KKR & Co. Inc. (NYSE:KKR) Q1 2024 Earnings Call Transcript

KKR & Co. Inc. (NYSE:KKR) Q1 2024 Earnings Call Transcript May 1, 2024

KKR & Co. Inc. beats earnings expectations. Reported EPS is $0.97, expectations were $0.953. KKR & Co. Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, thank you for standing by. Welcome to KKR’s First Quarter 2024 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the management’s prepared remarks, the conference will be opened for questions [Operator Instructions] As a reminder, this conference is being recorded. I’d now like to the hand the call over to Craig Larson, Partner and Head of Investor Relations for KKR. Thank you. You may begin.

Craig Larson: Thank you, operator. Good morning, everyone. Welcome to our first quarter 2024 earnings call. This morning, as usual, I’m joined by Rob Lewin, our Chief Financial Officer; and Scott Nuttall, our Co-Chief Executive Officer. We’d like to remind everyone that we’ll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at kkr.com. And as a reminder, we report our segment numbers on an adjusted share basis. This call will contain forward-looking statements, which do not guarantee future events or performance. Please refer to our earnings release and our SEC filings for cautionary factors about these statements. We know many of you joined us for our 2024 Investor Day just three weeks ago.

Thank you for spending the day with us. And for those of you who are unable to participate or are newer to KKR, we would encourage you to watch a replay of the webcast or review the Investor Day presentation and transcripts that are on the Investor Relations section of our website. There is a wealth of information of course across all of those materials. And as a reminder, before getting to the numbers themselves, starting with this quarter, our financial reporting reflects the previously announced segment and financial metric changes. A particular note. First, we closed on the remaining interest in Global Atlantic on January 2, and we now own 100% of GA. Second, we’re now reporting a new segment, Strategic Holdings. Third, we’ve introduced a new financial metric, Total Operating Earnings, which consists of fee-related earnings, plus insurance segment and strategic holdings operating earnings.

Total Operating Earnings represents the more recurring and stable portion of our earnings, and is a measure we look at to evaluate our performance as it reflects how our business model and how our financial profile has evolved. Our expectation is that Total Operating Earnings should approximate 70% of pre-tax earnings over time. And finally, our Q1 financials reflect our revised compensation ratios, which deliver more FRE to our shareholders, and drive even more alignment between our compensation model and the outcomes of our clients. And as a reminder for additional detail, we posted recap financials in late March. So now turning to Q1 and our headline financial metrics. Fee-related earnings per share for the quarter came in at $0.75, that’s up 22% compared to Q1 ’23.

Total Operating Earnings were $1.08 per share in the quarter. And adjusted net income per share, which is after tax, was $0.97, and that’s up 20% year-over-year. Looking at our financials in a little further detail, management fees in Q1 were $815 million. That’s up 4% sequentially from last quarter. Net transaction or monitoring fees were $152 million, $116 million of which were generated from our capital markets business. Our fee-related compensation ratio was 17.5%, which is right at the midpoint of our target range. Other operating expenses were $145 million. You’re seeing a continued focus on expense management. This number is down 4% compared to Q1 at 2023. But we expect this line item to increase modestly over the balance of the year driven by continued investments in operations across KKR, alongside an increase in placement fees, given our active fundraising pipeline.

So in total for the quarter, fee-related earnings were $669 million or $0.75 per share I mentioned a moment ago and our FRE margin came in at 68%. That margin figure is up 700 basis points compared to Q1 ’23 and that’s driven both by the change in our compensation framework as well as the strong expense management in the quarter. Insurance operating earnings were $273 million. There are really two things to point out here. First, portfolio yields this quarter reflect elevated cash and more liquid assets of GA and that’s largely due to two sizable recent transactions with a MetLife and Manulife blocks closing in Q4 ’23 and Q1 ’24 respectively. So the full cost of those liabilities come onto the GA balance sheet of close but it does take some time to redeploy those assets into our target portfolios and that delay or that ramp it’s expected of course and it’s built into our pricing for each of these deals And secondly we’re seeing attractive investment opportunities in asset classes like core plus real estate and infrastructure as our origination capabilities are presenting GA with attractive risk adjusted return opportunities.

