balance | | $ | 7,078,616 | | | $ | 421,026 | | | | | |
| Hypothetical change: | | | | | | | | |
| +50 bps interest rates | | (147,770) | | | (117,418) | | | | | |
| -50 bps interest rates | | 160,188 | | | 126,737 | | | | | |
| +50 bps credit spreads | | (150,686) | | | (119,630) | | | | | |
| -50 bps credit spreads | | 156,886 | | | 124,286 | | | | | |
95% of expected mortality(1) | | 56,316 | | | 31,005 | | | | | |
105% of expected mortality(1) | | (53,363) | | | (27,560) | | | | | |
| 90% of expected surrenders/lapses | | — | | | (2,435) | | | | | |
| 110% of expected surrenders/lapses | | — | | | 1,917 | | | | | |
________________Note: Hypothetical changes to the liability for future policy benefits balance do not reflect the impact of related hedges.
(1)Includes decrements for terminations of disability insurance
Additional liability for annuitization, death, or other insurance benefits: no-lapse guarantees
Global Atlantic has in-force interest-sensitive life contracts where it provides a secondary guarantee to the policyholder. The policy can remain in-force, even if the base policy account value is zero, as long as contractual secondary guarantee requirements have been met. The primary risk is that the premium collected under these policies, together with the investment return Global Atlantic earns on that premium, is ultimately insufficient to pay the policyholder’s benefits and the expenses associated with issuing and administering these policies. Global Atlantic holds an additional reserve in connection with these guarantees.
The additional reserves related to interest-sensitive life products with secondary guarantees are calculated using methods similar to those described above under “Policyholder liabilities— Market risk benefits.” The costs related to these secondary guarantees are recognized over the life of the contracts through the accrual and subsequent release of a reserve which is revalued each period. The reserve is calculated based on assessments, over a range of economic scenarios to incorporate the variability in the obligation that may occur under different environments. The change in the reserve is included in policy benefits and claims in the consolidated statements of operations.
As of March 31, 2023, the interest-sensitive life additional liability balance totaled $4.9 billion. The increase (decrease) to the interest-sensitive life additional liability balance, as a result of hypothetical changes in projected assessments, interest rates, equity market prices, and annual equity growth, is summarized in the table below. This sensitivity considers the direct effect of such changes only and not changes in any other assumptions used in or items considered in the measurement of the interest-sensitive life no-lapse guarantee liability balance.
| | | | | | | | | | | | |
| | As of March 31, 2023 | | |
| | Interest-sensitive life | | | | |
| ($ in thousands) | | | | | | |
| Balance | | $ | 4,909,488 | | | | | |
| Hypothetical change: | | | | | | |
| +50 bps interest rates | | 313 | | | | | |
| -50 bps interest rates | | (187) | | | | | |
| +10% equity market prices | | 1,287 | | | | | |
| -10% equity market prices | | 15 | | | | | |
| 1% lower annual equity growth | | (5,417) | | | | | |
| 95% of expected mortality | | (69,219) | | | | | |
| 105% of expected mortality | | 67,855 | | | | | |
| 90% of expected surrenders | | 19,041 | | | | | |
| 110% of expected surrenders | | (18,183) | | | | | |
________________Note: Hypothetical changes to the interest-sensitive life additional liability for annuitization, death, or other insurance benefits balance do not reflect the impact of related hedges.
Embedded derivatives in policy liabilities and funds withheld
Global Atlantic's fixed-indexed annuity, variable annuity and indexed universal life products contain equity-indexed features, which are considered embedded derivatives and are required to be measured at fair value.
Global Atlantic calculates the embedded derivative as the present value of future projected benefits in excess of the projected guaranteed benefits, using an option budget as the indexed account value growth rate. In addition, the fair value of the embedded derivative is reduced to reflect instrument specific credit risk on Global Atlantic's obligation (i.e., Global Atlantic's credit risk).
Changes in interest rates, future index credits, instrument-specific credit risk, projected withdrawal and surrender activity, and mortality on fixed-indexed annuity and interest-sensitive life products can have a significant impact on the value of the embedded derivative.
