KKR at Morgan Stanley Conference: Growth Amid Market Volatility

On Tuesday, 10 June 2025, KKR & Co (NYSE:KKR) took center stage at the Morgan Stanley US Financials, Payments & CRE Conference 2025. Adam Smith, Partner and Co-Head of KKR’s Credit Business and Capital Markets Business, presented a strategic overview highlighting the firm’s robust growth potential despite market volatility. KKR’s diverse revenue streams and strategic expansions signal optimism for future performance.

Key Takeaways

• KKR’s capital markets platform generated $1 billion in fees last year and $2 trillion since inception.
• The firm sees growth potential in private investment grade and asset-based financing.
• KKR’s expansion into Asia aims to capitalize on a bank-driven market needing institutional capital.
• Integration with Global Atlantic is unlocking new revenue streams.
• A significant $7 trillion in cash on the sidelines presents opportunities for M&A resurgence.

Financial Results

KKR’s capital markets platform has been a significant revenue driver, generating over $400 billion in debt and equity financings last year. Since its inception, it has participated in $2 trillion of financings and earned $1 billion in fees in the last year alone. The platform has shown consistent growth, with revenues averaging over $700 million annually between 2020 and 2024.

The firm’s "party business," which provides services to companies KKR does not own, has contributed over $1 billion in revenue since inception, highlighting the diversification of revenue streams.

Operational Updates

KKR’s capital markets platform operates with a lean team of 70 employees, focusing on efficiency and diversification. The platform’s revenue base is diversified with smaller, granular transactions, reducing reliance on large deals. Integration with KKR’s credit business enhances its relevance and competitiveness, offering a comprehensive "one-stop shop" for borrowers.

Strategic initiatives include expanding into structured capital markets, asset-based financing, and private investment grade. Additionally, leveraging Global Atlantic provides access to insurance capital, creating synergistic investment opportunities.

Future Outlook

KKR aims to double its capital markets business by continuing diversification, expanding into new markets, and increasing operating leverage. The firm sees significant growth potential in private investment grade and asset-based financing, mirroring the growth trajectory of direct lending. Expansion into Asia is also a priority, driven by GDP growth and the need for institutional capital in the region’s bank-driven market.

Q&A Highlights

During the Q&A session, Smith emphasized the importance of depth and liquidity in capital markets, noting the substantial $7 trillion of cash on the sidelines. He expressed optimism about the potential resurgence of M&A activity and the firm’s ability to control deal flow and deliver investment opportunities.

For a detailed review, readers are encouraged to refer to the full transcript below.

Full transcript - Morgan Stanley US Financials, Payments & CRE Conference 2025:

Mike Cyprus, Equity Analyst, Morgan Stanley Research: The, taking of photographs and the use of recording devices is also not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative. Alright. With that out of the way, good morning, everyone. Thanks for, staying with us here on day one of Morgan Stanley Financials Conference.

I’m Mike Cyprus, equity analyst covering brokers, asset managers, and exchanges for Morgan Stanley Research. And welcome to our hybrid fireside chat with KKR, and we’re excited to have with us Adam Smith, partner and cohead of KKR’s credit business and capital markets business. As you know, KKR is a global investment firm that offers alternative asset management, capital markets, and insurance solutions and today manages over 664,000,000,000 of assets under management. Adam, thank you for joining us today. Appreciate you coming over here.

It’s been, I think, five years since you were last here. And I think you’re gonna kick off with a little bit of a presentation, and then we’ll jump into a fireside chat.

Adam Smith, Partner and Co-Head of Credit Business and Capital Markets Business, KKR: Great. Well, thank you for having us. We really appreciate the opportunity to tell our story and to interact on a on a stage with you. I will go ahead and start maybe talking a little about our capital markets platform to provide some context for the fireside chat. I think your questions are gonna be more interesting than my presentation, so I’ll try to run through this pretty quickly.

