KKR 10-K diff: FY 2023-12-31 → FY 2025-12-31
Paragraph-level diff of Risk Factors (Item 1A) and Management's Discussion & Analysis (Item 7).
Item 1A · Risk Factors
+2455 paragraphs −632 paragraphs ~632 changed
FY 2023-12-31 (earlier)
ITEM 1A. RISK FACTORSInvesting in our securities involves risk. Persons investing in our securities should carefully consider the risks described below and the other information contained in this report and other filings that we make from time to time with the SEC, including our consolidated financial statements and accompanying notes. Any of the following risks could materially and adversely affect our business, financial condition, results of operations, cash flows, and prospects. We could also be materially and adversely affected by additional factors that apply to all companies generally, as well as other risks that are not currently known to us or that we currently view to be immaterial. While we may attempt to mitigate known risks to the extent practicable and reasonable, we can provide no assurance, and we make no representation, that our mitigation efforts, if any, will be successful. The following risk factors have been organized by category; however, many of the risks are interrelated, and as a result, should be read together to fully understand the risks involved with investing in our securities, regardless of whether a cross-reference is included in any particular risk factor to another risk factor. See also "Business—Competition," "Business—Regulation" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of certain business, competitive, regulatory, market, economic and other conditions that may materially and adversely affect us.Risks Related to Our Business
Difficult market and economic conditions can, and periodically do, materially and adversely affect KKR.We operate an investment management business where we manage investment vehicles that invest in alternative asset classes and also conduct a related capital markets business. We also operate, through our insurance subsidiaries, an insurance business that provides retirement, life and reinsurance products. Our investment management and insurance businesses, and therefore our financial results, are materially affected by market and economic conditions or events throughout the world in the countries in which we operate, invest or have investors, including conditions relating to interest rates, fiscal and monetary stimulus (and stimulus withdrawal), availability of credit, inflation rates, economic uncertainty growth (and contraction), changes in laws (including laws relating to taxation), trade barriers, commodity prices, currency exchange rates, foreign exchange controls, liquidity conditions in equity and debt capital markets, and other conditions or events. These market and economic conditions are not in our control and are often difficult, if not impossible, to predict, manage, mitigate, hedge or foresee. Examples of how these market and economic conditions may materially and adversely affect our businesses include the following, each of which could materially and adversely impact our business or financial results:
• the performance and value of the investments held by us (including our insurance subsidiaries) and our investment vehicles,
• opportunities for us (including our insurance subsidiaries) and our investment vehicles to make, exit and realize value from our and their investments,
• our ability to find suitable investments or secure financing for investments on attractive terms,
• the attractiveness of our investment vehicles and insurance products to investors and policyholders, respectively, including our ability to raise capital for new or successor funds and other investment vehicles on attractive terms,
• the frequency and size of fees generated from our capital markets business in connection with the issuance and placement of equity and debt securities, loans and credit facilities,• the availability and cost of capital for our insurance subsidiaries and our investment vehicles’ portfolio companies,• policyholder behavior, including policyholders electing to defer paying insurance premiums, stop paying insurance premiums altogether or surrender their policies,
• the amount and frequency of claims and policy benefit payments,
• the cost of providing guaranteed insurance benefits, and
• insurance capital requirements and collateral requirements under various insurance laws and agreements with third parties.46Tabl e of Contents
In addition, the impact of these conditions has exacerbated, and will likely continue to exacerbate, other risks discussed in this report, including with respect to valuations, the cost of credit and debt financing terms, and our ability to identify, execute and exit investments on attractive terms. In particular, see “—Risks Related to Our Business—Many parts of our earnings and cash flow are highly variable due to the nature of our business.” For a discussion of the risks relating to our asset management business, see the disclosures under “—Risks Related to Our Investment Activities,” and for a discussion of the risks relating to our insurance business, please see the disclosures under “—Risks Related to Our Insurance Activities.”
Geopolitical developments and other local and global events outside of our control can, and periodically do, materially and adversely impact KKR.
Geopolitical developments and other local and global events outside of our control can, and periodically do, materially and adversely impact various aspects of KKR and its businesses. We are a global financial institution with operations, investors and investments located in many countries around the world, which are not immune to geopolitical developments. Geopolitical developments and other local and global events outside of our control, including trade conflict, sanctions (reciprocal or unilateral), restrictions on foreign direct investment, trade barriers, civil unrest, national and international security events (including the outbreak of war, terrorist acts or other hostilities), can, and occasionally do, materially and adversely impact our ability to conduct our investment management and insurance businesses, as well as our portfolio companies and other investments. These risks have increased in both scale and complexity due to intensifying geopolitical competition and conflicts, including the ongoing Russian invasion of Ukraine and unrest in the Middle East, heightened geopolitical competition between China and other major world economies, heightened levels of political populism leading to regulatory volatility, and increased attention to global threats, including climate change. We have a number of offices located in multiple countries around the world, including China, South Korea, Japan, Australia, the United Kingdom, France, Germany, United Arab Emirates, Saudi Arabia, and elsewhere, and we seek investors from various countries throughout the world for our investment products and, to a lesser extent, our insurance business’s products. In particular, our investment strategies target opportunities globally, including across the Americas, Europe, Asia-Pacific, and the Middle East. Political instability and extremism, conflict, and civil unrest in any region where we have material business operations or investments may have a material adverse effect on us.
Any escalation in an actual or perceived trade war or barriers to investment between the U.S. and other countries or regions could chill or limit business opportunities, and otherwise negatively affect our investment management and insurance businesses. In addition, intensifying rivalries and conflicts in in the Asia-Pacific, Middle East, Europe and globally have created new complexities in the international business environment, including through the imposition of sanctions, national security-motivated regulatory changes, and protectionist policies by certain countries. Occurrence of war or hostilities involving a country in which we have investments, investors, insurance counterparties or employees could adversely affect our business.
We (including our insurance subsidiaries) may have direct investments in a region or a country that is experiencing one of the aforementioned events, and we may also be materially and adversely affected by the occurrence of such events as a result of indirect exposure that our portfolio companies or other investments may have through other interconnectivities such as supply chains, commodity prices and general macroeconomic exposure. The value of our investments can be materially impacted by trade wars or other governmental actions related to tariffs or international trade agreements and policies that materially constrain cross-border flows of investment, which have the potential to increase costs, decrease margins, reduce the competitiveness of products and services offered by portfolio companies and adversely affect the revenues and profitability of portfolio companies whose businesses rely on goods imported from or exported to any country impacted by such policies. In addition, tariff increases may adversely affect suppliers and certain other customers of our portfolio companies, which could amplify any negative impact. Further, the occurrence of war or hostilities involving a country in which we have investments or where our portfolio companies operate or have other interconnectivity could adversely affect the performance of these portfolio companies and their investments.
Even with limited direct exposure to Russia prior to its invasion of Ukraine, the conflict and related sanctions imposed on Russia have exacerbated and may further exacerbate these trends, including with respect to oil and gas prices. Policies, such as restrictions on exports of food, have also increased globally as a result of Russia's invasion of Ukraine. Beginning in February 2022, the United States and other countries began imposing, and have continued to impose, meaningful sanctions targeting Russia as a result of actions taken by Russia in Ukraine. For example, in October 2023, a UK court expanded the definition of “ownership or control” under UK sanctions that broadens the impact of UK sanctions on Russian entities. We and our portfolio companies will be required to comply with these and potentially additional sanctions imposed by the United States and by other countries, for which the full costs, burdens, and limitations on our and our portfolio companies' businesses and prospects are currently unknown and may become significant.47Tabl e of Contents
It is not possible to predict the broader or longer-term consequences of the Russian invasion of Ukraine or continued tensions between the U.S. (and other countries) and China. Similarly, escalation in tensions between the U.S. (as well as other major economies) and China, the inability of the U.S. and China to reach further trade agreements, the continued use of reciprocal sanctions by each country, or broadening implementation of investment restriction regimes in or related to China, may contribute to a slowing of global economic growth and adversely affect the revenues and profitability of our portfolio companies and other investments. These conflicts could result in further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions, currency exchange rates, exchange controls and financial markets.
Natural disasters and catastrophes, including public health crises, and potential changes in climate conditions could materially and adversely affect KKR.
Natural disasters or catastrophes, such as public health crises, extreme weather events, climate change, earthquakes, tsunamis and floods could have an adverse impact on our ability to conduct our investment management and insurance businesses. Such disasters and catastrophes could limit or even materially prohibit our ability to conduct any investment activities in certain locations. In addition, claims arising from the occurrence of such events could have an adverse effect on our insurance activities, in particular with respect to lapses and surrenders of existing policies, as well as sales of new policies. More specifically, public health crises, pandemics and epidemics, such as those caused by new strains of viruses such as the SARS-CoV-2 virus (COVID-19), may occur from time to time, which could directly and indirectly impact us in material respects that we are unable to predict or control, including by threatening our employees’ well-being and morale and interrupting business activities, including disrupting travel, investment activities, policy claim payouts, fundraising and new policy sales. In addition, we may be materially and adversely affected as a result of many related factors outside our control, including the effectiveness of governmental responses to a public health crisis, pandemic or epidemic, the extension, amendment or withdrawal of any programs or initiatives established by governments and the timing and speed of economic recovery. Actions taken in response may contribute to significant volatility in the financial markets, resulting in increased volatility in equity prices (including our common stock), material interest rate changes, supply chain disruptions, such as simultaneous supply and demand shock to global, regional and national economies, and an increase in inflationary pressures.
In particular, our headquarters and most of our senior administrative personnel are located in our New York City office. Any disruption in the operation of, or inability to access, our New York City office could have a significant impact on our business, and such risk of disruption or inaccessibility could be heightened during a terrorist attack, a public health crisis or pandemic located in or around New York City. It is impossible to predict with certainty the possible future material adverse effects to us arising from natural or man-made disasters or catastrophes, or any other public health crisis, pandemic or epidemic, and these effects may include the exacerbation of many of the other risks discussed in this report, especially with respect to our investment activities.
Potential changes in climatic conditions, together with the response or failure to respond to these changes, could precipitate natural disasters. While the precise future effects of climate change are unknown, it is possible that climate change could affect precipitation levels, droughts, wildfires, agricultural production, wind levels, annual sunshine, sea levels and the severity and frequency of storms and other severe weather events. These events and the disruptions that they cause, alone or in combination, also have the potential to strain or deplete infrastructure and response capabilities generally. See also "—Risks Related to Our Investment Activities—Our investments in real assets such as real estate, infrastructure and energy may expose us to increased risks and liabilities." We and our investments also face climate transition risks that could arise, for example, from climate-related legislation and policy developments (both domestically and internationally), and business trends and changes in consumer behavior related to climate change and technology (such as the process of transitioning to a lower-carbon economy). New climate-related regulations or interpretations of existing laws may result in enhanced disclosure obligations, which could negatively affect our and our investment vehicles’ investments and materially increase the regulatory burden and cost of compliance.
Public health crises, pandemics, wars, terrorist attacks, epidemics and weather events could also directly and indirectly impact us and our portfolio companies and other investments in material respects that we are unable to predict or control, which could materially and adversely impact valuations, especially valuations of investments directly in or collateralized by real assets, loans or other assets as well as portfolio companies that rely on physical factories, plants or stores located in the affected areas.48Tabl e of Contents
We have significant liquidity requirements, and adverse market and economic conditions may adversely affect our sources of liquidity, which could materially and adversely affect KKR.
We expect that our primary liquidity needs will consist of cash required to support and grow our investment management and insurance businesses and to meet policyholder obligations and various other obligations. We also have debt securities outstanding and indebtedness outstanding under various credit facilities. On the scheduled maturity dates of these debt obligations, depending on the market conditions, we may not be able to refinance or renew them on attractive or commercially reasonable terms or at all. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity Needs” for further information regarding our liquidity needs along with our capital commitments as of December 31, 2023 and Note 16 “Debt Obligations” in our financial statements for further information regarding our senior notes, credit facilities and other outstanding debt obligations.
For a discussion of our liquidity needs for our investment activities, please see “—Risks Related to Our Investment Activities—Our investment activities have significant liquidity requirements, and changes in debt or equity markets may materially and adversely affect our investment activities.” We have used, and from time to time may continue to use, our balance sheet to provide credit support for our general partners' obligations to our investment vehicles and to facilitate certain investment transactions entered into by our investment vehicles. See "—Risks Related to Our Business—Certain types of investment vehicles, especially those offered to individual investors, may subject us to a variety of risks, including new and greater levels of public and regulatory scrutiny, regulation, risk of litigation and reputational risk, which could materially and adversely affect us."
The underwriting commitments for our capital markets business may require significant cash obligations, and these commitments may put pressure on our liquidity. One of the credit facilities obtained by our capital markets business can only be used in connection with the general corporate and working capital needs of our capital markets business, including placing and underwriting securities offerings, and another credit facility can only be used to facilitate the settlement of debt transactions syndicated by our capital markets business. To the extent we commit to buy and sell an issue of securities in firm commitment underwritings or otherwise, we expect to borrow under these revolving credit facilities or may require other sources of liquidity to fund such obligations, which, depending on the size and timing of the obligations, may limit our ability to enter into other underwriting arrangements or similar activities, service existing debt obligations or otherwise grow our business. Regulatory net capital requirements may also limit the ability of our broker-dealer subsidiaries to participate in underwriting or other transactions.
Depending on market and economic conditions, we may not be able to meet our liquidity needs, refinance or renew our debt obligations, or find alternate sources of financing (including issuing debt or equity capital) on attractive or commercially reasonable terms or at all. Furthermore, the incurrence of additional debt could result in downgrades of our existing corporate credit ratings, which could limit the availability of future financing and increase our costs of borrowing. In the event that our liquidity requirements were to exceed available liquid assets, we could be forced to sell assets or seek to raise debt or equity capital on unfavorable terms. Moreover, the failure to comply with covenants contained in any of our debt agreements could trigger prepayment obligations that could materially and adversely affect us by causing additional liquidity constraints. Any default under these agreements (including through defaults on other debt that may result in cross-defaults on these agreements), and any resulting acceleration of the borrower’s outstanding indebtedness, could have a material adverse effect on us and could also cause a cross-default under our corporate revolving credit facility, which, if not cured or waived, could have a material adverse effect.49Tabl e of Contents
Although KFN and Global Atlantic are subsidiaries of KKR, KFN and Global Atlantic each has its own indebtedness outstanding. The terms of their respective indebtedness impose limitations on these companies' current and future operations and may restrict their ability to make distributions to KKR. With respect to Global Atlantic, our insurance subsidiaries are also subject to regulatory restrictions that are expected to restrict their ability to make distributions to KKR. We also could be forced to sell investments at a loss in connection with our insurance business to cover policyholder benefits, surrenders, withdrawals, recaptures or collateralization requirements of Global Atlantic’s reinsurance commitments or other events. Many of the products in Global Atlantic’s in-force book allow policyholders to withdraw their funds, also referred to as a surrender, under defined circumstances. In addition, certain of Global Atlantic’s reinsurance agreements include provisions requiring that under certain circumstances Global Atlantic provides collateral to support performance of its reinsurance commitments, including trust balances. Our insurance subsidiaries manage their liabilities and configure their investment portfolios to provide and maintain sufficient liquidity to support anticipated withdrawal demands, surrenders, contract benefits and maturities. While our insurance subsidiaries own a significant amount of liquid assets, a portion of their assets are considered less liquid. Unanticipated withdrawal or surrender activity or liquidity demands in connection with recaptures or collateralization requirements could, under some circumstances, require our insurance subsidiaries to dispose of assets on unfavorable terms, which could have a material adverse effect on KKR. Moreover, reinsurance agreements may provide for recapture rights on the part of Global Atlantic’s ceding company clients, and a substantial portion of Global Atlantic’s reinsurance agreements require that Global Atlantic hold or provide collateral to support performance of Global Atlantic’s reinsurance commitments. We may be forced to sell investments as a result of a recapture of its reinsurance business or as a result of the need to hold additional collateral that meets the associated investment guidelines, which could have a material adverse effect on KKR.
AUM, referred to as perpetual capital, is subject to material reduction, including through withdrawal, redemption or dividends, and termination.
We refer to a significant portion of our AUM from time to time as perpetual capital, because it has an indefinite term with no predetermined requirement to return invested capital to investors upon the realization of investments. This AUM includes the capital of our registered investment vehicles, certain unregistered investment vehicles, listed companies, and insurance companies, and it excludes our traditional private equity investment vehicles, similarly structured investment vehicles, and hedge fund partnerships. In addition to fluctuations based on the valuations of the underlying investments of the AUM, this capital is subject, however, to withdrawals, redemptions and periodic payments such as dividends. Perpetual capital may also be reduced through elections by investment vehicle investors to redeem their investment, which is permitted in certain of our vehicles. See “—Risks Related to Our Investment Activities—Investors in certain of our investment vehicles are entitled to redeem their investments in these vehicles on a periodic basis, and certain of our investment advisory agreements may be terminated with minimal notice.” In addition, we expect that the capital arising from KKR’s investment management agreements with our insurance subsidiaries would, in general, be reduced if outflows to pay policyholder obligations under Global Atlantic’s insurance policies and reinsurance agreements exceed inflow from writing new insurance policies or entering into new reinsurance transactions. Moreover, perpetual capital may be removed from our AUM under certain circumstances, because the underlying investment management agreement may be terminated by a client for specific reasons like poor investment performance, and perpetual capital may also be terminated by a client’s failure to renew our investment management agreement. Therefore, our investors should not view this component of our AUM as being permanent without exception, because it can be subject to material reductions and even termination.
Many parts of our earnings and cash flow are highly variable due to the nature of our business.
Many parts of our earnings are highly variable from quarter to quarter due to volatility of investment valuations, the investment returns by our funds and other investment vehicles, and the accrual and payment of carried interest and fees earned from our investment activities. We recognize earnings on investments in our investment vehicles based on our allocable share of realized and unrealized gains (or losses) reported by such investment vehicles and for certain of our recent investment vehicles when a performance hurdle is achieved, which in each case are subject to significant uncertainty and risk, including as a result of other risks discussed in this report. During times of market volatility, the fair value of the investments we own or manage, especially any publicly traded equity securities, are more variable, and volatility in the equity markets may have a significant impact on our reported results. A decline in realized or unrealized gains, a failure to achieve a performance hurdle or an increase in realized or unrealized losses, would adversely affect KKR’s financial results.50Tabl e of Contents
The timing and receipt of carried interest from our investment vehicles are unpredictable and will contribute to the volatility of our cash flows. With respect to our carry paying funds, subject to the terms of their respective governing agreements, carried interest is generally eligible to be distributed to the general partner of the fund with a clawback provision only after all of the following are met: (i) a realization event has occurred (e.g., sale of a portfolio company, dividend, etc.); (ii) the fund has achieved positive overall investment returns since its inception, in excess of performance hurdles where applicable, and is accruing carried interest; and (iii) with respect to investments with a fair value below cost (which we refer to as a netting hole as discussed above), cost has been returned to fund investors in an amount sufficient to reduce remaining cost to the investments' fair value. Even after all of the preceding conditions are met, the general partner of a carry paying fund may, in its sole discretion, decide to defer the distribution of carried interest to it to a later date. Carried interest payments from investments depend on our investment vehicles’ performance and opportunities for realizing gains, which may be limited. It typically takes a substantial period of time to identify attractive investment opportunities, to raise all the funds needed to make an investment, and then to realize the cash value of an investment through a sale, public offering or other exit to generate carried interest proceeds. To the extent an investment is not profitable, no carried interest will be received from our investment vehicles with respect to that investment and, to the extent such investment remains unprofitable, we will only be entitled to a management fee on that investment. Furthermore, certain vehicles and separately managed accounts may not provide for the payment of any carried interest at all. Even if an investment proves to be profitable, it may be several years before any profits can be realized in cash. We cannot predict when, or if, any realization of investments will occur. In addition, if finance providers, such as commercial and investment banks, make it difficult for potential purchasers to secure financing to purchase companies in our investment funds’ portfolio, it may decrease potential realization events and the potential to earn carried interest. If we were to have a realization event in a particular quarter, the event may have a significant impact on our cash flows during the quarter that may not be replicated in subsequent quarters. A decline in realized or unrealized gains, or an increase in realized or unrealized losses, would adversely affect our financial results, which could further increase the volatility of our quarterly results under GAAP. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity—Sources of Liquidity” for further information regarding the conditions for carried interest to become distributable.
The timing and receipt of carried interest also vary with the life cycle of certain of our investment vehicles. For our carry-paying investment vehicles that have completed their investment periods and are able to realize mature investments, sometimes referred to as being in a “harvesting period,” we are more likely to receive larger carried interest distributions than our carry-paying investment vehicles that are in their fundraising or investment periods that precede the harvesting period since those investment vehicles are less likely to realize their investments and, even if they did, we are more likely to defer carried interest distributions due to the potential for a clawback. During times when a significant portion of our AUM is attributable to carry-paying investment vehicles that are not in their harvesting periods, we may receive substantially lower carried interest distributions.
Fee income, which we recognize when contractually earned, can vary due to fluctuations in AUM, the number of investment transactions made by our investment vehicles, the number of portfolio companies we manage, the fee provisions contained in our investment vehicles and other investment products and transactions by our capital markets business. In any particular quarter, fee income may vary significantly due to the variances in size and frequency of transaction fees or fees received by our capital markets business. For further information on the amount of our total management, monitoring and transaction fees, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Analysis of Segment Operating Results” and Note 2 “Summary of Significant Accounting Policies—Fees and Other” in our financial statements.
Additionally, a decline in the pace, size, or value of investments by our investment vehicles would result in our receiving less revenue from fees. The transaction and management or monitoring fees that we earn are driven in part by the pace at which our investment vehicles make investments and the size of those investments. Any decline in that pace or the size of investments would reduce our revenue from transaction and management or monitoring fees. Likewise, during an attractive selling environment, our investment vehicles may capitalize on increased opportunities to exit investments. Any increase in the pace at which our investment vehicles exit investments, if not offset by new commitments and investments, would reduce future management fees. Additionally, in certain of our investment vehicles that derive management fees only on the basis of invested capital, the pace at which we make investments, the length of time we hold such investments, and the timing of disposition will directly impact our revenues. Many factors could cause such a decline in the pace of investment or the transaction and management or monitoring fees we receive, including the other risks discussed in this report.
With respect to our insurance business, block reinsurance transactions are expected to create variability in our financial results in or for the period in which this type of transaction is executed, for example by significantly increasing policy benefits in that period, depending on the types of liabilities reinsured. In addition, aspects of how our insurance business is required to report certain investments and liabilities is expected to add volatility to our financial results from quarter to quarter.51Tabl e of Contents
The "clawback" provisions in the agreements governing our carry-paying funds may give rise to a contingent obligation that may require us to return or contribute significant amounts to our funds and fund investors.
Carry distributions may give rise to clawback obligations. The partnership documents governing our carry-paying funds, including funds relating to private equity, credit and real assets investments, generally include a "clawback" provision that, if triggered, may give rise to a contingent obligation requiring the general partner to return amounts to the fund for distribution to the fund investors at the end of the life of the fund. Under a clawback obligation, upon the liquidation of a fund or other event as set forth in the terms governing the fund, the general partner is required to return, typically on an after-tax basis, previously distributed carry to the extent that, due to the diminished performance of later investments, the aggregate amount of carry distributions received by the general partner during the term of the fund exceed the amount to which the general partner was ultimately entitled, after taking into account the effects of any performance thresholds. We would continue to be subject to the clawback obligation even if carry has been distributed to current or former employees or other persons through our carry pool. If such current or former employees or other persons do not satisfy their share of any clawback obligation, we will be responsible for funding the entire clawback obligation and may need to seek other sources of liquidity to fund such an obligation. Not all carry may be recoverable from current or former employees and other persons once it has been distributed by us. As of December 31, 2023, approximately $546 million of carried interest was subject to this clawback obligation, assuming that all applicable carry-paying funds were liquidated at their December 31, 2023 fair values. Had the investments in such carry-paying funds been liquidated at zero value, the clawback obligation would have been approximately $3.5 billion.
Because carried interest is typically based on actual cash distributions to investors, for a fund that has an aggregate fair value above aggregate cost, and is otherwise accruing carried interest, but has one or more investments where fair value is below cost, the shortfall between cost and fair value for such investments is referred to as a "netting hole." If present, a netting hole will reduce the carried interest we otherwise would earn because, before any realized gains can be distributed to the general partner as carried interest, these netting holes must be "filled" through a return of capital to fund investors in an amount sufficient to reduce the remaining cost to the investments' fair value.
In addition, we have entered into strategic investor partnerships with certain investors, generally through separately managed accounts, which have longer investment periods, often of 20 years or more, may offer reduced fees for such investors, provide for investments across different investment strategies and may require netting across various funds in which they invest, in effect potentially creating a netting hole across funds. Since strategic investor partnerships have longer investment periods and invest in multiple strategies, as compared to our traditional private equity fund structure, these fund structures may increase the risk of a clawback and the possibility of a netting hole because, over a longer investment period, a period of reduced performance following periods of performance adequate to realize carried interest is more likely to occur.
Our inability to raise additional or successor funds, to raise funds with as favorable terms or comparable size as existing or predecessor funds, or to raise capital for other investment vehicles could materially and adversely affect KKR.
Our inability to successfully raise additional or successor funds (or raise successor funds of a comparable size as our predecessor funds, or raise funds with as favorable terms) could materially and adversely affect our revenues or profitability. In connection with raising new funds or securing additional investments in existing funds, we negotiate terms for such funds and investments with our fund limited partners. The outcome of such negotiations could result in our agreement to terms that are materially less favorable to us than prior terms or terms of funds advised by our competitors, which could materially and adversely affect us in a number of ways, including to restrict our ability to raise investment funds with investment objectives or strategies that compete with existing funds, reduce fee revenues we earn, reduce the percentage of profits on third-party capital in which we share, increase the performance hurdle required to be generated on investment prior to our right to receive carried interest, limit the ability of certain investment vehicles to invest alongside our other investment vehicles, add expenses and obligations for us in managing the fund or increase our potential liabilities. Furthermore, as institutional investors increasingly consolidate their relationships with investment firms and competition becomes more acute, we may receive more requests to modify the terms in our new funds. Certain of our newer funds also include more favorable terms for fund investors that commit to early closes for our funds. Additionally, in certain funds, we have agreed to charge management fees based on invested capital or net asset value as opposed to charging management fees based on committed capital. In certain cases, we have provided “fee holidays” to certain investors during which we do not charge management fees for a fixed period of time (such as the first six months). Certain institutional investors have also publicly criticized certain fund fee and expense structures, including monitoring fees and transaction fees. We have received, and expect to continue to receive, requests from a variety of fund investors and groups representing such investors to decrease fees and to modify our carried interest and incentive fee structures, which could result in a reduction or delay in the timing of receipt of the fees and carried interest and incentive fees we earn. The SEC has focused on certain fund fees and expenses, including whether such fees and expenses were appropriately disclosed to fund investors, and such focus may lead to increased publicity that could cause fund investors to further resist our receipt of certain fees and expense reimbursements.52Tabl e of Contents
The number of funds and other investment vehicles raising capital varies from year to year, and in years where relatively few of our investment vehicles are raising capital, the growth of our AUM, FPAUM and associated fees may be significantly lower. There is no assurance that fundraises for new strategies, successor funds or other investment vehicles will experience similar success as our existing or predecessor funds or other investment vehicles in the future. Our current private equity funds and certain other funds and investment vehicles have a finite life and a finite amount of commitments from fund investors. Once a fund nears the end of its investment period, our success depends on our ability to raise additional or successor funds in order to keep making investments and, over the long term, earning management fees (although our funds and investment vehicles continue to earn management fees after the expiration of their investment periods, they are generally at a reduced rate). Even if we are successful in raising successor funds, to the extent we are unable to raise successor funds of a comparable size to our predecessor funds or the extent that we are delayed in raising such successor funds, our revenues may decrease as the investment period of our predecessor funds expire and associated fees decrease. The performance of our funds also impacts our ability to raise capital, and deterioration in the performance of our funds or other investment vehicles would result in challenges to future fundraising. Our fundraising may also be negatively impacted by any change in, or rebalancing of, fund investors' asset allocation policies, including successor funds raised by us when unfavorable economic or market circumstances exist.
Our ability to attract new capital and investors in our investment vehicles is driven, in part, by the extent to which they continue to see the alternative asset management industry generally, and our investment products specifically, as attractive means for capital appreciation or income. Failure or inability to raise capital with insurance sponsored vehicles may adversely impact growth in our insurance business. Our ability to raise new investment vehicles could be hampered if the general appeal of alternative asset investments were to decline. An investment in a limited partner interest in an alternative asset fund like private equity is less liquid than an exchange traded instrument and the returns on such investment may be more volatile than an investment in securities for which there is a more active and transparent market. Our ability to raise capital is also highly dependent on market and economic conditions, and adverse conditions could materially and adversely affect our ability to raise capital and, as a result, our financial performance, including, for example, as a result of investor preference for investments in certain of our investment vehicles, waning because investors view other investment opportunities, such as government debt, as producing a higher risk-adjusted return. See “—Risks Related to Our Business—Difficult market and economic conditions can, and periodically do, materially and adversely affect KKR.”
Fund investors could seek to redeploy capital away from certain of our credit or other investment vehicles, which permit redemptions on relatively short notice, in order to meet liquidity needs or invest in other asset classes or with other managers. Alternative asset investments could also fall into disfavor as a result of concerns about liquidity and short-term or long-term performance. Fundraising is competitive, and there is no assurance that fundraises for our flagship investment funds or other investment vehicles or for our newer strategies and their successor funds or other investment vehicles will experience similar success. If we are unable to successfully raise comparably sized or larger funds, our AUM, FPAUM, and associated fees attributable to new capital raised in future periods may be lower than in prior years. There is no guarantee we would be able to raise comparably sized or larger funds as those described in “Business—Our Business.”
Institutional investors that have suffered from decreasing returns, liquidity pressure, increased volatility or difficulty maintaining target asset allocations may materially decrease or temporarily suspend making new investments in our investment funds. Such concerns could be exhibited, in particular, by public pension funds, which have historically been among the largest investors in alternative assets. Many public pension funds are significantly underfunded and their funding problems have been, and may in the future be, exacerbated by economic downturn. Concerns with liquidity could cause such public pension funds to reevaluate the appropriateness of alternative assets, and other institutional investors may reduce their overall portfolio allocations to alternative assets. The evolving preferences of our fund investors, including sovereign wealth funds and public pension funds, may necessitate that alternatives to the traditional investment fund structure become a larger part of our business going forward, such as separately managed accounts, democratized investment vehicles, specialized funds and co-investment vehicles, and strategic investor partnerships whereby we manage certain investors' capital across a variety of our products on separately negotiated terms, which could increase our cost of raising capital at the scale we have historically achieved. There can be no assurance that such alternatives will be as profitable to us as the traditional investment fund structure, and the impact such a trend could have on our results of operations, if widely implemented, is unclear. In order to try to satisfy the evolving preferences of investors, we have begun, and will continue, to offer a wide array of investment vehicles and, assuming overall investor demand and available capital for allocations to the alternative asset class remains steady, investor allocations to certain of our investment vehicles may detract from the allocations potentially available to other of our investment vehicles. Moreover, certain institutional investors are demonstrating a preference to in-source their own investment professionals and to make direct investments in alternative assets without the assistance of investment advisers like us. Such institutional investors may become our competitors and could cease to be our clients. All of these factors could result in a smaller overall pool of available capital in our industry or a smaller pool of institutional capital for our traditional closed-end funds.53Tabl e of Contents
In addition, the asset allocation rules or regulations or investment policies to which such third-party investors are subject could inhibit or restrict the ability of third-party investors to make investments in our investment funds. In addition to federal law, changes in state and local law may limit investment activities of state pension plans and insurance companies. Coupled with a lack of distributions from their existing investment portfolios, many of these investors may have been left with disproportionately outsized remaining commitments to, and invested capital in, a number of investment funds, which may significantly limit their ability to make new commitments to third-party managed investment funds such as those advised by us. There is no assurance that the amount of commitments investors are making to alternative asset vehicles will continue at recent levels or that our ability to raise capital from investors will not be hampered. Any of these developments could materially and adversely affect our financial performance.
The investment management and insurance businesses are intensely competitive.
We compete for both investors and investment opportunities and business in both our asset management business and in our insurance business. Our asset management business is highly fragmented, with our competitors consisting primarily of sponsors of public and private investment funds, real estate development companies, business development companies, investment banks, commercial finance companies and operating companies acting as strategic buyers of businesses. The insurance market is also highly fragmented, with our competitors consisting of insurance companies, reinsurance companies and other financial institutions that offer investment products. We believe that competition for investors in our investment vehicles is based primarily on: (i) investment performance; (ii) investor liquidity and willingness to invest; (iii) investor perception of investment managers’' drive, focus and alignment of interest; (iv) business reputation; (v) the duration of relationships with investors; (vi) the quality of services provided to investors; (vii) pricing (including investment terms, fees and expense reimbursement); (viii) the relative attractiveness of the types of investments that have been or will be made; and (ix) consideration for environmental, social and governance issues. We believe that competition for investors in our insurance products is based primarily on: (i) price; (ii) terms and conditions; (iii) relationships; (iv) quality of service and execution certainty; (v) capital and perceived financial strength (including third-party ratings); (vi) technology, innovation and ease of use; (vii) breadth of product offerings; and (viii) reputation, experience and brand recognition. We believe that competition for investment opportunities is based primarily on the pricing, terms and structure of a proposed investment and certainty of execution.
A number of factors serve to increase our competitive risks, including:
• a number of our competitors in some of our businesses may have greater financial, technical, marketing and other resources and more personnel than we do and, in the case of some asset classes or geographic regions, longer operating histories, more established relationships, greater expertise or better reputation;
• with respect to our insurance business, many of our competitors are large and well-established, and some have greater market share or breadth of distribution, assume a greater level of risk while maintaining financial strength ratings, or have higher financial strength, claims-paying or credit ratings than Global Atlantic does, or benefit by offering various lines of insurance, from diversification of risks and possible positive impacts on capital requirements;
• with respect to our insurance business, technological advancements and innovation are occurring at a rapid pace in distribution, underwriting, recordkeeping, advisory, claims and operations, and that pace may increase, particularly as other companies increasingly use data analytics and technology as part of their business strategy, which could require our insurance business to incur additional costs to maintain its competitive position;
• investors may materially decrease their allocations in new investment vehicles due to their experiences following an economic downturn, the limited availability of capital, regulatory requirements or a desire to consolidate their relationships with investment firms;
• some of our competitors may have agreed to terms on their investment funds or products that are more favorable to investors than our funds or products, such as lower management fees, greater fee sharing or higher performance hurdles for carried interest, and therefore we may be forced to match or otherwise revise our terms to be less favorable to us than they have been in the past and, further, some of our competitors may be willing to pay higher placement fees in order to gain distribution of their private wealth products;
• some of our funds may not perform as well as competitors' funds or other available investment products;
• our competitors have raised or may raise significant amounts of capital, and many of them have similar investment objectives and strategies to our funds, which may create additional competition for investment opportunities and may reduce the size and duration of pricing inefficiencies that many alternative investment strategies seek to exploit;54Tabl e of Contents
• some of these competitors may also have a lower cost of capital and access to funding sources that are not available to us, which may create competitive disadvantages for us with respect to investment opportunities;
• some of our competitors may have higher risk tolerances, different risk assessments or lower return thresholds, which could allow them to consider a wider variety of investments and to bid more aggressively than us for investments;
• some of our competitors may be subject to less regulation or less regulatory scrutiny and accordingly may have more flexibility to undertake and execute certain businesses or investments than we do and/or bear less expense to comply with such regulations than we do;
• there are relatively few barriers to entry impeding the formation of new funds, including a relatively low cost of entering these businesses, and the successful efforts of new entrants into our various lines of business, including major commercial and investment banks and other financial institutions, have resulted in increased competition;
• some fund investors may prefer to invest with an investment manager that is not publicly traded, is smaller or manages fewer investment products;
• other industry participants will from time to time seek to recruit our investment professionals and other employees away from us;
• the use of generative artificial intelligence tools by our competitors may disrupt our industry and existing business models, including ours; and
• we may be unable to adequately protect KKR's brand, logo, or intellectual property in the U.S. or foreign countries, which may result in its infringement, misappropriation or diminishment.
We may lose investment opportunities in the future if we do not match investment prices, structures and terms offered by competitors. Our competitors for investment opportunities that are corporate buyers may be able to achieve synergistic cost savings in respect of an investment, which may provide them with a competitive advantage in bidding for an investment. Alternatively, we may experience decreased investment returns and increased risks of loss if we match investment prices, structures and terms offered by competitors. There is a risk that fees and carried interest in the alternative investment management industry will decline, without regard to the historical performance of a manager. Fee or carried interest income reductions on existing or future funds, without corresponding decreases in our cost structure, could materially and adversely affect our revenues and profitability.
In addition, if interest rates were to rise or if market conditions for competing investment or insurance products become or are more favorable, and such products begin to offer rates of return superior to those achieved by our investment vehicles or insurance products, the attractiveness of our investment vehicles or insurance products relative to investments in other investment products could decrease. This competitive pressure could materially and adversely affect our ability to make successful investments, limit our ability to raise future funds or write new insurance policies and result in increased policy surrenders, any of which would adversely impact our business, results of operations and cash flow.
We are subject to focus by some of our fund investors, stockholders, regulators and other stakeholders on environmental, social and governance matters.
Some investors in our investment vehicles, stockholders, regulators and other stakeholders are increasingly focused on sustainability matters, such as climate change and environmental stewardship, diversity, equity and inclusion (“DEI”), human rights, support for local communities, corporate governance and transparency, or other environmental- or social-related areas. Certain of these investors consider our record of, and approach to, responsible investing, in determining whether to invest in our investment vehicles. Certain investors have also demonstrated increased activism with respect to investing, including by urging alternative asset managers to take (or refrain from taking) certain actions that could adversely impact the value of an investment and at times have conditioned future capital commitments on such actions. Increased focus and activism related to sustainability matters may constrain our capital deployment opportunities. Similarly, current and prospective stockholders and fund investors, may use third-party benchmarks to measure our responsible investment practices and to decide whether to make an investment, and failure to meet their standards may materially and adversely affect us. There can be no assurance that we will be able to accomplish any sustainability-related goals or commitments that we have announced or may announce in the future, as such statements are, or reflect, estimates, aspirations and/or expectations only at the time of announcement. More broadly, there can be no assurance that our responsible investment policies and procedures will remain unchanged because we continuously review our approach to these issues. Thus, such policies and procedures could change, even materially, or may not be applied to a particular investment. KKR may determine at any time that it is not feasible or practical to implement or complete certain of55Tabl e of Contents
its sustainability-related initiatives, policies, and procedures based on considerations relating to particular business, regulatory, policy, geopolitics, cost, timing, or other considerations. Growing interest on the part of investors and regulators in ESG factors and increased demand for, and scrutiny of, asset managers' sustainability-related disclosure, have also increased the risk that asset managers could be perceived as, or accused of, making inaccurate or misleading statements regarding these matters. The occurrence of any of the foregoing could have a material and adverse impact on us, including on our reputation.
Although we view our sustainable investing approach as a tool for value creation and value protection, different stakeholder groups have divergent views on the merits of integrating sustainability considerations into the investment process. This divergence exists across the jurisdictions and localities where KKR operates, in which case it may result in conflicting sustainability-related regulations and legal frameworks which increases our compliance costs and our risk of non-compliance. The increased regulatory and legal complexity and heightened risk of public scrutiny could impact our reputation and lead to increased inquiries, investigations, and reactive stakeholder engagements.
Additionally, our business could be adversely affected if we or our portfolio companies fail to comply with applicable ESG regulations. If regulators enact new rules, disagree with our responsible investing procedures or standards, or require methodology that is different from our current practice, it may materially and adversely affect us in various ways, including the incurrence of significant compliance costs and an increase in the risk of litigation and regulatory action. Several jurisdictions impose or have proposed restrictions around the offering of sustainability investment vehicles through labelling, disclosure or marketing requirements at both the investment vehicle and asset management level. There has been increased regulatory focus on the sustainability-related practices of investment managers, including in relation to improving transparency regarding the definition, measurement and disclosure of ESG factors. There are many recently proposed and final ESG rules, regulations, priorities and enforcement actions that may materially and adversely affect us, including the following:
• In the United States, various proposals by the SEC regarding, among others, enhanced disclosure requirements around ESG practices for investment managers, registered investment companies and advisers and rules aimed at enhancing and standardizing climate-related disclosures for registrants, which, if adopted, would require climate-related disclosures beyond current requirements or practice. In addition, unless challenges to the rules are successful, California’s recently enacted climate legislation will require certain companies that do business in California to provide certain climate-related disclosures.
• In the EU, several ESG-related rules have been finalized or proposed, including proposals that affect the manner in which asset managers and portfolio companies operate within the EU and also, in certain circumstances, outside the EU, including also mandatory disclosure and reporting requirements, which supplement the disclosure framework set out in the Sustainable Finance Disclosure Regulation (“SFDR”) (which many of our funds as well as our Irish AIFMs are currently subject to, including funds subject to the transparency requirements under Articles 8 and 9 of SFDR) and the Corporate Sustainability Reporting Directive (“CSRD”), which introduce significantly more detailed sustainability reporting requirements and significantly expand the number of EU and non-EU companies subject to this reporting framework. The SFDR framework is currently under review and it can be expected that further changes will be introduced.
• In Asia, various regulators have introduced requirements for asset managers to integrate climate risk considerations in investment and risk management processes and disclosures, together with enhanced disclosure and reporting, and have also issued enhanced rules for certain investment vehicles on general ESG risk management and disclosure.
Globally, a lack of harmonization in relation to ESG legal and regulatory reform across the jurisdictions in which we operate may affect our future implementation of, and compliance with, rapidly developing ESG standards and requirements. Additionally, collecting, measuring, and reporting sustainability information and metrics can be costly, difficult and time consuming, is subject to evolving reporting standards, and can present numerous operational, reputational, financial, legal and other risks. Compliance efforts by asset managers raise a number of challenges, including with respect to the allocation of significant resources to both comply with regulatory requirements and implement monitoring and related controls both at firm level and at product level, as well as challenges related to product classification. Generally, we expect investor demands and the prevailing legal environment to require us to devote additional resources to sustainability matters in our review of prospective investments and management of existing investments, which will increase our expenses.56Tabl e of Contents
Changes in relevant tax laws, regulations or treaties or an adverse interpretation of these items by tax authorities could adversely impact our effective tax rate and tax liability.
Our effective tax rate and tax liability is based on the application of current income tax laws, regulations and treaties. These laws, regulations and treaties are complex, and the manner which they apply to us and our investment vehicles is sometimes open to interpretation. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. Although management believes its application of current laws, regulations and treaties to be correct and sustainable upon examination by the tax authorities, the tax authorities could challenge our interpretation resulting in additional tax liability or adjustment to our income tax provision that could increase our effective tax rate. Tax laws, regulations or treaties newly enacted or enacted in the future may cause us to revalue our net deferred tax assets and have a material change to our effective tax rate and tax liabilities.
There could be significant changes in U.S. tax law and regulations. While the likelihood and nature of any such legislation or regulations is uncertain, any such changes could materially increase the amount of taxes we or our portfolio companies are required to pay. The U.S. Federal government signed into law the Inflation Reduction Act of 2022, which, among other things, imposes a corporate minimum "book" tax on certain large corporations, creates a non-deductible 1% excise tax on net stock repurchases made by certain publicly traded corporations after December 31, 2022, and modifies certain clean energy investment tax credits. These changes could materially increase the amount of taxes and tax-related regulatory and compliance costs we and our portfolio companies are required to pay. For example, increases in the corporate tax rate may adversely impact the cash flow of our portfolio companies and result in our investment vehicles' selling assets at values that are less than we projected, which could in turn have negative impact to the investment vehicle's performance and to the pace of realizations. Further, final regulations relating to compensation for certain covered employees under Section 162(m) could meaningfully reduce the amount of related tax deductions available to us.
Additionally, foreign, state and local governments may enact laws that could result in further changes to foreign, state and local taxation and materially affect us in jurisdictions in which we or our portfolio companies operate.
In addition to general tax law changes discussed above, there could be significant changes in U.S. federal, state, local or foreign tax law, regulations or interpretations that could adversely affect the taxation of carried interest, which could have an adverse effect on our ability to recruit, retain and motivate employees and key personnel. Investments generally must be held for more than three years for carried interest to be treated for U.S. federal income tax purposes as capital gain. The holding period requirement may result in some of our carried interest being taxed as ordinary income to our U.S. employees and other key personnel, which could materially increase the amount of taxes that they would be required to pay and may incentivize employees to hold investments for longer periods. This may create a conflict of interest between investment vehicle investors (whose investments would receive such capital gain treatment after a holding period of only one year) and the general partner on the execution, closing or timing of sales of investments in connection with the receipt of carried interest.
Multi-national companies, such as us, continue to be a focus by the U.S. Congress, the Organization for Economic Co-operation and Development (the "OECD") and other government agencies in jurisdictions in which we and our affiliates invest or do business. The OECD, which represents a coalition of member countries, is contemplating changes to numerous long-standing tax principles through its base erosion and profit shifting ("BEPS") project, which is focused on a number of issues, including profit shifting among affiliated entities in different jurisdictions, interest deductibility and eligibility for the benefits of double tax treaties. The OECD also recently finalized guidelines that recommend certain multinational enterprises to be subject to a minimum 15% tax rate, effective from 2024 ("Pillar Two").
Various countries have implemented or intend to implement the OECD’s recommended model rules. By way of example, the Council of the European Union formally adopted Pillar Two and required all 27 EU member states to adopt local legislation during 2023 to implement Pillar Two rules that apply in respect of the fiscal years beginning from December 31, 2023. Our business and our sponsored vehicles' and portfolio companies' businesses could be significantly impacted if the model rules, or any future variation, have been or will be implemented in any of the countries in which our business, our portfolio companies' businesses, or our investment structures are located. Effective tax rates could increase within our business, our portfolio companies’ businesses, or our investment structures, including by way of higher levels of tax being imposed than is currently the case, possible denial of deductions or increased withholding taxes and/or profits being allocated differently. The proposals may also lead to an increase in the complexity, burden and cost of tax compliance. Given ongoing design, implementation and administration, the timing, scope, and impact of any relevant domestic legislation or multilateral conventions remain subject to significant uncertainty.
See Note 18 "Income Taxes" in our financial statements for further information regarding various tax matters.57Tabl e of Contents
We depend on the efforts, skills, reputations, business contacts, and conduct of our employees and our ability to retain our employees and to recruit prospective employees.
We depend on the efforts, skills, reputations and business contacts of our employees, including our Co-Founders, Co-Chief Executive Officers and other key personnel, the information and deal flow they and others generate during the normal course of their activities and the synergies among the diverse fields of expertise and knowledge held by our professionals. Our success is highly dependent upon our employees and other key personnel, who are not obligated to remain employed with us, and to a substantial degree on our ability to retain and motivate our employees and other key personnel and to strategically recruit, retain and motivate new talented employees, including qualified investment professionals.
Our employees and other key personnel possess substantial experience and expertise and have strong business relationships with investors in our investment funds and distributors of our other investment vehicles and other members of the business community. As a result, the loss of these personnel could jeopardize our relationships with these individuals and entities, result in the reduction of AUM or investment opportunities, or render us unable to maintain operations and support growth of our businesses. The loss of services of any key personnel could also harm our ability to maintain or grow AUM in existing investment vehicles or raise additional funds in the future.
Furthermore, the agreements governing our committed capital funds generally provide that in the event certain "key persons" (for example, investment professionals who are named as "key executives" for certain geographically or product focused investment vehicles) cease to actively manage an investment vehicle or be substantially involved in KKR activities, investors in the investment vehicle will be entitled to reduce, in whole or in part, their capital commitments available for further investments on an investor-by-investor basis. In the case of many of our funds, investors may be permitted to terminate their investment in the event a "key persons" provision is triggered, which could lead to the liquidation of those funds. In addition, the occurrence of such a "key person" event could cause us to agree to less favorable ongoing terms with respect to the affected fund. Although we periodically engage in discussions with the limited partners of our funds regarding a waiver of such provisions with respect to executives involved in geographically or product focused funds whose departures have occurred or are anticipated, such waiver is not guaranteed, and our limited partners' refusal to provide a waiver may have a material adverse effect on our business and financial results.
Our insurance business similarly depends on the ability to attract and retain experienced insurance professionals in the jurisdictions where it operates. Global Atlantic does not have a captive distribution force and depends on the ability to attract and retain experienced insurance professionals in the jurisdictions where it operates. If Global Atlantic is unable to recruit, onboard and retain insurance professionals, Global Atlantic may not be able to maintain its operations and support growth of the business.
Our most important asset is our people, and our continued success is highly dependent upon the efforts of our employees and other key personnel. If we cannot retain and motivate our employees and other key personnel and recruit, retain and motivate new employees and other key personnel, our business may be materially and adversely affected. The market for talented and qualified candidates is extremely competitive. Our ability to recruit, retain and motivate our employees is dependent on our ability to offer highly attractive incentive opportunities, compensation and benefits, some of which could be adversely impacted by any changes in regulation or tax law that impacts certain forms of incentives or other remuneration that we may typically offer employees, such as carried interest. For example, we allocate carried interest to our employees, and if tax laws alter the favorable tax characteristics of carried interest, then the value of the carry as an incentive tool is materially diminished. Furthermore, clawback provisions related to our equity incentive awards may render such compensation less attractive. The loss of any incentive compensation tools may cause us to incur additional expenses to pay competitively with other firms. Efforts to retain or attract employees, including our investment professionals, may result in significant additional expenses, which could materially and adversely affect KKR. In addition, our ability to successfully identify, hire, and promote employees may be impacted by legal and judicial developments outside of our control and may necessitate changes to employment practices. For example, some advocacy groups and state attorneys general have asserted that the U.S. Supreme Court’s decision striking down race-based affirmative action in higher education in June 2023 should be analogized to private employment matters and private contract matters, and scrutiny of certain corporate DEI practices since this decision have been increasing.58Tabl e of Contents
As noted above, one of the ways we recruit, retain and motivate our employees is by allocating a portion of the carried interest that we earn from our investment vehicles, which we refer to as the carry pool. There can be no assurance that the carry pool will have sufficient cash available to continue to make cash payments in the future, and fluctuations from the distributions generated from the carry pool could render the compensation that KKR separately pays to them to be less attractive. In these circumstances, in order to retain and motivate our employees, we may be required to pay these employees a higher amount of cash compensation to retain and motivate them than we otherwise would have paid, which would increase our compensation expense. We are not permitted under our certificate of incorporation to increase the percentage of carried interest allocable to the carry pool without the consent of a majority of our independent directors. In the future, if less carried interest from the carry pool is allocated to employees, this may result in less cash payments to employees. To the extent the carried interest allocated to the carry pool decreases, we may be limited in our ability to attract, retain and motivate talented employees and other key personnel and we may need to increase the level of cash compensation that we pay.
Additionally, we have granted and expect to continue to grant equity awards from our equity incentive plans, which has caused and will cause dilution. If we increase the use of equity awards in the future, expense associated with equity-based compensation may increase materially. The value of the equity awards may drop or be volatile, which may make our equity less attractive to our employees. Regulations may also impose restrictions on our equity compensation. For example, in 2023, the SEC adopted rules related to incentive-based compensation "clawback," which were then implemented through final stock exchange rules. In the future, rules such as these may result in us substantially revising our compensation strategy, increase our compensation and other costs and may materially and adversely affect our ability to recruit and retain qualified employees. Additionally, in the EU, clawback of compensation may apply in certain circumstances. To the extent our equity incentive programs are not effective, we may be limited in our ability to attract, retain and motivate talented employees and other key personnel and we may need to increase the level of cash compensation that we pay.
We seek to retain our senior employees by having them agree to a confidentiality and restrictive covenant agreement. However, there is no guarantee that the confidentiality and restrictive covenant agreements to which they are subject, together with our other arrangements with them, will prevent them from leaving us, joining our competitors or otherwise competing with us. Depending on which entity is a party to these agreements and/or the laws applicable to them, we may not be able to, or may choose not to, enforce them or become subject to lawsuits or other claims, and certain of these agreements might be waived, modified or amended at any time without our consent. Many U.S. states and countries in which we operate have proposed, considered, or have already adopted, laws and rules which significantly limit or ban noncompete clauses between employers and their employees, which could both limit our ability to enter into such restrictive covenants and our ability to enforce them. Even where enforceable, these agreements expire after a certain period of time, at which point our employees will be free to compete against us.
Our commitment to maintain an inviting work environment significantly supports our ability to recruit and retain employees and maintain our culture. We strive to maintain a work environment that reinforces our culture of collaboration, inclusiveness, motivation and alignment of interests with fund investors. Growth and expansion of our businesses has necessitated extensive hiring of new employees over the last few years. While we are focused on the importance of maintaining our culture when making hiring decisions, rapid expansions of our employee headcount do present challenges to maintaining our culture, including, after a hire is made, continuing to ensure that the hire is integrated into our firm culture. If we do not continue to develop an inviting work environment and maintain our culture, our ability to compete successfully and achieve our business objectives could be impaired, which could materially and adversely affect our business, results of operations and financial condition.
On the other hand, our business could be damaged by the misconduct of our employees. We depend to a large extent on our business relationships and our reputation for integrity and high-caliber professional services to attract and retain fund investors and qualified professionals and to pursue investment opportunities for our investment vehicles. Misconduct by our employees could impair our ability to retain and recruit our employees, to attract and retain clients and may subject us to significant legal liability and reputational harm. For example, we are subject to substantial regulatory and contractual obligations and standards arising from our business, such as fiduciary duties, regulatory and legal obligations and confidentiality, relating to the assets we manage. The violation of these obligations or standards by any of our employees would adversely affect our clients and us. Our current and former employees may also become subject to allegations of sexual harassment, racial and gender discrimination or other similar misconduct, which, regardless of the ultimate outcome, may result in adverse publicity that could significantly harm our reputation. Furthermore, our business often requires that we deal with confidential matters with respect to our investment opportunities and completed investments. If our employees were improperly to use or disclose confidential information, we could become subject significant litigation or investigations, including with respect to violations of applicable securities laws. It is not always possible to detect or deter such misconduct, and the precautions we take may not be effective in all cases.59Tabl e of Contents
Our employees frequently engage in manual individual processes, which bear varying levels of execution risk, including the risk of unintentional mistakes or errors, which could materially and adversely affect us. See also “—Risks Related to Our Business—We rely significantly on third-party service providers and other intermediaries, which exposes us to operational, reputational and other risks that could materially and adversely affect KKR.”
We rely significantly on third-party service providers and other intermediaries, which exposes us to operational, reputational and other risks that could materially and adversely affect KKR.
We rely on third parties whom we do not control for significant operational support and assistance with other aspects of our business, including for various operational, accounting, and data processes and systems as well as on the systems of third parties who provide services to us. Other aspects of our business that depend on the services of third parties include law firms, accounting firms, prime brokers, custodians, escrow agents, placement agents, distribution partners, administrators and other consultants and agents to carry out administrative or other services, including insurance policy administration, securities transactions, recordkeeping, tax preparation, government filings, paying agent services, trustee services, technology services, administration services, and tax and accounting services. If any of these processes or systems do not operate properly, are disabled or not appropriately updated, or if the third parties’ services are erroneous, sub-standard or otherwise deficient, we could suffer financial loss, a disruption of our businesses, liability to us or our investment vehicles, regulatory intervention, fines, sanctions or reputational damage.
In certain third-party service provider relationships, including those where services are provided to our registered investment advisers or broker dealer subsidiaries, we may be held liable if those service providers, their employees or their own third-party service providers are found to have violated regulations or engaged in misconduct. There can be no assurances that we or one of our investment vehicles will not experience, directly or indirectly, such negative impacts or otherwise be subject to or implicated by litigation or investigations involving any possible violation of such laws by such third-party service providers. For example, we or our investment vehicles may enter into agreements with third parties under which such parties will be entitled to indemnification under certain circumstances, including with respect to sanctions, fines, or penalties, including civil damage actions, imposed in connection with their activities related to our investment vehicles' investments.
If we elect to replace any of these third-party service providers, we may incur costs or business disruptions in connection with finding, retaining and operationalizing suitable new providers. In addition, the time and attention of our senior management may be diverted away from ongoing business operations. From time to time, service disruptions have affected our products. For example, Global Atlantic has settled policyholder and agent class action litigation matters and a number of regulatory matters stemming from service disruptions caused by our third-party administrator for life insurance policies. In addition, periods of rapid sales of Global Atlantic’s products have resulted and may in the future result in service disruptions, which may cause significant financial and reputational harm and draw increased scrutiny from regulators. A disaster, disruption, error or inability to operate or provide any of these services by us or our vendors or third parties with whom we conduct business, including a disruption involving electronic communications or other services used by us, our vendors or third parties with whom we conduct business, including paying agents and escrow agents, or directly affecting our principal offices, could have a material adverse impact on our financial results and our ability to continue to operate our business without interruption. Our business continuation or disaster recovery programs may not be sufficient to mitigate the harm that may result from such a disaster or disruption. In addition, insurance and other safeguards might only partially reimburse us for our losses, if at all. While we have endeavored to mitigate the risk of other disruptions in the future, there can be no guarantee these mitigation efforts will be successful. We may continue to experience reputational impacts and heightened regulatory scrutiny as a result of these matters.
We and these third parties operate in businesses that are highly dependent on information systems and technology, and certain of our businesses are also highly dependent on our ability to process and evaluate, on a daily basis, transactions across markets and geographies in a time-sensitive, efficient and accurate manner. If any of our service providers fails to provide us with timely and accurate data, the accuracy of our financial reporting and our financial statements may be impacted. We cannot ensure that erroneous information received from third parties will be identified and resolved such that the information is included without error, which may impact our business and servicing quality. The precautions we take to prevent and detect this activity may not be effective in all cases. We are subject to risks of errors and mistakes made by these third parties, which may be attributed to us and could materially and adversely affect us. We may be unsuccessful in seeking reimbursement or indemnification from these third-party service providers.60Tabl e of Contents
Our insurance business relies on third parties to distribute its insurance products, and any adversity with its third-party distributors could have a material adverse effect on our insurance business. Since Global Atlantic does not have captive or proprietary distribution or engage in direct sales, if Global Atlantic's products are not retained on or added to the platforms of its distribution partners, sales of Global Atlantic's products may be materially reduced. Global Atlantic relies on banks, broker-dealers, insurance agencies and independent agents to distribute its retirement and traditional life insurance products, including preneed. Global Atlantic's distribution partners are not captive and may sell retirement and life insurance products of Global Atlantic's competitors. If Global Atlantic's competitors offer products that are more attractive, pay higher commission rates to the sales representatives or offer a better service experience, these representatives may concentrate their efforts in selling Global Atlantic's competitors' products. Global Atlantic competes with other insurance companies to place products with distribution partners. Key distribution partners may merge, change their business models in ways that affect how Global Atlantic's products are sold, or terminate their distribution contracts with Global Atlantic, or new distribution channels could emerge and adversely impact the effectiveness of Global Atlantic's distribution efforts. Consolidation of distributors and/or other industry changes may increase competition for access to distributors and increase the likelihood of products being dropped from a distributor or that distributors will try to renegotiate the terms of any existing selling agreements to terms less favorable to Global Atlantic. Distribution partners may also stop offering one or more of Global Atlantic's products, for a period of time or permanently, for a variety of reasons, including Global Atlantic's financial strength pricing or servicing. If any one of such distributors were to terminate its relationship with Global Atlantic or reduce the amount of sales which it produces, our insurance business would likely be adversely affected. In addition, some of Global Atlantic's distribution partners and potential partners use proprietary or third-party scoring systems in determining which products to sell. If Global Atlantic's scores fall to levels unacceptable to its distribution partners, they may no longer distribute Global Atlantic's products to their customers, which would have a negative impact on our insurance business. If Global Atlantic is unable to place its products or retain its products on the platforms of distribution partners, we may be materially and adversely affected.
In instances where we hold assets at a prime broker and/or custodian, in the event of the insolvency of such entity, our investment vehicles may not be able to recover equivalent assets in full as they will rank among the prime broker's and custodian's unsecured creditors in relation to assets that the prime broker or custodian borrows, lends or otherwise uses. In addition, our and our investment vehicles’ cash held with a prime broker or custodian may not be segregated from the prime broker's or custodian's own cash, and our investment vehicles therefore may rank as unsecured creditors in relation to that cash. The inability to recover assets from the prime broker or custodian could have a material adverse impact on the performance of our investment vehicles and our financial results.
Furthermore, we rely on individual consultants and other contingent workers, who are not our employees but work directly in our business alongside our employees. Certain aspects of our business also depends on the efforts, skills, reputations, and business contacts, and conduct of these consultants and other contingent workers, sometimes to the same extent as our employees. We expect to continue to rely on the engagement of consultants and other contingent workers to service important aspects of our business, and our failure to retain them or to find their replacements could adversely impact KKR. In addition, even though these consultants and other contingent workers are not our employees, there are circumstances when their misconduct could adversely impact KKR to the same degree as if they were our employees. The risks of having such consultants and other contingent workers as integral parts of our business are similar to the risks for employees as discussed in “—Risks Related to Our Business—We depend on the efforts, skills, reputations, business contacts, and conduct of our employees and our ability to retain our employees and to recruit prospective employees.”
Cyber-security failures and data security breaches may disrupt or have a material adverse impact on our businesses, operations and investments.
Our investment vehicle investors, stockholders, regulators and other stakeholders are increasingly focused on cybersecurity risk management. In today’s current threat landscape, we are continuously facing various security threats on a regular basis, including ongoing cybersecurity threats to and attacks on our information technology infrastructure that are intended to gain access to our proprietary information, destroy data or disable, degrade or sabotage our systems. The risk of a security breach or disruption, particularly through accidental actions or omissions by trusted insiders, cyber-attacks or cyber intrusions, including by computer hackers, viruses, foreign governments, and cyber terrorists, has increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased. Although we take protective measures and endeavor to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to unauthorized access, theft, misuse, computer viruses or other malicious code, and other events that could have a security impact (including the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering, and other means to affect service reliability and threaten the confidentiality, integrity, and availability of information). We may be exposed to more significant risk if these acts are taken by state actors. Our employees have been and expect to continue to be the target of fraudulent calls and emails, and the subject of impersonations and fraudulent requests for money, such as attempts to redirect material payment amounts in a transaction to a fraudulent bank account, and other forms of activities. These same cybersecurity61Tabl e of Contents
breaches, cyber-attack and cyber intrusions could also be employed against our various stakeholders or other third parties, including to impersonate KKR or its employees, which could cause similar security impacts to our stakeholders and other third parties and materially and adversely impact us or our investment vehicles. Cyber-criminals may attempt to redirect payments required to be paid at the closings of our investments to unauthorized accounts, which we or the services providers we retain, like administrators, paying agents and escrow agents, may not be able to detect or protect against. The costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by others, including by our service providers.
Cybersecurity has become a top priority for regulators around the world. Rapidly developing and changing cybersecurity laws and regulations could further increase compliance costs and subject us to enforcement risks and reputational damage. Many jurisdictions in which we operate have laws and regulations relating to data privacy, cybersecurity and protection of personal information, including the U.K.’s Data Protection Act 2018, the European General Data Protection Regulation (“GDPR”) that became effective in May 2018, the E.U.’s Digital Operational Resilience Act, which became effective in January 2023 and will apply from January 2025, the Gramm-Leach-Bliley Act of 1999 as amended in June 2023 and the California Consumer Privacy Act (“CCPA”) that became effective in January 2020 and is amended by the California Privacy Rights Act (“CPRA”), which became operative in January 2023. The CPRA imposed additional obligations on companies covered by the legislation, including by expanding consumers’ rights with respect to certain sensitive personal information. The CPRA also creates a new state agency that is vested with authority to implement and enforce the CCPA and the CPRA. Global Atlantic is subject to the New York State Department of Financial Services (“NYSDFS”) cybersecurity regulation. On November 1, 2023, the NYSDFS finalized amendments to its cybersecurity regulations effective in April 2024 (the “NYSDFS Cybersecurity Amendments”), which, among other things, would impose additional governance requirements, require the implementation of additional safeguards, impose various requirements on larger companies, require new and increased obligations related to written policies and procedures, heighten requirements around audits and risk assessments, and necessitate additional reporting requirements for cybersecurity incidents. More specifically, the NYSDFS Cybersecurity Amendments would also (i) establish and maintain a cybersecurity program designed to ensure the confidentiality, integrity and availability of their information systems; (ii) implement and maintain a written cybersecurity policy setting forth policies and procedures for the protection of their information systems and nonpublic information; and (iii) review and update any risk assessments at least annually, as well as whenever a change in the business or technology causes a material change to cyber risk.
Furthermore, the SEC has underscored its focus on cybersecurity. In July 2023, the SEC adopted new cybersecurity disclosure rules, aimed at enhancing and standardizing disclosures made by public companies regarding cybersecurity risk management, strategy, governance and incident reporting. Some jurisdictions have also enacted laws requiring companies to notify individuals of data security breaches involving certain types of personal data. In February 2022, the SEC also proposed similar cybersecurity regulations for regulated investment advisers. If adopted in its proposed form, the proposed rule would require implementation of written cybersecurity policies and procedures to address cybersecurity risk in addition to requiring registered investment advisers to report significant cybersecurity incidents affecting the investment adviser or the investment vehicles it advises within 48 hours to the SEC, and would impose a new recordkeeping policy and internal review requirements related to cybersecurity. If this proposal is adopted, it could increase our compliance costs and potential regulatory liability related to cybersecurity. The SEC has also proposed a similar cybersecurity rule for broker-dealers and other security market participants which would require subject entities to implement policies and procedures that are reasonably designed to address their cybersecurity risks and, at least annually, review and assess the design and effectiveness of their cybersecurity policies and procedures, including whether they reflect changes in cybersecurity risk over the time period covered by the review. Many regulators have indicated an intention to take more aggressive enforcement actions regarding cybersecurity matters, and private litigation resulting from such matters is increasing and resulting in progressively larger judgments and settlements.
We cannot assure you that our cyber risk management efforts and our investment in information technology will prevent significant breakdowns, data leakages, breaches in our systems, or those of our third-party vendors and other contractors and consultants, or other cyber incidents that could have a material adverse effect upon our reputation, business, operations, or financial condition. The techniques used by cyber criminals change frequently, may not be recognized until launched, and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations, hostile foreign governments or agencies, or cybersecurity researchers. Breaches in security could potentially jeopardize our, our employees’, our investment vehicle investors’, insurance policyholders’ or our counterparties’ confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, our employees’, our investment vehicle investors’, insurance policyholders’, our counterparties’ or third parties’ operations, which could result in significant losses, increased costs, disruption of our business, liability to our investment vehicle investors and other counterparties, regulatory intervention or reputational damage. Furthermore, if we experience a cybersecurity incident and fail to comply with the relevant notification laws and regulations, it could result in regulatory investigations and penalties, which could lead to negative publicity and may cause our investment vehicle investors and clients to lose confidence in the effectiveness of our security measures.62Tabl e of Contents
Our third-party service providers could also experience, and recently have experienced, any of the above cybersecurity threats, fraudulent activities or security breaches, and as a result, unauthorized individuals could improperly gain access to our confidential data through such third parties. Any interruption or deterioration in the performance of these third parties or cybersecurity incidents involving these third parties could impair the quality of our and our investment vehicles’ operations and could impact our reputation and materially and adversely affect us. We may also have insufficient recourse against such third parties and may have to expend significant resources to mitigate the impact of such an event, and to develop and implement protections to prevent future events of this nature from occurring.
Our portfolio companies also rely on data processing systems and the secure processing, storage and transmission of information, including payment and health information. A disruption or compromise of these systems could have a material adverse effect on the value of these businesses. Our investment vehicles may also invest in strategic assets having a national or regional profile or in infrastructure, the nature of which could expose them to a greater risk of being subject to a terrorist attack or security breach than other assets or businesses. Such an event may have material adverse consequences on our investment or assets of the same type or may require portfolio companies to increase spending on preventative security measures or insurance coverage.
Artificial intelligence could increase competitive, operational, legal and regulatory risks to our businesses in ways that we cannot predict.
The use of artificial intelligence by us and others, and the overall adoption of artificial intelligence throughout society, may exacerbate or create new and unpredictable competitive, operational, legal and regulatory risks to our businesses. There is substantial uncertainty about the extent to which artificial intelligence will result in dramatic changes throughout the world, and we may not be able to anticipate, prevent, mitigate, or remediate all of the potential risks, challenges, or impacts of such changes. These changes could potentially disrupt, among other things, our business models, investment strategies, operational processes, and our ability to identify and hire employees. Some of our competitors may be more successful than us in the development and implementation of new technologies, including services and platforms based on artificial intelligence, to address investor demands or improve operations. If we are unable to adequately advance our capabilities in these areas, or do so at a slower pace than others in our industry, we may be at a competitive disadvantage.
If the data we, or third parties whose services we rely on, use in connection with the possible development or deployment of artificial intelligence is incomplete, inadequate or biased in some way, the performance of our products, services, and businesses could suffer. In addition, we analyze data through different means, including manual reviews, automated rules as well as the use of artificial intelligence and machine learning technologies to better manage our business. Recent technological advances in artificial intelligence and machine-learning technology both present opportunities and pose risks to us. Data in technology that uses artificial intelligence may contain a degree of inaccuracy and error, which could result in flawed algorithms in various models used in our businesses. Our personnel or the personnel of our service providers could, without being known to us, improperly utilize artificial intelligence and machine learning-technology while carrying out their responsibilities. This could reduce the effectiveness of artificial intelligence technologies and adversely impact us and our operations to the extent that we rely on the work product of such artificial intelligence in such operations.
There is also a risk that artificial intelligence may be misused or misappropriated by our employees or third parties engaged by us. For example, a user may input confidential information, including material non-public information or personally identifiable information, into artificial intelligence applications, resulting in such information becoming a part of a dataset that is accessible by third party technology applications and users, including our competitors. Further, we may not be able to control how third-party artificial intelligence that we choose to use are developed or maintained, or how data we input is used or disclosed, even where we have sought contractual protections with respect to these matters. The misuse or misappropriation of our data could have an adverse impact on our reputation and could subject us to legal and regulatory investigations or actions or create competitive risk.
In addition, the use of artificial intelligence by us or others may require compliance with legal or regulatory frameworks that are not fully developed or tested, and we may face litigation and regulatory actions related to our use of artificial intelligence. There has been increased scrutiny, including from global regulators, regarding the use of "big data," diligence of data sets and oversight of data vendors. Our ability to use data to gain insights into and manage our business may be limited in the future by regulatory scrutiny and legal developments. See also “—Risks Related to Our Business—Rapidly developing and changing global privacy and data laws and regulations could further increase compliance costs and subject us to enforcement risks and reputational damage” and “—Risks Related to Our Business—Cyber-security failures and data security breaches may disrupt or have a material adverse impact on our businesses, operations and investments.”63Tabl e of Contents
Rapidly developing and changing global privacy and data laws and regulations could further increase compliance costs and subject us to enforcement risks and reputational damage.
We and our portfolio companies are subject to various risks and costs associated with the collection, processing, storage and transmission of personal information and other sensitive and confidential information. This data is wide ranging and relates to our investors, employees, insurance policyholders, contractors and other counterparties and third parties. Any inability, or perceived inability, by us or our portfolio companies to adequately address privacy concerns, or comply with applicable privacy laws, regulations, policies, industry standards and guidance, related contractual obligations, or other privacy legal obligations, even if unfounded, could result in significant regulatory and third party liability, increased costs, disruption of our and our portfolio companies’ business and operations, and a loss of investment vehicle investor confidence and other reputational damage.
Our employees (and, in certain cases, third-party service providers) have access to, and process, personal information of our investors, insurance policyholders, employees, contractors and other counterparties and third parties through a variety of media, including information technology systems. Our and our third-party service providers’ information systems and technology may not be able to adequately protect the information of our investors, employees, insurance policyholders, contractors and other counterparties and third parties, may not be suitable for new products and strategies and may be subject to security risks. We rely on various internal processes and controls to protect the confidentiality of client information that is accessible to, or in the possession of, us, our employees and certain vendors and third-party administrators. It is possible that an employee could, intentionally or unintentionally, disclose or misappropriate confidential client information or our data could be the subject of a cybersecurity attack. Our third-party administrators and their employees also have access to, and routinely process, personal information of our investors, employees, insurance policyholders, contractors and other counterparties and third parties, and we are also dependent on such third parties and their systems to protect such data. If we or one of our subsidiary’s employees, or one of our or a subsidiary’s third-party vendors or administrators’ employees, unintentionally share confidential client information or such information as a result of a cybersecurity attack or otherwise, we may be unable to control or mitigate this occurrence even if we offer remediation, such as credit monitoring, to the impacted parties. Misappropriation or intentional or unintentional inappropriate disclosure or misuse of client confidential information could occur even if individuals are properly trained and adequate internal controls and policies and procedures are maintained.
Pursuant to U.S. federal and state laws, various government agencies have established rules protecting the privacy and security of personal information. We and our portfolio companies may be required to comply with both U.S. federal and state laws and regulations related to privacy. For example, the CCPA provides for enhanced consumer protections for California residents, a private right of action for data breaches of certain personal information and statutory fines and damages for such data breaches or other CCPA violations, as well as a requirement of “reasonable” cybersecurity. The CCPA was expanded on January 1, 2023, when the CPRA amendments to the CCPA became operative. Additional U.S. states have passed their own comprehensive consumer privacy laws, some of which went into effect in 2023 or will go into effect in 2024, and other states are considering doing so. These state laws may expand our compliance obligations and impact our business or the businesses of our portfolio companies. Most states have enacted laws to which we are subject, and which vary significantly from jurisdiction to jurisdiction, to safeguard the privacy and security of personal information. Global Atlantic, in particular, processes sensitive personal information of its policyholders, which exposes Global Atlantic to heightened risk. Global Atlantic is subject to the NYSDFS cybersecurity regulation. The NYSDFS Cybersecurity Amendments significantly expand the regulation by the NYSDFS of data privacy matters. Global Atlantic is also subject to the California Consumer Privacy Act. At the U.S. federal level, we are subject to the Gramm-Leach-Bliley Act of 1999 as amended in June 2023, which imposes privacy requirements on financial institutions, including obligations to protect and safeguard consumers’ nonpublic personal information and records, and limits the ability to share and reuse such information. In March 2023, the SEC proposed amendments to Regulation S-P, its rules implementing The Gramm-Leach-Bliley Act, which, if adopted, would require broker-dealers, registered investment companies and investment advisers to adopt written policies and procedures creating an incident response program to deal with unauthorized access to customer information, including procedures for notifying persons affected by the incident within 30 days.
In addition, we and our portfolio companies are required to comply with certain non-U.S. privacy laws, including, for example, the GDPR and UK Data Protection Act, as well as laws in other jurisdictions globally. Global laws in this area are rapidly increasing in the scale and depth of their requirements and are also often extra-territorial in nature. In addition, a wide range of regulators and private actors are seeking to enforce these privacy laws with increased scrutiny and growing penalties, including across regions and borders. Furthermore, we frequently have privacy compliance requirements because of our contractual obligations with counterparties. As new privacy-related laws and regulations are implemented, the time, cost and resources needed for us and our portfolio companies to comply with such laws and regulations continues to increase. These legal, regulatory, and contractual obligations heighten our privacy obligations in the ordinary course of conducting our business in the U.S. and internationally. Furthermore, failure to comply with U.S. and foreign privacy, data protection, and data security64Tabl e of Contents
laws and regulations could result in government investigations or enforcement actions (which could include civil or criminal penalties), private litigation, claims, or public statements against us or adverse publicity. Claims that we have violated individuals’ privacy rights, failed to comply with privacy, data protection, and data security laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time consuming to defend, could result in adverse publicity and could have a material adverse effect on us. Many regulators have indicated an intention to take more aggressive enforcement actions regarding data privacy matters, and private litigation resulting from such matters is increasing and resulting in progressively larger judgments and settlements.
Regulators are also increasing scrutiny and considering, and in some cases enacting, regulation of the use of artificial intelligence technologies. In April 2023, the U.S. Federal Trade Commission (“FTC”), DOJ, CFPB, and EEOC released a joint statement on artificial intelligence, demonstrating their interest in monitoring the development and use of automated systems and enforcement of their respective laws and regulations. In October 2023, the Biden Administration passed an executive order on Safe, Secure, and Trustworthy Artificial Intelligence which establishes new standards for AI safety and security. The NAIC has established a dedicated working group and adopted bulletins and reports on the use of artificial intelligence by insurers. Existing laws and regulations may be interpreted in new ways, which would affect the way in which we or our portfolio companies use artificial intelligence and machine learning technology. In addition to the U.S. regulatory framework, the EU is in the process of finalizing a new regulation on artificial intelligence (the "EU AI Act"), parts of which are slated to take effect from late 2024. The EU AI Act is a legal framework, which will govern the development and deployment of artificial intelligence placed on the EU market, used in the EU, or where the output is used or intended to be used within the EU. The framework is expected to ban certain uses of artificial intelligence outright and impose material obligations on both the providers and deployers of certain other artificial intelligence activities. The fine threshold for non-compliance is expected to be 35 million euros or 7% of total annual worldwide turnover, whichever is higher, and regulators are expected to have powers to remove non-compliant products from the EU market. Other jurisdictions, such as Canada and Brazil, are also considering similar legal frameworks.
Once effective, regulations relating to artificial intelligence may expand our compliance obligations and impact our business or the business of our portfolio companies. In July 2023, the SEC proposed new predictive data analytics rules, which would require registered investment advisers (and broker-dealers) to eliminate or neutralize (rather than just disclosing and mitigating) certain conflicts of interest posed by covered technologies including artificial intelligence and machine-learning, with respect to their interactions with clients and investors in pooled investment vehicles. In order to limit their potential liability under this rule, our investment adviser entities could choose to change or discontinue some of their activities related to such technologies. We cannot predict what, if any, actions may be taken, but such developments could have a materially adverse impact to us.
We may expand into new investment strategies, geographic markets and businesses and new types of investors or seek to expand our business or change our strategic focus with new strategic initiatives, which may result in additional risks and uncertainties in our businesses.
Our organizational documents do not limit our ability to enter into new lines of business, and we may expand into new investment strategies, geographic markets, businesses, types of investors and investment products. We intend to seek to grow our businesses by increasing AUM in existing businesses, pursuing new investment strategies (including investment opportunities in new asset classes), developing new types of investment structures and products (such as publicly listed vehicles, separately managed accounts and structured products), expanding into new geographic markets and businesses and seeking investments from investor bases we have traditionally not pursued, such as individual investors, which subject us to additional risk. See also “—Risks Related to Our Business—Certain types of investment vehicles, especially those offered to individual investors, may subject us to a variety of risks, including new and greater levels of public and regulatory scrutiny, regulation, risk of litigation and reputational risk, which could materially and adversely affect us.” We have in the past opened many offices to conduct our asset management and capital markets businesses around the world in Europe, the Middle East and Asia-Pacific, which we intend to grow and expand. We have also launched a number of new investment initiatives in various asset classes or geographies, such as climate investments and infrastructure investments in the Asia-Pacific region, and increasingly manage investment vehicles owned by individual investors, which subject us to additional risk. Introducing new types of investment structures and products could increase the complexities involved in managing such investments, including ensuring compliance with applicable regulatory requirements and terms of the investment vehicles.65Tabl e of Contents
Our organic growth strategy focuses on providing resources to foster business expansion, such that we achieve a level of scale and profitability. Given our diverse platform, these initiatives could create conflicts of interests with existing products, increase our costs and expose us to new market risks, and legal and regulatory requirements. The success of our organic growth strategy will also depend on, among other things, our ability to correctly identify and create products that appeal to the limited partners of our funds and vehicles. While we have made significant expenditures to develop these new strategies and products, there is no assurance that they will achieve a satisfactory level of scale and profitability.
We have and may continue to pursue growth through acquisitions of, or investments in, new businesses, other investment management companies, acquisitions of critical business partners, strategic partnerships, other alternative or traditional investment managers, or other strategic initiatives which also may include entering into new lines of business. In addition, we expect opportunities will arise to acquire other alternative or traditional investment managers. For example, in April 2022, we expanded into the Japanese real estate market by acquiring KJRM, a Japanese real estate asset manager. In February 2021, we expanded into the insurance business by acquiring a majority controlling equity interest in Global Atlantic before acquiring the remaining minority equity interest in January 2024 to make Global Atlantic a wholly owned subsidiary. For further detail on the challenges and risks related to this acquisition, see “—Risks Related to Our Insurance Activities—The Global Atlantic acquisition may not achieve its intended benefits, and certain difficulties, costs or expenses may outweigh such intended benefits.”
Contemporaneously with the November 2023 announcement of our agreement to acquire the remaining equity interests in Global Atlantic, we announced a series of other strategic initiatives, which became effective with the January 2024 closing of the Global Atlantic transaction. These strategic initiatives are expected to be implemented in the first quarter of 2024 and include (i) creating a new business segment, Strategic Holdings, (ii) modifying KKR’s compensation structure to allocate a greater percentage to carried interest and a lesser percentage to fee-related earnings, and (iii) introducing a new reporting framework called “Total Operating Earnings.” We currently believe that we will receive stable recurring revenues from our expectations that a larger percentage of our earnings will shift to what we consider to be more stable recurring revenues related to our increased ownership interest in Global Atlantic and our future growth expectations over time in dividend payments from portfolio companies included in our new Strategic Holdings segment. However, these are our current expectations and not a guarantee that they will be realized as currently expected or be as accretive to our earnings as we currently believe they will be. Investors should consider the risks related to the implementation of these strategic initiatives. For example, expected dividend amounts and investment returns in the new business segment Strategic Holdings may be materially less than our current expectations or not materialize at all, and the volatility of employee compensation as a result of the modification of our compensation framework could impact our ability to hire, retain, and motivate our employees whom we are dependent on. See "—Risks Related to Our Business—We depend on the efforts, skills, reputations, business contacts, and conduct of our employees and our ability to retain our employees and to recruit prospective employees." In addition, we may not achieve some or all of the expected benefits of our ownership, as of January 2, 2024, of 100% of Global Atlantic. See "—Risks Related to Our Insurance Activities—The Global Atlantic acquisition may not achieve its intended benefits, and certain difficulties, costs or expenses may outweigh such intended benefits."
To the extent we make strategic investments or acquisitions, undertake other strategic initiatives, expand into new investment strategies or geographic markets, or enter into a new line of business, we will face numerous risks and uncertainties, including risks associated with:
• the required investment of capital and other resources;
• delays or failure to complete an acquisition or other transaction in a timely manner or at all, which may subject us to damages or require us to pay significant costs;
• lawsuits challenging an acquisition or unfavorable judgments in such lawsuits, which may prevent the closing of the transaction, cause delays, or require us to incur substantial costs including in costs associated with the indemnification of directors;
• the failure to realize the anticipated benefits from an acquired business or strategic partnership in a timely manner, if at all;
• combining, integrating or developing operational and management systems and controls, including an acquired business's internal controls and procedures;
• integration of the businesses, including the employees of an acquired business;66Tabl e of Contents
• disagreements with joint venture partners or other stakeholders in our hedge fund partnerships and our strategic partnerships;
• the additional business risks of the acquired business and the broadening of our geographic footprint;
• properly managing conflicts of interests;
• our ability to obtain requisite regulatory approvals and licenses without undue cost or delay and without being required to comply with material restrictions or material conditions that would be detrimental to us or to the combined organization;
• our ability to comply with new regulatory regimes; and
• becoming subject to new laws and regulations with which we are not familiar, or from which we are currently exempt, that may lead to increased litigation and regulatory risk and costs.
Our liquidity, business, results of operations and financial condition could be materially and adversely affected if we fail to manage our balance sheet commitments.
Our balance sheet assets provide us with a significant source of capital to grow and expand our business, increase our participation in our transactions and underwrite commitments in our capital markets business. We have used our balance sheet assets to underwrite loans, securities or other financial instruments, which we generally expect to syndicate to third parties. We have also entered into arrangements with third parties that reduce our risk associated with holding unsold securities when underwriting certain debt transactions, which enables our capital markets business to underwrite a larger amount. To the extent that we are unable to syndicate our commitments to third parties or our risk reduction arrangements do not fully perform as anticipated, we may be required to sell such investments at a significant loss or hold them indefinitely. If we are required to retain investments on our balance sheet for an extended period of time, our results would be directly impacted by the performance of such investments and it would also impair our capital markets business' ability to complete additional transactions, either of which could materially and adversely affect us.
We generally have a larger balance sheet than many of our competitors, and consequently, the performance of these balance sheet assets has a greater impact on our results of operations. In particular, during a period when our balance sheet assets are concentrated in a limited number of investments, results from a small number of investments can have a significant impact on our balance sheet performance. Our success in deploying our balance sheet assets and generating returns on this capital, particularly as it relates to our new expected business segment, Strategic Holdings (the performance of which depends on the investment performance, and dividends of, many of our balance sheet assets), will depend, among other things, on the availability of suitable opportunities after giving priority in investment opportunities to our advisory clients, the level of competition from other companies that may have greater financial resources and our ability to value potential development or acquisition opportunities accurately and negotiate acceptable terms for those opportunities. The success of our new Strategic Holdings segment will be dependent on the success of our balance sheet strategy.
Our balance sheet assets have been a significant source of capital for new strategies and products. To the extent that such strategies or products are not successful, or our balance sheet assets cease to provide adequate liquidity, we would realize losses on our balance sheet investments or become limited in our ability to seed new businesses or support our existing business as effectively as contemplated. For example, we may acquire investments using our balance sheet capital and warehouse these investments while fundraising a particular investment vehicle. We expect our balance sheet capital to be returned to us if such investment vehicle has a successful fundraise. However, if the fundraising is not successful, or if investment vehicle investors are not willing to pay for these warehoused investments, then this may materially and adversely affect KKR, including by potentially realizing losses on these warehoused investments.
We have developed and completed several structured transactions in which our balance sheet provides subordinated or equity financing and third-party investors provide senior financing to an investment vehicle that invests in our investment vehicles and certain other investment assets. We have also entered into a similarly structured transaction where the cash flows of our balance sheet's capital commitments to our investment vehicles have been effectively pledged as collateral for the investment vehicle. In addition to the increased operational complexity and cost that arise from the structure and bespoke terms of these transactions, because of the subordinated nature of KKR's interests, we are at risk of losing all of our interests in these transactions ahead of any third party if the investments do not perform as expected. See Note 24 “Commitments and Contingencies—Funding Commitments and Others” for total balance sheet investments made by KKR in these structured transactions and for the amount we have agreed to invest or otherwise be liable for and/or to provide liquidity upon certain termination events (the maximum amount of which is currently unknown).67Tabl e of Contents
Extensive regulation of our businesses affects our activities and creates the potential for significant liabilities and penalties, which could materially and adversely affect KKR.
Our business is subject to extensive regulation, legislative focus and regulatory scrutiny, and our compliance with laws and regulations is subject to frequent examinations, inquiries and investigations by U.S. federal and state as well as non-U.S. governmental agencies and regulators and self-regulatory organizations in the various jurisdictions in which we operate around the world. See Note 24 "Commitments and Contingencies—Litigation" in our financial statements for a description of certain pending matters.