However, while these opportunities come with attractive long term ROEs near term yields tend to be more modest. And moving to our new segment strategic holdings in Page 18 of the earnings release. Remember the segment today consists of our direct interests in our core private equity portfolio which is a long duration investment strategy with an expected hold period of 10 to 15 plus years. So 19 businesses that are well diversified and generally have durable defensive financial profiles alongside growing earnings. And looking at KKR share of these businesses 2023 revenues were approximately 3.6 billion with EBITDA of 900-some-odd million and given the maturing of the portfolio as well as the stability of operating performance we anticipate these investments to be more regular dividend payers over time.

So operating earnings in the quarter were $21 million driven by dividend activity. As we stated previously, we expect strategic holdings operating earnings to be more modest in 2024. However we expect that will change in a pretty significant way looking beyond ’24 with operating earnings of $300 plus million by 2026, $600 million plus by 2028 and $1 plus billion by 2030. Our visibility and the opportunities we see here are highly differentiated looking across our space. So putting all of that together total operating earnings were the $1.08 per share. Moving to investing earnings. Realized performance income was $272 million and realized investment income was $135 million. This was primarily driven by secondary sales, strategic exits and realized carry from the core private equity portfolio.

So all together, adjusted net income totaled $864 million or $0.97 per share. Turning to investment performance you can see this on Page 10 of the earnings release. The private equity portfolio was up 5% in the quarter and up 19% in the last 12 months. Opportunistic real estate was up 1% in the quarter as well as up 1% in the LTM. The infrastructure portfolio was up 5% in the quarter and is up 16% over the trailing two months. In credit, in Q1 the leverage credit composite was up 3% and alternative credit composite was up 4% and over the last 12 months performance was plus 14% and plus 13% respectively. And given performance in Q1 our gross unrealized carried interest balance increased to $6.9 billion at $331. That’s up 16% from the end of 2023 and over 50% from Q1 of ’23.

And finally consistent with historical practice and as we announced last quarter, we increased our dividend to $0.70 per share on an annualized basis or $0.175 per share per quarter beginning with Q1. This is now the fifth consecutive year we’ve increased our dividend since we changed our corporate structure increasing our annualized dividend from $0.50 per share to $0.70 over this period of time. And with that I’m pleased to turn the call over to Rob.

Rob Lewin: Thanks a lot Craig and thank you all for joining our call this morning, and for the many of you that spent time with us at our Investor Day a few weeks back. I thought I would start this morning by going through some of our key operating metrics. During the quarter we raised $31 billion of capital. That’s almost $90 billion over the last 12 months. In just this quarter alone, we had attractive outcomes across each of our businesses. Our private equity and real asset businesses together raised $9 billion of capital across a number of strategies. And that’s before any meaningful closes from our upcoming flagship raises. And our momentum in credit has really continued, with new capital raised totaling $21 billion, with most of the capital coming from our direct lending, asset-based finance, and leveraged credit strategies.

And looking more specifically at our K Series vehicles, we raised almost $3 billion year-to-date through April 1, primarily in private equity and infrastructure. We also launched our private BDC in the quarter, and are starting to see some real inflows here as well. Turning to capital invested, we deployed $14 billion in the quarter. Deployment within private markets was largely driven by infrastructure as well as real estate equity. And over half of the capital invested in the quarter came from credit, primarily across asset-based finance and direct lending. We are seeing a significant ramp in credit deployment, reflecting the overall growth of our credit platform. Now, looking forward to Q2, we expect there to be a healthy pipeline of new deployment, given the activities we are seeing broadly across the firm.

And over the course of the year, we do expect deployment to pick up meaningfully. Before wrapping up this morning, I did want to spend a couple of minutes summarizing the key takeaways from our Investor Day a few weeks back. Scott and Joe led off our Investor Day with a very simple message. While we have experienced a lot of growth, it feels like we are just getting started. In terms of the key takeaways from the day, first, we provided medium-term guidance. Over the next 12 to 18 months, we expect to be raising capital for over 30 strategies, including a number of our flagships. We expect to raise $300 plus billion of capital over the course of 2024 through 2026. In terms of our financial metrics, by 2026, we expect $4.50 plus per share of FRE, implying a CAGR of approximately 20%.