There’s three big things that I think you’re gonna hear run through this presentation in our chat today, and that’s the following. One, we have the largest and most specialized capital markets platform of any asset manager out there. Two, we help drive investment performance for the firm, and we’re also an attractive and meaningful revenue stream for the firm. And thirdly, we have a growth orientation, and that comes from two sources. One, we grow as the firm grows.

And secondly, there’s a party business that we engage in that has a large addressable market and opportunity for us to grow and take share on that. So with that in mind, our capital markets platform is the centralized financing arm inside of KKR that’s responsible for arranging all the debt and equity financing that our firm consumes across all of our investment strategies, all of our investment businesses globally. We also provide the same capabilities and services to independently owned companies, whether they’re sponsors or family owned or privately backed companies or even public companies. And we do that across four main product areas. One would be debt capital markets, so I think about that as a corporate credit markets.

would be equity capital markets. I would think about that as our IPO and follow on business. is our structured capital markets business, which is one of our newer businesses. That’s engaged in structured finance and asset based financing transactions. And or sorry.

is our co investment partnership business. This is actually where we began. This is the syndication of excess investment opportunities that we have where our funds don’t take them down entirely. We figured out a way to commercialize that. What do we do?

We have the ability to both structure and distribute transactions into the markets, and we are able to do that across both private markets and broadly syndicated markets. So not only do we put transactions together, but we’re able to place them to investors such as you. That is a tremendously powerful thing in a platform like ours. And then the final thing I’d say is that we do this in large scale. On average, we’re completing around 400 transactions a year.

That’s 400 different fee opportunities that we’re able to complete. And we do that across all these different asset classes, and it accumulates in a really big number. So last year, we generated we participated in over $400,000,000,000 of debt and equity financings. And since we began this, that number is $2,000,000,000,000. We’re also a very strategically connected part of the firm to our credit business, and that’s why you introduced me as the head of our credit and capital markets business or co head of that.

We’ve been able to integrate our capital markets capabilities and our credit capabilities together to approach borrowers and offer them essentially a one stop shop to provide financing solutions that are tailored to what they want. So we can provide them with private credit, we can provide them with the capital markets opportunity or financing, or we can combine those two things together. And that makes us more relevant, it makes us more likely to win a transaction, maintain incumbency, get bulk control, and ultimately convert that into an investment opportunity or a fee or both. There’s very few people that can do that, and I don’t think anyone can really do that in an integrated of way. And as I mentioned before, we’re really a revenue center for the firm.

When we started the business, we made $1,000,000 in 02/2007. Last year, we made a billion dollars of fees doing the exact same thing. And that growth has really been driven by two things. Firstly, it’s been driven by the growth of the firm. As KKR scaled, as KKR added new investment strategies, as KKR’s funds grew, as our portfolio accumulated more companies, those all presented more opportunities to finance transactions.

Secondly, we also extended the same capabilities and services to a bigger client base, which is other companies that we don’t own. And the accumulation of both the party business and the growth in the firm really has led to the steady growth over time. You’ll see we present this chart with sort of these yellow lines that show you what the fee averages are over a four year period. We do that because we think it’s important to understand that this business really operates across cycles, and you really wanna think about what’s the normalized business over time. There can be periods of time or a quarter where activity may be high or may be low, but over time you start to see trends in the underlying business.

I think the big trend that you see on this slide is the power of the diversification scaling of our firm and how that rolls through in KKR. And what that really means in capital markets is we have a more granular, a more diversified revenue base, and we have more ways to win. And that diversification, you can see in comparing 2032 to 2015 to the period 2020 to 2024. In 2012 to 2015, we were largely driven by traditional private equity activities, whether it was for our flagship funds or for party clients. There, we were averaging about a $170,000,000 a year of revenue, and 91% of all our fees were generated from those traditional private equity activities.