Any of these governmental and regulatory authorities may challenge our and our employees’ compliance with any applicable laws and regulations, and we and our employees could become subject to civil or criminal proceedings brought by them for such noncompliance. Many of these regulators are empowered to impose fines, penalties, restrictions on activities, suspensions of personnel or other sanctions, including censure, the issuance of cease-and-desist orders or the suspension or expulsion of applicable licenses, authorizations and memberships. Any resolution of claims brought by a governmental and regulatory authority may, in addition to the imposition of significant monetary penalties, require an admission of wrongdoing or include adverse limitations or prohibitions on our ability to conduct our business. Even if a sanction is not imposed, or a sanction imposed against us or our personnel by a regulator were small in monetary amount, the adverse publicity relating to the regulatory activity or imposition of these sanctions could be significant.
Any of the foregoing consequences or events may damage our relationships with existing and potential investors in our publicly traded stock, our investment vehicles or our insurance products, impair our ability to raise capital for our investment vehicles, impair our ability to carry out investment activities, impair our ability to conduct our insurance business, and contravene provisions concerning compliance with laws and regulations in the agreements to which we are a party. In addition, as discussed further below, certain events could disqualify KKR from relying on private placement exemptions from registration under the Securities Act, which would materially and adversely affect our ability to raise financing for KKR and our ability to conduct our capital markets business. Moreover, any of these governmental or regulatory actions could also lead to increased exposure to: other allegations, examinations, inquiries or investigations by other U.S. and non-U.S. governmental and regulatory agencies on related or unrelated matters, civil litigation by our stockholders, fund investors, or other third parties, or could have other negative effects, which could materially and adversely affect us.
The private equity industry has been and continues to be under intense regulatory and news media scrutiny with governmental officials and regulators focusing on the private equity industry's fees, the taxation of its investments, business practices, antitrust compliance and operations of its portfolio companies, conflicts of interest, and other issues. In particular, the SEC's areas of focus on private equity firms have included, among others, fiduciary duty and compliance programs, conflicts of interest allocation of investment opportunities, the allocation of fees and expenses, including the acceleration of monitoring fees and the allocation of broken-deal and other expenses, valuation practices, the disclosure, use and compensation of operating partners or consultants as well as third-party compliance or similar service providers, outside investment and business activities of firm principals and employees, group purchasing arrangements, disclosure of affiliated service providers, disclosure of conflicts of interest and investment risks, adherence to notice, consent and other contractual requirements, electronic communications, cyber-security, data privacy and protection, the use of purchased data, valuation, retail investors, foreign bribery and corruption, and policies covering custody, auditing, handling of material nonpublic information, insider trading, business continuity and transition planning, conflicts of interest relating to liquidity, such as certain adviser-led fund restructurings, as well as private fund advisers' portfolio strategies, risk management, and investment recommendations and allocations.
Certain Recent and Potential Regulatory Developments
• In October 2023, the U.S. Department of Labor proposed a rule that, if finalized, would materially increase the likelihood that a fund sponsor could inadvertently become a fiduciary to plans governed by The Employee Retirement Income Security Act of 1974 ("ERISA"), individual retirement accounts (“IRAs”) within the meaning of Section 4975 of the Code, and similar plans, by reason of being deemed to have rendered investment advice in the context of fundraising and investor engagement. The proposal broadly applies to any communication made to ERISA-governed plans, IRAs, and their fiduciaries that would reasonably be viewed as a suggestion that the plan engage in, or refrain from taking, a particular course of action, and, therefore, may potentially create a fiduciary relationship between the fund sponsor and an ERISA plan or IRA for purposes of that communication. In the event that the fund sponsor was deemed to be an investment advice fiduciary, such fund sponsor would generally need to satisfy a complicated exemption to avoid a self-dealing prohibited transaction under ERISA and the Code.68Tabl e of Contents
• In August 2023, the SEC adopted new rules and amendments to existing rules under the Investment Advisers Act of 1940 (the “Advisers Act”) (collectively, the “Private Fund Adviser Rules”), which includes, among other things, requiring registered investment advisers, like KKR, to: (i) prepare and distribute to private fund investors quarterly statements containing detailed information about compensation, fees and expenses, portfolio investments, and performance; obtain an annual audit for the private funds that they manage; and require registered advisers to obtain a fairness or valuation opinion and make certain disclosures in connection with adviser-led secondary transactions; (ii) be restricted from engaging in various practices unless they satisfy specified disclosure requirements and, in some cases, consent requirements, including charging various fees and borrowing money from a private fund client; (iii) be prohibited from providing preferential treatment to investors with regard to liquidity and information rights unless certain conditions are met; and (iv) retain certain records evidencing their compliance with the rules. The compliance dates for the Private Fund Adviser Rules are generally in September 2024 or March 2025, although the rules are being challenged in court by various private fund industry organizations. While the full extent of the Private Funds Adviser Rules’ impact cannot yet be determined, it is generally anticipated that they will have a significant effect on private fund advisers and their operations, including by increasing regulatory and compliance costs and burdens and heightening the risk of regulatory action.
• In May 2023, the SEC adopted changes to Form PF, a confidential form relating to reporting by private funds, which expands existing reporting obligations by requiring large hedge fund advisers to make a filing within 72 hours of certain current reporting events and large private equity fund advisers to provide additional information regarding general partner clawbacks and fund strategy and borrowing in their annual Form PF filings. The compliance dates for these expanded Form PF reporting requirements are in December 2023 and June 2024. In addition, in February 2024, the SEC and the Commodity Futures Trading Commission (“CFTC”) jointly adopted amendments to Form PF that expand the information that private fund advisers must provide in their Form PF filings. The compliance date for these joint amendments is expected to be in the first half of 2025. The SEC has also adopted new and amended rules applicable to KKR and/or its investment advisory and other entities that, among other things, shorten the deadlines for filing beneficial ownership reports with the SEC, require annual reporting of votes on say-on-pay proxy matters, and increase reporting of short positions in equity securities.
• The FTC and the Antitrust Division of the U.S. Department of Justice ("DOJ") have recently announced a number of initiatives and policy shifts to increase antitrust enforcement in the United States, where we and many of our portfolio companies conduct business. For example, on December 18, 2023, the FTC and the DOJ jointly issued the final updated Merger Guidelines, which describe and guide FTC and DOJ’s review of mergers and acquisitions under the federal antitrust laws. These Merger Guidelines reflect the U.S. government’s commitment to rigorous and aggressive antitrust enforcement practices. DOJ enforcement of Section 8 has resulted in a number of director resignations from companies (including private equity investments) since the effort began in October 2022. Across all areas of antitrust enforcement, FTC and DOJ officials have explicitly identified the private equity industry an area of focus. The increased scope and vigor of antitrust regulation and enforcement could impact our business, the investment activities of us and our funds and the businesses of our portfolio companies. These initiatives are consistent with statements by officials from both the FTC and the DOJ's Antitrust Division, including the May 2023 statement by DOJ Assistant Attorney General Jonathan Kanter that the enforcement of Section 8 will continue to be a focus for DOJ. In prior years, for example, in speeches in June and September 2022, in highlighting enforcement priorities, a DOJ Antitrust Division official stated that the DOJ is reviewing whether companies including private equity are fully complying with obligations with respect to merger filings under the Hart-Scott-Rodino ("HSR") Act. In November 2022, the FTC issued a policy statement regarding the scope of unfair methods of competition under Section 5 of the Federal Trade Commission Act, declaring that Section 5 reaches beyond the Sherman and Clayton Acts to encompass various types of unfair conduct that tend to negatively affect competition conditions, including private equity roll ups, price discrimination, interlocking directorates, and non-compete agreements. The FTC also announced in September 2022 that it would increase enforcement of the Robinson Patman Act, which targets price discrimination, across all industries. Please see Note 24 "Commitments and Contingencies—Litigation" in our financial statements for further information with respect to the DOJ’s antitrust investigations pending against us.69Tabl e of Contents
• In September 2022, the SEC announced charges against 15 broker-dealers and one affiliated investment adviser for failures by those firms and their employees to maintain and preserve required electronic communications. The firms agreed to pay combined penalties of more than $1.1 billion and agreed to implement improvements to their compliance policies and procedures to settle these matters. In 2023 and 2024, over 40 broker-dealers, investment advisory firms and/or credit rating agencies also agreed to penalties and agreed to implement improvements to their compliance policies and procedures to settle these matters. A failure by KKR to maintain and preserve required electronic communications could result in further regulatory investigations, charges, penalties and potential disqualifications, as KKR and certain other alternative asset managers and investment advisers are presently subject to inquiries by the SEC related to business-related electronic communications. Please see Note 24 "Commitments and Contingencies—Litigation" in our financial statements for further information with respect to the SEC’s pending investigations against KKR.
• The SEC's amended rule for investment adviser marketing became effective in November 2022. The rule increases regulatory obligations and imposes more prescriptive requirements on investment advisers' marketing activities, including prohibitions on advertisements that are misleading or contain material statements that an investment adviser cannot substantiate, as well as requirements for performance advertising and the use of placement agent arrangements. The rule impacts the marketing of certain of our funds and other investment advisory functions both within and outside of the United States.
• On February 15, 2023, the SEC proposed amendments to the custody rule for SEC-registered investment advisers. If adopted, the amendments would require, among other things, the adviser to: obtain certain contractual terms from each advisory client’s qualified custodian; document that privately offered securities cannot be maintained by a qualified custodian; and promptly obtain verification from an independent public accountant of any purchase, sale or transfer of privately offered securities. The amendments also would apply to all assets of a client, including real estate and other assets that generally are not considered securities under the federal securities laws. If adopted, these amendments could expose our registered investment advisers to additional regulatory liability, increase compliance costs, and impose limitations on our investing activities.
• On October 26, 2022, the SEC proposed a new rule and related amendments to prohibit SEC-registered investment advisers from outsourcing certain services or functions to service providers without meeting certain requirements, including substantial diligence and monitoring obligations.
On August 13, 2022, the National Association of Insurance Commissioners (“NAIC”) Executive Committee and Plenary adopted a list of “Regulatory Considerations Applicable (But Not Exclusive) to Private Equity (PE) Owned Insurers” (the “NAIC List”). The NAIC and state insurance regulators will use the NAIC List to review additional information related to affiliates and investment structures (including revisions to the capital charges for asset-backed securities, in particular CLOs), investment management agreements, governance, market conduct practices and use of third-party administrators. For example, insurance regulators, including the NAIC, have increasingly focused on the terms and structure of investment management agreements, including whether they are at arms' length, establish a control relationship with the insurance company, grant the asset manager excessive authority or oversight over the investment strategy of the insurance company or provide for management fees that are not fair and reasonable or termination provisions that make it difficult or costly for the insurer to terminate the agreement. Regulators have also increasingly focused on the risk profile of certain investments held by insurance companies (including, without limitation, structured credit assets such as collateralized loan obligations), appropriateness of investment ratings and potential conflicts of interest (including affiliated investments), and potential misalignment of incentives and any potential risks from these and other aspects of an insurance company's relationship with alternative asset managers that may impact the insurance company's risk profile. This enhanced scrutiny may increase the risk of regulatory actions against us and could result in new or amended regulations that limit our ability, or make it more burdensome or costly, to enter into or amend existing investment management agreements or advisory with insurance companies and thereby grow our insurance strategy. Our relationships with Global Atlantic and other insurers and reinsurers is expected to be subject to additional scrutiny and potentially additional regulatory requirements, which may have a material impact on us. See also "—Risks Related to our Insurance Activities— Global Atlantic's businesses are heavily regulated across numerous jurisdictions, including with respect to capital requirements, and changes in regulation could reduce the profitability of our insurance business."70Tabl e of Contents
The AIFMD provides for a comprehensive regulatory and supervisory framework for AIFMs managing or marketing alternative investment funds in the EU. The AIFMD imposes various substantive regulatory requirements on AIFMs, including a subsidiary of ours which is authorized as an AIFM by the Central Bank of Ireland, and there have been a number of significant changes that, if adopted, will affect our business:
• On November 25, 2021, the European Commission (the "Commission") published draft legislative proposals in the form of a directive amending the AIFMD. The draft legislative proposals address delegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services and loan origination by alternative investment funds.
• On August 2, 2021, Commission Delegated Regulation (EU) 231/2013 was amended to require sustainability risks and sustainability preferences to be integrated into the investment decision-making and risk management processes of AIFMs. The amendments applied from August 1, 2022.
• On November 28, 2022, the EU adopted Regulation (EU) 2022/2560 on foreign subsidies distorting the internal market, coming into force in mid-2023, which, subject to certain thresholds, will require mandatory notification of acquisitions involving financial contributions by non-EU governments. In July 2022, the UK put forth a new bill (the "Financial Services and Markets Bill") which makes significant reforms to the regulation of the UK financial services sector. The Financial Services and Markets Bill contains measures to, among other things: (i) establish a framework for the revocation of EU financial services law that was retained in English law following Brexit; (ii) reform the legislative framework governing the UK's capital markets; (iii) reform the financial promotion framework; and (iv) give the FCA and the Prudential Regulation Authority ("PRA") a new secondary objective to advance long-term economic growth and international competitiveness of the UK. The exact impact of these changes is not yet known, but they could result in increasing and, ultimately, potentially significant divergence between the UK's financial services regulatory framework and the EU financial services framework, which could increase regulatory compliance costs across our business and impact the ability of our regulated portfolio companies to scale across the UK and EU markets. The European Market Infrastructure Regulation ("EMIR"), the legislation amending EMIR ("EMIR Refit") and their UK equivalents, which impose various reporting, margining and central clearing requirements on certain derivative transactions.
• Changes to AIFMD are expected to be formally agreed to in early 2024 and would come into effect in 2026. These changes may increase the compliance burdens on certain of our funds and require them to make changes to their operations, including, among other things, in respect of their use of leverage, which could impact the returns of such funds.
Additionally, our business could be adversely affected if we or our portfolio companies fail to comply with existing and potential new applicable ESG regulations. The potential impact to us of these regulations is further described in “—Risks Related to Our Business—We are subject to focus by some of our fund investors, stockholders, regulators and other stakeholders on environmental, social and governance matters.”
Additionally, our business could be adversely affected if we or our portfolio companies fail to comply with existing and potential new applicable regulations relating to artificial intelligence, including the EU AI Act. The potential impact to us of these regulations is in “—Risks Related to Our Business—Rapidly developing and changing global privacy and data laws and regulations could further increase compliance costs and subject us to enforcement risks and reputational damage” and "—Risks Related to Our Business—Cyber-security failures and data security breaches may disrupt or have a material adverse impact on our businesses, operations and investments."
Any of these changes or potential changes in the regulatory framework applicable to our business (including any changes or potential changes that are not described above or that we are unaware of or that may arise from new leadership at regulators and in governments in the U.S. and abroad), as well as adverse news media attention, may: impose additional expenses or capital requirements on us; limit our fundraising for our investment products; result in limitations in the manner in which our business is conducted; have an adverse impact upon our results of operations, financial condition, reputation or prospects; impair employee retention or recruitment; and require substantial attention by senior management. It is impossible to determine the extent of the impact of any new laws, regulations, initiatives or regulatory guidance that may be proposed or may become law on our business or the markets in which we operate. If enacted, any new law, regulation, initiatives or regulatory guidance could negatively impact our funds and us in a number of ways, including: increasing our costs and the cost for our funds of investing, borrowing, hedging or operating; increasing the funds' or our regulatory operating costs; imposing additional burdens on our funds' or our staff; and potentially requiring the disclosure of sensitive information. Even if not enacted, evaluating and responding to new rulemaking proposals could result in increased costs and require significant attention from management. In addition, we may be materially and adversely affected by changes in the interpretation or enforcement of existing laws and71Tabl e of Contents
rules by these governmental authorities, courts, regulators and self-regulatory organizations. New laws, regulations, initiatives or regulatory guidance, or changes in interpretation or enforcement, could make compliance more difficult or more expensive, affect the manner in which we conduct business and divert significant management and operational resources and attention from our business. Moreover, an increase in regulatory investigations and new or enhanced reporting requirements of the trading and other investment activities of alternative investment management funds and firms, including our funds and us, is possible. Such investigations and reporting requirements could impose additional expenses on us, require the attention of senior management, increase the complexity of managing our business, or result in fines or other sanctions if we or any of our funds are deemed to have violated any law or regulations.
Current Alternative Asset Manager Legal and Regulatory Environment.
We regularly rely on exemptions in the United States from various requirements of the Securities Act, the Exchange Act, the Investment Company Act, the Commodity Exchange Act and ERISA in conducting our investment management activities. These exemptions are sometimes highly complex and may in certain circumstances, depend on compliance by third parties whom we do not control. If for any reason these exemptions were to become unavailable to us, we could become subject to additional restrictive and costly registration requirements, regulatory action or third-party claims and our business could be materially and adversely affected.
For example, in raising new funds or certain other vehicles, we typically rely on private placement exemptions from registration under the Securities Act, including Rule 506 of Regulation D. However, Rule 506 becomes unavailable to issuers (including our funds) if the issuer or any of its "covered persons" (certain officers and directors and also certain third parties including, among others, promoters, placement agents and beneficial owners of 20% of outstanding voting securities of the issuer) has been the subject of a "disqualifying event," which includes a variety of criminal, regulatory and civil matters (so-called "bad actor" disqualification). If our funds (or other vehicles) or any of the covered persons associated with our funds (or other vehicles) are subject to a disqualifying event, one or more of our funds could lose the ability to raise capital in a Rule 506 private offering for a significant period of time, which could significantly impair their ability to raise new funds (or other products) and our ability to organize and offer new funds (or other vehicles), and, therefore, could materially and adversely affect us. We also rely on Rule 506 in connection with our capital markets business activities, including with respect to various fundraising activities discussed above and in connection with transactions in which our investment funds or insurance companies may participate as a purchaser or a seller of securities. The occurrence of a disqualifying event could materially and adversely affect our ability to raise financings for KKR and our ability to conduct our capital markets business, which depends on KKR’s ability to participate in unregistered securities offerings. In addition, if certain of our employees or any potential significant investor has been the subject of a disqualifying event, we could be required to reassign or terminate such an employee or we could be required to reduce or refuse the investment of such an investor, which could impair our relationships with investors, harm our reputation or make it more difficult to raise new funds (or other products). As we expand the array of vehicles that we offer to retail investors, we may increasingly rely on the Rule 506(c) safe harbor so that we can incorporate general solicitation or general advertising into offerings for certain investment products, which will require us to implement a more robust protocol to validate accredited investor status.
We are and will become further subject to additional regulatory and compliance burdens because our product offerings and investment platform include retail investors. For example, certain of our investment vehicles are registered under the Investment Company Act as investment companies. These funds and their investment advisers are subject to the Investment Company Act and the rules thereunder, which, among other things, regulate the relationship between a registered investment company and its investment adviser and prohibit or severely restrict principal transactions and joint transactions. In addition, we have one or more affiliates, which provide investment advisory services to a BDC. BDCs are subject to certain restrictions and prohibitions under the Investment Company Act. If the entity fails to meet the requirements for a BDC, it may be regulated as a closed-end investment company under the Investment Company Act and become subject to substantially more regulatory restrictions, which could limit its operating flexibility and in turn result in decreased profitability for our affiliated advisor. We have also launched holding company conglomerates that are structured and operated in a manner that does not subject these entities to registration or regulation under the Investment Company Act. If a holding company conglomerate were required to register under the Investment Company Act, the applicable restrictions could make it impractical for the company to operate its business plans as contemplated, which could cause KKR significant harm and materially and adversely affect our business strategy and prospects. As our business expands, we may be required to make additional registrations under the Investment Company Act or similar laws, including in jurisdictions outside the United States. Compliance with these and other U.S. and non-U.S. rules will increase our compliance costs and create potential for additional liabilities and penalties, which would divert management's attention from our business and investments.72Tabl e of Contents
Rule 206(4)-5 under the Investment Advisers Act regulates "pay to play" practices by investment advisers involving campaign contributions and other payments to elected officials or candidates for political office who are able to exert influence on government clients. Among other restrictions, the rule prohibits investment advisers from providing advisory services for compensation to a government client for two years, subject to very limited exceptions, after the investment adviser, its senior executives or its personnel involved in soliciting investments from government entities make contributions to certain candidates and officials in position to influence the hiring of an investment adviser by such government client. Advisers are required to implement compliance policies designed, among other matters, to track contributions by certain of the adviser's employees and engagements of third parties that solicit government entities and to keep certain records in order to enable the SEC to determine compliance with the rule. There has also been similar rulemaking on a state-level regarding "pay to play" practices by investment advisers, including in California and New York. FINRA has released its own set of "pay to play" regulations that effectively prohibit the receipt of compensation from state or local government agencies for solicitation and distribution activities within two years of a prohibited contribution by a broker- dealer or one of its covered associates. Any failure on our part to comply with these rules could cause us to lose compensation for our advisory services or expose us to significant penalties and reputational damage.
Other Financial Markets Regulation.
Certain requirements imposed by regulators in the United States and abroad, as well as by U.S. and non-U.S. legislation and proposed legislation, are designed primarily to ensure the integrity of the financial markets or other objectives and are not principally designed to protect our stockholders. These laws and regulations often serve to limit our activities.
U.S. federal bank regulatory agencies have issued leveraged lending guidance covering transactions characterized by a degree of financial leverage. Although the status of the U.S. federal bank regulatory agencies' 2013 leveraged lending guidance is currently uncertain as the U.S. Government Accountability Office determined, in October 2017, that such guidance is subject to review under the U.S. Congressional Review Act, the possibility exists that, under the current or future administrations, the U.S. federal bank regulatory agencies could apply leveraged lending guidance in its 2013 form, or implement a revised or new rule that limits leveraged lending by banks. If applied by the U.S. federal bank regulatory agencies as a binding restriction, such guidance or rules could limit the amount or availability of debt financing available to borrowers and may increase the cost of financing we are able to obtain for our transactions and may cause the returns on our investments to suffer. Moreover, there has been recurring consideration among U.S. and non-U.S. regulators regarding the role of nonbank institutions in providing credit and, particularly, so-called “shadow banking,” a term generally taken to refer to financial intermediation involving entities and activities outside the regulated banking system.
In addition, the Financial Stability Oversight Council (“FSOC”), an interagency body charged with identifying and monitoring systemic risk to financial markets, can designate certain nonbank financial companies as systemically important financial institutions (“SIFI”) to be supervised by the U.S. Board of Governors of the Federal Reserve System. Currently, there are no nonbank financial companies with a nonbank SIFI designation. The FSOC has, however, designated certain nonbank financial companies as SIFIs in the past, and additional nonbank financial companies, which may include large asset management companies, may be designated as SIFIs in the future. In November 2023, FSOC adopted amendments to its guidance regarding procedures for designating nonbank financial companies as SIFIs, which eliminated FSOC’s prioritization of an “activities-based” approach under its prior guidance for identifying, assessing and addressing potential risks to financial stability. The elimination of an “activities-based” approach over designation of an individual firm as a nonbank SIFI under the amendments to the FSOC’s nonbank SIFI designation guidance adopted in November 2023 may increase the likelihood of FSOC designating one or more asset management companies as a nonbank SIFI. If we were to be designated as a SIFI, or if any of our business activities were to be identified by the FSOC or any other regulatory agency as warranting enhanced regulation or supervision by certain regulators, we could be subject to materially greater regulatory burdens, which could adversely impact our compliance and other costs, the implementation of certain of our investment strategies and our profitability. Both the FSOC 2022 and 2023 annual reports noted the potential for increased interconnectivity of the financial markets as a result of private equity firms’ growing role in the insurance sector and raised concerns with the growing concentration of private debt and other complex alternative investments on the balance sheets of insurers owned by private equity firms. The FSOC 2023 annual report re-emphasized its support for the ongoing monitoring of companies in this industry to ensure the adequacy and effectiveness of regulatory and supervisory tools and its support for strengthening supervisory, credit analysis, risk management and capital frameworks applicable to insurers. In addition to FSOC’s recent focus on the private equity industry more generally, the International Monetary Fund has urged global insurance authorities, and FSOC, to focus specifically on the relationships between private equity and insurance companies.73Tabl e of Contents
The SEC has adopted a rule that requires a U.S. broker-dealer, or a natural person who is an associated person of a broker-dealer, to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities, without placing the financial or other interest of the broker, dealer or natural person who is an associated person of a broker-dealer making the recommendation ahead of the interest of the retail customer ("Regulation Best Interest"). The term "retail customer" is defined as a natural person who uses such a recommendation primarily for personal, family or household purposes, without reference to investor sophistication or net worth. The "best interest" standard would be satisfied through compliance with certain disclosure, duty of care, conflict of interest mitigation and compliance obligations. Regulation Best Interest may impose additional costs to us if we continue to expand our product offerings and investment platforms to retail customers. For discussions of the risks posed by Regulation Best Interest and similar rules on Global Atlantic, see "—Risks Related to Our Insurance Activities—Global Atlantic's businesses are heavily regulated across numerous jurisdictions, including with respect to capital requirements, and changes in regulation could reduce the profitability of our insurance business.”
The CFTC, and in certain cases the SEC, has proposed or adopted regulations governing transactions in futures and swaps, which may limit our trading activities and our ability to implement effective hedging strategies or increase the costs of compliance. In general, our subsidiaries have not registered as regulated entities with the CFTC, and our funds generally operate pursuant to exemptions from registration, but certain transactions in futures and swaps remain subject to regulatory requirements regardless of our registration status. Among other things, CFTC regulations require aggregation of positions in futures and swaps on physical commodities that are under common ownership, for purposes of compliance with position limits. We and other asset management firms rely on an exemption from aggregation for portfolio companies that hold positions in the relevant contracts. In addition, our funds are subject to regulatory minimum swap margin requirements, which increase the costs of trading and could make it infeasible in certain instances. Any changes in application or interpretation of the rules applicable to futures and swaps, including rules regarding registration, reporting, margin, capital requirements, and position limits, could result in significant costs for us and our funds.
Certain of the investment vehicles we manage and certain portfolio companies that engage in originating, lending and/or servicing loans, may consider investments that would subject us to U.S. state and federal regulation, borrower disclosure requirements, limits on fees and interest rates on some loans, state lender licensing requirements, stress testing and other regulatory requirements in the conduct of their business. If our investment vehicles or portfolio companies engage in these activities, they may also be subject to consumer disclosures and substantive requirements on consumer loan terms and other federal regulatory requirements applicable to consumer lending that are administered by the U.S. Consumer Financial Protection Bureau. These U.S. state and federal regulatory programs are designed to protect borrowers. There is a potential for increased risk of legislative and regulatory action that could adversely limit and affect our and our portfolio companies' businesses relating to these activities.
U.S. state and federal regulators and other governmental entities have authority to bring administrative enforcement actions or litigation to enforce compliance with applicable lending or consumer protection laws, with remedies that can include fines and monetary penalties, restitution of borrowers, injunctions to conform to law, or limitation or revocation of licenses and other remedies and penalties. In addition, lenders and servicers may be subject to litigation brought by or on behalf of borrowers for violations of laws or unfair or deceptive practices. If we enter into transactions that subject us to these risks, failure to conform to applicable regulatory and legal requirements could be costly and have a detrimental impact on certain of our investment vehicles and ultimately on us.
In Europe and the Asia-Pacific, there are also laws and regulations that are designed to ensure the integrity of the financial markets or other objectives and are not principally designed to protect our stockholders. For example, our European subsidiaries and investment vehicles managed by us are subject to various EU-wide laws, regulations, their respective national implementing legislation and, for our UK subsidiaries, specific UK rules and regulations, including:
• finalized rules and guidance published by the FCA in July 2022 regarding its new Consumer Duty which sets out a new standard of care applicable to firms providing products to retail customers. This standard of care sets out new outcomes related to products and services, price and value, consumer understanding and consumer support. Firms must now consider the needs and characteristics of their retail customers to ensure that these outcomes are being met and that the products and services provided are appropriate for the customers in question. These rules only apply to products offered to retail customers in the UK, and as certain of our products are now available to such investors through third-party distributors, these new rules may increase the regulatory compliance cost of doing business in the UK;74Tabl e of Contents
• the second Markets in Financial Instruments Directive ("MiFID II") and its UK equivalent (as implemented in English law via the European Union (Withdrawal) Act 2018, the Markets in Financial Instruments (Capital Markets) (Amendment) Regulations 2021 and the rules of the FCA), which imposes a range of compliance requirements on our business in areas such as transaction reporting, marketing infrastructure and securities and derivatives trading;
• the Market Abuse Regulation ("MAR") and its UK equivalent, which requires, among other things, systems and controls regarding inside information, record keeping and other prescribed procedures for market soundings, and conflicts of interest and other relevant disclosure when providing investment recommendations;
• the EU's Investment Firms Directive and the Investment Firms Regulation and their UK equivalents, which imposes a prudential regime for certain investment firms in Europe (including capital and liquidity standards), as well as various governance and remuneration obligations (including certain performance adjustment requirements to variable remuneration such as malus and clawback that apply in certain circumstances), with different rules applying depending on an investment firm's classification, which is based on factors such as the firm's size and the nature of its activities;
• other EU bank regulatory initiatives, including the Second Bank Recovery and Resolution Directive and the European Banking Authority's guidelines on limits to exposures to shadow banking entities which carry out banking activities outside a regulated framework under EU law (including funds employing leverage on a substantial basis, within the meaning of AIFMD and its implementing rules, and credit funds);
• the Securitization Regulation and its UK equivalent, which establishes due diligence, risk retention and disclosure regarding certain of our European investments, subsidiaries and CLOs;
• the Short Selling Regulation and its UK equivalent, which limits naked short selling of sovereign bonds and stocks;
• the Financial Conglomerates Directive and its UK equivalent, which establishes a prudential regime for financial conglomerates to address perceived risks associated with large cross-sector businesses, and could increase the costs of investing in insurance companies, investment firms and banks located in the EU;
• the Sustainable Finance Disclosure Regulation, Taxonomy Regulation and the accompanying regulatory technical standards, which impose sustainability risk assessment requirements and ESG-specific transparency disclosure and reporting requirements;
• the Securities Financing Transaction Regulation, which requires securities financing transactions to be reported to trade repositories, places additional reporting requirements on investment managers and introduces prior risk disclosures and written consent before assets are rehypothecated;
• the GDPR and its UK equivalent, which imposes stringent data protection requirements and provides for significant penalties for noncompliance; and
• the European regulation on digital operational resilience for the financial sector, and the associated directive, designed to harmonize and strengthen digital operational resilience requirements for the EU's financial services sector.
As noted above, any changes or potential or proposed changes in the regulatory framework applicable to our business may impose conduct standards, additional expenses or capital requirements on us; limit our fundraising for our investment products; result in limitations in the manner in which our business is conducted; impair employee retention or recruitment; require substantial attention by senior management; or otherwise materially and adversely impact us.
Portfolio Company Legal and Regulatory Environment
We are subject to certain laws, such as certain environmental laws, takeover laws, anti-bribery, trade sanctions, trade control, anti-money laundering and anti-corruption laws, escheat or abandoned property laws, antitrust laws, data privacy and data protection laws, foreign direct investment laws and insolvency laws that may impose requirements on us and our portfolio companies as an affiliated group. As a result, we could become jointly and severally liable for all or part of fines imposed on, or debts of, our portfolio companies or be fined directly for violations committed by portfolio companies, and such fines imposed directly on us could be greater than those imposed on the portfolio company. Moreover, portfolio companies may seek to hold us responsible if any fine imposed on them is increased because of their membership in a larger group of affiliated companies. For example, on January 27, 2021, the Court of Justice of the European Union ("CJEU") affirmed the 2014 decision of the European Commission to fine 11 producers of underground and submarine high voltage power cables a total of 302 million euros for participation in a ten-year market and customer sharing cartel. Fines were also imposed, and confirmed by the CJEU, on parent companies of the producers involved, including Goldman Sachs, the former parent company of one of the cartel75Tabl e of Contents
members. Similarly, on July 29, 2021, the United Kingdom Competition and Markets Authority announced that it had fined a pharmaceutical company and its former parent companies, two private equity firms, more than 100 million British pounds for abuse of dominance by charging excessive and unfair prices. In addition, the U.S. Department of Justice has increasingly named private equity sponsors as co-defendants in cases brought under the False Claims Act involving allegedly unlawful conduct by portfolio companies. In various cases, private equity sponsors and portfolio companies have settled claims by agreeing to the payment of substantial monetary penalties. In addition, compliance with certain laws or contracts could also require us to commit significant resources and capital towards information gathering and monitoring, thereby increasing our operating costs. For example, because we may indirectly control voting securities in public utilities subject to regulation by the Federal Energy Regulatory Commission ("FERC"), including entities that may hold FERC authorization to charge market-based rates for sales of wholesale power and energy, we may be subject to certain FERC regulations, including regulations requiring us and our portfolio companies to collect, report and keep updated substantial information concerning our control of such voting interests and voting interests in other related energy companies, corporate officers, and our direct and indirect investment in such utilities and related companies. Additionally, certain of our portfolio companies may be subject to reporting requirements under Australia’s Foreign Acquisitions and Takeovers Act (1975), which is administered by the Foreign Investment Review Board (“FIRB”), because of the composition of KKR’s investment funds, among other reasons. Such rules may subject our portfolio companies and us to costly and burdensome data collection and reporting requirements, and penalties for non-compliance.
In the United States, certain statutes may subject us or our funds to the liabilities of our portfolio companies. The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), also referred to as the "Superfund," requires cleanup of sites from which there has been a release or threatened release of hazardous substances, and authorizes the U.S. Environmental Protection Agency to take any necessary response action at Superfund sites, including ordering potentially responsible parties liable for the release to pay for such actions. Potentially responsible parties are broadly defined under CERCLA and could include us.
In addition, we or certain of our investment vehicles could potentially be held liable under ERISA for the pension obligations of one or more of our portfolio companies if we or the investment vehicle were determined to be a "trade or business" under ERISA and deemed part of the same "controlled group" as the portfolio company under such rules, and the pension obligations of any particular portfolio company could be material. On March 28, 2016, a Federal District Court judge in Massachusetts ruled that two private equity funds affiliated with Sun Capital were jointly and severally responsible for unfunded pension liabilities of a Sun Capital portfolio company. While neither fund held more than an 80% ownership interest of the portfolio company, the percentage required under existing regulations to find liability, the court found the funds had formed a partnership-in-fact conducting a trade or business and that as a result each fund was jointly and severally liable for the portfolio company's unfunded pension liabilities. While a federal appellate court only upheld certain aspects of the District Court holding, if the rationale of the District Court decision were to be applied by other courts, we or certain of our investment funds could be held liable under ERISA for certain pension obligations of portfolio companies. In addition, if this same rationale were expanded to apply also for U.S. federal income tax purposes, then certain of our investors could be subject to increased U.S. income tax liability or filing obligations in certain contexts. Similar laws that could be applied with similar results also exist outside of the United States. Moreover, if the general accounts or separate accounts of one or more of our insurance subsidiaries were to constitute "plan assets" for purposes of ERISA, in the absence of an exemption we could incur liability under the prohibited transaction provisions of ERISA and the Code as a result of any investment management activities by KKR with respect to, or transactions involving Global Atlantic or KKR's investment vehicles with respect to, such general account or separate account assets, and we could become prohibited from being compensated for managing our insurance subsidiaries' assets. See also "Certain Recent and Potential Regulatory Developments" above regarding the October 2023 U.S. Department of Labor proposed rule that, if finalized, would materially increase the likelihood that an investment adviser, such as us, could inadvertently become a fiduciary to certain retirement plans by reason of being deemed to have rendered investment advice.
Similarly, our portfolio companies may be subject to contractual obligations, which may impose obligations or restrictions on their affiliates. The interpretation of such contractual provisions will depend on local laws. Given that we do not control all of our portfolio companies, and that our portfolio companies generally operate independently of each other, there is a risk that we could contravene one or more of such laws, regulations and contractual arrangements due to limited access and opportunities to monitor compliance. In addition, compliance with these laws or contracts could require us to commit significant resources and capital towards information gathering and monitoring, thereby increasing our operating costs.76Tabl e of Contents
Because of our ownership interest in portfolio companies, attention on our portfolio companies can also result in attention on us. For example, in the past, heightened governmental scrutiny of the healthcare, educational and other industries has resulted in requests by a U.S. Congressional committee and members of Congress for information from us about our investments in portfolio companies that operate in these industries. Congressional scrutiny and other similar inquiries by governmental bodies may damage our reputation and may also result in potential legislation designed to further regulate portfolio companies or the industries in which they operate, which may materially and adversely affect our portfolio companies' businesses, which in turn could decrease the value of our investments. Significant failures of our investments to comply with laws and regulations applicable to them could affect the ability of our funds or us to invest in other companies in certain industries in the future and could harm our reputation.
For additional information about our litigation and regulatory matters, see Note 24 "Commitments and Contingencies—Litigation" in our financial statements. For additional information about regulatory risks we face with respect to portfolio companies in various asset classes, such as real assets, or risks we face with respect to our insurance business, please see other risks discussed in this report, including “—Risks Related to Our Investment Activities—Our investments in real assets such as real estate, infrastructure and energy may expose us to increased risks and liabilities” and “—Risks Related to Our Insurance Activities—Global Atlantic's businesses are heavily regulated across numerous jurisdictions, including with respect to capital requirements, and changes in regulation could reduce the profitability of our insurance business.”
Anti-corruption, sanctions and foreign direct investment laws
Federal, state and foreign anti-corruption and trade sanctions laws and restrictions on foreign direct investment applicable to us and our portfolio companies create the potential for significant liabilities and penalties, the inability to complete transactions, imposition of significant costs and burdens, and reputational harm. If we fail to comply with these laws and regulations, we could be exposed to claims for damages, civil or criminal financial penalties, reputational harm, incarceration of our employees, restrictions on our operations and other liabilities, any of which could materially and adversely affect our business, results of operations and financial condition. In addition, we may be subject to successor liability for FCPA violations or other acts of bribery, or violations of applicable sanctions, other export control or foreign direct investment laws committed by companies in which we or our funds invest or which we or our funds acquire.
We are subject to a number of laws and regulations governing payments and contributions to political persons or other third parties, including restrictions imposed by the Foreign Corrupt Practices Act ("FCPA"), as well as trade sanctions and trade control laws administered by the Office of Foreign Assets Control ("OFAC"), the U.S. Department of Commerce and the U.S. Department of State, and anti-money laundering laws, including the Corporate Transparency Act ("CTA"). The FCPA is intended to prohibit bribery of foreign governments and their officials and political parties, and requires public companies in the United States to keep books and records that accurately and fairly reflect those companies' transactions. OFAC, the U.S. Department of Commerce and the U.S. Department of State administer and enforce various trade control laws and regulations, including economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign states, organizations and individuals. In February 2024, the U.S. Department of the Treasury's Financial Crimes Enforcement Network ("FinCEN") proposed a rule that would require registered investment advisers and exempt reporting advisers ("ERAs") to, among other measures, adopt an anti-money laundering and countering the financing of terrorism ("AML/CFT") program and file certain reports with FinCEN. The proposed rule would also delegate authority to the SEC to examine registered investment advisers' and ERAs' compliance with these requirements. If this proposal is adopted, it could impose additional regulatory obligations related to AML/CFT on our investment advisory business. These laws and regulations implicate a number of aspects of our business, including servicing existing investment vehicle investors, finding new investors, and sourcing new investments, as well as activities by the portfolio companies in our investment portfolio or other controlled investments. Some of these regulations provide that penalties can be imposed on us for the conduct of a portfolio company, even if we have not ourselves violated any regulation.
The Iran Threat Reduction and Syrian Human Rights Act of 2012 ("ITRA") expanded the scope of U.S. sanctions against Iran and requires public reporting companies to disclose in their annual or quarterly reports certain dealings or transactions the company or its affiliates "knowingly" engaged in during the previous reporting period involving Iran or other individuals and entities targeted by certain OFAC sanctions. Disclosure of such activity, even if such activity is not subject to sanctions under applicable law, and any sanctions actually imposed on us or our affiliates as a result of these activities, could harm our reputation and have a negative impact on our business.77Tabl e of Contents
The U.S. government has also implemented and expanded a number of economic and trade sanctions programs and export controls that target Chinese entities and nationals on national security grounds and has imposed restrictions on acquiring and retaining interests in the securities of certain Chinese entities. These initiatives target, for example, entities associated with the Chinese government's response to political demonstrations in Hong Kong, the Chinese government's treatment of Uighurs and other ethnic minorities, the Chinese government's capabilities to conduct surveillance on its own population and internationally, and more broadly the capabilities of the Chinese military, paramilitary, security and police forces, among other things. The U.S. has also enacted rules aimed at restricting China's ability to obtain advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors, as well as expanded export control laws to reach additional items produced outside of the United States, restricted the ability of U.S. persons to support the development or production of integrated circuits at certain semiconductor fabrication facilities in China, and added new license requirements for certain items destined for China. In return, China has issued rules and laws to counteract the impact of foreign sanctions on Chinese persons by enabling Chinese citizens, legal persons, and other organizations to seek remedies as a result of prohibitions or restrictions on normal economic, trade, and related activities with persons of other countries, and authorized the imposition of countermeasures such that a company that complies with U.S. sanctions against a Chinese entity may then face penalties in China. China has also instituted tariffs on certain U.S. goods and may impose additional tariffs on U.S. products in the future. For example, in 2023, China restricted the export of gallium and germanium products, which are used in the fabrication of microchips, and may impose additional export restrictions in the future.
Similar laws in non-U.S. jurisdictions, such as EU sanctions and blocking statutes, the UK Bribery Act, as well as other applicable anti-bribery, anti-corruption, anti-money laundering, or sanction or other export control, or related laws in the United States and abroad, may also impose stricter or more onerous requirements than the FCPA, OFAC, the U.S. Department of Commerce, the U.S. Department of State or U.S. Department of Treasury, and implementing them may disrupt our business or cause us to incur significantly more costs to comply with those laws. Different laws may also contain conflicting provisions, making compliance with all laws more difficult. For example, the EU has adopted measures, such as Council Regulation (EC) No. 2271/96, that could restrict certain persons and entities subject to EU jurisdiction from complying with extra-territorial sanctions imposed by other jurisdictions, such as the U.S.
In addition, the U.S. and many non-U.S. countries have laws designed to protect national security or to restrict foreign direct investment. For example, under the U.S. Foreign Investment Risk Review Modernization Act ("FIRRMA"), the Committee on Foreign Investment in the United States ("CFIUS") has the authority to review, block or impose conditions on investments by non-U.S. persons in U.S. companies or real assets deemed critical or sensitive to the United States. Many non-U.S. jurisdictions have similar laws, for example: the EU has adopted an EU-wide mechanism to screen foreign investment on national security grounds and most EU Member States now have a foreign investment screening mechanism in place or has initiated a consultative or legislative process expected to result in the adoption of a new mechanism or amendments to an existing mechanism, adopted a regulation aimed at regulation of foreign subsidies that could distort the internal EU market; certain transactions in Australia are subject to review by the Foreign Investment Review Board; transactions in the UK must comply with the National Security and Investment Act 2021; and transactions in China must comply with the Measures for the Security Review of Foreign Investment. In addition, during 2022, Japan enacted economic security legislation to protect Japanese national security from adverse economic activities, focusing in particular on protecting sensitive industry sectors, such as semiconductors, rare earths, infrastructure, as well as research and development of defense and dual-use technologies. Beginning in February 2022, the United States and other countries imposed sanctions targeting Russia as a result of actions taken by Russia in Ukraine. In addition, in 2023, certain U.S. states have enacted their own state-level restrictions on Chinese investments. The U.S. government also announced in 2023 an Advanced Notice of Proposed Rule Making, which is seeking comments on a proposed rule that would restrict out-bound investments by U.S. persons in certain national security technologies and products. Other countries may adopt similar outbound investment restrictions in the future. In addition, a number of U.S. states are passing and implementing state laws prohibiting or otherwise restricting the acquisition of interests in real property located in the state by foreign persons. These laws may impact the ability of non-U.S. limited partners to participate in certain of our investment strategies.78Tabl e of Contents
Under these laws, governments have the authority to impose a variety of actions, including requirements for the advance screening or notification of certain transactions, blocking or imposing conditions on certain transactions, limiting the size of foreign equity investments or control by foreign investors, and restricting the employment of foreigners as key personnel. These actions could limit our ability to find suitable investments, cause delays in consummating transactions, result in the abandonment of transactions, and impose burdensome operational requirements on our portfolio companies. These laws could also negatively impact our fundraising and syndication activities by causing us to exclude or limit certain investors in our funds or co-investors for our transactions. Moreover, these laws may make it difficult for us to identify suitable buyers for our investments that we want to exit and could constrain the universe of exit opportunities generally. Complying with these laws imposes potentially significant costs and complex additional burdens, and any failure by us or our portfolio companies to comply with them could expose us significant penalties, sanctions, loss of future investment opportunities, additional regulatory scrutiny, and reputational harm.
We face significant harm as a result of legal claims, litigations, investigations, and negative publicity.
The activities of our businesses, including the investment decisions we make and the activities of our employees, may subject us, our business, and our employees, officers and directors to the risk of litigation by third parties, including various governmental and regulatory authorities who may conduct examinations, inquiries and investigations of KKR. See "—Risks Related to Our Business—Extensive regulation of our businesses affects our activities and creates the potential for significant liabilities and penalties, which could materially and adversely affect KKR.” Other potential litigants include our stockholders, our fund investors, holders of our or our portfolio companies' debt or equity, our insurance policyholders, and a variety of other potential litigants. For a description of certain litigation against KKR, see Note 24 "Commitments and Contingencies—Litigation" in our financial statements.
We, our investment vehicles and our employees are each exposed to the risks of litigation relating to our investment activities or insurance business, as well as relating to actions taken by the officers and directors (some of whom may be KKR employees) of our portfolio companies, such as lawsuits by other stockholders of our public portfolio companies or holders of debt instruments of our portfolio companies. We are also exposed to risks of litigation, investigation or negative publicity in the event of any transactions that are alleged not to have been properly considered and approved under applicable law.
Although investors in our funds do not have legal remedies against us, the general partners of our funds, our funds, our employees or our affiliates solely based on their dissatisfaction with the investment performance of those funds, such investors may have remedies against us, the general partners of our funds, our funds, our employees or our affiliates to the extent any losses result from fraud, gross negligence, willful misconduct or other similar misconduct. While the general partners and investment advisers to our investment funds, including their directors, officers, employees and affiliates, are generally indemnified to the fullest extent permitted by law with respect to their conduct in connection with the management of the business and affairs of our investment funds, such indemnity generally does not extend to actions determined to have involved fraud, gross negligence, willful misconduct or other similar misconduct. If any civil or criminal lawsuits were brought against us and resulted in a finding of substantial legal liability or culpability, the lawsuit could materially and adversely affect us.
In addition, public attention could at any time focus on us, our industry or companies in which our investment vehicles are invested, which could result in heightened scrutiny and criticisms of our business and our investments, including governmental or regulatory inquiries and investigations or other adverse consequences. See "—Risks Related to Our Business—Extensive regulation of our businesses affects our activities and creates the potential for significant liabilities and penalties, which could materially and adversely affect KKR" and "—Risks Related to Our Business—We are subject to focus by some of our fund investors, stockholders, regulators and other stakeholders on environmental, social and governance matters." We depend to a large extent on our business relationships and our reputation for integrity and high-caliber professional services to attract and retain investors and qualified professionals and to pursue investment opportunities. As a result, allegations of improper conduct by private litigants or by governmental or regulatory authorities, whether the ultimate outcome is favorable or unfavorable to us, as well as negative publicity and press speculation about us, our investment activities or the private equity industry in general, whether or not valid, may harm our reputation, cause volatility and speculation in the trading of our common stock, and impair our relationships with existing and prospective investors, employees, and other stakeholders.79Tabl e of Contents
Certain types of investment vehicles, especially those offered to individual investors, may subject us to a variety of risks, including new and greater levels of public and regulatory scrutiny, regulation, risk of litigation and reputational risk, which could materially and adversely affect us.
We have increasingly undertaken business initiatives to increase the number and type of investment products and vehicles we offer to investors, especially individual investors. We have also launched holding company conglomerates that are structured and operated in a manner permitting them to be excluded from the definition of “investment company” under the Investment Company Act. The offering of opportunities to invest in investment companies registered under the Investment Company Act (or other non-U.S. investment vehicles) and in operating companies not registered under the Investment Company Act may result in increased risks, including the vehicles we call K-Series, which could materially and adversely affect us. Our investment adviser subsidiaries or affiliates externally manage or advise a number of such vehicles, some of which are publicly traded, which involves heightened risks of litigation. To the extent opportunities to invest in these types of vehicles are made available to individual (non-institutional) investors (including public investors as well as investors often described as high net worth individuals, family offices, mass affluent individuals or accredited investors), this expansion of our investor base may enhance the level of risks applicable to us and also may introduce new types of risks. The principal risks associated with many of these types of vehicles include:
• Operational risks, such as obligations to conduct more frequent valuation processes. These types of requirements will place increased demands on our employees, require administrative, operational and accounting resources, and incur significant expenses;
• Compliance and regulatory risks, such as managing potential conflicts of interest relating to allocation of potential investment opportunities and otherwise, conducting due diligence on distribution partners, and compliance with the requirements of, or for exclusion from regulation under, the Investment Company Act and other securities laws and regulations (see also "—Risks Related to Our Investment Activities—Third-party investors in our investment vehicles with commitment-based structures may not satisfy their contractual obligation to fund capital calls when requested by us, which could adversely affect an investment vehicle's operations and performance");
• Liquidity risk, such as sizing of liquidity reserves in order to satisfy any periodic investor redemption requests, which is a feature that is typically not allowed for investors in our traditional investment vehicles. See "—Risks Related to Our Investment Activities—Investors in certain of our investment vehicles are entitled to redeem their investments in these vehicles on a periodic basis, and certain of our investment advisory agreements may be terminated with minimal notice";
• Litigation risks, such as claims related to adequacy of disclosures, suitability and board of director oversight. Failure to comply with these requirements could result in civil lawsuits, regulatory penalties, enforcement actions, or potentially lead to suspension of trading, de-listing from an exchange, de-registration or liquidation. Many of these vehicles may also face significant additional litigation risks, including the increased potential for class actions and other investor lawsuits, which would distract our employees, including our investment professionals. The boards of directors of these vehicles and their investors could also seek recourse against KKR itself for any alleged mismanagement by our investment adviser subsidiaries or affiliates; and
• Reputational risk, as we may incur significant costs in connection with such investments, which ultimately may result in significant losses, as well as reputational harm. Furthermore, if the investors in these vehicles were to be dissatisfied with the investment performance or disagree with investment strategies employed by us, they may seek to cause the board of directors of the relevant vehicle to terminate its investment management agreement with us or change the terms of such agreement in a manner that is less favorable to us or redeem their investment to the extent permitted.
We have and expect to continue to distribute products through new channels, including through unaffiliated firms, and we may not be able to effectively monitor or control the manner of their distribution, which could result in litigation against us or reputational harm, including with respect to, among other things, claims that products distributed through such channels are distributed to customers for whom they are unsuitable or distributed in any other inappropriate manner. The distribution of products through new channels whether directly or through market intermediaries, including in the individual investor or private wealth management channel, could expose us to additional regulatory risk in the form of allegations of improper conduct and/or actions by state and federal regulators against us with respect to, among other things, product suitability, conflicts of interest and the adequacy of disclosure to customers to whom our products are distributed through those channels. In addition, legislative and regulatory action could adversely limit and affect our efforts to seek, or to manage vehicles that have investments from, individual investors. Although we seek to ensure through due diligence and onboarding procedures that the third-party channels through which individual investors access our investment products conduct themselves responsibly, we are exposed to the risks of reputational damage and legal liability to the extent such third parties improperly sell our products to
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investors. For example, in certain cases, we may be viewed as responsible for the content of materials prepared by third-party distributors. Similarly, there is a risk that our employees involved in the direct distribution of our products, or employees who oversee independent advisors, brokerage firms and other third parties around the world involved in distributing our products, do not follow our compliance and supervisory procedures.
Although individual investors have not constituted a substantial amount of our historic investment vehicle investor base, it is likely that we will increasingly undertake business initiatives to increase the number and type of vehicles we offer to individual investors. We expect investment opportunities offered to individual investors to continue to grow to represent a larger percentage of our AUM as our historical pools of capital provided by institutional investors, such as pension funds, do not grow as much in the future. Accordingly, we are, and may become further, subject to additional regulatory and compliance requirements because our product offerings and investment platform will begin to include a higher percentage of individual investors as compared to our historical investor base.
In some cases, our investment vehicles are distributed to individual investors indirectly through third party managed vehicles sponsored by brokerage firms, banks or third-party feeder providers, and in other cases, directly to the qualified clients of banks, independent investment advisors and broker-dealers. In other cases, we create investment products specifically designed for direct investment by individual investors in the U.S. or similar investors in non-U.S. jurisdictions. Our initiatives to expand our individual investor base, including marketing, creating and maintaining the types of products and vehicles that they may invest in, requires the investment of significant time, effort and resources, including the potential hiring of additional personnel, the implementation of new operational, compliance and other systems and processes and the development or implementation of new technology. There is no assurance that our efforts to grow our individual investor assets under management will be successful. In addition, these aforementioned efforts to expand our individual investor base and/or our focus on the development of these vehicles could be negatively perceived as a strategic realignment of our focus by our traditional investment vehicle investors, which may be perceived as adverse to their interests, and which could cause us to be materially and adversely affected to the extent our traditional investment vehicle investors decide to move investments to our competitors.
The distribution of products suitable for individual investors, including through new channels whether directly or through market intermediaries, could expose us to allegations of improper conduct and/or actions by state and federal regulators in the U.S. and regulators in jurisdictions outside of the U.S. with respect to, among other things, product suitability, investor classification, compliance with securities laws, conflicts of interest regarding investment allocations, the adequacy of disclosure to customers to whom our products are distributed through those channels, including with respect to frequency and complexity of the valuation process for private assets and liquidity and execution of timely processes, such as ongoing general management and satisfying investor redemption requests in accordance with organization documents. Increased risk of legislative and regulatory action could adversely limit and affect our efforts to seek, or to manage vehicles that have investments from, individual investors.
We have entered into and plan to enter into investment management agreements with other similar investment vehicle types and other vehicle types in the future. Such vehicles may allow us to invest potentially more capital and potentially receive relatively more stable fee revenues, while providing varying amounts of liquidity to investors in such vehicles (pursuant to the terms of the applicable governing agreements). However, these vehicles may be subject to the heightened regulatory requirements applicable to certain semi-liquid vehicles, including compliance with the laws and regulations of the SEC, the Investment Company Act (or the requirements for exclusion from regulation thereunder), the Exchange Act, the Sarbanes-Oxley Act of 2002 and any national securities exchanges on which their securities are listed, among others. As our business expands, we may be required to register additional vehicles under the Investment Company Act or similar laws, including in jurisdictions outside of the United States. Compliance with these and other U.S. and non-U.S. rules will increase our compliance costs and create potential for additional liabilities and penalties, which could divert the attention of management of these investment vehicles from their business and investments. Relatedly, as we expand the distribution of these products to investors outside of the U.S., we are increasingly exposed to risks in non-U.S. jurisdictions. While these risks are similar to those that we face in the distribution of products to investors in the U.S., securities laws and other applicable regulatory regimes in many jurisdictions, including the UK and the EEA, are extensive, complex, and vary by local jurisdiction. As a result, this expansion subjects us to additional regulatory risk and potential litigation.
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Our capital markets activities expose us to material risks.
Through our broker-dealer subsidiaries and their related entities, we provide a broad range of capital markets services that include acting as an advisor or as an agent, principal, underwriter, syndicator, arranger or other form of intermediary in connection with securities transactions, debt or equity syndications, loan transactions, derivative transactions and other types of financings and financial arrangements. We rely upon our counterparties to consummate the transactions that they indicate or commit to enter into with us. However, we may incur significant losses in connection with our capital markets activities, including to the extent that, for any reason, (i) our counterparties fail to acquire or pay for the securities, debt, equity or loans that we expected to sell, place or syndicate to them, or (ii) we are unable to receive our anticipated payments for any other transaction or are otherwise unable to dispose of any financial exposure that we incur at the prices that we anticipated or at all. The incurrence of any such losses may cause a materially adverse impact to our results of operations, financial condition or liquidity. We also may be subject to potential underwriter liability or regulatory consequences for material misstatements or omissions in prospectuses or other offering documents relating to transactions in which we are involved. We conduct capital markets activities in connection with transactions in which our investment funds or insurance companies may participate as a purchaser or a seller of securities, which could constitute a conflict of interest or subject us to regulatory scrutiny, liabilities or reputational harm.
Risk management activities may not be effective and, consequently, may adversely affect us.
KKR seeks to identify, monitor and manage financial and non-financial risks effectively. However, KKR cannot guarantee that it can accurately or effectively price, identify and predict, manage or ameliorate its risks. Gaps in our (including our insurance subsidiaries’) risk management policies and procedures may leave us exposed to unidentified or unanticipated risk, which could materially and adversely affect us. Developing an effective framework for assessing and managing risks is complex. No framework or strategy can completely insulate KKR from all risks, and KKR may be unable to identify all risks and limit its exposures based on its assessments. Furthermore, there can be no assurance that KKR can effectively review and monitor all risks or that all of KKR’s employees will follow its risk management policies and procedures. If KKR’s modeling of, processes relating to, analysis of or management of risk do not accurately predict and appropriately respond to future risk exposures, such risks could have a material adverse effect on KKR.
With respect to our investing activities in our asset management business, we employ hedging strategies or certain forms of derivative instruments to limit our exposure to changes in the relative values of investments that may result from market developments, including changes in prevailing interest rates, currency exchange rates, commodity prices, equity prices and general market risks. The use of derivative financial instruments and these risk management strategies may not be properly designed to hedge, manage or other reduce the risks as intended, may not be properly implemented as designed, or otherwise not effectively offset the risks we have identified. We may not have identified, or may not even be able to identify, all the material risks relevant for our capital markets activities or insurance business, and we also may choose not to hedge, in whole or in part, any of the risks that have been identified. In addition, the scope of risk management activities undertaken by us is selective and varies based on the level and volatility of interest rates, prevailing foreign currency exchange rates, the types of investments that are made and other changing market conditions. We do not seek to hedge our exposure in all currencies or all investments, which means that our exposure to certain market risks are not limited. Where applicable, we use hedging transactions and other derivative instruments to reduce the effects of a decline in the value of a position, but they do not eliminate the possibility of fluctuations in the value of the position or prevent losses if the value of the position declines. Such transactions may also limit the opportunity for gain if the value of a position increases. Moreover, it may not be possible to limit the exposure to a market development that is so generally anticipated that a hedging or other derivative transaction cannot be entered into at an acceptable price.
The success of any hedging or other derivative transactions that we enter into generally will depend on our ability to correctly predict market changes. As a result, while we may enter into such transactions in order to reduce our exposure to market risks, unanticipated market changes may result in poorer overall investment performance than if the hedging or other derivative transaction had not been executed. In addition, the degree of correlation between price movements of the instruments used in connection with hedging activities and price movements in a position being hedged may vary. Moreover, for a variety of reasons, we may not seek or be successful in establishing a perfect correlation between the instruments used in hedging or other derivative transactions and the positions being hedged. An imperfect correlation could prevent us from achieving the intended result and could give rise to a loss. In addition, it may not be possible to fully or perfectly limit our exposure against all changes in the value of its investments, because the value of investments is likely to fluctuate as a result of a number of factors, some of which will be beyond our control or ability to hedge.
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While hedging arrangements may reduce certain risks, such arrangements themselves may entail certain other risks. These arrangements may require the posting of cash collateral, including at a time when an investment vehicle has insufficient cash or illiquid assets such that the posting of the cash is either impossible or requires the sale of assets at prices that do not reflect their underlying value. Moreover, these hedging arrangements may generate significant transaction costs, including potential tax costs, which reduce the returns generated by an investment vehicle.
In our capital markets business, one part of our capital markets risk management strategy is to enter into arrangements with third parties that are designed to reduce our risk when underwriting certain debt transactions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations, Commitments and Contingencies" for additional information about the amount of these arrangements as of December 31, 2023. If these counterparties or other derivative counterparties or clearinghouses fail or refuse to meet their obligations, then our efforts to mitigate risks may prove to be ineffective or inefficient, and we may experience a materially adverse impact to our results of operations, financial condition or liquidity. If such failure or refusal were to occur, or if these counterparties fail to renew their arrangements and we are unable to find suitable replacements, then our ability to continue to conduct large capital markets transactions or insure certain insurance products with guaranteed benefits in the future may be impaired.
In our insurance business, our hedging activities seek to mitigate economic impacts relating to Global Atlantic’s insurance products, which may result in additional volatility in GAAP results, adverse impacts on regulatory capital, and may not effectively offset any changes in insurance reserves. Global Atlantic is also subject to the risk that its derivative counterparties or clearinghouse may fail or refuse to meet their obligations to Global Atlantic under derivative financial instruments. If Global Atlantic's derivative counterparties or clearinghouse fail, refuse to meet their obligations in this regard or there is insufficient collateral to cover potential obligations, Global Atlantic's efforts to mitigate risks to which it is subject may prove to be ineffective or inefficient.
In addition, Global Atlantic uses risk management strategies, including hedging and reinsurance, to manage the economic exposure to interest rates and equity markets of products with guaranteed benefits. Certain of Global Atlantic's liabilities include guaranteed minimum death benefits, guaranteed minimum withdrawal benefits or no-lapse guarantees. These guarantees are designed to protect policyholders against significant downturns in securities markets and interest rates, or to provide certain minimum levels of coverage. Changes in markets that increase hedging costs may adversely impact the profitability of these products. Furthermore, Global Atlantic is subject to the risk that changes in policyholder behavior or mortality, combined with adverse market events, produce economic losses not addressed by the risk management techniques employed. Changes in markets or deviations in expected policyholder behavior or loss of reinsurance coverage may result in the requirement to hold additional reserves with respect to these policies, which may negatively impact Global Atlantic's liquidity or require it to raise additional capital. An increase in these liabilities would result in a decrease in Global Atlantic's net income. In addition, declining equity market prices, increasing equity market volatility and declining interest rates can result in an increase in the cost of providing variable annuity policy benefits and can increase required reserves, reducing Global Atlantic's profitability. These, individually or collectively, could have a material adverse effect on Global Atlantic.
Risks Related to Our Investment Activities
As an investment manager, we sponsor and manage funds and other investment vehicles that make investments worldwide on behalf of third-party investors and, in connection with those activities, are typically required to deploy our own capital in those investments. These investments are subject to many material risks and uncertainties as discussed below. In addition, with respect to the investments of our insurance subsidiaries and other investments on our balance sheet, which we manage for our own behalf, the risks and uncertainties discussed below may have a greater impact on our results of operations and financial condition as we directly bear the full risk of those investments in our financial results.
Future results of our investments may be different than, and may not achieve the levels of, any of our historical returns.
We have presented in this report certain information relating to our investment returns, such as net and gross internal rates of return (IRR), multiples of invested capital (MOIC) and realized and unrealized investment values for investment vehicles that we have sponsored, managed or operated. Historical returns of our investment vehicles should not be relied upon as indicative of the future results that you should expect from our investment vehicles and are not indicative of the future results of our insurance subsidiaries or our balance assets. In particular, the future results may differ significantly from their historical results for the following reasons, among others:
• the rates of returns of our investment vehicles reflect unrealized gains as of the applicable valuation date that may never be realized, which may adversely affect the ultimate value realized from their investments;
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• certain historical returns that we present in this report are based on the performance of our historical private equity funds, the results of which have already been realized and are significantly less relevant for raising capital for our future investment vehicles;
• the future performance of our investment vehicles will be affected by various market and economic conditions and other factors;
• in some historical periods, the rates of return of some of our investment vehicles have been positively influenced by a number of investments that experienced a substantial decrease in the average holding period of such investments and rapid and substantial increases in value following the dates on which those investments were made; those trends and rates of return may not be repeated in the future as the actual or expected length of holding periods related to investments is likely longer than such historical periods;
• our newly established investment vehicles may generate lower returns during the period that they take to deploy their capital, which may result in little or no carried interests due to performance hurdles;
• our investment vehicles' returns have benefited from investment opportunities and various market and economic conditions in certain historical periods that may not repeat themselves;
• we may create new investment vehicles and investment products in the future that reflect a different asset mix in terms of allocations among investment vehicles, investment strategies, geographic and industry exposure, vintage year and economic terms; and our historical rates of return reflect our historical cost structure, which has varied and may vary further in the future.
Future returns will also be affected by the risks described elsewhere in this report, including risks of the industry sectors and businesses in which a particular investment is made and changes in laws. Future results of our insurance business may also be different than its historical performance as a result of various factors. See “—Risks Related to Our Insurance Activities—The Global Atlantic acquisition may not achieve its intended benefits, and certain difficulties, costs or expenses may outweigh such intended benefits.”
Our valuation methodologies for certain assets can be subjective, and the fair value of assets established pursuant to such subjective methodologies is uncertain and may never be realized.
There are no readily ascertainable market prices for a substantial majority of illiquid investments held by us and our investment vehicles. When determining fair values of investments, we use the last reported market price as of the applicable statement of financial condition date for investments that have readily observable market prices. When an investment does not have a readily available market price, the fair value of the investment represents the value, as determined by us in good faith, at which the investment could be sold in an orderly disposition over a reasonable period of time between willing parties other than in a forced or liquidation sale. There is no single standard for determining fair value in good faith, and in many cases fair value is best expressed as a range of fair values from which a single estimate may be derived. For our illiquid investments, we use a variety of valuation methodologies, including a market multiples approach and discounted cash flow analysis, and we engage third parties to assist us with certain aspects of our valuations. These methodologies typically require estimates of key inputs and significant assumptions and judgments. We also consider a range of additional factors that we deem relevant, for example, the applicability of a control premium or illiquidity discount, and determining these factors may involve a significant degree of our management's judgment and the judgment of management of our portfolio companies. For information about our valuation methodologies and processes, please see “Note 2—Summary of Significant Accounting Policies—Fair Value Measurements.”
Because valuations, and in particular valuations of investments for which market quotations are not readily available, are inherently uncertain, may fluctuate over short periods of time and are typically based on estimates and significant assumptions and judgments, determinations of fair value may differ materially from the values that would have resulted if a readily observable market price had existed. Even if market quotations are available for our investments, such quotations may not reflect the value that we would actually be able to realize because of various factors, including possible illiquidity associated with a large ownership position, subsequent illiquidity in the market for a company's securities, future market price volatility or the potential for a future loss in market value based on poor industry conditions or the market's view of overall company and management performance. Our financial results could be adversely affected if the values of investments that we record is materially higher than the values that are ultimately realized upon the disposal of the investments, and changes in values attributed to investments from quarter to quarter may result in volatility in our AUM, which could materially affect our financial results that we report from period to period. There can be no assurance that the investment values that we record from time to time will ultimately be realized, including the investment values that are presented in this report.
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Because there is significant uncertainty in the valuation of, or in the stability of the value of, illiquid investments, the fair values of investments reflected in an investment vehicle's net asset value (“NAV”) do not necessarily reflect the prices that would actually be obtained by us on behalf of the investment vehicle when such investments are realized. For example, there may be known or unknown liabilities such as tax exposures with respect to investments, especially those outside the United States, which may not be fully reflected in valuations. Realizations at values significantly lower than the values at which investments have been reflected in a prior investment vehicle's NAVs would result in losses for the applicable investment vehicle and the loss of any accrued carried interest and other fees. Also, if realizations of our investments produce values materially different than the carrying values reflected in a prior investment vehicle's NAVs, investors in such vehicles may lose confidence in us, which could in turn result in difficulty in raising capital for future funds or other investment vehicles. In addition, because we value our entire portfolio using the methodologies described in this report only on a periodic basis, subsequent events that may have a material impact on those valuations may not be reflected until the next periodic valuation date.
In addition, the range of potential valuation methodologies and the potential exercise of our subjective judgment in determining valuation might cause some of our investors or regulators to question our valuations or methodologies. There can be no assurance that our policies will address all necessary valuation factors or completely eliminate potential conflicts of interest in such determinations or that we will be able to achieve some valuations. The SEC continues to focus on issues related to valuation of private investment vehicles, including consistent application of the methodology, disclosure, and conflicts of interest, in its enforcement, examination, and rulemaking activities. Changes in these factors can have a significant effect on the results of the valuation methodologies used to value our portfolio, and our reported fair values for these assets could vary materially if these factors from prior quarters were to change significantly.
Various market and economic conditions and events outside of our control that are difficult to quantify or predict may have a significant impact on the valuation of our investments and, therefore, on our financial results.
Global equity markets, which have been and are expected to continue to be volatile, significantly impact the valuation of our equity investments in portfolio companies. For our equity investments that are publicly listed and thus have readily observable market prices, global equity markets have a direct impact on valuation, because their values are determined by their listed prices in the public markets. For our equity investments that are not publicly listed, global equity markets have an indirect impact on valuation as we often utilize market multiples (i.e., stock price of comparable companies divided by earnings or cash flow) as a critical input to ascertain fair value of our investments that do not have readily observable market prices. In our private equity business, a substantial amount of investments are in equities, so a change in global equity prices or in equity market volatility is expected to significantly impact the value of our private equity investments. Therefore, if equity valuations decline (due to multiple contraction or otherwise), then performance of our private equity portfolio may be materially and adversely impacted. In our insurance business, a change in equity prices also impacts our equity-linked annuity and life insurance products, including with respect to hedging costs related to and fee-income earned on those products.
The credit markets can also impact the valuations of our equity investments in portfolio companies. For example, we typically use a discounted cash flow analysis as one of the methodologies to ascertain the fair value of many of our investments that do not have readily observable market prices. If applicable interest rates rise, then the assumed cost of capital for the equity investments in our portfolio companies would be expected to increase under the discounted cash flow analysis, and this effect would negatively impact their valuations if not offset by other factors. Conversely, a fall in interest rates can positively impact valuations of equity investments in certain portfolio companies if not offset by other factors. For example, the positive impact of falling interest rates on discounted cash flow valuations may offset the negative impact of the market multiples valuation approach, and may result in less of a decline in value than for those publicly listed equity investments.
Rising U.S. interest rates may also negatively impact certain foreign currencies that depend on foreign capital flows. Higher interest rates in conjunction with slower growth or weaker currencies in some emerging market economies have caused, and may further cause, the default risk of these countries and companies that operate predominantly in those countries to increase, and this could impact the value of our investments in portfolio companies that operate in these regions. Rising interest rates typically create downward pressure on the price of real estate and the value of fixed-rate debt investments made by our funds or our insurance segment. Finally, low interest rates related to monetary stimulus and economic stagnation may also negatively impact expected returns on certain investments as the demand for relatively higher returning assets increases and supply decreases.
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The credit markets directly impact the valuations of the credit investments that we (including our insurance subsidiaries) and our investment vehicles own. Interest income earned from debt investments with floating interest rates should increase if the applicable benchmark interest rate were to rise, and the reverse is true if the applicable benchmark interest rate were to decline. However, during periods of rising interest rates, the obligor of such floating rate debt may become less able to pay its debt obligations, which could have the effect of impairing the value of its debt obligations. For debt investments with fixed interest rates, changes in interest rates generally will also cause the value of the fixed rate debt to vary inversely to such changes, although any losses or gains would in most cases not be realized if the fixed rate debt is held to maturity.
Foreign exchange rates can materially impact the valuations of our investments that are denominated in currencies other than the U.S. dollar. Factors that may affect currency values include trade balances, the ability of countries to pay their national debt, levels of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments. We make investments and receive capital commitments that are denominated in currencies other than the U.S. dollar. The appreciation or depreciation of the U.S. dollar is expected to contribute to a decrease or increase, respectively, in the U.S. dollar value of our non-U.S. investments to the extent unhedged. In addition, an appreciating U.S. dollar would be expected to make the exports of U.S.-based companies less competitive, which may lead to a decline in their export revenues, if any, while a depreciating U.S. dollar would be expected to have the opposite effect. For our investments denominated in currencies other than the U.S. dollar, the depreciation in such currencies will generally contribute to the decrease in the valuation of such investments, to the extent unhedged, and adversely affect the U.S. dollar equivalent revenues of portfolio companies with substantial revenues denominated in such currencies, while the appreciation in such currencies would be expected to have the opposite effect. Areas that have central bank quantitative easing or tightening campaigns affecting their interest rates relative to the United States could potentially experience further currency volatility relative to the U.S. dollar. In addition, various countries and regulatory bodies may implement controls on foreign exchange and outbound remittances of currency, which could impact the value, in U.S. dollars, of our investments.
Conditions in commodity markets impact the valuations of our portfolio companies and other investments in a variety of ways, including through the direct or indirect impact on the cost of the inputs used in their operations, as well as the pricing and profitability of the products or services that they sell. The price of commodities has historically been subject to substantial volatility, which among other things, could be driven by economic, monetary, political or weather-related factors. If the operating partners for certain of our investments or our portfolio companies are unable to raise prices to offset increases in the cost of raw materials or other inputs, or if customers defer purchases of or seek substitutes for these products, these investments or portfolio companies could experience lower operating income which may in turn reduce their valuation. With respect to our energy investments, when commodity prices decline, or if a decline is not offset by other factors, we would expect the value of these investments to be adversely impacted, to the extent unhedged. In general, we expect downward price movements to have a negative impact on the fair value of our energy portfolio, all other things being equal, given those commodity prices are an input in our valuation models. The reverse is true for upward price movements. However, because we may use near-term commodity derivative transactions to hedge our exposures, long-term oil and natural gas prices may be a more significant driver of the valuation of our energy investments than spot prices. Apart from our direct energy investments, a number of our other investments may be dependent to varying degrees on the energy sector through, for example, the provision of equipment and services used in energy exploration and production. These companies may also benefit from an increase or suffer from a decline in commodity prices.
The market values of commercial real estate assets are subject to volatility and may be adversely affected by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; retroactive changes to building or similar codes, tenant demand, market occupancy and rental rate trends, and capitalization rates and valuation trends. The macroeconomic environment, prevailing real estate fundamentals and micro-market dynamics where real estate property is located are all factors that impact valuations of our real estate investments. Office real estate valuations in the U.S. and globally, in particular, proved to be highly volatile during 2023 as a based on a variety of more challenging macroeconomic fundamentals described above, including as a result of tenant demand and employees of potential tenants continuing to work from home at a higher frequency than many expected.
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The valuations of our investments can be impacted by many other factors unrelated to market or economic conditions, including (i) geopolitical developments and other local and global events, (ii) natural disasters and catastrophes, including public health crises, (iii) data security breaches and cyber-security failures, and (iv) material litigations, governmental sanctions, or the failure to comply with applicable law. The valuation of our investments may also be impacted by other factors that may or may not be foreseeable or in our control, for example: decreasing revenues, increasing costs, credit rating downgrades, difficulty in obtaining financing on attractive terms or at all, financial losses, contractual defaults, or insolvency. These and other risks that have impacted, and may continue to affect, the valuation of our investments are described in “—Risks Related to Our Business,” as most of these risks to our business also are risks to the valuation of our investments.
To the extent these and other risks were to occur to one of our portfolio companies or other investments, then it is likely that the value of such investment would be materially and adversely affected, which would be expected to contribute to an adverse impact to our financial results.
Our investment activities have significant liquidity requirements, and changes in debt or equity markets may materially and adversely affect our investment activities.
Our liquidity requirements are significant and, in some cases, involve capital that will remain invested for extended periods of time or, in other cases, involve capital that is able to be withdrawn more frequently by investment vehicle investors, subject to certain limits. Commitments to our investment vehicles and our insurance subsidiaries will require significant cash outlays over time, and there can be no assurance that we will be able to generate sufficient cash flows from realizations of investments to fund them or achieve the valuations of such investments.
Moreover, our investment vehicles and our insurance subsidiaries use leverage to fund their investments and to enhance their returns. For example, our investment vehicles regularly seek to have credit facilities as subscription lines to bridge capital commitments. If a lender under one or more of our or our investment vehicles’ credit lines were to become insolvent, we may have difficulty replacing the credit line and one or more of our investment vehicles may face disruptions in operations. In addition, concerns about, or a default by, one large market participant could lead to significant liquidity problems for other market participants, which may in turn expose us to significant losses. Counterparty default risk may arise from events or circumstances that are difficult to detect, foresee or evaluate. We may not accurately anticipate the impact of market stress or counterparty financial condition, and as a result, we may not have taken sufficient action to reduce these risks effectively, which, if left unmitigated, could have a material adverse effect on our investments.
Liquidity conditions in both equity and credit capital markets may tighten and affect the availability and cost of capital for our investment vehicles’ portfolio companies. For example, changes in the debt financing markets may negatively impact our ability to obtain attractive financing for our investments or to refinance existing debt, and may increase the cost of such financing or refinancing if it is obtained, which could lead to lower-yielding investments and potentially adversely impact our financial results or negatively impact our business in other ways. With respect to our private equity and real assets businesses, if we are unable to obtain committed debt financing for potential acquisitions or can only obtain debt at an increased interest rate or on unfavorable terms, we may have difficulty completing otherwise profitable acquisitions or may generate lower profits, either of which could lead to a decrease in the investment income earned by us. Any failure by lenders to provide previously committed financing can also expose us to potential claims by sellers of businesses that we may have contracted to purchase. Similarly, the issuance of CLOs relies on the use of leverage, including various secured and unsecured borrowings.
Our ability to generate returns on these assets would be reduced to the extent that changes in market conditions, including changes to short-, medium- or long-term interest rates, cause the cost of our financing to increase relative to the income that can be derived from the assets acquired or financed. An increase in either the general levels of interest rates or in the risk spread demanded by lenders or other debt holders would also make it more expensive to finance investments. During periods of rising or higher interest rates, certain investments with floating interest rate loans may have greater challenges in meeting their debt service obligations if their benchmark interest rates were to rise materially, or if these investments’ lenders or debt holders generally are unwilling to extend or refinance their loans or debt securities on similarly attractive terms. Any of these events could result in defaults, foreclosures or bankruptcies, which would likely reduce the value of our investments and could result in decreased net income. An increase in interest rates and other changes in the financial markets could also negatively impact the values of certain assets or investments and the ability of our balance sheet assets, funds and their portfolio companies may be negatively impacted, which could impair the value of our investment in those portfolio companies and lead to a decrease in the investment income earned by us. In some cases, the inability of our portfolio companies to refinance or extend maturities may result in the inability of those companies to repay debt at maturity or pay interest when due, and may cause those companies to sell assets, undergo a recapitalization or seek bankruptcy protection, any of which would also likely impair the value of our investment and lead to a decrease in investment income earned by us.
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Similarly, our portfolio companies regularly utilize the corporate debt markets in order to obtain financing for operations. To the extent that credit markets render such financing difficult to obtain or more expensive, this may negatively impact the operating performance of us and these portfolio companies. In addition, to the extent that conditions in the credit markets impair the ability of our portfolio companies to refinance or extend maturities on their outstanding debt, either on favorable terms or at all, the operating performance of those portfolio companies may be negatively impacted, which could impair the value of our investment in those portfolio companies and lead to a decrease in the investment income earned by us. In some cases, the inability of our portfolio companies to refinance or extend maturities may result in the inability of those companies to repay debt at maturity or pay interests when due, and may cause the companies to sell assets, undergo a recapitalization or seek bankruptcy protection, any of which would also likely impair the value of our investment and lead to a decrease in the investment income earned by us.
In addition, counterparties have generally reacted to recent market volatility by tightening their underwriting standards and increasing their margin requirements for all categories of financing, which has the result of decreasing the overall amount of leverage available and increasing the costs of borrowing. Many of our investment vehicles have credit lines, and if a lender under one or more of these credit lines were to become insolvent, we may have difficulty replacing the credit line and one or more of our investment vehicles may face liquidity problems. Default risk may arise from events or circumstances that are difficult to detect, foresee or evaluate. In addition, concerns about, or a default by, one large market participant could lead to significant liquidity problems for other market participants, which may in turn expose us to significant losses. We may not accurately anticipate the impact of market stress or counterparty financial condition, and as a result, we may not have taken sufficient action to reduce these risks effectively, which, if left unmitigated, could have a material adverse effect on our investments.
In addition, LIBOR and certain other floating rate benchmark indices to which our floating rate debt historically was tied to are the subject of recent national, international and regulatory guidance and reforms. Transition away from LIBOR as a benchmark reference for interest rates may affect the cost of capital and require amending or restructuring existing debt instruments and related hedging arrangements for our investment vehicles and our portfolio companies, and may impact the value of floating rate securities or loans based on LIBOR that we (including our insurance subsidiaries) or our investment vehicles have held, all of which may result in additional costs or adversely affect our investments.
In January 2021, International Swaps and Derivatives Association amended the definitions used in derivative contracts to incorporate Secured Overnight Financing Rate (“SOFR”) as the successor rate to LIBOR. Furthermore, on December 16, 2022, the U.S. Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) adopted the final rule that implements the Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates based on SOFR that replaced LIBOR in certain financial contracts after June 30, 2022. Remaining tenors of USD LIBOR ceased to be published as of June 30, 2023 in the United States, and SOFR became the predominant replacement for LIBOR. On April 3, 2023, the FCA announced its decision to require LIBOR’s administrator to continue to publish certain LIBOR short tenors pursuant to an unrepresentative synthetic methodology through September 30, 2024 and thereafter is expected to be permanently discontinued.
Certain credit assets held by our investment vehicles and our insurance subsidiaries and long-term indebtedness incurred by our investment vehicles, our insurance subsidiaries and our portfolio companies may have residual exposure that bears interest at variable interest rates, including rates linked to LIBOR. We, our investment vehicles and our portfolio companies have other LIBOR-based debt instruments and related hedging arrangements that may require amending or restructuring, which may be difficult, costly and time consuming. In situations where our existing LIBOR-based contracts do not contain clear fallback language governing the transition to a successor reference rate, we or our investment vehicles could incur increased costs, including litigation-related costs, related to the determination of an appropriate successor rate.
Dependence on significant leverage in our investments could adversely affect our ability to achieve attractive rates of return on those investments.
Because many of our investments often rely heavily on the use of leverage, our ability to achieve attractive rates of return will depend on our continued ability to access sufficient sources of indebtedness at attractive rates, which are based, in part, on market interest rates that can fluctuate along with other market and economic conditions. Our credit funds and insurance companies use varying degrees of leverage when making investments. Similarly, private equity investments often include the issuance of high yield debt securities or leveraged loans. In many private equity investments, indebtedness may constitute a substantial majority of a portfolio company's total capitalization. The absence of available sources of sufficient debt financing for extended periods of time could therefore materially and adversely affect our investment vehicles and our portfolio companies.
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In June 2011, the Basel Committee on Banking Supervision, an international body comprised of senior representatives of bank supervisory authorities and central banks from 27 countries, including the United States, announced the final framework for a comprehensive set of capital and liquidity standards, commonly referred to as “Basel III,” for internationally active banking organizations and certain other types of financial institutions. These standards have generally required banks to hold more capital than under the previous capital framework, reduce leverage and improve liquidity standards, and bank supervisory authorities, including in the United States, which may in the future, adopt additional related standards that require banks to further increase their capital or liquidity. U.S. federal banking regulators have adopted, and continue to adopt, update and amend, final regulations to implement these standards for U.S. banking organizations. These and similar banking regulations implemented by federal and state banking regulators may limit the amount or availability of debt financing, may increase the cost of financing we are able to obtain for our transactions and may cause the returns on our investments to suffer.
When our existing portfolio investments reach the point when debt incurred to finance those investments matures in significant amounts and must be either repaid or refinanced, those investments may materially suffer if they have generated insufficient cash flow to repay maturing debt and there is insufficient capacity and availability in the financing markets to permit them to refinance maturing debt on satisfactory terms, or at all. If the financing for such purposes were to be unavailable or uneconomic when significant amounts of the debt incurred to finance our existing portfolio investments start to come due, these investments could be materially and adversely affected. In the event of default or potential default under applicable financing arrangements, one or more of our portfolio companies may go bankrupt, which could give rise to substantial investment losses, adverse claims or litigation against us or our employees and damage to our reputation.
Among the sectors particularly challenged by downturns in the global credit markets are the CLO and leveraged finance markets. We have significant exposure to these markets through our CLO vehicles. There can be no assurance that market conditions giving rise to these types of consequences will not occur, re-occur, subsist or become more acute in the future. Our CLO vehicles have historically experienced an increase in downgrades, depreciations in market value and defaults in respect of leveraged loans in their collateral during downturns in credit markets. Because our CLO structures involve complex collateral and other arrangements, the documentation for such structures is complex, is subject to differing interpretations and involves legal risk. Each of these vehicles is a special purpose company that issues to us and other investors notes secured by a pool of collateral consisting primarily of corporate leveraged loans. In most cases, our CLO holdings are deeply subordinated, representing the CLO vehicle's substantial leverage, which increases both the opportunity for higher returns as well as the magnitude of losses when compared to holders or investors that rank more senior to us in right of payment. These loans and bonds also generally involve a higher degree of risk than investment grade rated debt, including the risks described in the paragraphs above. The CLOs' portfolio profile tests set limits on the amount of discounted obligations a CLO can hold. During any time that a CLO issuer exceeds such a limit, the ability of the CLO's manager to sell assets and reinvest available principal proceeds into substitute assets is restricted. In such circumstances, CLOs may fail certain over-collateralization tests, which would cause diversions of cash flows away from us as holders of the more junior CLO, which may impact our cash flows. The ability of the CLOs to make interest payments to the holders of the senior notes of those structures is highly dependent upon the performance of the CLO collateral. If the collateral in those structures were to experience a significant decrease in cash flow due to an increased default level, payment of all principal and interest outstanding may be accelerated as a result of an event of default or by holders of the senior notes. An inability to continue to utilize CLOs or other similar financing vehicles successfully could limit our ability to fund future investments, grow our business or fully execute our business strategy and we may be materially and adversely affected. Many of our credit-oriented investment vehicles, including CLO vehicles, regularly use significant leverage to finance their assets. An inability of such vehicles to continue to raise or utilize leverage, to refinance or extend the maturities of their outstanding indebtedness or to maintain adequate levels of collateral under the terms of their CLOs limit their ability to grow their business, reinvest principal cash, distribute cash to us or fully execute their business strategy, and our results of operations may be materially and adversely affected. If these vehicles are unable to maintain their operating results and access to capital resources, they could face substantial liquidity problems and might be required to dispose of material assets or operations to meet debt service and other obligations. These CLO strategies and the value of the assets of such CLO vehicles are also sensitive to changes in interest rates because these strategies rely on borrowed money and because the value of the underlying portfolio loans can fall when interest rates rise. If interest rates on CLO borrowings increase and the interest rates on the portfolio loans do not also increase, the CLO strategy is unlikely to achieve its projected returns. Also, if interest rates increase in the future, our CLO portfolio will likely experience a reduction in value because it would hold assets receiving below market rates of interest.