Valuation of embedded derivatives – Fixed-indexed annuities
Fixed-indexed annuity contracts allow the policyholder to elect a fixed interest rate of return or a market indexed strategy where interest credited is based on the performance of an index, such as the S&P 500 Index, or other indexes. The market indexed strategy is an embedded derivative, similar to a call option. The fair value of the embedded derivative is computed as the present value of benefits attributable to the excess of the projected policy contract values over the projected minimum guaranteed contract values. The projections of policy contract values are based on assumptions for future policy growth, which include assumptions for expected index credits, future equity option costs, volatility, interest rates, and policyholder behavior. The projections of minimum guaranteed contract values include the same assumptions for policyholder behavior as are used to project policy contract values. The embedded derivative cash flows are discounted using a risk-free interest rate increased by instrument-specific credit risk tied to Global Atlantic's own credit rating.
Valuation of embedded derivatives – Interest-sensitive life products
Interest-sensitive life products allow a policyholder’s account value to grow based on the performance of certain equity indexes, which result in an embedded derivative similar to a call option. The embedded derivative related to the index is bifurcated from the host contract and measured at fair value. The valuation of the embedded derivative is the present value of future projected benefits in excess of the projected guaranteed benefits, using the option budget as the indexed account value growth rate and the guaranteed interest rate as the guaranteed account value growth rate. Present values are based on discount rate curves determined at the valuation date/issue date as well as assumed lapse and mortality rates. The discount rate equals the forecast treasury rate increased by instrument-specific credit risk tied to Global Atlantic’s own credit rating. Changes in discount rates and other assumptions such as spreads and/or option budgets can have a substantial impact on the embedded derivative.
Valuation of embedded derivatives in modified coinsurance or funds withheld
Global Atlantic's reinsurance agreements include modified coinsurance and coinsurance with funds withheld arrangements that include terms that require payment by the ceding company of a principal amount plus a return that is based on a proportion of the ceding company’s return on a designated portfolio of assets. Because the return on the funds withheld receivable or payable is not clearly and closely related to the host insurance contract, these contracts are deemed to contain embedded derivatives, which are measured at fair value. Global Atlantic is exposed to both the interest rate and credit risk of the assets. Changes in discount rates and other assumptions can have a significant impact on this embedded derivative. The fair value of the embedded derivatives is included in the funds withheld receivable at interest and funds withheld payable at interest line items on our consolidated statement of financial condition. The change in the fair value of the embedded derivatives is recorded in net investment-related gains (losses) in the consolidated statement of operations.
As of March 31, 2023, the embedded derivative liability balance totaled $2.4 billion for fixed-indexed annuities, and $373.4 million for interest-sensitive life. The increase (decrease) to the embedded derivatives on fixed-indexed annuity and indexed universal life as a result of hypothetical changes in interest rates, own-credit spreads, and equity market prices is summarized in the table below. This sensitivity considers the direct effect of such changes only and not changes in any other assumptions used in or items considered in the measurement of such balances.
| | | | | | | | | | | | | | | | | | |
| | As of March 31, 2023 | | |
| | Fixed-indexed annuities | | Interest sensitive life | | | | |
| ($ in thousands) | | | | | | | | |
| Balance | | $ | 2,402,427 | | | $ | 373,391 | | | | | |
| Hypothetical change: | | | | | | | | |
| +50 bps interest rates | | (51,449) | | | (3,564) | | | | | |
| -50 bps interest rates | | 54,840 | | | 3,731 | | | | | |
| +50 bps credit spreads | | (63,279) | | | (3,564) | | | | | |
| -50 bps credit spreads | | 66,314 | | | 3,731 | | | | | |
| +10% equity market prices | | 431,179 | | | 72,447 | | | | | |
| -10% equity market prices | | (270,928) | | | (61,621) | | | | | |
________________Note: Hypothetical changes to the market risk benefits liability balance do not reflect the impact of related hedges.