If you go look at the last four years, 2020 to 2024, we’ve averaged over $700,000,000 a year. And private equity or traditional private equity activities really only accounted for 50% of that, which means that infrastructure, credit, asset based financing, real estate, all those new growth businesses and core strategies have provided more ways for us to generate revenue and really increase the size of the pie that we can go after. And so if you look at that on the right chart, you’ll see this how this plays out. 2021 was a record year in the capital markets, and it was a record year for a capital markets platform. We generated almost $850,000,000 that year when the markets were at an all time high and activity levels were at an all time high.

What I think is even more interesting is if you look at 2022 to 2023, you really saw a recession in the capital markets activity. You saw a massive fall off in in deal flow It really decreased activity. And despite that, we’re able to generate about $600,000,000 a year. And those were our and best years ever. And so if 2021 showed you you could have record performance in record years, 2022 and 2023 really showed you could have resilient performance in dislocated years.

And what I think is really more interesting than that is you go look at last year. No one would say last year was an incredible year in the capital markets. It was good. You saw a resumption of activity levels. You saw more deal making.

That year, we made a billion dollars of revenue, and that activity level didn’t seem or feel like what 2021 presented. And I think that that shows you the benefit of this accumulation of more revenue streams and more opportunities to go after, and it shows you what can happen when deal making activity kinda picks up, which leads me to our final point here, and I think this will be a springboard for some of our conversation. We really do have a growth orientation in capital markets, and in some ways, I had the easiest job in the firm. The pillar of our growth is that we grow when the firm grows. So if you think about the scaling of KKR across our diversified slate of businesses, private equity, infrastructure, real estate, credit.

As those businesses get bigger, as their funds get bigger, as the capital structures we invest in get bigger, those are more opportunities for us to participate in financing transactions. And you can see that there’s a correlation between the size of our AUM and the growth in our capital markets business. We have more ways to win. The other area of growth for us is our party business. This is a business that we started in 2000 and really, probably 2008 was where it really kinda grew.

And it’s grown steadily over the years. And what we’re doing here is we’re applying the exact same services using the exact same team with the exact same capabilities and the exact same pipes, but we’re just allowing us to provide those services to more people that are looking to get the same kind of quality of capital market services their own investment teams and firms looking to get. And the accumulation of that can be meaningful. So over the last since we started this business, we generated over a billion dollars of revenue from people that used to think of us as a competitor. To me, this is a big market to go after.

There’s a lot more companies that we don’t own than that we do own. And this universe is also expanding into new places as you see markets like private IG and some of the other financing areas start to grow as well. So we’re really excited about where we are. So the three big things we talked about, largest and most specialized capital markets platform in our industry. we’re both a revenue driver and driver of investment performance for our firm.

And thirdly, we have this great growth orientation that benefits from both the growth of the firm and the opportunities that we have in party. So with that in mind, maybe we’ll have a fireside chat. Great. Thank you. I don’t know what you always do with

Mike Cyprus, Equity Analyst, Morgan Stanley Research: Why don’t we start off talking about the capital markets backdrop? It’s been a little bit volatile this year. A little bit of a pause in April now appears that some of the activity is picking up. So just curious your take on the outlook for capital markets activity from here. What do we need to see in order to see a significant uptick in transactions?

And what are some of the indicators you guys are tracking and watching on that front?

Adam Smith, Partner and Co-Head of Credit Business and Capital Markets Business, KKR: Sure. That’s a great question, and I wish I had that crystal ball. The, you know, the the year started with a really positive outlook. We saw the market run up after the election. I think people thought that the policies of the administration were gonna lead to a resumption of that 2021 kind of feeling.

We did see some concerns around inflationary pressures with some of those policy decisions, and then we saw a tremendous amount of volatility, as everyone knows, with the tariff announcements, and we’ve seen that play through. What’s really been interesting for us has been that that volatility was really in the equity markets. The credit market did experience volatility and things did kinda widen out, but much less. And what was really important for us is all those markets remained functional. And we continued our deal making activity, and Scott and Rob talked about this at our investor call recently.