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Our credit-oriented funds and CLOs may choose to use leverage as part of their respective investment programs and regularly borrow a substantial amount of their capital. The use of leverage poses a significant degree of risk and enhances the possibility of a significant loss in the value of the investment portfolio. A fund may borrow money from time to time to purchase or carry securities or debt obligations or may enter into derivative transactions (such as total return swaps) with counterparties that have embedded leverage. The interest expense and other costs incurred in connection with such borrowing may not be recovered by appreciation in the securities or debt obligations purchased or carried and will be lost—and the timing and magnitude of such losses may be accelerated or exacerbated—in the event of a decline in the market value of such securities or debt obligations. Gains realized with borrowed funds may cause the fund's NAV to increase at a faster rate than would be the case without borrowings. However, if investment results fail to cover the cost of borrowings, the fund's NAV could also decrease faster than if there had been no borrowings.
Any decrease in the value of credit instruments that we have invested in or any increase in the cost of credit financing would reduce our returns and decrease our net income.
Various exposures to, and investments in, the securities of leveraged companies or companies that are experiencing significant financial or business difficulties involve significant risks.
We have equity and debt investments in companies that have a significant amount of leverage as well as companies that are currently experiencing, or in the future may experience, significant financial or business difficulties. Our traditional private equity funds typically finance their equity investment in a portfolio company with high yield debt securities and/or leveraged loans. Our real assets funds also often finance a portion of their investment using debt. Certain credit investment vehicles, including CLOs, also hold securities or financial instruments of highly leveraged companies, other companies that are experiencing significant financial or business difficulties or otherwise below investment grade debt. Investments in leveraged companies or companies experiencing financial or business difficulties generally entail greater risk, and such investments are also inherently more sensitive to declines in their company’s revenues, increases in their company’s expenses, interest rate changes, and other adverse economic, market and industry developments. High yield, below investment grade or unrated debt is often less liquid than investment grade rated debt, and loans and other forms of debt that are not marketable securities are also not liquid. For further information about the fair market value of investment grade corporate loans and securities we indirectly hold through our CLO vehicles that have a below investment grade rating as of December 31, 2023, see Note 2 "Summary of Significant Accounting Policies—Significant Account Policies - Asset Management—Investments" in our financial statements
The incurrence of a significant amount of indebtedness by a company could, among other things, subject the entity to a number of restrictive covenants, terms and conditions, any violation of which would be viewed by creditors as an event of default and could materially impact our ability to realize value from our investment; allow even moderate reductions in operating cash flow to render it unable to service its indebtedness; give rise to an obligation to make mandatory prepayments of debt using excess cash flow, which might limit the company’s ability to respond to changing industry conditions to the extent additional cash is needed for the response, to make unplanned but necessary capital expenditures or to take advantage of growth opportunities; limit the entity's ability to adjust to changing market conditions, thereby placing it at a competitive disadvantage compared to its competitors who have relatively less debt; limit the company’s ability to engage in strategic acquisitions that might be necessary to generate attractive returns or further growth; and limit the company’s ability to obtain additional financing or increase the cost of obtaining such financing, including for capital expenditures, working capital or other general corporate purposes.
A leveraged company's income and equity also tend to increase or decrease at a greater rate than would otherwise be the case if money had not been borrowed. As a result, the risk of loss associated with a leveraged company is generally greater than for comparable companies with comparatively less debt. For example, leveraged companies could default on their debt obligations due to a decrease in revenues and cash flow precipitated by an economic downturn or by poor relative performance at such a company. Similarly, the leveraged nature of some of our investments in real assets increases the risk that a decline in the fair value of the underlying real asset will result in their abandonment or foreclosure. In the absence of appropriate hedging measures, changes in interest rates generally will also cause the value of fixed rate debt investments to vary inversely to such changes. The obligor of a debt security or instrument may not be able or willing to pay interest or to repay principal when due in accordance with the terms of the associated agreement and collateral may not be available or sufficient to cover such liabilities. Commercial bank lenders and other creditors may be able to contest payments to the holders of other debt obligations of the same obligor in the event of default under their commercial bank loan agreements. Sub-participation interests in syndicated debt may be subject to certain additional risks as a result of having no direct contractual relationship with underlying borrowers. Debt securities and instruments may be rated below investment grade by recognized rating agencies or unrated and face ongoing uncertainties and exposure to adverse business, financial or economic conditions and the issuer's failure to make timely interest and principal payments.
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Certain of our investment vehicles, especially in our strategic investment group credit strategy, may hold interests in business enterprises involved in work-outs, liquidations, reorganizations, bankruptcies and similar transactions and may purchase high-risk receivables. An investment in such business enterprises entails the risk that the transaction in which such business enterprise is involved either will be unsuccessful, will take considerable time or will result in a distribution of cash or a new security the value of which will be less than the purchase price to the fund of the security or other financial instrument in respect of which such distribution is received. In addition, if an anticipated transaction does not in fact occur, we or the fund may be required to sell the investment at a loss. Investments in troubled companies may also be adversely affected by U.S. federal and state and non-U.S. laws relating to, among other things, fraudulent conveyances, voidable preferences, lender liability and a bankruptcy court's discretionary power to disallow, subordinate or disenfranchise particular claims. Investments in securities and private claims of troubled companies made in connection with an attempt to influence a restructuring proposal or plan of reorganization in a bankruptcy case may also involve substantial litigation, which has the potential to adversely impact us or unrelated investment vehicles or portfolio companies. Companies that were not in financial distress at the time we or our investment vehicles made investments may in the future require work-outs, liquidations, reorganizations, bankruptcies or similar transactions, and as a result, become subject to the same risks described above. Because there is substantial uncertainty concerning the outcome of transactions involving financially troubled companies, there is a potential risk of loss of the entire investment in such company. Such investments involve a substantial degree of risk, and a decline in value of the assets would have a material adverse effect on our financial performance.
Our equity investments and some of our debt investments rank junior to investments made by others, exposing us to greater risk of losing our investment.
In addition, in many cases, the companies in which we or our investment vehicles invest have, or are permitted to have, outstanding indebtedness or equity securities that rank senior to our or our investment vehicle's investment. By their terms, such instruments may provide that their holders are entitled to receive payments of distributions, interest or principal on or before the dates on which payments are to be made in respect of our or our investment vehicle's investment. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a company in which an investment is made, holders of securities ranking senior to our investment would typically be entitled to receive payment in full before distributions could be made in respect of our investment. In addition, debt investments made by us or our investment vehicles in our portfolio companies may be equitably subordinated to the debt investments made by third parties in our portfolio companies. After repaying senior security holders, the company may not have any remaining assets to use for repaying amounts owed in respect of our investment. To the extent that any assets remain, holders of claims that rank equally with our investment would be entitled to share on an equal and ratable basis in distributions that are made out of those assets. Also, during periods of financial distress or following insolvency, the ability of us or our investment vehicles to influence a company's affairs and to take actions to protect an investment will likely be substantially less than that of the senior creditors.
The due diligence process that we undertake in connection with our investments may not reveal all facts that may be relevant in connection with an investment.
Before making our investments, we conduct due diligence that we believe to be reasonable and appropriate based on the facts and circumstances applicable to each investment. The objective of the due diligence process is to identify attractive investment opportunities based on the facts and circumstances surrounding an investment, to identify possible risks associated with that investment and, in the case of private equity investments, to prepare a framework that may be used from the date of an acquisition to drive operational achievement and value creation. When conducting due diligence, we typically evaluate a number of important business, financial, tax, accounting, ESG, technological, cyber-security, data privacy, regulatory and legal issues in determining whether or not to proceed with an investment. Outside consultants, legal advisors, accountants and investment banks are involved in the due diligence process in varying degrees depending on the type of investment. Nevertheless, when conducting due diligence and making an assessment regarding an investment, we rely on resources available to us, including information provided by the target of the investment and, in some circumstances, third-party investigations. The due diligence process may at times be subjective with respect to newly organized companies or carve-out transactions for which only limited information is available.
Instances of bribery, fraud, accounting irregularities and other improper, illegal or corrupt practices can be difficult to detect, and fraud and other deceptive practices can be widespread in certain jurisdictions. Several of our investment vehicles invest in emerging market countries that may not have established laws and regulations that are as stringent as in more developed nations, or where existing laws and regulations may not be consistently enforced. For example, our investment vehicles invest throughout jurisdictions that have material perceptions of corruption according to international rating standards. Due diligence on investment opportunities in these jurisdictions is frequently more complicated because consistent and uniform commercial practices in such locations may not have developed. Bribery, fraud, accounting irregularities and corrupt practices can be especially difficult to detect in such locations.
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The due diligence conducted for certain of our strategies is limited to publicly available information. Accordingly, we cannot be certain that the due diligence investigation that we will carry out with respect to any investment opportunity will reveal or highlight all relevant considerations that may be necessary or helpful in evaluating such investment opportunity, including the existence of contingent liabilities. We also cannot be certain that our due diligence investigations will result in investments being successful or that the actual financial performance of an investment will not fall short of the financial projections we used when evaluating that investment.
We often pursue investment opportunities that involve unique business, regulatory, legal or other complexities, including complexities arising from the large size of our investment or from a lack of control over the investment, which involves significant risks.
We often pursue complex investment opportunities, which can often involve substantially greater business, regulatory or legal complexities compared to investments made by traditional asset managers. Our tolerance for complexity presents risks, as such transactions can be more difficult, expensive and time consuming to finance and execute, and it can be more difficult to manage or realize value from these types of investments. Other risks that are often inherent in these kinds of transactions include the following:
• Our transactions may entail a high level of regulatory scrutiny, and our investment may be subject to complex regulatory requirements and instances of non-compliance at the investment level may subject us to reputational harm or, in certain cases, liability.
• Our transactions may involve complex tax structuring that could be challenged or disregarded, which may result in losing treaty benefits or would otherwise adversely impact our investments. These complex tax structures are costly to establish, monitor and maintain, and as we pursue a larger number of transactions across multiple assets classes and in multiple jurisdictions, such costs will increase and the risk that a tax matter is overlooked or inadequately or inconsistently addressed will increase.
• We or our investment vehicles may acquire an investment that is subject to significant liabilities, including contingent liabilities, which could be unknown to us at the time of acquisition or, if they are known to us, we may not accurately assess or protect against the risks that they present, which could result in material unforeseen losses.
• We rely on the management of our portfolio companies or other third party operators to provide for financial projections and other information about their companies, businesses or assets, which may not be accurate or realistic and thus could result in performance to fall short of our expectations or even result in bankruptcy. We also rely on the management of our portfolio companies or other third party operators, and their systems and processes, for ongoing financial and other information in support of the valuations of our investments in or with them.
• In connection with the disposition of an investment in a portfolio company, we or an investment vehicle may be required to make representations about the business and financial affairs of such portfolio company typical of those made in connection with the sale of a business, and we or our investment vehicles may also be required to indemnify the purchasers of such investment to the extent that any such representations are inaccurate; these arrangements may result in the incurrence of contingent liabilities by us or an investment vehicle, even after the disposition of an investment.
We often make investments in companies, businesses and assets that, in of themselves, involve a high degree of risk, including those: (1) that have limited financial resources and may be unable to meet their obligations under their outstanding indebtedness, which may be accompanied by a significant deterioration in the value of their equity securities or any collateral or guarantees provided with respect to their debt, (2) that significantly depend on their founders and other key persons, the loss of whom could materially and adversely impact the investment, (3) that are businesses or divisions acquired from larger operating entities that require significant and costly rebuilding or replacement of business operations functions, (4) that are subject to litigation or regulatory scrutiny or may be at risk of having significant failures to comply with law (including practices or issues which may not be discovered through due diligence), (5) that are engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence and require substantial additional capital to support their operations, finance expansion or maintain their competitive position, and (6) that operate in an industry that is subject to extensive domestic and foreign regulation (including companies that supply services to governmental agencies), such as the financial services industry, telecommunications industry, defense and government services industry, healthcare industry, oil and gas industry, waste management industry and food industry.
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In addition, as we depend on the efforts, skills, reputations, business contacts, and conduct of individuals affiliated with our portfolio companies (including employees of such portfolio companies), we may be adversely affected, including our reputation, if there is misconduct by senior management or other employees of portfolio companies in which we invest, including through successor liability, and we may be unable to control or mitigate such misconduct. Such misconduct may also negatively affect the valuation of our investments in such portfolio companies. See “—Risks Related to Our Business—We depend on the efforts, skills, reputations, business contacts, and conduct of our employees and our ability to retain our employees and to recruit prospective employees” for human capital-related risks that also are applicable for us with respect to portfolio companies and other investments.
We also make large private equity and real assets investments, which involve certain complexities and risks that are not encountered in small- and medium-sized investments. For example, larger transactions may be more difficult to finance and exiting larger deals may present incremental challenges. In addition, larger transactions may pose greater challenges in implementing changes in the company's management, culture, finances or operations, and may entail greater scrutiny by regulators, interest groups and other third parties. These constituencies may be more active in opposing larger investments by private equity firms. In some transactions, the amount of equity capital that is required to complete a large capitalization private equity or real asset transaction may be significant and may require significantly more capital than is then available for investment by our investment funds. The consequences to us and our investment vehicles of an unsuccessful larger investment could be more severe given the size of the investment. Moreover, we could be required to commit significant amounts of our capital to such large investments.
When we enter into large transactions where the overall size may exceed what we consider appropriate for our investment vehicles, we often seek to syndicate a portion of our capital commitment. A syndication transaction involves KKR seeking third parties to commit equity to our investments, typically as passive co-investors, so that our firm can retain a level of control over the investment. However, if we are unable to syndicate all or part of such commitment, or if such co-investors fail to fund their commitments, we may be required to fund the remaining commitment amount from our balance sheet. If we are required to keep on our balance sheet a large portion of the capital commitment that could not be syndicated to third parties, poor performance of such large investment may have a material adverse impact on our financial results. Alternatively, we may enter into consortium transactions, which involves an equity investment in which two or more firms serve as equity sponsors. Consortium transactions generally entail a reduced level of control by our firm over the investment because governance rights must be shared with the other consortium investors. Accordingly, we may not be able to control decisions, including decisions relating to the management and operation of the company and the timing and nature of any exit, which could result in the risks described herein.
In addition, we and our investment vehicles hold investments that include debt instruments and equity securities of companies that we do not control. Such instruments and securities may be acquired through trading activities or through purchases of securities from the issuer, or we may purchase such instruments and securities on a principal basis. Our investment vehicles may acquire minority equity interests, particularly when making private equity investments in Asia, making growth equity investments or sponsoring investments as part of an consortium transaction or through many of our credit funds. Our funds may also dispose of a portion of their majority equity investments in portfolio companies over time in a manner that results in the funds retaining a minority investment. Non-control investments will be subject to the risk that the company in which the investment is made may make business, financial or management decisions with which we do not agree, or that the majority stakeholders or the management of the company may take risks or otherwise act in a manner that does not serve our interests.
The failure of our investments, whether because of the material diminution of value, bankruptcy, failure to comply with laws, or otherwise, could subject us to various adverse effects in addition to adversely affecting our financial results, including causing us reputational harm, the diminished ability to raise successor funds or new investment vehicles, and limitations on our ability to invest in similar companies, regions or industries in the future.
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We make investments that are highly concentrated by type of issuer, geographic region, asset types, or otherwise.
The governing agreements of our funds and other investment vehicles contain only limited investment restrictions and only limited requirements as to diversification of investments, either by geographic region or asset type. Our private equity funds generally permit up to 20% of the fund to be invested in a single company. We also manage funds that invest in a single asset class such as growth equity, infrastructure or real estate, or funds that focus on particular geographic region. Because a significant portion of an investment vehicle's capital may be invested in a single investment or portfolio company, a loss with respect to such investment or portfolio company could have a material adverse impact on such investment vehicle's capital. Accordingly, a lack of diversification on the part of an investment vehicle could materially and adversely affect an investment vehicle's performance. Similarly, our balance sheet has significant exposures to certain portfolio companies, in particular large investments in a small number of portfolio companies that we have made through our core private equity strategy. Because we hold interests in some of our portfolio companies both through our balance sheet investments in our private equity investment vehicles and direct co-investments, fluctuation in the fair values of these portfolio companies may have a disproportionate impact on the investment income earned by us as compared to other portfolio companies. In these circumstances, losses may have an even greater impact on us, as we would directly bear the full extent of such losses. As a result, our financial performance is expected to be subject to greater volatility depending on such companies' operating results and other idiosyncratic factors specific to such companies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Balance Sheet Measures" for information on significant investments held on our balance sheet, including a list of the 20 largest investments held on our balance sheet.
Many of our investments are illiquid, and we may fail to realize any profits from our investments for a considerable period of time or lose some or all of the capital invested.
We (including our insurance subsidiaries) and our investment vehicles hold investments in securities that are not publicly traded. In many cases, we may be prohibited by contract or by applicable securities laws from selling such securities at many points in time. We will generally not be able to sell these securities publicly unless their sale is registered under applicable securities laws, or unless an exemption from such registration is available, and then only at such times when we do not possess material nonpublic information. Our ability to dispose of investments is heavily dependent on the capital markets and in particular the public equity markets. For example, the ability to realize any value from an investment may depend upon the ability to complete an initial public offering of the portfolio company in which such investment is made. Even if the securities are publicly traded, large holdings of securities can often be disposed of only over a substantial length of time, exposing our investment returns to risks of downward movement in market prices during the intended disposition period. Moreover, because the investment strategy of many of our investment vehicles, particularly in our private equity strategy, often entails having representation on the public portfolio company’s board of directors, and we may be restricted in our ability to effect such sales during certain time periods. In addition, market conditions and the regulatory environment can also delay our ability to exit and realize value from these investments. For example, rising interest rates and challenging credit markets may make it difficult for potential buyers to raise sufficient capital to purchase our investments. Although the equity markets are not the only means by which we exit investments from our funds, the strength and liquidity of the U.S. and relevant global equity markets generally, and the initial public offering market specifically, affect the valuation of, and our ability to successfully exit, our equity positions in the portfolio companies of our funds in a timely manner. We may also realize investments through strategic sales. Difficult market and economic conditions could increase the cost of credit or cause a degradation in debt financing terms for potential buyers, either of which may adversely impact our ability to identify, execute and exit investments on attractive terms. When financing is not available or becomes too costly, it may be more difficult to find a buyer that can successfully raise sufficient capital to purchase our investments. In addition, volatile debt and equity markets may also make the exit of our investments more difficult to execute. Government policies regarding certain regulations, such as antitrust law, national security or restrictions on foreign investment in certain of our portfolio companies or assets can also limit our and our investment vehicles’ exit opportunities.
In addition, as many of our funds have a finite term, we could also be forced to dispose of investments sooner than otherwise desirable. Accordingly, under certain conditions, our funds may be forced to either sell their investments at lower prices than they had expected to realize or defer sales that they had planned to make, potentially for a considerable period of time. Moreover, with respect to investments that we hold directly, we may determine that we may be required to sell these investments alongside our funds’ investments at such times.
We also have made and expect to continue to make significant capital investments in our current and future funds and other investment vehicles. Contributing capital to these investment vehicles is risky, and we may lose some or all of the principal amount of our investments.
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Our investments in real assets such as real estate, infrastructure and energy may expose us to increased risks and liabilities.
Investments in real assets, including in portfolio companies with significant holdings of these types of assets, which may include real estate, infrastructure, oil and gas properties and other energy assets, may expose us to increased risks and liabilities that are inherent in the ownership of real assets as compared to investments in other asset classes.
For example, investments in real assets may, among other things, involve the following risks.
• Our investment vehicles, and directly or indirectly KKR through our insurance subsidiaries or general partner interests in our funds, may be subject to increased risk of liability under environmental laws that impose, regardless of fault, joint and several liability for the cost of remediating contamination and compensation for damages. In addition, changes in environmental laws or regulations or the environmental condition of an investment may create liabilities that did not exist at the time of acquisition and may not have been foreseeable. Even in cases where we are indemnified by a seller with respect to an investment against liabilities arising out of violations of environmental laws and regulations, there can be no assurance as to the financial viability of the seller to satisfy such indemnities or our ability to achieve enforcement of such indemnities.
• Investments in real assets may be subject to additional risk of liability for personal and property injury, for which we may not be fully insured or indemnified, or impose significant operating challenges and costs, for example with respect to compliance with zoning, environmental or other applicable laws.
• Investments in real assets may be subject to construction risks, including: (i) labor disputes, shortages of material and skilled labor, or work stoppages; (ii) the availability and timely receipt of zoning and other regulatory or environmental approvals; (iii) the availability of construction financing on favorable terms, or at all; (iv) slower than projected construction progress and the unavailability or late delivery of necessary equipment; (v) less than optimal coordination with public utilities in the relocation of their facilities; (vi) natural disasters, adverse weather conditions and unexpected construction conditions; (vii) accidents or the breakdown or failure of construction equipment or processes; and (viii) catastrophic events such as explosions, fires and terrorist activities or cyberattacks, and other similar events. Recourse against the contractor may be subject to liability caps or may be subject to default or insolvency on the part of the contractor. These risks could create substantial unanticipated delays or expenses and, under certain circumstances, could result in prolonged construction periods or prevent completion of construction activities once undertaken, which could cause investments to not be cash generative for a prolonged period or indefinitely.
• Investments in real assets may involve significantly enhanced risks relating to significant catastrophic or force majeure events, which could materially and adversely affect us, including, among other effects, causing personal injury or loss of life, damage to property, or disruptions of service, any of which may result in permanent loss of customers, litigation, or penalties for regulatory or contractual non-compliance.
• The management of the business or operations of a real asset may be contracted to a third-party management company unaffiliated with us. Although it would be possible to replace any such operator, the failure of such an operator to adequately perform its duties or to act in ways that are in the best interest of the investment, or the breach by an operator of applicable agreements or laws, rules and regulations, including instances of bribery, fraud or other deceptive practices, could have a material adverse effect on us. Real asset investments may involve the subcontracting of activities in respect of projects, and as a result our investments are subject to the risk that contractual provisions passing liabilities to a subcontractor could be ineffective, the subcontractor fails to perform services that it has agreed to perform, and subcontractor insolvency.
• Technology advances, legislative changes, or changes in consumer’s preferences or ESG-focus may decrease the value of our real assets investments.
• Real assets may be especially prone to adverse consequences of climate change and prolonged and potentially accelerating changes in climatic conditions, together with the response or failure to respond to these changes, could have a significant impact on the revenues, expenses and conditions of real assets and our related investments. See "—Risks Related to Our Business—Natural disasters and catastrophes, including public health crises, and potential changes in climate conditions could materially and adversely affect KKR." Although we may invest in a diverse range of real assets, certain types of real assets are subject to heightened risks, including certain infrastructure assets, such as in the renewable energy industry, which is a rapidly evolving market and contractual arrangements related to air craft leasing are impacted by the cyclical and competitive attributes of the airline industry.
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Without limiting the foregoing risks, investments that we manage and may make in the future in the oil and gas industry may present specific environmental, safety and other inherent risks. Such investments are subject to stringent and complex foreign, federal, state and local laws, ordinances and regulations specific to oil and gas industries, including, for example, those governing transportation, exploration and production of oil and natural gas. There are also various conservation laws and regulations applicable to oil and natural gas production and related operations, in addition to regulations governing occupational health and safety, the discharge of materials into the environment and other practices relating to environmental protection. Failure to comply with applicable laws, ordinances and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations, the incurrence of delays in the permitting, development or expansion of projects and the issuance of orders enjoining some or all of our operations in affected areas. These laws, ordinances and regulations may also restrict the rate of oil and natural gas production below the rate that would otherwise be possible, require additional permits for operations or require the installation of additional pollution control equipment, the costs of each of which could be material and reduce profitability. In addition to the risks listed above, our oil and gas investments are subject to other risks, such as:
• commodity price volatility and realized oil, natural gas and natural gas liquid (“NGL”) prices;
• adverse variations from estimates of reserves, production, prices and expenditure requirements, and associated inability to replace reserves through exploration and development activities;
• information technology failures or cyberattacks;
• for non-operated properties, dependence on the skill, ability and decisions of third-party operators, their exploration, development, drilling and completion activities, the timing and cost of drilling, completing and operating wells and their ability to comply with applicable laws, rules and regulations;
• political and economic conditions and events in foreign oil, natural gas and NGL producing countries, including embargoes, continued hostilities in the Middle East and other sustained military campaigns, the armed conflict in Ukraine and associated economic sanctions on Russia, conditions in South America, Central America and China, and acts of terrorism or sabotage; and
• if commodity prices decline and remain depressed for a prolonged period, the possibility that a significant portion of our development projects becomes uneconomic and cause significant write-downs of the value of our oil and gas properties.
Similarly, investments in both commercial and residential real estate are subject to the specific risks inherent in the ownership and operation of real estate and real estate-related businesses and assets. These risks include those generally associated with the ownership of real property, such as: general and local economic conditions; changes in supply of and demand for competing properties in an area; fluctuations in the average occupancy; the financial resources of tenants; changes in building, environmental and other laws; energy and supply shortages; various uninsured or uninsurable risks; natural disasters; changes in government regulations (such as rent control); changes in real property tax rates; changes in interest rates; the reduced availability of mortgage funds that may render the sale or refinancing of properties difficult or impracticable; negative developments in the economy; and contingent liabilities on disposition of assets. Our real estate investments are also subject to additional risks, including the following:
• The success of certain investments will depend on the ability to restructure and effectuate improvements in the operations of the applicable properties, and there is no assurance that we will be successful in implementing such restructuring programs and/or improvements;
• If we acquire direct or indirect interests in undeveloped land or underdeveloped real property, which may often be non-income producing, they will be subject to the risks normally associated with such assets and development activities, including risks relating to the availability and timely receipt of zoning and other regulatory or environmental approvals, the cost and timely completion of construction, and the availability of both construction and permanent financing on favorable terms;
• The strategy of our real estate investment vehicles may be based, in part, on the availability for purchase of assets at favorable prices followed by the continuation or improvement of market conditions or on the availability of refinancing. No assurance can be given that real estate businesses or assets can be acquired or disposed of at favorable prices or that refinancing will be available;
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• In connection with obtaining commercial loans backed by real estate, the lender will typically require a “bad boy” guarantee, in which our investment vehicles and we (including our insurance subsidiaries) may guarantee liability for environmental liabilities and bad acts including fraud, intentional misrepresentation, voluntary bankruptcy and other acts. It is expected that commercial real estate financing arrangements generally will require "bad boy" guarantees and in the event such guarantee is called, a fund's or our assets could be materially and adversely affected;
• The acquisition, ownership and disposition of real properties carries certain litigation risks pertaining to liabilities arising before, during and after the period of ownership. For example, litigation may be commenced by third parties such as renters or tradesmen with respect to activities that took place prior to the acquisition of such property. After the sale of a real estate asset, buyers may later sue for losses associated with problems alleged not to have been assumed by the buyer; and
• We manage REITs, which may be affected by changes in the value of their underlying properties and by defaults by borrowers or tenants. REITs depend on their ability to generate cash flow to make distributions and may be impacted by changes in tax laws or by a failure to qualify for tax-free pass through income. Investments in real estate debt investments may be unsecured and subordinated to a substantial amount of indebtedness and may not be protected by financial covenants. Non-performing real estate loans may require a substantial amount of workout negotiations and/or restructuring, which may entail, among other things, a substantial reduction in the interest rate and a substantial write-down of the principal of such loan. Investments in commercial mortgage loans are subject to risks of delinquency, foreclosure and loss of principal. In the event of any default under a mortgage loan held directly by our investment vehicle or us, our investment vehicle or we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the loan. Investments in assets or businesses that are distressed may have little or no near-term cash flow and involve a high degree of risk. Such investments subject to bankruptcy or insolvency could be subordinated or disallowed.
Our infrastructure investments are also subject to additional risks, including the following:
• the acquisition of infrastructure assets involves substantive continuing involvement by, or an ongoing commitment to, regulatory agencies, which often have considerable discretion to change or increase regulation of the operations of infrastructure assets. There can be no assurance that (i) existing regulations applicable to acquisitions generally or the infrastructure assets will not be revised or reinterpreted; (ii) new laws and regulations will not be adopted or become applicable to infrastructure assets, which might impose conditions on the construction, operations and activities of an infrastructure asset as a condition to receiving regulatory approval or to satisfy regulatory requirements; (iii) the technology, equipment, processes and procedures selected by infrastructure assets to comply with current and future regulatory requirements will meet such requirements; (iv) such infrastructure assets’ business and financial conditions will not be materially and adversely affected by such future changes in, or reinterpretation of, laws and regulations (including the possible loss of exemptions from laws and regulations) or any failure to comply with such current and future laws and regulations; or (v) regulatory agencies or other third parties will not bring enforcement actions in which they disagree with regulatory decisions made by other regulatory agencies. Infrastructure assets may rely on complex government licenses, concessions, leases or contracts, which may be difficult to obtain or maintain. Furthermore, regulatory agencies could be influenced by political considerations and could make decisions that adversely affect an infrastructure asset’s business, infrastructure assets may become politicized, which could attract an undesirable level of publicity;
• in many instances, the operation or acquisition of infrastructure assets may involve an ongoing commitment to or from municipal, state, federal or foreign government or regulatory agencies. The nature of these obligations exposes the owners of infrastructure assets to a higher level of regulatory control than is typically imposed on other businesses, which could prevent operation of a facility owned by an infrastructure asset, the completion of a previously announced acquisition or sale to third parties, or could otherwise result in additional costs and material adverse consequences to an infrastructure asset and investments in such assets;
• infrastructure investments may require operators to manage such investments, and such operators' failure to comply with laws may materially and adversely affect the value of such investments and cause us serious reputational and legal harm;
• from a commercial perspective, revenues for such investments may rely on contractual agreements for the provision of services with a limited number of counterparties and are consequently subject to heightened counterparty default risk;
• the operations and cash flow of infrastructure investments are also more sensitive to inflation and, in certain cases, commodity price risk; and
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• services provided by infrastructure investments may be subject to rate regulations by government entities that determine or limit prices that may be charged and users of applicable services, or government entities in response to such users, may react negatively to any adjustments in rates, which may reduce the profitability of such infrastructure investments'.
Our growth equity strategy invests in emerging and less established companies that are heavily dependent on new technologies where success is less certain.
Our growth equity investment vehicles may make investments in companies that are in a conceptual or early stage of development. These companies are often characterized by short operating histories, new technologies and products, quickly evolving markets, management teams that may have limited experience working together and, in many cases, negative cash flow, all of which enhance the difficulty of evaluating these investment opportunities and the ultimate success of such investments. Other substantial operational risks to which such companies are subject include: uncertain market acceptance of the company's products or services; a high degree of regulatory risk for new or untried or untested business models, products and services; high levels of competition among similarly situated companies; new competing products and technology; lower barriers to entry and downward pricing pressure; lower capitalizations and fewer financial resources; the potential for rapid organizational or strategic change; and susceptibility to personal misconduct by or departure of key executives or founders. In addition, growth equity companies may be more susceptible to macroeconomic effects and industry downturns, and their valuations may be more volatile depending on the achievement of milestones, such as receiving a governmental license or approval. Growth equity companies generally depend heavily on intellectual property rights, including patents, trademarks and proprietary products or processes. The ability to effectively enforce patent, trademark and other intellectual property laws in a cost-effective manner will affect the value of many of these companies. The presence of patents or other intellectual property rights belonging to other parties may lead to the termination of the research and development of a portfolio company's particular product. In addition, if a portfolio company infringes on third-party patents or other intellectual property rights, it could be prevented from using certain third-party technologies or forced to acquire licenses in order to obtain access to such technologies at a high cost.
We make investments in companies and assets that are based outside of the United States, which may expose us to additional risks not typically associated with investing in companies that are based in the United States or materially exacerbate risks associated with investing in companies and assets based in the United States.
We invest a significant portion of our assets under management in the equity, debt, loans or other securities of issuers and in other assets that are based outside of the United States. Investing in companies or assets that are based or have significant operations in countries outside of the United States and, in particular, in emerging markets such as China and India, Eastern Europe, South and Southeast Asia, Latin America and Africa, involves risks and considerations that are not typically associated with investments in companies or assets established in the United States. These risks may include the following:
• the possibility of restrictions on foreign direct investment and exchange control regulations;
• restrictions on repatriation of profit on investments or of capital invested;
• the imposition of non-U.S. taxes or withholding taxes on income or gain with respect to certain assets and/or changes in tax law;
• differences in the legal and regulatory environment, such as the recognition of information barriers, or enhanced legal and regulatory compliance;
• greater levels of corruption and potential exposure to the FCPA and other laws that prohibit improper payments or offers of payments to foreign governments, their officials and other third parties;
• violations of trade sanctions or trade control regimes and the potential for the imposition of new or additional tariffs;
• limitations on borrowings to be used to fund acquisitions or dividends;
• limitations on the deductibility of interest and other financing costs and expense for income tax purposes in certain jurisdictions;
• limitations on permissible counterparties in our transactions or consolidation rules that effectively restrict the types of businesses in which we may invest;
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• political risks generally, including political and social instability, nationalization, expropriation of assets or political hostility to investments by foreign or private equity investors;
• less liquid markets;
• reliance on a more limited number of commodity inputs, service providers or distribution mechanisms;
• adverse fluctuations in currency exchange rates and costs associated with conversion of investment principal and income from one currency into another;
• higher rates of inflation;
• less available current information about an issuer;
• higher transaction costs;
• less government supervision of exchanges, brokers and issuers;
• less developed bankruptcy and other laws;
• greater application of concepts like equitable subordination, which may, in bankruptcy or insolvency, result in the subordination of debt or other senior interests held by our investment funds, vehicles or accounts in companies in which our investment funds, vehicles or accounts also hold equity interests;
• difficulty in enforcing contractual obligations;
• lack of uniform or robust accounting, auditing, financial reporting standards, practices and disclosure requirements, and less government supervision and regulation;
• less stringent requirements relating to fiduciary duties;
• fewer investor protections; and
• greater price volatility.
See also “—Risks Related to Our Business—Extensive regulation of our businesses affects our activities and creates the potential for significant liabilities and penalties, which could materially and adversely affect KKR,” “—Risks Related to Our Business—Difficult market and economic conditions can, and periodically do, materially and adversely affect KKR,” and “—Risks Related to Our Business—Geopolitical developments and other…”
Third-party investors in our investment vehicles with commitment-based structures may not satisfy their contractual obligation to fund capital calls when requested by us, which could adversely affect an investment vehicle's operations and performance.
Investors in our funds and certain other investment vehicles make capital commitments that our funds and other investment vehicles are entitled to call from those investors at any time during prescribed periods. We depend on these investors fulfilling their commitments when we call capital from them in order for such investment vehicles to consummate investments and otherwise pay their obligations (for example, management fees) when due. Any such investor that did not fund a capital call would generally be subject to several possible penalties, including having a significant amount of existing investment forfeited in that investment vehicle. However, the impact of the penalty is directly correlated to the amount of capital previously invested by the investor in the investment vehicle. If an investor has invested little or no capital, for instance, early in the life of the investment vehicle, then the forfeiture penalty may not be as meaningful. Investors may in the future also negotiate for lesser or reduced penalties at the outset of the investment vehicle, thereby inhibiting our ability to enforce the funding of a capital call. If our investment vehicle investors were to fail to satisfy a significant amount of capital calls for any particular investment vehicle or investment vehicles, the operation and performance of those investment vehicles could be materially and adversely affected.
Our business activities may give rise to a conflict of interest with our clients.
As we have expanded and as we continue to expand the number and scope of our businesses, we increasingly confront potential conflicts of interest relating to investment activities among our various investment vehicles and also our own investments made by our balance sheet, which includes our insurance subsidiaries. For example:
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• In pursuing the interest of our fund investors, we may take actions that could reduce our AUM or our profits that we could otherwise realize in the short term;
• We may be required to allocate investment opportunities among investment vehicles that may have overlapping investment objectives, including vehicles that may have different fee structures, and among KKR investment vehicles (including vehicles in which KKR employees may invest) and third-party co-investors;
• We may decide to transfer (or not to transfer) assets owned by us on our balance sheet to investment vehicles or accounts we manage, which could give rise to claims of conflicts of interest, including with respect to the nature of these assets and the method by which they were valued;
• We may, on behalf of our investment vehicles or our balance sheet (including our insurance subsidiaries), buy, sell, hold or otherwise deal with securities or other investments that may be purchased, sold or held by our other investment vehicles or that are otherwise issued by a portfolio company in which our investment vehicles or we invest. Conflicts of interest may arise between an investment vehicle, on one hand, and KKR (including our insurance subsidiaries), on the other, or among our investment vehicles, including those relating to the purchase or sale of investments, the structuring or exercise of rights with respect to investment transactions, and the advice we provide to our investment vehicles and our insurance subsidiaries. For example, KKR or a specific investment vehicle may sell an investment at a different time or for different consideration than other investment vehicles;
• We may invest on behalf of our investment vehicles, or for our own account, in a portfolio company of one investment vehicle that is a competitor, service provider, supplier, customer, or other counterparty with respect to a portfolio company of another investment vehicle;
• We may structure an investment in a manner that may be attractive to investment vehicle investors from a tax perspective even though KKR is required to pay corporate taxes;
• A decision to acquire material non-public information about a company while pursuing an investment opportunity for a particular investment vehicle or our own account may result in our having to restrict the ability of other investment vehicles to take any action with regards to that company or its securities;
• Our fiduciary obligations to our investment vehicle investors may preclude us from pursuing attractive proprietary investment opportunities, in particular as we enter into strategic relationships with broad investment mandates similar to the investments we make with our balance sheet;
• Conflicts may arise in allocating investments, time, services, expenses or resources among the investment activities of our investment vehicles, KKR (including our insurance subsidiaries), other KKR-affiliated entities and the employees of KKR;
• Our employees have made personal investments in a variety of our investment vehicles, which may result in conflicts of interest among investors of our investment vehicles or stockholders regarding investment decisions for these investment vehicles;
• Our entitlement to receive carried interest from many of our investment vehicles may create an incentive for us to make riskier and more speculative investments on behalf of an investment vehicle than would be the case in the absence of such an arrangement. In addition, for our investment vehicles that pay carried interest based on accrued rather than realized gains, the amount of carried interest to which we are entitled and the timing of its receipt will depend on our valuation of the investment vehicle's investment;
• Under the 2017 Tax Act, investments must be held for more than three years, rather than the prior requirement of more than one year, for carried interest to be treated for U.S. federal income tax purposes as capital gain, which may create a conflict of interest between the limited partner investors (whose investments would receive such capital gain treatment after a holding period of only one year) and the general partner on the execution, closing or timing of sales of an investment vehicle's investments in connection with the receipt of carried interest;
• From time to time, one of our funds or other investment vehicles (including CLOs) may seek to effect a purchase or sale of an investment with one or more of our other funds or other investment vehicles in a so-called "cross transaction," or we (including our insurance subsidiaries) as a principal may seek to effect a purchase or sale of our investment with one or more of our funds or other investment vehicles in a so-called "principal transaction";
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• A dispute may arise between our portfolio companies, and if such dispute is not resolved amicably or results in litigation, it could cause significant reputational harm to us, and our investment vehicle investors may become dissatisfied with our handling of the dispute;
• The investors in our investment vehicles are based in a wide variety of jurisdictions and take a wide variety of forms, and consequently have diverging interests among themselves from a regulatory, tax or legal perspective or with respect to investment policies and target risk/return profiles; and
• We or our affiliates, including our capital markets business, may receive fees or other compensation in connection with specific transactions or different clients that may give rise to conflicts. The decision to take on an opportunity in one of our businesses may, as a practical matter, also limit the ability of one or our other businesses to take advantage of other related opportunities.
In addition, allocating investment opportunities appropriately frequently involves significant and subjective judgments. The risk that investors in our investment vehicles or regulators could challenge allocation decisions as inconsistent with our obligations under applicable law, governing fund agreements, or our own policies cannot be eliminated. Moreover, the perception of noncompliance with such requirements or policies could harm our reputation with fund investors. As with our investment allocation decisions generally, there is a risk that regulators or investors in our investment vehicles could challenge our allocations of co-investment opportunities or fees and expenses. For example, any steps taken by the SEC to preclude or limit certain conflicts of interest would make it more difficult for our investment vehicles to pursue transactions that may otherwise be attractive to the fund and its investors, which may adversely impact fund performance.
In addition, our investment vehicles also invest in a broad range of asset classes throughout the corporate capital structure. These investments include investments in corporate loans and debt securities, preferred equity securities and common equity securities. In certain cases, we (including our insurance subsidiaries) or our investment vehicles may invest in different parts of the same company's capital structure. For example, our credit investment vehicles may invest in different classes of the same company's debt and may make debt investments in a company that is owned by one of our private equity investment vehicles. In those cases, the interests of KKR and our investment vehicles may not always be aligned, which could create actual or potential conflicts of interest or the appearance of such conflicts. For example, one of our private equity funds could have an interest in pursuing an acquisition, divestiture or other transaction that, in its judgment, could enhance the value of the private equity investment, even though the proposed transaction would subject one of our credit investment vehicle's debt investments to additional or increased risks.
We may also invest, or cause different investment vehicles to invest, in a single portfolio company, for example, where the investment vehicle that made an initial investment no longer has capital available to invest. In certain cases, we may require that a transaction or investment be approved by fund investors or their advisory committees, be approved by a committee of independent directors of Global Atlantic, be approved by an independent valuation expert, be subject to a fairness opinion, be based on arm's-length pricing data or be calculated in accordance with a formula provided for in an investment vehicle's governing documents prior to the completion of the relevant transaction or investment to address potential conflicts of interest. Such instances include principal transactions where we or our affiliates warehouse an investment in a portfolio company for the benefit of one or more of our investment vehicles pending the contribution of committed capital by the investors in such investment vehicles, follow-on investments by an investment vehicle other than an investment vehicle that made an initial investment in a company, or transactions in which we arrange for one of our investment vehicles to buy a security from, or sell a security to, another one of our investment vehicles.
While we will try to mitigate these conflicts of interests, or when transactions may be suitable for multiple accounts, including our insurance subsidiaries and our own balance sheet, we may be unsuccessful in such mitigation efforts, or we may be obliged to take an action or refrain from taking an action that would be advantageous to us as a firm. To the extent we are unable to effectively manage these conflicts of interest, our reputation, business and financial results may be adversely affected.
Appropriately dealing with actual or perceived conflicts of interest is complex and difficult and we could suffer reputational damage or potential liability if we fail, or appear to fail, to deal appropriately with conflicts as they arise. Regulatory scrutiny on, or litigation in connection with, conflicts of interest could have a material adverse effect on our reputation, which could in turn materially and adversely affect our business in a number of ways, including as a result of an inability to raise additional investment vehicles, an inability or unwillingness for customers to enter into or establish new insurance business with Global Atlantic without material restrictions or at all, and a reluctance of counterparties to do business with us.
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Investors in certain of our investment vehicles are entitled to redeem their investments in these vehicles on a periodic basis, and certain of our investment advisory agreements may be terminated with minimal notice.
Unlike investors in our traditional real estate and infrastructure funds, which in general do not permit redemptions of their fund interests until the liquidation of the funds upon their scheduled dates to terminate, our core real estate and infrastructure funds permit their investors to redeem their fund interests from time to time. Substantial redemptions could be triggered by a number of events, including investment performance, events in the markets, significant change in our personnel, our removal or replacement as the investment manager of the investment vehicle, legal or regulatory issues that investors perceive to have a bearing on the investment vehicle, or other events. While the general partner of such funds has no obligation to take any actions to satisfy redemption requests other than out of available cash in the investment vehicle, actions taken to meet substantial redemption requests could result in material adverse effect to the fund’s investments, ability to make new investments, or otherwise be able to achieve its investment objects, which could negatively impact our financial results.
Investors in certain of our leveraged credit investment vehicles may generally submit redemptions to redeem their investments on a quarterly, monthly, or other periodic basis (subject to, in some cases, the expiration of a specified period of time or, in certain cases, a withdrawal fee on withdrawals before the expiration of a specified period), subject to the applicable investment vehicle’s specific redemption provisions. Factors that could result in investors leaving our investment vehicles include changes in interest rates that make other investments more attractive, changes in or rebalancing due to investors’ asset allocation policy, changes in investor perception regarding our focus or alignment of interest, unhappiness with an investment vehicle’s performance or investment strategy, changes in our reputation, departures or changes in responsibilities of key investment professionals, and performance and liquidity needs of investment vehicle investors. In a declining market or period of economic disruption or uncertainty, the pace of redemptions and consequent reduction in our AUM could accelerate. The decrease in revenues that would result from significant redemptions from our investment vehicles or other similar investment vehicles could have a material adverse effect on our business, revenues, net income and cash flows.
We also currently sponsor, and expect to further sponsor, investment vehicles that are offered to individual investors where the terms of such vehicles typically permit periodic redemptions in accordance with the terms set forth in their applicable disclosure documents. There is a risk that such vehicles will lack adequate liquidity to satisfy any unexpected redemption requests, which may occur for a variety of reasons, including, in addition to the ones identified above, compliance obligations of their investors and increases in their investors’ liquidity needs, which tend to be more pronounced during periods of market volatility and which may escalate in any period and be particularly pronounced for investment vehicles whose governing agreements permit investment vehicle investors, up to certain limits or caps, to submit redemption requests periodically, including potentially as frequently as monthly. Any such redemptions would decrease our AUM and revenues. While terms such as caps or limits on redemption amounts may potentially reduce some of the risks around liquidity, decreased AUM and revenues and other concerns, there could still be significant and materially adverse reputational harm caused by redemption requests that in the aggregate trigger any caps or limits that legally permit our vehicles to “gate” or not honor redemption requests, and this could also cause materially adverse harm to the respective investment vehicle. During periods of market volatility, investor subscriptions to such vehicles are likely to be reduced, and investor redemption or repurchase requests are likely to be elevated, which may negatively impact the fees we earn from such vehicles.
The inclusion of redemption features in the investment vehicles offered by us create heightened risk of operational error, including with respect to the calculation of net asset values. Any such errors could adversely affect the exercise of redemption rights by their investors and could materially and adversely affect our revenues and profitability, including as a result of any resulting litigation or regulatory investigations. In addition, general concerns about market or macroeconomic conditions not specific to us or our investment vehicles could materially increase the number of redemption requests our investment vehicles receive, which would further enhance these risks.
A portion of assets invested in our investment vehicles in the Credit and Liquid Strategies business line are managed through separately managed accounts or entities structured for investment by one investor or related investors whereby we earn management and incentive fees, and we intend to continue to seek additional separately managed account or single entity mandates. The investment management agreements we enter into in connection with managing separately managed accounts or entities on behalf of certain clients may be terminated by such clients on little or no notice. In addition, we provide sub-advisory services to other investment advisers and managers. Such investment advisers and managers could terminate our sub-advisory agreements on little or no notice. In the case of any such terminations, the management and incentive fees we earn in connection with managing such account or company would immediately cease, which could result in a material adverse impact on our revenues.
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In addition, certain investment vehicles in our Credit and Liquid Strategies business line are registered under the Investment Company Act as management investment companies. These investment vehicles and their respective investment advisers are subject to the Investment Company Act and the rules thereunder. The management fees we and our affiliate receive for managing registered investment companies and BDCs will generally be subject to contractual rights the company’s board of directors has to terminate KKR’s or our affiliate’s management of an account on as short as 60 days’ prior notice. Termination of these agreements would reduce the fees we earn from the relevant investment vehicles, which could have a material adverse effect on us.
Finally, certain of our investment management agreements with clients, including our agreements with KREF, Crescent, Global Atlantic and other investment vehicles, may be terminated by the client based on the terms stated in those agreements, which include the possibility to terminate due to materially poor investment management.
Our stakes in our hedge fund partnerships subject us to numerous additional risks.
Our stakes in our hedge fund partnerships subject us to numerous additional risks applicable to hedge funds and funds of funds, including the following:
• Generally, there are few limitations on the execution of investment strategies of a hedge fund or fund of funds, which are subject to the sole discretion of the management company or the general partner of such funds;
• A fund of funds is subject to unique risks related to the limited rights it has to withdraw, redeem, transfer or otherwise liquidate its investments from the underlying hedge funds or other funds in which it invests, including restrictions on the redemption of capital and on the amount, frequency, timing and size of redemptions;
• Hedge funds may engage in short selling, which is subject to theoretically unlimited loss, in that the price of the underlying security could theoretically increase without limit, thus increasing the cost of buying those securities to cover the short position. Purchasing securities to close out the short position can itself cause the prices of the securities to rise further, thereby exacerbating the loss;
• Hedge funds may enter into CDS as investments or hedges. CDS involve greater risks than investing in the reference obligation directly. For example, purchasing securities to close out short positions can itself cause the prices of the securities to rise further, thereby exacerbating the loss;
• Hedge funds are exposed to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem, thus causing the fund to suffer a loss. Counterparty risk is accentuated for contracts with longer maturities where events may intervene to prevent settlement, or where the fund has concentrated its transactions with a single or small group of counterparties. Generally, hedge funds are not restricted from dealing with any particular counterparty or from concentrating any or all of their transactions with one counterparty;
• The efficacy of investment and trading strategies depends largely on the ability to establish and maintain an overall market position in a combination of financial instruments. A hedge fund’s trading orders may not be executed in a timely and efficient manner due to various circumstances. In such event, the funds might only be able to acquire some but not all of the components of the position, or if the overall position were to need adjustment, the funds might not be able to make such adjustment. As a result, the funds would not be able to achieve the market position selected by the management company or general partner of such funds, and might incur a loss in liquidating their position;
• Hedge funds may make investments that they do not advantageously dispose of prior to the date the applicable fund is dissolved, either by expiration of such fund’s term or otherwise. Although we generally expect that investments will be disposed of prior to dissolution or be suitable for in-kind distribution at dissolution, these funds may have to sell, distribute or otherwise dispose of investments at a disadvantageous time as a result of dissolution. This would result in a lower than expected return on the investments and, perhaps, on the fund itself;
• Hedge funds may rely on computer programs, internal infrastructure and services, quantitative models (both proprietary models and those supplied by third parties) and information and data provided by third parties to trade, clear and settle securities and other transactions, among other activities, which are critical to the oversight of certain funds’ activities. If any such models, information or data prove to be incorrect or incomplete, any decisions made in reliance thereon could expose the funds to potential risks. Any hedging based on faulty models, information or data may prove to be unsuccessful and adversely impact a fund’s profits;
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• Hedge fund investments are also subject to risks relating to investments in commodities, futures, options and other derivatives, the prices of which are highly volatile and may be subject to the theoretically unlimited risk of loss in certain circumstances, including if the fund writes a call option. Price movements of commodities, futures and options contracts and payments pursuant to swap agreements are influenced by many factors, including market and economic conditions and geopolitics. Most U.S. commodities exchanges limit fluctuations in certain commodity interest prices during a single day by imposing “daily price fluctuation limits” or “daily limits,” the existence of which may reduce liquidity or effectively curtail trading in particular markets. Hedge funds and funds of these hedge funds may also be subject to extensive regulations, including those of CFTC; and
• The timing and receipt of incentive fees earned as part of our hedge fund partnerships are also highly dependent on the net asset value of these funds and their investment strategies, which could add to volatility in our quarterly results and cash flow, as we are exposed to the volatility and fluctuations in financial results of these hedge fund managers and could become exposed to lawsuits or other liabilities arising from their business and operations.
Our investments in hedge fund managers may subject us to additional regulatory complexities or scrutiny if we are deemed to control the company for regulatory purposes, despite our minority interest. These asset managers may also be dependent on their founders and other key persons, and the loss of these key personnel could adversely impact our investment.
To the extent the financial condition of one or more of our third-party hedge fund managers with which we have hedge fund partnerships is adversely affected by these risks, our financial results would be adversely effected.
Risks Related to our Insurance Activities
Through our ownership of Global Atlantic, we operate an insurance business, which is subject to material risks and uncertainties that are different from, and incremental to, the risks relating to KKR’s asset management business or KKR’s management of Global Atlantic’s investments.
The Global Atlantic acquisition may not achieve its intended benefits, and certain difficulties, costs or expenses may outweigh such intended benefits.
The acquisition of Global Atlantic may still result in material difficulties and costs, both for KKR and for Global Atlantic, which may be exacerbated now that KKR owns 100% of Global Atlantic as of January 2, 2024. In addition, we may still be unable to realize all of the anticipated benefits of the Global Atlantic acquisition, including whether the Global Atlantic business will continue to operate and grow in the manner we anticipate. A significant portion of the benefit of the acquisition is anticipated to come from KKR's role as investment adviser for Global Atlantic's insurance subsidiaries. Prior to KKR's acquisition of a majority stake in Global Atlantic in 2021, KKR had not managed the entirety of the investment assets of an insurance company or assets of insurance companies at this scale. With respect to Global Atlantic, such difficulties will continue to include complying with financial reporting and disclosure requirements as a subsidiary of a public company and the costs of remediating such difficulties. With respect to KKR, such difficulties include unknown potential liabilities from owning Global Atlantic, such as potential regulatory changes or claims from former investors in Global Atlantic.
In addition, Global Atlantic's historical growth rates may not be indicative of its future growth, Global Atlantic may not be able to identify attractive insurance markets, reinsurance opportunities or investments with returns that are as favorable as Global Atlantic's historical returns or grow new business volumes at historical levels, or Global Atlantic may not effectively manage its growth. To maintain or increase investment returns, it may be necessary to expand the scope of Global Atlantic's investing activities to asset classes in which Global Atlantic historically has not invested, which may increase the risk of Global Atlantic's investment portfolio. Growth opportunities may be in new or adjacent product offerings and in new jurisdictions where Global Atlantic historically has had less experience. Pursuing opportunities in these new areas may subject Global Atlantic to new and complex insurance regulations and business considerations. If Global Atlantic is unable to find or manage profitable growth opportunities, it will be more difficult for Global Atlantic to continue to grow and could materially affect Global Atlantic. In addition, if preferences for Global Atlantic's individual or institutional products change or Global Atlantic is unable to offer competitive pricing and attractive terms, Global Atlantic's revenues and results of operations may be materially and adversely impacted. Moreover, as an insurance company, Global Atlantic's ability to grow is dependent on the sufficiency of its capital base to support that growth. Global Atlantic may need to seek additional capital to manage its growth, and Global Atlantic may not be able to maintain its current strong capital position as it grows. As Global Atlantic grows, it must invest additional assets, which poses increased investment risk. Growth may also increase the risk of service problems, and Global Atlantic may need to expend additional resources to provide consistent service. Any service problems may cause reputational harm or increased scrutiny by regulators. Future growth will also impose added responsibilities on Global Atlantic's management and will introduce additional regulatory complexity.
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Many of the foregoing factors will be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management's time and energy, which could adversely affect KKR.
Volatile market and economic conditions, including sustained periods of low interest rates, a sustained increase in interest rates and other interest rate fluctuations, may adversely affect our insurance business.
Global Atlantic's benefit liabilities are sensitive to changing market and economic conditions, in particular benefit liabilities related to Global Atlantic's fixed-indexed annuity and indexed universal life products and products with guaranteed minimum withdrawal or surrender or secondary guarantee features. In times of difficult market and economic conditions, Global Atlantic's policyholders may choose to defer paying insurance premiums, stop paying insurance premiums altogether or surrender their policies, or there could be an elevated rate of defaults within certain of Global Atlantic's investments. In addition, actual or perceived difficult conditions in the capital markets may discourage individuals from making investment decisions and purchasing Global Atlantic's products. Global Atlantic has from time to time experienced an elevated incidence of life insurance claims during periods of increased unemployment, which may adversely impact utilization of benefits relative to Global Atlantic's assumptions. The estimated cost of providing guaranteed minimum withdrawal and death benefits of certain insurance products requires Global Atlantic to make various assumptions about the overall performance of equity markets over the life of the product. Therefore, significant declines in equity markets could cause Global Atlantic to incur significant operating losses and capital increases due to, among other reasons, the impact of such decline on guarantees related to Global Atlantic's annuity products, including from increases in liabilities, increased capital requirements and/or collateral requirements associated with certain of Global Atlantic's agreements.
Interest rate risk in particular is a significant market risk for our insurance business, as fluctuations in market interest rates can expose Global Atlantic to the risk of reduced income in respect of its investment portfolio, increases in the cost of acquiring or maintaining its insurance liabilities, increases in the cost of hedging, or other fluctuations in Global Atlantic's financial, capital and operating profile which materially and adversely affect its business. This risk arises from Global Atlantic's holdings in interest rate-sensitive assets and liabilities, which include annuity products and long-duration life insurance policies, derivative contracts with payments linked to the level of interest rates or with market values which fluctuate based on the level of interest rates, and the fixed income assets Global Atlantic owns in its investment portfolio. Interest rate risk also includes adverse changes in customer behavior that may occur as a result of changes in interest rates. Both rising and declining interest rates can negatively affect our insurance business.
Periods of rising or higher interest rates may result in differing impacts on Global Atlantic’s business. We generally expect the yield on new investment purchases and income from any floating rate investments held in Global Atlantic’s investment portfolio to increase as interest rates rise, and higher interest rates also generally tend to increase the demand for certain of Global Atlantic’s products. However, higher interest rates may result in increased surrenders on interest-sensitive products, such as annuity contracts and certain life insurance policies, which may adversely affect Global Atlantic's earnings related to those products. This risk is present across most of Global Atlantic's insurance products, which can typically be surrendered for the cash value, less any applicable surrender charge, at any time. Higher policyholder surrenders may occur in response to rising interest rates as higher crediting rate investments might become available to policyholders in a higher rate environment. Global Atlantic may also need additional liquidity to pay insurance liabilities in excess of its assumptions due to market impacts on policyholder behavior. This increase in surrender outflows may create cash flow mismatches between cash received from Global Atlantic's investments versus cash needed to make policyholder liability payments as policyholders may surrender in higher numbers than expected. This mismatch could result in losses if assets must be liquidated at a loss to meet the increased policyholder obligations, which could result in potentially significant realized losses and a corresponding reduction in net income. If Global Atlantic fails to adequately cash flow match liabilities sold with higher benefits and interest rates fall while Global Atlantic holds that liability, Global Atlantic may not generate its expected earnings on those liabilities.
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In addition, the majority of our investments at Global Atlantic are in investment grade credit instruments. An increase in market interest rates could also have a material adverse effect on the value of Global Atlantic's investment portfolio (as rising interest rates will decrease the fair value of Global Atlantic’s credit investments and the value of embedded derivatives associated with funds withheld reinsurance transactions) at a time when Global Atlantic may be forced to liquidate investments. Sales of those investments at a loss, for example to raise cash to meet policyholder obligations upon surrender earlier than expected (as described above) or as Global Atlantic rotates out of investments acquired with new reinsurance transactions to our desired asset mix during a period of rising or higher rates compared to when the investment was acquired, is expected to decrease our net income in that period and such decrease could be significant. In addition, Global Atlantic expects that substantially all of its unrealized losses will not be realized as it intends to hold these investments until recovery of the losses, which may be at maturity, as part of its asset liability cash-flow matching strategy. However, if the market or industry- or company-specific factors relating to these investments deteriorate meaningfully Global Atlantic may be required to recognize an impairment to goodwill and may realize losses as a result of credit defaults or impairments on investments, either of which could have a material adverse effect on our results of operations and financial condition. An increase in surrenders or withdrawals also may cause Global Atlantic to accelerate the amortization of deferred acquisition costs ("DAC") and value of business acquired ("VOBA"), resulting in a decline in net income. Global Atlantic's cost of insurance on new business is generally expected to be elevated, including higher hedging costs, during a higher rate environment, as benefits to policyholders on new business will generally be higher.
During periods of falling interest rates, Global Atlantic may also face cash flow mismatches between interest earned on its investment portfolio and policy liabilities that may be crediting higher rates. When rates decline more policyholders might hold onto their products than expected because those products seem more attractive. However, Global Atlantic's ability to lower crediting rates is subject to several constraints. For instance, minimum crediting rates are filed with and approved by state regulators, and certain products contain interest rate guarantee periods and other characteristics that restrict this ability, among other restrictions. In addition, competition and other factors, including the potential for increases in surrenders and withdrawals, may limit Global Atlantic's ability to adjust or maintain crediting rates at levels necessary to avoid decreases in earnings under certain conditions. Prolonged periods of low interest rates could challenge product development and product attractiveness and may also result in Global Atlantic earning lower margins on new business volumes than Global Atlantic has historically earned. Lower interest rates may reduce the demand for Global Atlantic's insurance products, leading to lower sales. In addition, lower interest rates may make the reinsurance solutions Global Atlantic is able to offer more expensive to potential clients, decreasing their interest in executing reinsurance transactions with Global Atlantic. In a period of declining interest rates, Global Atlantic's investment earnings may decline because new investments will likely bear lower interest rates, and Global Atlantic may not be able to fully offset the decline in investment earnings with lower liability costs on the products these investments support. In addition, the yield on Global Atlantic's floating rate assets will decline as interest rates decline, reducing Global Atlantic's investment income. During periods of declining interest rates, life insurance and annuity products also may be relatively more attractive to consumers due to minimum guarantees, resulting in a higher percentage of contracts remaining in force than originally estimated, causing greater claims costs and asset/liability cash flow mismatches. Conversely, management actions to reduce rates on inforce contracts in response to declining interest rates may result in greater surrenders than originally estimated, which may adversely affect Global Atlantic's earnings related to those products. While Global Atlantic seeks to cash-flow match its assets to its policy liabilities, greater market volatility and uncertainty has made matching more difficult. To the extent that Global Atlantic does not or is unsuccessful in cash-flow matching, our insurance business will face the risk of having to reinvest in lower-yielding assets, reducing investment income. Moreover, certain of Global Atlantic's life insurance policies have a longer duration than available investment assets, and, in a declining rate environment, as assets backing these policies mature, the proceeds may have to be reinvested in lower-yielding assets, reducing investment income.
In addition, calculations of required insurance capital may move with interest rate movements and result in greater capital needs during economic downturns. The value of Global Atlantic’s assets and liabilities are inputs in the calculation of required capital, and the valuation of both assets and liabilities are sensitive to changes in interest rates.
The difference between shorter-term and longer-term rates (also known as the yield curve) may also impact our insurance business. Global Atlantic's investments are typically in longer-duration assets. Accordingly, the crediting rates offered on Global Atlantic's products typically appear more appealing when the yield curve is steeper, and Global Atlantic is better able to differentiate its products from shorter-term alternatives. As such, a flatter yield curve could present challenges to sales in the individual markets line of our insurance business.
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We may be required to accelerate the amortization of deferred revenues and expenses, including DAC and VOBA.
Our insurance business incurs significant costs in connection with acquiring new and renewal insurance business. DAC consists of commissions and other costs that are directly related to the successful acquisition of new or renewal insurance contracts. Deferrable sales inducements ("DSI") are generated by annuities that offer enhanced crediting rates or bonus payments to policyholders. VOBA represents the difference between the carrying value of the purchased in-force insurance contract liabilities at the time of the business combination and the estimated fair value of insurance and reinsurance contracts. Global Atlantic establishes an unearned revenue reserve ("URR") liability for revenues from certain universal life insurance products that are deferred to future periods and an unearned front-end load ("UFEL") for gross premium in excess of the benefit reserve plus additional insurance liability for certain preneed contracts. For limited pay contracts, a deferred revenue liability ("DRL") that represents the gross premium less the net premium is established. Each of DAC, VOBA, URR, UFEL and DRL requires significant estimates to establish and amortize. In conjunction with the Global Atlantic acquisition, purchase accounting required Global Atlantic to write-down intangibles, including DAC and VOBA, and then reestablish the new VOBA at the fair value for Global Atlantic. These purchase accounting adjustments will impact Global Atlantic's emergence of earnings in the future.
Global Atlantic periodically revises the key assumptions used in the calculation of the amortization of DAC, VOBA, URR, UFEL and DSI as part of the assumption review process. To the extent policy or contract terminations exceed projected levels, then the amortization of deferred revenues and expenses will be accelerated in the period of the change and will result in a charge to income, which could have a material adverse effect on Global Atlantic's profitability.
Differences between Global Atlantic's policyholder behavior estimates, reserve assumptions and actual claims experience, in particular with respect to the timing and magnitude of claims and surrenders, may adversely affect KKR.
Global Atlantic holds reserves to pay future policy benefits and claims. Global Atlantic's reserves are estimated based on data and models that include many assumptions and projections, which are inherently uncertain and involve significant judgment, including assumptions as to the levels and/or timing of receipt or payment of premiums, benefits, claims, expenses, interest credits, investment results (including equity and other market returns), mortality, morbidity, longevity and persistency.
While Global Atlantic periodically reviews the adequacy of its reserves and the assumptions underlying those reserves. We cannot determine with precision the amounts that Global Atlantic will pay for, or the timing of payment of, actual benefits, claims and expenses or whether the assets supporting policy liabilities, together with future premiums, will grow to the level assumed prior to the payment of benefits or claims. For Global Atlantic's directly issued fixed-rate annuities, reserves are equal to policyholder account balances before applicable surrender charges, and lapse, surrender rates and persistency assumptions are important assumptions used in calculating these reserves and drivers of profitability with respect to these products. Advances in technology, including predictive medical technology that enables consumers to select products better matched to their individual longevity or mortality risk profile and other medical breakthroughs that extend lives, could cause Global Atlantic's future experience to deviate significantly from actuarial assumptions, which could adversely impact the level of reserves and profitability. The resulting acceleration of expense amortization, reduced spread or increased payments could have a material adverse effect on our insurance business.
If actual experience differs significantly from assumptions or estimates, certain balances included in Global Atlantic's balance sheet may not be adequate, particularly DAC, VOBA, policy reserves and other actuarial balances. If Global Atlantic concludes that its reserves, together with future premiums, are insufficient to cover future policy benefits and claims, Global Atlantic would be required to increase its reserves and incur income statement charges for the period in which it makes the determination, which could have a material adverse effect on our insurance business. The increase in the statutory reserves of our insurance subsidiaries may negatively affect liquidity and capitalization.
Changes in regulations relating to reserves, such as implementation of principle-based reserving, may cause fluctuations to the amount of statutory reserves held and could adversely impact our insurance business. The NAIC is developing a new principle-based approach for fixed annuities that, if implemented, could result in higher statutory reserves and may cause greater fluctuations in the amount of statutory reserves held. There can be no guarantee as to whether these changes will be implemented or their impact on Global Atlantic.
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Estimates used in the preparation of financial statements and models for insurance products may differ materially from actual experience as these determinations involve a significant degree of judgment.
GAAP requires the application of accounting guidance and policies that often involve a significant degree of judgment when accounting for insurance products. These estimates include, but are not limited to, premium persistency, future policy benefits and related expenses, valuation of embedded derivatives, valuation and impairment of investments and amortization of deferred revenues and expenses. These accounting estimates require the use of assumptions, some of which are highly uncertain at the time of estimation. These estimates are based on judgment, current facts and circumstances and, when applicable, internally developed models. Therefore, actual results could differ from these estimates, possibly in the near term. Inaccuracies could result in, among other things, an increase in policyholder benefit reserves or acceleration of the amortization of deferred revenues and expenses, such as DAC and VOBA, which would result in a charge to earnings, a restatement of Global Atlantic's historical financial statements or other material adjustments. Additionally, the potential for unforeseen developments, including changes in laws, regulations or accounting standards, may result in losses and loss expenses materially different from the reserves initially established.
In addition, Global Atlantic employs models to price products, calculate reserves, value assets and generate projections used to estimate future pre-tax income, as well as to evaluate risk, determine internal capital requirements and perform stress testing, among other uses. These models rely on estimates and projections that are inherently uncertain, may use incomplete, outdated or incorrect data or assumptions and may not operate properly. As Global Atlantic's businesses continue to expand and evolve, the number and complexity of models it employs has grown, increasing exposure to error in the design, implementation or use of models, including the associated data input, controls and assumptions, and the controls in place to mitigate their risk may not be effective in all cases. Limitations or errors in the design, implementation or use of these models may be material and could lead Global Atlantic to make wrong or suboptimal decisions in aspects of its business, which could have a material adverse effect on our insurance business.
Global Atlantic's growth strategy includes reinsurance of insurance obligations written by unaffiliated insurance companies, and its ability to both consummate and realize the anticipated financial benefits from reinsurance transactions is uncertain.
Global Atlantic has grown and intends to continue growing its business through block reinsurance transactions, flow reinsurance, pension risk transfer reinsurance and the issuance of funding agreements. Global Atlantic routinely reviews potential reinsurance transactions, some of which may be material. To the extent Global Atlantic is unable to consummate suitable reinsurance transaction opportunities on acceptable terms, its future growth may be negatively impacted. Even if Global Atlantic does find suitable opportunities on commercially acceptable terms, Global Atlantic may not be able to consummate these transactions because of the regulatory approvals required or other considerations. There is no assurance Global Atlantic will continue to be successful in these institutional markets.
Competition, in particular with respect to transaction pricing, makes it more difficult to identify transactions with terms that are commercially acceptable based on Global Atlantic's objectives and analyses. Moreover, the NAIC is considering, and certain states have enacted, insurance business transfer laws that permit insurers to transfer blocks of business to other insurers by operation of law. Such transfers could become a viable alternative structure to block reinsurance transactions and consequently may materially and adversely impact Global Atlantic's ability to identify and enter into new block reinsurance transactions.
If Global Atlantic enters into a reinsurance transaction, there can be no assurance that the transaction will achieve the results expected at the time the transaction is executed. Certain Global Atlantic reinsurance transactions include cessions to third-party reinsurers, exposing Global Atlantic to counterparty risk that may be concentrated. In the event these counterparties become financially distressed, Global Atlantic may recapture liabilities it intended to reinsure off its balance sheet and may require additional capital to back these liabilities. In addition, Global Atlantic assumes servicing for policyholders and if servicing disruptions arise, Global Atlantic may experience customer complaints, regulatory intervention, or other adverse impacts.
With respect to potential future reinsurance transactions, there can be no assurance that opportunities will persist, and even if opportunities do persist, there can be no assurance that Global Atlantic will have sufficient capital available, or to the extent it does have sufficient capital, that such capital will be available in the necessary entities, to continue growing this part of Global Atlantic's business.
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Global Atlantic sponsors co-investment vehicles ("Co-Invest Vehicles"), including the Ivy Entities, which have capital committed to invest alongside Global Atlantic in certain block reinsurance, pension risk transfer and other reinsurance transactions that Global Atlantic enters into during their investment period. Global Atlantic does not control the Co-Invest Vehicles, and Global Atlantic is subject to the risk that the Co-Invest Vehicles fail or refuse to fund their portion of a particular transaction, in which case Global Atlantic would have contractual remedies against the defaulting Co-Invest Vehicles, but not directly against their shareholders or lenders. Global Atlantic is also subject to the risk that a Co-Invest Vehicle fails to meet its obligations under any funds withheld reinsurance arrangements with Global Atlantic.
As a result of any of the foregoing risks, Global Atlantic may realize materially less than the anticipated financial benefits from reinsurance transactions, or Global Atlantic's reinsurance transactions may be unprofitable or result in losses.
Global Atlantic's actual or perceived financial strength impacts its ability to sell its products, and a downgrade in Global Atlantic's ratings or in the ratings of its insurance subsidiaries could materially and adversely affect Global Atlantic's ability to compete, raise equity or issue debt.
Financial strength ratings are published by various nationally recognized statistical rating organizations ("NRSROs") and similar entities not formally recognized as NRSROs. Rating organizations periodically review the financial performance, capital adequacy and condition of insurers, including Global Atlantic's insurance and reinsurance subsidiaries. Rating agencies also consider general economic conditions and other circumstances outside the rated company's control in assigning a rating. The various rating agencies periodically review and may modify their standards, established guidelines and capital models from time to time. There can be no assurance that Global Atlantic's ratings will not be negatively impacted by any such changes.
If Global Atlantic's capital levels are deemed insufficient, Global Atlantic could be required to reduce its risk profile in order to maintain its current ratings, by, for example, reinsuring and/or retroceding some of Global Atlantic's business, materially altering its business and sales plans or by raising additional capital. Any such action could have a material adverse effect on our insurance business.
Downgrades in Global Atlantic's credit ratings or changes to its rating outlook, or downgrades or changes in outlook to the financial strength ratings of Global Atlantic's insurance subsidiaries, could have a material adverse effect on our insurance business in many ways, including limiting access to distributors, restricting Global Atlantic's ability to generate sales, decreasing profitability, increasing policy lapse activity, limiting access to capital markets and potentially increasing the cost of debt, which could adversely affect liquidity. For example, Global Atlantic believes that a downgrade in the A.M. Best rating of our U.S. insurance subsidiaries could materially impact their sales and access to new distribution relationships. The ability of our subsidiaries to engage in reinsurance transactions—and to do so absent substantial obligations to collateralize performance of their respective obligations—may depend in part on their financial condition and is influenced by their ratings. If an independent rating agency downgrades or withdraws any of Global Atlantic's ratings, Global Atlantic could be limited in, or prevented from, writing any new insurance and reinsurance contracts; some existing contracts may be terminated or may require Global Atlantic to enhance certain credit terms; the pricing terms Global Atlantic can obtain may be adversely affected; and Global Atlantic's borrowing costs or ability to access the capital markets could be materially and adversely impacted. Downgrades in credit or financial strength ratings may increase the regulatory scrutiny to which Global Atlantic and its insurance subsidiaries are subjected. In addition, failure by Global Atlantic to maintain minimum RBC ratio requirements in certain contracts could permit the counterparty to terminate the contract, recapture business or require posting of additional collateral. There is no guarantee that Global Atlantic will be able to maintain its ratings in the future, and we cannot provide any assurances that actions taken by ratings agencies would not result in a material adverse effect on our insurance business.
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Global Atlantic faces risks associated with business it reinsures and business it cedes to reinsurers, which could cause a material adverse effect on our insurance business.
As part of Global Atlantic's overall risk management strategy, it cedes business to other insurance companies through reinsurance. Global Atlantic's inability to collect from its reinsurers (including reinsurance clients in transactions where Global Atlantic reinsures business net of ceded reinsurance) on its reinsurance claims could have a material adverse effect on our insurance business. Although reinsurers are liable to Global Atlantic to the extent of the reinsurance coverage it acquires, Global Atlantic remains primarily liable as the direct insurer on all risks that it writes; therefore, Global Atlantic's reinsurance agreements do not eliminate its obligation to pay claims. As a result, Global Atlantic is subject to the risk that it may not recover amounts due from reinsurers. The risk could arise primarily in two situations: (1) Global Atlantic's reinsurers may dispute some of its reinsurance claims based on contract terms, and, as a result, Global Atlantic may receive partial or no payment or (2) Global Atlantic's reinsurers may default on their obligations. While Global Atlantic may manage these risks through transaction-related diligence, contract terms, collateral requirements, hedging, and other oversight mechanisms, Global Atlantic's efforts may not be successful. A reinsurer's insolvency, or its inability or unwillingness to make payments due to Global Atlantic under the terms of the relevant reinsurance agreements, could have a material adverse effect on our insurance business.
Global Atlantic also bears the risk that the companies that reinsure its mortality risk on a yearly renewable term, where the reinsurer may reset the premium and other terms each year, increase the premiums they charge to levels Global Atlantic deems unacceptable. If that occurs, Global Atlantic will either need to pay such increased premiums, which will affect margins and financial results, or alternatively, Global Atlantic will need to limit or potentially terminate reinsurance, which will increase the risks that Global Atlantic retains.
Conversely, certain of our insurance subsidiaries assume liabilities from other insurance companies. Changes in the ratings, creditworthiness or market perception of such ceding companies or in the administration of policies reinsured to Global Atlantic could cause policyholders of contracts reinsured to Global Atlantic to surrender or lapse their policies in unexpected amounts. In addition, to the extent such ceding companies do not perform their obligations under the relevant reinsurance agreements, Global Atlantic may not achieve the results intended and could suffer unexpected losses. Certain reinsurance transactions require additional operational support, administration, regulatory filings and compliance with jurisdiction-specific laws and regulations, subjecting Global Atlantic to additional scrutiny and risks. These risks could materially and adversely affect our insurance business.
Changes in accounting standards could adversely impact our insurance business.
Global Atlantic's financial statements are subject to the application of GAAP, which is periodically revised, reinterpreted and/or expanded. Accordingly, from time-to-time Global Atlantic is required to adopt new guidance or interpretations, or could be subject to existing guidance as Global Atlantic enters into new transactions or business lines, which may have a material effect on Global Atlantic that is either unexpected or has a greater impact than expected. Upon the February 2021 closing of the acquisition of Global Atlantic by KKR, Global Atlantic established a new accounting basis for purchase accounting, under which all identifiable assets acquired, and liabilities assumed were measured and recorded at fair value as of the date of the closing. In addition, certain accounting standards applicable to public entities became applicable to Global Atlantic.
We adopted, effective January 1, 2023 with a transition date of January 1, 2021, new accounting guidance issued by the FASB for insurance companies that issue or reinsure long-duration contracts such as life insurance and annuities. Going forward, Global Atlantic believes that the new standard will increase volatility in its consolidated financial statements, in particular due to the requirement to remeasure certain policy liabilities each quarter, either at fair value or using current market discount rates, with changes recorded in either net income or other comprehensive income. In addition, the new guidance had a significant impact on Global Atlantic's systems, processes and controls.
In June 2016, FASB issued new guidance on the measurement of credit losses on financial instruments, including reinsurance recoverables, under GAAP. This guidance replaced the incurred loss impairment methodology with a requirement to reflect current expected credit losses in amortized cost instead of recognizing losses as incurred. Following the February 2021 closing of the Global Atlantic acquisition, this standard became applicable to Global Atlantic and required increases in expected credit losses on financial instruments measured at amortized cost, including loan receivables and reinsurance recoverables, which are recognized as a charge to earnings.
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The GAAP changes for long-duration contracts, the measurement of credit losses on financial instruments, application of purchase accounting in connection with the February 2021 closing of the Global Atlantic acquisition or other GAAP changes in accounting standards could affect the way Global Atlantic accounts for and reports significant areas of its business, could impose special demands on Global Atlantic in the areas of governance, employee training, internal controls and disclosure, and will likely affect how Global Atlantic manages its business. As a result, the required adoption of future accounting standards could have a material adverse impact on our insurance business.
The NAIC has approved Statutory Accounting Principles ("SAP") for U.S. insurance companies that have been implemented by the domiciliary states of Global Atlantic's U.S. insurance subsidiaries. The NAIC from time to time considers amendments to the Statutory Accounting Principles and is currently considering various amendments to the Statutory Accounting Principles that impact investment transactions, including, for example, definitions of affiliated and related party transactions and capital charge determinations for loan-backed and structured securities. In addition, the NAIC has expressed concerns and is considering changes related to filing exempt status for certain securities or loans, which generally allows the use of an NRSRO rating for purposes of capital assessment as opposed to requiring review by the Securities Valuation Office. The NAIC adopted, and is considering additional, changes to the NAIC ratings assigned to privately rated securities. These changes and future changes raise uncertainty with respect to the NAIC ratings of, and consequently capital required to be held for, certain investments.
In addition, the NAIC Accounting Practices and Procedures Manual, or the "Accounting Manual," provides that state insurance departments may permit insurance companies domiciled therein to depart from the Statutory Accounting Principles by granting them permitted accounting practices. Global Atlantic makes use of permitted practices today and may seek approval to use additional permitted practices in the future. Permitted practices do not preempt legislative or regulatory changes to the Statutory Accounting Principles. Accordingly, there is a risk that Global Atlantic may not be able to continue to use a previously granted permitted practice. In addition, we cannot predict whether or when the insurance departments of the states of domicile of its competitors may permit Global Atlantic's competitors to utilize advantageous accounting practices that depart from the Statutory Accounting Principles, the use of which is not permitted by the insurance departments of the states of domicile of Global Atlantic's U.S. insurance subsidiaries. Any change in the Statutory Accounting Principles or permitted practices could have a material adverse impact on the capital Global Atlantic is required to hold in its business and consequently on its profitability and ability to grow.
Our Bermuda insurance subsidiaries are licensed to conduct insurance business by the BMA. In 2016, the BMA made significant changes to Bermuda's regulatory and supervisory regimes, to achieve equivalence with the EU's Directive 2009/138EC, as amended (Solvency II). On March 24, 2016, and (retroactively) effective as of January 1, 2016, a number of changes were instituted for commercial insurers and insurance groups to enhance statutory and prudential reporting requirements. In that regard, the BMA implemented the Economic Balance Sheet ("EBS") framework ("EBS Framework"), which is now used as the basis to determine an insurer's enhanced capital requirement. Bermuda-licensed commercial insurers are required to prepare prescribed statutory financial statements. Global Atlantic's Bermuda insurance subsidiaries' financial statements prepared in accordance with GAAP act as the basis on which statutory financial statements are prepared, subject to application of certain prudential filters. These statutory financial statements, in turn, form the starting basis for the preparation of the EBS. The statutory financial statements also form the basis for assessing each Bermuda insurance subsidiary's ordinary dividend capacity, Minimum Margin of Solvency and class of registration as an insurer in Bermuda. The EBS Framework and statutory financial statements are embedded in the BMA's legislative and regulatory regime. The European Insurance and Occupational Pensions Authority conducted a review of Solvency II in 2020 and noted that a number of amendments to Solvency II are required to ensure that the regulatory framework continues as a well-functioning risk-based regime. In 2023, the BMA issued a series of consultation papers exploring updates to its framework, including updated requirements for reserves, capital and governance. The BMA is in the process of implementing these requirements and could propose further updates to certain aspects of the EBS Framework. If any such updates materially increase the ECR, it could materially increase the amount of capital Global Atlantic is required to hold to meet its BSCR and BMA requirements.
Changes to GAAP, SAP, the Bermuda EBS Framework or capital models may be complex, require significant resources to implement and have an impact on our controls, which may be significant. Failure to implement or take appropriate or effective management actions in response to such changes may have a material adverse impact on our insurance business. Global Atlantic can give no assurances that the impacts of current, proposed or future changes to GAAP, SAP, Bermuda EBS Framework, capital models or any components or interpretation thereof, the grant of permitted accounting practices to Global Atlantic's competitors or future changes to legal, accounting, capital or financial regimes will not have a negative impact or material adverse effect on our insurance business.
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Global Atlantic may experience volatility in its net income under GAAP due to its funds withheld and modified coinsurance transactions.
Global Atlantic assumes certain policy risks written by other insurance companies via reinsurance that may be on a funds withheld or modified coinsurance basis. Funds withheld coinsurance and modified coinsurance differ from coinsurance and certain other forms of reinsurance in that the assets equal to the net statutory reserves are withheld and legally owned by the ceding company, while the related investment risk is transferred to the reinsurer. Global Atlantic is subject to the investment performance but does not directly control the investments. Under GAAP accounting these funds withheld and modified coinsurance contracts create embedded derivatives for both the ceding company and the reinsuring company, and each embedded derivative must be measured at fair value. The valuation of these embedded derivatives is sensitive to the market environment, including credit spreads of the assets held by the ceding insurer, and can generate significant volatility in net income depending on market conditions. Changes in the fair value of embedded derivatives are recorded in investment related gains/losses on the consolidated statements of operation.
Global Atlantic holds a significant portion of its reinsurance assets in trust, which may restrict Global Atlantic's ability to invest those assets and also may permit the ceding company to withdraw those assets from the trust in certain circumstances.
In certain reinsurance transactions where Global Atlantic is the reinsurer, it must provide collateral to the ceding company. State regulation and the ability of Global Atlantic insurance subsidiaries to obtain or maintain regulatory designation as a certified or reciprocal jurisdiction reinsurer impact the amount of collateral Global Atlantic must provide. A significant portion of the collateral that Global Atlantic provides to its reinsurance clients is provided in the form of assets held in a trust for the benefit of the counterparty. Global Atlantic’s obligation to hold assets in trust restricts its ability to use such assets to support liquidity for other business purposes. Global Atlantic's investment of assets held in trust is restricted based on the terms of the trust agreement and associated investment guidelines. As such, Global Atlantic may not have flexibility to invest such assets as it otherwise might, and Global Atlantic's investment returns on such assets may therefore be less than if they were not held in trust. In addition, in certain circumstances the ceding company may be allowed to withdraw assets from the trust if Global Atlantic fails to pay amounts due under the applicable reinsurance agreement.
Certain of Global Atlantic's reinsurance agreements contain triggers that permit the reinsurance client to recapture some or all of the reinsured portfolio, which, if triggered, may have a material adverse effect on Global Atlantic.
Certain of Global Atlantic's reinsurance agreements contain triggers that, if breached, may result in the reinsured party having the right to recapture the reinsured business or terminate the reinsurance agreement. A recapture trigger permits the ceding company to reassume under certain circumstances all or a portion of the risk ceded to Global Atlantic. For reinsurance transactions in which the ceding company cedes all or a portion of the risk to Global Atlantic, Global Atlantic's reinsurance agreements typically include a recapture right that is triggered if, for example, Global Atlantic fails to maintain certain minimum levels of capitalization or certain minimum levels of reserves to support the business reinsured. These reinsurance agreements also typically include provisions that provide for termination of the agreement and recapture of the business upon the occurrence of insolvency, rehabilitation, non-payment of amounts due, material breach of contract provisions or failure to provide the ceding company with the ability to take reserve credit. The economic, financial and liquidity impact from the loss of the recaptured business, in addition to Global Atlantic's economic hardships at the time of recapture, may have a material adverse effect on our insurance business.
The determination of the amount of impairments and allowances for credit losses recognized on Global Atlantic's investments is highly subjective and could materially affect our insurance business.
The determination of the amount of impairments and allowances for credit losses is based upon Global Atlantic's periodic evaluation and assessment of known and inherent risks associated with the respective asset class and the specific investment being reviewed. Such evaluations and assessments are revised as conditions change and new information becomes available. Management updates its evaluations regularly and reflects changes in allowances and impairments in its financial results as such evaluations are revised. Impairments result in a non-cash charge to earnings during the period in which the impairment charge is taken. Changes in allowances for credit losses can result in either a charge or credit to earnings.
For example, an allowance is recognized on Global Atlantic's fixed maturity securities when the fair value of the security is less than its amortized cost basis and credit related losses are deemed to have occurred. The determination of the allowance requires assessment of the security's expected future cash flows, which depend on a variety of macroeconomic factors and security-specific considerations. Similarly, the determination of the allowance on Global Atlantic's mortgage and other loan receivables requires an assessment of expected credit losses that considers current, historical and forecasted macroeconomic data and loan-specific factors. As expectations change based on macroeconomic data and individual investment considerations, the associated allowance for credit losses can be adjusted, up or down, and such change may be material.
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There can be no assurance that management has accurately determined the amount of impairments and allowances for credit losses recognized in Global Atlantic's financial statements and their potential impact on regulatory capital. Furthermore, additional impairments and allowance provisions may be taken in the future, which could have a material adverse effect on our insurance business.
Global Atlantic's membership in Federal Home Loan Banks subjects Global Atlantic to potential liquidity and other risks.
Our U.S. insurance subsidiaries are each members of one of the Federal Home Loan Banks of Des Moines, Indianapolis and Boston, which allows those companies to borrow against certain of their investments, such as commercial mortgage loans, eligible under the applicable Federal Home Loan Bank definition to be posted as collateral. If those sources of borrowing by those companies were to no longer be available to them, or if the Federal Home Loan Banks issue a capital call on the preferred shares owned by our insurance companies, the liquidity of such insurance subsidiaries could be materially and adversely affected. The Federal Housing Finance Authority is currently undertaking a review of the Federal Home Loan Banks and their membership. If the applicable insurance subsidiary's creditworthiness falls below the minimum required or if legislative or other political actions cause changes to the Federal Home Loan Bank mandate or to the eligibility of life insurance companies to be members of the Federal Home Loan Bank system, Global Atlantic may lose access to this funding and be required to find other sources to replace it.