As of March 31, 2023, the embedded derivative balance for modified coinsurance or funds withheld arrangements was a $3.0 billion net asset ($(18.0) million in funds withheld receivables at interest, and $(3.1) billion in funds withheld payable at interest). The increase (decrease) to the embedded derivatives on fixed-indexed annuity and interest-sensitive life products as a result of hypothetical changes in interest rates, non-performance risk premium, and equity market prices is summarized in the table below. This sensitivity considers the direct effect of such changes only and not changes in any other assumptions used in or items considered in the measurement of such balances.
| | | | | | | | | | | | | | | | | | |
| | As of March 31, 2023 | | |
| | Embedded derivative on funds withheld receivable at interest | | Embedded derivative on funds withheld payable at interest | | | | |
| ($ in thousands) | | | | | | | | |
| Balance | | $ | (17,982) | | | $ | (3,057,531) | | | | | |
| Hypothetical change: | | | | | | | | |
| +50 bps interest rates | | (14,367) | | | (712,731) | | | | | |
| -50 bps interest rates | | 22,164 | | | 772,957 | | | | | |
| +50 bps credit spreads | | (40,558) | | | (743,449) | | | | | |
| -50 bps credit spreads | | 40,558 | | | 803,676 | | | | | |
________________Note: Hypothetical changes to the funds withheld receivable and payable embedded derivative balances do not reflect the impact of related hedges or trading assets which back the funds withheld at interest.
Recently Issued Accounting Pronouncements
For a full discussion of recently issued accounting pronouncements, see Note 2 "Summary of Significant Accounting Policies" in our financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKRISK.
ThereExcept for the item disclosed below, there was no material change to our market risks during the three months ended March 31, 2022.2023. For a discussion of our market risks in general, please refer to our Annual Report on Form 10-K for the year ended December 31, 2021.Report. In addition, for a discussion of current market conditions and uncertainties, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Business Environment."
Insurance Segment Market Risks
The market risk sensitivities reported below have been updated from those reported in the Annual Report to reflect the impact from the adoption of LDTI (see Note 2 "Summary of Significant Accounting Policies" in our financial statements included in this report.)
Sensitivities
Interest rate risk
Effect of interest rate sensitivity
In the table below, Global Atlantic estimates the impact of a 50 basis point increase/(decrease) in interest rates, from a parallel shift in the yield curve, from levels as of March 31, 2023 to its net income and shareholders’ equity, excluding AOCI. These sensitivities include the impact of related hedges and adjustments to DAC attributable to interest rate changes.
| | | | | | | | | | | | | | |
| | March 31, 2023 |
| | Hypothetical change(1) |
| | +50 Basis points | | -50 Basis points |
| ($ in thousands) | | |
| Total estimated net income and shareholders’ equity excluding AOCI sensitivity (point in time) | | $ | 193,524 | | | $ | (199,732) | |
| Total estimated net income and shareholders’ equity excluding AOCI sensitivity (over 12 months)(2) | | 55,286 | | | (55,286) | |
_________________(1)The point in time and over 12 months total estimated impacts reflect the impact of hedges within Global Atlantic's liability hedging program, as well as hedges designed to limit surplus volatility resulting from interest rate movements.
(2)Excludes point in time impact. Estimated sensitivity to a hypothetical change over 12 months does not take into account any management actions that may be taken to mitigate actual impacts.
The estimated point in time impact is driven by a net decrease/(increase) in the value of (i) the embedded derivatives associated with Global Atlantic's modified coinsurance and coinsurance with funds withheld payables and receivables, (ii) the embedded derivatives associated with its fixed-indexed annuity, interest-sensitive life products, and variable annuities accounted for under the fair value option, (iii) market risk benefits, and (iv) the remeasurement gain/loss of the liability for future policy benefits. These are largely offset by a loss/(gain) in financial instruments used in Global Atlantic's hedging program, investments classified as trading, and loans designated under the fair value option, based on balances in place as of quarter end. These estimated changes include the impact of related amortization of deferred revenue and expenses and related income tax impacts.
The impact over 12 months is driven by an increase/(decrease) in the income earned on Global Atlantic's floating-rate assets, and partially offset by an increase/(decrease) in the cost of its floating-rate liabilities.