Throughout that period of time, we have a linear deployment model at the firm, so we stay investing throughout market cycles and invest through them. That really helps. We’ve seen a snapback, so valuations have gone, you know, back up. The S and P is up, I think, almost 20 from its low around Liberation Day. And so and you saw IPO windows open up, so there have been, you know, a number of IPOs

We participate in some of those IPOs in the capital market side. So what are we looking at? We’re looking at a couple of things. We’re looking at the depth and liquidity in the capital markets, and we’d say it’s strong. There’s $7,000,000,000,000 of cash on the sidelines that’s waiting to be invested.

There’s a tremendous amount of capital out there in credit across all different asset classes so you can finance transactions. For the right businesses, the IPO market is open. So those businesses, what would we think about? We would think about businesses that are fairly insulated from tariffs. I think Aspen Insurance was the was the IPO that led the market open.

That’s an insurance brokerage business. Hard to get hurt by the current policies on that. And then so the real unlock, think, will be when does the m and a pipeline really manifest to the levels that people are hoping for. There’s been a feeling that m and a has been depressed really since 2021. Every year, people are saying it’s about to unlock, and that’s driven by a couple things.

There’s certainly a lot of corporate activity that should be happening. There’s also a lot of privately owned sponsor backed companies that need to find a source of liquidity, and a sponsor to sponsor transaction is one of those sources of liquidity beyond the public market. So m and a, I think, will be the big question mark. And if you’re really focused on what’s the future state of deal making, you really gotta start with the m and a pipeline.

Mike Cyprus, Equity Analyst, Morgan Stanley Research: Why don’t we dive into your KKR, capital markets business, which you gave a nice overview. You helped build the capital markets business back from its roots in February. And so maybe just how has the business evolved relative to your initial expectations that you had back many years ago? And looking out over the next decade, how do you see the business evolving from here over the next decade?

Adam Smith, Partner and Co-Head of Credit Business and Capital Markets Business, KKR: Yeah. So the and I I should not I don’t wanna take credit for the business that Scott and and my predecessor really had the idea to to put it in place. I was around from the beginning of it. And what I think we got right was the business model. And the basic thesis of KKR Capital Markets is that there’s a lot of value in being able to control deal flow.

And there’s a lot of value in being able to deliver people investment opportunities. And if you can figure out how to commercialize that, you have a way to capture a portion of that value. And so what we did is we took all of the consumption of capital that our firm has, which really meant opportunities to finance ourselves and so we’re gonna participate And what we decided was you needed to have the right infrastructure, you need to have the

Mike Cyprus, Equity Analyst, Morgan Stanley Research: right

Adam Smith, Partner and Co-Head of Credit Business and Capital Markets Business, KKR: product expertise, and you needed to have a distribution capability so you could take that directly to market and provide it to the end user which is the investor which is the people in this room. And so we got that model right. What I think that we learned over time was that model was a really replicable model. And so we built it around traditional private equity. Remember that slide we talked about where you see that ramp in, you know, 2012 to 2015, 91% of our revenues were driven by traditional private equity.

We realized you could take that same principle, that same business model, that same strategy, You could do it in things like securitization, ABS. And as the firm started to create more investing businesses and scaling those in large ways with large capital structures, we realized there’s a huge fee stream associated with that. And we just employed the exact same model. We hired the right people with the right capabilities, and we kept on replicating it. And so what we’ve been really pleasantly surprised by has been how you can take the simple model and just port it over and do the same thing in a slightly different area or market and commercialize in the same way.

And the adoption rate and the speed that you can do that is really high. Where are we going? I our view would be that we’re going to continue to do what we do best, which is new issue financings. It’s capture all these transactions that sit in front of us and then apply those same capabilities to parties and just create more operating leverage in the system. We run a really tight ship.

We have 70 people in capital markets, give or take. And we’ve been able to really scale up the revenue base without having a lot of head count growth. It’s a very efficient model, so we we we like that. To me, the emerging areas, it’s it’s funny we left the global landing case study on the on the screen for the people who look at it. There’s a huge growing market around private investment grade.