From time to time, Global Atlantic participates in repurchase and reverse repurchase transactions that subject Global Atlantic to liquidity risks.
Global Atlantic currently has a committed repurchase facility and from time to time participates in repurchase transactions. Under these repurchase agreements, Global Atlantic sells fixed income securities to third-party counterparties, primarily major brokerage firms and commercial banks, with a concurrent agreement to repurchase those same securities at a determined future date.
These repurchase agreements are required to be secured by collateral, which may negatively impact Global Atlantic's liquidity if Global Atlantic is required to post additional collateral (for example, due to a decline in the value of collateral already posted) or unable to extend an expiring repurchase agreement by entering into a new repurchase agreement.
In addition, Global Atlantic invests in securities the cash it receives from its repurchase counterparties. Those securities may decline in value during the term of the repurchase agreements. If Global Atlantic sells those securities at a loss, Global Atlantic may not have enough cash to fund the obligation that it has to its counterparties under the repurchase agreements. Under adverse capital market and economic conditions, liquidity may broadly deteriorate, further restricting Global Atlantic's ability to sell the securities and fund the obligation that it has to its counterparties.
Global Atlantic may also from time to time participate in reverse repurchase agreements whereby Global Atlantic purchases fixed income securities from third parties in exchange for cash, with a concurrent obligation by such third parties to repurchase those same securities from Global Atlantic at a determined future date. In the case of default by any such third party, Global Atlantic runs the risk that such third party may not repurchase the security when required. In the event of the bankruptcy or other default of such third party in a repurchase agreement, Global Atlantic could experience both delays in liquidating the underlying security and losses, including but not limited to (1) a possible decline in the value of the collateral received from Global Atlantic's counterparties during the period while Global Atlantic seeks to enforce its rights therein, (2) possible subnormal levels of income and lack of access to income during this period and (3) expenses of enforcing Global Atlantic's rights.
Changes in relevant tax laws, regulations or treaties or an adverse interpretation of these items by tax authorities could adversely impact our insurance business.
Unless the context otherwise requires, the term "Bermuda insurance subsidiaries" as used here refers to (1) Global Atlantic Assurance Limited and (2) Global Atlantic Re Limited with respect to any period ending prior to January 1, 2018, the effective date of the election made pursuant to Section 953(d) of the Code to treat Global Atlantic Re as a U.S. corporation for U.S. federal income tax purposes. “GAFL” refers to Global Atlantic Financial Limited, which, prior to January 2, 2024, was a Bermuda exempted company. Effective January 2, 2024, GAFL continued its corporate existence as a Delaware company and changed its name to Global Atlantic Limited (Delaware).
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The IRS could contend that Global Atlantic or our non-U.S. subsidiaries are or were engaged in trade or business within the United States and subject to U.S. federal income taxes. Certain Global Atlantic subsidiaries are non-U.S. companies that are treated as corporations for U.S. federal income tax purposes. The Bermuda insurance subsidiaries and GAFL prior to 2024 have conducted, and the insurance subsidiaries intend to conduct, substantially all of their operations outside the United States and to limit their U.S. contacts with the intention that the Bermuda insurance subsidiaries not be treated as engaged in trade or business within the United States. However, there is considerable uncertainty as to when a non-U.S. corporation is engaged in trade or business within the United States, and there can be no assurance that the IRS will not contend that the Bermuda insurance subsidiaries are or were engaged in trade or business within the United States. If the Bermuda insurance subsidiaries were considered to be engaged in trade or business within the United States, such company could be subject to U.S. corporate income taxes and branch profits taxes on the portion of its earnings and profits that is or was effectively connected to such trade or business within the United States. If the IRS were to contend successfully our Bermuda insurance subsidiaries or any of our other current or future non-U.S. subsidiaries are or were engaged in trade or business within the United States, our insurance business could be materially and adversely affected.
There is U.S. federal income tax risk associated with reinsurance transactions, intercompany transactions and distributions between U.S. companies and their non-U.S. affiliates, including from the Base Erosion and Anti-Abuse Tax (the "BEAT") on certain U.S. companies that make deductible payments to related non-U.S. companies in taxable years beginning after December 31, 2017. While Global Atlantic has taken certain steps to mitigate the effect of the BEAT, there can be no assurances that these steps will be successful. In addition, the Code permits the IRS to reallocate, recharacterize, or adjust items of income, deduction or certain other items related to a reinsurance agreement between related parties to reflect the proper "amount, source or character" for each item. Further, the tax treatment of certain aspects of reinsurance ceded to a non-U.S. reinsurer on a funds withheld coinsurance basis is uncertain. If the IRS were successfully to challenge Global Atlantic's intercompany reinsurance arrangements between its subsidiaries or Global Atlantic's tax treatment of funds withheld coinsurance with non-U.S. reinsurers (including the Bermuda insurance subsidiaries), our insurance business could be materially and adversely affected. There are significant cross-border transactions in place among Global Atlantic's affiliates, some of which Global Atlantic treats as loans or swaps for tax purposes, and Global Atlantic may expand the scope of its cross-border intercompany transactions in the future. There are also significant cross-border reinsurance transactions in place with non-U.S. third parties. If the IRS were to successfully challenge the tax treatment of these transactions, or if legislation were enacted, or administrative guidance promulgated, that altered the expected tax treatment of such transactions, our insurance business could be materially and adversely affected.
Changes in U.S. tax law could also affect the products that our insurance subsidiaries sell. Many of the products our insurance subsidiaries sell benefit from one or more forms of tax-favored status under current U.S. federal and state income tax regimes. For example, our insurance subsidiaries sell and reinsure annuity contracts that allow the policyholders to defer the recognition of taxable income earned within the contract. In addition, current U.S. federal income tax law permits the exclusion from taxation of death benefits paid under life insurance contracts. Changes in U.S. tax laws that alter the tax benefits or treatment of certain products could result in a material reduction in demand for our insurance subsidiaries' products and could affect policyholder behavior with respect to existing annuity products in ways that are difficult to predict, for example increasing the expected lapse rate or, if the treatment of existing contracts is grandfathered, reducing the rate at which existing contracts are surrendered or rolled over. In addition, changes in corporate tax rates and/or individual tax rates and/or the estate tax exclusion could impact the competitiveness of Global Atlantic’s product pricing or demand for such products, which could affect our insurance subsidiaries’ ability to attract or retain clients or could reduce the profitability of our insurance products and have a material adverse effect on our insurance business.
For periods prior to January 2, 2024, the IRS may successfully challenge GAFL's status as a non-U.S. corporation for U.S. federal income tax purposes. Under U.S. federal income tax law, a corporation is generally considered for U.S. federal income tax purposes to be a tax resident of the jurisdiction of its organization or incorporation. Because GAFL was a Bermuda-incorporated exempted entity prior to January 2, 2024, it would generally be classified as a non-U.S. corporation (and, therefore, a non-U.S. tax resident) under these rules for periods prior to 2024. However, Section 7874 of the Code ("Section 7874") provides an exception to this general rule under which a non-U.S. incorporated entity may, in certain circumstances, be treated as a U.S. corporation for U.S. federal income tax purposes.
However, the rules under Section 7874 are relatively complex and there is limited guidance regarding their application. There can be no assurance that the IRS will agree with the position that GAFL should not be treated as a U.S. corporation for U.S. federal income tax purposes for periods prior to 2024. If for such periods GAFL were to be treated as a U.S. corporation for U.S. federal income tax purposes under Section 7874 or for any other reason, GAFL would be subject to substantial additional historic U.S. federal income tax liability, including taxation of all of Global Atlantic's Bermuda insurance subsidiaries' subpart F income and global intangible low-taxed income, as defined under Section 951A(b) of the Code, which could have a material adverse effect on our insurance business.
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On April 1, 2016, Global Atlantic completed a reorganization of GAFL (the "GAFL Reorganization"). As a result of the GAFL Reorganization, Section 7874 limits the ability of Global Atlantic's U.S. holding company and its U.S. affiliates to utilize certain U.S. tax attributes (including net operating losses and certain tax credits) to offset, during the ten-year period following the GAFL Reorganization, their U.S. taxable income, or related income tax liability, resulting from certain (1) transfers to related foreign persons of stock or other properties of Global Atlantic's U.S. holding company and its U.S. affiliates, and (2) income received or accrued from related foreign persons during such period by reason of a license of any property by Global Atlantic's U.S. holding company and its U.S. affiliates.
The effect of Bermuda's commitment to the OECD to eliminate harmful tax practices is uncertain and could adversely affect Global Atlantic's tax status in Bermuda. The OECD has published reports and launched a global dialogue among member and non-member countries on measures to limit harmful tax competition. These measures are largely directed at counteracting the effects of income tax havens and preferential income tax regimes in countries around the world. According to the OECD, Bermuda is a jurisdiction that has substantially implemented the internationally agreed tax standard and as such is listed on the OECD "whitelist." However, we are not able to predict whether any future changes will be made to this "whitelist" classification or whether any such changes will subject Global Atlantic and our Bermuda-domiciled subsidiaries to additional taxes. See "—Risks Related to Our Business—Changes in relevant tax laws, regulations or treaties or an adverse interpretation of these items by tax authorities could adversely impact our effective tax rate and tax liability" for discussions of the OECD's BEPS project.
Bermuda enacted legislation in December 2023 implementing a corporate tax aimed at multinational enterprises with revenues generally exceeding €750 million. The Bermuda corporate income tax (“CIT”) is a flat minimum tax based upon 15% of reported financial profits. The CIT comes into effect for tax years beginning in 2025, however implementation may be delayed for certain groups for up to five years. The legislation provides for various offsets and credits. It is not presently expected that the Bermuda CIT will have a significant impact upon Global Atlantic’s financial performance. However, there is uncertainty regarding the implementation of the CIT and its application to insurance companies, and the impact of the CIT on Global Atlantic and Bermuda-based businesses of its sponsored vehicles will continue to be assessed.
See Note 18 "Income Taxes" in our financial statements for further information regarding various tax matters.
Global Atlantic's businesses are heavily regulated across numerous jurisdictions, including with respect to capital requirements, and changes in regulation could reduce the profitability of our insurance business.
Our insurance and reinsurance subsidiaries are highly regulated by, among others, insurance regulators in the United States and Bermuda, and changes in regulations affecting our insurance business may reduce Global Atlantic's profitability and limit its growth. The laws and regulations of the jurisdictions in which our insurance and reinsurance subsidiaries are domiciled or may be deemed commercially domiciled may require these companies to, among other things, maintain minimum levels of statutory capital, surplus and liquidity, meet solvency standards, submit to periodic examinations of their financial condition, restrict payments of dividends and distributions of capital, restrict our ability, in certain cases, to write insurance and reinsurance policies, make certain types of investments and distribute funds, and restrict the type and concentration of investments that can be made. For example, due to regulatory restrictions on the payment of dividends, our U.S. insurance subsidiaries may not declare a dividend in 2024 to their holding companies without prior domiciliary state regulatory approval. Offering new products or offering products in additional jurisdictions will also subject Global Atlantic to additional regulation and compliance requirements. With respect to investments, our insurance and reinsurance subsidiaries must comply with applicable regulations regarding the type and concentration of investments it may make. These restrictions are set forth in investment guidelines that KKR's investment management subsidiary must comply with when providing investment management to our insurance companies. These restrictions may limit Global Atlantic's ability to invest and KKR's ability to earn fees on those investments. In addition, our insurance and reinsurance subsidiaries are subject to laws and regulations governing affiliate transactions. The investment management agreements between the KKR investment manager and our insurance subsidiaries were approved by applicable insurance regulators, and any changes of such agreements, including with respect to fees, must receive applicable regulatory approval. These affiliate transaction rules are particularly important to Global Atlantic given (1) its relationship with KKR and (2) the fact that its business strategy involves reinsuring business among its subsidiaries.
If our relationships, or our reputation with, various regulatory authorities were to deteriorate, our insurance business could be materially and adversely affected, including by making it more difficult, or impossible, for Global Atlantic to obtain necessary consents and approvals.
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In addition to the regulations of the jurisdictions where our insurance subsidiaries are domiciled, Global Atlantic also must obtain licenses to sell insurance in other states and U.S. jurisdictions. Our non-U.S. insurance subsidiaries have and may obtain certified reinsurer and reciprocal jurisdiction reinsurer status in various U.S. states. Most state regulatory authorities are granted broad discretion in connection with their decisions to grant, renew or revoke licenses and approvals that are subject to state statutes. If Global Atlantic is unable to renew the requisite licenses and obtain the necessary approvals or otherwise does not comply with applicable regulatory requirements, the insurance regulatory authorities could stop, or temporarily suspend Global Atlantic from conducting some or all of its operations as well as impose fines.
All 50 U.S. states, the District of Columbia and the U.S. Virgin Islands have insurance guaranty association laws that require insurance companies doing business within those jurisdictions to participate in various types of guaranty associations or other similar arrangements. It is possible that a large insolvency could require extraordinary assessments on our insurance subsidiaries. We cannot predict the amount, nature or timing of any future assessments or legislation, any of which could have a material adverse impact on our insurance business.
At the United States federal level, the Dodd-Frank Act established the Federal Insurance Office ("FIO") within the U.S. Department of the Treasury to monitor the insurance industry. FIO publications or reports, some of which are periodically submitted to Congress, could continue to increase scrutiny of the industry and ultimately lead to changes in the regulation of insurers and reinsurers in the United States, which could negatively impact our insurance business.
All U.S. states allow reinsurers from approved non-U.S. jurisdictions, including for example Bermuda, to apply for reciprocal reinsurer status. A reinsurer with reciprocal reinsurer status is not required to post collateral to a U.S.-based ceding insurer for that ceding insurer to obtain credit in its statutory financial statements for that reinsurance. We cannot predict the impact of the removal of collateral requirements for reciprocal jurisdiction reinsurers in certain states may have on our insurance business, including its competitiveness in reinsurance transactions.
Insurance regulators have increased their scrutiny of the insurance regulatory framework in the United States, and some state legislatures have considered or enacted laws that alter, and in many cases increase, state authority to regulate insurance holding companies and insurance and reinsurance companies. The NAIC and state insurance regulators are increasingly focused on the relationships between alternative asset managers and insurers. This focus significantly increases scrutiny of insurance companies strategically partnered with alternative asset managers and the potential for additional regulation. We are unable to predict whether, when or in what form and what impact such regulatory changes will have on our insurance business, including after our acquisition of the remaining equity interest in Global Atlantic in January 2024. Insurance regulations also include restrictions on investments, including limits, regulatory approvals of affiliate investments, permissible asset classes, capital required and with respect to what assets or portion of assets may back reserves. These regulations may materially and adversely impact Global Atlantic’s returns and capital requirements.
Historically, Bermuda has faced criticism for its tax and regulatory rules and such views may persist. In addition, capital regulations applicable to our insurance subsidiaries may impose meaningful limitations on our insurance business. Insurance companies are subject to minimum capital and surplus requirements that vary by the jurisdiction where the insurance company is domiciled and are generally subject to change over time. In the United States, our insurance subsidiaries are subject to RBC standards and other minimum capital and surplus requirements imposed by state laws. The RBC standards are based upon the Risk-Based Capital for Insurers Model Act, promulgated by the NAIC, as adopted by Global Atlantic's domiciliary insurance regulators. Global Atlantic's Bermuda insurance subsidiaries are subject to Bermuda Solvency Capital Requirements ("BSCR") standards and other minimum capital and surplus requirements imposed by the BMA. Any failure to meet applicable requirements or minimum statutory capital requirements could subject Global Atlantic to examination or corrective action by regulators, including limitations on Global Atlantic's writing additional business or engaging in finance activities, supervision, receivership or liquidation. New statutory accounting guidance or changes or clarifications in interpretations of existing guidance—including but not limited to any new guidance, changes or clarifications resulting from the recommendations of the NAIC's Securities Valuation Office with respect to capital required for holding all tranches of a structured security—may adversely impact our insurance subsidiaries, including by limiting our ability to originate, or invest in, certain assets on behalf of our insurance subsidiaries or causing our insurance subsidiaries to increase their required capital in respect of such assets, thus making such asset exposures less attractive to our insurance subsidiaries, which may materially and adversely affect our business.
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RBC ratios of U.S. retirement and life companies like Global Atlantic are impacted by factors beyond Global Atlantic's control, such as the statutory federal tax rate. Future changes in federal corporate tax rates could similarly impact RBC ratios. In addition, the NAIC from time to time considers changes to factors used in calculating RBC. The NAIC is pursuing a variety of reforms to its RBC framework, which could increase the capital requirements for Global Atlantic's U.S. insurance subsidiaries. The NAIC is considering revisions to the capital charges for asset-backed-securities, in particular CLOs, with a focus on increasing the capital charge on the mezzanine or residual tranches ( i.e. , equity securities) of these securitizations. Recent proposals would increase the applicable capital charge of such residual tranches or equity securities of asset-based securitizations from 30% to 45% as of year-end 2024. The NAIC has also developed a group capital calculation. It is unclear how the group capital calculation will interact with existing capital requirements for insurance companies in the United States and with international capital standards. In Bermuda, the BMA continues to review the BSCR on an ongoing basis, including to maintain its equivalency with Solvency II. We cannot predict the likelihood of changes to the capital requirements to which Global Atlantic is subject, whether such changes will have an impact on RBC ratios or whether Global Atlantic will need to raise and hold additional capital in response to such changes and any such changes may have a material adverse effect on our insurance business. Moreover, the determination of RBC is based on the NAIC designation of the assets in which Global Atlantic invests. NAIC designation for certain investments depends on the applicable NRSRO rating. If there are changes in an NRSRO's methodology, Global Atlantic's ability to invest in such assets may be impacted and Global Atlantic's investment results may be adversely impacted, or Global Atlantic may need to increase its required capital.
Regulators continue to propose or adopt fiduciary rules, best interest standards and other similar laws and regulations applicable to the sale of retirement and life insurance products, including the Department of Labor’s October 2023 proposal redefining the scope of “investment advice fiduciary” under ERISA. These rules, standards, laws and regulations generally require advisers providing investment recommendations to act in the client's best interest or put the client's interest ahead of their own interest. Global Atlantic faces uncertainty regarding the adoption of these rules and regulations, including that the SEC, Department of Labor and state insurance departments may adopt potentially conflicting or overlapping standards. These new and proposed regulations may fundamentally change the way financial advisors, agents, and financial institutions do business. These rules may impact the way in which Global Atlantic's products are marketed and offered by its distribution partners, which could have an impact on customer demand, impact the margins our insurance business makes on its products or increase compliance costs and burdens. These rules and potential rules could cause a material decline in sales of Global Atlantic's products in the individual channel, such as variable annuities and fixed-indexed annuities. Regulators in enforcement actions and private litigants could also find it easier to attempt to extend fiduciary status to, or to claim fiduciary or contractual breach by, advisors who would not be deemed fiduciaries under current regulations. Such laws and regulations may have a material adverse impact on the industry and may have a material adverse impact on our insurance business.
The cost of compliance with existing laws and regulations, including capital requirements, is high, and the cost of compliance with any changed, new or additional regulatory requirements could have a material adverse effect on our insurance business, including further restricting our ability to conduct business and our ability to continue to comply with applicable laws and regulations, which could impact Global Atlantic's potential growth and could subject Global Atlantic to fines and other sanctions. Global Atlantic also must balance overlapping and potentially conflicting regulations and accounting rules and interpretations thereof (which may also change over time), including in response to changes in the overall business environment.
Our Bermuda insurance subsidiaries are subject to regulation by the BMA that may restrict their operations, and we cannot guarantee that insurance supervisors in the United States or elsewhere will not in the future assert that our Bermuda insurance subsidiaries are subject to additional licensing requirements.
The BMA regulates and supervises each of our Bermuda insurance subsidiaries on a stand-alone basis in Bermuda. The Bermuda Insurance Act and the policies of and/or other codes issued by the BMA relevant to insurers require each of our Bermuda reinsurance subsidiaries to, among other requirements, maintain a minimum level of capital and surplus; satisfy solvency standards; comply with restrictions on dividends; obtain prior approval or provide notification to the BMA of changes in shareholder controller shares; make financial statement filings; prepare a financial condition report; maintain a head office in Bermuda from which each of our Bermuda insurance subsidiaries' insurance business will be directed and managed; and allow for the performance of certain periodic examinations of its financial condition. These statutes and regulations may restrict Global Atlantic's ability to write insurance and reinsurance policies, distribute funds and pursue its investment strategy. Our Bermuda insurance subsidiaries will be exposed to any changes in the political environment in Bermuda.
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The Bermuda insurance and reinsurance regulatory framework is subject to scrutiny from many jurisdictions. As a result of such overseas scrutiny, the BMA has implemented and imposed additional requirements on the licensed insurance companies it regulates to achieve equivalence under Solvency II, the solvency regime applicable to the EU insurance sector. As such, Bermuda's reinsurance industry operates in a legal and regulatory environment that is deemed to be equivalent with that of the EU. The BMA's additional requirements resulting from Solvency II equivalence include enhanced solvency and governance requirements imposed on insurers and reinsurers. As part of the additional requirements, the BMA has also established a group solvency framework that could further enhance the required capital and solvency requirements if the BMA is deemed to be the group regulator. There is a risk that if Solvency II were amended in any way, Bermuda may be required to amend its regulatory regime to maintain its equivalence under Solvency II, which could lead to changes in the regulatory regime administered by the BMA.
The BMA continues to consider further revisions to the Bermuda capital ratio, called BSCR, and may propose further updates to certain aspects of the EBS Framework. Any such updates may materially increase the capital our Bermuda insurance subsidiaries must hold.
We cannot provide any assurances that insurance supervisors in the United States or elsewhere will not review Global Atlantic's activities and assert that our Bermuda insurance subsidiaries are subject to a U.S. jurisdiction's requirements. In addition, our Bermuda insurance subsidiaries may be subject to indirect regulatory requirements imposed by jurisdictions that may limit Global Atlantic's ability to provide reinsurance. For example, our Bermuda insurance subsidiaries' ability to write reinsurance may be subject, in certain cases, to arrangements satisfactory to applicable supervisory bodies. Regulatory scrutiny or proposed legislation and regulations may have the effect of imposing additional requirements upon, or restricting reinsurance from, U.S. insurers to non-U.S. insurers, in particular between affiliated insurance companies. Reinsurance between our U.S. and Bermuda insurance subsidiaries is subject to approval by the applicable U.S. domiciliary state insurance department, and there can be no guarantee such approval will be obtained. Furthermore, Global Atlantic Re Limited reinsures substantially all of Global Atlantic's variable annuity business. If Global Atlantic Re Limited were no longer able to reinsure such business or if Global Atlantic had to recapture variable annuity business reinsured to Global Atlantic Re Limited due to changes in laws or regulations applicable to Global Atlantic Re Limited, Global Atlantic would likely experience increased fluctuations in its RBC ratio attributable to the sensitivity of variable annuities to changes in equity and interest rate markets. A loss of or inability to obtain reciprocal or certified reinsurer status for Global Atlantic's non-U.S. insurance companies may result in requiring additional collateral to be posted with respect to Global Atlantic's existing reinsurance agreements, which may have a material adverse effect on our insurance business.
If in the future our Bermuda insurance subsidiaries were to become subject to regulation under the laws of any state in the United States or the laws of the United States or of any other country, Global Atlantic may consider various alternatives to or restructuring of its operations. If Global Atlantic attempts to license its Bermuda insurance subsidiaries in another jurisdiction, for instance, Global Atlantic may not be able to do so and the modification of the conduct of its business or the noncompliance with insurance statutes and regulations could significantly and negatively affect our insurance business.
Any material changes or failures with respect to the above could have a material adverse effect on our Bermuda insurance business.
Global Atlantic may not be able to mitigate the reserve strain associated with statutory accounting rules, potentially resulting in a negative impact on Global Atlantic's capital position or in a need to increase prices or reduce sales of certain insurance products.
The application of certain statutory accounting rules for term life insurance policies with long-term premium guarantees and universal life policies with secondary guarantees requires Global Atlantic to maintain reserves at a level that exceeds what our insurance subsidiaries' actuarial assumptions for the applicable business would otherwise require. Global Atlantic has special purpose financial captive insurance company subsidiaries ("captives") domiciled in Vermont and Iowa that facilitate the financing of the redundant reserve requirements associated with these statutory accounting rules. These arrangements are subject to review by state insurance regulators and rating agencies.
Further changes in such statutory accounting rules will likely make it difficult for Global Atlantic to establish new captive financing arrangements on a basis consistent with its current captives. As a result of these restrictions on financing redundant reserves, the implementation of new captive structures in the future may be less capital-efficient, may lead to lower product returns and/or increased product pricing, or may result in reduced sales of certain products.
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Certain of the reserve financing facilities Global Atlantic has put in place will mature prior to the run-off of the liabilities they support. As a result, we cannot provide any assurances that it will be able to continue to implement actions either to mitigate the strain of redundant reserves on future sales of term and universal life insurance products or maintain collateral support related to Global Atlantic's captives or existing third-party reinsurance arrangements to which one of our captive reinsurance subsidiaries is a party. If Global Atlantic is unable to continue to implement those actions or maintain existing collateral support, it may be required to increase statutory reserves or incur higher operating costs than currently anticipated.
It is also unclear what additional actions and regulatory changes will result from the continued scrutiny of captive reinsurers and reform efforts by the NAIC and other regulatory bodies. The NAIC is evaluating changes to accounting rules regarding surplus notes with linked assets, a structure used in certain captive reserve financing transactions, and Global Atlantic is monitoring for any changes that may impact its statutory financial statements. If state insurance regulators determine to restrict Global Atlantic's use of captive reinsurers, it could require Global Atlantic to increase statutory reserves, incur higher operating or tax costs or reduce sales. If Global Atlantic is unsuccessful or unable to finance these noneconomic reserves, the competitiveness, capital and financial position and results of operations of our insurance business may be materially and adversely affected.
Risks Related to Our Organizational Structure
The Series I preferred stockholder’s significant voting power limits the ability of holders of our common stock to influence our business, and conflicts of interest may arise among the Series I preferred stockholder and the holders of our common stock.
The Series I preferred stockholder has significant voting power, which limits the ability of holders of our common stock to influence our business. Our Co-Executive Chairmen, when acting together, jointly control the Series I preferred stockholder and thereby the vote of the Series I preferred stock held by it.
The Series I preferred stockholder has the ability to appoint and remove members of our board of directors and has the right to approve certain corporate actions as specified in our certificate of incorporation. If the holders of our common stock are dissatisfied with the performance of our board of directors, they have no ability to remove any of our directors, with or without cause. Through its ability to elect our board of directors and its approval rights over certain corporate transactions, the Series I preferred stockholder may be deemed to control our business and affairs, including influence over the amount and timing of our investments and dispositions, indebtedness and cash expenditures (including those relating to compensation, issuances of capital stock or Group Partnership Units, tax liabilities and amounts of reserves).
The vote of our Series I preferred stock will determine the outcome of all matters that are not listed below as being subject to a vote by our common stock.
Holders of our common stock are entitled to vote with respect to:
• Any amendment of our certificate of incorporation to change the par value of our common stock or the powers, preferences or special rights of our common stock in a way that would affect our common stock adversely;
• A conversion of the legal entity form of KKR & Co. Inc.;
• A transfer, domestication or continuance of KKR & Co. Inc. to a foreign jurisdiction.
• A sale, exchange or disposition of all or substantially all of our assets;
• A merger, consolidation or other business combination;
• An increase in the number of authorized shares of Series I preferred stock; and
• Certain amendments to our certificate of incorporation that would have a material adverse effect on our common stock relative to the other classes of our stock.
Furthermore, holders of our common stock have the right to vote on the adoption of a new equity compensation plan, any material amendment to an existing equity compensation plan, and an issuance of common stock if, based on the number of shares or the voting power outstanding before such issuance, more than 1% of our common stock is issued to our affiliates and other related parties or more than 20% of our common stock is issued in any transaction, subject to certain limited exemptions.
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Our amended and restated certificate of incorporation and amended and restated bylaws contain additional provisions affecting the holders of our common stock, including limitations on the calling of meetings of the stockholders and procedures for submitting proposals for business to be considered at meetings of the stockholders. In addition, any person that beneficially acquires 20% or more of any class of stock then outstanding without the consent of our board of directors (other than the Series I preferred stockholder) is unable to vote such stock on any matter submitted to such stockholders.
In addition, although the affirmative vote of a majority of our directors is required for any action to be taken by our board of directors, certain specified actions will also require the approval of the Series I preferred stockholder, which is controlled by our Co-Executive Chairmen when acting together. These actions consist of the following:
• the entry into a debt financing arrangement by us in an amount in excess of 10% of our then existing long-term indebtedness (other than the entry into certain intercompany debt financing arrangements);
• the issuance by us or our subsidiaries of any securities that would (i) represent, after such issuance, or upon conversion, exchange or exercise, as the case may be, at least 5% on a fully diluted, as converted, exchanged or exercised basis, of any class of our or their equity securities or (ii) have designations, preferences, rights, priorities or powers that are more favorable than those of our common stock;
• the adoption by us of a shareholder rights plan;
• the amendment of our certificate of incorporation, certain provisions of our bylaws relating to our board of directors and officers or the operating agreement of KKR Group Partnership;
• the exchange or disposition of all or substantially all of our assets or the assets of KKR Group Partnership;
• the merger, sale or other combination of our company or KKR Group Partnership with or into any other person;
• the transfer, mortgage, pledge, hypothecation or grant of a security interest in all or substantially all of the assets of KKR Group Partnership;
• the appointment or removal of a Chief Executive Officer or a Co-Chief Executive Officer;
• the termination of our employment of any of our officers or the officers of any of our subsidiaries or the termination of the association of a partner with any of our subsidiaries, in each case, without cause;
• the liquidation or dissolution of us or KKR Group Partnership; and
• the withdrawal, removal or substitution of any person as the general partner of KKR Group Partnership or the transfer of beneficial ownership of all or any part of a general partner interest in KKR Group Partnership to any person other than a wholly-owned subsidiary.
Accordingly, our Board may be prevented from causing us to take any of the actions discussed above if the Series I preferred stockholder does not provide its approval to any such action, even if the Board believes such action may be in the best interest of us and our stockholders.
As a result, conflicts of interest may arise among the Series I preferred stockholder and its controlling persons, on the one hand, and us and the holders of our common stock, on the other hand.
For a more detailed description of our common stock and Series I preferred stock, see “Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934,” which is filed as an exhibit to this report. In addition, by no later than December 31, 2026, we agreed in the Reorganization Agreement to (i) eliminate our Series I preferred stock and (ii) establish voting rights for our common stock on a one vote per share basis for all matters subject to a common stockholders’ vote under Delaware corporate law, including with respect to the election of directors. For more information about the transactions contemplated by the Reorganization Agreement, see “Certain Relationships and Related Transactions, and Director Independence—Reorganization Agreement.”
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As a “controlled company,” we qualify for some exemptions from the corporate governance and other requirements of the NYSE and are not required to comply with certain provisions of U.S. securities laws.
Prior to the Sunset Date, we are a “controlled company” within the meaning of the corporate governance standards of the NYSE. As a “controlled company” we have elected not to comply with certain corporate governance requirements of the NYSE, including the requirements: (i) that the listed company have a nominating and corporate governance committee that is composed entirely of independent directors, (ii) that the listed company have a compensation committee that is composed entirely of independent directors and (iii) that the compensation committee be required to consider certain independence factors when engaging compensation consultants, legal counsel and other committee advisers. Accordingly, holders of our common stock do not currently have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.
Prior to the Sunset Date, we are not required to file proxy statements or information statements under Section 14 of the Exchange Act, unless a vote of holders of our common stock is required. Accordingly, legal causes of action and remedies under Section 14 of the Exchange Act for inadequate or misleading information in proxy statements are currently not generally available to holders of our common stock. In addition, until Sunset Date, we are not subject to the “say-on-pay,” and “say-on-frequency” provisions of the Dodd-Frank Act or “pay for performance” compensation disclosure. As a result, our stockholders do not currently have an opportunity to provide a non-binding vote on the compensation of our named executive officers or receive additional compensation disclosure. Moreover, holders of our common stock are currently unable to bring matters before our annual meeting of stockholders or nominate directors at such meeting, nor can they currently generally submit stockholder proposals under Rule 14a-8 of the Exchange Act.
Following the elimination of our Series I preferred stock on or before December 31, 2026, pursuant to the Reorganization Agreement, we will no longer be exempted from the foregoing corporate governance requirements of the NYSE (following a transition period), and we will be required to comply with the foregoing provisions of the U.S. securities laws. For more information about the transactions contemplated by the Reorganization Agreement, see "Certain Relationships and Related Transactions, and Director Independence—Reorganization Agreement."
Our certificate of incorporation states that the Series I preferred stockholder is under no obligation to consider the separate interests of the other stockholders and contains provisions limiting the liability of the Series I preferred stockholder.
Subject to applicable law, our certificate of incorporation contains provisions limiting the duties owed by the Series I preferred stockholder and contains provisions allowing the Series I preferred stockholder to favor its own interests and the interests of its controlling persons over us and the holders of our common stock. Our certificate of incorporation contains provisions stating that the Series I preferred stockholder is under no obligation to consider the separate interests of the other stockholders (including the tax consequences to such stockholders) in deciding whether or not to authorize us to take (or decline to authorize us to take) any action as well as provisions stating that the Series I preferred stockholder shall not be liable to the other stockholders for damages or equitable relief for any losses, liabilities or benefits not derived by such stockholders in connection with such decisions.
Even if there is deemed to be a breach of the obligations set forth in our certificate of incorporation, our certificate of incorporation provides that the Series I preferred stockholder will not be liable to us or the holders of our common stock for any acts or omissions unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that the Series I preferred stockholder or its officers and directors acted in bad faith or engaged in fraud or willful misconduct. These provisions restrict the remedies available to stockholders with respect to actions of the Series I preferred stockholder.
In addition, we have agreed to indemnify the Series I preferred stockholder and its affiliates and any member, partner, tax matters partner (as defined in U.S. Internal Revenue Code of 1986, as amended (the "Code"), as in effect prior to 2018), partnership representative (as defined in the Code), officer, director, employee, agent, fiduciary or trustee of any of KKR or its subsidiaries (which includes KKR Group Partnership), the Series I preferred stockholder or any of our or the Series I preferred stockholder's affiliates and certain other specified persons (collectively, "Indemnitees"), to the fullest extent permitted by law, against any and all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts incurred by any Indemnitee. We have agreed to provide this indemnification unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that the Indemnitee acted in bad faith or engaged in fraud or willful misconduct. We have also agreed to provide this indemnification for criminal proceedings.
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The provision of our certificate of incorporation requiring exclusive venue in the state and federal courts located in the State of Delaware or federal district courts of the United States for certain types of lawsuits may have the effect of discouraging lawsuits against us and our directors, officers and stockholders.
Our certificate of incorporation requires that (i) any derivative action, suit or proceeding brought on behalf of KKR, (ii) any action, suit or proceeding asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, employee or stockholder of KKR to KKR or KKR's stockholders, (iii) any action, suit or proceeding asserting a claim arising pursuant to any provision of the Delaware General Corporation Law ("DGCL"), our certificate of incorporation or our bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware or (iv) any action, suit or proceeding asserting a claim governed by the internal affairs doctrine may only be brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, the federal district court located in the State of Delaware. In addition, the federal district courts of the United States are the exclusive forum for the resolution of any action, suit or proceeding asserting a cause of action arising under the Securities Act and the Exchange Act. This provision may have the effect of discouraging lawsuits against us and our directors, officers and stockholders.
An investment in our common stock is not an investment in any of our investment vehicles, insurance companies or other businesses operated by our subsidiaries, and the assets and revenues of our investment vehicles are not directly available to us.
Our common stock only represents an investment in securities of KKR & Co. Inc., the holding company of the KKR business. While our historical consolidated financial statements include financial information, including assets and revenues, of certain investment vehicles on a consolidated basis, and our future financial statements will continue to consolidate certain of these investment vehicles, such assets and revenues belong to the investment vehicle and not to us except to a limited extent through management fees, carried interest or other incentive income, distributions and other proceeds arising from our agreements with these investment vehicles, as discussed in more detail in this report. Additionally, given our holding company structure, an investment in our common stock is not an investment directly in our insurance companies or any other businesses that may be operated by our subsidiaries.
Our common stock price may decline due to the large number of shares eligible for future sale, and issued or issuable pursuant to our equity incentive plans or as consideration in acquisitions.
The market price of our common stock could decline as a result of sales of a large number of shares in the market or the perception that such sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell shares of common stock in the future at a time and at a price that we deem appropriate.
In addition, we have issued and will continue to issue equity awards that vest into or are exchangeable for shares of our common stock pursuant to our 2019 Equity Incentive Plan. We are authorized to grant equity awards equal to 15% of the aggregate number of shares of common stock outstanding and KKR Group Partnership Units (excluding KKR Group Partnership Units held by KKR & Co. Inc. or its subsidiaries) (together, "Diluted Common Shares") minus the number of shares underlying any outstanding equity awards granted under our 2019 Equity Incentive Plan that have not yet been delivered upon vesting. Under the 2019 Equity Incentive Plan, on the first day of each fiscal year, the number of shares of common stock available for issuance of future awards under our 2019 Equity Incentive Plan will be adjusted upwards to 15% of the aggregate number of shares of common stock outstanding and KKR Group Partnership Units (excluding KKR Group Partnership Units held by KKR & Co. Inc. or its subsidiaries) outstanding at the close of business on the last day of the immediately preceding fiscal year, minus the number of shares underlying any outstanding equity awards granted under our 2019 Equity Incentive Plan that have not yet been delivered upon vesting. In addition, previously issued awards that were canceled or are canceled in the future, or in certain cases, withheld in respect of tax withholding obligations, are or will become available for further grant under the terms of our 2019 Equity Incentive Plan. For the number of equity awards available for issuance, see Note 19 "Equity Based Compensation" in our financial statements. For other information about our equity awards, see also "Executive Compensation—KKR & Co. Inc. Equity Incentive Plan." In the past, we have issued and sold our common stock to generate cash proceeds to pay withholding taxes, social benefit payments or similar payments payable by us in respect of awards granted pursuant to our Equity Incentive Plans or the amount of cash delivered in respect of awards granted pursuant to our Equity Incentive Plans that are settled in cash instead of shares of common stock. We may issue and sell shares of our common stock in the future for similar purposes or for any other purpose we deem to be appropriate.
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We have used, and in the future may continue to use, our common stock or securities convertible, exchangeable or exercisable into our common stock as consideration in connection with acquisitions and strategic investments. For example, in connection with the acquisition of a majority of the equity interest of Global Atlantic on February 1, 2021, we issued 23.0 million shares of Series C Mandatory Convertible Preferred Stock; in connection with KKR's acquisition of KKR Financial Holdings LLC ("KFN") on April 30, 2014, we issued the equivalent of approximately 104.3 million shares of our common stock; in connection with KKR's acquisition of Avoca on February 19, 2014, we issued the equivalent of approximately 4.9 million shares of our common stock; and in connection with KKR's initial acquisition on November 2, 2015 and subsequent increases in ownership of Marshall Wace, we issued the equivalent of approximately 23.0 million shares of our common stock. In addition, in connection with other investments, we may make certain future contingent payments in the form of common stock or securities convertible, exchangeable or exercisable into our common stock. If our valuations of these transactions are not accurate or if the value of these acquisitions and investments is not realized, the value of our common stock as well as our dividend per share of common stock may decline.
Future issuances of preferred stock may cause the price of our common stock to decline, which may negatively impact our common stockholders.
Our board of directors is authorized to issue series of shares of preferred stock (including preferred stock convertible into common stock) without any action on the part of our stockholders and, with respect to each such series, fix, without stockholder approval (except as may be required by our certificate of incorporation or any certificate of designation relating to any outstanding series of preferred stock), the designation of such series, the powers (including voting powers), preferences and relative, participating, optional and other special rights, and the qualifications, limitations or restrictions thereof, of such series of preferred stock and the number of shares of such series. Any series of preferred stock we may issue in the future will rank senior to all of our common stock with respect to the payment of dividends or upon our liquidation, dissolution, or winding-up. We have issued series of preferred stock in the past, and if we issue cumulative preferred stock in the future that has preference over our common stock with respect to the payment of dividends or upon our liquidation, dissolution, or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stockholders in the instances in which they have the right to vote, the market price of our common stock could decrease. Similarly, the limited partnership agreement of KKR Group Partnership authorizes the general partner of KKR Group Partnership to issue an unlimited number of additional securities of KKR Group Partnership with such designations, preferences, rights, powers and duties that are different from, and may be senior to, those applicable to the KKR Group Partnership Units, and which may be exchangeable for KKR Group Partnership Units.
Our certificate of incorporation provides us with a right to acquire all of the then outstanding shares of common stock under specified circumstances, which may adversely affect the price of our common stock and the ability of holders of our common stock to participate in further growth in our stock price.
Our certificate of incorporation provides that, if at any time, either (i) less than 10% of the total shares of any class our stock then outstanding (other than Series I preferred stock and other series of preferred stock) is held by persons other than the Series I preferred stockholder and its affiliates or (ii) we are subjected to registration under the provisions of the Investment Company Act, we may exercise our right to call and purchase all of the then outstanding shares of common stock held by persons other than the Series I preferred stockholder or its affiliates or assign this right to the Series I preferred stockholder or any of its affiliates. As a result, a stockholder may have his or her shares of our common stock purchased from him or her at an undesirable time or price and in a manner which adversely affects the ability of a stockholder to participate in further growth in our stock price.
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We intend to pay periodic dividends to the holders of our common stock, but our ability to do so may be limited by our holding company structure, contractual restrictions, our cash flow from operations and available liquidity.
We intend to pay cash dividends on a quarterly basis. We are a holding company and have no material assets other than the KKR Group Partnership Units that we hold through wholly-owned subsidiaries and have no independent means of generating income. The declaration and payment of dividends to our stockholders will be at the sole discretion of our board of directors, and our dividend policy may be changed at any time. The declaration and payment of dividends is subject to legal, contractual and regulatory restrictions on the payment of dividends by us or our subsidiaries, including restrictions contained in our debt agreements, the terms of our certificate of incorporation, and such other factors as the board of directors considers relevant including, among others: our available cash and current and anticipated cash needs, including funding of investment commitments and debt service and future debt repayment obligations; general economic and business conditions; our strategic plans and prospects; our results of operations and financial condition; and our capital requirements. Under Section 170 of the DGCL, our board of directors may only declare and pay dividends either out of our surplus (as defined in DGCL) or in case there is no such surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. However, dividends may not be declared out of net profits if our capital, computed in accordance with DGCL, shall have been diminished by depreciation in the value of our property, or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets. Furthermore, by paying cash dividends rather than investing that cash in our businesses, we risk slowing the pace of our growth, or not having a sufficient amount of cash to fund our operations, new investments or unanticipated capital expenditures, should the need arise. In addition, if we issue preferred stock in the future, it will rank senior to our common stock with respect to the payment of dividends.
We will be required to pay certain principals for most of the benefits relating to our use of tax attributes we receive from historical exchanges of our common stock for KKR Group Partnership Units.
We are required to make certain payments under a tax receivable agreement to certain principals who have exchanged prior to May 30, 2022 their KKR Holdings Units for shares of common stock as transferees of KKR Group Partnership Units. Certain of these exchanges resulted in an increase in our share of the tax basis of the tangible and intangible assets of KKR Group Partnership, primarily attributable to a portion of the goodwill inherent in our business. This increase in tax basis may increase (for tax purposes) depreciation and amortization and therefore reduce the amount of income tax we would otherwise be required to pay in the future. This increase in tax basis may also decrease gain (or increase loss) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets. Under the tax receivable agreement, these former principals are entitled to receive 85% of the amount of cash tax savings, if any, in U.S. federal, state and local income tax that we realize as a result of this increase in tax basis, as well as 85% of the amount of any such savings we actually realize as a result of increases in tax basis that arise due to future payments under the agreement. These payment obligations are obligations of KKR Group Co. Inc. and its wholly-owned subsidiary, KKR Group Holdings Corp., which are treated as corporations for U.S. tax purposes. The amount of payments due under the tax receivable agreement depends on the amount of tax savings in any given year, which will vary depending upon a number of factors, including the number of units previously exchanged, the price of our common stock at the time of such exchanges, the extent to which such exchanges were taxable, the amount and timing of our taxable income, prevailing corporate tax rates over time, and whether we are subject to the corporate alternative minimum book tax.
The tax receivable agreement was terminated on May 30, 2022 pursuant to the Reorganization Agreement. However, all obligations of KKR Group Co. Inc. to make payments arising under the tax receivable agreement with respect to the final exchange on May 18, 2022 and any exchanges completed prior to such exchange remain outstanding until fully paid. For information about management's best estimate of the amounts expected to be owed under the tax receivable agreement, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity Needs—Tax Receivable Agreement" in this report. For further information generally, see also "Certain Relationships and Related Transactions, and Director Independence."
We may need to incur debt to finance payments under the tax receivable agreement to the extent our cash resources are insufficient to meet our obligations under the tax receivable agreement as a result of timing discrepancies or otherwise. Payments under the tax receivable agreement will be based upon the tax reporting positions that we will determine. We are not aware of any issue that would cause the IRS to challenge a tax basis increase. However, our former principals will not be required to reimburse us for any payments previously made under the tax receivable agreement if such tax basis increase, or the tax benefits we claim arising from such increase, is successfully challenged by the IRS. As a result, in certain circumstances, payments under the tax receivable agreement could be in excess of our cash tax savings. Our ability to achieve benefits from any tax basis increase, and the payments to be made under the tax receivable agreement, will depend upon a number of factors, as discussed above, including the timing and amount of our future taxable income.
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If we were deemed to be an "investment company" subject to regulation under the Investment Company Act, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.
A person will generally be deemed to be an "investment company" for purposes of the Investment Company Act if:
• it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or
• absent an applicable exemption, it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.
We regard ourselves as an investment management firm. We are engaged primarily in the business of providing investment management services and, through Global Atlantic, the insurance business, and not in the business of investing, reinvesting or trading in securities. Accordingly, we do not believe that we are an "orthodox" investment company as defined in Section 3(a)(1)(A) of the Investment Company Act and described in the first bullet point above.
With regard to the second bullet point above, which describes an “investment company” as defined in Section 3(a)(1)(C) of the Investment Company Act (referred to herein as the “40% test”), we have no material assets other than our equity interests in our sole subsidiary, which in turn has no material assets other than general partner interests in KKR Group Partnership. Through these interests, we indirectly are vested with all management and control over KKR Group Partnership. We do not believe our equity interests in our subsidiary are investment securities, and we believe that the capital interests of the general partners of our investment vehicles in their respective investment vehicles are neither securities nor investment securities. Accordingly, based on our determination, less than 40% of our total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis are comprised of assets that could be considered investment securities. However, certain of our subsidiaries have a significant number of investment securities, and we expect to make investments in other investment securities from time to time. We monitor these holdings regularly to confirm our continued compliance with the 40% test. The need to comply with this 40% test may cause us to restrict our business and subsidiaries with respect to the assets in which we can invest and/or the types of securities we may issue, sell investment securities, including on unfavorable terms, acquire assets or businesses that could change the nature of our business or potentially take other actions that may be viewed as adverse by the holders of our common stock, in order to ensure conformity with exceptions provided by, and rules and regulations promulgated under, the Investment Company Act.
The Investment Company Act and the rules and regulations thereunder contain detailed parameters for the organization and operation of investment companies. Among other things, the Investment Company Act and the rules and regulations thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, generally prohibit the issuance of options and impose certain governance requirements. We intend to conduct our operations so that we will not be deemed to be an investment company under the Investment Company Act. If anything were to happen which would cause us to be deemed to be an investment company under the Investment Company Act, requirements imposed by the Investment Company Act, including limitations on our capital structure, ability to transact business with affiliates and ability to compensate key employees, would make it impractical for us to continue our business as currently conducted, impair the agreements and arrangements between and among us, and materially and adversely affect us. In addition, we may be required to limit the amount of investments that we make as a principal, potentially divest of our investments or otherwise conduct our business in a manner that does not subject us to the registration and other requirements of the Investment Company Act.
With respect to our subsidiary Global Atlantic, we believe it is not and does not propose to be primarily engaged in the business of investing, reinvesting or trading in securities, and we do not believe that Global Atlantic has held itself out as such. Global Atlantic is primarily engaged through its wholly-owned insurance companies in the business of writing insurance, and on an unconsolidated basis, Global Atlantic expects that in excess of 65% of Global Atlantic's gross income will be derived from its wholly-owned insurance companies. Global Atlantic's holding companies do not own or propose to own investment securities in excess of the 40% test. Global Atlantic's insurance companies intend to operate so that in excess of 65% of their business is derived from insurance business, meaning such entities are exempt from designation as an investment company under Section 3(c)(6) of the Investment Company Act. If Global Atlantic were deemed an investment company, restrictions imposed by the Investment Company Act, including limitations on capital structure and ability to transact with affiliates, will likely make it impractical for Global Atlantic to continue its business operations as currently conducted. Global Atlantic may need to take significant actions to avoid registration as an investment company.
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With respect to our subsidiary KFN, we believe it is not and does not propose to be primarily engaged in the business of investing, reinvesting or trading in securities, and we do not believe that KFN has held itself out as such. KFN conducts its operations primarily through its majority-owned subsidiaries, which is either outside of the definition of an investment company as defined in the Investment Company Act or excepted from such definition under the Investment Company Act. KFN monitors its holdings regularly to confirm its continued compliance with the 40% test described in the second bullet point above, and restricts its subsidiaries with respect to the assets in which each of them can invest and/or the types of securities each of them may issue in order to ensure conformity with exceptions provided by, and rules and regulations promulgated under, the Investment Company Act. If the SEC were to disagree with KFN's treatment of one or more of its subsidiaries as being excepted from the Investment Company Act, with its determination that one or more of its other holdings are not investment securities for purposes of the 40% test, or with its determinations as to the nature of its business or the manner in which it holds itself out, KFN and/or one or more of its subsidiaries could be required either (i) to change substantially the manner in which it conducts its operations to avoid being subject to the Investment Company Act or (ii) to register as an investment company. Either of these would likely have a material adverse effect on KFN, its ability to service its indebtedness and to make distributions on its shares, and on the market price of its securities, and could thereby materially and adversely affect us.
In 2011, the SEC published an advance notice of proposed rulemaking regarding Rule 3a-7 under the Investment Company Act and a concept release seeking information on Section 3(c)(5)(C) of the Investment Company Act, two provisions with which KKR's subsidiaries, including KFN, must comply under the 40% test described above. Among the issues for which the SEC has requested comment is whether Rule 3a-7 should be modified so that parent companies of subsidiaries that rely on Rule 3a-7 should treat their interests in such subsidiaries as investment securities for purposes of the 40% test. The SEC also requested information about the nature of entities that invest in mortgages and mortgage-related pools and how the SEC staff's interpretive positions in connection with Section 3(c)(5)(C) affect these entities. Although no further action has been taken by the SEC, any guidance or action from the SEC or its staff, including changes that the SEC may ultimately propose and adopt to the way Rule 3a-7 applies to entities or new or modified interpretive positions related to Section 3(c)(5)(C), could further inhibit KKR's ability, or the ability of any of its subsidiaries, including KFN, to pursue its current or future operating strategies, which could have a material adverse effect on us.
We may from time to time undertake reorganizations that may adversely impact us.
From time to time, we may undertake reorganizations or make other changes to our organizational structure. For example, on July 1, 2018, we converted from a Delaware limited partnership to a Delaware corporation; on January 1, 2020, we completed an reorganization to, among other changes, consolidate the three intermediate holdings companies for KKR's business; and, most recently, on May 31, 2022, we completed the mergers contemplated by the Reorganization Agreement by which KKR acquired KKR Holdings. We also committed to undertake another reorganization by the Sunset Date (as defined in the Reorganization Agreement), which will occur not later than December 31, 2026, whereby control of KKR by our Series I preferred stock will be eliminated. These reorganizations or changes, including the reorganization scheduled to occur on the Sunset Date, could be disruptive to our business, result in significant expense, require regulatory approvals, and may not be successful in achieving its objectives or fail to result in the intended or expected benefits, any of which could materially and adversely impact us. For more information about the Reorganization Agreement, see "Certain Relationships and Related Transactions, and Director Independence—Reorganization Agreement" in this report.
Anti-takeover provisions in our organizational documents could delay or prevent a change of control.
In addition to the provisions related to our Series I preferred stock and Series I preferred stockholder described in this report, certain provisions in our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable by, for example:• permitting our board of directors to issue one or more series of preferred stock;• requiring advance notice for stockholder proposals and nominations if they are ever permitted by applicable law; and• placing limitations on convening stockholder meetings.These provisions may also discourage acquisition proposals or delay or prevent a change in control. See "Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934," which is filed as an exhibit to this report.
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FY 2025-12-31 (later)
ITEM 1A. RISK FACTORSYou should carefully consider the risks described below and the other information contained in this report and other
filings that we make from time to time with the SEC, including our consolidated financial statements and accompanying notes.
Any of the following risks could materially and adversely affect our business, financial condition, results of operations, cash
flows, and prospects. Many risks discussed in this report also impact our investment vehicles, portfolio companies and other
investments, including balance sheet investments, which may, in turn, materially and adversely impact KKR. When discussing
our risks in this report, unless the context requires otherwise, references to (i) our investments include our portfolio
companies, which are typically companies in which we have a controlling equity interest or other investment with significant
influence, (ii) investors refers to the investors in our funds and other investment vehicles, and (iii) investments that we make
or own on our balance sheet include the portfolio companies reported in our Strategic Holdings segment and investments
held by our insurance subsidiaries. We could also be materially and adversely affected by other risks that are not known to us
or that we currently believe to be immaterial. The following risk factors have been organized by category within risks related
to our business, regulatory framework, investment activities, insurance activities, and our organizational structure; however,
many of the risks are interrelated, and as a result, should be read together to fully understand the risks involved with
investing in our securities. See also “Business—Regulation” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” for a discussion of certain business, competitive, regulatory, market, economic and
other conditions that may materially and adversely affect us.Risks Related to Our Business
Difficult market and economic conditions can, and periodically do, materially and adversely affect KKR.Our business is materially affected by market and economic conditions and events throughout the world, including
conditions relating to interest rates, fiscal and monetary stimulus (and stimulus withdrawal), availability of credit, inflation
rates, economic growth, changes in laws, trade barriers, commodity prices, foreign exchange rates and controls, and liquidity
conditions in equity and debt capital markets. These market and economic conditions are not in our control and are often
difficult, if not impossible, to predict, manage, mitigate, hedge or foresee. Examples of how market and economic conditions
may materially and adversely affect our business and financial results include negative impacts to us from any or all of the
following:
• the performance and value of the investments held by us and our investment vehicles,
• opportunities for us and our investment vehicles to make, exit and realize value from our and their investments,
• our ability to find suitable investments or secure financing for investments on attractive terms, or at all,
• the attractiveness of our investment vehicles and insurance products to investors and policyholders, respectively,
including our ability to raise capital for new or successor funds and other investment vehicles on attractive terms,
• the frequency and size of fees generated from our capital markets business in connection with the issuance and
placement of equity and debt securities, loans and credit facilities,• the availability and cost of capital for our insurance subsidiaries and our investment vehicles’ portfolio companies,• policyholder behavior, including policyholders electing to defer paying insurance premiums, stop paying insurance
premiums altogether, or surrender their policies, and
• the cost of providing guaranteed insurance benefits, insurance capital requirements and collateral requirements.
See also “—Risks Related to our Investment Activities—Various conditions and events outside of our control that are
difficult to quantify or predict may have a significant impact on the valuation of our investments” below.
Global, regional and local events outside of our control, including geopolitical events and natural
disasters, could materially and adversely impact KKR.
We are a global financial institution with operations, investors and investments located around the world. Geopolitical
developments, including the imposition of protectionist measures by countries such as sanctions, restrictions on foreign direct
investment, trade barriers, tariffs, export controls and other governmental actions related to international trade agreements
and policies that materially constrain cross-border flows of capital, goods, or data, may impact our investment activities and
investments. In addition, other geopolitical developments such as political instability, civil unrest, and national and
international security events (including the outbreak of war, military action, terrorist acts or other hostilities), can, and
occasionally do, materially and adversely impact our ability to conduct our investment management and insurance
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businesses, in addition to our investments. These risks have increased in both scale and complexity due to intensifying
geopolitical competition and conflicts, including the ongoing Russian invasion of Ukraine, instability in the Middle East,
heightened geopolitical competition between China and other major world economies, heightened levels of political populism
leading to regulatory volatility, growing use of industrial policy globally (including the imposition of tariffs and other trade and
capital barriers), and increased attention to global threats. We are subject to these risks as we own and seek to own
businesses throughout the world, have offices and employees in multiple countries and seek investors throughout the world
for our investment products and certain of our insurance products.
We are also affected by natural disasters or catastrophes, such as public health crises, pandemics, epidemics, security
events, and weather events, any of which could have an adverse impact on our ability to conduct our investment
management and insurance businesses. Potential changes in climatic conditions, together with the response or failure to
respond to these changes, could precipitate the frequency, severity, and impact of natural disasters or catastrophes.
Such events outside of our control could limit or even materially prohibit our ability to conduct any operations or
investment activities in certain locations. In addition, claims arising from the occurrence of such events could have an adverse
effect on our insurance activities, in particular with respect to increases in the number of claims, lapses and surrenders of
existing policies, as well as sales of new policies. These events outside of our control, and actions taken in response to them,
may contribute to significant volatility in the financial markets, resulting in increased volatility in equity prices (including our
common stock), valuation, material interest rate changes, supply chain disruptions, such as simultaneous supply and demand
shock to global, regional and national economies, and an increase in inflationary pressures. These events and the disruptions
that they cause, alone or in combination, also have the potential to strain or deplete our infrastructure and response
capabilities generally, and to increase costs, including costs of insurance, each of which could materially and adversely affect
us. See also “—Risks Related to Our Investment Activities—Investments in real assets may expose us and our investment
vehicles to greater risks, liabilities and operational complexities than investments in operating companies.”
We may have direct investments in a region or a country that is experiencing one of the aforementioned events, and we
may also be materially and adversely affected by the occurrence of such events as a result of indirect exposure that our
portfolio companies or other investments may have through other interconnectivities such as supply chains, commodity
prices and general macroeconomic exposure. These events, including barriers to investment between the U.S. and other
countries or regions, could chill or limit business opportunities, adversely impact the value of our investments, increase costs,
decrease margins, reduce the competitiveness of products and services offered by portfolio companies, and adversely affect
the revenues and profitability of portfolio companies.
The loss of key personnel or their services, or any misconduct by key personnel, could have a material
adverse effect on KKR.
Our Co-Founders, Co-Chief Executive Officers, employees, and other key personnel, including certain consultants and
advisors, possess substantial experience and expertise and have strong business relationships with investors in our
investment funds, other members of the business community and distributors of our investment vehicles and insurance
products. As a result, the loss of key personnel could jeopardize our relationships with these individuals and entities, result in
the reduction of AUM or investment opportunities, or render us unable to maintain operations and support growth of our
businesses. The loss of services of key personnel could also harm our ability to maintain or grow AUM in existing investment
vehicles or raise additional funds in the future. Competition is also intense for the attraction and retention of qualified
employees and consultants, including those with industry-specific expertise. Our ability to continue to compete effectively in
our businesses will depend upon our ability to attract new investment professionals, insurance professionals, other
employees, and consultants and retain them accordingly. In addition, changes in employee compensation as a result of the
modification of our compensation framework or poor investment or financial performance may impact our ability to hire,
retain, and motivate our employees whom we depend.
Furthermore, the agreements governing our committed capital funds generally provide that in the event certain “key
persons” cease to actively manage an investment vehicle or be substantially involved in KKR activities, investors in the
investment vehicle may reduce, in whole or in part, their capital commitments available for further investments on an
investor-by-investor basis, which could indirectly lead to a limitation on the fund’s ability to conduct its business or cause us
to agree to unfavorable terms to continue the affected fund. Although we periodically engage in discussions with the limited
partners of our funds regarding a waiver of such provisions with respect to executives involved in geographically or product
focused funds whose departures have occurred or are anticipated, such waiver is not guaranteed, and our limited partners’
refusal to provide a waiver may have a material adverse effect on our business and financial results.
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If we cannot retain and motivate our employees and other key personnel or recruit, retain and motivate new employees
and other key personnel, our business may be materially and adversely affected. Our ability to recruit, retain and motivate
our employees and other key personnel is dependent on our ability to offer highly attractive incentive opportunities, benefits,
and compensation, which frequently includes allocating a portion of the carried interest that we earn from our investment
vehicles, which we refer to as the carry pool. There can be no assurance that the carry pool will have sufficient cash available
to continue to make cash payments in the future, and fluctuations from the distributions generated from the carry pool could
render the compensation that KKR separately pays to them to be less attractive. In order to retain and motivate our
employees and other key personnel, we may be required to pay them a higher amount of non-carry cash compensation to
retain and motivate them. The loss, or ineffectiveness of any incentive compensation plans, including as a result of any
adverse changes in regulation or tax law that impacts certain forms of incentives or other remuneration that we may typically
offer employees, such as carried interest, may cause us to incur additional expenses to pay competitively with other firms,
which could materially and adversely affect KKR. In addition, legal and regulatory developments outside of our control may
impact our ability to successfully identify, hire, and promote employees and other key personnel and may necessitate changes
to employment compensation practices.
We seek to retain our employees by having them agree to a confidentiality and restrictive covenants agreement.
However, there is no guarantee that the confidentiality and restrictive covenant agreements to which they are subject,
together with our other arrangements with them, will prevent them from leaving us, joining our competitors or otherwise
competing with us. Depending on which entity is a party to these agreements and the laws applicable to them, we may not
be able to, or may choose not to, enforce them or become subject to lawsuits or other claims, and certain of these
agreements might be waived, modified or amended at any time without our consent. Many countries and states within the
U.S. in which we operate have proposed, considered, or have already adopted, laws and rules which significantly limit or ban
noncompete clauses between employers and their employees, which could both limit our ability to enter into such restrictive
covenants and our ability to enforce them. Even where enforceable, these agreements expire after a certain period of time,
at which point our former employees will be free to compete against us.
From time to time, our firm, our investment vehicles, our portfolio companies and other investments, or our employees
may be a focus of public attention or media coverage, and these circumstances, as well as broader social and political
tensions, may increase the risk of harassment, threats, acts of violence or other personal safety and security incidents
directed at our personnel, including our senior executives, both inside and outside the workplace. We have implemented, and
expect to continue to, implement or expand security measures for our senior executives and other key employees, such as
physical security, secure transportation, travel restrictions and monitoring or protective services for them and, in some cases,
their families. Such measures can be costly and may not be effective in preventing all incidents. Any actual or threatened
harm to the personal safety of our employees, or perceived failure to protect them adequately, could materially adversely
affect us, including our ability to attract and retain talent.
Our business could also be damaged by the misconduct of, or allegations of misconduct of, our employees or other key
personnel. Misconduct by our employees or other key personnel could impair our ability to retain and recruit employees, to
attract and retain clients and investors, and may subject us to significant legal liability, regulatory scrutiny, and reputational
harm.
Our reliance on third parties in the operation of our business exposes us to operational, reputational
and other risks.
We rely significantly on third parties whom we do not control for significant support and assistance with various aspects
of our business, including for investment activities, accounting, record keeping, data processing, and other operations. These
third parties include technology service providers, financial intermediaries and advisers, law firms, accountants,
administrators, lenders, broker dealers, distribution agents, consultants, and other vendors. We generally have less control
over the delivery of third-party services and, as a result, may face disruptions to our ability to operate our business as a result
of interruptions of such services. We may also be held liable if those third-party service providers, their employees or their
own third-party service providers are found to have committed negligence, violated laws or engaged in misconduct. For
example, in the past, Global Atlantic was the subject of policyholder and agent class action litigation matters and a number of
regulatory matters stemming from service disruptions caused by a third-party administrator for certain Global Atlantic life
insurance policies. While Global Atlantic outsources policyholder administration to third-party, it is responsible under
insurance regulations and insurance contracts for servicing.
We rely heavily on the systems of third parties who provide technology services to us, including as part of our
information technology infrastructure. Our data processing systems, communication lines and networks are often supported
by third-party service providers, vendors, and intermediaries. A disaster, disruption, error or inability to operate or provide
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any of these services by us or our vendors or third parties with whom we conduct business could have a material adverse
impact on our financial results and our ability to continue to operate our business without interruption. Our business
continuation or disaster recovery programs may not be sufficient to mitigate the harm that may result from such a disaster or
disruption. In addition, insurance and other safeguards might only partially reimburse us for our losses, if at all. While we have
endeavored to mitigate the risk of other disruptions in the future, there can be no guarantee these mitigation efforts will be
successful. We may experience material reputational impacts and heightened regulatory scrutiny as a result of these matters.
Any interruption or failure of our information technology infrastructure caused directly or indirectly by third-party service
providers could result in our inability to provide services to our clients, other disruptions of our business, corruption or
modifications to our data and fraudulent transfers or requests for transfers of money or the inability to demonstrate
compliance with regulatory requirements. Our third-party service providers could experience, and have experienced, certain
cyber incidents, and as a result, unauthorized individuals have gained access to our clients’, and could improperly gain access
to our, confidential data through such third parties. Any cybersecurity incidents involving these third parties could impair the
quality of our operations and could impact our reputation and materially and adversely affect us. We may also have
insufficient recourse against such third parties and may have to expend significant resources to mitigate the impact of such an
event, and to develop and implement protections to prevent future events of this nature from occurring. Actions taken by our
third-party service providers may also damage our reputation. We consider our reputation critical to attracting and retaining
investors, maintaining our relationships with regulators and being viewed as an attractive investment partner. As a result, any
negative publicity or negative public perception regarding a third-party service provider’s actions on our behalf may damage
our relationships with existing and potential investors, employees, regulators and other stakeholders, impair our ability to
raise capital, adversely impact the ability of our investment vehicles to make and exit investments, and impair our ability to
carry out investment activities generally.
We also specifically depend on the services of various financial intermediaries (including banks, prime brokers,
custodians, paying agents and escrow agents), counterparties, administrators and other agents, including to carry out certain
credit, securities, derivatives and hedging transactions, subjecting us to the risk that one or more of these counterparties
defaults, either voluntarily or involuntarily, on its performance under the applicable contract. We may enter into financial
arrangements with a limited number of counterparties, which has the effect of concentrating the transaction volume (and
related counterparty default risk) with these counterparties. If such a counterparty defaults, particularly a default by a major
investment bank or a default by a counterparty that has a significant number of our contracts, we may be materially adversely
affected. In the event of the insolvency of a financial intermediary that is holding our assets as collateral (to the extent not
adequately segregated) or that is required to make payments to us, we may not be able to recover equivalent assets or
payment in full as we will rank among the financial intermediary’s unsecured creditors. In addition, the timing of the recovery
of such amounts and assets (including segregated collateral) may also be significantly delayed as part of the administration of
the bankruptcy estate of the financial intermediary. In addition, our risk management processes may not accurately
anticipate the impact of market stress or counterparty financial condition, and as a result, we may not take sufficient action to
reduce effectively our risks to them. The inability to recover assets or payments from financial intermediaries could have a
material adverse impact on us as well as the performance of our investment vehicles. For more information about the risks of
using financial intermediaries to sell investment and insurance products, please see “—Risks Related to Regulatory Matters—
Distribution of financial products to individual investors subjects us to heightened regulatory, litigation, and reputational risks,
which may materially adversely affect our business”.
Disruptions in our technology infrastructure or the occurrence of other operational errors could
materially and adversely affect our business.
Our business depends on the effective execution of operational processes and the reliability of information technology
systems, both those we operate and those provided by third parties. We rely on technology systems, including computer
hardware, software systems, data processing systems, and other technology infrastructure that we own or that are provided
and maintained by third party service providers. See also “—Risks Related to Our Business—Our reliance on third parties in
the operation of our business exposes us to operational, reputational and other risks.” As our reliance on such technology
infrastructure has increased, so have the risks associated with system vulnerabilities, data loss, cybersecurity incidents,
processing failures and operational disruptions. If we are unable to adapt our technology infrastructure to accommodate our
growth, business changes or regulatory compliance needs, or if the cost of maintaining such systems may increase materially
from its current level, it may have a material adverse effect on us. We may need to continue to invest heavily in upgrades and
expansions to our information technology infrastructure to continue to support our business and to avoid disruption of our
operations, including our investment activities. Moreover, the technology systems of third-party providers and technology
infrastructure that we own may contain vulnerabilities or experience disruptions, including those resulting in data loss, that
could materially and adversely impact our business. In addition, certain of our operational processes continue to involve our
employees engaging in manual processes, which are inherently subject to execution risk, including unintentional mistakes,
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processing errors or control failures, which could materially and adversely affect us. Manual processes may be particularly
susceptible to error during periods of high transaction volume, personnel changes, new technology system implementations
or other operational transitions. Although we maintain policies, procedures, and internal controls, and have implemented
technology infrastructure designed to mitigate these risks, such measures may not be effective in preventing or detecting
errors in a timely manner. Failures in our operational processes could result in financial loss, regulatory scrutiny, reputational
harm, and other adverse consequences.
The failure to effectively manage our balance sheet could materially and adversely affect our financial
condition and results of operations.
We have made a strategic decision to have a larger balance sheet than most of our asset management competitors, and
consequently, the management of our balance sheet has a greater impact on our financial condition and results of operations.
We utilize our balance sheet to support our insurance subsidiaries’ business and capital needs, underwrite commitments in
our capital markets transactions, make capital commitments to our investment vehicles, and make acquisitions and other
strategic investments for our Strategic Holdings segment.
A significant portion of our balance sheet is dedicated to the ownership and operation of our insurance business, which is
a capital-intensive, long-duration business. Our insurance subsidiaries are subject to regulatory capital requirements and
rating agency capital expectations that require each entity to maintain significant levels of capital. To support insurance
company capitalization, we may need to contribute additional capital to our insurance subsidiaries, or we may be restricted
from growing and expanding our insurance business. Our insurance obligations to policyholders are contractual, and, in
contrast to our investment products, we must pay these obligations regardless of the investment performance of the assets
backing these obligations. We make significant assumptions to calculate our expected future insurance payment obligations,
including with respect to factors such as policyholder behavior and market or economic conditions that are not in our control.
We hold significant assets on balance sheet to support these insurance obligations. We are subject to the market impacts on
and investment performance of such assets as well as actual policyholder behavior differing from our assumptions. If we are
unsuccessful in our asset-liability management, we will suffer insurance operating losses as we will owe more on our
insurance obligations than we earn on such assets and may be required to hold additional capital. Our insurance balance
sheet requires active risk management and a failure to manage those risks may have a material and adverse effect on us.
We have used our balance sheet in our capital markets business to underwrite loans, securities or other financial
instruments, which we generally expect to syndicate to third parties. We have also entered into arrangements with third
parties that reduce our risk associated with holding unsold securities when underwriting certain debt transactions, which
enables our capital markets business to underwrite a larger amount. To the extent that we are unable to syndicate our
commitments to third parties or our risk reduction arrangements do not fully perform as anticipated, we may be required to
sell such investments at a significant loss or hold them indefinitely, which could impact the performance of such investments
and also impair our capital markets business’ ability to complete additional transactions, either of which could materially and
adversely affect us.
In addition to the investments held in our insurance subsidiaries, which are reported in our Insurance segment, our
balance sheet makes investments and holds strategic assets that are reported in our Asset Management and Strategic
Holdings segments. We bear the full risk of these balance sheet investments. However, our success in generating returns on
this capital, will depend, among other things, on the availability of suitable opportunities for our balance sheet, including for
Strategic Holdings, after giving priority in investment opportunities to our advisory clients, and on our ability to realize the
values that we expect to achieve from acquiring these.
Our balance sheet assets have also been a significant source of capital for new investment strategies and products for
investors. For example, we may acquire investments using our balance sheet capital and warehouse these investments while
fundraising a particular investment vehicle. We expect our balance sheet capital to be returned to us if such investment
vehicle has a successful fundraise. However, if the fundraising is not successful, or if investment vehicle investors are not
willing to pay for these warehoused investments, then we may realize losses on those investments or become limited in our
ability to seed new businesses or support our existing businesses as effectively as contemplated.
We also have made and expect to continue to make significant capital investments in our current and future funds and
other investment vehicles. Contributing capital to these investment vehicles is risky, and we may not realize any significant
profit from them, or we may even lose some or all of the principal amount of our investments. In addition, we have
developed and completed several structured transactions in which our balance sheet provides subordinated or equity
financing and third-party investors provide senior or preferred equity financing to an investment vehicle that invests in our
investment vehicles and certain other investment assets. We have also entered into similarly structured transactions where
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the cash flows of our balance sheet’s capital commitments to our investment vehicles have been effectively pledged as
collateral for such investment vehicles. Because of the subordinated nature of KKR’s interests, we are at risk of losing all of
our interests in these transactions ahead of any third-party if the investments do not perform as expected. For further
information about KKR’s unfunded commitments to its investment vehicles, including funding requirements to levered
investment vehicles and structured transactions, see also Note 24 “Commitments and Contingencies—Funding Commitments
and Others” in our financial statements.
See also “—Risks Related to our Insurance Activities” below.
The failure to manage, or the inability to access, adequate sources of liquidity could materially and
adversely affect KKR.
We require significant liquidity in order to support and grow our asset management and insurance businesses, conduct
our investment activities, meet our capital markets underwriting commitments, satisfy our policyholder obligations and
comply with regulatory requirements. We also have debt securities outstanding and indebtedness outstanding under various
credit facilities.
Depending on market and economic conditions, we may not be able to refinance or renew our debt obligations, or find
alternate sources of financing (including issuing debt or equity capital) on attractive or commercially reasonable terms or at
all. Furthermore, the incurrence of additional debt could result in downgrades of our existing corporate credit ratings, which
could limit the availability of future financing and increase our costs of borrowing. If our liquidity requirements were to
exceed our available liquid assets, we could be forced to sell assets or seek to raise debt or equity capital on unfavorable
terms. Moreover, the failure to comply with covenants contained in any of our debt agreements could trigger prepayment
obligations that could materially and adversely affect us by causing liquidity constraints. Any default under these agreements
(including through defaults on other debt that may result in cross-defaults on these agreements), and any resulting
acceleration of the borrower’s outstanding indebtedness, could have a material adverse effect on us and could also cause a
cross-default under our corporate revolving credit facility, which, if not cured or waived, could have a material adverse effect
on us. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity Needs” for
further information regarding our liquidity needs and our capital commitments as of December 31, 2025, and Note 16 “Debt
Obligations” in our financial statements for further information regarding our senior notes, credit facilities and other
outstanding debt obligations.
In addition, we have indebtedness at various subsidiaries, including subsidiaries that hold our asset management,
insurance, and strategic holdings businesses, the terms of which impose limitations on operations and restrict the ability to
make distributions to its direct and indirect parent companies, including KKR Group Partnership L.P. In addition, our
insurance subsidiaries and certain capital markets subsidiaries are also subject to regulatory restrictions that place restrictions
on their ability to make distributions to their parent companies. These restrictions on distributions impose limitations on our
ability to manage liquidity needs for the KKR business.
Certain investment vehicles we manage have liquidity needs that are not entirely in our control. For example, individual
investors in our K-Series vehicles have the right to redeem their interests in the K-Series for cash. There is a risk that our
investment vehicles will lack adequate liquidity to satisfy any unexpected redemption requests, which may occur for a variety
of reasons, including increases in their investors’ liquidity needs, which tend to be more pronounced during periods of market
volatility and which may escalate in any period and be particularly pronounced for investment vehicles. If we are unable to
meet these redemption requests, or if any such redemption requests trigger any caps or limits that legally permit such
vehicles to gate or not honor redemption requests, then we could suffer material reputational harm.
In addition, our insurance companies have various liquidity needs that may be difficult to predict. Many of the insurance
products allow policyholders to withdraw their funds, also referred to as a surrender, under contractually-defined
circumstances. We may be forced to sell investments at a loss in connection with these redemption or withdrawal requests,
which are not always predictable and often driven by market and economic conditions that are not in our control. In addition,
our reinsurance business is subject to potentially significant liquidity requirements. Our reinsurance agreements generally
require Global Atlantic to provide collateral in trust for the benefit of the reinsurance client (the cedant), limiting our insurer’s
access to such assets for liquidity use, and some agreements may require additional collateral to be posted under certain
circumstances. Moreover, reinsurance agreements generally provide the reinsurance client with recapture rights upon the
occurrence of certain contractual triggering events. The exercise of such rights could, if alternate sources of liquidity are
unavailable, require our insurance subsidiaries to dispose of assets on unfavorable terms, including as a result of truncating
expected holdings periods unexpectedly. In addition, our U.S. insurance subsidiaries are members of regional Federal Home
Loan Banks (“FHLB”), which allows those insurance subsidiaries to borrow from the FHLB using certain investments as
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collateral. Access to FHLB loans is an important source of liquidity for our insurance business. If those sources of borrowing
were no longer available, the liquidity of our U.S. insurance subsidiaries could be materially and adversely affected. See “Risks
Related to our Insurance Activities.”
We have also used, and from time to time may continue to use, our balance sheet to provide credit support for our
general partners’ obligations to our investment vehicles, to facilitate certain investment transactions entered into by our
investment vehicles, and to make significant commitments to our investment vehicles. See Note 24 “Commitments and
Contingencies” in our financial statements.
Our capital markets activities expose us to material risks.
We provide a broad range of capital markets services that include acting as an advisor or as an agent, principal,
underwriter, syndicator, arranger or other form of intermediary in connection with securities transactions, debt or equity
syndications, loan transactions, derivative transactions and other types of financings and financial arrangements. However,
we may incur significant losses in connection with our capital markets activities, including to the extent that, for any reason
we are otherwise unable to dispose of any financial exposure that we incur at the prices that we anticipated or at all. We also
may be subject to potential underwriter liability or regulatory consequences for material misstatements or omissions in
prospectuses or other offering documents relating to transactions in which we are involved. We conduct capital markets
activities in connection with transactions in which our investment vehicles or insurance companies may participate as a
sponsor or as a purchaser or a seller of securities, which could constitute a conflict of interest or subject us to regulatory
scrutiny, liabilities or reputational harm. Please also see “—The failure to effectively manage our balance sheet could
materially and adversely affect our financial condition and results of operations.”
The failure to manage our financial and enterprise risks could materially and adversely affect our
financial condition and results of operation.
We seek to identify, monitor and manage certain financial and enterprise risks effectively. If we are not able to
accurately or effectively price, identify and predict, manage or ameliorate these risks, or if our management of risk does not
accurately predict and appropriately respond to future risk exposures, such risks could have a material adverse effect on us.
We use derivative financial instruments and risk management strategies to hedge, manage or otherwise reduce investment
risks, they may not be properly implemented as designed, or otherwise not effectively offset the risks we have identified. We
may not have identified, or may not even be able to identify, all the material risks relevant for our asset management or
insurance businesses (including capital markets activities). We also may choose not to hedge, in whole or in part, any of the
risks that have been identified. In our insurance business, our hedging activities seek to mitigate economic impacts relating to
our insurance products and investments, which may result in additional volatility in financial results, adverse impacts on the
level of statutory capital and the risk-based capital ratios of our insurance subsidiaries, and may not effectively offset any
changes in insurance reserves. In addition, the scope of risk management activities undertaken by us is selective and varies
based on the level and volatility of interest rates, prevailing foreign currency exchange rates, the types of investments that are
made and other changing market conditions. We do not seek to hedge our exposure in all currencies or all investments or
insurance liabilities, which means that our exposure to certain market risks are not limited. We also may use hedging
transactions and other derivative instruments to reduce the effects of a decline in the value of a position, but they do not
eliminate the possibility of fluctuations in the value of the position or prevent losses if the value of the position declines.
These kinds of transactions also generally limit the opportunity for gain if the value of a position increases. On the other hand,
our risk management actions with respect to insurance products with guaranteed benefits may be insufficient for Global
Atlantic to be protected against losses. Unanticipated market changes may result in poorer overall investment performance
than if the hedging or other derivative transaction had not been executed. Moreover, it may not be possible to limit the
exposure to a market development that is so generally anticipated that a hedging or other derivative transaction cannot be
entered into at an acceptable price.
For a discussion of the market risks affecting our business and the strategies employed to mitigate them, including our
hedge program, please see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”
We may suffer material harm as a result of legal claims, litigations, investigations, and negative
publicity.
The activities of our businesses, including the investment decisions we make and the activities of our employees, may
subject us and our employees, officers and directors to the risk of litigation by third parties, as well as various governmental
and regulatory examinations, inquiries, investigations, and enforcement actions. For a description of certain legal matters
involving KKR, see Note 24 “Commitments and Contingencies” in our financial statements.
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We, our investment vehicles, and our employees are each exposed to the risks of litigation relating to our asset
management and insurance businesses. We are also exposed to risks of litigation, investigation or negative publicity in the
event any transactions we undertake are alleged not to have been properly considered and approved under applicable law.
An adverse judgment, order or decree could have a material adverse impact on our ability to conduct our business if it were
to constitute a disqualifying event under the laws and regulations applicable to our firm and could result in material
reputational damage that could adversely affect our ability to successfully fundraise or source or engage in investment
transactions. See also “—Risks Related to Regulation” below.
Although investors in our funds do not have legal remedies against us, the general partners of our funds, our funds, our
employees or our affiliates solely based on their dissatisfaction with the investment performance of those funds, such
investors may have remedies against us, the general partners of our funds, our funds, our employees or our affiliates to the
extent any losses result from fraud, gross negligence, willful misconduct or other similar misconduct. While the general
partners and investment advisers to our investment funds, including their directors, officers, employees and affiliates, are
generally indemnified to the fullest extent permitted by law with respect to their conduct in connection with the management
of the business and affairs of our investment funds, such indemnity generally does not extend to actions determined to have
involved fraud, gross negligence, willful misconduct or other similar misconduct. If any civil or criminal lawsuits brought
against us or the aforementioned entities or individuals results in a finding of substantial legal liability or culpability, the
lawsuit could materially and adversely affect us. Similarly, allegations of improper conduct by private litigants or by
governmental or regulatory authorities, whether the ultimate outcome is favorable or unfavorable to us, as well as negative
publicity and press speculation about us, our investment activities or the private equity industry in general, whether or not
valid, may harm our reputation and cause volatility and speculation in the trading of our common stock. We consider our
reputation critical to attracting and retaining investors, maintaining our relationships with regulators and being viewed as an
attractive investment partner. As a result, any negative publicity or negative public perception regarding our actions,
business, management or industry may damage our relationships with existing and potential investors, employees, regulators
and other stakeholders, impair our ability to raise capital, adversely impact the ability of our investment vehicles to make and
exit investments, and impair our ability to carry out investment activities generally.
See also “—The actions of our portfolio companies may subject us to potential liabilities and cause us reputational harm”
below.
We may pursue new business opportunities, strategic initiatives, or investment opportunities that
involve new or unique business, regulatory or other complexities and risks.
Our organizational documents do not limit our ability to enter into new lines of business, and we may expand into new
investment strategies, geographic markets, businesses, types of investors and investment products. We seek to grow our
businesses by, among other things, increasing AUM in existing businesses, pursuing new investment strategies (including
investment opportunities in new asset classes), developing new types of investment structures and products (such as publicly
listed vehicles, separately managed accounts and structured products), expanding into new geographic markets and
businesses and seeking investments from investor bases we have traditionally not pursued, such as individual investors, which
subject us to additional risk. Introducing new types of investment structures and products could increase the complexities
and conflicts of interest involved in managing such investments, including ensuring compliance with applicable regulatory
requirements and terms of the investment vehicles. There is no assurance that all areas of our business will achieve a
satisfactory level of scale and profitability.
In the first quarter of 2024, we implemented strategic initiatives that included creating our Strategic Holdings business
segment. We continue to believe that we will receive more stable recurring revenues in the future from the growth over time
in dividend payments and earnings from companies included in our Strategic Holdings segment. However, this is our current
expectation and not a guarantee that they will be realized or be as accretive to our earnings as we currently expect. For
example, expectations about dividend amounts and investment returns from companies in our Strategic Holdings segment in
the future and the future growth of such companies, may be materially less than our current expectations or may not
materialize at all, and assumptions, including those relating to free cash flow, future capital structures of such companies,
future capital investments by us in such companies, future market and economic conditions, including interest rates, and
other assumptions, may differ materially from actual outcomes.
In 2025, we announced changes to the management of our insurance business to originate longer-duration liabilities and
assets, including investing more into non-yielding or lower-yield assets classes like private equity and real assets, expanding
outside the United States, and raising more third-party co-investment insurance capital. We believe these changes will
expand Global Atlantic’s competitive advantage and enable the generation of higher and more durable returns over the long
term; however, our financial results could be adversely impacted in the near- and medium- term as we rotate into longer-
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duration liabilities and assets. While it is our current expectation that this strategic initiative will be successful over the long
term, it is not guaranteed that these results will be realized or that these changes will be as accretive to our earnings as we
currently expect, and these changes may result in losses. Additionally, these strategic initiatives may add new business and
regulatory complexities.
In February 2026, we announced an agreement to acquire Arctos Partners, an investment management firm that invests
in professional sports teams and that provides strategic capital to other asset management firms. The acquisition is subject to
the satisfaction or waiver of certain regulatory and specified sports league approvals and other closing conditions. As part of
our proposed acquisition of Arctos, we have applied for approvals by certain sports leagues as indirect owners of sports
teams. Following the closing of the Arctos acquisition, we and our investment vehicles and portfolio companies must comply
with the league rules applicable to owners. These league rules prohibit or restrict certain investments — for example control
investments in gambling businesses or relationships with professional athletes. Complying with these rules may restrict
investment opportunities that our investment vehicles, portfolio companies, or we may have otherwise pursued, raising
potential conflicts of interest. See “—If we fail to effectively manage conflicts of interest that arise from our investment
activities, our reputation, business or financial results could be materially and adversely impacted or we may become subject
to regulatory scrutiny or litigation.” Failure to manage our compliance with these league rules could result in a material
adverse impact to our business, financial condition and results of operations.
To the extent we have made, or make, strategic investments or acquisitions or undertake other strategic initiatives,
expand into new investment strategies or geographic markets, or enter into a new line of business, we will face numerous
risks and uncertainties, including risks associated with:
• the required investment of capital and other resources;
• delays or failure to complete an acquisition or other transaction in a timely manner or at all, which may subject us to
damages or require us to pay significant costs;
• lawsuits challenging an acquisition or unfavorable judgments in such lawsuits, which may prevent the closing of the
transaction, cause delays, or require us to incur substantial costs including in costs associated with the
indemnification of directors;
• the failure to realize the anticipated benefits from an acquired business or strategic partnership in a timely manner, if
at all;
• combining, integrating or developing operational and management systems and controls, including an acquired
business’ internal controls and procedures;
• acquiring an investment that is subject to significant liabilities, including contingent liabilities, which could be
unknown to us or inadequately insured at the time of acquisition;
• integration of the businesses, including the employees of an acquired business;
• disagreements with joint venture partners or other stakeholders in our hedge fund partnerships and our strategic
partnerships;
• the additional business risks of the acquired business and the broadening of our geographic footprint;
• properly managing conflicts of interests;
• complex tax structuring that could be challenged or disregarded, which may result in losing treaty benefits or would
otherwise adversely impact our investments;
• our ability to obtain requisite regulatory approvals and licenses without undue cost or delay and without being
required to comply with material restrictions or material conditions that would be detrimental to us or to the
combined organization;
• incurrence of indemnification obligations or other contingent liabilities;
• increased regulatory scrutiny and our ability to comply with new regulatory regimes; and
• becoming subject to new laws and regulations with which we are not familiar, or from which we are currently
exempt, that may lead to increased litigation and regulatory risk and costs.
