KKR is the rare private equity firm that bets on itself

KKR & Co. is moving beyond its traditional leveraged buyout model to a strategy of holding some investments on its own books for decades, a shift directed by co-founders Henry Kravis and George Roberts. This new approach aims to transform KKR into a "mini Berkshire" by focusing on a buy-and-hold strategy rather than the typical fee-based, capital-light business model of private equity.

Co-CEOs Joe Bae and Scott Nuttall are leading this strategic overhaul, with an ambitious goal of reaching $1 trillion in assets under management by 2030. This involves making significant bets and departing from the firm's historical practices to become a more profitable company. The change emphasizes building a more permanent capital base for long-term investments.

KKR's strong operating performance was evident in recent financial results, including record private equity exits that generated $848 million in realized performance income, more than double the previous year. This allowed the firm to monetize long-held private equity investments, such as the sale of its remaining stake in Kokusai Electric, which yielded an estimated 20-times return. The firm also attracted $34 billion in new capital during the quarter, increasing total assets under management to almost $800 billion. Despite overall market sentiment, KKR's management believes its underlying business fundamentals are strong.

Key exits included the sale of Kokusai Electric, generating an estimated 20-times return on invested capital, and Hyundai Marine Solutions, with approximately 7.5 times cost. Other gains came from investments in US software company OneStream Software and German aerospace business OHB. This record pace of exits boosted fee-related earnings by 37% year-on-year and adjusted net income by 40%, surpassing analyst expectations. Fundraising was bolstered by a new Asia-focused private equity fund and investments in specialist sports manager Arctos, alongside continued demand from individual investors for its private equity and infrastructure strategies. Although credit strategies saw subdued fundraising, KKR expects 2026 to be a record year for its credit platform.