You’re probably talking about it a lot with the people you talk to. I think that there’s a huge opportunity in the market to take more transactions and place them in institutional private markets in the investment grade capability. That is a course sort of pillar of what our future growth is gonna look like. And our acquisition of CyrusOne, which we completed last year on a 100% basis, will help facilitate that.

Mike Cyprus, Equity Analyst, Morgan Stanley Research: Great. Why don’t we talk about the the mix of the business? Yeah. Quite diversified, right, mix of debt syndication, various types, equity syndication, party related transactions in there. I guess how do you think about the mix evolving over time?

Adam Smith, Partner and Co-Head of Credit Business and Capital Markets Business, KKR: Yeah. So what’s I went and I looked at a lot of our historical data. And if you’ve been in the business for eighteen years and you’ve seen market cycles that go from the GFC all the way through, you know, today, you’ve seen a lot of different things. There’s been a tremendous amount of stability in some of the underlying trends. I’ll hit some of those, and then we’ll talk about maybe what that business mix looks like.

On a pretty normalized basis, debt financings end up being, call it, 60 to 70% of what we do. And that makes sense for two reasons. One, debt is generally a larger percentage of a capital stack if you look at some of our levered transactions. And secondly, debt is a very transactable instrument. You put it in place, you can reprice it, you can extend it, you can add to it, you can refinance it, you can amend it.

Every one of those moments is an opportunity for us. Equity, you tend to buy it once and you sell it once. And so the mix tends to be pretty stable over time. Debt tends to be a bigger part of a business than equity. Our head count would sort of reflect that as well.

I think on a pretty normalized basis, The US is always a little over a majority of what we do, which makes sense. It’s one of the largest markets out there. It’s one of the most robust and transactable markets. And if you think about where our AUM is, there’s a healthy percentage in The US. What I really like about that though is that it means that 40% or so is also things that aren’t in The US.

Right? So Europe and Asia. I think Europe and Asia will kind of balance each other out. One area may be more active than the other. What we’re really looking to achieve in capital markets is a large diversified business where we have a lot of different markets to win in, so we’re not reliant on any one market.

Geography would be one of those things. Debt equity would be one of those things. And then you see things like infrastructure, you see things like securitization, private IG, asset based lending, those are all part of it. In that, if we go back to the diversification slide I talked about, you do see this increasing diversification for things that are outside of what I call traditional private equity financing, meaning that fees that aren’t generated just by LBOs, just by IPOs, and infrastructure securitization, those are the types of things that are coming. So I would hope that we’re gonna have a continued diversification.

And over time, I think that you’ll see a pretty nice balance. When you get to $1,000,000,000 of revenue, it’s hard for any the large numbers starts to come into play, you have a hard time swinging a thing around too much.

Mike Cyprus, Equity Analyst, Morgan Stanley Research: Great. Why don’t we shift to talk about the outlook for transaction fees this year? First quarter was pretty strong despite the backdrop, so impressive there. I think two thirds were more debt focused to your point on sort of the debt mix about 80% or so driven by portfolio company activity. So I guess how do you see cap market fees trending this year and the mix of activity?

Yes. I I think that you’re going

Adam Smith, Partner and Co-Head of Credit Business and Capital Markets Business, KKR: to see a continued pacing like we’ve seen. And and I think it gets into what does the market activity really look like. We have so many ways to win. New deal activity is part of it. Portfolio work is part of it.

party is part of it. I tend to focus the business not on a quarter by quarter or fiscal year basis. I tend to look at it on what’s the normalized period of time. I think that’s the best way to look at it. And we really benefit from this resiliency and durability and stability in the tougher periods that’s been driven by the diversification.

And we also benefit from, in upswings, the opportunity to capture a lot of transaction volumes.

Mike Cyprus, Equity Analyst, Morgan Stanley Research: And how should we think about the monetization take rate for your transaction fees? I think the overall sort of cumulative revenue you had on your slide here implied around 30 basis points take rate on the overall volume. I guess, what are some of the areas that are higher when you think about the different types of transactions? Which ones are lower?