We may not realize the expected benefits of such new investments, acquisitions or initiatives.
We operate in a highly competitive industry.
Our asset management business competes with other investment managers for both investors for our investment
vehicles and for investment opportunities, including for our Strategic Holdings segment. We believe that competition for
investors for our investment vehicles is based primarily on investment performance, investor liquidity and willingness to
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invest, investor perception of investment managers' drive, focus and alignment of interest, business reputation, duration of
relationships, quality of services, pricing, fund terms including fees, and the relative attractiveness of the types of investments
that have been or are to be made. We believe that competition for investment opportunities is based primarily on the pricing,
terms, and structure of a proposed investment and certainty of execution. The firm's competitors consist primarily of
alternative and traditional asset manager sponsors of public and private investment vehicles, investment and commercial
banks (including activities conducted by their broker-dealers and investment advisers), commercial finance companies,
sovereign wealth funds, real estate development companies, BDCs, and strategic buyers. In addition, we also face competition
from local and regional investment firms, financial institutions, and other competitors in the various countries in which we
invest, where local firms may have more established relationships with the companies in which we are attempting to invest.
There are numerous funds focused on private equity, real assets, credit, and hedge fund strategies that compete for
investor capital. Fund managers have also increasingly adopted investment strategies outside of their traditional focus. For
example, traditional asset management firms have acquired alternative asset management firms, and hedge funds focused on
credit and equity strategies have taken control positions in companies, while private equity funds have acquired minority
equity or debt positions in publicly listed companies. This convergence heightens competition for investments. Furthermore,
as institutional fund investors increasingly consolidate their relationships for multiple investment products with a few
investment firms, competition for capital from such institutional fund investors have become more acute. We also face
extensive competition from both traditional and alternative asset management firms in connection with our business
initiatives to increase the number and types of investment products and fundraise directly and indirectly from individual
investors, including accredited investors and mass affluent individuals. We may be unable to achieve as quickly as expected,
or at all, our strategic business initiatives to increase the number and types of investment products and vehicles we offer
directly or indirectly to these types of investors as there is extensive competition for such investors and in private wealth
management by our competitors.
Some of our competitors may have greater financial, technical, marketing and other resources, and more personnel than
us. In the case of some asset classes and certain investment products, including those offered to individual investors, our
competitors may, and sometimes do, have longer operating histories, more established relationships, or greater experience.
Several of our competitors have raised, or may raise, significant amounts of capital and have investment objectives that are
similar to the investment objectives of our investment vehicles, which may create additional competition for investment
opportunities. Some of these competitors may also have lower costs of capital and access to funding sources that are not
available to us, which may create competitive advantages for them. In addition, some of these competitors may have higher
risk tolerances, different risk assessments or lower return thresholds, which could allow them to consider a wider range of
investments and to bid more aggressively than us for investments. Strategic buyers may also be able to achieve synergistic
cost savings or revenue enhancements with respect to a targeted portfolio company, which typically provide them with a
competitive advantage in bidding for such investments. Some of our competitors may have agreed to terms on their
investment funds or products that are more favorable to investors than our funds or products and therefore we may be
forced to match or otherwise revise our terms to be less favorable to us than they have been in the past and, further, some of
our competitors may be willing to pay higher placement fees in order to gain distribution of their private wealth products. We
may lose investment opportunities in the future if we do not match investment prices, structures and terms offered by
competitors. Alternatively, we may experience decreased investment returns and increased risks of loss if we match
investment prices, structures and terms offered by competitors.
Our capital markets business competes primarily with investment banks and broker-dealers in North America, Europe,
Asia-Pacific, and the Middle East. We principally focus our capital markets activities on our funds and our portfolio companies,
but we also seek to service other third parties. While we generally target customers with whom we have existing
relationships, those customers may have similar relationships with the firm's competitors, many of whom will have access to
competing securities transactions, greater financial, technical or marketing resources, or more established reputations than
us.
Our insurance business also operates in highly competitive markets. Please see “—Risks Related to Our Insurance
Activities—We operate in a highly competitive industry”.
Additionally, some of our competitors may be subject to less regulation or less regulatory scrutiny and accordingly may
have more flexibility to undertake and execute certain businesses or investments than we do or bear less expense to comply
with such regulations than we do.
Parts of our earnings and cash flow are highly variable due to the nature of our business.
Parts of our earnings are highly variable from quarter to quarter due to volatility of investment valuations, the investment
returns by our funds and other investment vehicles, and the accrual and payment of carried interest and fees earned from our
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investment activities. We recognize earnings on investments in our investment vehicles based on our allocable share of
realized and unrealized gains (or losses) reported by such investment vehicles and for certain of our recent investment
vehicles when a performance hurdle is achieved, which in each case is subject to significant uncertainty and risk. During times
of market volatility, the fair value of the investments we own or manage are more variable, and volatility in the equity
markets may have a significant impact on our reported results. A decline in realized or unrealized gains, a failure to achieve a
performance hurdle, or an increase in realized or unrealized losses, would adversely affect our financial results.
The timing and receipt of carried interest from our investment vehicles are unpredictable and will contribute to the
volatility of our cash flows. With respect to our carry paying funds, subject to the terms of their respective governing
agreements, carried interest is generally eligible to be distributed to the general partner of the fund with a clawback provision
only after meeting certain conditions tied to performance. See “Item 1. Business—Business Segments—Asset Management
— Investment Vehicle Structures, Fee Arrangements and Carried Interest” for a summary of such conditions. Even after all
conditions are met, the general partner of a carry paying fund may decide to defer the distribution of carried interest to it to a
later date. Carried interest payments depend on our investment vehicles’ performance and opportunities for realizing gains,
which may be limited. It typically takes a substantial period of time to: (i) identify attractive investment opportunities, (ii)
raise all the funds needed to make an investment, and (iii) then to realize the cash value of an investment through a sale,
public offering or other exit to generate carried interest proceeds. To the extent an investment is not profitable, no carried
interest will be received from our investment vehicles with respect to that investment and, to the extent such investment
remains unprofitable, we will only be entitled to a management fee on that investment. We cannot predict when, or if, any
realization of investments will occur. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity—Sources of Liquidity” for further information regarding the conditions for carried interest to become
distributable.
The timing and receipt of carried interest also vary with the life cycle of certain of our investment vehicles. For our carry-
paying investment vehicles that have completed their investment periods and are able to realize mature investments,
sometimes referred to as being in a harvesting period, we are more likely to receive larger carried interest distributions than
our carry-paying investment vehicles that are in their fundraising or investment periods.
Fee income, which we recognize when contractually earned, can vary due to fluctuations in AUM, the number of
investment transactions made by our investment vehicles, when such investments are made, the number of portfolio
companies we manage, the fee provisions contained in our investment vehicles and other investment products and
transactions by our capital markets business. In any particular quarter, fee income may vary significantly due to the variances
in size and frequency of transaction fees or fees received by our capital markets business.
Additionally, a decline in the pace, size, or value of investments by our investment vehicles would result in our receiving
less revenue from fees. The transaction, management, and monitoring fees that we earn are driven in part by the pace at
which our investment vehicles make investments and the size of those investments. Any decline in that pace or the size of
investments would reduce our revenue from transaction and management or monitoring fees. Likewise, during an attractive
selling environment, our investment vehicles may capitalize on increased opportunities to exit investments. While this would
generally be expected to increase the timing and receipt of carried interest, any increase in the pace at which our investment
vehicles exit investments, if not offset by new commitments and investments, could reduce future management fees.
Additionally, in certain of our investment vehicles that derive management fees only on the basis of invested capital, the pace
at which we make investments, the length of time we hold such investments, and the timing of disposition will impact our
revenues.
With respect to our insurance business, we have and may experience fluctuations in the new business volumes, and
resulting financial result impacts, of certain products, such as block reinsurance, pension risk transfer and funding
agreements. In addition, aspects of how our insurance business is required to report certain investments and liabilities has
added, and is expected to add, volatility to our financial results from quarter to quarter.
The agreements governing our carry-paying funds have in the past and may in the future give rise to a
contingent obligation that requires us to return or contribute significant cash amounts to our funds
and fund investors.
We have in the past and may in the future be required to return carried interest that we have received from investment
funds. The partnership documents governing our carry-paying funds across our asset classes include what are often called
“clawback” provisions. Under such an obligation, upon the liquidation of a fund or other event as set forth in the terms
governing the fund, the general partner is required to return, typically on an after-tax basis, previously distributed carry to the
extent that, due to the diminished performance of later investments, the aggregate amount of carry distributions received by
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the general partner during the term of the fund exceed the amount to which the general partner was ultimately entitled, after
taking into account the effects of any performance thresholds and hurdles. We would continue to be subject to such
obligation even if carry has been distributed to current or former employees through our carry pool. If such current or former
employees do not satisfy their share of any clawback obligation, we will be responsible for funding the entire obligation and
may need to seek other sources of liquidity to fund such an obligation. To the extent one or more obligations were to occur
for any one or more of our carry-paying funds, we might not have available cash to satisfy such obligation once it is realized,
putting us in breach of the fund’s governing agreements and potentially resulting in a material adverse impact on our ability
to raise additional or successor funds in the future. Even when there is sufficient available cash to satisfy any such obligation,
the realization of any such obligation may materially adversely impact our business and financial results, including by reducing
our realized performance income and realized investment income. See “Management's Discussion and Analysis of Financial
Condition and Results of Operations—Liquidity—Sources of Liquidity” for a discussion of carried interest repayment
obligations, including information about realized carried interest repayment in the fourth quarter 2025 relating to our Asian
Fund II.
The inability to raise capital from third-party investors for our investment vehicles, insurance business
and transactions could materially and adversely affect us.
We raise third party capital for our investment vehicles and insurance business, and we also raise capital for specific
transactions that we may sponsor or that are sponsored by third parties. The failure to continually raise adequate capital
could materially and adversely affect our AUM, revenues, liquidity and overall financial results.
Investment performance is one of the most significant factors in our ability to raise capital. Poor investment performance
for any reason, whether due to market conditions, valuations, pace of realizations, or other factors, including relative to
portfolio benchmarks, fee levels, or our competitors’ performance, may also materially adversely affect our ability to
fundraise. Certain investment vehicles, particularly those that provide investors with redemption rights, may require us to
maintain higher levels of liquidity, which may affect portfolio construction and could impact investment performance.
Our ability to raise capital is also dependent on market and economic conditions and investor perception, including the
general appeal of alternative asset investments or our financial products. Our ability to raise capital depends on numerous
factors, many of which are beyond our control, including economic conditions, financial market volatility, regulatory
developments, investor liquidity and competitive dynamics. Investors in our investment or insurance products may decide to
redeem their capital, or decide to seek financial products other than ours for any number of reasons, such as competitors’
terms or offerings, changes in interest rates that make other financial products more attractive, changes in investor
perception regarding our focus or alignment of interest, reputational concerns, how we manage conflicts of interest, changes
in investors’ views of portfolio construction or asset allocation, concerns about valuations, ability to meet redemption
requests, liquidity, or departures or changes in key personnel.
In connection with raising new investment vehicles or securing additional investments in existing vehicles, we may
negotiate terms for such vehicles that are materially less favorable to us than prior terms or terms of investment vehicles
advised by our competitors. Such terms may include reduced management fees, fee holidays, increased co-investment rights
or other economic or governance concessions, which could materially and adversely affect us in a number of ways, including
by reducing the fee revenues we earn. Competitive pressures and evolving investor expectations may require us to agree to
such unfavorable terms in order to attract or retain capital.
The number of investment vehicles for which we raise capital varies from year to year. Our flagship funds and other
funds have a finite life and a finite amount of commitments from fund investors. Once a fund nears the end of its investment
period, our ability to continue making investments and generating fees and carry depends on our ability to raise additional or
successor funds. Although our funds may continue to earn management fees after the expiration of their investment periods,
such fees are generally at a reduced rate. There is no assurance we would be able to raise successor funds of comparable
size, within similar timeframes, or on comparable terms. If we are unable to do so, or if fundraising is delayed, our revenues
may decrease as predecessor funds mature and associated fees decrease.
The ability to raise capital from institutional investors is critical and may be adversely affected by
factors beyond our control.
Institutional investors are significant investors in our investment funds and the investments syndicated by our capital
markets business. Institutional investors that experience decreasing returns, liquidity pressures, increased volatility, funding
shortfalls or difficulty maintaining target asset allocations may materially decrease or temporarily suspend making new
investments in our investment funds or with alternate asset managers generally. Such concerns could be exhibited, in
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particular, by public pension funds, which have historically been among the largest investors in alternative assets. Pension
funds have had and in the future may have funding problems that will likely be exacerbated by economic downturns.
Concerns with liquidity could cause such public pension funds or other institutional investors to reevaluate the
appropriateness of alternative assets. Reduced distributions from alternative asset investments or declines in other asset
classes may cause investors to exceed target allocations to alternative assets, limiting their ability to make new commitments.
In addition, certain institutional investors, including sovereign wealth funds and public pension funds, continue to
demonstrate an increased preference for alternatives to traditional fund structures, such as separately managed accounts or
specialized investment vehicles and, in some cases, consolidating their capital with fewer alternative asset managers. In order
to try to satisfy the evolving preferences of investors, we have sponsored, and will continue, to sponsor a wide array of
separately managed accounts and investor allocations to these separately managed accounts or specialized investment
vehicles may detract from the allocations potentially available to our funds or other traditional investment vehicles, which
may result in less profitability for us. There can be no assurance that historical or current levels of commitments to our funds
or other traditional investment vehicles from these investors will continue.
Moreover, certain institutional investors are demonstrating a preference to hire their own investment professionals and
to make direct investments in alternative assets without the assistance of large institutional investment advisers like us. Such
institutional investors may become our competitors and could cease to be our clients. Institutional investors may also decide
not to invest with large asset managers like us, for example, because of conflicts of interest arising from the size and
complexity of our business, including the allocation of investment opportunities among different funds and vehicles, including
those offered to individual investors. Given the breadth and complexity of our platform, including the management of
multiple funds, insurance assets and vehicles offered to individual investors, conflicts of interest may arise in the allocation of
investment opportunities, management attention or other resources. Any perception that we do not appropriately manage
such conflicts could adversely affect our relationships with institutional investors and our ability to raise capital from them.
For additional information about conflicts of interest that may impact our ability to raise capital, please see “—Risks Related
to Our Investment Activities—If we fail to effectively manage conflicts of interest that arise from our investment activities, our
reputation, business or financial results could be materially and adversely impacted or we may become subject to regulatory
scrutiny or litigation”. All of these factors could result in a smaller overall pool of available capital in our industry or a smaller
pool of institutional capital for our investment vehicles.
In addition, the asset allocation rules or investment policies to which institutional investors are subject could inhibit or
restrict their ability to make investments in our investment funds. This risk may be heightened at times of poor performance
in other asset classes or even strong performance in the asset classes we manage, as investors may need to rebalance their
portfolios to remain in compliance with these rules and policies. Coupled with any lack of distributions from their existing
investment portfolios, many of these investors may have disproportionately outsized remaining commitments to, and
invested capital in, a number of investment funds, which may significantly limit their ability to make new commitments to the
investment funds we manage, which could materially and adversely affect our financial performance.
The sale of financial products to individual investors exposes us to additional operational complexities,
regulatory requirements and other risks.
We have expanded and may continue to expand the number and types of financial products we offer to individual
investors. Offering financial products, whether investment opportunities in alternative asset strategies or insurance policies
like annuities, to individual investors exposes us to heightened levels of risks. Products offered to individual investors may be
subject to different and, in some cases, more extensive disclosure, marketing, distribution and investor protection
requirements than traditional institutional investment funds. In addition, the distribution of investment products to
individual investors may involve additional intermediaries, platforms or distribution channels and may subject us to evolving
regulatory standards regarding marketing practices, suitability determinations, fee disclosures, valuation methodologies and
redemption features. As a result, these initiatives may increase our exposure to public and regulatory scrutiny, consumer
complaints, private litigation, compliance costs and reputational harm. For additional information about the regulatory risks
relating to individual investors, please see “—Risks Related to Regulatory Matters—Distribution of financial products to
individual investors subjects us to heightened regulatory, litigation, and reputational risks, which may materially adversely
affect our business” and “—Risks Related to our Insurance Activities—The disruption of our third-party distribution network
may have a material adverse effect on us.”
Certain investment vehicles that we manage are publicly traded, which involves heightened risk of litigation, and
additional disclosure and governance obligations. In addition, certain of these and other investment vehicles are registered
under the Investment Company Act as investment companies. These funds and their investment advisers are subject to
extensive regulation, which, among other things, regulate the relationship between a registered investment company and its
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investment adviser and prohibit or severely restrict principal transactions and joint transactions. In addition, we have one or
more affiliates that provide investment advisory services to BDCs, which are also subject to certain restrictions and
prohibitions under the Investment Company Act. If the entity fails to meet applicable regulatory requirements, it may be
regulated as a closed-end investment company under the Investment Company Act and become subject to different
regulatory restrictions, which could limit its operating flexibility and in turn result in decreased profitability for us.
We have also launched U.S. holding company conglomerates, which together with similar non-U.S. investment vehicles
we refer to as K-Series, which are structured and operated in reliance on exclusions from the definition of an investment
company under the Investment Company Act. If any such entity were required to register as an investment company, the
applicable restrictions on capital structure, leverage, transactions with affiliates, governance, and operations would make it
impractical for the entity to operate its business as currently conducted and could materially and adversely affect our financial
results and results of operations. For additional information about certain regulatory risks relating to regulatory exemptions,
please see “—Risks Related to Regulatory Matters— If regulatory exemptions or exclusions on which we rely become
unavailable, we may become subject to additional restrictive and costly regulatory requirements, regulatory action or
liability”.
As we have offered more investment products to individual investors, the operational demands necessary to support
these types of investor products and the related business and operational complexity has also significantly increased.
Insurance products are subject to regulations regarding statements, required disclosures and claims handling and accordingly
require significant operational capabilities. Managing vehicles that offer periodic redemption features or are marketed to
individual investors may require more frequent valuations, additional investor communications, enhanced liquidity
management, more compliance and technology requirements, and more third-party service support. For example, our K-
Series vehicles and certain funds that provide for redemptions to individual investors require that we perform monthly or
daily valuations of net asset value and manage liquidity to satisfy potential redemption requests. For additional information
about valuation risks, please see “—The valuations of illiquid investments are subjective and uncertain, and any realizations of
our illiquid investments may occur at prices which differ from their carrying values” and for more information about liquidity
risks, please see “—The failure to manage, or the inability to access, adequate sources of liquidity could materially and
adversely affect KKR”. If we fail to effectively manage these risks, we could be subject to regulatory action, litigation,
reputational harm, or constraints on our ability to grow these products, any of which could materially and adversely affect our
business.
Even if our investment performance or product terms remain attractive, adverse market conditions or shifts in public
opinion relating to products that we offer could adversely affect our ability to expand or maintain these product offerings.
For example, products offered to individual investors may be more sensitive to negative publicity, whether it is caused by the
level of fees, the existence or improper management conflicts of interests, inability to satisfy redemption requests, service
challenges or others changes in investor sentiment. Negative publicity may also be caused by the activities of third-party
sponsors or insurers that are unaffiliated with us, which nevertheless could cause significant redemptions or surrenders,
result in reduced demand for our products, or cause us to reduce our economics to maintain investor interest in the products
we offer to individual investors.
The portion of our AUM we refer to as perpetual capital is not permanent and is subject to change.
We refer to a significant portion of our AUM as perpetual capital, because this AUM has an indefinite term with no
predetermined requirement to return invested capital to investors upon the realization of investments. This AUM includes
the capital of our evergreen products, which include investment vehicles registered under the Investment Company Act,
certain unregistered investment vehicles like our K-Series offered to individual investors, and listed companies like KREF and
Crescent Energy, as well as the capital of our insurance companies. However, in addition to fluctuations based on the
valuations of the underlying investments of the AUM, this capital is subject to material reduction, including through
withdrawals, redemptions, periodic payments such as dividends or required distributions, and termination of investment
advisory agreements, and these reductions may occur with minimal notice.
Our insurance companies have issued annuities and other life insurance policies that require certain contractual
payments to the policyholder. These policies may permit the policyholder to withdraw their funds or to surrender their policy
for distribution in advance of the policy term. In addition, our insurance companies have entered into reinsurance agreements
with counterparties, which provide for contractually provided payments, including to cover reinsured policyholder
obligations. Unless the inflows from writing new insurance policies and entering into new reinsurance transactions exceeds
outflows to pay contractual obligations, or the valuation of the assets backing our insurance liabilities increases in excess of
any expected appreciation, our permanent capital from our insurance subsidiaries and sponsored insurers would be reduced.
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See also “—The failure to manage, or the inability to access, adequate sources of liquidity could materially and adversely
affect KKR.”
Certain of our registered and unregistered investment vehicles, including our K-Series, permit their investors to redeem
their investments, which would have the effect of reducing our AUM. Substantial redemption requests could be triggered by
a number of events outside of our control, including poor investment performance, changes in market conditions or changes
in their perception of us as a reputable investment manager. A perception of significant redemptions, both with respect to
the investment vehicles we manage as well as investment vehicles that we do not manage but are in similar asset classes, may
also trigger other investors to seek redemptions of their investments as well. See also “—The failure to manage, or the
inability to access, adequate sources of liquidity could materially and adversely affect KKR.”
We have investment management agreements with certain registered and unregistered investment vehicles and listed
companies that we manage as well as with our insurance companies. Perpetual capital from these entities may be removed
completely from our AUM, because our investment management agreement with them may be terminated on little or no
notice for reasons specified in such agreement, including due to poor investment performance or regulatory compliance. See
“—Risks Related to Regulatory Matters.” In the case of any such terminations, the management and incentive fees we earn in
connection with managing such entities would immediately cease, which could result in a material adverse impact on our
revenues.
The actions of our portfolio companies may subject us to potential liabilities and cause us reputational
harm.
We often make controlling investments in companies or hold investments over which we have significant influence over
their management or operations. Although these portfolio companies operate their businesses independently from KKR’s own
businesses and independently from one another, our ownership interests, governance rights or involvement with these
portfolio companies may cause us to be deemed a control person or otherwise subject to theories of successor, aiding-and-
abetting or similar liability under applicable law. Alternative asset managers have in the past been held liable for acts of their
portfolio companies where the manager is alleged to have exercised control or to have authorized, or knowingly failed to
prevent or remediate, impr oper conduct, including with respect to the U.S. Foreign Corrupt Practices Act (the “FCPA”),
European antitrust laws, and financial crime laws. See “—Risks Related to Regulatory Matters—We are subject to substantial
regulatory risks due to our extensive and global investment activities.”
As a result, we may have liability for actions taken by, or failures to take action by, our portfolio companies, which may
subject us to civil or criminal liabilities. Any such liabilities could require our investment vehicles to pay substantial financial
sums, which may not be fully reimbursed for by the relevant portfolio company or covered by insurance. Any criminal
liabilities or other enforcement actions taken by regulators in response to actions or failures to act by our portfolio companies
could also involve our investment vehicles, our subsidiaries that operate such investment vehicles as its general partners or
manager, and our personnel involved with such portfolio company’s business.
In addition, activities by our portfolio companies and other companies in which we invest may be imputed to us. We
believe our reputation is critical to our business, including for attracting and retaining investors, maintaining relationships
with regulators and being viewed as an attractive investment partner. Any legal or regulatory action involving our portfolio
companies, including any settlement, or any negative publicity or adverse public perception regarding a portfolio company’s
actions, business, management or industry, may result in significant reputational harm to us, increased regulatory scrutiny
and additional regulatory exposure or litigation. In addition, we may elect to pay certain amounts or agree to other
consequences, including operational restrictions, to resolve matters involving any of our portfolio companies or investments
in order to mitigate potential reputational, regulatory, or other damage to our business. These developments could damage
our relationships with existing and prospective investors, employees, regulators and other stakeholders, and otherwise could
result in a material and adverse effect on KKR’s business or financial condition.
Changes in tax laws or an adverse interpretation by tax authorities may adversely impact our effective
tax rate and tax liability.
Our effective tax rate and tax liability is based on the application of current income tax laws, regulations and treaties,
which are complex and may be open to interpretation. Significant management judgment is required in determining our
provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net
deferred tax assets. Although we believe our application of current laws, regulations and treaties to be correct and
sustainable upon examination by tax authorities, tax authorities could challenge our interpretation resulting in additional tax46Table of Contents
liability or adjustment to financial results that could increase our effective tax rate or have other unforeseen adverse tax
consequences.
There could be significant changes in U.S. federal, state, local or non-U.S. tax law that may materially affect us, including
by increasing taxes owed in jurisdictions in which we or our portfolio companies operate. The likelihood and nature of any
such legislation is uncertain. For example, on July 4, 2025, the legislation commonly referred to as the One Big Beautiful Bill
Act (“OBBBA”), was enacted, which included amendments and extensions to certain provisions of the 2017 Tax Cuts and Jobs
Act. The impact of the OBBBA and other potential changes are uncertain and could materially increase the amount of taxes
we and our portfolio companies are required to pay and tax-related regulatory and compliance costs. In addition, further
rules relating to compensation for certain covered employees under Section 162(m) could reduce the amount of related tax
deductions available to us.
There could be significant changes in U.S. and non-U.S. tax law, regulations or interpretations that adversely affect the
taxation of carried interest and our ability to recruit, retain and motivate employees and key personnel. Investments must be
held for more than three years for carried interest to be treated for U.S. federal income tax purposes as long-term capital
gain. The holding period requirement may result in some of our carried interest being taxed as ordinary income to our U.S.
employees and other key personnel, which could materially increase the amount of taxes that they would be required to pay,
and this could adversely impact our ability to recruit and retain top talent. The incentive to hold investments for long-term
capital gain treatment may create a conflict of interest between investment vehicle investors (whose investments would
receive such capital gain treatment after a holding period of only one year) and KKR on the execution, closing or timing of
sales of investments in connection with the receipt of carried interest.
The Organization for Economic Co-operation and Development (an intergovernmental public policy organization, the
“OECD”) and government agencies in jurisdictions in which we and our affiliates invest or do business have maintained a focus
on multi-national companies. The OECD has sought to make changes to numerous long-standing tax principles through its
base erosion and profit shifting (“BEPS”) project, which is focused on a number of issues, including profit shifting among
affiliated entities in different jurisdictions, interest deductibility and eligibility for the benefits of double tax treaties. The
OECD finalized guidelines that recommend certain multinational enterprises to be subject to a minimum 15% tax rate (“Pillar
Two”).
Various countries have implemented or intend to implement the OECD’s recommended model rules. By way of example,
the Council of the European Union formally adopted Pillar Two and required all 27 EU member states to adopt local legislation
during 2023 to implement Pillar Two rules that apply in respect of the fiscal years beginning from December 31, 2023.
However, the current U.S. administration is not expected to adopt Pillar Two and has been working with the OECD to exempt
U.S. parented groups from certain aspects of Pillar Two, such as the Income Inclusion Rule (the “IRR”) and Undertaxed Profits
Rule (the “UTPR”), creating additional uncertainty as to the application of these rules to multinational enterprises with a U.S.
parent entity. Our business and our sponsored vehicles’ and portfolio companies’ businesses could be significantly impacted
if the model rules, or any future variation, have been or will be implemented in any of the countries in which our business, our
portfolio companies’ businesses, or our investment structures are located. Bermuda’s commitment to the OECD principles
has led it to adopt a corporate income tax that may increase tax expense and compliance costs for us. More generally, our
effective tax rates could increase, including by way of a possible denial of deductions or profits being allocated differently.
The OECD’s proposals may also lead to an increase in the complexity, burden and cost of tax compliance for us and our
portfolio companies. Given ongoing design, implementation, administration, and interpretation of such proposals, the timing,
scope, and impact of any relevant domestic legislation or multilateral conventions remain subject to significant uncertainty.
See Note 18 “Income Taxes” in our financial statements for further information regarding various tax matters.
Artificial intelligence may increase competitive, operational, legal and regulatory risks to our
businesses in ways that we cannot predict.
The use of artificial intelligence by us and others, and the overall adoption of artificial intelligence throughout the world,
may exacerbate or create new and unpredictable competitive, operational, legal and regulatory risks to our businesses. Any
changes from the use of artificial intelligence could potentially disrupt, among other things, our business models, investment
strategies, investment performance, operational processes, and our ability to identify and hire employees. Some of our
competitors may be more successful than us in the development and implementation of new technologies to address investor
demands, making investments or improve operations, including services and platforms based on artificial intelligence.
We use artificial intelligence and other quantitative analysis tools and models, developed by us and third-party service
providers. Such technology, analysis and modeling are highly complex and subject to limitations and risks that have the
potential to adversely impact us to the extent that we rely on artificial intelligence. If the data we, or third parties whose47Table of Contents
services we rely on, use in connection with the development or deployment of artificial intelligence is incomplete, inadequate
or biased in some way, the performance of our products, services, and businesses could suffer. Data in technology that uses
artificial intelligence may contain a degree of inaccuracy and error, which could result in flawed algorithms in various models
used in our businesses. Our personnel or the personnel of our service providers could, without our knowledge, improperly
utilize or misappropriate artificial intelligence and machine-learning technology while carrying out their responsibilities,
including relating to the entry of confidential information into a technology platform that is or becomes accessible by third
parties. The misuse or misappropriation of our data, unavoidable deficiencies in the practices associated with data collection,
training artificial intelligence technology on large data sets, and big data analytics and difficulties validating data, could have
an adverse impact on us.
Regulators are also increasing scrutiny and considering, and in some cases enacting, regulation of the use of artificial
intelligence technologies, including regarding the use of big data, diligence of data sets and oversight of data vendors. The
use of artificial intelligence by us or others may require compliance with legal or regulatory frameworks that are not fully
developed or tested, and we may face increased costs, litigation and regulatory actions related to our use of artificial
intelligence. See also “—Risks Related to Regulatory Matters—Privacy, data protection, cybersecurity and artificial intelligence
laws may increase compliance costs and subject us to enforcement risks and reputational risks”.
In addition, artificial intelligence may materially disrupt the industries in which we invest, the businesses of our portfolio
companies and the valuations of our investments. See also “—Risks Related to Our Investment Activities—Various conditions
and events outside of our control that are difficult to quantify or predict may have a significant impact on the valuation of our
investments”.
Cybersecurity failures and data security breaches could have a material adverse impact on our
businesses.
We are subject to various risks and costs associated with the collection, processing, storage and transmission of
proprietary, sensitive and otherwise confidential information, including personal information of our investors, insurance
policyholders, employees, contractors and other counterparties and third parties, to which we have access to and process
through a variety of media, including information technology systems. Breaches in security could potentially jeopardize our,
our employees’, our investment vehicle investors’, our insurance policyholders’ or our counterparties’ confidential and other
information processed and stored in, and transmitted through, our computer systems and networks. Any inability, or
perceived inability, by us to adequately address privacy concerns, or comply with applicable privacy laws, regulations, policies,
industry standards and guidance, related contractual obligations, or other privacy legal obligations, even if unfounded, could
result in significant regulatory and third-party liability, increased costs, disruption of our business and operations, and a loss of
investor confidence and other reputational damage.
We continuously face various security threats on a regular basis, including ongoing cybersecurity threats to, and attacks
on, our information technology infrastructure that are intended to gain access to our confidential information, destroy data or
disable, degrade or sabotage our systems. The risk of a security breach or disruption has increased as the number, intensity,
and sophistication of attempted attacks and intrusions from around the world have increased. Although we take protective
measures and endeavor to modify them as circumstances warrant, our computer systems, software and networks may be
vulnerable to unauthorized access, theft, misuse, computer viruses or other malicious code, and other events that could have
a security impact (including the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering,
and other means to affect service reliability and threaten the confidentiality, integrity, and availability of information). Our
employees have been and expect to continue to be the target of fraudulent calls and emails, and the subject of
impersonations and fraudulent requests for money, which we or the services providers we retain, like administrators, paying
agents and escrow agents, may not be able to detect or protect against. These same cybersecurity breaches, cyberattack and
cyber intrusions could also be employed against our various stakeholders or other third parties, including attempts to
impersonate KKR or its employees, which could cause similar security impacts to our stakeholders, including our portfolio
companies, and other third parties and materially and adversely impact us. The costs related to cyber or other security
threats or disruptions may not be fully insured or indemnified by others, including by our service providers.
Our cybersecurity risk management efforts and our investment in information technology may not be successful in
preventing cyber incidents, which could have a material adverse effect upon our reputation, business, operations, or financial
condition. The techniques used by cyber criminals change frequently, may not be recognized until launched, and can
originate from a wide variety of sources. Furthermore, if we experience a cybersecurity incident and fail to comply with the
relevant notification laws and regulations, it could result in regulatory investigations and penalties, which could lead to
negative publicity and may cause our investors and clients to lose confidence in the effectiveness of our security measures.48Table of Contents
See also “—Our reliance on third parties in the operation of our business exposes us to operational, reputational and
other risks”.
We are subject to focus by certain stakeholders on sustainability matters.
Some investors in our investment vehicles, stockholders, regulators and other stakeholders are focused on sustainability
matters, such as climate change and environmental stewardship, human rights, support for local communities, corporate
governance and transparency, or other environmental- or social-related areas. Certain investors and other stakeholder
groups have also increased their activism and scrutiny of asset managers’ approaches to considering sustainability matters as
part of their investment management decision-making, including by urging alternative asset managers to take (or refrain from
taking) certain actions that could adversely impact the value of an investment and at times have conditioned future capital
commitments on such actions. Further, a number of U.S. states and non-U.S. countries have enacted or proposed policies,
legislation, issued related legal opinions and engaged in related litigation regarding sustainability matters. Increased focus
and activism related to sustainability matters may constrain our capital deployment opportunities. There can be no assurance
that we will be able to accomplish any sustainability-related goals or commitments that we have announced or may announce
in the future, as such statements are, or reflect, estimates, aspirations or expectations only at the time of announcement.
More broadly, there can be no assurance that our responsible investment policies and procedures will not change, potentially
materially, or may not be applicable for a particular investment, because we continuously review our approach to these
issues. Growing interest on the part of investors and regulators in sustainability matters and increased demand for, and
scrutiny of, asset managers’ sustainability-related disclosure, have also increased the risk that asset managers could be
perceived as, or accused of, making inaccurate or misleading statements regarding these matters. The occurrence of any of
the foregoing could have a material and adverse impact on us, including on our reputation.
Although we view our sustainable investing approach as a tool for value creation and value protection, different
stakeholder groups and regulators across the jurisdictions and localities where we operate have divergent views on the merits
of integrating sustainability considerations into the investment process and have, as applicable, increasingly expressed
divergent views and investment expectations with respect to sustainability initiatives and, as applicable, pursued divergent
regulatory initiatives. The increased regulatory and legal complexity and heightened risk of public scrutiny could result in
conflicting sustainability-related regulations and legal frameworks that increase our compliance costs and our risk of non-
compliance or impact our reputation and lead to increased inquiries, investigations, challenges by federal or state authorities,
and reactive stakeholder engagements. Moreover, if our practices do not meet evolving stakeholders’ expectations and
standards, or if we are unable to satisfy all stakeholders, our reputation, ability to attract or retain employees and our
business could be negatively impacted.
Risks Related to Regulatory Matters
We are required to comply with numerous laws and regulations applicable to our business in various countries around
the world. Our compliance with these laws and regulations is critical to our ability to operate our business, and the potential
failure to comply subjects us to many material risks and uncertainties as discussed below. For information about the laws and
regulations applicable to our business, please also see “Business—Regulation”. For additional regulatory risks related to
Global Atlantic, please also see “—Risks Related to Our Insurance Activities—Our insurance business is heavily regulated, and
such regulations may have a material and adverse effect on our business, financial condition and results of operations.”
Our business is subject to complex, extensive and evolving laws, and the failure to comply with
applicable laws may materially and adversely affect us.
We are a global financial institution, and our business is subject to complex, extensive and evolving laws and regulations
in the jurisdictions in which we operate around the world. Our asset management and capital markets businesses are
generally governed by securities laws and regulations applicable to investment advisers, broker-dealers, and other financial
services firms, including extensive regulatory requirements relating to registration, fiduciary obligations, disclosure, reporting,
recordkeeping, supervision and compliance. In addition, our insurance business is subject to complex laws and extensive
regulations applicable to insurance companies as well as regulations applicable to investment advisers, broker-dealers, and
other financial services firms, including requirements relating to licensing, capital adequacy, investments, governance, policy
terms, reporting and compliance. Our compliance with these securities and insurance laws and regulations and the other laws
and regulations applicable to our business (which may evolve and change, from time to time) is critical to our ability to
operate our business and is costly, operationally intensive, and requires significant management attention. Any failure to
comply with these laws or regulations, or any changes in the scope, interpretation, application, or enforcement of such laws
and regulations, could materially and adversely affect our business, results of operations, and financial condition.49Table of Contents
Adverse regulatory actions may result in significant sanctions, liabilities, operational restrictions,
litigation, reputational harm and other material and adverse impacts to our business.
Our compliance with securities and insurance laws and regulations, as well as other laws and regulations applicable to
our business, is subject to frequent examinations, inquiries and investigations by U.S. federal and state, as well as non-U.S.,
governmental agencies and regulatory authorities (including self-regulatory organizations) in the jurisdictions in which we
operate. Governmental agencies and regulatory authorities (including self-regulatory organizations) often have broad
discretion to interpret and apply the laws and regulations applicable to our industry and our business and to determine areas
of focus for their examinations, inquiries, and investigations. Moreover, many of these laws and regulations authorize such
entities to conduct enforcement actions and other proceedings that may result in civil or criminal liability, penalties, and fines;
or other sanctions, including censures, cease-and-desist orders, settlements or revocations, suspensions or expulsions of
applicable memberships, licenses, registrations, authorizations or other regulatory approvals that, in any of these cases, may
apply with respect to us or any one or more of our businesses, employees, investments or portfolio companies. In addition,
convictions, injunctions, sanctions or settlements imposed by a governmental authority could form the basis for automatic or
discretionary limitations on our memberships, licenses, registrations, authorizations or other regulatory approvals, or our
ability or the ability of our affiliates to rely on exemptions, that are administered by a different governmental authority. Any
of these actions or consequences could materially and adversely affect us.
Any resolution of claims brought by a governmental agency or regulatory authority (including self-regulatory
organizations) may, in addition to the imposition of significant monetary penalties or other sanctions, require an admission of
wrongdoing or result in adverse limitations or prohibitions on our ability to conduct our business activities, including potential
statutory disqualifications, third-party oversight of various business processes, or the divestiture of investments. Actions by a
governmental agency or regulatory authority in one area of our business could affect other areas of our business, including
our joint venture partners and portfolio companies, which could, in turn, materially and adversely affect our business, results
of operations and financial condition. Even if an investigation or proceeding does not result in a sanction or the sanction
imposed is not material in monetary terms, the investigation, proceeding, action, imposition of sanctions or general
perception of impropriety could still significantly harm our reputation, adversely impact our relationship with our regulators,
result in increased future regulatory scrutiny, result in the loss of investors and investment opportunities, and place us at a
material disadvantage to our competitors.
The suspension, revocation, or limitation of our regulatory registrations or licenses may materially
adversely affect our business.
As a regulated financial institution, we rely on our regulatory registrations and licenses around the world in order to
conduct our business. The suspension, revocation, or limitation of our regulatory registrations or licenses may materially
adversely affect our business and potentially prohibit our ability to conduct our business at all. For example, we operate
registered investment advisers and broker-dealers in the United States and around the world, and the suspension, revocation
or limitation of our registrations as an investment adviser or as a broker-dealer would limit or could even prohibit us from
conducting our asset management and capital markets businesses in the jurisdictions in which we currently operate.
A U.S. investment adviser’s registration under the Investment Advisers Act may be suspended, revoked, or otherwise
limited as a result of, among other things, failure to meet eligibility requirements for registration with the Securities and
Exchange Commission (“SEC”), violations of applicable federal securities laws or fiduciary duties, violations of criminal laws,
materially inaccurate or incomplete regulatory filings, or as the result of disciplinary or enforcement actions by the SEC or
other federal, state or non-U.S. regulators, including actions based on criminal convictions, guilty pleas, or injunctions
involving the adviser or its associated persons. In particular, investment advisers are subject to heightened regulatory
scrutiny with respect to the identification, disclosure and management of conflicts of interest, including conflicts arising from
principal transactions, cross trades or other transactions in which the adviser or its affiliates have a financial or other interest.
See “—Risks Related to Our Business—We may pursue new business opportunities, strategic initiatives, or investment
opportunities that involve new or unique business, regulatory or other complexities and risks” and “—Risks Related to Our
Investment Activities—If we fail to effectively manage conflicts of interest that arise from our investment activities, our
reputation, business or financial results could be materially and adversely impacted or we may become subject to regulatory
scrutiny or litigation”.
A U.S. broker-dealer’s registration under the Securities Exchange Act of 1934 may be suspended, revoked, or otherwise
limited as a result of, among other things, violations of federal securities laws or regulations, failure to comply with the rules
and regulations of the SEC and the Financial Industry Regulatory Authority (“FINRA”), materially inaccurate or incomplete
regulatory filings, failure to maintain required net capital or supervisory systems, insolvency, criminal convictions or
injunctions involving the broker-dealer or its associated persons, or as the result of disciplinary or enforcement actions by the50Table of Contents
SEC, FINRA or other federal, state or non-U.S. regulators, including actions based on the conduct of affiliates or associated
persons. Similarly, the Investment Company Act may disqualify certain persons and their affiliates from acting in various
capacities for U.S. registered funds, including as investment adviser, as a result of certain convictions and injunctions.
We also rely on similar registrations in order to conduct our asset management business outside of the United States .
For example, in Europe, we are an AIFM registered with the Central Bank of Ireland under the AIFMD, and in the United
Kingdom, we are regulated by the FCA under the FSMA. In addition, in Asia, we are a financial instruments business operator
under the Financial Instruments and Exchange Act of Japan and a licensed asset manager and broker-dealer with the
Securities and Futures Commission in Hong Kong, and we conduct fund management activities under license from the
Monetary Authority of Singapore. For more information, see “Business—Regulation”.
In addition, an insurance company’s license or authorization may be suspended, revoked, or otherwise limited as a result
of, among other things, failure to meet applicable solvency, capital, or reserve requirements; deficiencies in risk management,
internal controls, or governance; violations of applicable insurance laws or regulations; inaccurate or incomplete regulatory
filings or disclosures; unsafe or unsound business practices; failures in market conduct or consumer protection compliance; or
as a result of regulatory examinations, supervisory actions, or enforcement proceedings. Insurance regulators have broad
authority to impose corrective actions, restrictions, enhanced oversight, or other regulatory measures, including in
connection with capital adequacy, investment practices, governance, reporting, or market conduct matters, and adverse
regulatory actions affecting our insurance subsidiaries could limit their ability to write new business, require changes to
investment or operating practices, restrict dividend capacity or intercompany arrangements, or otherwise materially
adversely affect our insurance business and the results of our operations. See, generally, “—Risks Related to Our Insurance
Activities”.
Any suspension, revocation, limitation, conditioning, or failure to obtain or renew licenses, registrations, authorizations,
exemptions, or approvals applicable to any of our businesses, in the United States or in any other country in which we
operate around the world, could restrict or prohibit our ability to conduct our business, require restructuring of business lines,
limit products we offer, impede fundraising, restrict transaction activity, or otherwise materially adversely affect our business.
See also “—Adverse regulatory actions may result in significant sanctions, liabilities, operational restrictions, litigation,
reputational harm and other material and adverse impacts to our business”.
Changes in the regulatory framework applicable to our business, including the loss of exemptions or
the application of enhanced group-level regulation, may materially adversely affect us.
Our business operates within regulatory frameworks globally that distinguish among different types of financial activities,
products, organizational structure, and other factors. These regulatory frameworks, including the scope, availability, and
interpretation of exemptions, exclusions, and tailored regulatory requirements, are subject to change. If the regulatory
framework applicable to our business were to change, we could become subject to additional or more comprehensive
regulation in any one or more jurisdictions in which we operate, which may cause material and adverse impacts to our
business. The regulatory framework applicable to our business may change for a number of reasons, including through
amendments to existing laws or regulations; changes in regulatory interpretation or supervisory expectations; changes in
enforcement priorities or activity; evolving regulatory views regarding, among other things, market structure, investor
protection, or financial stability; changes in how our business activities or organizational structure are viewed by regulators;
disqualifying events involving us, our affiliates, or associated persons; or changes in our business activities or organizational
structure or the growth or expansion of our business, including our expansion into new geographies, offering new investment
or insurance products, or changing the way we raise capital from investors.
In particular, regulatory frameworks applicable to our business may evolve over time. For example, our private credit
strategies and insurance-adjacent lending activities operate largely outside the traditional banking system and are subject to a
complex and developing set of regulatory regimes, including securities, insurance, derivatives, banking, and financial stability
laws. Although these activities are conducted through entities that are not regulated as banks, they have increasingly
attracted regulatory attention due to their scale, growth, use of leverage, liquidity characteristics, interconnectedness with
regulated financial institutions and potential relevance to broader financial markets. Regulatory authorities may adopt new or
revised laws, regulations, guidance, or supervisory approaches applicable to these activities. Such developments could include
heightened reporting or disclosure requirements, limitations on leverage, increased liquidity requirements, restrictions on
investment strategies or asset concentrations, or enhanced governance or risk-management expectations. In addition,
regulatory initiatives relating to non-bank financial intermediation or so-called “shadow banking,” as well as financial-stability-
oriented regulation, could result in the recharacterization of certain of our private credit or insurance-adjacent activities or
the imposition of activity-based or group-level regulatory requirements that have historically applied to banks or other51Table of Contents
systemically important financial institutions, which could materially adversely affect our business, financial condition, and
results of operations.
Moreover, given the scale and scope of our business and financial activities, regulators may evaluate our business and
risk profile on a consolidated or group-wide basis rather than solely by reference to individual regulated entities. In the United
States, the Financial Stability Oversight Council has authority to designate certain non-bank financial companies as
systemically important financial institutions, which could subject a designated entity to enhanced supervision and regulation.
Similarly, in the European Union and the United Kingdom, groups that engage in both insurance and investment activities may
be subject to supplementary group-wide supervision under the Financial Conglomerates Directive and its UK equivalent. If we
were to become subject to such enhanced or group-level regulatory regimes, we could face materially increased regulatory
burdens, governance, reporting, capital, liquidity, or risk-management requirements, restrictions on business activities or
intercompany arrangements, or other limitations that could materially adversely affect our business, financial condition, and
results of operations.
For matters that may specifically affect our insurance business, please see “—Risks Related to Our Insurance Activities—
Our insurance business is heavily regulated, and such regulations may have a material and adverse effect on our business,
financial condition and results of operations.”
If regulatory exemptions or exclusions on which we rely become unavailable, we may become subject
to additional restrictive and costly regulatory requirements, regulatory action or liability.
We regularly rely on exemptions, exclusions and other regulatory accommodations under U.S. and non-U.S. laws and
regulations in conducting our asset management, capital markets and insurance businesses. The unavailability of these
exemptions or exclusions for any reason, including changes in law, changes in regulatory interpretation, disqualifying events
involving us, our affiliates, or associated persons, or changes in our business activities or organizational structure, may subject
us or our investment vehicles to additional restrictive and costly regulatory compliance requirements, regulatory action or
third-party claims, or other otherwise materially and adversely affect our business.
In particular, we rely on exemptions from requirements pursuant to the Securities Act of 1933, the Securities Exchange
Act of 1934, the Investment Company Act, the Commodity Exchange Act of 1936, and the Employee Retirement Income
Security Act of 1974 (“ERISA”) in conducting our business activities, as well as exemptions from various foreign regulatory
requirements. These exemptions are often highly complex, subject to evolving interpretation, and may in certain
circumstances depend on compliance by third parties or factual determinations that may be outside of our control.
For example, in raising new funds or other investment vehicles in the United States, we typically rely on private
placement exemptions from registration under the Securities Act, including Rule 506 of Regulation D. If we, our investment
vehicles or any of the covered persons associated with our investment vehicles were to become subject to a disqualifying
event, which includes a variety of criminal, regulatory and civil matters, one or more of our investment vehicles could lose the
ability to raise capital in a Rule 506 private offering, which could materially impair our ability to raise capital for existing and
new investment vehicles. The occurrence of a disqualifying event would also materially and adversely affect our ability to
raise or syndicate capital for our transactions and for third parties and otherwise materially and adversely affect our ability to
conduct our capital markets business, which depends on our ability to participate in unregistered securities offerings. As we
expand the array of vehicles that we offer to individual investors, we may increasingly rely on the Rule 506(c) safe harbor,
which permits general solicitation and advertising but requires enhanced procedures to verify accredited investor status,
increasing compliance complexity and execution risks. Outside of the United States, we also rely on similar private placement
exemptions and marketing registrations, for example under the AIFMD in Europe, the Financial Services and Markets Act 2000
(as amended and supplemented by statutory instruments) and the Alternative Investment Fund Managers Regulations 2013
(as amended) in the United Kingdom, the Financial Instruments and Exchange Act in Japan, and the Securities and Futures Act
in Singapore.
In addition, certain of our investment vehicles, including our K-Series vehicles, are structured and operated in reliance on
exclusions from the definition of an investment company under the Investment Company Act. If any such entity were
required to register as an investment company, the applicable restrictions on capital structure, leverage, transactions with
affiliates, governance, and operations would make it impractical for the entity to operate its business as currently conducted
and could materially and adversely affect our financial results and results of operations.
In the United States, the CFTC and the SEC regulate transactions in futures and swaps as well as entities that enter into
those transactions. We are also subject to similar regulations when we trade derivatives in non-U.S. jurisdictions. These
regulations may limit our trading activities and our ability to implement effective hedging strategies or increase the costs of
compliance. We generally operate our businesses pursuant to exemptions from registration, but certain transactions in52Table of Contents
futures, swaps and other derivatives remain subject to regulatory requirements regardless of our registration status. We and
other asset management firms rely on an exemption from aggregation for portfolio companies that hold positions in the
relevant contracts. Our insurance subsidiaries must also comply with applicable insurance and other regulations with respect
to hedging. Any changes in application or interpretation of the rules applicable to futures, swaps and other derivatives could
result in significant costs for us and our investment vehicles.
Distribution of financial products to individual investors subjects us to heightened regulatory,
litigation, and reputational risks, which may materially adversely affect our business.
As part of our growth strategy, we have distributed and expect to continue distributing certain of our investment and
insurance products to individual investors. In some cases, our financial products are distributed indirectly through third-party
managed vehicles sponsored by brokerage firms, banks, or third-party feeder providers, and in other cases directly to the
clients of banks, independent investment advisers, and broker-dealers. We also create investment products specifically
designed for direct investment by individual investors in the United States and in non-U.S. jurisdictions. Products offered to
individual investors are subject to heightened regulatory scrutiny, prescriptive conduct standards, and increased litigation risk
compared to products offered primarily to institutional investors.
For example, in the United States, the public offering and sale of securities to individual investors is subject to the anti-
fraud and other investor protection provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and, where
applicable, the Investment Company Act, which may subject issuers and their affiliates and control persons to heightened
regulatory scrutiny and to claims by private plaintiffs alleging that such products were inappropriately marketed, inadequately
disclosed, or otherwise offered or sold in violation of applicable securities laws. We have sponsored and advise, or sub-advise,
investment products whose structuring and investments in illiquid assets are novel and untested. In addition, U.S. broker-
dealers and their associated persons are subject to laws and regulations governing the sale of financial products to individual
investors, including Regulation Best Interest, which requires recommendations to retail customers to be made in the
customer’s best interest. These regulations also apply to third-party broker-dealers and any broker-dealers we operate that
distribute our investment or insurance products directly to individual investors. Compliance with such regulations and related
disclosure requirements, conflict-management, supervision, and recordkeeping requirements may impose additional costs,
operational complexity, and supervisory obligations on us, and may impact our ability to distribute our financial products to
individual investors. See also “—Risks Related to Our Insurance Activities—Our insurance business is heavily regulated, and
such regulations may have a material and adverse effect on our business, financial condition and results of operations.”
In addition, various non-U.S. laws and regulations also govern the sale of financial products to individual investors,
including, for example, Directive 2014/65/EU (MiFID II), Directive 2011/61/EU (AIFMD), and Regulation 2015/760/EU (ELTIF
Regulation) which govern the sale of financial products to individual investors in the European Economic Area (the “EEA”).
These EEA directives and regulations contain requirements for, among other things, marketing, investor suitability
assessments, and conflicts of interest management, and certain of these requirements also apply to distributors, placement
agents and other intermediaries that distribute our products to individual investors. Moreover, although the EEA’s directives
and regulations are intended to create an EEA-wide harmonized framework, individual EEA member states may supplement
them with their own national rules, which adds to complexity and compliance risks.
The distribution of our products to individual investors often occurs through third-party channels that we do not control.
Although we conduct due diligence and establish onboarding and contractual arrangements with such distributors, we may
not be able to effectively monitor or control how our products are marketed, recommended, or sold. As a result, we may be
exposed to regulatory inquiries, enforcement actions, litigation, or reputational harm arising from allegations that our
products were sold to investors for whom they were unsuitable or inadequately disclosed, even where such conduct was
undertaken by third parties. Similar risks arise if our employees involved in distribution or oversight of third-party distributors
fail to adhere to applicable compliance or supervisory requirements. Legislative and regulatory developments may affect our
retail strategy. In the United States, initiatives intended to expand access by participants in 401(k) and other defined
contribution plans to alternative investments may create new opportunities but also raise complex regulatory, fiduciary,
disclosure, valuation, liquidity, and operational issues under securities and other applicable laws. We may incur significant
costs to design and implement products and compliance frameworks to access such channels, and those costs may not be
recoverable if regulatory requirements change, are delayed, or do not take effect. At the same time, competitors may pursue
these opportunities more aggressively, potentially placing us at a competitive disadvantage. Expanding our focus on
individual investors may also subject us to increased scrutiny regarding fees, liquidity, valuation, marketing, and disclosures,
increase the risk of private litigation or regulatory enforcement, and could be perceived by our institutional investors as
creating conflicts of interest or a shift in strategic focus, any of which could materially adversely affect our business, results of
operations, and financial condition. See also “—Adverse regulatory actions may result in significant sanctions, liabilities,
operational restrictions, litigation, reputational harm and other material and adverse impacts to our business.”53Table of Contents
Regulations impacting the insurance industry and insurance companies owned by alternative asset
managers may adversely affect our business.
The NAIC and task forces and working groups appointed by it as well as individual U.S. state insurance regulators continue
to consider various initiatives to change and modernize the solvency framework applicable to regulated insurance companies.
These initiatives include enhancing the ability of state insurance regulators to effectively monitor the solvency and risks faced
by an insurer within a larger group and when engaging in reinsurance transactions with other insurers. Although initially the
NAIC’s actions were driven by growing concerns related to companies owned by alternative asset management firms, the
NAIC and individual state insurance regulators have shifted toward an activity-based regulatory approach, signaling continued
potential for additional regulation. The NAIC and state insurance regulators have adopted and continue to evaluate new
regulations relating to affiliates and investment structures (including revisions to the capital charges for asset-backed
securities, in particular CLOs), investment management agreements, governance standards, market conduct practices and use
of third-party administrators. For example, the NAIC and U.S. state insurance regulators have increasingly focused on the
terms, structure, and negotiation of investment management agreements.
As part of their efforts to address potential risks stemming from an insurance company’s relationship with alternative
asset managers that may impact the insurance company’s risk profile, regulators have increased their scrutiny of certain
structured investments held by insurance companies, the appropriateness of investment ratings and potential conflicts of
interest (including affiliated investments), and potential misalignment of incentives. This growing scrutiny may increase the
risk of regulatory actions against our insurance business and could result in new or amended regulations that limit our ability
as an investment adviser, or make it more burdensome or costly, to enter into or amend existing investment management
agreements with insurance companies and thereby grow our insurance strategy. Additionally, the group-wide supervisor for
our insurance business is the Indiana Department of Insurance. The Indiana Department of Insurance has informed us that it
will be part of the International Association of Insurance Supervisors’ Global Monitoring Exercise, a risk assessment
framework to monitor key risks and trends and to detect the potential build-up of systemic risk in the global insurance sector
that also includes all Internationally Active Insurance Groups (“IAIGs”). IAIGs are expected to be subject to group-wide capital
standards once adopted by the United States. At this time, we cannot accurately predict whether we will be named or
designated as an IAIG or the impact, if any, on us.
See also “—Risks Related to Our Insurance Activities—Our insurance business is heavily regulated, and such regulations
may have a material and adverse effect on our business, financial condition and results of operations.”
We are subject to substantial regulatory risks due to our extensive and global investment activities.
As a global alternative asset manager, we regularly engage in transactions involving equity and debt investments,
mergers, acquisitions, financings, restructurings, exits, and other investment activities across numerous jurisdictions. These
transactions are subject to a wide range of complex laws and regulations, including securities, antitrust, foreign investment,
sanctions, export controls, anti-corruption, and other regulations administered by U.S. and non-U.S. governmental
authorities.
In addition to the laws and regulations arising from our investment activities, we also become subject from time to time
to the laws and regulations applicable to the businesses of our portfolio companies, including the regulations related to the
U.S. Federal Energy Regulatory Commission, the U.S. Federal Communications Commission, and the U.S. Defense
Counterintelligence and Security Agency as well as various laws and regulations of non-U.S. jurisdictions, such as those
promulgated by the U.K. Financial Conduct Authority, the Swedish Financial Supervisory Authority, the German Federal
Financial Supervisory Authority, and the Australian Prudential Regulation Authority. Compliance with these laws and
regulations is highly fact-specific, requires significant time, resources, and coordination across multiple jurisdictions, and is
subject to heightened regulatory scrutiny and enforcement. Compliance with these laws and regulations is highly fact-
specific, requires significant time, resources, and coordination across multiple jurisdictions, and is subject to heightened
regulatory scrutiny and enforcement.
Our ability to comply with many of these requirements depends in part on obtaining timely, complete, and accurate
information from portfolio companies, management teams, counterparties, and third-party advisers, including information
relating to operations, ownership structures, counterparties, customers, and historical conduct. We may not always be able to
independently verify such information, and we rely significantly on our portfolio companies to provide such information to us.
In some cases, inaccurate, incomplete, or delayed information may not be identified until after a transaction has closed,
which could result in regulatory investigations, the reopening of prior approval processes, the imposition of remedial
measures or sanctions, or other adverse consequences for us and our portfolio companies. See also “—The actions of our
portfolio companies may subject us to potential liabilities and cause us reputational harm”.54Table of Contents
Compliance with these transactional regulatory requirements is costly and operationally complex, requiring substantial
investment in personnel, systems, controls, and external advisers. These costs may increase as regulatory regimes become
more expansive, enforcement activity intensifies, or new jurisdictions or asset classes are added to our investment activities.
Failure to comply, or errors in assessing or implementing compliance requirements in connection with our transactions, could
subject us or our portfolio companies to civil or criminal penalties, fines, sanctions, judgments, remedial obligations,
transaction delays or prohibitions, reputational harm, or other adverse consequences. In certain circumstances, we or our
personnel could also be subject to civil or criminal investigations or enforcement actions based on the conduct of portfolio
companies, joint venture partners, counterparties, or other third parties, including under theories of control person,
successor, or aiding-and-abetting liability. The failure to effectively manage these risks, or significant increases in compliance
burdens or enforcement exposure, could materially adversely affect our business, results of operations, financial condition,
and reputation. See also “—Our business is subject to complex, extensive and evolving laws, and the failure to comply with
applicable laws may materially and adversely affect us” and “—Adverse regulatory actions may result in significant sanctions,
liabilities, operational restrictions, litigation, reputational harm and other material and adverse impacts to our business”.
Various investment-related and competition laws may limit our investment opportunities and subject
us to adverse regulatory consequences.
As a global alternative asset manager with a broad investment platform, our ability to identify, pursue, and consummate
attractive investment opportunities may be constrained by various investment-related and competition laws, including
antitrust, merger control, foreign direct investment (“FDI”) and similar laws and regulations that aim to control investment
activity in various jurisdictions around the world. These regimes may restrict the types of transactions we can pursue, the
industries or assets in which we can invest, the structures through which we can invest, or the investors that can participate in
them, particularly given our size, global footprint, and ownership of, or relationships with, a wide range of portfolio
companies and affiliates.
In many cases, the potential applicability of investment-related and competition laws may deter us from pursuing certain
investment opportunities, limit our ability to finance existing functions, or require us to structure transactions in ways that are
less attractive or less competitive, including by limiting ownership levels, governance rights, syndication arrangements, co-
investor participation, or exit alternatives. In addition, counterparties, sellers, financing sources, or co-investors may be
unwilling to engage in transactions subject to extended or uncertain regulatory review, or may prefer bidders with simpler
ownership structures or perceived lower regulatory risk, placing us at a competitive disadvantage.
Our transactions are often subject to investment-related and competition laws that require pre-closing or post-closing
notifications, approvals, or clearances in connection with our investment activities, including under U.S. antitrust laws and
national-security-focused regimes such as the U.S. Foreign Investment Risk Review Modernization Act, pursuant to which the
Committee on Foreign Investment in the United States may review, block, or impose conditions on investments by non-U.S.
persons in U.S. businesses or real assets. Many jurisdictions around the world have similar or comparable antitrust and FDI
regimes. Additionally, certain jurisdictions may impose restrictions or prohibitions on businesses making investments in other
countries or otherwise restrict investment activities. For example, the U.S. Outbound Investment Security Program imposes
notification requirements and prohibitions for certain investments in entities engaged in specified technology sectors outside
of the United States. The prospect of review or restrictions under these regimes may narrow the universe of feasible
transactions, delay decision-making, or require significant resources to evaluate regulatory risk before we can determine
whether to pursue an opportunity. Determining which investment-related and competition laws and regulations apply to any
particular transaction, identifying the applicable filing, notice, approval, or other requirements that may be triggered under
such laws and regulations, and ensuring compliance with all applicable requirements can be complex and resource-intensive.
Any of the foregoing could reduce the number or attractiveness of investment opportunities available to us, increase the
time, cost, and complexity associated with evaluating and executing transactions, limit our ability to deploy capital efficiently,
adversely impact our competitive positions or otherwise materially adversely affect our investment activities. Failure to
comply with these laws and regulations, or allegations of non-compliance, could prevent us from completing transactions, and
could subject us, our employees and our portfolio companies to civil or criminal sanctions, fines, penalties, remediation
obligations, restrictions on investment activities, enhanced monitoring or oversight, requirements to divest or restructure
investments, and significant reputational harm. See also “—Adverse regulatory actions may result in significant sanctions,
liabilities, operational restrictions, litigation, reputational harm and other material and adverse impacts to our business”.55Table of Contents
Financial crime laws may limit our investment and capital raising activities and subject us to adverse
regulatory consequences.
Our business is subject to a wide range of laws and regulations relating to the prevention of financial crime, including
anti-corruption, economic sanctions, and anti-money laundering and countering the financing of terrorism ("AML/CFT") and
similar laws and regulations administered by U.S. and non-U.S. governmental authorities. These include, among others, FCPA,
economic sanctions and trade control laws and regulations administered by the U.S. Department of the Treasury’s Office of
Foreign Assets Control, the U.S. Department of Commerce, and the U.S. Department of State, AML/CFT requirements
administered by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network, as well as similar laws and
regulations administered by non-U.S. authorities, including EU and UK sanctions regimes and the UK Bribery Act. These laws
and regulations are complex, may in some cases impose liability regardless of intent or knowledge, may be applied
extraterritorially, and may impose overlapping or conflicting requirements, creating significant compliance and enforcement
risk.
Compliance with financial crime laws can be highly fact-specific and often requires collection of and depends on
information regarding counterparties, including ownership structures, business practices, and historical conduct, which may
be incomplete, inaccurate, or difficult to obtain, particularly in connection with cross-border transactions or investments in
jurisdictions with less developed regulatory regimes. These risks are heightened by our ownership of, and investment in,
portfolio companies operating across numerous jurisdictions and industries. In certain circumstances, we or our personnel
could be subject to investigations, enforcement actions, or liability arising from the conduct of portfolio companies, joint
venture partners, or other third parties, including under theories of control person, successor, aiding-and-abetting, or
facilitation liability. In particular, under U.S. economic sanctions, the FCPA and similar laws and regulations, we may be held
liable for conduct engaged in by portfolio companies or their employees, agents, or intermediaries, including conduct that
occurred prior to our investment or without our knowledge.
Compliance with financial crime laws is required throughout the lifecycle of our investments, including when we acquire
investments, and exit or sell investments. In these contexts, we must assess whether funds paid or received in connection
with an acquisition, financing, or disposition could be transferred, directly or indirectly, to persons or entities subject to
sanctions or other restrictions. Limitations on our ability to obtain complete or reliable information regarding sellers, buyers,
beneficial owners, intermediaries, or payment flows, or changes in applicable laws and regulations or sanctions regimes may
require changes to transaction structures, reduce proceeds, or expose us to enforcement risk.
Compliance with financial crime laws can also have a material impact on our fundraising, capital-raising, and syndication
activities, including limitations on the admission of investors into our funds and the participation of co-investors in our
transactions. In these contexts, we may be required to assess the identity, ownership, source of funds, and jurisdictional
nexus of investors, lenders, and co-investors, and applicable restrictions may limit participation, delay or prevent capital
formation or syndication, require enhanced diligence or contractual protections, or otherwise adversely affect our ability to
raise capital or complete transactions.
Compliance with financial crime laws can be costly and resource-intensive, requiring significant investment in personnel,
systems, controls, training, and third-party advisers, and may limit the jurisdictions, industries, counterparties, or investment
opportunities we are able to pursue. Failure to comply with these laws and regulations, or allegations of non-compliance,
could subject us and our portfolio companies to civil or criminal sanctions, remediation obligations, restrictions on business
activities, enhanced monitoring or oversight, requirements to divest or restructure investments, and significant reputational
harm. See also “—Adverse regulatory actions may result in significant sanctions, liabilities, operational restrictions, litigation,
reputational harm and other material and adverse impacts to our business”.
Our investment vehicles and insurance subsidiaries could become subject to the fiduciary responsibility
and prohibited transaction provisions of ERISA and Section 4975 of the Code, which would adversely
affect our businesses.
Our investment vehicles are structured and operated in a manner intended to avoid being treated as holding plan assets
for purposes of ERISA and Section 4975 of the Code, and we seek to conduct our investment management activities in a
manner consistent with applicable exemptions and exceptions. However, if any of our investment vehicles or insurance
subsidiaries were determined to hold plan assets for purposes of ERISA, or if an applicable exemption or exception were
unavailable, we could become subject to the fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code, which could materially adversely affect our business.56Table of Contents
We or certain of our investment vehicles could potentially be held liable under ERISA for the pension obligations of one or
more of our portfolio companies if we or the investment vehicle were determined to be a “trade or business” under ERISA
and deemed part of the same controlled group as the portfolio company under such rules, or if we were otherwise to become
jointly and severally responsible for any such pension liabilities. In addition, if a similar rationale were expanded to apply also
for U.S. federal income tax purposes, then certain of our investors could be subject to increased U.S. income tax liability or
filing obligations in certain contexts. Similar laws and theories that could be applied with similar results also exist outside of
the United States.
Although we do not currently rely on the qualified professional asset manager (“QPAM”) exemption under ERISA in any
material respect, certain of our affiliates and we, in the future, may rely on the QPAM exemption in connection with
managing plan assets. The availability of the QPAM exemption may be lost or rendered unavailable as a result of criminal
convictions, regulatory actions, or other disqualifying events involving the relevant investment adviser or certain affiliated
entities or individuals, including conduct unrelated to the management of plan assets. Any such loss or unavailability could
expose us or our investment vehicles to prohibited transaction liability, restrict our ability to manage plan assets, require
restructuring of affected arrangements, or otherwise materially adversely affect our business. Moreover, if the general
accounts or separate accounts of one or more of our insurance subsidiaries were to constitute plan assets for purposes of
ERISA, in the absence of an exemption we could incur liability under the prohibited transaction provisions of ERISA and the
Code as a result of any our investment management activities with respect to, or transactions involving our insurance
subsidiaries, and we could become prohibited from being compensated for managing our insurance subsidiaries’ assets.
See also “—Adverse regulatory actions may result in significant sanctions, liabilities, operational restrictions, litigation,
reputational harm and other material and adverse impacts to our business”.
Sustainability-related laws and disclosure requirements may increase compliance costs and subject us
to enforcement risks and reputational risks.
We and certain of our investment vehicles and portfolio companies are or may become subject to sustainability-related
laws, regulations, and disclosure requirements. Our business could be adversely affected if we, our investment vehicles or our
portfolio companies fail to comply with applicable sustainability requirements, including as a result of increased compliance
costs, regulatory enforcement activity, litigation, or reputational harm. New or amended sustainability rules, regulations,
enforcement priorities, or interpretations of existing laws may result in enhanced disclosure or other compliance obligations
and could adversely affect our investment activities and ability to raise capital.
In the European Union, we and certain of our investment vehicles and portfolio companies are or may become subject to
sustainability-related rules and guidance, including the Sustainable Finance Disclosure Regulation, the Corporate Sustainability
Reporting Directive, and the Corporate Sustainability Due Diligence Directive, each of which, if applicable, could impose
significant disclosure, reporting, or due diligence requirements. In addition, we, our investment vehicles and portfolio
companies may also become subject to sustainability-related regulations in the United States, including the California Climate-
Related Financial Risk Act (SB 261) (which is temporarily enjoined) and the California Climate Corporate Data Accountability
Act (SB 253) that is contemplated to require certain disclosures about climate-related financial risks and greenhouse gas
emissions data. On the other hand, several U.S. governmental authorities have enacted or proposed legislation and policies,
or pursued investigations and litigation, to restrict or prohibit government entities from doing business with businesses
identified as boycotting or discriminating against particular industries or from considering environmental and social factors in
their investment processes.
Compliance with sustainability-related requirements often depends on collecting, measuring, and reporting information
from portfolio companies and other third parties, which may be incomplete, inconsistent, or difficult to obtain. Sustainability-
related reporting is subject to evolving standards and methodologies and may require the use of assumptions or estimates
that could later be challenged. Collecting, measuring, and reporting sustainability information can be costly, difficult, and
time-consuming and may present operational, legal, and reputational risks.
We expect evolving sustainability-related regulation and investor expectations to require us to devote additional
resources to sustainability matters in connection with our investment activities and the management of our portfolio
companies, which will increase our expenses. Any failure to effectively manage these requirements, or any material increase
in compliance burdens, regulatory action, litigation, or reputational harm, could materially adversely affect our business,
results of operations, and financial condition. See also “—Adverse regulatory actions may result in significant sanctions,
liabilities, operational restrictions, litigation, reputational harm and other material and adverse impacts to our business”.57Table of Contents
Privacy, data protection, cybersecurity and artificial intelligence laws may increase compliance costs
and subject us to enforcement risks and reputational risks.
Data privacy, data protection and cybersecurity have become priorities for regulators around the world, and rapidly
evolving and changing laws and regulations, including with respect to artificial intelligence, may increase compliance and legal
costs and expose us to enforcement risk, litigation, and reputational harm. We and our portfolio companies are subject to U.S.
federal and state privacy and data protection laws and regulations. For example, the California Consumer Privacy Act provides
enhanced consumer rights, a private right of action for certain data breaches, and statutory fines, damages and penalties for
violations. Other U.S. states have passed their own consumer privacy laws and other states are considering doing so. At the
U.S. federal level, we are subject to the Gramm-Leach-Bliley Act of 1999, and implementing regulations, including Regulation
S-P, which governs privacy notices and the safeguarding and disposal of customer information and establishes certain incident
response and notification obligations.
Our insurance business processes sensitive personal information of policyholders, which exposes it to heightened privacy
and cybersecurity risk, and our insurance subsidiaries are subject to additional cybersecurity requirements, including the New
York State Department of Financial Services (“NYSDFS”) cybersecurity regulation, which requires covered entities to maintain
cybersecurity programs, conduct risk assessments, and satisfy certain incident reporting and governance requirements. In
November 2023, the NYSDFS finalized amendments to its cybersecurity regulations that significantly expanded the NYSDFS’
regulation of data privacy matters.
We are also subject to non-U.S. privacy and data protection laws, including the European General Data Protection
Regulation, the Personal Information Protection Law of the People’s Republic of China, the India Digital Personal Data
Protection Act 2023, the UK Data Protection Act, and similar laws in other jurisdictions. Many of these regimes have
extraterritorial reach, impose differing or conflicting requirements, and may apply to data processing activities conducted by
us, our portfolio companies, or third-party service providers. In addition, we are often subject to privacy and data security
obligations arising from contractual commitments with counterparties.
There is also increased regulatory attention about the use of artificial intelligence. For example, the European Union has
adopted Regulation (EU) 2024/1689, which establishes a comprehensive, risk-based regulatory framework governing the
development, marketing, deployment and use of artificial intelligence systems within the European Union.
Failure to comply with applicable data privacy, data protection, cybersecurity, or artificial intelligence laws or related
contractual obligations could result in regulatory investigations or enforcement actions, private litigation, fines, penalties,
claims for damages, or adverse publicity. Even where we are not found liable, responding to investigations or claims may be
costly and time-consuming and could result in reputational harm. Regulatory enforcement activity and private litigation
relating to data privacy and cybersecurity matters have increased in recent years, and any significant enforcement action,
litigation, or reputational harm could materially adversely affect our business, results of operations and financial condition.
See also “—Adverse regulatory actions may result in significant sanctions, liabilities, operational restrictions, litigation,
reputational harm and other material and adverse impacts to our business”.
Risks Related to Our Investment Activities
In our asset management business, we sponsor and manage funds and other investment vehicles that make investments
worldwide on behalf of third-party investors and, in connection with those activities, typically deploy our own capital for a
portion of those investments. These investments are subject to many material risks and uncertainties as discussed below. In
addition, we manage the investments of our insurance subsidiaries and other investments on our balance sheet, including
through our Strategic Holdings business. Because we directly bear the full risk of the investments of our insurance
subsidiaries and those on our balance sheet, including those reported in our Strategic Holdings segment, the risks and
uncertainties discussed below may have a greater impact on our results of operations and financial condition.
Future results of our investments may be different than, and may not achieve the levels of, any of our
historical returns.
We have presented in this report certain information relating to our investment returns, such as net and gross internal
rates of return (“IRR”), multiples of invested capital (“MOIC”) and realized and unrealized investment values for investment
vehicles that we have sponsored, managed or operated. Historical returns of our investment vehicles should not be relied
upon as indicative of the future results that you should expect from our investment vehicles and are not indicative of the
future results of our insurance subsidiaries or our balance sheet assets. The future results may differ significantly from their
historical results for a multitude of reasons, including for timing differences between the reporting of unrealized gains and58Table of Contents
realization events, changes in the asset classes in which our current funds invest in compared to historical asset classes,
market and economic conditions, differences in the duration of holding periods of investments and deployment periods for
investment vehicles, differences in asset mixes, industry exposures, and geographies, and the economic terms and costs
associated with our newer investment vehicles.
Various conditions and events outside of our control that are difficult to quantify or predict may have a
significant impact on the valuation of our investments.
Global equity markets, which have been and are expected to continue to be volatile, significantly impact the valuation of
our equity investments in portfolio companies. For our equity investments that are publicly listed and thus have readily
observable market prices, equity markets around the world have a direct impact on valuation, because their values are
determined by their listed prices in the public markets. For our equity investments that are not publicly listed, equity markets
have an indirect impact on valuation as we often consider market multiples in our valuation of illiquid assets. In our private
equity business, a substantial amount of investments are in equities, so a change in equity prices or equity market volatility
could significantly impact the value of our private equity investments. In our insurance business, a change in equity prices
also impacts our equity-linked annuity and life insurance products, including with respect to hedging costs related to those
products.
The credit markets can also impact the valuations of our equity investments in portfolio companies. For example, we
typically use a discounted cash flow analysis as one of the methodologies in our valuation of illiquid assets process. If interest
rates rise, then the assumed cost of capital for the equity investments in our portfolio companies would be expected to
increase under the discounted cash flow analysis, and this effect would negatively impact their valuations if not offset by
other factors. In our infrastructure business, a substantial amount of investments are valued using the discounted cash flow
analysis, so a change in interest rates could significantly impact the value of our infrastructure investments.
The credit markets directly impact the valuations of the credit investments that we (especially our insurance subsidiaries)
and our investment vehicles own. Interest income earned from debt investments with floating interest rates should increase
if the applicable benchmark interest rate were to rise, and the reverse is true if the applicable benchmark interest rate were
to decline. However, during periods of rising interest rates, the obligor of such floating rate debt may become less able to pay
its debt obligations, which could have the effect of impairing the value of its debt obligations. For debt investments with fixed
interest rates, changes in interest rates generally will also cause the value of the fixed rate debt to vary inversely to such
changes, although any losses or gains would in most cases not be realized if the fixed rate debt is held to maturity. Increased
or unexpected payment delinquencies, foreclosures or losses could adversely affect our or our investment vehicles’ ability to
invest in, sell and securitize loans, which would materially and adversely affect our or our investment vehicles’ results of
operations, financial condition, liquidity and business.
Foreign exchange rates can materially impact the valuations of our investments that are denominated in currencies other
than the U.S. dollar. We make investments and receive capital commitments and have liabilities that are denominated in
currencies other than the U.S. dollar. The appreciation or depreciation of the U.S. dollar is expected to contribute to a
decrease or increase, respectively, in the U.S. dollar value of our non-U.S. investments to the extent unhedged. For our
investments denominated in currencies other than the U.S. dollar, the depreciation in such currencies will generally
contribute to the decrease in the valuation of such investments, to the extent unhedged, and adversely affect the U.S. dollar
equivalent revenues of portfolio companies with substantial revenues denominated in such currencies, while the appreciation
in such currencies would be expected to have the opposite effect.
Conditions in commodity markets can also impact the valuations of our investments in a variety of ways, including
through the direct or indirect impact on the cost of the inputs used in their operations, as well as the pricing and profitability
of the products or services that they sell. The price of commodities has historically been subject to substantial volatility,
which among other things, could be driven by economic, monetary, geopolitical or other factors. Further, if the operating
partners for certain of our investments are unable to raise prices to offset increases in the cost of raw materials or other
inputs, including the cost of energy and transportation, or if customers defer purchases of or seek substitutes for these
products, these investments could experience lower operating income which may in turn reduce their valuation. With respect
to our investments in energy-related companies, when commodity prices decline or if a decline is not offset by other factors,
the revenues, operating results, profitability and liquidity of the businesses related to such energy-related companies may be
adversely affected.59Table of Contents
The market values of real estate assets may be adversely affected by a number of factors, including national, regional and
local economic conditions; construction quality, age and design; demographic factors; tenant demand, market occupancy and
rental rate trends; and capitalization rates. Declining real estate values significantly increase the likelihood that we or our
investment vehicles will incur losses on loans in the event of default because the value of our collateral may be insufficient to
cover the costs on the loan.
Financial markets and economic conditions are outside our control and may affect the level and volatility of securities
prices and liquidity and as a result, the value of our investments and our financial results. In addition, if we are unable to or
choose not to manage our exposure to these conditions and/or events and such impact is not otherwise offset, then declines
in the equity, commodity and debt in the markets would likely cause us to write down our investments and the investments
of our funds. For example, during the global financial crisis in 2008 and 2009, valuations of our private equity funds declined
across all geographies, with investments in private equity funds marked down to as low as 67% of original cost and multiples
of invested capital reaching as low as 0.5x, 0.6x, 0.7x and 0.8x for the European Fund II, European Fund III, 2006 Fund and
Asian Fund, respectively, as of March 31, 2009.
The valuations of our investments can be impacted by many other factors unrelated to market or economic conditions,
including:
• global, regional and local events outside of our control, including geopolitical events, natural disasters, and
catastrophes;
• climate-related risks, including the impacts of changes in the physical climate, such as extreme weather or
temperature changes, which may damage physical assets as well as disrupt connectivity and supply chains, in
addition to climate-related transition risks that may arise from exposure to the transition to a low-carbon economy
through policy, regulatory, technology, market changes, differing perspectives of stakeholders regarding climate
impacts, business trends, and changes in consumer behavior related to climate change and technology; and
• developments in and adoption of artificial intelligence technologies, which may render existing products, services, or
business models of the companies in which we invest to become obsolete, less competitive, or require significant
and unanticipated additional investment to remain viable.
For a discussion of certain recent market or economic conditions, see also “Management's Discussion and Analysis of
Financial Condition and Results of Operations—Critical Accounting Policies and Estimates”.
Many of our investments are illiquid, and it may not be possible to realize any profits from them for a
considerable period of time or at all.
We and our investment vehicles hold investments in securities that are not publicly traded. In many cases, we may be
prohibited by contract or by applicable securities laws from selling such securities at many points in time. Our ability to
dispose of investments also is heavily dependent on the capital markets and, in particular, the public equity markets. For
example, the ability to realize any value from an investment may depend upon the ability to complete an initial public offering
of the portfolio company in which such investment is made. Even if the securities are publicly traded, large holdings of
securities can often be disposed of only over a substantial length of time, exposing our investment returns to risks of
downward movement in market prices during the intended disposition period. In addition, market conditions and the
regulatory environment can also delay and, in certain cases, materially impair, our ability to exit and realize value from these
investments. Although the equity markets are not the only means by which we exit investments from our funds, the strength
and liquidity of the relevant equity for the portfolio company, and the initial public offering market specifically, affect the
valuation of, and our ability to successfully exit, our equity positions in the portfolio companies in a timely manner. Difficult
market and economic conditions could increase the cost of credit or cause a degradation in debt financing terms for potential
buyers, either of which may adversely impact our ability to identify, execute and exit investments on attractive terms.
Government policies regarding certain regulations, such as antitrust law, national security or restrictions on foreign direct
investment in certain of our portfolio companies or assets can also limit our and our investment vehicles’ exit opportunities.
In addition, many of our investment vehicles have a finite term, and we may also be forced to dispose of investments sooner
than otherwise desirable. Accordingly, under certain conditions, our investment vehicles may be forced to either sell their
investments at lower prices than they had expected to realize or defer sales that they had planned to make, potentially for a
considerable period of time.60Table of Contents
The valuations of illiquid investments are subjective and uncertain, and any realizations of our illiquid
investments may occur at prices which differ from their carrying values.
There are no readily ascertainable market prices for a substantial majority of illiquid investments held by us and our
investment vehicles. We generally determine the fair value of the investments of our funds in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”). U.S. GAAP requires the application of accounting
guidance and policies that often involve a significant degree of judgment. These accounting estimates require the use of
assumptions, some of which are highly uncertain at the time of estimation and can be incomplete or inaccurate despite our
engagement of third parties to assist with certain aspects of our valuations.
The amount of judgment and discretion inherent in valuing assets renders valuations uncertain and susceptible to
material fluctuations over possibly short periods of time. Our determination of an investment’s fair value may differ
materially from the value that would have been determined if a ready market for the securities had existed and the valuations
the general partners of other funds or other third parties ascribe to the same investment. In addition, the range of potential
valuation methodologies and the potential exercise of our subjective judgment in determining valuation might cause some of
our investors or regulators to question our valuations or methodologies. There can be no assurance that our policies will
address all necessary valuation factors or completely eliminate potential conflicts of interest in such determinations or that
we will be able to achieve some valuations.
The valuations of and realization opportunities for investments made by us and our investment vehicles could also be
subject to high volatility as a result of uncertainty regarding various risks described in these risk factors. Due to the lapse of
time between valuations, subsequent events that may have a significant impact on valuations will not be reflected until the
next valuation date. Changes in values attributed to investments may result in volatility in our AUM and could materially
affect the results of operations that we report from period to period. In addition, estimates, inputs, assumptions, and other
determinations made in connection with how various valuation methodologies are employed may also change from time to
time. Our valuation of an investment at a measurement date may also differ materially from the value that is obtained upon
the investment’s exit. If the investment values that we record from time to time are not ultimately realized, it could have a
material adverse effect on our results of operations, financial condition and cash flow.
Further, certain of our investment vehicles offered to individual investors calculate net asset value (“NAV”) on a daily or
monthly basis for purposes of establishing the price at which those investment vehicles sell and repurchase their shares. The
methods used to calculate NAV are not prescribed by the rules of the SEC or any other regulatory agency. There are no
accounting rules or standards that prescribe which components should be used in calculating NAV, and the NAV of such
vehicles are not audited by our independent registered public accounting firm. Errors may occur in calculating such NAV,
which could impact the price at which the shares of our investment vehicles offered to individual investors are sold and
repurchased.
Also, if realizations of our investments produce values materially different than the carrying values reflected in an
investment vehicle’s previous valuation, investors in such vehicles may lose confidence in us, which could in turn result in
difficulty in raising capital for future funds or other investment vehicles. Some of our investors and regulators may question
our valuations or methodologies. The SEC has focused on issues related to valuation of private investment vehicles, including
frequency, consistent application of the methodology, disclosure, and conflicts of interest, in its enforcement, examination,
and rulemaking activities. For information about our valuation methodologies and processes, please see Note 2 “Summary of
Significant Accounting Policies—Fair Value Measurements” in our financial statements.
We often pursue investment opportunities that involve unique business, regulatory, legal, tax or other
complexities that entail significant risks.
We often pursue complex investment opportunities, which may often involve substantial business, regulatory or legal
complexities. Our tolerance for complexity presents significant risks, as such transactions can be more difficult, expensive and
time consuming to finance and execute, and it can be more difficult to manage or realize value from these types of
investments. Other risks that are often inherent in these kinds of transactions include:
Our transactions may entail a high level of regulatory scrutiny, and our investment may be subject to complex regulatory
requirements and instances of non-compliance at the investment level may subject us to reputational harm or, in certain
cases, liability;61Table of Contents
• Our transactions may involve complex tax structuring that could be challenged or disregarded, which may result in
losing treaty benefits or otherwise adversely impact our investments; complex tax structures are costly to establish,
monitor and maintain, and as we pursue a larger number of transactions across multiple assets classes and in
multiple jurisdictions, such costs will increase and the risk that a tax matter is overlooked or inadequately or
inconsistently addressed may increase;
• Our transactions may involve an investment that is subject to significant liabilities, including contingent liabilities,
which could be unknown to us at the time of acquisition or, if they are known to us, we may not accurately assess or
protect against the risks that they present, which could result in material unforeseen losses;
• We rely on the management of our portfolio companies or other third-party operators to provide for financial
projections and other information about their companies, businesses or assets, which may not be accurate or
realistic and thus could result in performance that falls short of our expectations or even result in such company’s
bankruptcy; we also rely on the management of our portfolio companies or other third-party operators, and their
systems and processes, for ongoing financial and other information in support of the valuations of our investments in
or with them; and
• Our dispositions of investments may result in the incurrence of contingent liabilities by us or an investment vehicle;
for example, if we or an investment vehicle required to make representations about the investment and are required
to indemnify the purchasers of such investment for misrepresentations.