$7 plus of total operating earnings per share, and $7 to $8 per share of adjusted net income, implying a CAGR of roughly 30%. Second, looking ahead, we feel quite confident in our longer-term trajectory. We expect $15 plus of adjusted net income per share in the next 10 years or less, with approximately 70% of these earnings to be more recurring in nature. Over the next five years, we also expect $25 plus billion of cash generation. We anticipate that this cash will get deployed across four key areas, core private equity, share buyback, strategic M&A, and insurance. Our model really gives us the confidence across all of these avenues of deployment. In each case, we have a strong track record of being able to deploy capital against high ROE opportunities that also generate recurring and growth-oriented earnings per share.

And number three, looking at our key themes, we made sure to highlight our diversified and purpose-built business model. Asset management, plus insurance, plus strategic holdings, all working synergistically together to generate sustainable and significant P&L outcomes. And we have a lot of confidence in each of our three growth engines. In asset management, we have multiple paths to surpass a trillion of AUM over the next five years. In insurance, we have strong conviction that we could double Global Atlantic from here. And finally, strategic holdings, which is really an unconstrained market opportunity for us and where we have a real right to win. We expect to have a billion plus of annual operating earnings by 2030. Our business model is built to drive compounding earnings over a very long period of time.

And while the opportunity in front of us is a massive one, we do believe that we can achieve our outlined targets without having to build anything new. And we have a team and culture, as you would have heard from over 15 of our business leaders on April 10, that both facilitates and accelerates our ability to achieve our strategic ambitions. So when you combine our business model together with our team and our culture, this is what distinctly differentiates KKR. And with that, Scott, Craig and I are happy to take any questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Craig Siegenthaler with Bank of America. Please proceed with your question.

Craig Siegenthaler: Good morning, Scott, Rob. Hope everyone’s doing well. Our question is on investing after Rob’s healthy deployment commentary. But we wanted to focus specifically on private equity, as I think there’s a lot more visibility in direct lending and ABF where you’re seeing strength. But in private equity, we are watching some building your deployment pipeline. I think CVT is probably the biggest upcoming transaction. And now the CLO markets and syndicated loan markets are back online, but the recent rise in the 10-year probably wasn’t that helpful. So can you provide us some comments on the expected investing activity levels in just your private equity business over the coming quarters?

Craig Larson: Hi, Craig. It’s Craig. Thanks for the question. Why don’t I start? I’m sure Scott will have a couple of thoughts also. First, and thanks for beginning in the way that you did. I think as Rob noted in our prepared remarks, the $1.1 billion of deployment you saw this quarter is not representative as we look at our activity. We’ve got a really healthy backlog of announced transactions. And if anything, it was just a dynamic where a pretty modest amount of that activity closed in the 90 days ended March 31. I think in terms of where we’ve been deploying capital, we could start probably with some of the themes we talked about at Investor Day. So, we talked about Asia as a region that, we expect to drive meaningful opportunity for KKR for years to come.

We talked about Japan specifically. I think it’s interesting when you look at private equity in our real assets business, the largest deployment we had this quarter was out of Japan. In that instance, it was out of our Japanese REIT business as they closed on the acquisition of 30-some-odd logistics warehouses that again we had touched on. I think as you also look at some of the activity we have in corporate carve-outs and private equity. We love those opportunities where our operational resources, and focus can really move the needle. So two of our larger pending investments are, corporate carve-out transactions. That’s one in Europe as well as one in the U.S. Those are again both traditional private equity. And I think the other point, just to highlight in terms of broad deployment, we talked about at Investor Day again is infrastructure.

And that’s just an area, where we bring deep expertise in the global footprint. Our second largest investment in the quarter, was to take private of a U.K. listed smart metering business. I’m sure some of you will remember that being a theme that, we’ve invested behind and have had success historically. And again as we look at our pipeline we’ve announced, but not yet close activity infra continues to be particularly active with themes and digital renewables et cetera. And again activity here is global well beyond the U.S. I think those – some of the pending investments we have include companies based in Italy, Germany, Portugal et cetera. So again, I think the main takeaway is a very healthy pipeline, and we’re continuing to find opportunities to deploy capital.