Adam Smith, Partner and Co-Head of Credit Business and Capital Markets Business, KKR: And how do you see that take rate evolving over time? Sure. So I think just to understand the business, it’s a really simple economic model. It’s a price times volume business. The prices are the fee rates that we’re able to charge, and those are all market driven, and there’s a lot of transparency in that.

And so how a US IPO gets priced from a fee perspective or how a high yield transaction gets priced from a fee perspective or investment grade deal gets priced. It’s all pretty stable. It’s very transparent. It’s all market driven. The real question around what our transactions look like is the volumes.

And volume is gonna be a factor of three things. One is how many deals are we doing a year in those different fee classes? How big are those deals? Right? Bigger capital structures would tend to have bigger fee opportunities associated with them.

And then what’s our participation rate in those transactions? And the business mix will drive a lot of what the ultimate number looks like at the end of the year. What’s really kind of interesting, would tell you, ten to fifteen years ago, we were much more sensitive to large transactions. One or two fee events would be noteworthy and they could drive things. Today, we have a really granular underlying business, and that was because of the diversification that we’ve talked about so far.

And so I’ll give you two numbers for instance. If you look at 2020 to 2024, almost 40% of our transactions were modest to small fees, say $5,000,000 or less. And a quarter of the transactions were fees of $3,000,000 or less. So it’s really at the end of the year an accumulation of a lot of stuff and often a lot of very small granular things. And what I like about that is it creates the ability to win a lot of a lot of places and it also creates the level of redundancy and resiliency in your underlying business so you’re not sort of tied to the fate of a transaction or not.

And how do

Mike Cyprus, Equity Analyst, Morgan Stanley Research: you think about the longer term growth opportunity for the capital markets business? You know, what sort of growth algo should we be thinking about here? And some of the key drivers aspirations to doubling the business, would you say one more So

Adam Smith, Partner and Co-Head of Credit Business and Capital Markets Business, KKR: I think that if you’re bullish on KKR, should be bullish on our capital markets business. We grow when the firm grows. You can go look at a couple correlations. We had a slide we put up earlier that had it tracked as the AUM of the firm went up. You could see our capital markets fees go up.

And that’s pretty one for one, not one for one, but it’s very correlated. The the driver of that is a couple components. One would be just transaction activity or new deal activity. So you think of probably the word deployment. The part of that is the portfolio.

Right? The accumulation of a bunch of portfolio companies. So what we saw last year was a lot of portfolio work was was was involved during parts of the year when new deal activity There’s kind of offsetting factors there. We tend to be pretty well positioned to capture revenue when the firm deploys.

So if you look at maybe since 2012, so the last fifty three quarters, there’s like an 80% correlation of our fees and deployment activity. What I like about that correlation in a firm like ours, you you probably have heard Pete Stavros or Henry McVey talk or Scott talk about our linear deployment model. We’ve prided ourselves since the financial crisis on really trying to make sure that we’re investing through cycles. Other firms tend to invest a lot when they feel comfortable, which generally means a bull market, and they pull back when they feel uncomfortable, which means market dislocations. We try to stay invested through all of those things.

If you sit in my seat, what that means is we have fee opportunities in all those moments. And we’re not limited to just open syndicated markets. Go back to that 2022, 2023 slide that we talked about. We’re making a lot of money by putting in place private credit in our portfolio companies. Right?

That’s not a fee stream that a lot of people have access to. We are making money syndicating private equity and infrastructure co invest during those markets. That’s not a fee stream a lot of people have access to. And so our goal in capital markets is really to do two things. It’s to make sure that we are able to secure capital for our investment teams so they can get deployed, and having access to capital in bad markets is a competitive advantage, and we look to drive investment performance as part of that.

And the goal is to make sure that we’re commercializing all of those opportunities. And that means having infrastructure in place. It means having the teams in place. It means having the capabilities together to be able to kinda do that.