In the table below, Global Atlantic estimates the impact of a 50 basis point increase/(decrease) in interest rates, for a parallel shift in the yield curve, from levels as of March 31, 2023 to Global Atlantic's AOCI.
| | | | | | | | | | | | | | |
| | March 31, 2023 |
| | Hypothetical change(1) |
| | +50 Basis points | | -50 Basis points |
| ($ in thousands) | | |
| Total estimated AOCI sensitivity (point in time) | | $ | (1,286,383) | | | $ | 1,385,126 | |
The estimated point in time impact is driven by a (i) net (decrease)/increase in the value of Global Atlantic's available-for-sale fixed maturity securities which are carried at fair value with unrealized gains and losses, and (ii) the effect of changes in the discount rates used to measure traditional and limited-payment long duration insurance contracts, all reported in AOCI. The estimated changes include the impact of related amortization of deferred revenue and expenses and related income tax impacts.
Effect of credit spread sensitivity
In the table below, Global Atlantic estimates the impact of a 50 basis points increase/(decrease) in credit spreads from levels as of March 31, 2023 to its net income and shareholders’ equity, excluding AOCI. These estimated changes include the impact of related amortization of deferred revenues and expenses and related income tax impacts and include impacts on its instrument-specific credit risk used in valuing embedded derivative liabilities.
| | | | | | | | | | | | | | |
| | March 31, 2023 |
| | Hypothetical change(1) |
| | +50 Basis points | | -50 Basis points |
| ($ in thousands) | | |
Total estimated net income and shareholders’ equity excluding AOCI sensitivity (point
in time) | | $ | 160,012 | | | $ | (169,349) | |
In the table below Global Atlantic estimates the impact of a 50 basis point increase/(decrease) in instrument-specific credit risk on market risk benefits, for a parallel shift in the yield curve, from levels as of March 31, 2023 to its AOCI.
| | | | | | | | | | | | | | |
| | March 31, 2023 |
| | Hypothetical change(1) |
| | +50 Basis points | | -50 Basis points |
| ($ in thousands) | | |
| Total estimated AOCI sensitivity (point in time) | | $ | 109,477 | | | $ | (122,758) | |
The estimated point in time impact is driven by the effect of changes in the fair value of a market risk benefit attributable to a change in the instrument-specific credit risk. The estimated changes include the impact of related amortization of deferred revenue and expenses and related income tax impacts.
Effect of equity price sensitivity
In the table below, Global Atlantic estimates the impact of a 10% increase/(decrease) in equity prices from levels as of March 31, 2023 to its net income and shareholders’ equity, excluding AOCI. These sensitivities include the impact of related hedges but exclude the potential impact of alternative assets, because the fair value of these investments does not necessarily move directly in line with movements in public equity markets.
| | | | | | | | | | | | | | |
| | March 31, 2023 |
| | Hypothetical change(1) |
| | +10% Equity Prices | | -10% Equity Prices |
| ($ in thousands) | | |
| Total estimated net income and shareholders’ equity excluding AOCI sensitivity (point in time) | | $ | (11,136) | | | $ | 23,674 | |
| Total estimated net income and shareholders’ equity excluding AOCI sensitivity (over 12 months)(2) | | 4,630 | | | (5,011) | |
_________________(1)From time to time, Global Atlantic may choose to enter into additional hedges to mitigate economic exposure to equity markets.
(2)Excludes point in time impact. Estimated sensitivity to a hypothetical change over 12 months does not take into account any management actions that may be taken to mitigate actual impacts.
The estimated point-in-time impact is driven by an increase/(decrease) in the value of (i) the embedded derivatives associated with Global Atlantic's fixed-indexed annuity and interest-sensitive life products, (ii) its variable annuity embedded derivatives, (iii) market risk benefits, and (iv) a gains (losses) in financial instruments used in its hedging program based on balances in place at year-end. These estimated changes include the impact of related amortization of deferred revenue and expenses and related income tax impacts.
The impact over 12 months is driven by an increase/(decrease) in fees earned and benefits paid in Global Atlantic's variable annuity and variable universal life blocks.
ITEM 4. CONTROLS AND PROCEDURESPROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that the information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and such information is accumulated and communicated to management, including the Co-Chief Executive Officers and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives.