Scott Nuttall: Yes, the only thing I’d add Craig is that, we do think the M&A market’s coming back. I think to your point the leverage credit market’s opened up in January. We are starting to see this impact all of our businesses to Craig’s comments. But I’d say in particular private equity pipeline, which is up significantly. There’s a lot of activity. What we’ve announced in Q1, is obviously back we’re looking given to take some time for these deals to close. The activity deals that you mentioned actually closes today. So, I think you’re going to see more of the announced deals get closed, and you’re going to see more deals get announced as this pipeline turns into a real deal pipeline and turns into real deployment. I think you’re also going to see this on the monetization side.

If the M&A market’s picking up and the IPO markets are open, you’re going to see us selling more assets as well refinancing more assets, and taking more companies public. So I think, you’re going to see more activity overall across private equity.

Craig Siegenthaler: Thanks Scott.

Scott Nuttall: Sure.

Operator: Our next question is from Alex Blostein with Goldman Sachs. Please proceed with your question.

Alex Blostein: Good morning everyone. Thanks for the question as well. I wanted to go back to some of the some of the targets you laid out at the Investor Day and really speaking to the $25 billion of cash flow, you expect to generate over the next five years. Rob I know you mentioned several buckets, which are not that different. They’re fairly consistent with kind of how you allocated capital historically. But I was wondering if you could comment on the mix specifically, and sort of your priorities within those four buckets that you mentioned earlier. And I guess as part of that when you think about growth and strategic holdings, and incremental capital that you’ll deploy there. How much of that is likely to be driven, to sort of allocation to existing portfolio companies versus new investments?

Scott Nuttall: Right and thanks a lot for the question Alex. So and you did mention this. I think the most important thing is it relates to capital allocation, is to have a consistent framework and we’ve had a really consistent framework for some time with one overriding objective. And that’s to use our excess free cash flow, to drive durable and recurring and growth-oriented earnings per share. And to do so, by leveraging our platform at really high ROEs. And I think the only thing that’s really changed, is at our Investor Day we outlined you know the opportunity to generate $25 billion plus cash generation over the course of the next five years. And it’s just a huge opportunity for us. In terms of bucketing across the four main areas of deployment, core private equity, share buybacks insurance and strategic M&A.

We don’t have a fixed percentage by design, and it’s really about being able to allocate that capital base nimbly, to the opportunities that drive the highest return, and the highest amount of earnings per share, over a long period of time. That’s our focus. That’s what we think we’re really good at. As it relates to your question on strategic holdings, we outlined a path to a $1 billion plus of strategic holdings operating earnings by 2030. It’s something that we’re confident in. We’ve got real visibility on where that’s going to come from. I do think there’s the opportunity, if we see investments for us to be able to make in strategic holdings to drive that number north of that over time, as we allocate capital, but again no fixed percentage is how we’re thinking about it.

And I think that’s a good thing frankly, because I think it allows us to go after the highest returning, and most ROE friendly and earnings per share friendly opportunities that exist.

Alex Blostein: Thank you.

Operator: Our next question comes from Bill Katz with TD Cowen. Please proceed with your question.

Bill Katz: Okay. Thank you very much. Obviously a notice will step up in your gross sales. Generally speaking and if you just run rate this number you’re in north of you $300 billion number. So not that – a few weeks change of the argument, but hi I just want to want to speak to the sequential change particularly in the credit portfolio, where you’re seeing really good momentum maybe tie in the insurance opportunity with that, and I’ll leave it there? Thank you.

Craig Larson: Hi Bill, it’s Craig. Why don’t I start? So I think there are a couple of things here. First, probably worth highlighting investor interests in private credit, as that continues to feel very good. So I think, in direct lending spreads have come in certainly, but if you look at a new direct lending deal given, where base rates are in three months so far that’s still a 10 plus piece of paper. And in ABF, there’s just a number of really positive macro tailwinds as Chris Sheldon again walked through a handful of weeks ago, and within that part we’re active in both ABF and investment grade ABF in addition to opportunistic. And so, private credit for KKR on March 31 was $93 billion of AUM. These are big businesses for us, a year ago we are $76 billion so we’ve seen a 22% increase year-over- year.