We also make large private equity and real assets investments, which involve certain complexities and risks that are not
encountered in small- and medium-sized investments. For example, when we enter into large transactions we often seek to
syndicate a portion of our capital commitment to third parties. However, if we are unable to syndicate all or part of such
commitment, or if such co-investors fail to fund their commitments, we may be required to fund the remaining commitment
amount from our balance sheet, and poor performance of such large investment may have a material adverse impact on our
financial results. Furthermore, investments by many of our investment funds will include debt instruments and equity
securities of companies that we do not control. Consortium transactions generally entail a reduced level of control by our
firm over the investment because governance rights must be shared with the other consortium investors. Accordingly, we
may not be able to control decisions, including decisions relating to the management and operation of the company and the
timing and nature of any exit, which could result in the risks described herein.
In addition, our growth equity investment vehicles may make investments in companies which are in a conceptual or
early stage of development. These companies are often characterized by new technologies and products, quickly evolving
markets, management teams that are materially dependent on a founder or key executives or may have limited experience
working together, in many cases, negative cash flow, and dependence on intellectual property rights, as well as other
substantial business and operational risks, all of which pose obstacles to the ultimate success of such investments. In
addition, growth equity companies may be more susceptible to macroeconomic effects and industry downturns, and their
valuations may be more volatile depending on the achievement of milestones, such as receiving a governmental license or
approval.
We use a significant amount of leverage in our investment activities, and our portfolio companies and
investments may have significant credit and liquidity requirements, which may be materially and
adversely affected by changes in financial markets.
We and our investment vehicles typically use a significant amount of leverage as part of our investment strategy and
regularly borrow a substantial amount of capital for operations and investments. With respect to our private equity and real
assets businesses, if we are unable to obtain committed debt financing for potential acquisitions or can only obtain debt at an
increased interest rate or on unfavorable terms, we may have difficulty completing otherwise profitable acquisitions or may
generate lower profits, either of which could lead to a decrease in the investment income earned by us. Any failure by
lenders to provide previously committed financing can also expose us to potential claims by sellers of businesses that we may
have contracted to purchase. Our ability to generate returns on these assets would be reduced to the extent that changes in
market conditions, including changes to interest rates, cause the cost of our financing to increase relative to the income that
can be derived from the assets acquired or financed. Significant stress in the credit markets is likely to materially affect our
business. For example, the turmoil in the global financial markets during 2008 and 2009 provoked significant contraction in
the availability of credit and the failure of a number of companies, including leading financial institutions. Our business was
materially and adversely affected by the global financial crisis due to a significant reduction in the availability of credit, less
favorable terms for available credit, and a material reduction in deal activity, which limited our exit and new investment
opportunities.62Table of Contents
We have equity and debt investments in companies that have a significant amount of leverage as well as companies that
are currently experiencing, or in the future may experience, significant financial or business difficulties. Our portfolio
companies often incur debt in connection with our acquisition of it, and our portfolio companies regularly utilize the
corporate debt markets to obtain financing for operations. To the extent that credit markets render such financing difficult to
obtain or more expensive, this may negatively impact our performance (and in particular our insurance business) and the
performance of such portfolio companies. In addition, to the extent that conditions in the credit markets impair the ability of
our portfolio companies to refinance or extend maturities on their outstanding debt, either on favorable terms or at all, the
performance of those portfolio companies may be negatively impacted, which could impair the value of our investment in
those portfolio companies and lead to a decrease in the investment income earned by us. In some cases, the inability of our
portfolio companies to refinance or extend maturities may result in the inability of those companies to repay debt at maturity
or pay interests when due, and may cause the companies to sell assets, undergo a recapitalization or seek bankruptcy
protection, any of which would likely materially impair the value of our investment and lead to a decrease in the investment
income earned by us. Investments in leveraged companies or companies experiencing financial or business difficulties
generally entail greater risk, including relating to contractual restrictions on the operations of its businesses and significantly
higher debt service costs, and such investments are also inherently more sensitive to declines in their company’s revenues,
increases in their company’s expenses, interest rate changes, and other adverse economic, market and industry
developments. As a result, the risk of loss associated with a leveraged company is generally greater than for comparable
companies with comparatively less debt.
In addition, our and our investment vehicles’ exposure to CLO markets may exacerbate risks associated with leverage and
borrowing, as these CLOs generally involve a higher degree of risk than investment grade-rated debt. We have significant
exposure to these markets through our CLO vehicles. In most cases, our CLO holdings are deeply subordinated, representing
the CLO vehicle’s substantial leverage, which increases both the opportunity for higher returns as well as the magnitude of
losses when compared to holders or investors that rank more senior to us in right of payment. During any time that a CLO
issuer exceeds applicable contractual limits on certain obligations it can hold, the ability of the CLO’s manager to sell assets
and reinvest available principal proceeds into substitute assets is restricted. In such circumstances, CLOs may fail certain
over-collateralization tests, which would cause diversions of cash flows away from us as holders of the more junior notes of
our CLOs, which may impact our cash flows. The ability of the CLOs to make interest payments to the holders of the senior
notes of those structures is highly dependent upon the performance of the CLO collateral. If the collateral in those structures
were to experience a significant decrease in cash flow due to an increased default level, payment of all principal and interest
outstanding may be accelerated. If these vehicles are unable to maintain their operating results and access to capital
resources, they could face substantial liquidity problems. These CLO strategies and the value of the assets of such CLO
vehicles are also sensitive to changes in interest rates because these strategies rely on borrowed money and because the
value of the underlying portfolio loans can fall when interest rates rise. As a result of their use of large amounts of leverage,
CLOs are at greater risk of suffering material losses.
The due diligence process that we undertake in connection with our investments may not reveal all
facts that may be relevant in connection with an investment.
Before making our investments, we seek to conduct due diligence that we believe to be reasonable and appropriate
based on the facts and circumstances applicable to each investment. When conducting due diligence, we typically evaluate a
number of important business, financial, accounting, sustainability, technological, tax, regulatory and legal issues and
macroeconomic trends in determining whether or not to proceed with an investment. When conducting due diligence and
making an assessment regarding an investment, we rely on resources available to us, including information provided by the
target of the investment and, in some circumstances, third-party investigations. The due diligence process is often subjective,
and only limited information may be available. For some strategies or investment opportunities, our due diligence may be
limited to only publicly available information. Accordingly, we cannot be certain that the due diligence investigation that we
will carry out with respect to any investment opportunity will reveal or highlight all relevant considerations that may be
necessary or helpful in evaluating such investment opportunity, including the existence of contingent liabilities.
In addition, instances of bribery, fraud, accounting irregularities and other improper, illegal or corrupt practices can be
difficult to detect, and fraud and other deceptive practices can be widespread in certain jurisdictions. Several of our
investment vehicles invest in emerging market countries that may not have established laws and regulations that are as
stringent as those in more developed nations, or where existing laws and regulations may not be consistently enforced. Due
diligence on investment opportunities in these jurisdictions is frequently more complicated because consistent and uniform
commercial practices in such locations may not have developed. Bribery, fraud, accounting irregularities and corrupt
practices can be especially difficult to detect in such locations.63Table of Contents
Investments in real assets may expose us and our investment vehicles to greater risks, liabilities and
operational complexities than investments in operating companies.
Our investments in real assets, such as real estate, infrastructure and energy, may subject us and our investment vehicles
to risks that are unique to the ownership, development and operation of physical assets. These risks include, among others:
• exposure to environmental laws and regulations that may impose strict or joint and several liability without regard to
fault, including liabilities arising from conditions existing prior to acquisition or arising after disposition, and liabilities
resulting from changes in applicable laws or standards;
• risks of personal injury, property damage, business interruption or catastrophic loss arising from natural disasters,
severe weather events, climate change (including both physical and transition risks), equipment failure, construction
defects, or other force majeure events, which may result in uninsured or underinsured losses, contractual claims,
reputational harm or other material liabilities;
• reliance on third-party operators, property managers, developers, contractors, sub-contractors, and other service
providers, whose failure to perform, misconduct (including fraud, bribery or other violations of law), or non-
compliance with applicable agreements or laws may materially adversely affect the value or operation of an asset
and expose us to liability or reputational damage;
• extensive and evolving federal, state, local and foreign laws and regulations governing land use, zoning, permitting,
labor, health and safety, rate setting, licensing, concessions, public procurement and other matters, including the risk
of delays, cost overruns, loss of permits or licenses, limitations on pricing, fines, sanctions, injunctions or criminal
penalties;
• ongoing arrangements with federal, state, local or foreign governments or regulatory authorities, including
partnerships and joint ventures, which may subject us to additional contractual, regulatory, political or performance-
related obligations and expose us to risks arising from changes in government priorities, financial condition or force
majeure;
• development, construction and redevelopment risks, including entitlement and permitting uncertainties, cost
inflation, supply chain disruptions, labor shortages, delays in completion, defects, the inability to obtain or maintain
financing on acceptable terms (including exposure under “bad boy” guarantees or similar arrangements); and
• asset-specific risks, including heightened political and public scrutiny of institutional ownership of certain asset
classes (such as single family homes or residential housing), exposure to reimbursement regimes and care-related
liabilities in healthcare facilities, and the dependence of infrastructure assets on long-term governmental licenses,
concessions, contracts or rate regulation, which may be modified, terminated, not renewed or subject to increased
regulatory oversight.
We make investments outside of the United States, which may expose us to additional risks, or
materially exacerbate risks, that are not typically associated with investing in the United States.
We invest a significant portion of our AUM in the equity, debt, loans or other securities of issuers and in other assets that
are based outside of the United States. Investing in companies or assets that are based or have significant operations in
countries outside of the United States and, in particular, in emerging markets such as China and India, Eastern Europe, South
and Southeast Asia, Latin America and Africa, involves risks and considerations that are not typically associated with
investments in companies or assets established in the United States. These risks may include, in addition to more volatile or
adverse market and economic conditions than the U.S., the following:
• the imposition of non-U.S. taxes with respect to certain assets and/or changes in tax law;
• limitations on borrowings to be used to fund acquisitions or dividends;
• limitations on the deductibility of interest and other financing costs and expense for income tax purposes in certain
jurisdictions;
• limitations on permissible counterparties in our transactions or consolidation rules that effectively restrict the types
of businesses in which we may invest;
• political risks generally, including political and social instability, nationalization, expropriation of assets or political
hostility to investments by foreign or private equity investors;
• reliance on a more limited number of commodity inputs, service providers or distribution mechanisms;
• fluctuations in foreign exchange rates;
• less government supervision of exchanges, brokers and issuers;
• less developed bankruptcy and other laws;64Table of Contents
• difficulty in enforcing contractual obligations;
• lack of uniform or robust accounting, auditing, financial reporting standards, practices and disclosure requirements,
and less government supervision and regulation;
• less stringent requirements relating to fiduciary duties; and
• risks described under “Risks Related to Regulatory Matters—Financial crime laws may limit our investment and
capital raising activities and subject us to adverse regulatory consequences.”
If we fail to effectively manage conflicts of interest that arise from our investment activities, our
reputation, business or financial results could be materially and adversely impacted or we may become
subject to regulatory scrutiny or litigation.
As we have expanded and as we continue to grow and expand our businesses, we often confront potential conflicts of
interest relating to our investment activities. For example:
• Potential conflicts may arise with respect to allocation of investment opportunities among us, our investment
vehicles and our affiliates, including to the extent that the applicable fund documents do not mandate a specific
investment allocation. For example, we may allocate an investment opportunity that is appropriate for two or more
investment vehicles in a manner that excludes one or more vehicles or results in a disproportionate allocation based
on factors or criteria that we determine. Moreover, the challenge of allocating investment opportunities to certain
vehicles and managing any conflicts of interest may be exacerbated as we expand our business to include more lines
of business, including as we increasingly undertake business initiatives to increase the number and types of
investment products and vehicles we offer to individual investors;
• Conflicts of interest may arise between one or more investment vehicles, on one hand, and our firm or our balance
sheet assets (including through our Strategic Holdings business), on the other, with respect to the purchase or sale of
investments or the allocation of such opportunities, the structuring or exercise of rights with respect to investments,
and the advice we provide to our investment vehicles (including our insurance subsidiaries);
• We or our investment vehicles may invest in a portfolio company that is a competitor, service provider, supplier,
customer, or other kind of counterparty with respect to a portfolio company in which we or another investment
vehicle hold an investment;
• We are required to act in the best interests of our funds, and so we may take actions that favor the interests of our
funds over our own, which could result in less investment or other income for us; e.g., we may structure an
investment in a manner that may be attractive to investment vehicle investors from a tax perspective even though
we would be required to pay corporate taxes;
• We are required to allocate investment opportunities among investment vehicles that may have overlapping
investment objectives, which may result in investments being allocated to investment vehicles that are less
profitable for us;
• A dispute may arise between us and the portfolio companies of the funds we manage, and the investors in the funds
we manage may be dissatisfied with our handling of such dispute;
• A decision to pursue an investment opportunity for a particular investment vehicle (or our own account) may result
in our having to restrict the ability of other investment vehicles (or our own account), e.g., the acquisition of
maternal non-public information about a company may preclude other investment opportunities that could be
available with respect to the securities of such company, or the acquisition of a company could give rise to antitrust
or other regulatory restrictions that prevent, prohibit or restrict similar investment opportunities for other
investment vehicles or portfolio companies;
• Our employees have made personal investments in a variety of our investment vehicles typically on a no-fee, no-
carry basis, which may result in conflicts of interest with the investors of our investment vehicles with respect
investment decisions for these investment vehicles;
• Our entitlement to receive carried interest from many of our investment vehicles may create an incentive for us to
make riskier and more speculative investments on behalf of an investment vehicle than would be the case in the
absence of such an arrangement; in addition, investments must be held for more than three years under U.S. tax
laws for carried interest to be treated for U.S. federal income tax purposes as long-term capital gain, which may
create a conflict of interest between the limited partner investors (whose investments would receive such long-term
capital gain treatment after a holding period of only one year) and us as the general partner on the execution, closing
or timing of sales of investments;65Table of Contents
• From time to time, one of our funds or other investment vehicles (including CLOs) may seek to effect a purchase or
sale of an investment with one or more of our other funds or other investment vehicles in a so-called cross
transaction under U.S. securities laws, or we as a principal may seek to effect a purchase or sale of our investment
with one or more of our funds or other investment vehicles in a so-called principal transaction under U.S. securities
laws;
• We own or control service providers that provide services to our investment vehicles or their investments, which
could give rise to a number of claims of conflicts of interest, including that such service provider is being
unnecessarily engaged or is being engaged at rates or terms that are no on an arms-length arrangement or that
payments by such investment vehicles or investment unfairly benefit us;
• Our investment vehicles invest in a broad range of asset classes throughout the corporate capital structure. In certain
cases, we or our investment vehicles may invest in different parts of the same company’s capital structure, and the
interests of KKR and our investment vehicles may not always be aligned, which could create actual or potential
conflicts of interest or the appearance of such conflicts. We may also cause different funds that we manage to
purchase different classes of securities in the same portfolio company. For example, one of our CLO funds could
acquire a debt security issued by the same company in which one of our private equity funds owns common equity
securities. A direct conflict of interest could arise between the debt holders and the equity holders if such a company
were to become financially distressed; and
• We may also invest, or cause different investment vehicles to invest, in a single portfolio company, for example,
where the investment vehicle that made an initial investment no longer has capital available to invest. We may also
establish other investment vehicles, which we refer to as “continuation vehicles”, for the purpose of purchasing one
or more investments from us or one or more of our other investment vehicles. In such circumstances, we are acting
on behalf of, and making the investment decision for each of the entities involved in the relevant transaction.
Allocating investment opportunities frequently involves significant and subjective judgments. The risk that investors in
our investment vehicles or regulators could challenge allocation decisions as inconsistent with our obligations under
applicable law, governing fund agreements, or our own policies cannot be eliminated. Moreover, the perception of
noncompliance with such requirements or policies could harm our reputation with investors in our investment vehicles. An
investment adviser’s conflicts of interest continue to be a significant area of focus for investors, regulators, and the media.
Because of our size and the variety of businesses and investment strategies that we pursue, we may face a higher degree of
scrutiny compared with investment advisers that are smaller or focus on fewer asset classes. Investors and potential investors
in our different types of investment vehicles, including those designed either primarily for institutional investors or individual
investors, may scrutinize any perceived conflict of interest between allocation decisions for institutional investment vehicles
on the one hand and individual investment vehicles on the other hand and may decide not to invest with us if they do not
agree with how we address potential conflicts of interest and allocation decisions. Any steps taken by a regulator to preclude
or limit certain conflicts of interest could make it more difficult for our investment vehicles to pursue transactions that may
otherwise be attractive to their investors.
While we will try to mitigate these conflicts of interests, we may be unsuccessful in such mitigation efforts, or we may be
obliged to take an action or refrain from taking an action that would be disadvantageous to us as a firm. Certain policies and
procedures implemented to mitigate potential conflicts of interest and address certain regulatory requirements may reduce
the synergies across our various businesses as we have multiple business lines and regulated affiliates subject to different
regulations pertaining to conflicts of interest. As a consequence of such policies and procedures, we may be precluded from
providing such information or other ideas to our other businesses even where it might be of benefit to them. Our failure to
mitigate successfully a conflict of interest could result in a violation of our obligations under applicable governing documents
or applicable law, giving raise to potential challenges or litigation by our fund investors or regulators. In addition, our
regulators may decide to preclude or limit certain conflicts of interest could make it more difficult for our investment vehicles
to pursue transactions that may otherwise be attractive to their investors. To the extent we are unable to effectively manage
these conflicts of interest, our reputation, business and financial results may be adversely affected, including as a result of any
regulatory scrutiny or litigation in connection with any conflicts of interest. For more information about these regulatory risks
and litigation risks, please see “—Risks Related to Regulatory Matters” and “—Risks Related to Our Business—We may suffer
material harm as a result of legal claims, litigations, investigations, and negative publicity”.
If our third-party investors fail to fund their capital calls when requested by us, it may materially and
adversely affect us.
Investors in our funds and certain other investment vehicles make capital commitments that our funds and other
investment vehicles are entitled to call from those investors at any time during prescribed periods. These investors fulfilling
their commitments is necessary in order for such investment vehicles to consummate investments and otherwise pay their66Table of Contents
obligations when due. Although investors that do not fund a capital call would generally be subject to several possible
penalties, the impact of the penalty may not be sufficient to deter investors from defaulting on their commitments, and
investors may in the future negotiate for lesser or reduced penalties at the outset of the investment vehicle, thereby
inhibiting our ability to enforce the funding of a capital call. In addition, an investor may be prohibited from funding capital
commitments for any number of regulatory reasons, including for example, those described in “—Risks Related to Regulatory
Matters—Financial crime laws may limit our investment and capital raising activities and subject us to adverse regulatory
consequences”. The failure to fund capital commitments may have a material adverse effect on our funds or other
investment vehicles’ ability to complete an investment, which in turn could have a material adverse effect on the funds or
other investment vehicles, including becoming potentially subject to contractual or other liabilities for the failure to fund or
lose the investment. In addition, we may choose to, or become obligated to pay, such shortfalls in the capital needed to fund
an investment, which could materially adversely affect our liquidity, or we may sustain reputational harm, which could
negatively impact ability to compete for investment opportunities. In addition, negative impacts to our reputation could
impact our ability to raise successor or other investment funds, which could negatively impact our AUM and ability to grow
our business.
Risks Related to our Insurance Activities
Through Global Atlantic, we operate an insurance business, which is subject to material risks and uncertainties that are
different from, and incremental to, the risks relating to our asset management business or our management of our insurance
subsidiaries’ investments. All the risks discussed below relating to Global Atlantic could materially and adversely impact KKR.
We operate in a highly competitive industry.
Our insurance business operates in highly competitive markets, and in recent years there has been a substantial increase
in competition in the life and annuities business as non-traditional firms, including those owned by or with strategic
partnerships with alternative asset managers, have entered the insurance sector. Traditional insurers and reinsurers have also
been significantly expanding their areas of expertise and product lines, which could have a significant effect on competition in
the insurance industry. These new and traditional competitors may be able to price new business aggressively, with a higher
investment risk tolerance, as part of a strategy to gain market share, or increase assets under management.
Within individual markets, our insurance business faces a variety of large and small industry participants. Large,
established insurers often operate with the benefit of well-known brands, entrenched distribution relationships, or
proprietary distribution. All of these companies compete for individual markets sales. Our flow reinsurance business may also
be impacted by competition among insurers in individual markets. The competitiveness of our insurance product offerings will
depend on the actions of its competitors and our ability to actively manage our insurance product offerings. In institutional
markets, there have been many block reinsurance transactions as many insurers continue to reevaluate their commitment to
business lines and seek reinsurance solutions as a way to de-emphasize or divest non-core businesses, reduce risk, seek
capital relief, or improve profitability. The block reinsurance and pension risk transfer markets are also experiencing
competition due to new entrants, including entrants which have strategic partnerships with alternative asset managers and
entrants based outside of the United States. Increased competition across all of our product offerings may make it more
difficult for us to identify and execute transactions with terms that are commercially acceptable based on our risk tolerance
and target return objectives. Increased competition may also increase regulatory scrutiny of individual or institutional
insurance markets activity.
Additionally, some of our competitors may be subject to less regulation or less regulatory scrutiny and accordingly may
have more flexibility to undertake and execute certain businesses or investments than we do or bear less expense to comply
with such regulations than we do.
We may not be able to identify or manage significant growth opportunities for our insurance business.
While we continue to seek to grow Global Atlantic’s business, particularly overseas, we may not be able to identify
attractive insurance markets, reinsurance opportunities or investments with returns that are as favorable as Global Atlantic’s
historical returns or grow new business volumes at historical levels, or we may face challenges in effectively managing this
growth. To maintain or increase Global Atlantic’s investment returns, it may be necessary to expand the scope of Global
Atlantic’s investing activities to asset classes in which Global Atlantic historically has not invested, which may increase the risk
of Global Atlantic’s investment portfolio. Growth opportunities may also be in new or adjacent product offerings and in new
jurisdictions where Global Atlantic historically has had less or no experience. Pursuing opportunities in these new areas may
subject Global Atlantic to new and complex insurance regulations and business considerations. If Global Atlantic is unable, or
fails, to find or manage profitable growth opportunities, it will be more difficult for it to continue to grow and could materially67Table of Contents
affect us. In addition, if preferences for Global Atlantic’s individual or institutional products change or Global Atlantic is
unable to offer competitive pricing and attractive terms, our revenues and results of operations may be materially and
adversely impacted. Moreover, as an insurance company, Global Atlantic’s ability to grow is dependent on the sufficiency of
its capital base to support that growth. Global Atlantic may need to seek additional capital to manage its growth, and it may
not be able to maintain its current strong capital position as it grows. As Global Atlantic grows, it must invest additional
assets, which poses increased investment risk. Growth may also increase the risk of service problems, and Global Atlantic
may need to expend additional resources to provide consistent service. Any service problems may create potential liability,
including reputational harm or increased scrutiny by regulators.
For more information about management of KKR’s balance sheet and access to sources of liquidity, please see “Risks
Related to Our Business—The failure to effectively manage our balance sheet could materially and adversely affect our
financial condition and results of operations” and “Risks Related to Our Business—The failure to manage, or the inability to
access, adequate sources of liquidity could materially and adversely affect KKR”.
The ability to source successful reinsurance opportunities is not guaranteed.
Global Atlantic’s institutional client business includes block reinsurance transactions, flow reinsurance, pension risk
transfer reinsurance and the issuance of funding agreements. There can be no assurance that these transactions will achieve
the results expected at the time the transactions are executed.
The size and volume of block reinsurance transactions often have and may vary widely quarter-to-quarter and annually.
Similarly, while our insurance business’s flow and PRT transactions, as well as new business volumes relating to these
products, have historically fluctuated less than block transactions, the size and volume of such transactions may also vary
widely period-to-period. Other factors that can cause Global Atlantic’s actual experience to vary from our estimates include
macroeconomic, asset performance, business growth, demographic, policyholder behavior, regulatory and political
conditions. Additionally, to the extent Global Atlantic is unable to consummate suitable reinsurance transaction opportunities
on acceptable terms, its future growth may be negatively impacted. Competition, in particular with respect to transaction
pricing, makes it more difficult to identify transactions with commercially acceptable terms.
Even if Global Atlantic does find suitable opportunities, it may not be able to consummate these transactions because of
the applicable regulatory requirements and approvals, or other considerations, including various insurance regulators
scrutinizing asset-intensive funded reinsurance. For example, the NAIC recently adopted a requirement for life insurers that
engage in certain reserve-financing or asset-intensive reinsurance treaties to perform robust asset adequacy testing on ceded
blocks.
Moreover, there can be no assurance that Global Atlantic will have sufficient capital available, or that such capital will be
available in the necessary entities, to continue growing this part of its business. Global Atlantic sponsors co-invest vehicles
that raise third-party capital to participate alongside Global Atlantic through reinsurance in certain insurance business which
Global Atlantic writes during the co-invest vehicles’ investment periods. Because these co-invest vehicles are commitment-
based structures with third-party investors, Global Atlantic is subject to the risk that certain co-invest vehicles fail or refuse to
fund their portion of a particular transaction, in which case Global Atlantic would have contractual remedies against the
defaulting co-invest vehicles, but not directly against their shareholders or lenders. Global Atlantic is also subject to the risk
that its co-invest vehicles fail to meet their obligations under their reinsurance arrangements with Global Atlantic. Global
Atlantic may seek business or investment opportunities that may not align with the investment mandates of these co-
investment vehicles, requiring Global Atlantic to find alternate sources of capital or not pursue any such opportunities, which
may impact Global Atlantic’s financial results. If Global Atlantic enters into a reinsurance transaction, there can be no
assurance that the transaction will achieve the results expected at the time the transaction is executed. Any transaction’s
terms are likely to be determined by qualitative and quantitative factors, including our estimates. These transactions expose
us to the risk that actual results materially differ from those estimates. Factors that can cause Global Atlantic’s actual
experience to vary from its estimates include macroeconomic, asset performance, business growth, demographic,
policyholder behavior, regulatory and political conditions.
As a result of any of the foregoing risks, Global Atlantic may realize materially less than the anticipated financial benefits
from reinsurance transactions, or Global Atlantic’s reinsurance transactions may be unprofitable or result in losses.68Table of Contents
Volatile market and economic conditions, including sustained increases or decreases in interest rates
and other interest rate fluctuations, may adversely affect our insurance business.
Global Atlantic’s business model depends on the performance of its investments to meet its policyholder liabilities. Global
Atlantic’s policyholder liabilities are sensitive to changing market and economic conditions. Periods of significant and
sustained downturns in securities markets, increased equity volatility, reduced interest rates, or deviations in expected
policyholder behavior could cause a number of different materially adverse impacts to us, including an increase in the
valuation of our liabilities, the cost of providing policy benefits and required capital, and a reduction in the account balances
of certain products, with a resulting reduction in fees earned on and profitability of such products. In times of difficult market
and economic conditions, Global Atlantic’s policyholders may choose to defer paying insurance premiums, stop paying
insurance premiums altogether or surrender their policies, or there could be an elevated rate of defaults within certain of
Global Atlantic’s investments. In addition, actual or perceived difficult conditions in the capital markets may discourage
individuals from making investment decisions and purchasing Global Atlantic’s products. The estimated cost of providing
guaranteed minimum withdrawal and death benefits of certain insurance products requires Global Atlantic to make various
assumptions about the overall performance of equity markets over the life of the product. Therefore, significant declines in
equity markets could cause Global Atlantic to incur significant operating losses and capital increases to the extent our risk
management techniques employed to manage these uncertainties are not adequate.
Interest rate risk is a particularly significant market risk for our insurance business. Fluctuations in market interest rates
can expose Global Atlantic to the risk of reduced income in respect of its investment portfolio, increases in the cost of
acquiring or maintaining its insurance liabilities, increases in the cost of hedging, or other fluctuations in Global Atlantic’s
financial, capital and operating profile. This risk arises from Global Atlantic’s holdings in interest rate-sensitive assets and
liabilities, which include annuity products and long-duration life insurance policies, derivative contracts with payments linked
to the level of interest rates or with market values which fluctuate based on the level of interest rates, as well as the fixed
income assets Global Atlantic owns in its investment portfolio. Global Atlantic seeks to cash-flow match its invested assets to
its policy liabilities and greater market volatility and uncertainty makes matching more difficult. If Global Atlantic fails to
adequately cash flow match liabilities sold with higher benefits and interest rates fall while Global Atlantic holds that liability,
Global Atlantic may not generate its expected earnings on those liabilities and may face the risk of having to reinvest in lower-
yielding assets, thereby reducing its investment income.
Both rising and declining interest rates can negatively affect our insurance business. This risk is present across most of
Global Atlantic’s insurance products, which can typically be surrendered for the cash value, less any applicable surrender
charge, at any time. Higher interest rates may result in increased surrenders on interest-sensitive products, such as annuity
contracts and certain life insurance policies, as policyholders seek higher investment returns elsewhere. This increase in
surrender outflows may create cash flow mismatches between cash received from Global Atlantic’s investments versus cash
needed to make policyholder liability payments as policyholders may surrender in higher numbers than expected. This
mismatch could result in losses if assets must be liquidated at a loss to meet the increased policyholder obligations, which
could result in potentially significant realized losses and a corresponding reduction in net income. Global Atlantic has and
may from time to time rotate its investment portfolio, including in connection with a new reinsurance transaction or in
connection with its insurance portfolio management, to achieve its desired asset mix. See “—Risks Related to Our Business—
We may pursue new business opportunities, strategic initiatives, or investment opportunities that involve new or unique
business, regulatory or other complexities and risks” for further information pertaining to this strategic initiative of Global
Atlantic. Sales of investments in a higher rate environment than when the investment was made is expected to result in an
investment loss, and such loss may be significant. Sales of investments at a loss in those scenarios has decreased, and would
be expected to decrease, our net income in that period, and such decreases can be significant. Additionally, during a higher
interest rate environment the cost of insurance on new business is generally expected to be elevated, including higher
hedging costs, as benefits to policyholders on new business will generally be higher.
In addition, Global Atlantic expects that substantially all of its unrealized losses will not be realized as it typically intends
to hold investments until recovery of the losses, which may be at maturity, as part of its asset liability cash-flow matching
strategy. However, Global Atlantic may be required to recognize an impairment to goodwill and may realize losses as a result
of credit defaults or impairments on investments. An increase in surrenders or withdrawals also may cause Global Atlantic to
accelerate the amortization of certain costs and depreciation of certain assets. During periods of falling or lower interest
rates, Global Atlantic may also face cash flow mismatches between interest earned on its investment portfolio and policy
liabilities that may be crediting higher rates. When rates decline more policyholders might hold onto their products with
higher pre-existing crediting rates for longer than expected because those products seem more attractive, and Global
Atlantic’s ability to lower crediting rates is subject to several constraints. Prolonged periods of low interest rates could
challenge product development and attractiveness and may also result in Global Atlantic earning lower margins on new
business volumes than it has historically earned. Lower interest rates may reduce the demand for Global Atlantic’s insurance69Table of Contents
products, leading to lower sales, and may make the reinsurance solutions Global Atlantic is able to offer more expensive to
potential clients. In a period of declining or lower interest rates, Global Atlantic’s investment earnings may decline because
existing investments may prepay or refinance and new investments will likely bear lower interest rates, and Global Atlantic
may not be able to fully offset the decline in investment earnings with lower liability costs on the products these investments
support. In addition, the yield on Global Atlantic’s floating rate assets will decline as interest rates decline, reducing Global
Atlantic’s investment income.
During these periods, existing life insurance and annuity products also may be relatively more attractive to consumers
due to minimum guarantees, resulting in a higher percentage of contracts remaining in force than originally estimated,
causing greater claims costs and asset/liability cash flow mismatches. Conversely, management actions to reduce rates on in-
force contracts in response to declining interest rates may result in greater surrenders than originally estimated, which may
adversely affect Global Atlantic’s earnings related to those products.
Additionally, to the extent that changes in market conditions, including changes to interest rates and net spreads, cause
the cost of our financing to increase relative to the income that can be derived from the assets acquired or financed, our
ability to generate returns on these assets would be reduced and, therefore, we may limit the volume of new originations.
While we hedge certain market risks, hedges will not mitigate all risk, and we do not hedge all risks. Moreover, market
conditions can result in significant variations in margin or collateral posting requirements for our hedges. Increases in
collateral requirements could be material and have an adverse effect on our financial condition, results of operations, liquidity
or cash flows.
The disruption of our third-party distribution network may have a material adverse effect on us.
Global Atlantic uses third-party intermediaries to distribute its retirement and preneed business products to individuals.
Global Atlantic’s distribution partners are not captive and may sell retirement and life insurance products of Global Atlantic’s
competitors. If Global Atlantic’s competitors have more attractive insurance products than Global Atlantic, these
representatives may concentrate their efforts in selling Global Atlantic’s competitors’ products. If Global Atlantic’s products
are not retained on or added to the platforms of its distribution partners, sales of Global Atlantic’s products may be materially
reduced.
Key distribution partners, such as banks and broker-dealers, may change their business models in ways that affect how
Global Atlantic’s products are sold, or terminate their distribution contracts with Global Atlantic, or new distribution channels
could emerge and adversely impact the effectiveness of Global Atlantic’s distribution efforts.
Distribution partners may also stop offering one or more of Global Atlantic’s products for a variety of other reasons.
Some of Global Atlantic’s distribution partners and potential distribution partners use proprietary or third-party scoring
systems in determining which products to sell. If Global Atlantic’s scores fall to levels unacceptable to its distribution
partners, they may no longer distribute Global Atlantic’s products to their customers. If any one of such distribution partners
were to terminate its relationship with Global Atlantic or reduce the amount of sales which it produces, our insurance
business would likely be adversely affected.
In our insurance sales, even though conducted through a distribution partner, Global Atlantic is responsible under
insurance regulations for the sales practices used by the distribution partner. In addition, even when the distribution partner
conducts the review of whether a product is suitable for the individual, if such review is required, Global Atlantic is
responsible under insurance regulations for the suitability review. Any improper practices by such distribution partners will
subject Global Atlantic to reputational harm, regulatory scrutiny, and potential regulatory actions and penalties.
If the assumptions and estimates used for our insurance business differ significantly from our actual
results, we may experience significant losses.
GAAP requires the application of accounting guidance and policies that often involve a significant degree of judgment
when accounting for insurance products. These accounting estimates require the use of assumptions, some of which are
highly uncertain at the time of estimation. These estimates and are based on judgment, current facts and circumstances and,
when applicable, internally developed models. Therefore, actual results could differ from these estimates, possibly in the
near term, and could have a material adverse effect on our financial statements. These include assumptions and estimates
related to, among other things, policyholder behavior, including surrenders, lapses, longevity, mortality and morbidity, and
economic factors, including interest rates and equity markets. Inaccuracies could result in, among other things, an increase in
policyholder benefit reserves which would result in a charge to earnings or other material adjustments to our financial
statements. Additionally, the potential for unforeseen developments, including changes in laws, regulations or accounting70Table of Contents
standards, may result in losses and loss expenses materially different from the reserves initially established, which could also
materially and adversely impact Global Atlantic’s business, financial condition, results of operations and prospects.
In addition, Global Atlantic employs models to price products, calculate reserves and value assets, as well as to evaluate
risk and determine internal capital requirements, among other uses. These models rely on estimates and projections that are
inherently uncertain, may use incomplete, outdated or incorrect data or assumptions and may not operate properly. As we
continue to expand and evolve our insurance business, the number and complexity of models Global Atlantic employs has
grown, increasing exposure to error in the design, implementation or use of models, including the associated data input,
controls and assumptions, and the controls in place to mitigate their risk may not be effective in all cases. While we
periodically review the adequacy of Global Atlantic’s reserves and the assumptions underlying those reserves at least
annually, we cannot precisely determine the amounts that Global Atlantic will pay for, or the timing of payment of, actual
benefits, claims and expenses or whether the assets supporting policy liabilities, together with future premiums, will grow to
the level assumed prior to the payment of benefits or claims. As a result, future experience could deviate significantly from
our assumptions. If actual experience differs significantly from assumptions or estimates, certain balances included in Global
Atlantic’s balance sheet may not be adequate. If we conclude that Global Atlantic’s reserves, together with future premiums,
are insufficient to cover future policy benefits and claims, Global Atlantic would be required to increase its reserves and incur
income statement charges for the period in which it makes the determination, which could have a material adverse effect on
us. Changes in regulations relating to reserves may cause fluctuations to the amount of statutory reserves held and could
adversely impact our insurance business. The NAIC has adopted a new actuarial guideline relating to reinsurance reserves
that could result in a determination that increased reserves are advisable. There can be no guarantee as to the impact of
changes to reserves on Global Atlantic.
Furthermore, significant estimates and assumptions are required to establish and amortize the significant costs our
insurance business incurs in connection with acquiring new and renewal insurance business. Global Atlantic periodically
revises the key assumptions used in the calculation of the amortization of these costs; however, there is a significant level of
discretion exercised in making these determinations. To the extent policy or contract terminations exceed projected levels or
if key assumptions are revised, then the amortization of deferred revenues and expenses will be accelerated in the period of
the change and will result in a charge to income, which could have a material adverse effect on Global Atlantic’s profitability.
Furthermore, the determination of the amount of impairments and allowances for credit losses is based upon our
periodic evaluation and assessment of known and inherent risks associated with the respective asset class and the specific
investment being reviewed. Changes in allowances for credit losses can result in either a charge or credit to earnings. The
assessment of whether impairments have occurred is based on a case-by-case evaluation of the underlying reasons for the
decline in fair value. There can be no assurance that we have accurately assessed the level of impairments taken in our
financial statements and their potential impact on Global Atlantic’s regulatory capital. Furthermore, additional impairments
and allowance provisions may be taken in the future, which could have a material adverse effect on us.
If the ratings of our insurance subsidiaries are downgraded, it may materially and adversely affect our
ability to sell our products, conduct our business, raise equity or issue debt.
Financial strength ratings are published by various nationally recognized statistical rating organizations (“NRSROs”) and
similar entities not formally recognized as NRSROs. Rating organizations periodically review the financial performance, capital
adequacy and condition of insurers, including Global Atlantic’s insurance and reinsurance subsidiaries. Rating agencies also
consider general economic conditions and other circumstances outside the rated company’s control in assigning a rating. The
various rating agencies periodically review and may modify their standards, established guidelines and capital models from
time to time.
Global Atlantic’s clients and counterparties use Global Atlantic’s insurance financial strength ratings as one source to
assess its financial strength and quality. Downgrades in Global Atlantic’s credit ratings or changes to its rating outlook, or
downgrades or changes in outlook to the financial strength ratings of Global Atlantic’s insurance subsidiaries, could have a
material adverse effect on our insurance business in many ways, including by:
• limiting access to distributors;
• limiting or preventing Global Atlantic’s ability to write new insurance policies and generate new business volumes;
• decreasing profitability;
• increasing policy lapse activity;
• limiting access to capital markets and potentially increasing the cost of debt, which could adversely affect liquidity;
• increasing regulatory scrutiny;71Table of Contents
• adversely affecting the pricing terms Global Atlantic can obtain; and
• triggering contractual clauses that permit the counterparty to terminate or require posting of additional collateral.
In addition, failure by Global Atlantic to maintain minimum RBC ratio requirements in certain contracts could permit the
counterparty to terminate the contract, recapture business or require posting of additional collateral.
In order to maintain its current ratings, Global Atlantic could be required to reduce its risk profile by, for example,
reinsuring and/or retroceding some of its business, materially altering its business and sales plans or by raising additional
capital. Any such action could have a material adverse effect on us. There is no guarantee that Global Atlantic will be able to
maintain its ratings in the future or that such ratings will not be withdrawn, and any actions taken by ratings agencies to
downgrade any of our insurance subsidiaries could result in a material adverse effect on us.
Our insurance business faces risks associated with business we cede to other reinsurers as well as
business ceded to us.
As part of Global Atlantic’s overall risk management strategy, it cedes business to other insurance companies through
reinsurance. Global Atlantic’s inability to collect from its reinsurers (including reinsurance clients in transactions where Global
Atlantic reinsures business net of ceded reinsurance) on its reinsurance claims could have a material adverse effect on us.
Although reinsurers are liable to Global Atlantic to the extent of the reinsurance coverage it acquires, Global Atlantic remains
primarily liable as the direct insurer on all risks that it writes. Global Atlantic’s reinsurance agreements do not eliminate its
obligation to pay claims. As a result, Global Atlantic is subject to the risk that it may not recover amounts due from reinsurers.
A reinsurer’s insolvency, or its inability or unwillingness to make payments due to Global Atlantic under the terms of the
relevant reinsurance agreements, could have a material adverse effect on us.
Global Atlantic also bears the risk that the companies that reinsure its mortality risk on a yearly renewable term increase
the premiums they charge to levels Global Atlantic deems unacceptable. If that occurs, Global Atlantic will either need to pay
such increased premiums, or alternatively, Global Atlantic will need to limit or potentially terminate reinsurance, which will
increase the risks that Global Atlantic retains. Conversely, certain of our insurance subsidiaries assume liabilities from other
insurance companies. Changes in the ratings, creditworthiness or market perception of such ceding companies or in the
administration of policies reinsured to Global Atlantic could cause policyholders of contracts reinsured to Global Atlantic to
surrender or lapse their policies in unexpected amounts. In addition, to the extent such ceding companies do not perform
their obligations under the relevant reinsurance agreements, Global Atlantic may not achieve the results intended and could
suffer unexpected losses. Certain reinsurance transactions require additional operational support, administration, regulatory
filings and compliance with jurisdiction-specific laws and regulations, subjecting Global Atlantic to additional scrutiny and
risks. These risks could materially and adversely affect us.
Additionally, certain of Global Atlantic’s reinsurance agreements contain triggers that, if breached, may result in the
ceding company having the right to recapture the reinsured business (i.e., by reassuming under certain circumstances all or a
portion of the risk previously ceded to Global Atlantic) or terminate the reinsurance agreement with respect to new business.
Conversely, for reinsurance transactions in which the ceding company cedes all or a portion of the risk to Global Atlantic,
Global Atlantic’s reinsurance agreements typically include a recapture right that is triggered if, for example, Global Atlantic
fails to maintain certain minimum levels of capitalization or certain minimum levels of reserves to support the business
reinsured. These reinsurance agreements may include provisions that provide for termination of the agreement and
recapture of the business upon the occurrence of insolvency, rehabilitation, reduction in regulatory capital below specified
levels, non-payment of amounts due, material breach of contract provisions or failure to provide the ceding company with the
ability to take reserve credit. Global Atlantic may recapture liabilities it intended to reinsure off its balance sheet and may
require additional capital to back these liabilities. The economic, financial and liquidity impact from the loss of the recaptured
business, in addition to Global Atlantic’s economic hardships at the time of recapture, may have a material adverse effect on
us.
In addition, if Global Atlantic assumes liability for policyholder servicing in reinsurance transactions and the reinsured
polices are not properly serviced, Global Atlantic may experience regulatory intervention, litigation or other adverse impacts.
For example, in the past, Global Atlantic experienced policyholder and agent class action litigation matters and a number of
regulatory matters stemming from service disruptions caused by a third-party administrator for life insurance policies.
Additionally, Global Atlantic holds a significant portion of its reinsurance assets in trust, which may restrict Global
Atlantic’s ability to invest those assets or to use such assets to support our liquidity needs for other purposes and also may
permit the ceding company to withdraw those assets from the trust in certain circumstances.72Table of Contents
Changes in tax laws or an adverse interpretation by tax authorities may adversely impact our
insurance business.
Unless the context otherwise requires, the term “Bermuda insurance subsidiaries” refers to Global Atlantic Assurance
Limited. “GAFL” refers to Global Atlantic Financial Limited, which, before January 2, 2024, was a Bermuda exempted
company. On April 1, 2016, Global Atlantic completed a reorganization of GAFL (the “GAFL Reorganization”). Because of the
GAFL Reorganization, Section 7874 limits the ability of Global Atlantic's U.S. holding company and its U.S. affiliates to utilize
certain U.S. tax attributes to offset, during the ten-year period following the GAFL Reorganization, their U.S. taxable income,
or related income tax liability, resulting from certain transfers of stock or other properties and certain income received or
accrued by reason of a license of any property by Global Atlantic's U.S. holding company and its U.S. affiliates. Effective
January 2, 2024, GAFL continued its corporate existence as a Delaware company, changing its name to Global Atlantic Limited
(Delaware). The IRS may successfully challenge GAFL’s status as a non-U.S. corporation for U.S. federal income tax purposes
before January 2, 2024. Under U.S. federal income tax law, a corporation is generally considered a tax resident of the
jurisdiction of its organization or incorporation. Because GAFL was a Bermuda-incorporated exempted entity before January
2, 2024, it would generally be classified as a non-U.S. corporation and non-U.S. tax resident for periods before 2024. Section
7874 of the Code (“Section 7874”) provides an exception to this rule under which a non-U.S. incorporated entity may, in
certain circumstances, be treated as a U.S. corporation for U.S. federal income tax purposes. Section 7874 is complex with
limited guidance regarding its application. There can be no assurance that the IRS will agree that GAFL should not be treated
as a U.S. corporation for periods before 2024. If for such periods GAFL were to be treated as a U.S. corporation for USFIT
purposes, GAFL would be subject to substantial additional historic USFIT liability, which could adversely affect us. While Global
Atlantic has taken steps to mitigate this risk, there can be no assurance that these steps will be successful.
If Global Atlantic was, or our non-U.S. insurance subsidiaries are or were, engaged in trade or business within the U.S.
(“ETB”) and subject to U.S. federal income tax, we could be materially and adversely affected. Certain Global Atlantic
subsidiaries are non-U.S. companies treated as corporations for USFIT purposes. Prior to 2024, the Bermuda insurance
subsidiaries and GAFL have conducted, and the insurance subsidiaries intend to conduct, substantially all operations outside
the U.S. and to limit their U.S. contacts with the intention that the Bermuda insurance subsidiaries not be treated as ETB.
Considerable uncertainty exists as to when a non-U.S. corporation is ETB. There can be no assurance that the IRS will not
contend that the Bermuda insurance subsidiaries are or were ETB.
There is U.S. federal income tax risk associated with reinsurance transactions, intercompany transactions and
distributions between U.S. companies and their non-U.S. affiliates, including from the Base Erosion and Anti-Abuse Tax (the
“BEAT”) on certain U.S. companies that make deductible payments to related non-U.S. companies. While we have taken steps
to mitigate the BEAT, there can be no assurance that these steps will be successful. Additionally, the Code permits the IRS to
reallocate, recharacterize, or adjust certain tax items related to a reinsurance agreement between related parties to reflect
the proper “amount, source or character” for each item. Further, the tax treatment of certain aspects of reinsurance ceded to
a non-U.S. reinsurer on a funds withheld coinsurance basis is uncertain. If the IRS were successfully to challenge Global
Atlantic's intercompany reinsurance arrangements between its subsidiaries or Global Atlantic's tax treatment of funds
withheld coinsurance with non-U.S. reinsurers (including our Bermuda insurance subsidiaries), we could be materially and
adversely affected. There are cross-border transactions in place among Global Atlantic's affiliates and non-U.S. third parties,
some of which Global Atlantic treats as loans or swaps for tax purposes. Global Atlantic expects to expand the scope of its
cross-border intercompany transactions in the future. If the IRS successfully challenges any of the foregoing items in this
paragraph or the tax treatment of these transactions, or if a change in law alters the expected tax treatment of such
transactions, we could be materially and adversely affected.
U.S. tax law changes could affect the products our insurance subsidiaries sell. Many such products benefit from tax-
favored statuses under current U.S. federal and state income tax regimes. For example, our insurance subsidiaries sell and
reinsure annuity contracts that allow the policyholders to defer the recognition of taxable income earned within the contract.
Additionally, current U.S. federal tax law permits excluding death benefits paid under life insurance contracts from taxation.
U.S. tax law changes altering the tax benefits or treatment of certain products could materially reduce demand for our
products and unpredictably affect policyholder behavior with respect to existing annuity products. Additionally, changes in
corporate or individual tax rates or the estate tax exclusion could impact the competitiveness of Global Atlantic’s product
pricing or demand, which could adversely affect us.
Bermuda enacted legislation in 2023 implementing a corporate tax aimed at certain multinational enterprises effective
for tax years beginning in 2025. Implementation may be delayed for certain groups for up to five years. The Bermuda
corporate income tax is a flat minimum tax on 15% of reported financial profits and provides for various offsets and credits.
There is uncertainty regarding the implementation of the Bermuda corporate income tax and its application to insurance
companies.73Table of Contents
See Note 18 “Income Taxes” in our financial statements for further information regarding tax matters and “—Risks
Related to Our Business—Changes in relevant tax laws, regulations or treaties or an adverse interpretation of these items by
tax authorities could adversely impact our effective tax rate and tax liability” for discussions of the OECD’s BEPS project.
Our insurance business is heavily regulated, and such regulations may have a material and adverse
effect on our business, financial condition and results of operations.
Our insurance and reinsurance subsidiaries are highly regulated by, among others, insurance regulators in the United
States and Bermuda, and changes in regulations affecting our insurance business may reduce Global Atlantic’s profitability
and limit its growth. The laws and regulations of the jurisdictions in which our insurance and reinsurance subsidiaries are
domiciled or may be deemed commercially domiciled may require these companies to, among other things, maintain
minimum levels of statutory capital, surplus and liquidity, meet solvency standards, submit to periodic examinations of their
financial condition, restrict payments of dividends and distributions of capital, restrict our ability, in certain cases, to write
insurance and reinsurance policies, make certain types of investments and distribute funds, and restrict the type and
concentration of investments that can be made. For example, due to regulatory restrictions on the payment of dividends, our
U.S. insurance subsidiaries may not declare a dividend in 2025 to the corporate parent companies of our insurance business
without prior domiciliary state regulatory approval. Offering new products or offering products in additional jurisdictions will
also subject Global Atlantic to additional regulation and compliance requirements.
With respect to investments, our insurance and reinsurance subsidiaries must comply with applicable regulations and
statutes regarding the type and concentration of investments it may make. Investment-related regulations include limits,
regulatory approvals of affiliate investments, permissible asset classes, capital required and limitations with respect to what
assets or portion of assets may back reserves. These restrictions may limit Global Atlantic’s ability to invest in and our ability
to earn fees on those investments. In addition, our insurance and reinsurance subsidiaries are subject to laws and regulations
governing affiliate transactions. The investment management agreements between our investment manager and our
insurance subsidiaries were approved by the applicable U.S. and Bermuda insurance regulators, and any changes to such
agreements, including with respect to fees, must receive applicable regulatory approval. These regulations may materially and
adversely impact our insurance business’ returns and capital requirements.
In addition, our U.S. insurers are required to be members of state guaranty associations. Guaranty associations subject
insurers to assessments to pay policyholders in the event of another insurer’s insolvency. We cannot predict the amount,
nature or timing of any future guaranty assessments. Any such assessment may be material and have an adverse effect on our
financial condition, results of operations, liquidity or cash flows, and any liability we have previously established for these
assessments may be inadequate. See also “—Risks Related to Regulatory Matters” above. Our Bermuda insurance
subsidiaries and sponsored co-investment vehicles that provide third-party capital to support our insurance business are
licensed to conduct insurance business by the BMA. The BMA regulates and supervises each Bermuda insurer on a stand-
alone basis in Bermuda. The Bermuda Insurance Act and the policies of and other codes issued by the BMA require each of
Bermuda insurer to, among other requirements, maintain a minimum level of capital and surplus, satisfy solvency standards,
comply with conduct guidelines, comply with restrictions on dividends, obtain prior approval or provide notification to the
BMA of changes in controlling interests by a shareholder across prescribed thresholds, make financial statement filings,
prepare a financial condition and risk management report, maintain a head office in Bermuda from which each of our
Bermuda insurance subsidiaries’ insurance business will be directed and managed, and allow for the performance of certain
periodic examinations of its financial condition. These statutes and regulations may restrict Global Atlantic’s ability to write
insurance and reinsurance policies, distribute funds, and pursue its investment strategy.
If our relationships, or our reputation with, various regulatory authorities were to deteriorate, we could be materially and
adversely affected, including by making it more difficult, or impossible, for Global Atlantic to obtain necessary consents and
approvals.
Our insurance business may become subject to additional regulations, which may have material and adverse impact on
our business, financial condition and results of operations.
In addition to the regulations of the jurisdictions where our insurance subsidiaries are domiciled or may be deemed
commercially domiciled, Global Atlantic insurers also must obtain licenses to write insurance in other states and jurisdictions.
Our insurers follow operational guidelines designed to prevent conducting insurance business that requires a license in a
jurisdiction where the insurer is not licensed. Our non-U.S. insurance subsidiaries have and may obtain certified reinsurer and
reciprocal jurisdiction reinsurer status in various U.S. states. Most state regulatory authorities are granted broad discretion in
connection with their decisions to grant, renew or revoke licenses and approvals that are subject to state statutes. If Global
Atlantic is unable to renew the requisite licenses and obtain the necessary approvals or otherwise does not comply with74Table of Contents
applicable regulatory requirements, the insurance regulatory authorities could stop, or temporarily suspend, Global Atlantic
from conducting some or all of its operations as well as impose fines. We may also need to seek new licensing, which could
subject our insurers to additional or new regulations. In addition, if one of our non-U.S. insurers does not receive an annual
renewal of its reciprocal jurisdiction reinsurer status, it will be required to post additional collateral, which will have a
negative effect on us and our financial condition.
Furthermore, as Global Atlantic seeks to expand its business outside of the U.S., it may become increasingly exposed to
other applicable regulatory regimes in other jurisdictions, which may be extensive, complex and varied. As a result, any
future overseas expansion of Global Atlantic’s business would subject us to additional regulatory risk, potential litigation, and
increased compliance costs, and creates potential for additional liabilities and penalties.
Insurance regulations are subject to change, and such changes may have a material and adverse impact on our
business, financial condition and results of operations.
Regulators continuously consider changes to insurance regulations. Since insurance regulations apply to many aspects of
an insurer’s business, changes in insurance regulation may have a range of impacts on us. In recent years, state insurance
regulators have undertaken a review of the state-based insurance regulatory framework in the United States to bolster their
ability to address concerns stemming from the increasing usage of offshore reinsurance transactions and expanding
allocations to affiliated assets and alternative assets. In addition, some state legislatures have considered or enacted laws
that alter, and in many cases increase, state authority to regulate insurance holding companies and insurance and reinsurance
companies. Regulatory changes have the ability to impact other areas of Global Atlantic’s business as well, including access to
liquidity or ability to write certain products. For example, there has been regulatory scrutiny of insurance companies’ use of
Federal Home Loan Banks for liquidity, as well as of increased issuances of funding agreement backed notes and pension risk
transfer group annuity contracts. We are unable to predict whether, when or in what form and what impact such regulatory
changes will have on our insurance business.
Regulators also continue to propose or adopt sometimes conflicting or overlapping fiduciary rules, best interest standards
and other similar laws and regulations applicable to the sale of retirement and life insurance products, which would generally
require advisers providing investment recommendations to act in the client’s best interest or put the client’s interest ahead of
their own interest. These new and proposed regulations may fundamentally adversely impact the way in which our insurance
products are marketed and offered by its distribution partners. Regulators in enforcement actions and private litigants in
litigation could also find it easier to attempt to extend fiduciary status to, or to claim fiduciary or contractual breach by,
advisors who would not be deemed fiduciaries under current regulations. Such laws and regulations may have a material
adverse impact on our insurance business, including by increasing compliance costs and burdens and restricting our ability to
conduct and grow our insurance business.
Capital regulations applicable to our insurance subsidiaries impose meaningful limitations on our insurance business,
and any changes to them may have a material and adverse impact on our business, financial condition and results of
operations.
Capital regulations applicable to our insurance subsidiaries impose meaningful limitations on our insurance business and
are subject to change. Insurance companies are subject to minimum capital and surplus requirements that vary by the
jurisdiction where the insurance company is domiciled and are generally subject to change over time. The capital regimes in
the United States and Bermuda are different, and regulatory actions to address such differences may result in Global Atlantic
needing to hold more capital. Any failure to meet applicable requirements or minimum statutory capital requirements could
subject Global Atlantic to examination or corrective action by regulators, including limitations on Global Atlantic’s writing
additional business or engaging in finance activities, supervision, receivership or liquidation. The NAIC has recently adopted
and is currently considering a variety of reforms to its RBC framework, which could increase the capital requirements for our
US insurance subsidiaries. RBC is impacted by factors beyond Global Atlantic’s control, such as the federal tax rates and
changes the NAIC from time to time makes to factors used in calculating RBC. A change in the RBC calculation or an increase
in minimum capital requirements may require Global Atlantic to increase its statutory capital levels, which Global Atlantic may
be unable to meet. In addition, the NAIC has adopted changes related to filing exempt status for certain securities or loans,
which generally allows the use of an NRSRO rating for purposes of capital assessment as opposed to requiring review by the
Securities Valuation Office of the NAIC and continues to consider other changes. This change may result in, among other
things, the capital charge treatment of any such investment being less favorable, increasing required capital, and uncertainty
with respect to NAIC ratings of such investments. We cannot predict the likelihood of changes to the capital requirements to
which Global Atlantic is subject, whether such changes will have an impact on RBC ratios, or whether Global Atlantic will need
to raise and hold additional capital in response to such changes and any such changes may have a material adverse effect on75Table of Contents
us. Moreover, the determination of RBC is based on the NAIC designation of the assets in which Global Atlantic invests. NAIC
designation for certain investments depends on the applicable NRSRO rating. If there are changes in an NRSRO’s
methodology, that impacts the rating of a certain type of asset or changes or clarifications to interpretations of such
methodology or related statutory accounting guidance, Global Atlantic’s ability to invest in such assets may be impacted and
Global Atlantic’s investment results may be adversely impacted, or Global Atlantic may need to increase its required capital.
The NAIC has approved Statutory Accounting Principles (“SAP”) for U.S. insurance companies that have been
implemented by the domiciliary states of our U.S. insurance subsidiaries. The NAIC from time to time considers amendments
to the SAP and is currently considering various amendments that impact investment transactions and actuarial reserve
requirements for reinsurance.
In addition, the NAIC Accounting Practices and Procedures Manual provides that U.S. state insurance departments may
permit insurance companies domiciled therein to depart from the SAP by granting them permitted accounting practices.
Global Atlantic makes use of permitted practices and may seek approval to use additional permitted practices in the future.
There is a risk that Global Atlantic may not be able to continue to use a previously granted permitted practice. In addition, we
cannot predict whether or when the insurance departments of the states of domicile of its competitors may permit Global
Atlantic’s competitors to utilize advantageous accounting practices that depart from the SAP, the use of which is not
permitted by the insurance departments of the states of domicile of Global Atlantic’s U.S. insurance subsidiaries. Any change
in the SAP or permitted practices could have a material adverse impact on Global Atlantic.
The BMA continues to review the Bermuda Solvency Capital Requirements (“BSCR”) on an ongoing basis, including to
maintain its equivalency with Solvency II insurance capital requirements. In 2023 and 2024, the BMA issued a series of
consultation papers exploring updates to its Economic Balance Sheet (“EBS”) framework (“EBS Framework”), which is used as
the basis to determine an insurer’s enhanced capital requirement, including updated requirements for reserves, capital,
investments and governance. The BMA has implemented and is in the process of implementing these requirements and could
propose further updates to certain aspects of the EBS Framework. If any such updates materially increase the ECR, it could
materially increase the amount of capital Global Atlantic is required to hold to meet its BSCR and BMA requirements.
Changes to SAP, the EBS Framework or capital models may be complex, require significant resources to implement and
have an impact on our controls, which may be significant. Failure to implement or take appropriate or effective management
actions in response to such changes may have a material adverse impact on us. We can give no assurances that the impacts
of current, proposed or future changes to SAP, EBS Framework, capital models or any components or interpretation thereof,
the grant of permitted accounting practices to Global Atlantic’s competitors or future changes to legal, accounting, capital or
financial regimes will not have a negative impact or material adverse effect on us.
Our Bermuda insurance business is subject to additional regulatory and reputational considerations, which if we do not
properly manage may have a material and adverse impact on our business, financial condition and results of
operations.
The Bermuda insurance and reinsurance regulatory framework is subject to scrutiny from many jurisdictions. As a result
of such scrutiny, the BMA has implemented and imposed additional requirements on the licensed insurance companies it
regulates to achieve equivalence under Solvency II, the solvency regime applicable to the EU insurance sector. The BMA’s
additional requirements resulting from Solvency II equivalence include enhanced solvency and governance requirements
imposed on commercial insurers and reinsurers, including a group solvency framework that could further enhance the
required capital and solvency requirements if the BMA is deemed to be the group regulator. If Solvency II were amended in
any way, Bermuda may be required to amend its regulatory regime to maintain its equivalence under Solvency II, which could
lead to changes in the regulatory regime administered by the BMA.
We cannot provide any assurances that insurance supervisors in the United States or elsewhere will not review Global
Atlantic’s activities and assert that our Bermuda insurance subsidiaries are subject to a U.S. jurisdiction’s requirements. In
addition, our Bermuda insurance subsidiaries’ ability to write reinsurance may be subject, in certain cases, to arrangements
satisfactory to applicable supervisory bodies, as well as other indirect regulatory requirements. Regulatory scrutiny or
proposed legislation and regulations may have the effect of imposing additional requirements upon, or restricting reinsurance
from, U.S. insurers to non-U.S. insurers, particularly between affiliated insurance companies. Reinsurance between our U.S.
and Bermuda insurance subsidiaries is subject to approval by the applicable U.S. domiciliary state insurance department, and
there can be no guarantee such approval will be obtained. Our insurance business could be significantly and negatively
impacted if Global Atlantic had to recapture any reinsured business. If Global Atlantic attempts to license its Bermuda
insurance entities or its sponsored co-investment vehicles that provide third-party capital to support Global Atlantic’s
business in another jurisdiction, Global Atlantic may not be successful in such attempts and the modification of the conduct of
its business or the noncompliance with insurance statutes and regulations could significantly and negatively affect our76Table of Contents
insurance business. See also “—Risks Related to Regulatory Matters—Changes in the regulatory framework applicable to our
business, including the loss of exemptions or the application of enhanced group-level regulation, may materially adversely
affect us”.
If our insurance business fails to mitigate the reserve strain associated with statutory accounting rules,
it may result in a material adverse impact on our insurance subsidiaries’ capital positions or require
increasing prices or reducing sales of certain insurance products.
The application of certain statutory accounting rules for term life insurance policies with long-term premium guarantees
and universal life policies with secondary guarantees requires Global Atlantic to maintain reserves at a level that exceeds what
our insurance subsidiaries’ actuarial assumptions for the applicable business would otherwise require. Global Atlantic has
special purpose financial captive insurance company subsidiaries (“captives”) that facilitate the financing of the redundant
reserve requirements associated with these statutory accounting rules. These arrangements are subject to review by U.S.
state insurance regulators and rating agencies.
It is unclear what additional actions and regulatory changes will result from the continued scrutiny of captive reinsurers
and reform efforts by the NAIC and other regulatory bodies. The NAIC is evaluating changes to accounting rules regarding
surplus notes with linked assets, a structure used in certain captive reserve financing transactions. Further changes in such
statutory accounting rules will likely make it difficult for Global Atlantic to establish new captive financing arrangements on a
basis consistent with its current captives. As a result, the implementation of new captive structures in the future may be less
capital-efficient, may lead to lower product returns or increased product pricing, or may result in reduced sales of certain
products.
Certain of the reserve financing facilities Global Atlantic has put in place will mature prior to the run-off of the liabilities
they support. As a result, Global Atlantic may be unable to implement actions to mitigate the strain of having redundant
reserves or to maintain collateral support for its captives or existing third-party reinsurance arrangements to which one of our
captive reinsurance subsidiaries is a party. If Global Atlantic is unable to continue to implement those actions or maintain
existing collateral support, it may be required to increase statutory reserves, incur higher operating costs or tax costs, and the
competitiveness, capital and financial position and results of operations of our insurance business may be materially and
adversely affected.
Risks Related to Our Organizational Structure
Until the Sunset Date, the Series I preferred stockholder’s significant voting power limits the ability of
holders of our common stock to influence our business, and conflicts of interest may arise among the
Series I preferred stockholder and the holders of our common stock.
The Series I preferred stockholder has significant voting power until the Sunset Date, which limits the ability of holders of
our common stock to influence our business. Our Co-Executive Chairmen, when acting together, jointly control the Series I
preferred stockholder and thereby the vote of the Series I preferred stock held by it.
Until the Sunset Date, the Series I preferred stockholder has the ability to appoint and remove members of our board of
directors and has the right to approve certain corporate actions as specified in our certificate of incorporation. If the holders
of our common stock are dissatisfied with the performance of our board of directors, they have no ability to remove any of
our directors, with or without cause, until after the Sunset Date. Through the Series I preferred stockholder’s ability to elect
our board of directors and its approval rights over certain corporate transactions, the Series I preferred stockholder may be
deemed to control our business and affairs. Prior to the Sunset Date, the vote of the Series I preferred stockholder will
determine the outcome of all matters subject to a vote by our stockholders, except with respect to certain matters
enumerated in our certificate of incorporation as requiring a vote of our common stockholders or as required under NYSE
rules.
Our certificate of incorporation and bylaws also include limitations on the calling of meetings of the stockholders and
procedures for submitting proposals for business to be considered at meetings of the stockholders. In addition, any person
that beneficially acquires 20% or more of any class of stock then outstanding without the consent of our board of directors
(other than the Series I preferred stockholder) is unable to vote such stock on any matter submitted to such stockholders.
In addition, although the affirmative vote of a majority of our directors is required for any action to be taken by our board
of directors, certain actions that are specified in our certificate of incorporation will also require the approval of the Series I77Table of Contents
preferred stockholder. Accordingly, our board of directors may be prevented from causing us to take certain actions if the
Series I preferred stockholder does not provide its approval to any such action, even if the board of directors believes such
action may be in the best interest of us and our stockholders.
By the Sunset Date, we agreed in the Reorganization Agreement to (i) eliminate our Series I preferred stock and (ii)
establish voting rights for our common stock on a one vote per share basis for all matters subject to a common stockholders’
vote under Delaware corporate law, including with respect to the election of directors. For more information about the
transactions contemplated by the Reorganization Agreement, see Note 1 “Organization—Reorganization Agreement” in our
financial statements. For a more detailed description of our common stock and Series I Preferred Stock, see “Description of
Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934,” which is filed as an exhibit to this report.
As a “controlled company,” we qualify for some exemptions from the corporate governance and other
requirements of the NYSE and are not required to comply with certain provisions of U.S. securities
laws.
Prior to the Sunset Date, we are a “controlled company” within the meaning of the corporate governance standards of
the NYSE. As a “controlled company” we have currently elected not to comply with certain corporate governance
requirements of the NYSE, including the requirements: (i) that the listed company have a nominating and corporate
governance committee that is composed entirely of independent directors, (ii) that the listed company have a compensation
committee that is composed entirely of independent directors and (iii) that the compensation committee be required to
consider certain independence factors when engaging compensation consultants, legal counsel and other committee advisers.
Accordingly, holders of our common stock do not currently have the same protections afforded to stockholders of companies
that are subject to all of the corporate governance requirements of the NYSE.
Following the Sunset Date, including after any applicable transition period for compliance with NYSE rules, we will no
longer be exempted from the foregoing corporate governance requirements of the NYSE.
Our certificate of incorporation states that the Series I preferred stockholder is under no obligation to
consider the separate interests of the other stockholders and contains provisions limiting the liability of
the Series I preferred stockholder.
Our certificate of incorporation contains provisions stating that the Series I preferred stockholder is under no obligation
to consider the separate interests of the other stockholders in its decisions and shall not be liable to the other stockholders
for damages or equitable relief for any losses, liabilities or benefits not derived by such stockholders in connection with such
decisions, unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that
the Series I preferred stockholder or its officers and directors acted in bad faith or engaged in fraud or willful misconduct.
These provisions restrict the remedies available to stockholders with respect to actions of the Series I preferred stockholder.
In addition, we have agreed to indemnify the Series I preferred stockholder and its affiliates and any member, partner,
tax matters partner (as defined in Code as in effect prior to 2018), partnership representative (as defined in the Code), officer,
director, employee, agent, fiduciary or trustee of any of KKR or its subsidiaries (which includes KKR Group Partnership), the
Series I preferred stockholder or any of our or the Series I preferred stockholder’s affiliates and certain other indemnitees, to
the fullest extent permitted by law, against any and all losses, claims, damages, liabilities, joint or several, expenses (including
legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts incurred by any such
indemnitee, including in connection with criminal proceedings. We have agreed to provide this indemnification unless there
has been a final and non-appealable judgment by a court of competent jurisdiction determining that such indemnitee acted in
bad faith or engaged in fraud or willful misconduct.
The provision of our certificate of incorporation requiring exclusive venue in the state and federal
courts located in the State of Delaware or federal district courts of the United States for certain types
of lawsuits may have the effect of discouraging lawsuits against us and our directors, officers and
stockholders.
Our certificate of incorporation requires that (i) any derivative action, suit or proceeding brought on behalf of KKR, (ii) any
action, suit or proceeding asserting a claim of breach of a fiduciary duty owed by any current or former director, officer,
employee or stockholder of KKR to KKR or KKR’s stockholders, (iii) any action, suit or proceeding asserting a claim arising
pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws or as to
which the Delaware General Corporation Law confers jurisdiction on the Court of Chancery of the State of Delaware or (iv)78Table of Contents
any action, suit or proceeding asserting a claim governed by the internal affairs doctrine may only be brought in the Court of
Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, the federal district court
located in the State of Delaware. In addition, the federal district courts of the United States are the exclusive forum for the
resolution of any action, suit or proceeding asserting a cause of action arising under the Securities Act and the Exchange Act.
Our ability to pay periodic dividends to the holders of our common stock as intended is not
guaranteed.
We intend to pay cash dividends on a quarterly basis. KKR & Co. Inc. is a holding company and has no material assets
other than the KKR Group Partnership Units that we hold indirectly through wholly-owned subsidiaries and has no
independent means of generating income. The declaration and payment of dividends to our stockholders will be at the sole
discretion of our board of directors, and our dividend policy may be changed at any time. The declaration and payment of
dividends is subject to legal, contractual and regulatory restrictions on the payment of dividends by us or our subsidiaries, and
such other factors as the board of directors considers relevant. Our ability to pay dividends is also subject to the availability of
lawful funds therefor as determined in accordance with the Delaware General Corporation Law. Furthermore, by paying cash
dividends rather than investing that cash in our businesses, we risk slowing the pace of our growth, or not having a sufficient
amount of cash to fund our operations, new investments or unanticipated capital expenditures, should the need arise.
If we were deemed to be an “investment company” subject to regulation under the Investment
Company Act, applicable restrictions could make it impractical for us to continue our business as
contemplated and could have a material adverse effect on our business.
We are engaged primarily in the business of providing investment management services and an insurance business, and
not in the business of investing, reinvesting or trading in securities. Accordingly, we do not believe that we are an “orthodox”
investment company as defined in the Investment Company Act.
In addition, although KKR & Co. Inc. has no material assets other than its indirect ownership of wholly-owned subsidiaries
that in turn own interests in KKR Group Partnership, we do not believe our equity interests in our subsidiaries are investment
securities, and we believe that the capital interests of the general partners of our investment vehicles in their respective
investment vehicles are neither securities nor investment securities. Moreover, we expect that in excess of 65% of Global
Atlantic’s gross income will be derived from our insurance business.
However, a person will generally be deemed to be an investment company for purposes of the Investment Company Act
if (1) it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing,
reinvesting or trading in securities, or (2) absent an applicable exemption, it owns or proposes to acquire investment
securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items)
on an unconsolidated basis. If we, or any of our operating subsidiaries, were to be deemed to an investment company under
the Investment Company Act, then we could experience a material adverse effect. Among other things, the Investment
Company Act and the rules and regulations thereunder limit or prohibit transactions with affiliates, impose limitations on the
issuance of debt and equity securities, generally prohibit the issuance of options and impose certain governance
requirements. If anything were to happen that would cause us to be deemed to be an investment company under the
Investment Company Act, requirements imposed by the Investment Company Act, including limitations on our capital
structure, ability to transact business with affiliates and ability to compensate key employees, would make it impractical for
us to continue our business as currently conducted, impair the agreements and arrangements between and among us, and
materially and adversely affect us. In addition, we may be required to limit the amount of investments that we make as a
principal, potentially divest of our investments or otherwise conduct our business in a manner that does not subject us to the
registration and other requirements of the Investment Company Act.
Our certificate of incorporation provides that if we are subjected to registration under the provisions of the Investment
Company Act, we may exercise our right to call and purchase all of the then outstanding shares of common stock held by
persons other than the Series I preferred stockholder or its affiliates or assign this right to the Series I preferred stockholder or
any of its affiliates.79Table of Contents
Actions taken to implement the reorganization transactions that must occur by the Sunset Date as part
of the integrated transactions committed to in the Reorganization Agreement may adversely impact
us.
Pursuant to the Reorganization Agreement, we committed to undertake a series of integrated transactions, some of
which were completed in May 2022, and some of which must be completed by the Sunset Date, which will occur not later
than December 31, 2026, whereby our Series I preferred stock will be eliminated. Actions taken to implement the remaining
structural and governance changes required by the Reorganization Agreement by the Sunset Date could be disruptive to our
management, our business or operations, result in significant costs and expenses, fail to receive regulatory approvals, and
may not be successful in achieving their objectives and fail to result in the intended or expected benefits, any of which could
materially and adversely impact us. For a description of the rights of our Series I preferred stock see “—Until the Sunset Date,
the Series I preferred stockholder’s significant voting power limits the ability of holders of our common stock to influence our
business, and conflicts of interest may arise among the Series I preferred stockholder and the holders of our common stock”
and for more information about the Reorganization Agreement, see “Note 1 “Organization—Reorganization Agreement” in
our financial statements.
Anti-takeover provisions in our organizational documents may delay or prevent a change of control.
In addition to the provisions related to our Series I preferred stock and Series I preferred stockholder described in this
report, certain provisions in our certificate of incorporation and bylaws may discourage, delay or prevent a merger or
acquisition that a stockholder may consider favorable by, for example:• permitting our board of directors to issue one or more series of preferred stock;• requiring advance notice for stockholder proposals and nominations if at any time stockholders other than the Series
I preferred stockholder are permitted to submit proposals and nominations;
• restricting the ability of any stockholder other than the Series I preferred stockholder that acquires 20% or more of
any class of stock then outstanding to vote such stock without the consent of our board of directors; and• placing limitations on convening stockholder meetings.These provisions may also discourage acquisition proposals or delay or prevent a change in control.
80
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Item 7 · Management's Discussion & Analysis
+3552 paragraphs −1220 paragraphs ~1220 changed
FY 2023-12-31 (earlier)
FY 2025-12-31 (later)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the consolidated financial statements of KKR &
Co. Inc., together with its consolidated subsidiaries, and the related notes included elsewhere in this report. In addition, this
discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including those
described under "Cautionary Note Regarding Forward-looking Statements" and "Risk Factors." Actual results may differ
materially from those contained in any forward-looking statements.Business EnvironmentOur asset management, insurance, and strategic holdings segments are affected by the various market and economic
conditions of the various countries and regions in which we operate. Market and economic conditions are expected to
continue to have a substantial impact on our financial condition, results of operations, and our business in various ways that
we are unable to control, including our ability to make new investments, the valuations of the investments we manage, the
amount of investment proceeds we realize when we exit our investments, the timing for such realization activity, our ability to
fundraise or to sell our various investment and insurance products and services, and the level of our capital markets activities,
as discussed in the "Risk Factors" section of this report.
In 2025, the United States continued to experience economic growth while also continuing to experience inflation in
excess of the U.S. Federal Reserve Board’s 2.0% target rate. The U.S. Federal Reserve Board lowered the target range for the
federal funds rate three times in 2025, including two reductions in the fourth quarter, that brought the target range to
3.50-3.75%. The U.S. Federal Reserve Board in connection with its fourth quarter rate reductions noted that the reduction was
in response to the slowdown in the labor market; however, they maintained a cautious stance as inflation remained
somewhat elevated and above its long-run target.
Real gross domestic product (“GDP”) growth in the Eurozone in 2025 was moderately positive. The European Central
Bank lowered the deposit rate four times in the first half of 2025 to 2.00% as part of a broader easing cycle in response to
downward revisions to inflation expectations. The European Central Bank subsequently held the deposit rate unchanged for
the remainder of 2025 as Eurozone core inflation slowed compared to 2024 and remained close to the European Central
Bank’s 2% medium-term target.
In Asia, Japan’s economy reaccelerated in 2025, supported by resilient exports and consumer spending. The Bank of
Japan continued its gradual monetary policy normalization during 2025, including an increase in its policy rate from 0.25% to
0.75%. In China, the economy grew in 2025 but continued to face significant headwinds, including weak domestic demand,
ongoing contraction in the property sector, and uncertainty relating to ongoing trade tensions with the United States as
discussed further below.Several key economic indicators in the United States and in other countries and regions in which we operate include:• GDP. In the United States, real GDP expanded by 2.2% for the year ended December 31, 2025, compared to an
expansion of 2.8% for the year ended December 31, 2024. Eurozone real GDP is estimated to have expanded by 1.4%
for the year ended December 31, 2025, up from 0.9% expansion for the year ended December 31, 2024. In Japan,
real GDP expanded by 1.1% for the year ended December 31, 2025, up from a 0.2% contraction for the year ended
December 31, 2024. Real GDP in China expanded 5.0% for the year ended December 31, 2025, unchanged from 5.0%
growth reported for the year ended December 31, 2024
• Interest Rates. The target federal funds rate set by the U.S. Federal Reserve Board was 3.625% as of December 31,
2025, down from 4.375% as of December 31, 2024. The benchmark short-term interest rate set by the European
Central Bank was 2.0% as of December 31, 2025, down from 3.00% as of December 31, 2024. The benchmark short-
term interest rate set by the Bank of Japan was 0.75% as of December 31, 2025, up from 0.25% as of December 31,
2024. The benchmark interest rate set by The People’s Bank of China was 3.0% as of December 31, 2025, down from
3.10% as of December 31, 2024.
• Inflation. The U.S. core consumer price index rose 2.6% on a year-over-year basis as of December 31, 2025, down
from 3.2% on a year-over-year basis as of December 31, 2024. Eurozone core inflation was 2.3% as of December 31,
2025, down from 2.7% as of December 31, 2024. In Japan, core inflation rose 1.5% on a year-over-year basis as of
December 31, 2025, down from 1.6% on a year-over-year basis as of December 31, 2024. Core inflation in China was
1.2% on a year-over-year basis as of December 31, 2025, up from 0.4% as of December 31, 2024.
85Table of Contents• Unemployment. The U.S. unemployment rate was 4.4% as of December 31, 2025, up from 4.1% as of December 31,
2024. Eurozone unemployment was 6.3% as of December 31, 2025, unchanged from 6.3% as of December 31, 2024.
The unemployment rate in Japan was 2.6% as of December 31, 2025, up from 2.5% as of December 31, 2024. The
unemployment rate in China was 5.2% as of December 31, 2025, substantially unchanged from 5.1% as of December
31, 2024.
In 2025, the United States equity markets appreciated on a year-over-year basis, with varying volatility throughout the
year, and the U.S. 10-year benchmark treasury yield also fluctuated throughout the year to end at a rate lower at year-end
than at the prior year-end of 2024. Short term interest rates fell as the Federal Reserve lowered benchmark interest rates.
European, Japanese and Chinese equity markets all appreciated on a year-over-year basis.
Several key financial market indicators in the United States and in other countries and regions in which we operate
include:
• Equity Markets. For the year ended December 31, 2025, the S&P 500 was up 17.9%, the MSCI Europe Index was up
36.3%, the MSCI Asia Pacific Index was up 28.7% and the MSCI World Index was up 21.6% in U.S. dollar terms, on a
total return basis including dividends. Equity market volatility as evidenced by the Chicago Board Options Exchange
Market Volatility Index (VIX), a measure of volatility, ended at 15.0 as of December 31, 2025, decreasing from 17.4 as
of December 31, 2024.
• Credit Markets. During the year ended December 31, 2025, U.S. investment grade corporate bond spreads (BofA
Merrill Lynch US Corporate Index) tightened by 3 basis points. The non-investment grade credit indices were up
during the year ended December 31, 2025, with the S&P/LSTA Leveraged Loan Index up 5.9% and the BofAML HY
Master II Index up 8.5%. During the year ended December 31, 2025, the 10-year government bond yields fell 40 basis
points in the United States, rose 49 basis points in Germany, rose 97 basis points in Japan, fell 9 basis points in the
UK, and rose 18 basis points in China.
• Commodity Markets. During the year ended December 31, 2025, the 3-year forward price of WTI crude oil decreased
approximately 7.6%, and the 3-year forward price of natural gas decreased from approximately $4.62 per MMBtu as
of December 31, 2024 to $4.51 per MMBtu as of December 31, 2025. The Japan spot LNG import price decreased to
approximately $11.03 per MMBtu as of December 31, 2025, from approximately $13.82 per MMBtu as of December
31, 2024.
• Foreign Exchange Rates. For the year ended December 31, 2025, the euro rose 13.4%, the British pound rose 7.7%,
the Japanese yen rose 0.3%, and the Chinese renminbi rose 4.5%, respectively, relative to the U.S. dollar.
Beginning in March 2025 and continuing through the date of the filing of this report, the United States and countries
around the world have experienced elevated levels of market volatility and uncertainty driven by, among other things,
geopolitical and global trade concerns, including, the imposition of tariffs and threats of tariffs by the United States on certain
of its trading partners since April 2025. This volatility and uncertainty adds to the various risks and uncertainties in the
business environment in which we operate and may have various impacts, including on the valuations of certain of our and
our investment vehicles' investments, the pace and volume of our capital market transactions, deployments, and realizations,
and our fundraising activities.Other Trends, Uncertainties and Risks Related to Our BusinessPlease refer to the "Risk Factors" section of this report for important additional detail regarding risks, uncertainties, and
other conditions that could have a material favorable or unfavorable impact on our businesses, including the impact of market
and economic conditions on valuations of investments and the impact of competition we face. These risks, uncertainties, and
other conditions should be read in conjunction with this Business Environment section and the entire Risk Factor section of
this report. In particular, see "Risk Factors—Risks Related to Our Business—Global, regional and local events outside of our
control, including geopolitical events and natural disasters, could materially and adversely impact KKR”, “Risk Factors—Risks
Related to Our Investment Activities—Various conditions and events outside of our control that are difficult to quantify or
predict may have a significant impact on the valuation of our investments”, and "Risk Factors—Risks Related to Our Business
—We operate in a highly competitive industry."
86Table of ContentsBasis of Accounting and Key Financial Measures under GAAP
We manage our business using certain financial measures and key operating metrics since we believe these metrics
measure the productivity of our operating activities. We prepare our consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America (“GAAP”). See Note 2 “ Summary of Significant
Accounting Policies” in our financial statements and “—Critical Accounting Policies and Estimates” contained in this section
below. Our key Segment and non-GAAP financial measures and operating metrics are discussed below.Key Segment and Non-GAAP Performance MeasuresThe following key segment and non-GAAP performance measures are used by management in making operational and
resource deployment decisions as well as assessing the performance of KKR's business. They include certain financial
measures that are calculated and presented using methodologies other than in accordance with GAAP. These performance
measures as described below are presented prior to giving effect to the allocation of income (loss) between KKR & Co. Inc.
and holders of exchangeable securities and as such represent the entire KKR business in total. In addition, these performance
measures are presented without giving effect to the consolidation of certain investment funds and collateralized financing
entities ("CFEs") that KKR manages.
We believe that providing these segment and non-GAAP performance measures on a supplemental basis to our GAAP
results is helpful to stockholders in assessing the overall performance of KKR's business. These non-GAAP measures should
not be considered as a substitute for financial measures calculated in accordance with GAAP. Reconciliations of these non-
GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP,
where applicable, are included under "—Segment Balance Sheet Measures—Reconciliations to GAAP Measures."
Adjusted Net Income
Adjusted Net Income ("ANI") is a performance measure of KKR’s earnings, which is derived from KKR’s reported segment
results. ANI is used to assess the performance of KKR’s business operations and measures the earnings potentially available
for distribution to its equity holders or reinvestment into its business . ANI is equal to Total Segment Earnings less Interest
Expense, Net and Other and Income Taxes on Adjusted Earnings. Interest Expense, Net and Other includes (i) interest expense
on debt obligations not attributable to any particular segment and (ii) cumulative dividend expense on the Series D
Mandatory Convertible Preferred Stock, net of interest income earned on cash and short-term investments. Income Taxes on
Adjusted Earnings represents the amount of income taxes that would be paid assuming that all adjusted earnings were
allocated to KKR & Co. Inc. and taxed at the same effective rate, which assumes that all securities exchangeable into shares of
common stock of KKR & Co. Inc. were exchanged. The economic assumptions and methodologies that impact Income taxes on
Adjusted Earnings are similar to those used in calculating the current income tax provision under U.S. GAAP. Equity based
compensation expense is excluded from ANI, because (i) KKR believes that the cost of equity awards granted to employees
does not contribute to the earnings potentially available for distributions to its equity holders or reinvestment into its
business and (ii) excluding this expense makes KKR’s reporting metric more comparable to the corresponding metric
presented by other publicly traded companies in KKR’s industry, which KKR believes enhances an investor’s ability to compare
KKR’s performance to these other companies. Income Taxes on Adjusted Earnings includes the benefit of tax deductions
arising from equity-based compensation, which reduces Income Taxes on Adjusted Earnings during the period. If tax
deductions from equity-based compensation were to be excluded from Income Taxes on Adjusted Earnings, KKR’s ANI would
be lower and KKR’s effective tax rate would appear to be higher, even though a lower amount of income taxes would have
actually been paid or payable during the period. KKR separately discloses the amount of tax deduction from equity-based
compensation for the period reported and the effect of its inclusion in ANI for the period. KKR makes these adjustments when
calculating ANI in order to more accurately reflect the net realized earnings that are expected to be or become available for
distribution to KKR’s equity holders or reinvestment into KKR’s business. However, ANI does not represent and is not used to
calculate actual dividends under KKR’s dividend policy, which is a fixed amount per period, and ANI should not be viewed as a
measure of KKR’s liquidity.