Mike Cyprus, Equity Analyst, Morgan Stanley Research: Great. And with the GA slide on here, why don’t we shift and talk about the build out of the capital markets business now with Global Atlantic alongside? How do you see this contributing over the next couple of years? Talk about some of the steps that you’re taking here. What do you need to do in order to best capture the opportunities ahead?

So

Adam Smith, Partner and Co-Head of Credit Business and Capital Markets Business, KKR: the the the business model that we will use inside of Capital Markets is you wanna build a team that is deep in product capabilities. You wanna build a distribution capability that means you’re able to not only sort of think about the corporate finance and the capital structure, but you’re able to take that to market and form your views by market. And you need to be able to sync that up with your origination. If you can do that, you can unlock new revenue streams. We started building this team.

This would be our structured capital markets team that’s responsible in many ways for these types of transactions. We really noticed that the infrastructure business was growing and starting to get really kinda large. And as part of that, we also reflected on the fact that infrastructure financing, for instance, is very specialized. So you can’t take someone that’s a leveraged finance person and port them over and say you’re now gonna do project finance and you’re gonna be getting A plus in that. And so we started to bring in specialized capabilities and resources for infrastructure.

At the same time, we saw our asset based financing business start to get big. We’re a leader in that. We’re probably one of the earlier firms to start to build that in a really diversified way. We said you need to have people that could do securitizations if you wanna be in that business. And so we added those people.

And so most of the headcount growth that we added inside of Capital Markets between 2018 and today has been to build up this capability in this team. And through that, we’ve now got a platform inside that is as big as our debt capital markets business in the same jurisdictions. And so we’ve got the capacity and the throughput to handle that. And we’ve got the ability to do what I talked about earlier, which is structure things and take them to market and marry that up with our origination. We’ll talk about that in a Our acquisition of Global Atlantic fundamentally expanded the way our firm can invest.

And a lot of the investment activity of Global Atlantic is really symbiotic with the structured capital markets business, and that’s what’s exciting for us. This CyrusOne case study, think, is a great example of how all that can come together. I realize that Scott and Rob spent a little time on the earnings call about this, but I think diving into this really kinda shows you what we can unlock here. So CyrusOne is a hyperscale data center business. We own it actually in our infrastructure fund, our private equity fund, our real estate fund.

We own it with a partner. It’s in the business of of building operating data centers, and part of what you have to do is you have to have a lot of CapEx to build your data centers. CyrusOne traditionally would have funded the build out and the development until stabilization of a data center through like a bank driven facility. We were looking at those and advising CyrusOne of those types of financings over time, and what we realized once we’d internalized this insurance capability and this insurance mentality and how to structure things for insurance capital, we said you could actually take that same financing and you could just maybe change it in slightly different ways, and that would be a really interesting investment for an insurance company. And so we got Global Atlantic involved and we designed for Global Atlantic an institutional tranche of the same bank facility.

And actually Morgan Stanley was involved in this as well. We got institutional tranche put together, and then we raised additional capital around that. So Global Atlantic helped us think about what the insurance market wanted. It provided an anchor order for those transactions, And then we were able to then further commercialize it by bringing in other insurance companies, pension funds, and asset managers into that transaction. And for us, this is a real win.

CyrusOne had more capital to do more data center development. Globe Atlantic was able to make an anchor order of the size that it wanted an investment opportunity otherwise wouldn’t have access to. And we’re able to generate capital markets revenues around that, and that was half of our $50,000,000 that we made in 2024 in that market. And so that’s sort of the playbook that I think illustrates just one use case for this team and and how we interact with Global Atlantic.

Mike Cyprus, Equity Analyst, Morgan Stanley Research: Great. We have a few minutes left. I wanted to turn to global initiatives. I think that’s a major differentiator for for KKR. Yes.

You have a large presence in Asia. So I guess how do you see the cap markets there developing the areas sort of with greatest demand and tailwinds now? Yeah. And what are some of the other regions around the world that you see as having some of the most meaningful growth opportunities?