So I think, that’s the first part and then the second part, which ties into your question is fundraising in our activities, because you’re right we are seeing growth and fundraising in a number of different ways for us and it’s broad which is great to see it’s institutional, it’s private wealth, it’s insurance, it’s across multiple forms of capital traditional funds SMAs evergreen vehicles other perpetual forms of capital. And it’s in the U.S. and it’s outside the U.S. And I think that that breadth of activity is really what you see in in our activity this quarter. Direct lending, we raise evergreen capital both in the U.S. and Europe, opportunistic asset-based finance capital raised. Asia private credit, we raise capital. Again this is another area where we’re constructive on the opportunity, and how we’re positioned given the strength of our Asia franchise.

And in our case series suite of products, we just launched our private B2C strategy. So I think, you could think of that almost as upside from where we are here so it does feel like we have a healthy amount of momentum and it’s broad based across the firm.

Scott Nuttall: Hi Bill, it’s Scott. The only thing I’d add is, in addition to the organic fundraising that Craig ran through from third-parties. We mentioned in the Investor Day this symbiotic relationship between global Atlantic and our credit business in particular. We’re definitely seeing that show up in the numbers as well. And it’s also allowing us to scale our third-party insurance, AUM as well at the same time. So it really does feed credit and it has historically. What I think you’re going to see over time though, and Craig mentioned this, is that we are going to see GA, also starting to do more across asset classes like real estate and infrastructure, especially on the core side. And as we mentioned last November when we announced that we’re going to 100% ownership of Global Atlantic, that’s one of the opportunities that we saw.

We’re just getting after that now. So I think, you’ll see it not only show up in credit, but in some of the real assets lines as well.

Bill Katz: Thank you.

Scott Nuttall: Thank you.

Operator: Our next question is from Brian McKenna with Citizens JMP. Please proceed with your question.

Brian McKenna: Thanks. Good morning everyone. So just the two part are here on core private equity. So first, is the $20 million in net dividends in the first quarter, a good quarterly baseline for the remainder of this year? Or should we expect some growth off of that? And then bigger picture. I’m curious if interest is picking up at all from LPs around the strategy, specifically as the portfolio continues to mature here while dividends, are also set to increase notably in the coming years?

Rob Lewin: Hi Brian, it’s Rob. I’ll start off. Plus or minus $20 million strategic holdings, operating earnings, pretty good level to model for the remainder of the year. As we move forward and get closer to $300 plus million by 2026, I think you’ll see a little bit more stability in that line item quarter-to-quarter. Might bump around a little bit in 2024 but plus or minus $20 million is about right. As it relates to our core private equity strategy, listen we are the largest core private equity manager today globally by a good margin. We think we’ve built, because of our investment teams, our geographic reach, our industry depth, our collaborative culture. We’ve really built a best-in-class franchise, and it’s something that I think we certainly be excited, about continuing to partner with our clients on over time.

Scott Nuttall: Yes, I think to the second question Brian, we haven’t been out actively marketing core private equity. We’ve got plenty of dry powder in the pools that we managed today. The next thing we’ll be talking about with our investors on the PE side, is going to be America’s private equity. So, we’ll give you an update as those conversations commence.

Brian McKenna: Helpful. Thank you guys.

Rob Lewin: Thank you.

Scott Nuttall: Thanks, Brian.

Operator: Our next question is from Glenn Schorr with Evercore ISI. Please proceed with your question.

Glenn Schorr: Hi, thanks very much. So you have a lot of growth in a lot of places. You mentioned no need to build anything new, but I’ll ask the question anyway. Secondary is just about the only area where you’re not either scaled, or well on the way to being scaled. I’m just curious if there’s a plan. How important is it to LPs and for you? Or is that just a nice to have over time area? Thanks.