87Table of ContentsTotal Segment Earnings
Total Segment Earnings is a performance measure that KKR believes is useful to stockholders as it provides a
supplemental measure of our operating performance without taking into account items that KKR does not believe arise from
or relate directly to KKR's operations. Total Segment Earnings excludes: (i) equity-based compensation charges, (ii)
amortization of acquired intangibles, and (iii) transaction-related and non-operating items, if any. Transaction-related and
non-operating items primarily arise from corporate actions, which consist of: (i) impairments, (ii) transaction costs from
acquisitions, including any acquisition-related stock consideration, (iii) depreciation on real estate that KKR owns and
occupies, (iv) contingent liabilities, net of any recoveries, (v) certain integration, restructuring, and other non-operating
expenses, and (vi) other gains or charges that affect period-to-period comparability and are not reflective of KKR's ongoing
operational performance. Inter-segment transactions are not eliminated from segment results when management considers
those transactions in assessing the results of the respective segments. These transactions include (i) management fees earned
by our Asset Management segment as the investment adviser for Global Atlantic insurance companies, (ii) management and
performance fees earned by our Asset Management segment for acquiring and managing the companies included in our
Strategic Holdings segment, and (iii) interest income and expense based on lending arrangements where our Asset
Management segment borrows from our Insurance segment. All these inter-segment transactions are recorded by each
segment based on the applicable governing agreements. Additionally, due to the integrated nature of our segment operations
and as part of our strategic capital allocation decisions, inter-segment asset transfers have and may continue to occur. In
these cases in segment reporting, the assets are transferred at their fair value, and no realization is recognized at the time of
transfer. Earnings are recognized upon realization events and transactions with third parties. Total Segment Earnings
represents the total segment earnings of KKR’s Asset Management, Insurance and Strategic Holdings segments.
Asset Management Segment Earnings
Asset management segment earnings is the segment profitability measure used to make operating decisions and to
assess the performance of the Asset Management segment. This measure is presented before income taxes and is comprised
of: (i) Fee Related Earnings, (ii) Realized Performance Income, (iii) Realized Performance Income Compensation, (iv) Realized
Investment Income, and (v) Realized Investment Income Compensation. Asset Management Segment Earnings excludes the
impact of: (i) unrealized gains (losses) on investments, (ii) unrealized carried interest, and (iii) unrealized carried interest
compensation. Management fees earned by KKR as the adviser, manager or sponsor for its investment funds, vehicles and
accounts, including its Global Atlantic insurance companies and Strategic Holdings segment, are included in Asset
Management Segment Earnings.
Insurance Operating Earnings
Insurance Operating Earnings is the segment profitability measure used to make operating decisions and to assess the
performance of the Insurance segment. This measure is presented before income taxes and is comprised of: (i) Net
Investment Income, (ii) Net Cost of Insurance, and (iii) General, Administrative, and Other Expenses. Insurance Operating
Earnings excludes the impact of: (i) investment gains (losses) which include realized gains (losses) related to asset/liability
matching investment strategies and unrealized investment gains (losses) and (ii) non-operating changes in policy liabilities and
derivatives which includes (a) changes in the fair value of market risk benefits and other policy liabilities measured at fair
value and related benefit payments, (b) fees attributed to guaranteed benefits, (c) derivatives used to manage the risks
associated with policy liabilities, and (d) losses at contract issuance on payout annuities. Insurance Operating Earnings
includes (i) realized gains and losses not related to asset/liability matching investment strategies and (ii) the investment
management costs that are earned by our Asset Management segment as the investment adviser of the Global Atlantic
insurance companies.
Strategic Holdings Segment Earnings
Strategic Holdings Segment Earnings is the segment profitability measure used to make operating decisions and to assess
the performance of the Strategic Holdings segment. This measure is presented before income taxes and is comprised of:
Dividends, Net and Net Realized Investment Income. Strategic Holdings Segment Earnings excludes the impact of unrealized
gains (losses) on investments. Strategic Holdings Segment Earnings includes management fees and performance fee expenses
that are earned by the Asset Management segment.
88Table of ContentsFee Related EarningsFee related earnings is a performance measure used to assess the Asset Management segment’s generation of earnings
from revenues that are measured and received on a more recurring basis as compared to KKR’s investing earnings. KKR
believes this measure is useful to stockholders as it provides additional insight into the profitability of our fee generating asset
management and capital markets businesses. FRE equals (i) Management Fees, including fees paid by the Insurance and
Strategic Holdings segments to the Asset Management segment and fees paid by Ivy vehicles and other reinsurance vehicles,
(ii) Transaction and Monitoring Fees, Net and (iii) Fee Related Performance Revenues, less (x) Fee Related Compensation, and
(y) Other Operating Expenses.
Fee Related Performance Revenues refers to the realized portion of performance fees from certain AUM that has an
indefinite term and for which there is no immediate requirement to return invested capital to investors upon the realization
of investments. Fee related performance revenues consists of performance fees (i) expected to be received from our
investment funds, vehicles and accounts on a recurring basis, and (ii) that are not dependent on a realization event involving
investments held by the investment fund, vehicle or account.
Fee Related Compensation refers to the compensation expense, excluding equity-based compensation, paid from (i)
Management Fees, (ii) Transaction and Monitoring Fees, Net, and (iii) Fee Related Performance Revenues.Other Operating Expenses represents the sum of (i) occupancy and related charges and (ii) other operating expenses.Strategic Holdings Operating Earnings
Strategic Holdings Operating Earnings is a performance measure used to assess the firm’s earnings from companies and
businesses reported through its Strategic Holdings segment. Strategic Holdings Operating Earnings currently consists of
earnings derived from dividends that the firm receives from businesses acquired through the firm’s participation in our core
private equity strategy. Strategic Holdings Operating Earnings currently equals dividends less management fees that are
earned by our Asset Management segment. This measure is used by management to assess the Strategic Holdings segment’s
generation of earnings from revenues that are measured and received on a more recurring basis than, and are not dependent
on, realizations from investment activities.
Total Operating Earnings
Total Operating Earnings is a performance measure that represents the sum of (i) FRE, (ii) Insurance Operating Earnings,
and (iii) Strategic Holdings Operating Earnings. KKR believes this measure is useful to stockholders as it provides additional
insight into the profitability of the most recurring forms of earnings from each of KKR’s segments as compared to investing
earnings.
Total Investing Earnings
Total Investing Earnings is a performance measure that represents the sum of (i) Net Realized Performance Income and
(ii) Net Realized Investment Income. KKR believes this measure is useful to stockholders as it provides additional insight into
the earnings of KKR’s segments from the realization of investments.Total Asset Management Segment RevenuesTotal Asset Management Segment Revenues is a performance measure that represents the realized revenues of the Asset
Management segment (which excludes unrealized carried interest and unrealized gains (losses) on investments) and is the
sum of (i) Management Fees, (ii) Transaction and Monitoring Fees, Net, (iii) Fee Related Performance Revenues, (iv) Realized
Performance Income, and (v) Realized Investment Income. Asset Management Segment Revenues excludes Realized
Investment Income earned based on the performance of businesses presented in the Strategic Holdings segment. KKR
believes that this performance measure is useful to stockholders as it provides additional insight into all forms of realized
revenues generated by our Asset Management segment.
89
Table of Contents
Key Operating and Capital MetricsAssets Under ManagementAssets under management represent the assets managed (including core private equity), advised or sponsored by KKR
from which KKR is entitled to receive management fees or performance income (currently or upon a future event), general
partner capital, and assets managed, advised or sponsored by our strategic BDC partnership and the hedge fund and other
managers in which KKR holds an ownership interest. We believe this measure is useful to stockholders as it provides
additional insight into the capital raising activities of KKR and its hedge fund and other managers and the overall activity in
their investment funds and other managed or sponsored capital. KKR calculates the amount of AUM as of any date as the sum
of: (i) the fair value of the investments of KKR's investment funds and certain co-investment vehicles; (ii) uncalled capital
commitments from these funds, including uncalled capital commitments from which KKR is currently not earning
management fees or performance income; (iii) the asset value of the Global Atlantic insurance companies; (iv) the par value of
outstanding CLOs; (v) KKR's pro rata portion of the AUM of hedge fund and other managers in which KKR holds an ownership
interest; (vi) all of the AUM of KKR's strategic BDC partnership; (vii) the acquisition cost of invested assets of certain non-US
real estate investment trusts and (viii) the value of other assets managed or sponsored by KKR. The pro rata portion of the
AUM of hedge fund and other managers is calculated based on KKR’s percentage ownership interest in such entities
multiplied by such entity’s respective AUM. KKR's definition of AUM (i) is not based on any definition of AUM that may be set
forth in the governing documents of the investment funds, vehicles, accounts or other entities whose capital is included in this
definition, (ii) includes assets for which KKR does not act as an investment adviser, and (iii) is not calculated pursuant to any
regulatory definitions.Capital InvestedCapital invested is the aggregate amount of capital invested by (i) KKR’s investment funds (including core private equity)
and Global Atlantic insurance companies, (ii) KKR's Principal Activities business line as a co-investment, if any, alongside KKR’s
investment funds, and (iii) KKR's Principal Activities business line in connection with a syndication transaction conducted by
KKR's Capital Markets business line, if any. Capital invested is used as a measure of investment activity at KKR during a given
period. We believe this measure is useful to stockholders as it provides a measure of capital deployment across KKR’s business
lines. Capital invested includes investments made using investment financing arrangements like credit facilities, as applicable.
Capital invested excludes (i) investments in certain leveraged credit strategies, (ii) capital invested by KKR’s Principal Activities
business line that is not a co-investment alongside KKR’s investment funds, and (iii) capital invested by KKR’s Principal
Activities business line that is not invested in connection with a syndication transaction by KKR’s Capital Markets business line.
Capital syndicated by KKR's Capital Markets business line to third parties other than KKR’s investment funds or Principal
Activities business line is not included in capital invested.Fee Paying AUMFee paying AUM represents only the AUM from which KKR is entitled to receive management fees. We believe this
measure is useful to stockholders as it provides additional insight into the capital base upon which KKR earns management
fees. FPAUM is the sum of all of the individual fee bases that are used to calculate management fees and differs from AUM in
the following respects: (i) assets and commitments from which KKR is not entitled to receive a management fee are excluded
(e.g., assets and commitments with respect to which it is entitled to receive only performance income or is otherwise not
currently entitled to receive a management fee) and (ii) certain assets, primarily in its private equity funds, are reflected based
on capital commitments and invested capital as opposed to fair value because fees are not impacted by changes in the fair
value of underlying investments.Uncalled CommitmentsUncalled commitments is the aggregate amount of unfunded capital commitments that KKR’s investment funds and
carry-paying co-investment vehicles (including core private equity) have received from fund investors to contribute capital to
fund future investments, and the amount of uncalled commitments is not reduced by capital invested using borrowings under
an investment fund’s subscription facility until capital is called from our fund investors. We believe this measure is useful to
stockholders as it provides additional insight into the amount of capital that is available to KKR’s investment funds and carry
paying co-investment vehicles to make future investments. Uncalled commitments are not reduced for investments
completed using fund-level investment financing arrangements or investments we have committed to make but remain
unfunded at the reporting date.
90Table of ContentsAnalysis of Consolidated Results of Operations (GAAP Basis)
The following is a discussion of our consolidated results of operations on a GAAP basis for the years ended December 31,
2025 and 2024 . You should read this discussion in conjunction with the financial statements and related notes included
elsewhere in this report. For a more detailed discussion of the factors that affected our segment results in these periods, see
"—Analysis of Segment Operating Results." See "Risk Factors" and "—Business Environment" in this report for more
information about risks, uncertainties, and other market and economic conditions that may impact our business, financial
performance, operating results, and valuations. For the discussion comparing our consolidated results of operations on a
GAAP basis for the years ended December 31, 2024 and 2023, see "Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2024,
filed with the SEC on February 28, 2025.Years Ended($ in thousands)December 31, 2025
December 31, 2024
ChangeRevenuesAsset Management and Strategic Holdings
Fees and Other
$ 4,064,273
$ 3,653,962
$ 410,311
Capital Allocation-Based Income (Loss)
3,771,235
3,558,284
212,951
7,835,508
7,212,246
623,262InsuranceNet Premiums
3,397,186
7,898,834
(4,501,648)
Policy Fees
1,350,814
1,377,686
(26,872)
Net Investment Income
7,665,106
6,574,608
1,090,498
Net Investment-Related Gains (Losses)
(1,041,070)
(1,423,086)
382,016
Other Income
256,763
238,410
18,353
11,628,799
14,666,452
(3,037,653)
Total Revenues
19,464,307
21,878,698
(2,414,391)ExpensesAsset Management and Strategic Holdings
Compensation and Benefits
4,710,394
4,330,967
379,427
Occupancy and Related Charges
135,941
117,111
18,830
General, Administrative and Other
1,479,796
1,311,676
168,120
6,326,131
5,759,754
566,377InsuranceNet Policy Benefits and Claims (including market risk benefit (gain)
loss of $312,446 and $(147,790) , respectively; remeasurement
(gain) loss on policy liabilities: $(82,691) and $(74,645) ,
respectively.)
10,731,153
13,293,282
(2,562,129)
Amortization of Policy Acquisition Costs
309,319
174,163
135,156
Interest Expense
294,969
271,769
23,200
Insurance Expenses
594,724
741,796
(147,072)
General, Administrative and Other
756,019
745,096
10,923
12,686,184
15,226,106
(2,539,922)
Total Expenses
19,012,315
20,985,860
(1,973,545)
Investment Income (Loss) - Asset Management and Strategic
Holdings
Net Gains (Losses) from Investment Activities
4,801,453
3,442,853
1,358,600Dividend Income1,440,790
1,100,361
340,429Interest Income3,181,871
3,458,526
(276,655)Interest Expense(2,776,946)
(3,034,145)
257,199
Total Investment Income (Loss)
6,647,168
4,967,595
1,679,573
91Table of ContentsYears Ended($ in thousands)December 31, 2025
December 31, 2024
Change
Income (Loss) Before Taxes
7,099,160
5,860,433
1,238,727Income Tax Expense (Benefit)953,748
954,396
(648)
Net Income (Loss)
6,145,412
4,906,037
1,239,375
Net Income (Loss) Attributable to Redeemable Noncontrolling
Interests
155,103
73,149
81,954Net Income (Loss) Attributable to Noncontrolling Interests3,619,846
1,756,643
1,863,203Net Income (Loss) Attributable to KKR & Co. Inc.2,370,463
3,076,245
(705,782)
Series D Mandatory Convertible Preferred Stock Dividends
118,596
—
118,596
Net Income (Loss) Attributable to KKR & Co. Inc.
Common Stockholders
$ 2,251,867
$ 3,076,245
$ (824,378)
Consolidated Results of Operations (GAAP Basis) – Asset Management and Strategic
HoldingsRevenuesFor the years ended December 31, 2025 and 2024 , revenues consisted of the following:Years Ended($ in thousands)December 31, 2025
December 31, 2024
Change
Management Fees
$ 2,496,783
$ 1,994,089
$ 502,694
Fee Credits
(712,433)
(696,091)
(16,342)
Transaction Fees
1,762,336
1,857,317
(94,981)
Monitoring Fees
210,886
187,538
23,348
Incentive Fees
27,742
47,430
(19,688)
Expense Reimbursements
165,397
152,726
12,671
Consulting Fees
113,562
110,953
2,609
Total Fees and Other
4,064,273
3,653,962
410,311
Carried Interest
3,492,171
3,243,495
248,676
General Partner Capital Interest
279,064
314,789
(35,725)
Total Capital Allocation-Based Income (Loss)
3,771,235
3,558,284
212,951
Total Revenues
$ 7,835,508
$ 7,212,246
$ 623,262Fees and OtherTotal Fees and Other for the year ended December 31, 2025 , increased compared to the year ended December 31, 2024 ,
primarily as a result of an increase in management fees, which were partially offset by a decrease in Capital Markets
transaction fees.
For a more detailed discussion of the factors that affected our transaction fees during the period, see "—Analysis of Asset
Management Segment Operating Results."
92Table of ContentsThe increase in management fees was primarily attributable to (i) management fees commencing at North America Fund
XIV in the second quarter of 2025, (ii) management fees commencing at Global Infrastructure Investors V in the third quarter
of 2024 and management fees earned on new capital raised that were retroactive to the start of the fund’s investment period
and (iii) management fees earned on new capital raised over the past twelve months by our private equity and infrastructure
K-Series vehicles. The increase was partially offset by (i) a lower level of management fees earned from Ascendant (our U.S.
middle market traditional private equity fund) due to management fees earned on new capital raised in 2024 that were
retroactive to the start of the fund’s investment period and no such retroactive fees were earned in the current year, (ii) a
decrease in management fees earned from North America Fund XIII as a result of entering its post-investment period in the
second quarter of 2025 and now paying fees based on invested capital rather than committed capital, and (iii) no
management fees earned from Asian Fund II in the current period due to the termination of management fees in the fourth
quarter of 2024.
Management fees due from consolidated investment funds and other investment vehicles are eliminated upon
consolidation under GAAP. However, because these amounts are funded by, and earned from, noncontrolling interests, upon
consolidation under GAAP, KKR's allocated share of the net income from the consolidated investment funds and other
investment vehicles is increased by the amount of fees that are eliminated. Accordingly, net income (loss) attributable to KKR
would be unchanged if such investment funds and other investment vehicles were not consolidated. For a more detailed
discussion on the factors that affect our management fees during the period, see "—Analysis of Asset Management Segment
Operating Results."
Fee credits increased compared to the prior period as a result of (i) a higher level of transaction fees in our Private Equity
business line and (ii) a higher level of monitoring fees in our Private Equity and Real Assets business lines. Fee credits owed to
consolidated investment funds and other investment vehicles are eliminated upon consolidation under GAAP. However,
because these amounts are owed to noncontrolling interests, upon consolidation under GAAP, KKR's allocated share of the
net income from the consolidated investment funds and other investment vehicles is decreased by the amount of fee credits
that are eliminated. Accordingly, net income (loss) attributable to KKR would be unchanged if such investment funds and
other investment vehicles were not consolidated. Transaction and monitoring fees earned from KKR portfolio companies are
not eliminated upon consolidation because those fees are earned from companies which are not consolidated. Furthermore,
transaction fees earned in our capital markets business are not shared with fund investors. Accordingly, certain transaction
fees are reflected in our revenues without a corresponding fee credit.Capital Allocation-Based Income (Loss)Capital Allocation-Based Income (Loss) for the year ended December 31, 2025 , was positive primarily due to the net
appreciation of the underlying investments in many of our unconsolidated carry-earning investment vehicles, most notably
North America Fund XIII, Asian Fund IV, and our private equity and infrastructure K-Series vehicles. Capital Allocation-Based
Income (Loss) for the year ended December 31, 2024 , was positive primarily due to the net appreciation of the underlying
investments in many of our unconsolidated carry-earning investment funds, most notably North America Fund XIII, Global
Infrastructure Investors IV, and our private equity and infrastructure K-Series vehicles.
KKR calculates the carried interest that would be due to KKR for each investment fund, pursuant to the fund agreements,
as if the fair value of the underlying investments were realized as of the reporting date, irrespective of whether such amounts
have been realized. Since the fair value of the underlying investments varies between reporting periods, it is necessary to
make adjustments to the amounts recorded as carried interest to reflect either (i) positive performance, resulting in an
increase in the carried interest allocated to the general partner or (ii) negative performance that would cause the amount due
to KKR to be less than the amount previously recognized, resulting in a negative adjustment to carried interest allocated to
the general partner. In each case, it is necessary to calculate the carried interest on cumulative results compared to the
carried interest recorded to date and to make the required positive or negative adjustments.
Investment Income (Loss)
Net Gains (Losses) from Investment Activities for the year ended December 31, 2025
The net gains from investment activities for the year ended December 31, 2025 , were comprised of net realized gains of
$202.9 million and net unrealized gains of $4,598.6 million . See Note 4 "Net Gains (Losses) from Investment Activities – Asset
Management and Strategic Holdings" in our financial statements for detail of realized and unrealized gains and losses from
Investment Activities by asset class.
93Table of ContentsInvestment gains and losses relating to our general partner capital interest in our unconsolidated funds are not reflected
in our discussion and analysis of Net Gains (Losses) from Investment Activities. Our economics associated with these
investment gains and losses are reflected in Capital Allocation-Based Income (Loss) as described above.
For the year ended December 31, 2025 , net gains (losses) from investment activities were driven primarily by mark-to-
market gains relating to our investment in Exact Holding B.V. (technology sector), USI, Inc. (financial services sector), and IVI-
RMA Global, S.L. (health care sector) held through our consolidated core private equity vehicles. These mark-to-market gains
were partially offset by (i) mark-to-market losses primarily relating to our investment in PetVet Care Centers, LLC (healthcare
sector) held through our consolidated core private equity vehicles, and OneStream, Inc. (NASDAQ: OS) , (ii) mark-to-market
losses on certain foreign exchange forward contracts and (iii) mark-to-market losses on certain investments held in
consolidated CLOs.
Net investment gains (losses) for each asset class are influenced by the valuation methodology applied to each asset, as
well as factors specific to each investment. For the year ended December 31, 2025 , net investment gains (losses) were
primarily generated in the following asset classes:
• Private Equity (including core private equity), which were primarily impacted by overall positive operating
performance of certain portfolio companies. Changes in market multiples varied across regions and sectors used in
the market comparables methodology for the valuation of Level III investments; and
• Real Assets, which primarily benefited from the overall positive operating performance of certain infrastructure
assets. Changes in market multiples varied across regions and sectors used in the market comparables methodology
for the valuation of Level III investments.
See "Risk Factors" and "—Business Environment" in this report for more information about the factors that may impact
our business, financial performance, operating results, and valuation.
Net Gains (Losses) from Investment Activities for the year ended December 31, 2024
The net gains from investment activities for the year ended December 31, 2024 , were comprised of net realized gains of
$246.8 million and net unrealized gains of $3,196.0 million . See Note 4 "Net Gains (Losses) from Investment Activities – Asset
Management and Strategic Holdings" in our financial statements for detail of realized and unrealized gains and losses from
Investment Activities by asset class.
Investment gains and losses relating to our general partner capital interest in our unconsolidated funds are not reflected
in our discussion and analysis of Net Gains (Losses) from Investment Activities. Our economics associated with these
investment gains and losses are reflected in Capital Allocation-Based Income (Loss) as described above.
For the year ended December 31, 2024 , net gains (losses) from investment activities were driven primarily by mark-to-
market gains primarily relating to our investment in USI, Inc., 1-800 Contacts Inc. (healthcare sector), April SA (financial
services sector), and Exact Holding B.V. (technology sector) held through our consolidated core private equity vehicles. These
mark-to-market gains were partially offset by mark-to-market losses primarily relating to our investment in BridgeBio Pharma,
Inc. (NASDAQ: BBIO), PetVet Care Centers, LLC (healthcare sector), and Accell Group N.V. (consumer products sector).
The factors that affect each investment strategy vary depending on the nature of the asset class and the valuation
methodology employed. For the year ended December 31, 2024 , net investment gains (losses) were primarily generated in
the following asset classes:
• Private Equity (including core private equity), which were primarily impacted by (i) overall positive operating
performance of its portfolio companies and (ii) the positive returns of global equity markets and the related increase
of market multiples used in the market comparables methodology for the valuation of Level III investments; and
• Real Assets, which primarily benefited from the positive operating performance of certain infrastructure assets and,
to a lesser extent, by the positive returns of global equity markets and the related increase of market multiples used
in the market comparables methodology for the valuation of Level III investments.
See "Risk Factors" and "—Business Environment" in this report for more information about the factors that may impact
our business, financial performance, operating results, and valuation.
94
Table of ContentsDividend IncomeDuring the year ended December 31, 2025 , dividend income was primarily from (i) our investments in 1-800 Contacts Inc.,
Exact Holdings B.V. and April SA, all held through our consolidated core vehicles and (ii) various investments in certain of our
consolidated opportunistic real estate equity funds. During the year ended December 31, 2024 , dividend income was
primarily from (i) our investments in 1-800 Contacts Inc. and Exact Holdings B.V. held through our consolidated core private
equity vehicles, (ii) certain of our consolidated opportunistic real estate equity funds, and (iii) our investment in MásOrange
(telecommunications sector), held through our consolidated European Fund V.
Significant dividends from portfolio companies and consolidated funds are generally not recurring quarterly dividends,
and while they may occur in the future, their size and frequency are variable. For a discussion of other factors that affected
KKR's dividend income, see "—Analysis of Asset Management Segment Operating Results."Interest IncomeThe decrease in interest income during the year ended December 31, 2025 , compared to the year ended December 31,
2024 , was primarily due to the impact of lower market interest rates during the current period on floating rate credit
investments held in consolidated CLOs and certain of our consolidated private credit funds. The decrease was partially offset
by the impact of closing CLOs that are consolidated subsequent to December 31, 2024 . For a discussion of other factors that
affected KKR's interest income, see "—Analysis of Asset Management Segment Operating Results."Interest ExpenseThe decrease in interest expense during the year ended December 31, 2025 , compared to the year ended December 31,
2024 , was primarily due to the impact of lower market interest rates during the current period on floating rate debt
obligations held in consolidated CLOs and at certain consolidated funds and other investment vehicles. The decrease was
partially offset by (i) the impact of closing CLOs that were consolidated subsequent to December 31, 2024 , and (ii) an increase
in the amount of borrowings outstanding. For a discussion of other factors that affected KKR's interest expense, see "—Key
Segment and Non-GAAP Performance Measures."
ExpensesCompensation and BenefitsThe increase in compensation and benefits during the year ended December 31, 2025 , compared to the year ended
December 31, 2024 , was primarily due to a higher level of accrued carried interest compensation driven by a higher level of
carried interest income earned in the current period.
Occupancy and Related Charges
The increase in occupancy and related charges during the year ended December 31, 2025 , compared to the year ended
December 31, 2024 , was primarily due to the commencement of new office leases in the current period.General, Administrative and OtherThe increase in general, administrative and other expenses during the year ended December 31, 2025 , compared to the
year ended December 31, 2024 , was primarily due to a higher level of expenses reimbursable from our investment funds and
a higher level of corporate general administrative costs, partially offset by a prior year legal accrual that did not recur in the
current period.
95Table of ContentsConsolidated Results of Operations (GAAP Basis) – InsuranceRevenuesFor the years ended December 31, 2025 and 2024 , revenues consisted of the following:Years Ended($ in thousands)December 31, 2025
December 31, 2024
ChangeNet Premiums$ 3,397,186
$ 7,898,834
$ (4,501,648)
Policy Fees
1,350,814
1,377,686
(26,872)
Net Investment Income
7,665,106
6,574,608
1,090,498
Net Investment-Related Gains (Losses)
(1,041,070)
(1,423,086)
382,016
Other Income
256,763
238,410
18,353
Total Insurance Revenues
$ 11,628,799
$ 14,666,452
$ (3,037,653)
Net Premiums
Net premiums decreased for the year ended December 31, 2025 , as compared to the year ended December 31, 2024 ,
primarily due to a decrease in initial premiums assumed from fewer reinsurance transactions with life contingencies or
morbidity risk during the year ended December 31, 2025 , as compared to the year ended December 31, 2024 . Offsetting
these decreases in part were increases from new premiums earned on direct pension risk transfer and preneed insurance
products with life contingencies or morbidity risk. Initial premiums from new business are generally offset by a comparable
change in policy reserves reported within net policy benefits and claims (as discussed below under “Expenses—Net policy
benefits and claims”).
Net Investment Income
Net investment income increased for the year ended December 31, 2025 , as compared to the year ended December 31,
2024 , primarily due to (i) increased average assets under management due to growth in assets in the institutional and
individual market channels as a result of the cumulative impact of new business volumes in the current and preceding
quarters, and (ii) higher average portfolio yields.
Net Investment-Related Gains (Losses)
The components of net investment-related gains (losses) were as follows:Years Ended($ in thousands)December 31, 2025
December 31, 2024
Change
Equity Index Options
$ 926,268
$ 567,543
$ 358,725
Interest Rate Contracts
86,222
(569,315)
655,537
Funds Withheld Payable Embedded Derivatives
(521,690)
350,241
(871,931)
Foreign Exchange and Other Derivative Contracts
(190,055)
121,716
(311,771)
Equity Futures Contracts
(51,443)
(87,484)
36,041
Funds Withheld Receivable Embedded Derivatives
(47,029)
37,226
(84,255)
Net Gains (Losses) on Derivative Instruments
202,273
419,927
(217,654)
Net Other Investment Gains (Losses)
(1,243,343)
(1,843,013)
599,670
Net Investment-Related Gains (Losses)
$ (1,041,070)
$ (1,423,086)
$ 382,016
96Table of ContentsNet Gains (Losses) on Derivative Instruments
The decrease in the fair value of embedded derivatives on funds withheld at interest payable for the year ended
December 31, 2025 was primarily driven by the changes in the fair value of the underlying investments in the funds withheld
at interest payable portfolio, which is primarily comprised of fixed maturity securities (designated as trading for accounting
purposes), mortgage and other loan receivables, and real asset investments. The underlying investments in the funds
withheld at interest payable portfolio increased in value during the year ended December 31, 2025 resulting in a loss on the
related embedded derivative, primarily due to a decrease in market interest rates during the year. In contrast, during the year
ended December 31, 2024 , market interest rates increased, resulting in a decline in the fair value of the underlying
investments and a corresponding gain on the related embedded derivative.
The increase in the fair value of equity index options was primarily driven by the performance of the underlying indices.
Global Atlantic purchases equity index options to hedge the market risk of embedded derivatives in indexed universal life and
fixed-indexed annuity products (the change in which is accounted for in net policy benefits and claims). The majority of Global
Atlantic's equity index options are based on the S&P 500 Index, which increased during both the years ended December 31,
2025 and 2024 , and an increase in the notional amount of equity market contracts outstanding.
The increase in the fair value of interest rate contracts was primarily driven by a decrease in market interest rates during
the year ended December 31, 2025 , as compared to an increase in market interest rates during the year ended December 31,
2024 , resulting in a gain on interest rate contracts for the year ended December 31, 2025 , as compared to a loss on interest
rate contracts for the year ended December 31, 2024 .
The decrease in the fair value of foreign exchange and other derivative contracts was primarily driven by a decrease due
to depreciation of the U.S. dollar against the euro and British pound during the year ended December 31, 2025 .
Net Other Investment-Related Gains (Losses)
The components of net other investment-related gains (losses) were as follows :Years Ended($ in thousands)December 31, 2025
December 31, 2024
Change
Realized Gains (Losses) on Investments Not Supporting Asset-
Liability Matching Strategies
$ 46,402
$ 22,468
$ 23,934
Realized Gains (Losses) on Available-for-Sale Fixed Maturity
Securities
(1,788,912)
(567,985)
(1,220,927)
Credit Loss Allowances
(277,087)
(390,498)
113,411
Unrealized Gains (Losses) on Fixed Maturity Securities Classified as
Trading
486,831
(735,209)
1,222,040
Unrealized Gains (Losses) on Other Investments Accounted Under
a Fair-Value Option and Equity Investments
92,162
9,560
82,602
Unrealized Gains (Losses) on Real Assets
71,982
(167,873)
239,855
Realized Gains (Losses) on Real Assets
14,386
11,418
2,968
Realized Gains (Losses) on Funds Withheld at Interest Payable
Portfolio
117,327
126,422
(9,095)
Realized Gains (Losses) on Funds Withheld at Interest Receivable
Portfolio
(89,113)
(62,493)
(26,620)
Foreign Exchange Gains (Losses) on Non-USD Denominated
Investments
221,125
(68,632)
289,757
Other
(138,446)
(20,191)
(118,255)
Net Other Investment-Related Gains (Losses)
$ (1,243,343)
$ (1,843,013)
$ 599,670
The decrease in net other investment-related losses for the year ended December 31, 2025 , as compared to the year
ended December 31, 2024 , was primarily due to (i) an increase in unrealized gains on fixed maturity securities classified as
trading, and (ii) an increase in foreign exchange gains on non-U.S. dollar denominated investments due to the greater foreign
exchange volatility as a result of the depreciation of the U.S. dollar against the euro and British pound during the year ended
December 31, 2025 .
97Table of ContentsOffsetting these decreases in net other investment-related losses in part was an increase in realized losses on available-
for-sale fixed maturity securities due to portfolio repositioning trades during the year ended December 31, 2025 .ExpensesNet Policy Benefits and Claims
Net policy benefits and claims decreased for the year ended December 31, 2025 , as compared to the year ended
December 31, 2024 , primarily due to (i) lower initial reserves assumed related to new reinsurance transactions with life
contingencies or morbidity risk in the year ended December 31, 2025 , as compared to the year ended December 31, 2024 , (ii)
favorable impacts related to the assumption review described below, and (iii) the change in the value of embedded
derivatives in Global Atlantic’s fixed indexed annuity products as a result of an increase in equity market gains for the year
ended December 31, 2025 , as compared to the year ended December 31, 2024 (as discussed above under "—Consolidated
Results of Operations (GAAP Basis)—Revenues—Net investment-related gains (losses)". Global Atlantic purchases equity
index options in order to hedge this risk, the fair value changes of which are accounted for in gains (losses) on derivative
instruments, and generally offsets the change in embedded derivative fair value reported in net policy benefits and claims).
These decreases were partially offset by (i) higher average funding costs due to higher crediting rates and the ordinary-
course run-off of older business originated in a low interest rate environment, (ii) new reserves established related to new
business originated with life or morbidity risks associated with preneed insurance and direct pension risk transfer products,
and (iii) an increase in market risk benefits losses due to a decrease in market interest rates for the year ended December 31,
2025 , as compared to an increase in market interest rates for the year ended December 31, 2024 .
The assumptions on which reserves, deferred revenue and expenses are based are intended to represent an estimate of
the benefits that are expected to be payable to, and fees or premiums that are expected to be collectible from, policyholders
in future periods. Global Atlantic reviews the adequacy of its reserves, deferred revenue and expenses, and the assumptions
underlying those items at least annually, usually in the third quarter, referred to as an “assumption review.” As Global Atlantic
analyzes its assumptions, to the extent Global Atlantic chooses to update one or more of those assumptions, there may be an
“unlocking” impact. Generally, favorable unlocking means the change in assumptions required a reduction in reserves, or in
deferred revenue liabilities, and unfavorable unlocking means the change in assumptions required an increase in reserves or
in deferred revenue liabilities, or a reduction in deferred expenses.
For the year ended December 31, 2025 , there was a net favorable assumption review impact of $82.7 million on net
policy benefits and claims, which was primarily due to (i) higher expected yield assumptions for certain interest-sensitive life
products, (ii) favorable expected surrender and persistency assumption changes for certain income annuity, variable annuity,
and life insurance products, and (iii) a decrease in expected morbidity assumptions on long-term care riders for certain fixed
annuity products, offset in part by (i) higher mortality rate assumptions for certain life insurance products, (ii) a change in the
activation assumption related to certain benefit riders on fixed-indexed annuities, and (iii) higher surrender rate assumptions
for certain assumed annuity products.
For the year ended December 31, 2024 , there was a net favorable assumption review impact of $74.6 million on net
policy benefits and claim, which was primarily due to (i) higher assumed mortality rates for guaranteed income riders on
fixed-indexed annuities, and (ii) higher assumed interest rate margins on certain interest-sensitive life products due to an
increase in assumed reinvestment rates and flat crediting rates. These favorable impacts were partially offset by (i) lower
assumed surrender rates on interest-sensitive life products without secondary guarantees, (ii) an increase in the option
budget assumptions for certain fixed-indexed annuities and interest sensitive life products, and (iii) higher surrender rate
assumption for certain assumed flow annuity business.
Amortization of Policy Acquisition Costs
Amortization of policy acquisition costs increased for the year ended December 31, 2025 , as compared to the year ended
December 31, 2024 , primarily due to (i) the remeasurement of the policy liabilities associated with certain cost-of-reinsurance
asset intangibles during the year ended December 31, 2024 , resulting in an increase in the cost-of-reinsurance asset and a
decrease in amortization in the comparative twelve month period, and (ii) an increase in deferred acquisition costs
amortization for the year ended December 31, 2025 associated with the cumulative impact of new business volumes
generated from individual retirement annuities and preneed insurance.
98Table of ContentsInterest Expense
Interest expense increased for the year ended December 31, 2025 , as compared to the year ended December 31, 2024 ,
primarily due to an increase in total debt outstanding.
Insurance Expenses
Insurance expenses decreased for the year ended December 31, 2025 , as compared to the year ended December 31,
2024 , primarily due to a decrease in commission expenses as a result of the lower new business volumes in the institutional
markets channel.
General, Administrative and Other
General, administrative and other increased for the year ended December 31, 2025 , as compared to the year ended
December 31, 2024 , primarily due to increased employee compensation expenses, offset in part by a lower level of consulting
and employee augmentation costs.Other Consolidated Results of Operations (GAAP Basis)
Income Tax Expense (Benefit)Income tax expense decreased slightly for the year ended December 31, 2025 , as compared to the year ended December
31, 2024 , primarily driven by a lower level of income before tax attributable to KKR common stockholders partially offset by
an increase in state and foreign income taxes. As reported in Note 18 “Income Taxes” KKR’s effective tax rate is 13%. If you
are to exclude the reported net income (loss) before taxes not attributable to KKR common stockholders, KKR’s effective tax
rate would be 24%. For a discussion of factors that impacted KKR's tax provision, see Note 18 "Income Taxes" in our financial
statements included elsewhere in this report.
Net Income (Loss) Attributable to Redeemable Noncontrolling Interests
Net income (loss) attributable to redeemable noncontrolling interests relates primarily to net income (loss) attributable
to third-party limited partner interests in consolidated investment funds and other investment vehicles when the
noncontrolling interests have redemption features that are not solely within the control of KKR. Net income (loss) attributable
to redeemable noncontrolling interests increased for the year ended December 31, 2025 , as compared to the year ended
December 31, 2024 , primarily due to a higher level of net gains from investment activities at these consolidated investment
funds and other investment vehicles.Net Income (Loss) Attributable to Noncontrolling InterestsNet income (loss) attributable to noncontrolling interests relates primarily to net income (loss) attributable to (i) non-
redeemable third-party limited partner interests in consolidated investment funds and other investment vehicles and (ii)
exchangeable securities representing ownership interests in KKR Group Partnership until they are exchanged for common
stock of KKR & Co. Inc. Net income (loss) attributable to noncontrolling interests increased for the year ended December 31,
2025 , as compared to the year ended December 31, 2024 , primarily due to a higher level of net gains from investment
activities at our consolidated investment funds and other investment vehicles.Net Income (Loss) Attributable to KKR & Co. Inc.Net income (loss) attributable to KKR & Co. Inc. decreased for the year ended December 31, 2025 , as compared to the
year ended December 31, 2024 , primarily due to a higher level of realized investment losses on available-for-sale fixed
maturity securities in our insurance business, which were partially offset by (i) a higher level of capital allocation-based
income from our asset management business, (ii) a higher level of investment-related net gains attributable to KKR & Co. Inc.
from our asset management and strategic holdings operations and (iii) a higher level of asset management fee related income
in the current period.
99Table of ContentsConsolidated Statements of Financial Condition (GAAP Basis)
Please see our consolidated statements of financial condition on a GAAP basis as of December 31, 2025 and December
31, 2024 in our financial statements included in this report.
KKR & Co. Inc. Stockholders’ Equity - Common Stock increased from December 31, 2024 primarily due to unrealized gains
on available-for sale-securities from Global Atlantic that are recorded in other comprehensive income and net income
attributable to KKR & Co. Inc. common stockholders, which were partially offset by dividends to common and preferred
stockholders.Consolidated Statements of Cash Flows (GAAP Basis)The following is a discussion of our consolidated cash flows for the years ended December 31, 2025 , 2024 , and 2023 . You
should read this discussion in conjunction with the financial statements and related notes included elsewhere in this report.
The consolidated statements of cash flows include the cash flows of our consolidated entities, which include certain
consolidated investment funds, CLOs and certain variable interest entities formed by Global Atlantic notwithstanding the fact
that we may hold only a minority economic interest in those investment funds and CFEs. The assets of our consolidated
investment funds and CFEs, on a gross basis, can be substantially larger than the assets of our business and, accordingly, could
have a substantial effect on the cash flows reflected in our consolidated statements of cash flows. The primary cash flow
activities of our consolidated funds and CFEs involve: (i) capital contributions from fund investors; (ii) using the capital of fund
investors to make investments; (iii) financing certain investments with indebtedness; (iv) generating cash flows through the
realization of investments; and (v) distributing cash flows from the realization of investments to fund investors. Because our
consolidated investment funds are treated as investment companies for accounting purposes, certain of these cash flow
amounts are included in our cash flows from operations.Net Cash Provided (Used) by Operating ActivitiesOur net cash provided (used) by operating activities was $0.5 billion , $6.6 billion , and $(1.5) billion during the years ended
December 31, 2025 , 2024 , and 2023 , respectively. Our operating activities primarily included: (i) investments purchased (asset
management and strategic holdings), net of proceeds from investments (asset management and strategic holdings) of
$(9.2) billion , $(0.7) billion , and $(8.6) billion during the years ended December 31, 2025 , 2024 , and 2023 , respectively, (ii) net
realized gains (losses) on investments (asset management and strategic holdings) of $0.2 billion , $0.2 billion , and $(0.8) billion
during the years ended December 31, 2025 , 2024 , and 2023 , respectively, (iii) change in unrealized gains (losses) on
investments (asset management and strategic holdings) of $4.6 billion , $3.2 billion , and $3.8 billion during the years ended
December 31, 2025 , 2024 , and 2023 , respectively, (iv) capital allocation-based income (loss) (asset management and strategic
holdings) of $3.8 billion , $3.6 billion , and $2.8 billion during the years ended December 31, 2025 , 2024 , and 2023 ,
respectively, (v) net investment and policy liability-related gains (losses) (insurance) of $(3.3) billion , $(3.3) billion , and $(2.6)
billion during the years ended December 31, 2025 , 2024 , and 2023 , respectively, and (vi) interest credited to policyholder
account balances (net of policy fees) (insurance) of $5.0 billion , $4.2 billion , and $2.8 billion during the years ended December
31, 2025 , 2024 , and 2023 , respectively. Investment funds are investment companies under GAAP and reflect their
investments and other financial instruments at fair value.Net Cash Provided (Used) by Investing ActivitiesOur net cash provided (used) by investing activities was $(16.3) billion , $(19.0) billion , and $(3.9) billion during the years
ended December 31, 2025 , 2024 , and 2023 , respectively. Our investing activities primarily included: (i) investments purchased
(insurance), net of proceeds from investments (insurance), of $(16.0) billion , $(18.9) billion , and $(3.8) billion during the years
ended December 31, 2025 , 2024 , and 2023 , respectively, (ii) acquisitions, net of cash acquired, of $(146.3) million during the
year ended December 31, 2025 , and (iii) the purchase of fixed assets of $(160.8) million , $(141.5) million , and $(108.4) million
during the years ended December 31, 2025 , 2024 , and 2023 , respectively.
100Table of ContentsNet Cash Provided (Used) by Financing Activities
Our net cash provided (used) by financing activities was $17.4 billion , $7.1 billion , and $12.8 billion during the years
ended December 31, 2025 , 2024 , and 2023 , respectively. Our financing activities primarily included: (i) contributions from, net
of distributions to, our noncontrolling and redeemable noncontrolling interests of $6.3 billion , $0.1 billion , and $6.4 billion
during the years ended December 31, 2025 , 2024 , and 2023 , respectively, (ii) proceeds received, net of repayment of debt
obligations, of $2.0 billion , $3.5 billion , and $3.6 billion during the years ended December 31, 2025 , 2024 , and 2023 ,
respectively, (iii) proceeds from the issuance of Series D Mandatory Convertible Preferred Stock (net of issuance cost) of
$2.5 billion during the year ended December 31, 2025 , (iv) additions to, net of withdrawals from, contractholder deposit funds
(insurance) of $7.0 billion , $7.9 billion , and $1.9 billion during the years ended December 31, 2025 , 2024 , and 2023 ,
respectively, (v) cash consideration for the 2024 GA Acquisition of $(2.6) billion during the year ended December 31, 2024 , (vi)
reinsurance transactions, net of cash provided (insurance) of $193.6 million , $47.8 million , and $1.2 billion during the years
ended December 31, 2025 , 2024 , and 2023 , respectively, (vii) common stock dividends of $(649.9) million , $(612.1) million ,
and $(563.3) million during the years ended December 31, 2025 , 2024 , and 2023 , respectively, (viii) Series D Mandatory
Convertible Preferred Stock Dividends of $(118.6) million during the year ended December 31, 2025 , and (ix) Series C
Mandatory Convertible Preferred Stock Dividends of $(51.7) million during the year ended December 31, 2023.Analysis of Segment Operating ResultsThe following is a discussion of the results of our business on a segment basis for the years ended December 31, 2025 and
2024 . You should read this discussion in conjunction with the information included under "—Analysis of Non-GAAP
Performance Measures" and the financial statements and related notes included elsewhere in this report. See "Risk Factors"
and "—Business Environment" in this report for more information about factors that may impact our business, financial
performance, operating results, and valuations. For the discussion comparing our business on a segment basis for the years
ended December 31, 2024 and 2023, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on
February 28, 2025.
101
Table of ContentsAnalysis of Asset Management Segment Operating ResultsThe following tables set forth information regarding KKR's asset management segment operating results for the years
ended December 31, 2025 and 2024 .Years Ended($ in thousands)December 31, 2025
December 31, 2024
ChangeManagement Fees$ 4,100,841
$ 3,461,381
$ 639,460
Transaction and Monitoring Fees, Net
1,092,577
1,165,884
(73,307)
Fee Related Performance Revenues
181,784
137,992
43,792
Fee Related Compensation
(940,721)
(833,918)
(106,803)
Other Operating Expenses
(720,168)
(663,543)
(56,625)
Fee Related Earnings
3,714,313
3,267,796
446,517
Realized Performance Income
1,879,512
1,822,115
57,397
Realized Performance Income Compensation
(1,387,776)
(1,213,327)
(174,449)
Realized Investment Income
403,455
534,668
(131,213)
Realized Investment Income Compensation
(60,520)
(80,198)
19,678
Asset Management Segment Earnings
$ 4,548,984
$ 4,331,054
$ 217,930
Management FeesThe following table presents management fees by business line:
Years Ended($ in thousands)December 31, 2025
December 31, 2024
ChangeManagement FeesPrivate Equity
$ 1,529,169
$ 1,376,335
$ 152,834
Real Assets
1,300,924
992,731
308,193
Credit and Liquid Strategies
1,270,748
1,092,315
178,433
Total Management Fees
$ 4,100,841
$ 3,461,381
$ 639,460
The increase in Private Equity management fees was primarily attributable to (i) management fees commencing at North
America Fund XIV in the second quarter of 2025 and (ii) management fees earned on new capital raised over the past twelve
months at our private equity K-Series vehicles, net of certain revenue sharing arrangements. The increase was partially offset
by (i) a lower level of management fees earned from Ascendant (our U.S. middle market traditional private equity fund) due
to management fees earned on new capital raised in 2024 that were retroactive to the start of the fund’s investment period
and no such retroactive fees were earned in the current year, (ii) a decrease in management fees earned from North America
Fund XIII as a result of entering its post-investment period in the second quarter of 2025, and now paying fees based on
invested capital rather than committed capital, and (iii) no management fees earned from Asian Fund II in the current period
due to the termination of management fees in the fourth quarter of 2024. During the three and twelve months ended
December 31, 2025, approximately $12.0 million and $17.0 million, respectively of management fees were earned on new
capital raised that were retroactive to the start of the relevant fund’s investment period. Additionally, in the fourth quarter of
2025 approximately $11.4 million of fees were recognized for providing advisory services to entities in certain fund structures.
102Table of ContentsThe increase in Real Assets management fees was primarily attributable to (i) management fees commencing at Global
Infrastructure Investors V in the third quarter of 2024, (ii) management fees earned on new capital raised over the past twelve
months at our infrastructure K-Series vehicles, net of certain revenue sharing arrangements, and (iii) a higher level of
management fees earned from Global Atlantic primarily due to the growth in assets from inflows. The increase was partially
offset by a decrease in management fees earned from Global Infrastructure Investors III and Asia Pacific Infrastructure
Investors due to a decrease in invested capital during the current year. During the three and twelve months ended December
31, 2025, approximately $14.3 million and $71.1 million, respectively of management fees were earned on new capital raised
that is retroactive to the start of the relevant fund's investment period. Additionally, in the fourth quarter of 2025
approximately $5.6 million of fees were recognized for providing advisory services to entities in certain fund structures.
The increase in Credit and Liquid Strategies management fees was primarily attributable to (i) a higher level of
management fees earned from Global Atlantic primarily due to the growth in assets from inflows, (ii) an increase in capital
invested in certain alternative credit strategy accounts, which resulted in an increase in its fee base, and (iii) a higher level of
management fees earned from CLOs from new issuances in both the United States and Europe during the year ended
December 31, 2025.Transaction and Monitoring Fees, Net
The following table presents transaction and monitoring fees, net by business line:
Years Ended($ in thousands)December 31, 2025
December 31, 2024
ChangeTransaction and Monitoring Fees, NetPrivate Equity
$ 93,707
$ 100,619
$ (6,912)
Real Assets
53,065
52,508
557
Credit and Liquid Strategies
15,662
10,994
4,668
Capital Markets
930,143
1,001,763
(71,620)
Total Transaction and Monitoring Fees, Net
$ 1,092,577
$ 1,165,884
$ (73,307)
Our Private Equity, Real Assets, and Credit and Liquid Strategies business lines earn transaction and monitoring fees from
portfolio companies, and under the terms of the management agreements with certain of our investment funds, we are
required to share all or a portion of such fees with our fund investors. For most of our investment funds, transaction and
monitoring fees are credited against fund management fees up to 100% of the amount of the transaction and monitoring fees
attributable to that investment fund, which results in a decrease of our monitoring and transaction fees. Our Capital Markets
business line earns transaction fees, which are generally not shared with fund investors.
The decrease in transaction and monitoring fees, net is primarily due to a lower level of transaction fees earned in our
Capital Markets business line. The decrease in capital markets transaction fees was primarily due to a decrease in the size of
capital markets transactions for the year ended December 31, 2025 . Overall, we completed 404 capital markets transactions
for the year ended December 31, 2025 , of which 49 represented equity offerings and 355 represented debt offerings, as
compared to 397 transactions for the year ended December 31, 2024 , of which 56 represented equity offerings and 341
represented debt offerings. We earn fees in connection with underwriting, syndication, and other capital markets services.
While each of the capital markets transactions that we undertake in this business line is separately negotiated, our fee rates
are generally higher with respect to underwriting or syndicating equity offerings than with respect to debt offerings, and the
amount of fees that we earn for similar transactions generally correlates with overall transaction sizes.
Our capital markets fees are generated in connection with activity involving our Private Equity, Real Assets, and Credit
and Liquid Strategies business lines as well as from third-party companies. For the year ended December 31, 2025 ,
approximately 15% of our transaction fees in our Capital Markets business line were earned from unaffiliated third parties as
compared to approximately 13% for the year ended December 31, 2024 . Our transaction fees are comprised of fees earned
from North America, Europe, and the Asia-Pacific region. For the year ended December 31, 2025 , approximately 54% of our
transaction fees were generated outside of North America as compared to approximately 47% for the year ended December
31, 2024 . Our Capital Markets business line is dependent on the overall capital markets environment, which is in fluenced by,
among other things, equity prices, credit spreads, and volatility. Our Capital Markets business line does not generate
monitoring fees.
103Table of ContentsFee Related Performance Revenues
The following table presents fee related performance revenues by business line:
Years Ended($ in thousands)December 31, 2025
December 31, 2024
ChangeFee Related Performance RevenuesPrivate Equity
$ 2,506
$ —
$ 2,506
Real Assets
105,486
59,557
45,929
Credit and Liquid Strategies
73,792
78,435
(4,643)
Total Fee Related Performance Revenues
$ 181,784
$ 137,992
$ 43,792
Fee related performance revenues represent performance fees that are (i) expected to be received from our investment
funds, investment vehicles and accounts on a more recurring basis and (ii) not dependent on a realization event involving
investments held by the investment fund, vehicle or account.
The increase in fee related performance revenues for the year ended December 31, 2025 compared to the prior period
was primarily due to a higher level of performance revenues being earned from our infrastructure K-Series vehicles in our Real
Assets business line.Fee Related CompensationThe increase in fee related compensation for the year ended December 31, 2025 compared to the prior period was
primarily due to a higher level of compensation recorded in connection with the higher level of fee related revenues.Other Operating ExpensesThe increase in other operating expenses for the year ended December 31, 2025 compared to the prior period was
primarily due to a higher level of occupancy related and general and administrative costs.Fee Related EarningsThe increase in fee related earnings for the year ended December 31, 2025 compared to the prior period was primarily
due to (i) a higher level of management fees across our Private Equity, Real Assets, and Credit and Liquid Strategies business
lines and (ii) a higher level of fee related performance revenues primarily earned in our Real Assets business line, partially
offset by a (i) higher level of fee related compensation and other operating expenses and (ii) a lower level of transaction fees
earned in our Capital Markets business line, as described above.Realized Performance Income
The following table presents realized performance income by business line:
Years Ended($ in thousands)December 31, 2025
December 31, 2024
ChangeRealized Performance IncomePrivate Equity
$ 1,321,116
$ 1,312,479
$ 8,637
Real Assets
260,741
218,320
42,421
Credit and Liquid Strategies
297,655
291,316
6,339
Total Realized Performance Income
$ 1,879,512
$ 1,822,115
$ 57,397
104
Table of ContentsYears Ended($ in thousands)December 31, 2025
December 31, 2024
ChangePrivate EquityAsian Fund IV
$ 357,526
$ —
$ 357,526
Americas Fund XII
246,984
828,543
(581,559)
Private Equity K-Series
233,117
86,940
146,177
Strategic Investor Partnerships
193,031
—
193,031
Core Private Equity Vehicles
187,886
65,846
122,040
Next Generation Technology Growth Fund II
162,679
—
162,679
European Fund V
89,459
32,864
56,595
Health Care Strategic Growth Fund
53,650
—
53,650
Asian Fund III
36,984
248,622
(211,638)
Global Impact Fund
13,215
—
13,215
Strategic Holdings Segment
12,328
15,475
(3,147)
Asian Fund II Carried Interest Repayment Obligation
(344,231)
—
(344,231)
Other
78,488
34,189
44,299
Total Realized Performance Income
$ 1,321,116
$ 1,312,479
$ 8,637
Realized performance income in our Private Equity business line for the year ended December 31, 2025 consisted
primarily of (i) realized proceeds from the sale of our investments in Seiyu Group (consumer products sector) held by Asian
Fund IV, ReliaQuest, LLC (technology sector) held by Next Generation Technology Growth Fund II, Integrated Specialty
Services (financial services sector) held by Americas Fund XII, and The Citation Group (services sector) held by both European
Fund V and Global Impact Fund and (ii) performance income from our core private equity vehicles and private equity K-Series
vehicles. Realized performance income in our Private Equity business line was reduced by $344 million as a result of the
repayment of the Asian Fund II clawback obligation in the fourth quarter of 2025. On a net basis, after giving effect to carried
interest distributions already recouped from current and former employees, the clawback obligation reduced fourth quarter
2025 net realized performance income by $207 million.
Realized performance income in our Private Equity business line for the year ended December 31, 2024 consisted
primarily of (i) realized proceeds from the sale of our investments in AppLovin Corporation (NASDAQ: APP) and
GeoStabilization International (industrials sector), both held by Americas Fund XII, and Kokusai Electric Corporation (TYO:
6525) held by Asian Fund III and (ii) performance income from our core private equity vehicles and private equity K-Series
vehicles.Years Ended($ in thousands)December 31, 2025
December 31, 2024
ChangeReal AssetsGlobal Infrastructure Investors III
$ 107,053
$ 201,536
$ (94,483)
Asia Pacific Infrastructure Investors
110,000
—
110,000
Global Infrastructure Investors II
8,744
—
8,744
Other
34,944
16,784
18,160
Total Realized Performance Income
$ 260,741
$ 218,320
$ 42,421
Realized performance income in our Real Assets business line for the year ended December 31, 2025 consisted primarily
of realized proceeds from the sale of our investments in Pinnacle Towers (infrastructure: telecommunications sector) held by
Asia Pacific Infrastructure Investors, Metronet Holdings, LLC (infrastructure: telecommunications sector), and NEP Renewables
II, LLC (infrastructure: energy and energy transition sector) held by Global Infrastructure Investors III, and Q-Park N.V.
(infrastructure: transportation sector) held by Global Infrastructure Investors II.
Realized performance income in our Real Assets business line for the year ended December 31, 2024 consisted primarily
of realized proceeds from the sale of our investment in FiberCop S.p.A. (infrastructure: telecommunications sector) and
ADNOC Oil Pipelines (infrastructure: midstream sector), both held by Global Infrastructure Investors III.
105Table of Contents
Years Ended($ in thousands)December 31, 2025
December 31, 2024
ChangeCredit and Liquid StrategiesLending Partners III
$ 12,822
$ —
$ 12,822
Strategic Hedge Fund Partnerships and Other
284,833
291,316
(6,483)
Total Realized Performance Income
$ 297,655
$ 291,316
$ 6,339
Realized performance income in our Credit and Liquid Strategies business line for the year ended December 31, 2025
consisted primarily of (i) performance fees earned from Marshall Wace and (ii) realized proceeds at Lending Partners III.
Realized performance income in our Credit and Liquid Strategies business line for the year ended December 31, 2024
consisted primarily of performance fees earned from Marshall Wace and our sub-advisory agreement with a UK investment
fund manager.Realized Performance Income CompensationThe increase in realized performance income compensation for the year ended December 31, 2025 compared to the prior
period was primarily due to a higher level of compensation recorded in connection with the higher level of realized
performance income.Realized Investment Income
The following table presents realized investment income from our Principal Activities business line:
Years Ended($ in thousands)December 31, 2025
December 31, 2024
Change
Total Realized Investment Income
$ 403,455
$ 534,668
$ (131,213)
The decrease in realized investment income is primarily due to a lower level of interest income and dividends partially
offset by a higher level of net realized gains. The amount of realized investment income depends on the transaction activity of
our funds and Asset Management segment balance sheet, which can vary from period to period.
For the year ended December 31, 2025 , realized investment income was primarily comprised of (i) realized gains primarily
from the sale of our investments in BridgeBio Pharma, Inc., ReliaQuest, LLC, BrightSpring Health Services (fka Pharmerica)
(NASDAQ: BTSG), and Kokusai Electric Corporation, (ii) realized gains from the settlement of certain foreign exchange forward
contracts, and (iii) interest income primarily from our investments in CLOs. Partially offsetting the realized gains were realized
losses, the most significant of which were (i) a realized loss related to a structured multi-asset investment vehicle and (ii)
realized losses from the sale of various revolving credit facilities by the Capital Markets business line.
For the year ended December 31, 2024, realized investment income was primarily comprised of (i) interest income
primarily from our investments in CLOs and (ii) realized gains primarily from the sale of our investments in AppLovin
Corporation, Kokusai Electric Corporation, BridgeBio Pharma, Inc., and Darktrace Limited (LSE: DARK). Partially offsetting the
realized gains were realized losses, the most significant of which were (i) a realized loss on our alternative credit investment
Selecta Group HoldCo. (consumer products sector), (ii) realized losses from the sale of various revolving credit facilities, (iii) a
realized loss on our infrastructure investment, Indus Towers Limited (NSE: INDUSTOW), and (iv) a realized loss on our private
equity investment, Acteon Group Ltd. (energy sector).
Realized investment income includes the net income (loss) from KKR Capstone. For the year ended December 31, 2025 ,
total fees attributable to KKR Capstone were $113.6 million and total expenses attributable to KKR Capstone were $100.0
million. For KKR Capstone-related adjustments in reconciling segment revenues and expenses to GAAP revenues and expenses
"—See Note 21 “Segment Reporting” in the accompanying financial statements.
106Table of ContentsAs of the date of this filing, we have transactions that are pending or that have closed after December 31, 2025 that are
expected to result in realized performance income and realized investment income of at least $900 million , which are
expected to be realized in the first half of 2026. See “—Liquidity—Sources of Liquidity” for additional information. Some of
these transactions are not complete, and are subject to the satisfaction of closing conditions, including regulatory approvals;
therefore, there can be no assurance if or when such transactions will be completed. In addition, we may realize gains or
losses based on transactions or other events that occur after the date of filing this report, which could impact, positively or
negatively, the total amount of our realized performance income and realized investment income. Therefore, no assurance
can be given for what our actual realized performance income and realized investment income between the fourth quarter of
2025 and first half of 2026 or future periods will be.
Realized Investment Income Compensation
The decrease in realized investment income compensation for the year ended December 31, 2025 compared to the prior
period is primarily due to a lower level of compensation recorded in connection with the lower level of realized investment
income.Operating and Capital MetricsSee also “Fund Performance Metrics” for more information about our investment funds, vehicles and accounts across our
Private Equity, Real Assets and Credit and Liquid Strategies business lines, including investment performance, capital
commitments, uncalled capital commitments, and invested capital of each. See also "Risk Factors" and "—Business
Environment" in this report for more information about the factors that may impact our business, financial performance,
operating results and valuations.
The following tables present our key asset management segment operating and capital metrics:As of($ in millions)December 31, 2025
December 31, 2024
Change
Assets Under Management
$ 743,858
$ 637,572
$ 106,286
Fee Paying Assets Under Management
$ 604,144
$ 511,963
$ 92,181
Uncalled Commitments
$ 118,433
$ 109,555
$ 8,878Years Ended($ in millions)December 31, 2025
December 31, 2024
Change
Capital Invested
$ 94,610
$ 83,570
$ 11,040
107
Table of ContentsAssets Under Management
Private EquityThe following table reflects the changes in the AUM of our Private Equity business line from December 31, 2024 to
December 31, 2025 :($ in millions)December 31, 2024
$ 195,358
New Capital Raised
27,176
Acquisitions (1)
3,214
Distributions and Other
(16,411)
Redemptions
(105)
Change in Value
20,142
December 31, 2025
$ 229,374
(1) Reflects the AUM of investment funds sponsored (or managed) by HealthCare Royalty Management, LLC at closing.
AUM of our Private Equity business line was $229.4 billion as of December 31, 2025 , an increase of $34.0 billion,
compared to $195.4 billion as of December 31, 2024 .
The increase was primarily attributable to (i) investment funds sponsored (or managed) by HealthCare Royalty
Management, LLC, which is an alternative asset management firm that we acquired on July 30, 2025, (ii) new capital raised
from North America Fund XIV and our private equity K-Series vehicles, and (iii) appreciation in investment value primarily
from Asian Fund IV, North America Fund XIII, our core private equity strategy and our private equity K-Series vehicles. Partially
offsetting the increases were (i) the release of capital commitments related to one of our strategic investor partnerships with
an insurance client, and (ii) distributions to fund investors primarily as a result of realized proceeds, most notably from Asian
Fund IV, Americas Fund XII and Asian Fund III.
For the year ended December 31, 2025 , the value of our traditional private equity investment portfolio appreciated by
14%. This was comprised of a 16% increase in share prices of publicly held investments and a 14% increase in value of our
privately held investments. For the year ended December 31, 2025 , the value of our growth equity investment portfolio
increased 13%, and the value of our core private equity investment portfolio increased 7%.Real AssetsThe following table reflects the changes in the AUM of our Real Assets business line from December 31, 2024 to
December 31, 2025 :($ in millions)December 31, 2024
$ 165,969
New Capital Raised
33,739
Distributions and Other
(15,043)
Redemptions
(302)
Change in Value
8,117
December 31, 2025
$ 192,480
AUM of our Real Assets business line was $192.5 billion as of December 31, 2025 , an increase of $26.5 billion, compared
to $166.0 billion as of December 31, 2024 .
The increase was primarily attributable to (i) new capital raised from Global Atlantic inflows invested in real estate, our
infrastructure K-Series vehicles, and Global Infrastructure Investors V, and, to a lesser extent, (ii) appreciation in investment
value from Global Infrastructure Investors IV and the Diversified Core Infrastructure Fund. Partially offsetting the increase
were (i) payments to Global Atlantic policyholders and (ii) distributions to fund investors as a result of realized proceeds, most
notably from Global Infrastructure Investors III and one of our infrastructure separately managed accounts with a public
pension plan.
108Table of ContentsFor the year ended December 31, 2025 , the value of our infrastructure investment portfolio appreciated 11% and the
value of our opportunistic real estate equity investment portfolio appreciated by 5%.Credit and Liquid StrategiesThe following table reflects the changes in the AUM of our Credit and Liquid Strategies business line from December 31,
2024 to December 31, 2025 :($ in millions)December 31, 2024
$ 276,245
New Capital Raised
68,484
Distributions and Other
(25,633)
Redemptions
(5,968)
Change in Value
8,876
December 31, 2025
$ 322,004
AUM of our Credit and Liquid Strategies business line totaled $322.0 billion as of December 31, 2025 , an increase of $45.8
billion, compared to AUM of $276.2 billion as of December 31, 2024 .
The increase was primarily attributable to (i) new capital raised from Global Atlantic inflows and various private credit and
leveraged credit investment funds, (ii) the issuance of CLOs, and, to a lesser extent, (iii) investment value appreciation across
our leveraged credit and private credit investment funds, and on assets managed by Marshall Wace. Partially offsetting the
increase were (i) payments to Global Atlantic policyholders, (ii) distributions to, and redemptions from, fund investors at
certain private and leveraged credit funds, and (iii) redemptions at Marshall Wace.Fee Paying Assets Under Management
Private EquityThe following table reflects the changes in the FPAUM of our Private Equity business line from December 31, 2024 to
December 31, 2025 :($ in millions)December 31, 2024
$ 119,598
New Capital Raised
34,442
Acquisitions (1)
3,214
Distributions and Other
(7,649)
Redemptions
(105)
Net Changes in Fee Base of Certain Funds
(1,281)
Change in Value
3,020
December 31, 2025
$ 151,239
(1) Reflects the FPAUM of investment funds sponsored (or managed) by HealthCare Royalty Management, LLC at closing.
FPAUM of our Private Equity business line was $151.2 billion as of December 31, 2025 , an increase of $31.6 billion,
compared to $119.6 billion as of December 31, 2024 .
The increase was primarily attributable to (i) investment funds sponsored (or managed) by HealthCare Royalty
Management, LLC, (ii) management fees commencing at North America Fund XIV in the second quarter of 2025, and (iii) new
capital raised from our private equity K-Series vehicles, our core private equity strategy, and assets we manage and earn fees
from in our Strategic Holdings segment. Partially offsetting the increase were (i) a change in fee base for North America Fund
XIII as a result of the fund entering its post-investment period in the second quarter of 2025, during which we earn fees on
invested capital rather than committed capital, (ii) distributions to fund investors primarily as a result of realized proceeds,
most notably from Asian Fund III and Americas Fund XII and (iii) fees waived at North America Fund XI in exchange for
extending the term of the fund.
109Table of Contents
Real AssetsThe following table reflects the changes in the FPAUM of our Real Assets business line from December 31, 2024 to
December 31, 2025 :($ in millions)December 31, 2024
$ 139,681
New Capital Raised
34,839
Distributions and Other
(11,668)
Redemptions
(302)
Net Changes in Fee Base of Certain Funds
(1,908)
Change in Value
2,809
December 31, 2025
$ 163,451
FPAUM of our Real Assets business line was $163.5 billion as of December 31, 2025 , an increase of $23.8 billion,
compared to $139.7 billion as of December 31, 2024 .
The increase was primarily attributable to (i) new capital raised from Global Atlantic inflows invested in real estate, our
infrastructure K-Series vehicles, and Global Infrastructure Investors V, (ii) management fees commencing at Asia Pacific
Infrastructure III in the fourth quarter of 2025, and to a lesser extent, (iii) appreciation in investment value from the
Diversified Core Infrastructure Fund. Partially offsetting the increase were (i) a change in fee base for Asia Pacific
Infrastructure III in the fourth quarter of 2025, during which we earn fees on invested capital rather than committed capital,
(ii) payments to Global Atlantic policyholders, and (iii) distributions to fund investors as a result of realized proceeds, most
notably from one of our infrastructure separately managed accounts with a public pension plan and Global Infrastructure
Investors III.Credit and Liquid StrategiesThe following table reflects the changes in the FPAUM of our Credit and Liquid Strategies business line from December
31, 2024 to December 31, 2025 :($ in millions)December 31, 2024
$ 252,684
New Capital Raised
60,107
Distributions and Other
(24,977)
Redemptions
(5,968)
Change in Value
7,608
December 31, 2025
$ 289,454
FPAUM of our Credit and Liquid Strategies business line was $289.5 billion as of December 31, 2025 , an increase of
$36.8 billion, compared to $252.7 billion as of December 31, 2024 .
The increase was primarily attributable to (i) new capital raised from Global Atlantic inflows and deployment at various
private credit and leveraged credit investment funds, (ii) the issuance of CLOs, and, to a lesser extent, (iii) investment value
appreciation on assets managed by Marshall Wace. Partially offsetting the increase were (i) payments to Global Atlantic
policyholders, (ii) distributions to, and redemptions from, fund investors at certain private and leveraged credit funds, and (iii)
redemptions at Marshall Wace.
110Table of ContentsUncalled Commitments
Private EquityAs of December 31, 2025 , our Private Equity business line had $52.3 billion of remaining uncalled commitments that
could be called for investments in new transactions as compared to $54.9 billion as of December 31, 2024. The decrease was
primarily attributable to (i) the release of capital commitments related to one of our strategic investor partnerships with an
insurance client and (ii) capital called from fund investors to make investments, largely offset by new capital commitments
from fund investors during the period.Real AssetsAs of December 31, 2025 , our Real Assets business line had $35.0 billion of remaining uncalled commitments that could
be called for investments in new transactions as compared to $33.3 billion as of December 31, 2024. The increase was
primarily attributable to new capital commitments from fund investors, which was partially offset by capital called from fund
investors to make investments during the period.Credit and Liquid StrategiesAs of December 31, 2025 , our Credit and Liquid Strategies business line had $31.1 billion of remaining uncalled
commitments that could be called for investments in new transactions as compared to $21.4 billion as of December 31, 2024.
The increase was primarily attributable to new capital commitments from fund investors, which was partially offset by capital
called from fund investors to make investments during the period.Capital Invested
Private EquityFor the year ended December 31, 2025 , $24.1 billion of capital was invested by our Private Equity business line, as
compared to $17.1 billion for the year ended December 31, 2024 . The increase was driven primarily by a $4.7 billion increase
in capital invested in our core private equity strategy and a $2.5 billion increase in capital invested in our traditional private
equity strategy. During the year ended December 31, 2025 , 41% of capital deployed in private equity was in transactions in
North America, 39% was in Europe, and 20% was in the Asia-Pacific region. The number of large private equity investments
made in any quarterly or year-to-date period is volatile and, consequently, a significant amount of capital invested in one
period or a few periods may not be indicative of a similar level of capital deployment in future periods.Real AssetsFor the year ended December 31, 2025 , $26.7 billion of capital was invested by our Real Assets business line, as
compared to $27.9 billion for the year ended December 31, 2024 . The decrease was driven primarily by a $3.8 billion decrease
in capital invested in our real estate strategy, partially offset by (i) a $1.7 billion increase in capital invested in our
infrastructure strategy and (ii) a $0.8 billion increase in capital invested in our energy strategy. During the year ended
December 31, 2025 , 53% of capital deployed in real assets was in transactions in North America, 22% was in Europe, and 25%
was in the Asia-Pacific region. The number of large real assets investments made in any quarterly or year-to-date period is
volatile and, consequently, a significant amount of capital invested in one period or a few periods may not be indicative of a
similar level of capital deployment in future periods.Credit and Liquid StrategiesFor the year ended December 31, 2025 , $43.8 billion of capital was invested by our Credit and Liquid Strategies business
line, as compared to $38.6 billion for the year ended December 31, 2024 . The increase was driven primarily by a higher level
of capital deployed across our private credit strategies, most notably direct lending. During the year ended December 31,
2025 , 79% of capital deployed was in transactions in North America, 16% was in Europe, and 5% was in the Asia-Pacific region.
111Table of Contents
Analysis of Insurance Segment Operating ResultsThe following table sets forth information regarding KKR's insurance segment operating results for the years ended
December 31, 2025 and 2024 :Years Ended($ in thousands)December 31, 2025
December 31, 2024
ChangeNet Investment Income$ 7,224,118
$ 6,328,822
$ 895,296Net Cost of Insurance(5,229,343)
(4,448,886)
(780,457)
General, Administrative and Other
(885,380)
(865,390)
(19,990)
Insurance Operating Earnings
$ 1,109,395
$ 1,014,546
$ 94,849
Net Investment Income
Net investment income increased for the year ended December 31, 2025 , as compared to the year ended December 31,
2024 , primarily due to (i) increased average assets under management from the cumulative impact of new business volume
growth, and (ii) higher average portfolio yields.
Net Cost of Insurance
Net cost of insurance increased for the year ended December 31, 2025 , as compared to the year ended December 31,
2024 , primarily due to (i) growth in reserves in the institutional and individual market channels as a result of the cumulative
impact of new business volumes in the current year, and (ii) higher average funding costs due to higher crediting rates and the
routine run-off of older business originated in a lower interest rate environment.
Net cost of insurance for the year ended December 31, 2025 , also reflects a $40.1 million favorable impact from the
annual assumption review changes (as discussed above under —Consolidated Results of Operations (GAAP Basis)—Net Policy
Benefits and Claims) due to (i) higher expected yield assumptions for certain interest-sensitive life products, and (ii) favorable
expected surrender and persistency assumption changes for certain variable annuity and life insurance products offset in part
by (i) higher mortality rate assumptions for certain life insurance products, and (ii) higher surrender rate assumptions for
certain assumed annuity products.
General, Administrative and Other
General, administrative and other expenses increased for the year ended December 31, 2025 , as compared to the year
ended December 31, 2024 , primarily due to (i) an increase in cash compensation expenses, and (ii) higher interest expense
primarily reflecting higher levels of borrowing.
Insurance Operating Earnings
Insurance operating earnings increased for the year ended December 31, 2025 , as compared to the year ended December
31, 2024 , primarily due to an increase in net investment income due to an increase in average assets under management and
higher portfolio yields, and the favorable impact of the annual assumption review, partially offset by an increase in net cost of
insurance due to the cumulative impact of new business volume growth and higher crediting rates.
112Table of ContentsAnalysis of Strategic Holdings Segment Operating Results
The following table sets forth information regarding KKR's strategic holdings segment operating results for the years
ended December 31, 2025 and 2024 :Years Ended($ in thousands)December 31, 2025
December 31, 2024
Change
Dividends, Net
$ 162,096
$ 76,211
$ 85,885
Strategic Holdings Operating Earnings
162,096
76,211
85,885
Net Realized Investment Income
69,861
87,693
(17,832)
Strategic Holdings Segment Earnings
$ 231,957
$ 163,904
$ 68,053
Dividends, Net
For the year ended December 31, 2025 , dividends, net were comprised of dividend income from 1-800 Contacts, Exact
Holding B.V., April S.A., Atlantic Aviation FBO Inc. (infrastructure: transportation sector) and ERM Worldwide Group Limited
(services sector). For the year ended December 31, 2024 , dividends, net were comprised of dividend income from 1-800
Contacts Inc., Exact Holdings B.V., Viridor Limited (energy and energy transition sector), FiberCop S.p.A., Arnott's Biscuits
Limited (consumer products sector) and Atlantic Aviation FBO Inc. For the year ended December 31, 2025 , the contractual
management fee charged by our Asset Management segment was $36.6 million and for the year ended December 31, 2024 ,
the management fee was $31.8 million.
Net Realized Investment Income
For the year ended December 31, 2025 , net realized investment income was comprised of realized gains from the sale of
CyrusOne Inc. (infrastructure: telecommunications sector) and Refresco Group B.V. (manufacturing sector). For the year
ended December 31, 2024 net realized investment income was comprised of a realized gain from the sale of FiberCop S.p.A.
Realized investment income earned in our Strategic Holdings segment is reduced by a contractual performance fee charged by
our Asset Management segment. For the year ended December 31, 2025 , the performance fee was $12.3 million and for the
year ended December 31, 2024 , the performance fee was $15.5 million.
Strategic Holdings Segment Earnings
Strategic Holdings segment earnings for the year ended December 31, 2025 , was higher compared to the prior period
primarily due to a higher level of dividends, partially offset by a lower level of net realized investment income.
113Table of ContentsAnalysis of Non-GAAP Performance Measures
The following is a discussion of our Non-GAAP performance measures for the years ended December 31, 2025 and 2024 .
For a discussion comparing our Non-GAAP performance measures for the years ended December 31, 2024 and 2023, see "Part
II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on
Form 10-K for the year ended December 31, 2024, filed with the SEC on February 28, 2025.Years Ended($ in thousands)December 31, 2025
December 31, 2024
ChangeFee Related Earnings$ 3,714,313
$ 3,267,796
$ 446,517
Insurance Operating Earnings
1,109,395
1,014,546
94,849
Strategic Holdings Operating Earnings
162,096
76,211
85,885
Total Operating Earnings
4,985,804
4,358,553
627,251
Net Realized Performance Income
491,736
608,788
(117,052)
Net Realized Investment Income
412,796
542,163
(129,367)
Total Investing Earnings
904,532
1,150,951
(246,419)
Total Segment Earnings
5,890,336
5,509,504
380,832
Interest Expense, Net and Other
(404,800)
(318,441)
(86,359)
Income Taxes on Adjusted Earnings
(1,108,064)
(988,797)
(119,267)
Adjusted Net Income
$ 4,377,472
$ 4,202,266
$ 175,206
Total Operating Earnings
The increase in total operating earnings for the year ended December 31, 2025 compared to the prior period was
primarily due to a higher level of fee related earnings and to a lesser extent insurance operating earnings and strategic
holdings operating earnings. For a discussion of fee related earnings, insurance operating earnings, and strategic holdings
operating earnings, see "—Analysis of Asset Management Segment Operating Results", "—Analysis of Insurance Segment
Operating Results", and "—Analysis of Strategic Holdings Segment Operating Results."
Total Investing Earnings
The decrease in total investing earnings for the year ended December 31, 2025 compared to the prior period was
primarily due to (i) a lower level of net realized investment income and (ii) a lower level of net realized performance income
due to the reduction in realized performance income for the repayment of the Asian Fund II clawback obligation in the fourth
quarter of 2025 . For a discussion of net realized performance income and net realized investment income, see "—Analysis of
Asset Management Segment Operating Results" and "—Analysis of Strategic Holdings Segment Operating Results."
Total Segment Earnings
The increase in total segment earnings for the year ended December 31, 2025 compared to the prior period was primarily
due to an increase in total operating earnings, offset by a decrease in total investing earnings.
Adjusted Net Income
The increase in adjusted net income for the year ended December 31, 2025 compared to the prior period was primarily
due to a higher level of total segment earnings, partially offset by an increase in income taxes on adjusted earnings and
interest expense, net and other.
Interest Expense, Net and Other
The increase in interest expense, net and other for the year ended December 31, 2025 compared to the prior period was
primarily due to dividends paid on the Series D Mandatory Convertible Preferred Stock that was issued in the first quarter of
2025.
114Table of ContentsIncome Taxes on Adjusted Earnings
The increase in income taxes on adjusted earnings for the year ended December 31, 2025 compared to the prior period
was primarily due to a higher level of total segment earnings.
For the years ended December 31, 2025 and 2024, the amount of the tax benefit from equity-based compensation
included in income taxes on adjusted earnings was $124.4 million and $126.7 million, respectively. The inclusion of the tax
benefit from equity-based compensation in Adjusted Net Income had the effect of increasing this measure by 3% for both the
years ended December 31, 2025 and 2024 .
115Table of ContentsFund Performance MetricsPrivate EquityThe table below presents information as of December 31, 2025 , relating to our current private equity and other
investment vehicles reported in our Private Equity business line for which we have the ability to earn carried interest. This
data does not reflect acquisitions or disposals of investments, changes in investment values, or distributions occurring after
December 31, 2025 .
Investment Period
Amount ($ in millions)
Start
Date (1)
End
Date (2)
Commitment (3)
Uncalled
Commitments
Invested
Realized
Remaining
Cost (4)
Remaining
Fair Value
Gross Accrued
Carried
Interest
Private Equity Business Line
North America Fund XIV
4/2025
4/2031
$ 19,375
$ 19,375
$ —
$ —
$ —
$ —
$ —
North America Fund XIII
8/2021
4/2025
18,400
1,438
17,265
353
16,817
23,888
1,109
Americas Fund XII
5/2017
5/2021
13,500
1,364
12,773
16,281
8,626
18,431
1,661
North America Fund XI
11/2012
1/2017
8,718
48
10,203
23,541
1,861
3,196
258
2006 Fund (5)
9/2006
9/2012
17,642
—
17,309
37,423
—
—
—
Millennium Fund (5)
12/2002
12/2008
6,000
—
6,000
14,129
—
—
—
Ascendant Fund
6/2022
6/2028
4,328
2,672
1,656
—
1,656
1,988
32
European Fund VI
6/2022
6/2028
7,549
2,568
4,981
—
4,045
5,298
—
European Fund V
7/2019
2/2022
6,384
524
5,982
2,909
4,539
6,901
431
European Fund IV
2/2015
3/2019
3,513
17
3,648
5,726
1,621
2,339
122
European Fund III (5)
3/2008
3/2014
5,506
—
5,360
10,647
—
—
—
European Fund II (5)
11/2005
10/2008
5,751
—
5,751
8,533
—
—
—
Asian Fund IV
7/2020
7/2026
14,735
5,010
10,900
3,948
10,006
14,702
873
Asian Fund III
8/2017
7/2020
9,000
1,267
8,269
10,200
5,202
9,947
996
Asian Fund II
10/2013
3/2017
5,825
—
7,507
6,723
1,269
772
—
Asian Fund (5)
7/2007
4/2013
3,983
—
3,974
8,728
—
—
—
Next Generation Technology Growth Fund III
11/2022
11/2028
2,740
734
2,006
—
2,006
2,297
1
Next Generation Technology Growth Fund II
12/2019
5/2022
2,088
54
2,269
1,846
1,610
2,477
153
Next Generation Technology Growth Fund
3/2016
12/2019
659
3
671
1,314
241
806
59
Health Care Strategic Growth Fund II
5/2021
5/2027
3,789
1,657
2,132
—
2,132
3,022
111
Health Care Strategic Growth Fund
12/2016
4/2021
1,331
98
1,397
1,021
991
1,737
133
Global Impact Fund II
6/2022
6/2028
2,715
1,379
1,337
—
1,006
1,382
—
Global Impact Fund
2/2019
3/2022
1,242
213
1,212
646
950
1,479
102
Co-Investment Vehicles and Other
Various
Various
41,346
3,291
38,772
17,793
27,088
35,506
1,763
Core Investors II
8/2022
8/2027
11,814
7,957
3,858
108
3,858
4,836
24
Core Investors I
2/2018
8/2022
8,500
23
10,489
2,627
8,775
17,911
91
Other Core Vehicles
Various
Various
7,628
1,178
6,525
2,229
5,787
9,237
29
Unallocated Commitments (6)
N/A
N/A
1,407
1,407
—
—
—
—
—
Total Private Equity
$ 235,468
$ 52,277
$ 192,246
$ 176,725
$ 110,086
$ 168,152
$ 7,948
(1) The start date represents the start of the fund's investment period as defined in the fund's governing documents and may or may not be the same as the
date upon which management fees begin to accrue.
(2) The end date represents the end of the fund's investment period as defined in the fund's governing documents and is generally not the date upon which
management fees cease to accrue. For funds that initially charge management fees on the basis of committed capital, the end date is generally the date
on or after which the management fees begin to be calculated instead on the basis of invested capital and may, for certain funds, begin to be calculated
using a lower rate.
(3) The commitment represents the aggregate capital commitments to the fund, including capital commitments by third-party fund investors and the general
partner. Foreign currency commitments have been converted into U.S. dollars based on the exchange rate that prevailed on December 31, 2025 .
(4) The remaining cost represents the initial investment of the general partner and limited partners, reduced for returns of capital.
(5) The "Invested" and "Realized" columns do not include the amounts of any realized investments that restored the unused capital commitments of the fund
investors, if any.
(6) "Unallocated Commitments" represent commitments received from our strategic investor partnerships that have yet to be allocated to a particular
investment strategy.
116Table of ContentsReal AssetsThe table below presents information as of December 31, 2025 , relating to our current real asset and other investment
vehicles reported in our Real Assets business line for which we have the ability to earn carried interest. This data does not
reflect acquisitions or disposals of investments, changes in investment values, or distributions occurring after December 31,
2025 .
Investment Period
Amount ($ in millions)
Start
Date (1)
End
Date (2)
Commitment (3)
Uncalled
Commitments
Invested
Realized
Remaining
Cost (4)
Remaining
Fair Value
Gross Accrued
Carried
Interest
Real Assets Business Line
Global Infrastructure Investors V
7/2024
7/2030
$ 15,732
$ 12,051
$ 3,794
$ 113
$ 3,794
$ 3,912
$ —
Global Infrastructure Investors IV
8/2021
6/2024
16,615
1,739
15,247
1,681
14,536
19,468
997
Global Infrastructure Investors III
7/2018
6/2021
7,174
862
6,678
5,798
3,331
4,573
183
Global Infrastructure Investors II
12/2014
6/2018
3,040
133
3,167
5,757
560
977
50
Global Infrastructure Investors
9/2010
10/2014
1,040
—
1,050
2,228
—
—
—
Asia Pacific Infrastructure Investors III
12/2025
12/2031
3,548
3,548
—
—
—
—
—
Asia Pacific Infrastructure Investors II
9/2022
9/2028
6,348
3,314
3,436
770
2,761
4,049
238
Asia Pacific Infrastructure Investors
1/2020
9/2022
3,792
593
3,561
2,279
2,216
3,069
192
Diversified Core Infrastructure Fund
12/2020
(5)
12,921
1,186
12,022
1,552
11,943
13,217
—
Global Climate Transition Fund (6)
7/2024
7/2030
3,053
3,053
—
—
—
—
—
Real Estate Partners Americas IV
11/2024
11/2028
2,196
2,196
—
—
—
—
—
Real Estate Partners Americas III
1/2021
9/2024
4,253
530
3,958
348
3,709
4,216
—
Real Estate Partners Americas II
5/2017
12/2020
1,921
117
1,986
2,871
265
254
(3)
Real Estate Partners Americas
5/2013
5/2017
1,229
15
1,024
1,445
—
—
(4)
Real Estate Partners Europe II
3/2020
12/2023
2,067
254
2,019
569
1,676
1,602
—
Real Estate Partners Europe
8/2015
12/2019
710
100
694
806
173
125
(18)
Asia Real Estate Partners
7/2019
7/2023
1,682
357
1,371
559
994
991
—
Property Partners Americas
12/2019
(5)
2,571
46
2,525
159
2,525
2,296
—
Real Estate Credit Opportunity Partners II
8/2019
6/2023
950
—
976
469
853
869
28
Real Estate Credit Opportunity Partners
2/2017
4/2019
1,130
122
1,008
677
965
1,001
5
Energy Related Vehicles
Various
Various
4,357
62
4,493
2,505
1,000
1,428
44
Co-Investment Vehicles and Other
Various
Various
19,098
2,471
16,682
3,876
14,895
16,078
105
Unallocated Commitments (7)
N/A
N/A
1,389
1,389
—
—
—
—
—
Total Real Assets
$ 116,816
$ 34,138
$ 85,691
$ 34,462
$ 66,196
$ 78,125
$ 1,817
(1) The start date represents the start of the fund's investment period as defined in the fund's governing documents and may or may not be the same as the
date upon which management fees begin to accrue.