Adam Smith, Partner and Co-Head of Credit Business and Capital Markets Business, KKR: Yeah. And and, you know, we started this conversation. I said about, you know, 50 to 60% of what we did over the last few years has been the capital markets has been in The US. The rest has been in Europe and Asia. Asia is a really interesting market from both a capital markets perspective and from a credit perspective, frankly.

So our firm’s got probably one of the biggest and most developed Asia footprints out there. We’re in nine different cities. We have truly local teams, which you have to have local teams if you wanna source good investments and really understand how to invest. And the Asia Asia’s got the biggest growth prospects in terms of global GDP growth, and it’s also got a capital market that is largely bank driven. And what does that mean?

It means that that the rate of capital formation that needs to assist that GDP growth or enable that GDP growth just won’t be able to be served entirely by banks, which means there’s a need for institutional capital, and that means that there’s an opportunity for providers of that to be able to participate in that. And as an investor, you really wanna go figure out what the supply demand imbalances are in capital. We personally think that Asia will go through an evolution like The US went through over the last twenty five years in terms of a further institutionalization of credit markets beyond sub beyond investment grade. You saw Europe follow America’s approach on that. Today, 85% of all deals are financed on bank balance sheets in Asia.

That’s not sustainable. So we we’re building credit investing businesses in Asia to take advantage of that, and our capital markets business is certainly focused on that. Japan is, for us, a really big opportunity as you see value unlock happen through the corporate governance reforms. India’s got structural growth associated with large service based economy. So there’s a lot of interesting stuff there.

And then near term, there’s a lot of kind of focus on Europe. Europe’s, you know, has announced different stimulative policies. You can look at what Germany did, for instance, that should lead to more growth opportunities in Europe over the near term, and certainly there should be financing opportunities around that.

Mike Cyprus, Equity Analyst, Morgan Stanley Research: Great. We have maybe about two minutes left. Yes. So just maybe a question on private credit. Yeah.

I see you cohead that as well. KKR manages over 100,000,000,000 in private credit. That’s grown meaningfully over the past year. I guess, do you see some of the biggest opportunities right now across direct lending, sponsor finance, asset backed, and across different geographies? So

Adam Smith, Partner and Co-Head of Credit Business and Capital Markets Business, KKR: private credit has just been a market that has continued to grow. You know, direct lending has had the largest, longest growth that we’ve seen. The direct lending market is almost the same size as the syndicated loan market in The United States today, and so that’s just a big scale opportunity set. We’re active in there. I think the really exciting and emerging opportunity is in private investment grade and asset based financing.

We’re seeing two things. One, we’re seeing a lot of investor interest in allocating to that space. So LPs went through an education process around what is asset based lending, and now they’re in that process of putting that in their portfolio allocations. We’re also seeing issuers or borrowers saying, I saw what happened in direct lending. I see you can go access capital directly.

I have asset based needs. Can we do the same thing? And when you have scaled capital and you have issuers that are looking for what private credit provides, which is frankly more flexible financing structures than than syndicated bank markets that have to fit certain boxes, they’re willing to pay a little more for that. And when those two things come together, you can experience real growth. And I think this asset based world is now reaching a place where it’s got critical mass.

I mean, there’s critical amount of capital. There’s critical amount of of consumers of that capital, and they’re figuring out how to come together. To us, that should follow the same trajectory as direct lending, but our perspective and mine in particular would be that the adoption rate should happen much more quickly because you have a direct lending model that you can follow through. And so we’re spending a lot of time there. Think if if you look at what we’re doing structured capital markets, it’s really meant to capitalize that alongside our asset based lending business and credit.

And that’s super synergistic with our insurance company balance sheet.

Mike Cyprus, Equity Analyst, Morgan Stanley Research: Great. I’m afraid Bob will leave leave it there. Awesome. Well, thanks very much. Appreciate it.

Adam Smith. Thanks.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.