Rob Lewin: Glenn, it’s Rob. I’ll start. And I think you hit on it in your last remarks there. It is not a need to have for us. And so, we want to be in businesses where there are large, accessible markets and we got conviction we can be a top three player. Of course, over time we’ve looked at the secondary space. You could assume that most every M&A transaction that’s happened in the secondary space, has come across our desk here. And either we determined it wasn’t the right partner to be a top three player, or we determined that we just weren’t willing to pay the price that was a prevailing price in the market. And so, we’re perfectly comfortable focusing on the aspects of our business that we’re already in today. With that focus, we think we can be uniquely great at the things that we’ve already started, and that provides more than enough running room for growth going forward.

Glenn Schorr: Thanks, Rob.

Rob Lewin: Thanks, Glenn.

Operator: Our next question is from Patrick Davitt with Autonomous Research. Please proceed with your question.

Patrick Davitt: Hi, good morning, everyone. Could you give a little bit more specificity, or color on the gross and net flows at GA in 1Q, and within the gross side, the mix of channels? And then more broadly, it looks like all of the bigger PRT or pensioners transfer deals this year have gone to more traditional insurance players. So I want to get your thoughts on to what extent the lawsuits, and regulatory focus on that issue, are stifling the opportunity for the more all-spec insurance [ph]? Thank you.

Scott Nuttall: Yes, sure. Thanks for the question, Patrick. So, I’d say that if you look at the flows at GA this quarter, probably about 75% from the institutional side of our business, give or take. Again, that’s inclusive of the big block transaction that we did in the quarter with Manulife. We’ve had really good momentum on the individual side of our business as well, with very strong sales both in Q4 of ’23 and again in Q1 of 2024. And then on the PRT side, pension risk transfer side, we’ve talked about this as being a medium to long-term opportunity at GA. We really, coming into this year, did not have very much exposure here at all, but we have a team assembled against the opportunity, and we continue to believe that it’s a really big opportunity given the capability of our institutional reinsurance platform, for us to be able to take some share again, starting off with a very low base.

Operator: Our next question is from Dan Fannon with Jefferies. Please proceed with your question.

Dan Fannon: Thanks. Good morning. I guess just to follow-up on the GA business, seems like the cash and the block transactions kind of reduced returns, a little bit in the quarter. Could you talk about the current operating environment for those returns based upon the business you’re seeing today?

Rob Lewin: Sure, Dan. It’s Rob. I’ll start. So, what we’re seeing in the GA business is really strong performance, really strong operating performance, and really an even stronger outlook for the future. What happened in Q1 or what transpired from a P&L perspective in Q1, very much by design. When you complete two very large block deals north of $20 billion of assets, you’re going to take on the cost of those liabilities day one. But we really have a 12 to 18-month period where we’ve modeled, redeployment of the assets into higher yielding investments, and we’re operating at higher levels of cash balance. That was point one. Point two is a really interesting one. Scott started to touch on it a little bit earlier. We’re seeing a really interesting opportunity in core, and core plus real estate right now.

There is just almost no core and core plus real estate capital out there, and we’re able to create really attractive unlevered returns, by leaning into that asset class. But one of the downsides of leaning into that asset class, is a near-term downside in that the running yields on those investments, tend to be in the 4, 4.5% range. But we think those investments will certainly more than pay off, in terms of the longer-term ROEs that they could generate. So much like how you’d hear us talking about investing in the near-term, for benefits in the long-term across everything we do, that would be a really good example where you could see some dilution to ROEs in the near-term. But we think that are more than going to benefit Global Atlantic, its policyholders, ultimately our shareholders in the long-term given the attractive risk-adjusted returns we’re seeing there.

Scott Nuttall: Yes, the only thing I’d add, Dan, is that none of this is a surprise. I mean, we closed on $23 billion worth of block transactions, and when we price these deals, we assume there’s going to be a ramp period. So that’s proceeding as we expected. I think the business overall is performing incredibly well, both on the institutional side and the individual parts of GA. We’re seeing a significant amount of growth, and a significant amount of opportunity. And I think to the crux of your question, so far the dollars that are getting deployed in the investment portfolio, we’re hitting our target return levels. So, it’s just a rotation, and it’ll take a little bit of time to get this money to work, but we feel very good about the progress and the trajectory.

Dan Fannon: Great, thank you.

Scott Nuttall: Thank you.

Operator: The next question comes from Ben Budish with Barclays. Please proceed with your question.

