KKR's Long Game And How It Stacks Up Against Peers
Large, diversified alternative asset managers are expected to grow at around 20% annually for many years - possibly decades—without visible, serious threats. In that sense, they may be even better protected than Big Tech. KKR (KKR) belongs to this elite group and is focused on building permanent capital and generating investment returns on its balance sheet in addition to earning fees from third-party capital.
This makes KKR another candidate to become a new Berkshire Hathaway, building on the logic explored in my recent post “Can Apollo become a new Berkshire?…” We will investigate this topic and compare the valuations and strategies of both companies.
Asset management
KKR operates via three segments - asset management, insurance, and strategic holdings. The asset management segment is the oldest and biggest by far. We assume you are familiar with alt managers and non-GAAP lingo of the industry (FRE, carry, AUM, FGAUM, and so on). Otherwise, please check my free “Primer on Alternative Asset Managers”.
The asset management segment consists of fee-related earnings (“FRE”), which are recurring and predictably growing, net realized performance income (i.e., net carry), and net realized investment income, i.e., income on KKR’s capital invested in this particular segment. Both carry and net realized income depend on KKR’s exits from its portfolio companies and can be significant in some years and modest in others. Since they are unpredictable, only FRE contributes to KKR’s Total Operating Earnings (“TOE”), which represents KKR’s core recurring operations and includes parts of the other two segments.
FRE is directly related to FGAUM (“fee-generating AUM), which grows in line with the growth of AUM on the slide below (some assets are not eligible for fees, either permanently or temporarily). Note that AUM is well diversified over many strategies, and traditional private equity, which KKR pioneered, comprises today less than a quarter of AUM.
In Q1 25, AUM and FGAUM have grown at 15% and 12% yoy, respectively.
Within the segment, over the LTM ended on March 30, 2025, FRE was $3.4B, carry was $0.6B, and net realized investment income was $0.5B. The progress in all-important FRE was an impressive 36% yoy! Compared to Apollo, carry and realized income are much more important for KKR and can become comparable to FRE in certain quarters and years.
Insurance
My reader
recently commented that “…identification of Apollo as a very special company has added much value to my portfolio and understanding”. This identification stems from Athene’s distinctive role within Apollo. KKR was the first to replicate Apollo’s insurance blueprint, preceding Brookfield and others. Marc Rowan has frequently acknowledged KKR’s execution, which makes a comparison between Athene and Global Atlantic (“GA”), KKR’s insurance arm, particularly appealing. Such a comparison, important for investments in APO and KKR, may also reveal broader opportunities within the life insurance and alternative asset management sectors.