3. KKR & Co. Inc. (NYSE:KKR)
Akre Capital Management’s First Major Purchase: 2018
Akre Capital Management’s stake value: $1.49 Billion
Number of Hedge fund holders as of Q3: 66
KKR & Co. Inc. (NYSE:KKR) is a global investment firm managing various alternative asset classes, including private equity, credit, and real assets, with strategic partners overseeing hedge funds. The stock has outperformed the overall market, going by the 91.02% year-to-date gain.
KKR & Co. Inc. (NYSE:KKR) has maintained strong growth in AUM, with its fee-paying AUM growing 19.3% year-over-year to $506 billion by the end of Q3. Likewise, it recorded a $25 billion increase in organic new capital raised in Q3 and $122 billion in the last 12 months. Additionally, it has $108 billion spread across the firm’s different investment strategies, which allows it to take advantage of future investment opportunities.
The firm delivered solid Q3 earnings on October 24, 2024. Revenues increased by 44.5% year-over-year to $4.8 billion. More significantly, net premium revenues increased by 182.1% to $621.2 million from last year’s same quarter. In addition to solid financial results, KKR & Co. Inc. (NYSE:KKR) is pursuing strategic deals that have the potential to unlock new growth opportunities. It has already shown interest in acquiring Japan’s optical equipment maker Topcorn Corp. The investment firm has also shown interest in investing in Seven & i’s supermarkets unit.
Baron Fifth Avenue Growth Fund stated the following regarding KKR & Co. Inc. (NYSE:KKR) in its Q3 2024 investor letter:
“During the quarter, we also initiated a new position in KKR & Co. Inc. (NYSE:KKR), one of the largest alternative asset managers in the world with $601 billion of assets under management (AUM). We believe alternative asset management is one of the best secular growth areas of financial services, and KKR should be a prime beneficiary. Founded in 1976 as one of the earliest leveraged buyout firms, KKR was led for decades by co-founders Henry Kravis and George Roberts. Since going public in 2010 as a pure-play private equity (PE) firm, KKR has successfully diversified into other private asset classes, including private credit, real estate, and infrastructure investing. AUM has risen nearly 10-fold since 2010 (an 18% CAGR), and PE’s share of firm AUM has shrunk to less than one-third. These non-PE asset classes are less penetrated than PE and provide a substantial runway for KKR to continue growing its funds, fees, and earnings. KKR also has significant growth opportunities in Asia, which it first entered in 2005 and where alternative asset management is far less penetrated compared to Western countries. In 2021, KKR successfully transitioned leadership from Kravis and Roberts to co-CEOs Scott Nuttall and Joe Bae, longtime KKR employees responsible for many of the growth initiatives that are driving KKR’s success today.
In addition to its globally diversified asset management business, KKR has significant exposure to the growth of private credit through its ownership of Global Atlantic, an insurance company with $183 billion of AUM. Global Atlantic is a beneficiary of the shift of illiquid credit assets into the private markets where they are better matched from a funding duration perspective and can deliver higher yields than publicly traded fixed income securities with the same credit ratings. KKR also has a strategic holdings segment that includes co-investments in a portfolio of high-quality businesses managed by KKR’s PE funds. These balance sheet investments should generate a durable stream of earnings and dividends for KKR that will be reinvested back into the business or returned to shareholders. We believe the company’s above-market growth is enabled by its brand, track record of strong returns, proven management team, deep client relationships, and diversified business which gives the company more growth avenues compared to peers. At the company’s Investor Day in April, management guided to 20% annualized growth in fee-related earnings and 30% annualized growth in earnings per share, reaching $7 to $8 by 2026. KKR management expects earnings to more than quadruple to over $15 per share within 10 years, representing a 16% CAGR. We think KKR’s diversified platform of leading businesses gives the company multiple ways to grow earnings as they execute into the expanding market for alternative assets, which should bode well for the stock over the long run.”