Benjamin Budish: Hi, good morning, and thanks for taking the question. Just following up on the topic of GA and some maybe modeling tidbits. So that’s very helpful commentary in terms of the time it takes to redeploy some of those assets. I’m wondering if you could talk a little bit about, the pace of growth and the cost of insurance. It looks like quarter-over-quarter, it goes up as kind of the book turns over a little bit, but I guess how should we think about that just as we forecast longer term? And then similarly, from a high-level perspective, I think in the past you’ve kind of talked about guiding us, to think about book value growth and your target mid-teens ROE. Just trying to think about how we should or like how we should be thinking about that, given you’re now talking about the opportunity to accelerate longer-term growth.

I know it hasn’t been that long since you’ve owned 100% of GA, but just wondering if that’s still the right framework or any other considerations? And then that other piece on the cost of insurance side? Thank you.

Scott Nuttall: Yes, great. So starting on the cost of insurance, and I think you really hit on it. As you see the rotation in a higher interest rate environment, our crediting spreads have, of course, gone up. So have the yields that we’re able to generate on the investment side of the portfolio. So being able to generate that spread, continues to really exist in the business. So you’ll continue to see, I think an upward draft on crediting spreads, for a little bit and then ultimately it’d be a function of where interest rates shake out. In terms of our longer term ROE, the numbers I think they continued right range to be able to forecast Global Atlantic, is really in that long-term 14% to 15% pre-tax ROE range. Nothing has changed there.

We feel really good about the liabilities that we’re able to source in the marketplace. We’ve talked about our management team really feeling like they’re best-in-class at being able to source simple easy, to understand transparent liabilities at scale. I’ll take our investment platforms up against anybody’s globally, and being able to put those liabilities to work.

Benjamin Budish: Thank you very much.

Scott Nuttall: Thank you.

Operator: Our next question is from Steven Chubak with Wolfe Research. Please proceed with your question.

Steven Chubak: Hi, good morning.

Scott Nuttall: Good morning.

Steven Chubak: So wanted to ask on the credit deployment, and maybe just zooming in on the ABF opportunity the U.S. banks have started to indicate greater appetite, or willingness to pursue synthetic risk transfers. Just in an effort to alleviate some of their capital pressures, it’s an area where historically they’ve been much less active in the European banks. And we’re hoping you could just speak to the engagement levels, with some of your U.S. bank partners, how you see the ABF deployment opportunity unfolding, specifically within the SRT market that may be just more broadly, across the ABF landscape?

Craig Larson: So why don’t I start first, I think as it relates to SRT. It is a market we are active in it fits in our view very well with our ABF strategy. We’re knowledgeable across a host of assets, and we do like to partner with the banks. As you note, I think that activity has mainly been EU focused, it does feel like we are starting to see more activity in the U.S. It also seems like the potential opportunity set could be expanding. I do think the most common underlying assets for SRT’s have been in corporate loans, fund finance facilities, consumer term loans does feel like banks are beginning to explore – beginning to explore excuse me opportunities across other asset classes. And then, I think the other point that you touched on, which is very important it’s just this big macro tailwind we’re seeing in that opportunity that affords, it affords us and our team.

Again, you look at the growth in our ABF platform as a whole, we’re over $50 billion of AUM at this point in time that’s opportunistic together with more investment grade focused ABF strategies. And in terms of total deployment in a quarter like this one – we’ve overall as a firm, have deployed a little over round numbers $3.5 billion of ABF activity in Q1, which is a pretty elevated pace for us. So activity does continue to feel like it’s at a healthy level.

Scott Nuttall: Yes, part of the reason, Steven that we spent so much time on this part of the business at the Investor Day. As we do think that’s a really interesting and sizable opportunity. Direct lending is really interesting as well in private credit, but asset based finance is a much larger market a $5 trillion market on its way to $7 trillion to $8 trillion. And it encompasses a significant number of asset classes and you really need to have scale to be able, to do it well. And so, we talked about our 19 or 20 platforms better part of 7,000 people working at those platforms. I think you’re going to see that business, continue to scale in an attractive pace. And pleasingly, we’re also seeing institutional investors understand this part of credit, much more than they did a few years ago.