We carried out an evaluation, under the supervision and with the participation of our management, including the Co-Chief Executive Officers and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2022.2023. Based upon that evaluation, our Co-Chief Executive Officers and Chief Financial Officer have concluded that, as of March 31, 2022,2023, our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
NoWe adopted new accounting guidance for insurance and reinsurance companies that issue long-duration contracts (“LDTI”) as of January 1, 2023 on a full retrospective basis to February 1, 2021 (the date of the GA Acquisition.) As a result, we implemented changes to our relevant business processes and internal controls over financial reporting.
Except as reported above, no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) occurred during the three monthsquarter ended March 31, 20222023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II —OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
TheFor a discussion of KKR's legal proceedings, see the section entitled "Litigation" appearing in Note 2425 "Commitments and Contingencies" toin our financial statements included elsewhere in this report, which is incorporated herein by reference.
ITEM 1A. RISK FACTORS.
Other than as set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Business Environment" in this report, there were no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.Report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Share Repurchases in the First Quarter of 20222023
As of April 29, 2022,May 5, 2023, there is approximately $108$468 million remaining under KKR's share repurchase program.
Under our current repurchase program, KKR is authorized to repurchase its common stock from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing, manner, price and amount of any common stock repurchases will be determined by KKR in its discretion and will depend on a variety of factors, including legal requirements, price and economic and market conditions. KKR expects that the program, which has no expiration date, will continue to be in effect until the maximum approved dollar amount has been used. The program does not require KKR to repurchase any specific number of shares of common stock, and the program may be suspended, extended, modified or discontinued at any time.
In addition to the repurchases of common stock described above, subsequent to May 3, 2018, the repurchase program has beenis used for the retirement (by cash settlement or the payment of tax withholding amounts upon net settlement) of equity awards issued pursuant to our Equity Incentive Plans representing the right to receive shares of common stock. From October 27, 2015 through March 31, 2022, KKR has paid approximately $573 million in cash to satisfy tax withholding and cash settlement obligations in lieu of issuing shares of common stock or its equivalent upon the vesting of equity awards representing 22.5 million shares of common stock. Of these amounts, equity awards representing 11.0 million shares of common stock or its equivalent were retired for $190 million prior to May 3, 2018 and did not count against the amounts remaining under the repurchase program.
The table below sets forth the information with respect to repurchases made by or on behalf of KKR & Co. Inc. or any "affiliated purchaser" (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock for the periods presented. During the first quarter of 2022, 5.2 million2023, no shares of common stock were repurchased, and no equity awards were retired. From inception
| | | | | | | | | | | | | | | | | | | | | | | |
| Issuer Purchases of Common Stock |
| (amounts in thousands, except share and per share amounts) |
| | | | | | | |
| Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
Month #1
(January 1, 2023 to
January 31, 2023) | — | | | $ | — | | | — | | | $ | 77,856 | |
Month #2
(February 1, 2023 to
February 28, 2023) | — | | | $ | — | | | — | | | $ | 500,000 | |
Month #3
(March 1, 2023 to
March 31, 2023) | — | | | $ | — | | | — | | | $ | 500,000 | |
| Total through March 31, 2023 | — | | | $ | — | | | — | | | $ | 500,000 | |
| | | | | | | |
(1)On February 7, 2023, KKR announced the increase to the total available amount under the repurchase program in 2015 through March 31, 2022, weto $500 million. The repurchase program does not have repurchased or retired a total of approximately 73.5 million shares of common stock under the program at an average price of approximately $26.51 per share.
| | | | | | | | | | | | | | | | | | | | | | | |
| Issuer Purchases of Common Stock |
| (amounts in thousands, except share and per share amounts) |
| | | | | | | |
| Total Number of Shares Purchased | | Average Price Paid Per Share | | Cumulative Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
Month #1
(January 1, 2022 to
January 31, 2022) | 2,757,477 | | | $ | 68.45 | | | 59,503,848 | | | $ | 301,241 | |
Month #2
(February 1, 2022 to
February 28, 2022) | 2,103,042 | | | $ | 65.57 | | | 61,606,890 | | | $ | 163,349 | |
Month #3
(March 1, 2022 to
March 31, 2022) | 330,655 | | | $ | 60.49 | | | 61,937,545 | | | $ | 143,349 | |
| Total through March 31, 2022 | 5,191,174 | | | | | | | |
| | | | | | | |
| (1) Amounts have been reduced by retirements of equity awards occurring after May 3, 2018. On May 6, 2020, KKR announced the increase to the total available amount under the repurchase program to $500 million. On December 27, 2021, KKR announced the increase to the total available amount under the repurchase program to $500 million. |
| | | | | | | |
Other Equity Securities
During the first quarter of 2022, no KKR Group Partnership Units were exchanged by KKR Holdings for shares of our common stock. As of May 3, 2022, limited partners of KKR Holdings have elected to exchange their interests in KKR Holdings representing approximately 0.5 million KKR Group Partnership Units into an equal number of shares of our common stock. This exchange, if it occurs, would result in an increase in our ownership of KKR Group Partnership and a corresponding decrease in the ownership of KKR Group Partnership by KKR Holdings. There can be no assurance that the exchange will occur as requested.
ITEM 3. DEFAULTS UPON SENIOR SECURITIESSECURITIES.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATIONINFORMATION.
OverKKR's 2023 Annual Meeting of Stockholders (the “Annual Meeting”) will be held on Thursday, June 15, 2023 at 9:00 a.m., Eastern Time. The Annual Meeting will be held in a virtual meeting format only. Only stockholders of record at the last twelve months ending March 31, 2022, new capital raised totaled approximately $132 billion, whichclose of business on May 22, 2023 may attend the meeting. To receive further information about how to attend the meeting, please register by sending an e-mail to Investor-Relations@kkr.com with the following information between May 22, 2023 and June 9, 2023. Please write "KKR 2023 Annual Meeting Registration" in the subject line of the e-mail, include your full name, address, and the number of shares of common stock owned by you as of the record date, and be prepared to confirm your ownership of such shares as of the record date. Please note that no discussion of KKR's business will be presented at the Annual Meeting, and no matter will be presented to its stockholders for a vote. Therefore, no action is comprised of $41 billion in private equity (including growth equity, impact and core), $47 billion in real assets, $33 billion in credit and $11 billion in other investment strategies.
ITEM 6. EXHIBITS.
The following is a list of all exhibits filed or furnished as part of this report:
| | | | | | | | |
| Exhibit No. | | Description of Exhibit |
10.1†3.1 | | |
| 3.2 | | |
10.1† | | |
10.2† | | Fifth Amendment, dated as of April 8, 2022,7, 2023, among KKR Capital Markets Holdings L.P., certain subsidiaries ofKKR Capital Markets Holdings, L.P., Mizuho Bank Ltd., as administrative agent, and the one or more lendersparty thereto, to the Third Amended and Restated 5-Year Revolving Credit Agreement dated March 20, 2020(with amended and restated credit agreement annexed thereto).thereto. |
| 31.1 | | |
| 31.2 | | |
| 31.3 | | |
| 32.1 | | |
| 32.2 | | |
| 32.3 | | |
| 101 | | Interactive data files pursuant to Rule 405 of Regulation S-T, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Financial Condition as of March 31, 20222023 and December 31, 2021,2022, (ii) the Condensed Consolidated Statements of Operations for the three months ended March 31, 20222023 and March 31, 2021,2022, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 20222023 and March 31, 2021;2022; (iv) the Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 20222023 and March 31, 2021,2022, (v) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 20222023 and March 31, 2021,2022, and (vi) the Notes to the Condensed Consolidated Financial Statements. |
| 104 | | Cover page interactive data file, formatted in Inline XBRL and contained in Exhibit 101. |
† Certain information contained in this agreement has been omitted because it is not material and is the type that the registrant treats as private or confidential.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| | KKR & CO. INC. |
| | |
| | |
| | By: | /s/ ROBERT H. LEWIN |
| | | Robert H. Lewin |
| | | Chief Financial Officer |
| | | (principal financial and accounting officer) |
| | | |
| DATE: | May 6, 202210, 2023 | | |