(2) The end date represents the end of the fund's investment period as defined in the fund's governing documents and is generally not the date upon which
management fees cease to accrue. For funds that initially charge management fees on the basis of committed capital, the end date is generally the date
on or after which the management fees begin to be calculated instead on the basis of invested capital and may, for certain funds, begin to be calculated
using a lower rate.
(3) The commitment represents the aggregate capital commitments to the fund, including capital commitments by third-party fund investors and the general
partner. Foreign currency commitments have been converted into U.S. dollars based on the exchange rate that prevailed on December 31, 2025 .
(4) The remaining cost represents the initial investment of the general partner and limited partners, reduced for returns of capital.
(5) Open-ended fund.
(6) In cludes an Asia-focused vehicle with different fund terms.
(7) "Unallocated Commitments" represent commitments received from our strategic investor partnerships that have yet to be allocated to a particular
investment strategy.
Private Equity and Real Asset Performance
The table below presents information as of December 31, 2025 , relating to the historical performance of certain of our
Private Equity and Real Assets investment vehicles since inception, which we believe illustrates the benefits of our investment
approach. This data does not reflect additional capital raised since December 31, 2025 , or acquisitions or disposals of
investments, changes in investment values, or distributions occurring after that date. The information presented below is not
intended to be representative of any past or future performance for any particular period other than the period presented
below. Past performance is no guarantee of future results.
117
Table of Contents
Private Equity and Real Assets Business Lines
Investment Funds and Other Vehicles
Commitment (2)
Invested
Realized (4)
Unrealized
Total Value
Gross
IRR (5)
Net
IRR (5)
Gross
Multiple of
Invested
Capital (5)($ in millions)Total Investments
Legacy Funds (1)
1976 Fund
$ 31
$ 31
$ 537
$ —
$ 537
39.5 %
35.5 %
17.1
1980 Fund
357
357
1,828
—
1,828
29.0 %
25.8 %
5.1
1982 Fund
328
328
1,291
—
1,291
48.1 %
39.2 %
3.9
1984 Fund
1,000
1,000
5,964
—
5,964
34.5 %
28.9 %
6.0
1986 Fund
672
672
9,081
—
9,081
34.4 %
28.9 %
13.5
1987 Fund
6,130
6,130
14,949
—
14,949
12.1 %
8.9 %
2.4
1993 Fund
1,946
1,946
4,143
—
4,143
23.6 %
16.8 %
2.1
1996 Fund
6,012
6,012
12,477
—
12,477
18.0 %
13.3 %
2.1
Subtotal - Legacy Funds
16,475
16,475
50,269
—
50,269
26.1 %
19.9 %
3.1
Included Funds
European Fund (1999)
3,085
3,085
8,758
—
8,758
26.9 %
20.2 %
2.8
Millennium Fund (2002)
6,000
6,000
14,129
—
14,129
22.0 %
16.1 %
2.4
European Fund II (2005)
5,751
5,751
8,533
—
8,533
6.1 %
4.5 %
1.5
2006 Fund (2006)
17,642
17,309
37,423
—
37,423
11.9 %
9.3 %
2.2
Asian Fund (2007)
3,983
3,974
8,728
—
8,728
18.9 %
13.7 %
2.2
European Fund III (2008)
5,506
5,360
10,647
—
10,647
16.4 %
11.2 %
2.0
E2 Investors (Annex Fund) (2009)
196
196
200
—
200
0.6 %
0.5 %
1.0
China Growth Fund (2010)
1,010
1,010
1,166
—
1,166
3.7 %
— %
1.2
Natural Resources Fund (2010)
887
887
168
—
168
(24.3) %
(25.9) %
0.2
Global Infrastructure Investors (2010)
1,040
1,050
2,228
—
2,228
17.6 %
15.6 %
2.1
North America Fund XI (2012)
8,718
10,203
23,541
3,196
26,737
23.4 %
18.8 %
2.6
Asian Fund II (2013)
5,825
7,507
6,723
772
7,495
(0.1) %
(1.5) %
1.0
Real Estate Partners Americas (2013)
1,229
1,024
1,445
—
1,445
15.8 %
10.9 %
1.4
Energy Income and Growth Fund (2013)
1,589
1,589
1,221
—
1,221
(6.2) %
(8.6) %
0.8
Global Infrastructure Investors II (2014)
3,040
3,167
5,757
977
6,734
19.3 %
16.7 %
2.1
European Fund IV (2015)
3,513
3,648
5,726
2,339
8,065
21.0 %
16.0 %
2.2
Real Estate Partners Europe (2015)
710
694
806
125
931
9.9 %
7.1 %
1.3
Next Generation Technology Growth Fund (2016)
659
671
1,314
806
2,120
27.6 %
23.4 %
3.2
Health Care Strategic Growth Fund (2016)
1,331
1,397
1,021
1,737
2,758
17.7 %
12.8 %
2.0
Americas Fund XII (2017)
13,500
12,773
16,281
18,431
34,712
23.9 %
19.9 %
2.7
Real Estate Credit Opportunity Partners (2017)
1,130
1,008
677
1,001
1,678
9.1 %
7.8 %
1.7
Core Investors I (2018)
8,500
10,489
2,627
17,911
20,538
15.4 %
13.3 %
2.0
Asian Fund III (2017)
9,000
8,269
10,200
9,947
20,147
24.1 %
18.8 %
2.4
Real Estate Partners Americas II (2017)
1,921
1,986
2,871
254
3,125
23.7 %
19.1 %
1.6
Global Infrastructure Investors III (2018)
7,174
6,678
5,798
4,573
10,371
12.2 %
9.6 %
1.6
Global Impact Fund (2019)
1,242
1,212
646
1,479
2,125
16.2 %
11.8 %
1.8
European Fund V (2019)
6,384
5,982
2,909
6,901
9,810
13.5 %
10.7 %
1.6
Energy Income and Growth Fund II (2018)
994
1,199
651
1,259
1,910
12.1 %
10.6 %
1.6
Asia Real Estate Partners (2019)
1,682
1,371
559
991
1,550
4.5 %
1.4 %
1.1
Next Generation Technology Growth Fund II (2019)
2,088
2,269
1,846
2,477
4,323
19.5 %
15.4 %
1.9
Real Estate Credit Opportunity Partners II (2019)
950
976
469
869
1,338
10.0 %
7.7 %
1.4
Asia Pacific Infrastructure Investors (2020)
3,792
3,561
2,279
3,069
5,348
16.0 %
11.9 %
1.5
Asian Fund IV (2020)
14,735
10,900
3,948
14,702
18,650
23.7 %
17.7 %
1.7
Real Estate Partners Europe II (2020)
2,067
2,019
569
1,602
2,171
2.7 %
0.5 %
1.1
Real Estate Partners Americas III (2021)
4,253
3,958
348
4,216
4,564
5.3 %
3.5 %
1.2
Health Care Strategic Growth Fund II (2021)
3,789
2,132
—
3,022
3,022
20.2 %
11.6 %
1.4
North America Fund XIII (2021)
18,400
17,265
353
23,888
24,241
17.3 %
13.1 %
1.4
Core Investors II (2022)
11,814
3,858
108
4,836
4,944
13.0 %
11.4 %
1.3
Global Infrastructure Investors IV (2021)
16,615
15,247
1,681
19,468
21,149
14.7 %
11.4 %
1.4
Asia Pacific Infrastructure Investors II (2022)
6,348
3,436
770
4,049
4,819
31.5 %
22.4 %
1.4
Ascendant Fund (2022)
4,328
1,656
—
1,988
1,988
21.0 %
9.2 %
1.2
Next Generation Technology Growth Fund III (2022)
2,740
2,006
—
2,297
2,297
13.9 %
6.0 %
1.1
European Fund VI (2022)
7,549
4,981
—
5,298
5,298
4.7 %
0.7 %
1.1
Global Impact Fund II (2022)
2,715
1,337
—
1,382
1,382
2.4 %
(4.4) %
1.0
Global Infrastructure Investors V (2024) (3)
15,732
3,794
113
3,912
4,025
—
—
—
Global Climate Transition Fund (2024) (3)
3,053
—
—
—
—
—
—
—
Real Estate Partners Americas IV (2024) (3)
2,196
—
—
—
—
—
—
—
North America Fund XIV (2025) (3)
19,375
—
—
—
—
—
—
—
Asia Pacific Infrastructure Investors III (2025) (3)
3,548
—
—
—
—
—
—
—
Subtotal - Included Funds
269,328
204,884
195,237
169,774
365,011
15.9 %
12.2 %
1.8
All Funds
$ 285,803
$ 221,359
$ 245,506
$ 169,774
$ 415,280
25.5 %
18.6 %
1.9
(1) These funds were not contributed to KKR as part of the acquisition of the assets and liabilities of KKR & Co. (Guernsey) L.P. (formerly known as KKR Private
Equity Investors, L.P.) on October 1, 2009.
(2) Where commitments are not U.S. dollar-denominated, such amounts have been converted into U.S. dollars based on the exchange rate prevailing on
December 31, 2025 .
(3) The gross IRR, net IRR and gross multiple of invested capital are calculated for our investment funds that made their first investment at least 24 months
prior to December 31, 2025 . We therefore have not calculated gross IRRs, net IRRs and gross multiples of invested capital with respect to these funds.
118Table of Contents(4) An investment is considered realized when it has been disposed of or has otherwise generated disposition proceeds or current income that has been
distributed by the relevant fund.
(5) IRRs measure the aggregate annual compounded returns generated by a fund's investments over a holding period. Net IRRs are calculated after giving
effect to the allocation of realized and unrealized carried interest and the payment of any applicable management fees and organizational expenses.
Gross IRRs are calculated before giving effect to the allocation of realized and unrealized carried interest and the payment of any applicable management
fees and organizational expenses.
The gross multiples of invested capital measure the aggregate value generated by a fund's investments in absolute terms. Each multiple of invested capital
is calculated by adding together the total realized and unrealized values of a fund's investments and dividing by the total amount of capital invested by the
fund. Such amounts do not give effect to the allocation of realized and unrealized carried interest or the payment of any applicable management fees or
organizational expenses.
KKR's Private Equity and Real Assets funds may utilize third-party financing facilities to provide liquidity to such funds. The above net and gross IRRs are
calculated from the time capital contributions are due from fund investors to the time fund investors receive a related distribution from the fund, and the
use of such financing facilities generally decreases the amount of time that would otherwise be used to calculate IRRs, which tends to increase IRRs when
fair value grows over time and decrease IRRs when fair value decreases over time.
For more information, see "Risk Factors—Risks Related to Our Investment Activities—Future results of our investments
may be different than, and may not achieve the levels of, any of our historical returns" in this report.Credit and Liquid StrategiesThe table below presents information as of December 31, 2025 , relating to our current credit investment vehicles
reported in our Credit and Liquid Strategies business line for which we have the ability to earn carried interest. This data does
not reflect acquisitions or disposals of investments, changes in investment values, or distributions occurring after December
31, 2025 .
Investment Period
Amount ($ in millions)
Start
Date (1)
End
Date (2)
Commitment (3)
Uncalled
Commitments
Invested
Realized
Remaining
Cost (4)
Remaining
Fair Value
Gross Accrued
Carried
Interest
Line
Opportunities Fund II
11/2021
1/2026
$ 2,420
$ 897
$ 1,523
$ 96
$ 1,523
$ 1,851
$ 49
Dislocation Opportunities Fund
8/2019
11/2021
2,967
278
2,689
1,997
1,305
1,411
80
Special Situations Fund II
2/2015
3/2019
3,525
284
3,241
2,651
615
658
—
Special Situations Fund
1/2013
1/2016
2,274
1
2,273
1,899
94
139
—
Mezzanine Partners
7/2010
3/2015
1,023
33
990
1,166
184
23
—
Asset-Based Finance Partners II
3/2024
3/2028
5,571
4,420
1,151
—
1,151
1,194
1
Asset-Based Finance Partners
10/2020
7/2025
2,059
426
1,633
341
1,557
1,681
77
Private Credit Opportunities Partners II
12/2015
12/2020
2,245
188
2,057
1,090
1,264
1,137
—
Lending Partners IV
3/2022
9/2026
1,150
173
977
178
977
1,015
14
Lending Partners III
4/2017
11/2021
1,498
540
958
1,240
390
366
34
Lending Partners II
6/2014
6/2017
1,336
157
1,179
1,261
71
18
—
Lending Partners
12/2011
12/2014
460
40
420
458
23
8
—
Lending Partners Europe II
5/2019
9/2023
837
164
672
766
212
240
9
Lending Partners Europe
3/2015
3/2019
848
184
662
626
66
55
—
Asia Credit Opportunities II
2/2025
12/2028
1,795
1,795
—
—
—
—
—
Asia Credit Opportunities
1/2021
5/2025
1,084
243
841
245
708
892
40
Other Alternative Credit Vehicles
Various
Various
18,363
7,797
10,607
7,188
5,608
7,069
(4)
Total Credit and Liquid Strategies
$ 49,455
$ 17,620
$ 31,873
$ 21,202
$ 15,748
$ 17,757
$ 300
(1) The start date represents the start of the fund's investment period as defined in the fund's governing documents and may or may not be the same as the
date upon which management fees begin to accrue.
(2) The end date represents the end of the fund's investment period as defined in the fund's governing documents and is generally not the date upon which
management fees cease to accrue. For funds that initially charge management fees on the basis of committed capital, the end date is generally the date
on or after which the management fees begin to be calculated instead on the basis of invested capital and may, for certain funds, begin to be calculated
using a lower rate.
(3) The commitment represents the aggregate capital commitments to the fund, including capital commitments by third-party fund investors and the general
partner. Foreign currency commitments have been converted into U.S. dollars based on the foreign exchange rate that prevailed on December 31, 2025 .
(4) The remaining cost represents the initial investment of the general partner and limited partners, reduced for returns of capital.
The following table presents information regarding certain leveraged credit strategies managed by KKR from inception to
December 31, 2025 . The information presented below is not intended to be representative of any past or future performance
for any particular period other than the period presented below. Past performance is no guarantee of any future result.
119Table of ContentsLeveraged Credit Strategy
Inception Date
Gross
Returns
Net
Returns
Benchmark (1)
Benchmark
Gross
Returns
Multi-Asset Credit Composite
Jul 2008
7.18 %
6.49 %
50% S&P/LSTA Loan Index, 50% BoAML HY Master II
Index (2)
5.89%
Opportunistic Credit (3)
May 2008
10.36 %
8.87 %
50% S&P/LSTA Loan Index, 50% BoAML HY Master II
Index (3)
6.06%
Bank Loans
Apr 2011
5.89 %
5.32 %
S&P/LSTA Loan Index (4)
4.93%
High-Yield
Apr 2011
6.34 %
5.76 %
BoAML HY Master II Index (5)
5.74%
European Leveraged Loans (6)
Sep 2009
4.95 %
4.43 %
CS Inst West European Leveraged Loan Index (7)
4.05%
European Credit Opportunities (6)
Sept 2007
6.84 %
5.61 %
S&P European Leveraged Loans (All Loans) (8)
4.50%
(1) The benchmarks referred to herein include the S&P/LSTA Leveraged Loan Index (the "S&P/LSTA Loan Index"), S&P/LSTA U.S. B/BB Ratings Loan Index (the
"S&P/LSTA BB-B Loan Index"), the Bank of America Merrill Lynch High Yield Master II Index (the "BoAML HY Master II Index"), the BofA Merrill Lynch BB-B
US High Yield Index (the "BoAML HY BB-B Constrained"), the Credit Suisse Institutional Western European Leveraged Loan Index (the "CS Inst West
European Leveraged Loan Index"), and S&P European Leveraged Loans (All Loans). The S&P/LSTA Loan Index is a daily tradable index for the U.S. loan
market that seeks to mirror the market-weighted performance of the largest institutional loans that meet certain criteria. The BoAML HY Master II Index is
an index for high-yield corporate bonds. It is designed to measure the broad high-yield market, including lower-rated securities. The CS Inst West
European Leveraged Loan Index contains only institutional loan facilities priced above 90, excluding TL and TLa facilities and loans rated CC, C or are in
default. The S&P European Leveraged Loan Index reflects the market-weighted performance of institutional leveraged loan portfolios investing in
European credits. While the returns of our leveraged credit strategies reflect the reinvestment of income and dividends, none of the indices presented in
the chart above reflect such reinvestment, which has the effect of increasing the reported relative performance of these strategies as compared to the
indices. Furthermore, these indices are not subject to management fees, incentive allocations, or expenses.
(2) Performance is based on a blended composite of Bank Loans, High Yield, and Structured Credit strategy accounts. The benchmark used for purposes of
comparison for the Multi-Asset Credit Composite strategy is based on 65% S&P/LSTA Loan Index and 35% BoAML HY Master II Index to May 2022, and
50% S&P/LSTA Loan Index, 50% BoAML HY Master II Index, from June 2022.
(3) The Opportunistic Credit strategy invests in high-yield securities and corporate loans with no preset allocation. The benchmark used for purposes of
comparison for the Opportunistic Credit strategy presented herein is based on 50% S&P/LSTA Loan Index and 50% BoAML HY Master II Index. Funds
within this strategy may utilize third-party financing facilities to enhance investment returns. In cases where financing facilities are used, the amounts
drawn on the facility are deducted from the assets of the fund in the calculation of net asset value, which tends to increase returns when net asset value
grows over time and decrease returns when net asset value decreases over time.
(4) Performance is based on a composite of portfolios that primarily invest in leveraged loans. The benchmark used for purposes of comparison for the Bank
Loans strategy is based on the S&P/LSTA Loan Index.
(5) Performance is based on a composite of portfolios that primarily invest in high-yield securities. The benchmark used for purposes of comparison for the
High Yield strategy is based on the BoAML HY Master II Index.
(6) The returns presented are calculated based on local currency.
(7) Performance is based on a composite of portfolios that primarily invest in higher quality leveraged loans. The benchmark used for purposes of comparison
for the European Leveraged Loans strategy is based on the CS Inst West European Leveraged Loan Index.
(8) Performance is based on a composite of portfolios that primarily invest in European institutional leveraged loans. The benchmark used for purposes of
comparison for the European Credit Opportunities strategy is based on the S&P European Leveraged Loans (All Loans) Index.
120Table of ContentsThe following table presents information regarding our alternative credit investment funds where investors have capital
commitments from inception to December 31, 2025 . The information presented below is not intended to be representative of
any past or future performance for any particular period other than the period presented below. Past performance is no
guarantee of any future result.Credit and Liquid StrategiesInvestment Funds
Investment
Period Start
Date
Commitment
Invested (1)
Realized (1)
Unrealized
Total
Value
Gross
IRR (2)
Net
IRR (2)
Multiple of
Invested
Capital (3)($ in millions)Opportunities Fund II
Nov 2021
$ 2,420
$ 1,523
$ 96
$ 1,851
$ 1,947
17.4 %
13.3 %
1.3
Dislocation Opportunities Fund
Aug 2019
2,967
2,689
1,997
1,411
3,408
9.1 %
7.1 %
1.3
Special Situations Fund II
Feb 2015
3,525
3,241
2,651
658
3,309
0.5 %
(1.3) %
1.0
Special Situations Fund
Jan 2013
2,274
2,273
1,899
139
2,038
(2.3) %
(4.1) %
0.9
Mezzanine Partners
July 2010
1,023
990
1,166
23
1,189
6.5 %
2.7 %
1.2
Asset-Based Finance Partners II
Mar 2024
5,571
1,151
—
1,194
1,194
N/A
N/A
N/A
Asset-Based Finance Partners
Oct 2020
2,059
1,633
341
1,681
2,022
14.4 %
10.8 %
1.2
Private Credit Opportunities Partners II
Dec 2015
2,245
2,057
1,090
1,137
2,227
1.9 %
0.1 %
1.1
Lending Partners IV
Mar 2022
1,150
977
178
1,015
1,193
16.6 %
13.2 %
1.2
Lending Partners III
Apr 2017
1,498
958
1,240
366
1,606
14.1 %
11.5 %
1.7
Lending Partners II
Jun 2014
1,336
1,179
1,261
18
1,279
2.8 %
1.4 %
1.1
Lending Partners
Dec 2011
460
420
458
8
466
3.3 %
1.6 %
1.1
Lending Partners Europe II
May 2019
837
672
766
240
1,006
16.8 %
13.5 %
1.5
Lending Partners Europe
Mar 2015
848
662
626
55
681
0.9 %
(0.9) %
1.0
Asia Credit Opportunities II
Feb 2025
1,795
—
—
—
—
N/A
N/A
N/A
Asia Credit Opportunities
Jan 2021
1,084
841
245
892
1,137
15.3 %
11.6 %
1.4
Other Alternative Credit Investment Vehicles
Various
18,363
10,607
7,188
7,069
14,257
N/A
N/A
N/A
All Funds
$ 49,455
$ 31,873
$ 21,202
$ 17,757
$ 38,959
(1) Recycled capital is excluded from the amounts invested and realized.
(2) These credit funds utilize third-party financing facilities to provide liquidity to such funds, and in such event IRRs are calculated from the time capital
contributions are due from fund investors to the time fund investors receive a related distribution from the fund. The use of such financing facilities
generally decreases the amount of invested capital that would otherwise be used to calculate IRRs, which tends to increase IRRs when fair value grows
over time and decrease IRRs when fair value decreases over time. IRRs measure the aggregate annual compounded returns generated by a fund's
investments over a holding period and are calculated taking into account recycled capital. Net IRRs presented are calculated after giving effect to the
allocation of realized and unrealized carried interest and the payment of any applicable management fees and organizational expenses. Gross IRRs are
calculated before giving effect to the allocation of carried interest and the payment of any applicable management fees and organizational expenses.
(3) The multiples of invested capital measure the aggregate value generated by a fund's investments in absolute terms. Each multiple of invested capital is
calculated by adding together the total realized and unrealized values of a fund's investments and dividing by the total amount of capital invested by the
investors. The use of financing facilities generally decreases the amount of invested capital that would otherwise be used to calculate multiples of
invested capital, which tends to increase multiples when fair value grows over time and decrease multiples when fair value decreases over time. Such
amounts do not give effect to the allocation of any realized and unrealized returns on a fund's investments to the fund's general partner pursuant to a
carried interest or the payment of any applicable management fees and are calculated without taking into account recycled capital.
For additional information regarding impact of market conditions on the value and performance of our investments, see
"Risk Factors—Risks Related to Our Business—Difficult market and economic conditions can, and periodically do, materially
and adversely affect KKR." and "Risk Factors—Risks Related to Our Investment Activities—Future results of our investments
may be different than, and may not achieve the levels of, any of our historical returns" in this report.
121Table of ContentsSegment Balance Sheet Measures
Asset Management Segment Investment Portfolio
To the extent our investments are realized at values above or below their cost in future periods, adjusted net income
would be positively or negatively affected by the amount of any such gain or loss, respectively, during the period in which the
realization event occurs.
Our investments in the Asset Management segment by asset class as of December 31, 2025 are as follows:
As of December 31, 2025
Asset Management Segment Investments (1)
Cost
Fair Value
Fair Value as a % of
Total Asset
Management
Investments($ in thousands)Traditional Private Equity
$ 1,359,880
$ 3,313,869
38.4 %
Growth Equity
238,152
984,220
11.4 %
Private Equity Total
1,598,032
4,298,089
49.8 %
Real Estate
1,427,054
1,196,271
13.9 %
Infrastructure
267,116
527,916
6.1 %
Energy
47,811
296,533
3.4 %
Real Assets Total
1,741,981
2,020,720
23.4 %
Leveraged Credit
1,155,175
1,067,980
12.4 %
Alternative Credit
491,730
592,315
6.9 %
Credit Total
1,646,905
1,660,295
19.3 %
Other
684,723
651,073
7.5 %
Total Asset Management Segment Investments
$ 5,671,641
$ 8,630,177
100.0 %
(1) Investments is a term used solely for purposes of financial presentation of a portion of KKR's balance sheet and includes majority ownership of
subsidiaries that operate KKR's asset management and insurance businesses, including the general partner interests of KKR's investment funds.
Investments presented are principally the assets measured at fair value that are held by KKR's asset management segment, which, among other things,
does not include the underlying investments held by Global Atlantic and Marshall Wace. This table excludes investments in our Strategic Holdings and
Insurance segments, for which additional information is available in Note 21 "Segment Reporting" in our financial statements.
122Table of ContentsInsurance Segment Investment Portfolio
As of December 31, 2025, the Insurance segment’s investment portfolio (on an unconsolidated basis, excluding the
elimination of intercompany balances) consisted of the following categories of investments:($ in thousands)As of December 31, 2025
Fixed-maturity securities, available-for-sale
$ 95,672
48%
Fixed-maturity securities, trading
26,420
13%
Mortgage and other loan receivables
53,639
27%
Real assets
15,370
8%
Funds withheld receivables, at interest
2,324
1%
Other investments
6,936
3%
Total investments
$ 200,361
The portion of the Insurance segment’s investment portfolio consisting of floating rate assets was 27% and 25% as of
December 31, 2025 , and December 31, 2024 , respectively.
Credit Quality of Fixed Maturity Securities
As of December 31, 2025 , 95% , and 91% of the Insurance segment’s fixed maturity securities were considered investment
grade under ratings from the Securities Valuation Office of the NAIC and NRSROs, respectively. As of December 31, 2024 , 95% ,
and 90% of fixed maturity securities were considered investment grade under ratings from NAIC and NRSROs, respectively.
Securities where a rating by a NRSRO was not available are considered investment grade if they have a NAIC designation of
“1” or “2.”
The Securities Valuation Office of the NAIC evaluates the fixed maturity security investments of insurers for regulatory
reporting and capital assessment purposes and assigns securities to one of six credit quality categories called “NAIC
designations.” Using an internally developed rating is permitted by the NAIC if no rating is available. These designations are
generally similar to the credit quality designations of NRSROs for marketable fixed maturity securities, except for certain
structured securities as described below. NAIC designations of “1,” highest quality, and “2,” high quality, include fixed
maturity securities generally considered investment grade by NRSROs. NAIC designations “3” through “6” include fixed
maturity securities generally considered below investment grade by NRSROs.
Consistent with the NAIC Process and Procedures Manual, a NRSRO rating was assigned based on the following criteria: (i)
the equivalent S&P rating where the security is rated by one NRSRO; (ii) the equivalent S&P rating of the lowest NRSRO when
the security is rated by two NRSROs; and (iii) the equivalent S&P rating of the second lowest NRSRO if the security is rated by
three or more NRSROs. If the lowest two NRSROs’ ratings are equal, then such rating will be the assigned rating. NRSROs’
ratings available for the periods presented were S&P, Fitch, Moody’s, DBRS, Inc., and Kroll Bond Rating Agency, Inc. If no
rating is available from a rating agency, then an internally developed rating is used.
Within the funds withheld receivable at interest portfolio, 97% of the fixed maturity securities were investment grade by
NAIC designation as of both December 31, 2025 , and December 31, 2024 , respectively.
Trading fixed maturity securities primarily back funds withheld payable at interest where the investment performance is
ceded to reinsurers under the terms of the respective reinsurance agreements.
Unrealized Gains and Losses on Available-for-Sale Fixed Maturity Securities
The Insurance segment’s investments in available-for-sale (“AFS”) fixed maturity securities are reported at fair value with
changes in fair value recorded in other comprehensive income as unrealized gains or losses, net of taxes and offsets.
Unrealized gains and losses can be created by changes in interest rates or by changes in credit spreads.
123Table of ContentsAs of December 31, 2025 , and December 31, 2024 , the Insurance segment had gross unrealized losses on below
investment grade AFS fixed maturity securities of $313.8 million and $584.3 million based on NRSRO ratings, and $187.7
million and $245.6 million based on NAIC ratings, respectively. As of December 31, 2025 , unrealized losses were not
recognized in net income on these fixed maturity securities since the Insurance segments neither intends to sell the securities
nor does it believe that it is more likely than not that it will be required to sell these securities before recovery of their cost or
amortized cost basis.
Credit Quality of Mortgage and Other Loan Receivables
Mortgage and other loan receivables consist of commercial and residential mortgage loans, consumer loans, and other
loan receivables. As of December 31, 2025 , and December 31, 2024 , 27% and 30% of the total investments consisted of the
Insurance segment’s mortgage and other loan receivables, respectively.
The Insurance segment invests in U.S. mortgage loans, comprised of first lien and mezzanine commercial mortgage loans
and first lien residential mortgage loans. For the commercial mortgage loan portfolio, the most prevalent property type is
multi-family residential buildings, which represents approximately half of the portfolio as of both December 31, 2025 , and
December 31, 2024 . Office and retail properties represent approximately 21% and 20% of the portfolio as of December 31,
2025 and December 31, 2024 , respectively.
The Insurance segment’s commercial mortgage loans are assigned NAIC designations, with designations “CM1” and
“CM2” considered to be investment grade. As of both December 31, 2025 , and December 31, 2024 , 91% of the commercial
mortgage loan portfolio were rated investment grade based on NAIC designation, respectively. The payment status of over
99% of the commercial mortgage loan portfolio is current as of both December 31, 2025 , and December 31, 2024 ,
respectively.
The loan-to-value ratio is expressed as a percentage of the current amount of the loan relative to the value of the
underlying collateral. As of December 31, 2025 , and December 31, 2024 , approximately 89% and 90% , respectively, of the
commercial mortgage loans have a loan-to-value ratio of 70% or less, and as of December 31, 2025 , and December 31, 2024 ,
2% and 1% have loan-to-value ratio over 90%, respectively.
Changing economic conditions and updated assumptions affect the Insurance segment’s assessment of the collectibility
of commercial mortgage loans. Changing vacancies and rents are incorporated into the analysis performed to measure the
allowance for credit losses. In addition, the Insurance segment continuously monitors its commercial mortgage loan portfolio
to identify risk. Areas of emphasis are properties that have exposure to specific geographic events or have deteriorating
credit.
The Insurance segment’s residential mortgage loan portfolio primarily includes mortgage loans backed by single family
rental properties, prime loans, and re-performing loans that were purchased at a discount after they were modified and
returned to performing status. The Insurance segment also extends financing to counterparties in the form of repurchase
agreements secured by mortgage loans, including performing and non-performing mortgage loans.
As of December 31, 2025 , the payment status of 97% of the residential mortgage loan portfolio is current, and
approximately $273.4 million is 90 days or more past due or in process of foreclosure (representing 1% of the total residential
mortgage portfolio). As of December 31, 2024 , the payment status of 97% of the residential mortgage loan portfolio was
current and approximately $275.1 million were 90 days or more past due or in process of foreclosure (representing 1% of the
total residential mortgage portfolio).
The weighted average loan-to-value ratio for residential mortgage loans was 64% and 63% as of December 31, 2025 , and
December 31, 2024 , respectively .
The Insurance segment’s consumer loan portfolio is primarily comprised of home improvement loans, residential solar
loans, student loans, and auto loans. As of December 31, 2025 , 97% of the consumer loan portfolio is in current status and
approximately $31.3 million is 90 days or more past due or in process of foreclosure (representing 1% of the total consumer
loan portfolio).
See Note 7 “Investments” in the accompanying financial statements in this report for additional information regarding
the Insurance segment’s investment portfolio.
124Table of ContentsAdditional Information
To provide supplemental information to stockholders about the net assets of KKR on a segment basis, KKR’s book value
was $33.1 billion as of December 31, 2025 , which included cash and short-term investments of $4.8 billion . KKR's book value
includes its net investment in Global Atlantic, investments in the Asset Management and Strategic Holdings segments, and the
net impact of certain other assets and liabilities, including income taxes. KKR's book value excludes the net assets allocable to
investors in KKR’s investment funds and other noncontrolling interest holders. From January 1, 2025 through December 31,
2025 , the Asset Management segment transferred $1.1 billion of investments to the Insurance segment for which no gain or
loss was recognized.
125Table of ContentsReconciliations to GAAP MeasuresNet Income (Loss) Attributable to KKR & Co. Inc. Common Stockholders
For the Year Ended($ in thousands)December 31, 2025
December 31, 2024
Net Income (Loss) - KKR Common Stockholders (GAAP)
$ 2,251,867
$ 3,076,245
Preferred Stock Dividends
118,596
—
Net Income (Loss) Attributable to Noncontrolling Interests
3,774,949
1,829,792
Income Tax Expense (Benefit)
953,748
954,396
Income (Loss) Before Tax (GAAP)
$ 7,099,160
$ 5,860,433
Impact of Consolidation and Other
(4,020,179)
(1,268,787)
Preferred Stock Dividends
(118,596)
—
Income Taxes on Adjusted Earnings
(1,108,064)
(988,797)Asset Management Adjustments:Unrealized (Gains) Losses
560,892
(673,790)
Unrealized Carried Interest
(2,140,747)
(1,943,200)
Unrealized Carried Interest Compensation
1,566,828
1,505,558
Transaction-related and Non-operating Items (1)
96,289
122,009
Equity-based Compensation
268,067
279,418
Equity-based Compensation - Performance based
348,848
332,226
Amortization of Acquired Intangibles
1,787
—
Strategic Holdings Adjustments:
Unrealized (Gains) Losses
(746,252)
(958,418)Insurance Adjustments:(Gains) Losses from Investments
2,088,687
1,465,348
Non-Operating Changes from Policy Liabilities and Derivatives
319,471
296,917
Transaction-Related and Non-Operating Items (1)
42,350
20,615
Equity-Based Compensation
100,135
134,799
Amortization of Acquired Intangibles
18,796
17,935
Adjusted Net Income
$ 4,377,472
$ 4,202,266
Interest Expense, Net
257,725
302,381
Preferred Stock Dividends
132,073
—
Net Income Attributable to Noncontrolling Interests
15,002
16,060
Income Taxes on Adjusted Earnings
1,108,064
988,797
Total Segment Earnings
$ 5,890,336
$ 5,509,504
Net Realized Performance Income
(491,736)
(608,788)
Net Realized Investment Income
(412,796)
(542,163)
Total Operating Earnings
$ 4,985,804
$ 4,358,553
Total Investing Earnings
904,532
1,150,951
Depreciation and Amortization
67,854
50,011
Adjusted EBITDA
$ 5,958,190
$ 5,559,515
(1) For the year ended December 31, 2025, Transaction-related and Other Non-operating items includes (i) $99 million related to transaction-related costs
and other corporate actions, and (ii) $39 million of costs associated with certain integration, restructuring, and other non-operating expenses across our
Asset Management and Insurance businesses.
126Table of ContentsKKR & Co. Inc. Stockholders' Equity - Common Stock
As of($ in thousands)December 31, 2025
KKR & Co. Inc. Stockholders' Equity – Common Stock (GAAP)
$ 28,359,157
Impact of Consolidation and Other
356,408
Exchangeable Securities
335,842
Accumulated Other Comprehensive Income (Loss) (AOCI) and Other (Insurance)
4,098,704
Accumulated Unrealized (Gains) Losses on Loans carried at Fair Value (Insurance)
(99,591)
KKR Book Value (1)
$ 33,050,520
(1) Book Value is a non-GAAP performance measure, which provides additional insight into the net assets of KKR presented on a basis that (i) excludes the net
assets that are allocated to investors in KKR’s investment funds and other noncontrolling interest holders, (ii) includes the net assets that are attributable
to certain securities exchangeable into shares of common stock of KKR & Co. Inc., (iii) includes the net investment in Global Atlantic, investments in the
Asset Management and Strategic Holdings segments, and (iv) includes the net impact of certain other assets and liabilities, including the net impact of
KKR's tax assets and liabilities as calculated under GAAP. Book Value excludes the dilutive impact of the conversion of any of KKR & Co. Inc.’s Series D
Mandatory Convertible Preferred Stock. If all outstanding shares of the Series D Mandatory Convertible Preferred Stock were converted into KKR & Co.
Inc. common stock as of December 31, 2025 , our Book Value would have increased by $2.5 billion and our common stock outstanding would have
increased by 20.8 million shares .
Cash and Cash Equivalents - Asset Management and Strategic HoldingsAs of($ in thousands)
December 31, 2025
Cash and Cash Equivalents – Asset Management and Strategic Holdings (GAAP)
$ 9,380,874
Impact of Consolidation and Other
(4,818,513)
Short-term Investments
227,292
Cash and Short-term Investments
$ 4,789,653
Investments - Asset Management and Strategic Holdings
As of
($ in thousands)
December 31, 2025
Investments – Asset Management and Strategic Holdings (GAAP)
$ 127,948,305
Impact of Consolidation and Other
(119,090,836)
Short-term Investments
(227,292)
Investments – Asset Management Segment
$ 8,630,177
127Table of ContentsLiquidity
We manage our liquidity and capital requirements by (a) focusing on our cash flows before the consolidation of our funds
and CFEs and the effect of changes in short term assets and liabilities, which we anticipate will be settled for cash within one
year, and (b) seeking to maintain access to sufficient liquidity through various sources. The overall liquidity framework and
cash management approach of our insurance business are also based on seeking to build an investment portfolio that is cash
flow matched, providing cash inflows from insurance assets that meet our insurance companies' expected cash outflows to
pay their liabilities. Our primary cash flow activities typically involve (i) generating cash flow from operations; (ii) generating
income from investment activities, by investing in investments that generate yield (namely interest and dividends), as well as
through the sale of investments and other assets; (iii) funding capital commitments that we have made to, and advancing
capital to, our funds and CLOs; (iv) developing and funding new investment strategies, investment products, and other growth
initiatives, including acquisitions of other investments, assets, and businesses; (v) underwriting and funding capital
commitments in our capital markets business; (vi) distributing cash flow to our stockholders and any holders of our preferred
stock, if any; and (vii) paying borrowings, interest payments, and repayments under credit agreements, our senior and
subordinated notes, and other borrowing arrangements. See "—Liquidity," "—Liquidity Needs," and "—Dividends and Stock
Repurchases."
See "Risk Factors" and "—Business Environment" in this report for more information on factors that may impact our
business, financial performance, operating results, and valuations.Sources of LiquidityOur primary sources of liquidity consist of amounts received from: (i) our operating activities, including the fees earned
from our funds, portfolio companies, and capital markets transactions; (ii) realizations on carried interest from our investment
funds; (iii) interest and dividends from investments that generate yield, including our investments in CLOs; (iv) in our
insurance business, cash inflows in respect of new premiums, policyholder deposits, reinsurance transactions, and funding
agreements, including through memberships in FHLBs; (v) realizations on and sales of investments and other assets, including
the transfers of investments or other assets for fund formations (including CLOs and other investment vehicles); and (vi)
borrowings, including advances under our revolving credit facilities, debt offerings, repurchase agreements, and other
borrowing arrangements. In addition, we may generate cash proceeds from issuances of our or our subsidiaries' equity
securities. We have access to funding under various credit facilities, other borrowing arrangements and other sources of
liquidity that we have entered into with major financial institutions or which we receive from the capital markets. For a
discussion of our debt obligations, including our debt securities, revolving credit agreements and loans, see Note 16 "Debt
Obligations" in our financial statements.
Many of our investment funds like our private equity and real assets funds provide for carried interest. With respect to
our carry-paying investment funds, carried interest is eligible to be distributed to the general partner of the fund only after all
of the following are met: (i) a realization event has occurred (e.g., sale of a portfolio company, dividend, etc.); (ii) the vehicle
has achieved positive overall investment returns since its inception, in excess of performance hurdles where applicable, and is
accruing carried interest; and (iii) with respect to investments with a fair value below cost, cost has been returned to fund
investors in an amount sufficient to reduce remaining cost to the investments' fair value. Even after all of the preceding
conditions are met, the general partner of the fund may, in its sole discretion, decide to defer the distribution of carried
interest to it to a later date. In addition, these funds generally include what is called a “clawback” provision, which provides
that the general partner must return any carried interest that is paid in excess of what the general partner is entitled to
receive at the end of the term of the fund, as discussed further below.
128Table of ContentsAs of December 31, 2025 , certain of our investment funds had met the first and second criteria, as described above, but
did not meet the third criteria. In these cases, carried interest accrues on the consolidated statement of operations, but will
not be distributed in cash to us as the general partner of an investment fund upon a realization event. For a fund that has a
fair value above cost, overall, and is otherwise accruing carried interest, but has one or more investments where fair value is
below cost, the shortfall between cost and fair value for such investments is referred to as a "netting hole." When netting
holes are present, realized gains on individual investments that would otherwise allow the general partner to receive carried
interest distributions are instead used to return invested capital to our funds' limited partners in an amount equal to the
netting hole. Once netting holes have been filled with either (i) return of capital equal to the netting hole for those
investments where fair value is below cost or (ii) increases in the fair value of those investments where fair value is below
cost, then realized carried interest will be distributed to the general partner upon a realization event. A fund that is in a
position to pay cash carry refers to a fund for which carried interest is expected to be paid to the general partner upon the
next material realization event, which includes funds with no netting holes as well as funds with a netting hole that is
sufficiently small in size such that the next material realization event would be expected to result in the payment of carried
interest. Strategic investor partnerships with fund investors may require netting across the various funds in which they invest,
which may reduce the carried interest we otherwise would have earned if such fund investors were to have invested in our
funds without the existence of the strategic investor partnership. As of December 31, 2025 , netting holes in excess of $50
million existed at North America Fund XI in the amount of $417 million. The remaining unrealized gains accrued at this fund as
of December 31, 2025 is in excess of its netting hole. In accordance with the criteria set forth above, other funds currently
have and may in the future develop netting holes, and netting holes for those and other funds may otherwise increase or
decrease in the future.
If the investment fund has distributed carried interest but subsequently does not have sufficient value to provide for the
distribution of carried interest at the end of the life of the investment fund, the general partner is typically required to return
previously distributed carried interest to the fund investors. Current and former employees who received distributions of
carried interest subject to clawback would be required to return the amount of such distributions to KKR. However, it is KKR’s
obligation to return carried interest subject to clawback to the fund investors. As of December 31, 2025 , approximatel y $150
m illion of previously distributed carried interest, in aggregate, was subject to a clawback obligation, assuming that all
applicable carry-paying investment funds were liquidated at their reported fair values as of December 31, 2025 . As of
December 31, 2025 , there are no investment funds subject to a clawback obligation in excess of $50 million that has not
already reduced net realized performance income. See Note 24 "Commitments and Contingencies—Contingent Repayment
Guarantees" in our financial statements included elsewhere in this report for further information. See also the negative
amounts included in the Carried Interest column in the table included in this Item 7 in “Fund Performance Metrics” for further
information on clawback obligations.Liquidity NeedsWe expect that our primary liquidity needs will consist of cash required to meet various obligations, including, without
limitation, to:
• continue to support and grow our asset management business, including seeding new investment strategies,
supporting capital commitments made by our investment vehicles to existing and future funds, co-investments
and otherwise supporting the investment vehicles that we sponsor, and acquiring other assets, businesses, and
investments for our businesses;• continue to support and grow our insurance business;• continue to support and grow our strategic holdings business, including through the acquisition of new operating
companies;
• grow and expand our businesses generally, including by acquiring or launching new, complementary, or adjacent
businesses;
• warehouse investments in portfolio companies or other investments for the benefit of one or more of our funds,
accounts or CLOs or other investment vehicles pending the contribution of committed capital by the fund
investors in such investment vehicles, and advancing capital to them for operational or other needs;
• funding requirements to levered investment vehicles or structured transactions;
129
Table of Contents
• service debt obligations including the payment of obligations at maturity, on interest payment dates or upon
redemption;• fund cash operating expenses and contingencies, including for litigation matters and guarantees;
• pay corporate income taxes and other taxes;• pay policyholders and amounts in our insurance business related to investment, reinvestment, reinsurance, or
funding agreement activity;• pay amounts that may become due under our tax receivable agreement;• pay cash dividends in accordance with our dividend policy for our common stock or the terms of our preferred
stock;
• underwrite commitments, advance loan proceeds, and fund syndication commitments within our capital
markets business;• post or return collateral in respect of derivative contracts;• satisfy regulatory requirements for our capital markets business, risk retention requirements for CLOs (to the
extent they may apply), or to address capital needs of unregulated and regulated subsidiaries, including capital
and collateral requirements, as applicable, for our insurance and broker-dealer subsidiaries; and
• repurchase shares of our common stock or retire equity awards pursuant to the share repurchase program or
repurchase or redeem other securities issued by us (for a discussion of KKR's share repurchase program, see
Note 22 "Equity" in our financial statements).Capital CommitmentsThe agreements governing our active investment funds generally require the general partners of the funds to make
minimum capital commitments to such funds, which generally range from 2% to 8% of a fund's total capital commitments at
final closing, but may be greater for certain funds (i) where we are pursuing newer strategies, (ii) where third party investor
demand is limited, and (iii) where a larger commitment is consistent with the asset allocation strategy.
As of December 31, 2025 , KKR had unfunded commitments consisting of $10.5 billion to its investment funds and other
investment vehicles across Private Equity, Real Assets, and Credit and Liquid Strategies business lines. These unfunded
commitments include $2.7 billion of uncalled capital commitments to certain investment vehicles in connection with
investments in the core private equity strategy. These unfunded commitments also include funding requirements to levered
investment vehicles and structured transactions to fund or otherwise be liable for a portion of the vehicle's investment losses
and/or to provide the vehicle with liquidity upon certain termination events.
In addition to these uncalled commitments and funding obligations to KKR's investment funds and investment vehicles,
KKR has entered into contractual commitments primarily with respect to underwriting transactions, debt financing, revolving
credit facilities, and equity syndications in our Capital Markets business line. As of December 31, 2025 , these capital markets
commitments amounted to $1.0 billion . Whether these amounts are actually funded, in whole or in part, depends on the
contractual terms of such capital markets commitments, including the satisfaction or waiver of any conditions to closing or
funding. From time to time, we fund these various capital markets commitments noted above in our capital markets business
by drawing all or substantially all of our availability for borrowings under our available credit facilities available for our Capital
Markets business line. We generally expect these borrowings by our capital markets business to be repaid promptly as these
commitments are syndicated to third parties or otherwise fulfilled or terminated, although we may in some instances elect to
retain a portion of the commitments for our own investment. Additionally, KKR's capital markets business has arrangements
with third parties, which are expected to reduce KKR's risk under certain circumstances when underwriting certain debt
transactions. As a result, our unfunded capital markets commitments as of December 31, 2025 have been reduced to reflect
the amount expected to be funded by such third parties. As of December 31, 2025 , KKR's capital markets business line has
entered into such arrangements representing a total notional amount of $5.0 billion . For more information about our Capital
Markets business line's risks, see "Risk Factors—Risks Related to Our Business—Our capital markets activities expose us to
material risks" in this report.
130Table of ContentsTax Receivable AgreementOn May 30, 2022, KKR terminated the tax receivable agreement with KKR Holdings other than with respect to exchanges
of KKR Holdings equity completed prior to such date. As of December 31, 2025 , an undiscounted payable of $359.3 million has
been recorded in due to affiliates in the financial statements representing management's best estimate of the amounts
currently expected to be owed for certain exchanges of KKR Holdings equity that took place prior to the termination of the tax
receivable agreement. As of December 31, 2025 , $129.4 million of cumulative cash payments have been made under the tax
receivable agreement since inception.Dividends and Stock RepurchasesA dividend of $0.185 per share of our common stock has been declared and will be paid on March 3, 2026 to holders of
record of our common stock as of the close of business on February 17, 2026 .
A dividend of $0.78125 per share of Series D Mandatory Convertible Preferred Stock has been declared and set aside for
payment on March 1, 2026 to holders of record of Series D Mandatory Convertible Preferred Stock as of the close of business
on February 15, 2026 .
When KKR & Co. Inc. receives distributions from KKR Group Partnership, holders of exchangeable securities receive their
pro rata share of such distributions from KKR Group Partnership.
The declaration and payment of dividends to our common or preferred stockholders will be at the sole discretion of our
Board of Directors, and our dividend policy may be changed at any time. We announced on February 5, 2026 that our current
dividend policy will be to pay dividends to holders of our common stock in an annual aggregate amount of $0.78 per share (or
a quarterly dividend of $0.195 per share) beginning with the dividend announced with the results for the three months ended
March 31, 2026. The declaration of dividends is subject to the discretion of our Board of Directors based on a number of
factors, including KKR’s future financial performance and other considerations that the Board of Directors deems relevant,
and compliance with the terms of KKR & Co. Inc.'s certificate of incorporation and applicable law. For U.S. federal income tax
purposes, any dividends we pay (including dividends on our preferred stock) generally will be treated as qualified dividend
income for U.S. individual stockholders to the extent paid out of our current or accumulated earnings and profits, as
determined for U.S. federal income tax purposes. There can be no assurance that future dividends will be made as intended
or at all or that any particular dividend policy for our common stock or our preferred stock will be maintained. Furthermore,
the declaration and payment of distributions by KKR Group Partnership and our other subsidiaries may also be subject to
legal, contractual and regulatory restrictions, including restrictions contained in our debt agreements.
Since 2015, KKR has repurchased, or retired equity awards representing, a total of 94.2 million shares of common stock
for $2.8 billion , which equates to an average price of $29.36 per share. For further information, see "Part II—Item 5—Market
for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities."Contractual Obligations, Commitments and ContingenciesIn the ordinary course of business, we (including Global Atlantic) and our consolidated funds and CFEs enter into
contractual arrangements that may require future cash payments. Contractual arrangements include (i) commitments to fund
the purchase of investments or other assets (including obligations to fund capital commitments as the general partner of our
investment funds) or to fund collateral for derivative transactions or otherwise, (ii) obligations arising under our senior notes,
subordinated notes, and other indebtedness, (iii) commitments by our capital markets business to underwrite transactions or
to lend capital, (iv) obligations arising under insurance policies written, (v) other contractual obligations, including servicing
agreements with third-party administrators for insurance policy administration, and (vi) commitments to fund the business,
operations or investments of our subsidiaries. In addition, we may incur contingent liabilities for claims that may be made
against us in the future. For more information about these contingent liabilities, please see Note 24 "Commitments and
Contingencies" in our financial statements.
The following table sets forth information relating to anticipated future cash payments as of December 31, 2025
excluding consolidated funds and CFEs with a reconciliation of such amounts to anticipated future cash payments by us
(including Global Atlantic) and our consolidated funds and CFEs.
131Table of ContentsPayments due by PeriodTypes of Contractual Obligations
<1 Year
1-3 Years
3-5 Years
>5 Years
Total($ in millions)
Asset Management
Uncalled commitments to investment funds (1)$ 10,482.2
$ —
$ —
$ —
$ 10,482.2Debt payment obligations (2)—
517.5
1,840.9
7,012.6
9,371.0Interest obligations on debt payment obligations (3)440.6
729.8
655.9
5,235.1
7,061.4Underwriting commitments (4)824.7
—
—
—
824.7Lending commitments (5)216.7
—
—
—
216.7Purchase commitments (6)237.4
—
—
—
237.4
Lease obligations
82.5
154.5
142.5
587.9
967.4
Insurance (7)(8)Debt payment obligations (9)—
—
500.0
3,274.0
3,774.0Interest obligations on debt payment obligations (10)233.0
479.0
454.0
3,621.0
4,787.0Purchase and lease commitments (11)44.6
60.0
44.2
329.4
478.2
Total Contractual Obligations of KKR
$ 12,561.7
$ 1,940.8
$ 3,637.5
$ 20,060.0
$ 38,200.0(+) Uncalled commitments of consolidated funds (12)16,308.4
—
—
—
16,308.4(+) Debt payment obligations of consolidated funds, CFEs and Other (13)798.9
2,912.7
1,075.1
35,326.0
40,112.7(+) Corporate real estate borrowings (14)—
500.0
—
—
500.0(+) Interest obligations of consolidated funds, CFEs and Other (15)2,432.2
3,749.2
3,445.9
9,086.8
18,714.1
(+) Debt and Interest Payment Obligations of Consolidated Special
Purpose Vehicles - Insurance
—
197.0
—
—
197.0
Total Consolidated Contractual Obligations
$ 32,101.2
$ 9,299.7
$ 8,158.5
$ 64,472.8
$ 114,032.2
(1) These uncalled commitments represent amounts committed by us to fund a portion of the purchase price paid for each investment made by our
investment funds which are actively investing. Because capital contributions are due on demand, the above commitments have been presented as falling
due within one year. However, given the size of such commitments and the pace at which our investment funds make investments, we expect that the
capital commitments presented above will be called over a period of several years. See "—Liquidity Needs" and Note 16 "Debt Obligations" in our financial
statements.
(2) Amounts include senior notes and subordinated notes issued by KKR and its subsidiaries.
(3) These interest obligations on debt represent estimated interest to be paid over the term of the related debt obligation, which has been calculated
assuming the debt outstanding as of December 31, 2025 is not repaid until its maturity. Future interest rates are assumed to be those in effect as of
December 31, 2025 , including both variable and fixed rates, as applicable, provided for by the relevant debt agreements. The amounts presented above
include accrued interest on outstanding indebtedness.
(4) Represents various commitments in our capital markets business in connection with the underwriting of loans, securities and other financial instruments.
These commitments are shown net of amounts syndicated.(5) Represents obligations in our capital markets business to lend under various revolving credit facilities.(6) Represents commitments of KKR's asset management business line to fund the purchase of various investments.
(7) Global Atlantic has other obligations related to collateral payable held for derivative instruments ( $511.5 million ) and outstanding commitments to make
investments in commercial mortgage loans, other lending facilities and other investments ( $7.3 billion ) which have not been included in the above table
as the exact timing of these payments cannot be estimated. Global Atlantic's debt obligations are non-recourse to KKR beyond the assets of Global
Atlantic.
(8) Global Atlantic also has obligations to meet future obligations for policy liabilities. These obligations are subject to variability in amount and timing and as
such include significant assumptions related to the receipt of future premiums, mortality, lapse, renewal, withdrawal, and annuitization activity
comparable with actual experience. These assumptions also include market growth and policy crediting. Estimated cash flows for these obligations with
an expected maturity within the next year, within the next 5 years, and for all years were $21.2 billion, $109.6 billion, and $254.5 billion, respectively,
gross of reinsurance offsets. Due to the significance of the assumptions used, these amounts may differ materially from actual results.(9) The payments due by period for debt obligations reflect the contractual maturities of principal.(10) Reflects estimated future interest payments. Future interest on variable rate debt (which includes borrowing under Global Atlantic's revolving credit
facility and the subordinated debentures) was computed using prevailing rates as of December 31, 2025 and, as such, does not consider the impact of
future rate movements. Future interest on fixed rate debt was computed using the stated rate on the obligations.(11) Reflects operational servicing agreements with third-party administrators for policy administration.(12) Represents uncalled commitments of our consolidated funds excluding KKR's portion of uncalled commitments as the general partner of the respective
funds. Because capital contributions are due on demand, the above commitments have been presented as falling due within one year. However, given the
size of such commitments and the pace at which our investment funds make investments, we expect that the capital commitments presented above will
be called over a period of several years. See "—Liquidity Needs" and Note 16 "Debt Obligations" in our financial statements.
132
Table of Contents
(13) Amounts include (i) financing arrangements entered into by our consolidated funds with the objective of providing liquidity to the funds of $6.6 billion,
(ii) debt securities issued by our consolidated CLOs of $30.2 billion and (iii) borrowings collateralized by fund investments, fund co-investments and other
assets held by levered investment vehicles of $3.3 billion . Debt securities issued by consolidated CLO entities are supported solely by the investments held
at the CLO vehicles and are not collateralized by assets of any other KKR entity. Borrowings by levered investment vehicles are supported solely by the
investments held at the investment vehicles and are not collateralized by assets of any other KKR entity. Obligations under financing arrangements
entered into by our consolidated funds are generally limited to our pro rata equity interest in such funds. Our management companies bear no obligations
to repay any financing arrangements at our consolidated funds.(14) Represents a debt obligation in connection with the ownership of KKR office space.(15) The interest obligations on debt of our CFEs and other borrowings represent estimated interest to be paid over the term of the related debt obligation,
which has been calculated assuming the debt outstanding as of December 31, 2025 is not repaid until its maturity. Future interest rates are assumed to be
those in effect as of December 31, 2025 , including both variable and fixed rates, as applicable, provided for by the relevant debt agreements. The
amounts presented above include accrued interest on outstanding indebtedness.
The commitment table above excludes contractual amounts owed under the tax receivable agreement because the
ultimate amount and timing of the amounts due are not presently known.Off Balance Sheet ArrangementsWe do not have any off-balance sheet financings or liabilities other than contractual commitments and other legal
contingencies incurred in the normal course of our business.
133
Table of ContentsCritical Accounting Policies and EstimatesThe preparation of our financial statements in accordance with GAAP requires our management to make estimates and
judgments that affect the reported amounts of assets and liabilities, the recognition and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues, expenses, investment income (loss)
and income taxes during the reporting periods. Such estimates include but are not limited to (i) the valuation of investments
and financial instruments, (ii) the determination of the income tax provision, (iii) the impairment of goodwill and intangible
assets, (iv) the impairment of available-for-sale investments, (v) the valuation of insurance policy liabilities, including market
risk benefits, (vi) the valuation of embedded derivatives in policy liabilities and funds withheld, and (vii) the determination of
the allowance for loan losses. Our management bases these estimates and judgments on available information, historical
experience and other assumptions that we believe are reasonable under the circumstances. However, these estimates,
judgments and assumptions are often subjective and may be impacted negatively based on changing circumstances or
changes in our analyses. If actual amounts are ultimately different from those estimated, judged or assumed, revisions are
included in the financial statements in the period in which the actual amounts become known. We believe our critical
accounting policies could potentially produce materially different results if we were to change underlying estimates,
judgments or assumptions.
For a further discussion about our critical accounting policies, see Note 2 "Summary of Significant Accounting Policies" in
our financial statements included in this report.Basis of AccountingWe consolidate the financial results of KKR Group Partnership and its consolidated entities, which include the accounts of
our investment advisers, broker-dealers, Global Atlantic’s insurance companies, the general partners of certain
unconsolidated investment funds, general partners of consolidated investment funds and their respective consolidated
investment funds, and certain other entities including CFEs.
When an entity is consolidated, we reflect the accounts of the consolidated entity, including its assets, liabilities,
revenues, expenses, investment income, cash flows, and other amounts, on a gross basis. While the consolidation of an
investment fund or entity does not have an effect on the amounts of Net Income Attributable to KKR or KKR's stockholders'
equity that KKR reports, the consolidation does significantly impact the financial statement presentation under GAAP. This is
due to the fact that the accounts of the consolidated entities are reflected on a gross basis while the allocable share of those
amounts that are attributable to third parties are reflected as single line items. The single line items in which the accounts
attributable to third parties are recorded are presented as noncontrolling interests on the consolidated statements of
financial condition and net income (loss) attributable to noncontrolling interests on the consolidated statements of
operations.
The presentations in the consolidated statement of financial condition and consolidated statement of operations reflect
the significant industry diversification of KKR by its acquisition of Global Atlantic. Global Atlantic operates an insurance
business, and KKR operates an asset management business, which manages the operations of the Strategic Holdings segment
(see Note 21 "Segment Reporting") in our financial statements included in this report, each of which possess distinct
characteristics. As a result, KKR developed a two-tiered approach for the financial statements presentation, where Global
Atlantic's insurance operations are presented separately from KKR's asset management business. KKR believes that these
separate presentations provide a more informative view of the consolidated financial position and results of operations than
traditional aggregated presentations and that reporting Global Atlantic’s insurance operations separately is appropriate given,
among other factors, the relative significance of Global Atlantic’s policy liabilities, which are not obligations of KKR (other than
the insurance companies that issued them). If a traditional aggregate presentation were to be used, KKR would expect to
eliminate or combine several identical or similar captions, which would condense the presentations, but would also reduce
the level of information presented. KKR also believes that using a traditional aggregate presentation would result in no new
line items compared to the two-tier presentation included in the financial statements in this report.
In the ordinary course of business, KKR’s Asset Management, Strategic Holdings, and Insurance businesses enter into
transactions with each other, which may include transactions pursuant to their investment management agreements and
financing arrangements. The borrowings from these financing arrangements are non-recourse to KKR beyond the assets
pledged to support such borrowings. All the investment management and financing arrangements amongst KKR’s Asset
Management, Strategic Holdings, and Insurance businesses are eliminated in consolidation.
All intercompany transactions and balances have been eliminated.
134Table of ContentsConsolidationKKR consolidates all entities that it controls either through a majority voting interest or as the primary beneficiary of
variable interest entities (“VIEs”). The following discussion is intended to provide supplemental information about how the
application of consolidation principles impact our financial results, and management’s process for implementing those
principles including areas of significant judgment. For a detailed description of our accounting policy on consolidation, see
Note 2 "Summary of Significant Accounting Policies" in our financial statements included in this report.
As part of its consolidation procedures, KKR evaluates: (i) whether it holds a variable interest in an entity, (ii) whether the
entity is a VIE, and (iii) whether the KKR’s involvement would make it the primary beneficiary. The determination that KKR
holds a controlling financial interest in an investment vehicle significantly changes the presentation of our consolidated
financial statements.
The assessment of whether we consolidate an investment vehicle we manage requires the application of significant
judgment. These judgments are applied both at the time we become involved with an investment vehicle and on an ongoing
basis and include, but are not limited to:
• Determining whether our management fees, carried interests, or incentive fees represent variable interests - We
make judgments as to whether the fees we earn are commensurate with the level of effort required for those fees
and at market rates. In making this judgment, we consider, among other things, the extent of third party investment
in the entity and the terms of any other interests we hold in the VIE.
• Determining whether a legal entity qualifies as a VIE - For those entities where KKR holds a variable interest,
management determines whether each of these entities qualifies as a VIE and, if so, whether or not KKR is the
primary beneficiary. The assessment of whether the entity is a VIE is generally performed qualitatively, which
requires judgment. These judgments include: (i) determining whether the equity investment at risk is sufficient to
permit the entity to finance its activities without additional subordinated financial support, (ii) evaluating whether
the equity holders, as a group, can make decisions that have a significant effect on the economic performance of the
entity, (iii) determining whether two or more parties’ equity interests should be aggregated, and (iv) determining
whether the equity investors have proportionate voting rights to their obligations to absorb losses or rights to
receive returns from an entity. Entities that do not qualify as VIEs are generally assessed for consolidation as voting
interest entities. Under the voting interest entity model, KKR consolidates those entities it controls through a
majority voting interest.
• Concluding whether KKR has an obligation to absorb losses or the right to receive benefits that could potentially be
significant to the VIE - As there is no explicit threshold in GAAP to define “potentially significant,” we must apply
judgment and evaluate both quantitative and qualitative factors to conclude whether this threshold is met.Changes to these judgments could result in a change in the consolidation conclusion for a legal entity.
Fair Value MeasurementsFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date under current market conditions. For further information about our
fair value measurements accounting policies, please see “Note 2—Summary of Significant Accounting Policies—Fair Value
Measurements.”Level III Valuation MethodologiesOur investments and financial instruments are impacted by various economic conditions and events outside of our
control that are difficult to quantify or predict, which may have a significant impact on the valuation of our investments and,
therefore, on the carried interest and investment income we realize.
There is inherent uncertainty involved in the valuation of Level III investments, and there is no assurance that, upon
liquidation, KKR will realize the values reflected in our valuations. Our valuations may differ significantly from the values that
would have been used had an active market for the investments existed, and it is reasonably possible that the difference
could be material. See "Risk Factors" and "—Business Environment" in this report for more information on factors that may
impact our business, financial performance, operating results, and valuations.
135Table of ContentsKey unobservable inputs that have a significant impact on our Level III valuations as described above are included in Note
9 "Fair Value Measurements" in our financial statements.
Across the total Level III private equity investment portfolio (including core private equity investments) held directly and
through both consolidated and unconsolidated investment vehicles in our Asset Management segment, the overall weights
ascribed to a market comparables valuation methodology, the discounted cash flow valuation methodology, and a valuation
methodology based on pending sales for this portfolio of Level III private equity investments (including core private equity
investments) were 38%, 55%, and 7% , respectively, as of December 31, 2025.
Across the total Level III real assets investment portfolio held directly and through both consolidated and unconsolidated
investment vehicles in our Asset Management segment, the overall weights ascribed to a market comparables valuation
methodology, the discounted cash flow valuation methodology, the direct income capitalization valuation methodology, and a
valuation methodology based on pending sales for this portfolio of Level III real assets investments were 3%, 91%, 2%, and
4% , respectively, as of December 31, 2025.Level III Valuation ProcessThe valuation process involved for Level III measurements for our financial statements is completed on a quarterly basis
and is designed to subject the valuation of Level III investments to an appropriate level of consistency, oversight, and review.
For private equity and real asset investments classified as Level III, investment professionals prepare preliminary
valuations based on their evaluation of financial and operating data, company specific developments, market valuations of
comparable companies, and other factors. KKR begins its procedures to determine the fair values of its Level III assets
approximately one month prior to the end of a reporting period, and KKR follows additional procedures to ensure that its
determinations of fair value for its Level III assets are appropriate as of the relevant reporting date. These preliminary
valuations are generally reviewed by an independent valuation firm engaged by KKR to perform certain procedures in order to
assess the reasonableness of KKR's valuations. The valuations of certain real asset investments are determined solely by
independent valuation firms without the preparation of preliminary valuations by our investment professionals, and instead
such independent valuation firms rely on valuation information available to it as a broker or valuation firm. For credit
investments, an independent valuation firm is engaged by KKR to assist with the valuations of most investments classified as
Level III. As of December 31, 2025, less than 5% of the total value of Level III investments in aggregate across all of our
segments were not valued with the engagement of an independent valuation firm.
For Level III investments, KKR has a Global Valuation Committee that is responsible for coordinating and implementing
the firm's valuation processes to ensure consistency in the application of valuation principles across portfolio investments and
between reporting periods. The Global Valuation Committee is assisted by the asset class-specific valuation committees,
which are responsible for the review and approval of all preliminary Level III valuations in their respective asset classes at least
on a quarterly basis. The members of these valuation committees are comprised of investment professionals and
professionals from business operations functions such as legal, compliance, and finance, who are not primarily responsible for
the management of the investments. All Level III valuations for investments are also subject to approval by the Global
Valuation Committee, which is comprised of senior employees including investment professionals and professionals from
business operations functions, and includes KKR's Chief Financial Officer, Chief Legal Officer and General Counsel, and Chief
Compliance Officer. Once Level III valuations are approved by the Global Valuation Committee, a presentation of such
valuations is provided to the Audit Committee and then to the Board of Directors of KKR & Co. Inc. Level III valuations for our
insurance segment’s investments are approved by the Global Atlantic Valuation Committee prior to being presented to the
Global Valuation Committee.
As described above, Level III investments were valued using internal models with significant unobservable inputs, and our
determinations of the fair values of these investments may differ materially from the values that would have resulted if
readily observable inputs had existed. Additional external factors may cause those values, and the values of investments for
which readily observable inputs exist, to increase or decrease over time, which may create volatility in our earnings and the
amounts of assets and stockholders' equity that we report from time to time.
136Table of ContentsChanges in the fair value of investments impacts the amount of carried interest that is recognized as well as the amount
of investment income that is recognized for investments across our business segments and through our consolidated funds as
described below. We estimate that an immediate 10% decrease in the fair value of investments held directly and through
consolidated investment funds generally would result in a commensurate change in the amount of net gains (losses) from
investment activities for investments held directly and through investment funds and a more significant impact to the amount
of carried interest recognized, regardless of whether the investment was valued using observable market prices or
management estimates with significant unobservable pricing inputs. With respect to consolidated investment funds, the
impact that the consequential decrease in investment income would have on net income attributable to KKR would generally
be significantly less than the amount described above, given that a majority of the change in fair value of our consolidated
funds would be attributable to noncontrolling interests and therefore we are only impacted to the extent of our carried
interest and our ownership in the consolidated investment funds and investment vehicles.
As of December 31, 2025, upon completion by, where applicable, independent valuation firms of certain limited
procedures requested to be performed by them on certain Level III investments, the independent valuation firms concluded
that the fair values, as determined by KKR (including Global Atlantic), of those investments reviewed by them were
reasonable. The limited procedures did not involve an audit, review, compilation or any other form of examination or
attestation under generally accepted auditing standards and were not conducted on all Level III investments. We are
responsible for determining the fair value of investments in good faith, and the limited procedures performed by an
independent valuation firm are supplementary to the inquiries and procedures that we are required to undertake to
determine the fair value of the commensurate investments on a GAAP basis.
As of December 31, 2025, there were no investments across business segments which represented greater than 5% of
total investments on a GAAP basis. Our investment income on a GAAP and segment basis can be impacted by volatility in the
public markets. See "Risk Factors" and "—Business Environment" in this report for a discussion of factors that may impact the
valuations of our investments, financial results, operating results, and valuations, and "—Segment Balance Sheet Measures"
for additional information regarding our largest holdings on a segment basis.Business CombinationsKKR accounts for business combinations using the acquisition method of accounting, under which the purchase price of
the acquisition is allocated to the assets acquired and liabilities assumed using the fair values determined by management as
of the acquisition date.
Management’s determination of fair value of assets acquired and liabilities assumed at the acquisition date is based on
the best information available in the circumstances and may incorporate management’s own assumptions and involve a
significant degree of judgment. We use our best estimates and assumptions to accurately assign fair value to the tangible and
identifiable intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those
acquired intangible assets. Examples of critical estimates in valuing certain of the intangible assets we have acquired include,
but are not limited to, future expected cash inflows and outflows, future fundraising assumptions, expected useful life,
discount rates, and income tax rates. Our estimates for future cash flows are based on historical data, various internal
estimates and certain external sources, and are based on assumptions that are consistent with the plans and estimates we are
using to manage the underlying assets acquired. We estimate the useful lives of the intangible assets based on the expected
period over which we anticipate generating economic benefit from the asset. We base our estimates on assumptions we
believe to be reasonable but that are unpredictable and inherently uncertain. Unanticipated events and circumstances may
occur that could affect the accuracy or validity of such assumptions, estimates or actual result.Income TaxesSignificant judgment is required in estimating the provision for (benefit from) income taxes, current and deferred tax
balances (including valuation allowance), accrued interest or penalties, and uncertain tax positions. In evaluating these
judgments, we consider, among other items, projections of taxable income (including the character of such income),
beginning with historic results and incorporating assumptions of the amount of future pre-tax operating income. These
assumptions about future taxable income require significant judgment and are consistent with the plans and estimates that
KKR uses to manage its business. Revisions in estimates or actual costs of a tax assessment may ultimately be materially
different from the recorded accruals and unrecognized tax benefits, if any. Please see Note 18 "Income Taxes" in our financial
statements in this report for further details.
137Table of ContentsCritical Accounting Policies and Estimates – Asset Management and Strategic HoldingsRevenues
Fees and OtherFees and other consist primarily of (i) management and incentive fees from providing investment management services
to unconsolidated funds, CLOs, other investment vehicles, and separately managed accounts; (ii) transaction fees earned in
connection with successful investment transactions and from capital markets activities; (iii) monitoring fees from providing
services to portfolio companies; (iv) expense reimbursements from certain investment funds and portfolio companies; and
(v) consulting fees. These fees are based on the contractual terms of the governing agreements and are recognized when
earned, which coincides with the period during which the related services are performed and in the case of transaction fees,
upon closing of the transaction. Monitoring fees may provide for a termination payment following an initial public offering or
change of control. These termination payments are recognized in the period when the related transaction closes.
Transaction fee calculations and management fee calculations based on committed capital or invested capital typically do
not require discretion and therefore do not require the use of significant estimates or judgments. Management fee
calculations based on net asset value depend on the fair value of the underlying investments within the investment vehicles.
Estimates and assumptions are made when determining the fair value of the underlying investments within the funds and
could vary depending on the valuation methodology that is used as well as economic conditions.Capital Allocation-Based Income (Loss)Capital allocation-based income (loss) is earned from those arrangements whereby KKR serves as general partner and
includes income or loss from KKR's capital interest as well as "carried interest" which entitles KKR to a disproportionate
allocation of investment income or loss from an investment fund's limited partners.
Carried interest is recognized upon appreciation of the funds’ investment values above certain return hurdles set forth in
their partnership agreement. KKR recognizes revenues attributable to capital allocation-based income based upon the amount
that would be due pursuant to the fund partnership agreement at each period end as if the funds were terminated at that
date. Accordingly, the amount recognized reflects KKR’s share of the gains and losses of the associated funds’ underlying
investments measured at their then-current fair values relative to the fair values as of the end of the prior period. Because of
the inherent uncertainty in measuring the fair value of investments in the absence of observable market prices as previously
discussed, these estimated values may differ significantly from the values that would have been used had a ready market for
the investments existed, and it is reasonably possible that the difference could be material.Expenses
Compensation and BenefitsCompensation and Benefits expense includes (i) base cash compensation consisting of salaries and wages, (ii) benefits,
(iii) carry pool allocations, (iv) equity-based compensation, and (v) discretionary cash bonuses.
Discretionary Cash Bonus
To supplement base cash compensation, benefits, carry pool allocations, and equity-based compensation, we typically
pay discretionary cash bonuses, which are included in Compensation and Benefits expense in the consolidated statements of
operations, based principally on the level of (i) management fees and other fee related revenues (including incentive fees), (ii)
realized performance income, which includes realized carried interest, and (iii) realized investment income earned during the
year. The amounts paid as discretionary cash bonuses, if any, are at our sole discretion and vary from individual to individual
and from period to period, including having no cash bonus. We accrue discretionary cash bonuses when payment becomes
probable and reasonably estimable which is generally in the period when we make the decision to pay discretionary cash
bonuses and is based upon a number of factors, including the recognition of asset management segment revenues, and other
factors determined during the year.
138Table of ContentsWe expect to pay our employees by assigning a percentage range to each component of asset management segment
revenues. Prior to January 1, 2024, based on the current components and blend of our asset management segment revenues
on an annual basis, we expected to use approximately: (i) 20‐25% of fee related revenues, (ii) 60‐70% of realized carried
interest and incentive fees not included in fee related performance revenues or earned from our hedge fund partnerships,
and (iii) 10‐20% of realized investment income and hedge fund partnership incentive fees, to pay our asset management
employees. Beginning in January 2024, we expect to use approximately: (i) 15%-20% of fee related revenues, (ii) 70%-80% of
realized carried interest and incentive fees not included in fee related performance revenues or earned from our hedge fund
partnerships, and (iii) 10%-20% of realized investment income and hedge fund partnership incentive fees, to pay our asset
management employees. Because these ranges are applied to applicable asset management segment revenue components
independently, and on an annual basis, the amount paid as a percentage of total asset management segment revenue will
vary and will, for example, likely be higher in a period with relatively higher realized carried interest and lower in a period with
relatively lower realized carried interest. We decide whether to pay a discretionary cash bonus and determine the percentage
of applicable revenue components to pay compensation only upon the occurrence of the realization event. There is no
contractual or other binding obligation that requires us to pay a discretionary cash bonus to the asset management
employees, except in limited circumstances.Carry Pool AllocationWith respect to our funds that provide for carried interest, we allocate a portion of the realized and unrealized carried
interest that we earn to Associates Holdings, which we refer to as the carry pool, from which our asset management
employees and certain other carry pool participants are eligible to receive a carried interest allocation. The allocation is
determined based upon a fixed arrangement between Associates Holdings and us, and we do not exercise discretion on
whether to make an allocation to the carry pool upon a realization event. We refer to the portion of carried interest that we
allocate to the carry pool as the carry pool percentage.
Effective January 2, 2024, KKR applies a carry pool percentage of up to 80% for all funds, which is a carry pool percentage
in excess of the carry pool percentages previously fixed by investment fund as discussed further below, which depended on
the fund’s vintage. This increase to the carry pool percentage was approved by a majority of KKR's independent directors, and
the carry pool percentage may not be increased above 80% without the further approval of a majority of KKR's independent
directors. For funds that closed after December 31, 2023, the carry pool percentage is fixed at 80%. For funds that closed prior
to December 31, 2023, the carry pool percentage is calculated at a fixed percentage of 40%, 43%, or 65% (depending on the
fund’s vintage) for carried interest realized up to a high water mark, which was established based on the unrealized carried
interest balance that existed on January 2, 2024, plus an additional percentage amount up to 80% based on a formulaic
allocation, only if the unrealized carried interest balance at any period end exceeds the high water mark. This imposes a
limitation of the carry pool allocation for such funds based on the amount of cumulative unrealized carried interest income
earned subsequent to December 31, 2023.
For funds that closed before December 31, 2023, if the cumulative carried interest subsequent to December 31, 2023 is
not sufficient to fund this formulaic allocation, the allocation of earnings reverts to the carry pool percentage in effect before
this modification. As such, upon modification of the carry pool percentage effective on January 2, 2024, the cumulative
unrealized carried interest was not sufficient to fund the additional formulaic allocation percentage in excess of the pre-
existing 40%, 43%, and 65% carry pool percentages, and therefore no incremental expense was recognized as of such date.
The carry pool percentage applicable for all funds that closed prior to December 31, 2023 will not be less than their applicable
carry pool percentages of 40%, 43%, or 65% prior to December 31, 2023 (for funds that closed after December 31, 2020 but
before December 31, 2023, the carry pool percentage was fixed at 65%; for funds that closed after June 30, 2017 but before
December 31, 2020, the carry pool percentage was fixed at 43%; and the carry pool percentage was fixed at 40% for older
funds that contributed to KKR's carry pool), and will not be more than 80%. The intent of this modification is that for all funds
that closed prior to January 2, 2024, upon the final liquidation of each fund, realized carried interest distributed will equal the
historical fund carry pool allocations up to the high water mark and only distributions of realized carried interest in excess of
the high water mark will be distributed at 80 percent if and only if the unrealized carried interest balance at any period end
exceeds the high water mark. Under no circumstance would a distribution of carried interest exceed 80% of the total allocable
carried interest at any time.
KKR accounts for the carry pool as a compensatory profit-sharing arrangement in Accrued Expenses and Other Liabilities
within the accompanying consolidated statements of financial condition in conjunction with the related carried interest
income and it is recorded as compensation expense. The liability that is recorded in each period reflects the legal entitlement
of Associates Holdings at each point in time should the total unrealized carried interest be realized at the value recorded at
139Table of Contentseach reporting date. Upon a reversal of carried interest income, the related carry pool allocation, if any, is also reversed.
Accordingly, such compensation expense is subject to both positive and negative adjustments.
On the Sunset Date (which will not be later than December 31, 2026), KKR will acquire control of Associates Holdings and
will commence making decisions regarding the allocation of the carry proceeds pursuant to the limited partnership agreement
of Associates Holdings. Until the Sunset Date, our Co-Founders will continue to make decisions regarding the allocation of the
carry proceeds to themselves and others, pursuant to the limited partnership agreement of Associates Holdings, provided that
any allocation of carry proceeds to the Co-Founders will be on a percentage basis consistent with past practice. For additional
information about the Sunset Date and the Reorganization Agreement, see Note 1 "Organization" in our financial statements
included in this report.Equity-based CompensationIn addition to the cash-based compensation and carry pool allocations as described above, employees receive equity
awards under our Equity Incentive Plan, most of which are subject to service-based vesting typically over a three to five-year
period from the date of grant, and some of which are also subject to the achievement of market-based conditions. Certain of
these awards are subject to post-vesting transfer restrictions and minimum retained ownership requirements.
Compensation expense relating to the issuance of equity-based awards is measured at fair value on the grant date. In
determining the aggregate fair value of any award grants, we make judgments as to the grant-date fair value, particularly for
certain equity awards with a vesting condition based upon market conditions, whose grant date fair values are based on a
probability distributed Monte-Carlo simulation. See Note 19 "Equity-Based Compensation,” in our financial statements
included in this report for further discussion and activity of these awards.
Investment Income (Loss) – Net Gains (Losses) from Investment Activities
Net gains (losses) from investment activities consist of realized and unrealized gains and losses arising from our
investment activities as well as income earned from certain equity method investments. Fluctuations in net gains (losses) from
investment activities between reporting periods is driven primarily by changes in the fair value of our investment portfolio as
well as the realization of investments. The fair value of, as well as the ability to recognize gains from, our investments is
significantly impacted by the global financial markets, which, in turn, affects the net gains (losses) from investment activities
recognized in any given period. Upon the disposition of an investment, previously recognized unrealized gains and losses are
reversed and an offsetting realized gain or loss is recognized in the current period. Since our investments are carried at fair
value, fluctuations between periods could be significant due to changes to the inputs to our valuation process over time. For a
further discussion of our fair value measurements and fair value of investments, see above "—Critical Accounting Policies and
Estimates—Fair Value Measurements."Critical Accounting Policies and Estimates – InsurancePolicy Liabilities
Policy liabilities, or collectively, “reserves,” are the portion of past premiums or assessments received that are set aside to
meet future policy and contract obligations as they become due. Interest accrues on the reserves and on future premiums,
which may also be available to pay for future obligations. Global Atlantic establishes reserves to pay future policy benefits,
claims, and certain expenses for its life policies and annuity contracts.
Global Atlantic’s reserves are estimated based on models that include many actuarial assumptions and projections. These
assumptions and projections, which are inherently uncertain, involve significant judgment, including assumptions as to the
levels and/or timing of premiums, benefits, claims, expenses, interest credits, investment results (including equity market
returns), mortality, longevity, and persistency.
The assumptions on which reserves are based are intended to represent an estimation of experience for the period that
policy benefits are payable. Global Atlantic reviews the adequacy of its reserves and the assumptions underlying those
reserves at least annually. Global Atlantic cannot, however, determine with precision the amount or the timing of actual
benefit payments. If actual experience is better than or equal to the assumptions, then reserves would be adequate to
provide for future benefits and expenses. If experience is worse than the assumptions, additional reserves may be required to
meet future policy and contract obligations. This would result in a charge to Global Atlantic's net income during the period in
which excess benefits are paid or an increase in reserves occurs.
140Table of ContentsFor a majority of Global Atlantic’s in-force policies, including its interest-sensitive life policies and most annuity contracts,
the base policy reserve is equal to the account value. For these products, the account value represents Global Atlantic’s
obligation to repay to the policyholder the amounts held with Global Atlantic on deposit. However, there are several
significant blocks of business where policy reserves, in addition to the account value, are explicitly calculated, including
variable annuities, fixed-indexed annuities, interest-sensitive life products (including those with secondary guarantees), and
preneed policies.
Market Risk Benefits
Market risk benefits are contracts or contract features that both provide protection to the policyholder from other-than-
nominal capital market risk and expose Global Atlantic to other-than-nominal capital market risk. Market risk benefits include
certain contract features on fixed annuity and variable annuity products, including minimum guarantees to policyholders,
such as guaranteed minimum death benefits ("GMDBs"), guaranteed minimum withdrawal benefits ("GMWBs"), and long-
term care benefits (which are capped at the return of account value plus one or two times the account value).
Some of Global Atlantic's variable annuity and fixed-indexed annuity contracts contain a GMDB feature that provides a
guarantee that the benefit received at death will be no less than a prescribed minimum amount, even if the account balance
is reduced to zero. This amount is based on either the net deposits paid into the contract, the net deposits accumulated at a
specified rate, the highest historical account value on a contract anniversary, or sometimes a combination of these values. If
the GMDB is higher than the current account value at the time of death, Global Atlantic incurs a cost equal to the difference.
Global Atlantic issues fixed-indexed annuity and variable annuity contracts with a guaranteed minimum withdrawal
feature. GMWB are an optional benefit where the contract owner is entitled to withdraw a maximum amount of their benefit
base each year.
Once exercised, living benefit features provide annuity policyholders with a minimum guaranteed stream of income for
life. A policyholder’s annual income benefit is generally based on an annual withdrawal percentage multiplied by the benefit
base. The benefit base is defined in the policy and is generally the initial premium, reduced by any partial withdrawals and
increased by a defined percentage, formula, or index credits. Any living benefit payments are first deducted from the account
value. Global Atlantic is responsible for paying any excess guaranteed living benefits still owed after the account value has
reached zero.
The ultimate cost of these benefits will depend on the level of market returns and the level of contractual guarantees, as
well as policyholder behavior, including surrenders, withdrawals, and benefit utilization. For Global Atlantic's fixed-indexed
annuity products, costs also include certain non-guaranteed terms that impact the ultimate cost, such as caps on crediting
rates that Global Atlantic can, in its discretion, reset annually.
See Note 17 “Policy Liabilities” in our financial statements for additional information.
141Table of ContentsAs of December 31, 2025 , the net market risk liability balance totaled $1.3 billion . As of December 31, 2025 , the liability
balances for market risk benefits were $1.1 billion for fixed-indexed annuities and $197.5 million for variable and other
annuities. The increase (decrease) to the net market risk benefit liability balance as a result of hypothetical changes in interest
rates, instrument-specific credit risk, equity market prices, expected mortality, and expected surrenders are summarized in
the table below. This sensitivity considers the direct effect of such changes only and not changes in any other assumptions
used in or items considered in the measurement of such balances.
As of December 31, 2025($ in thousands)Fixed-Indexed Annuity
Other
Balance
$ 1,140,823
$ 197,486
Hypothetical Change:
+50 bps Interest Rates
(154,530)
(36,107)
-50 bps Interest Rates
171,718
40,289
+50 bps Instrument-specific Credit Risk
(155,371)
(18,636)
-50 bps Instrument-specific Credit Risk
172,026
20,306
+10% Equity Market Prices
(68,795)
(40,472)
-10% Equity Market Prices
54,092
45,487
95% of Expected Mortality
63,415
3,848
105% of Expected Mortality
(59,630)
(3,315)
90% of Expected Surrenders
31,479
1,368
110% of Expected Surrenders
(29,997)
(1,347)Note: Hypothetical changes to the market risk benefits liability balance do not reflect the impact of related hedges.Policy Liabilities Accounted for Under a Fair Value Option
Variable annuity contracts offered and assumed by Global Atlantic provide the contractholder with a GMDB. The liabilities
for these benefits are included in policy liabilities. Global Atlantic elected the fair value option to measure the liability for
certain of these variable annuity contracts valued at $258.8 million as of December 31, 2025 . Fair value is calculated as the
present value of the estimated death benefits less the present value of the GMDB fees, using 1,000 risk neutral scenarios.
Global Atlantic discounts the cash flows using the U.S. Treasury rates plus an adjustment for instrument-specific credit risk in
the consolidated statement of financial condition. The change in the liabilities for these benefits is included in policy benefits
and claims in the consolidated statement of operations.
As of December 31, 2025 , variable annuities accounted for using the fair value option totaled $258.8 million . The increase
(decrease) in the reserves for variable annuities accounted for using the fair value option as a result of hypothetical changes in
interest rates, instrument-specific credit risk, equity market prices, expected mortality, and expected surrenders are
summarized in the table below. This sensitivity considers the direct effect of such changes only and not changes in any other
assumptions used in or items considered in the measurement of such balances.
As of December 31,
2025($ in thousands)Variable Annuities
Balance
$ 258,805
Hypothetical Change:
+50 bps Interest Rates
(17,208)
-50 bps Interest Rates
18,620
+50 bps Instrument-specific Credit Risk
(10,391)
-50 bps Instrument-specific Credit Risk
10,753
+10% Equity Market Prices
(13,142)
-10% Equity Market Prices
15,683
95% of Expected Mortality
(4,736)
105% of Expected Mortality
4,528
90% of Expected Surrenders
65
110% of Expected Surrenders
(94)Note: Hypothetical changes to the liability balances do not reflect the impact of related hedges.142Table of ContentsLiability for Future Policyholder Benefits
A liability for future policy benefits, which is the present value of estimated future policy benefits to be paid to or on
behalf of policyholders and certain related expenses less the present value of estimated future net premiums to be collected
from policyholders, is accrued as premium revenue is recognized. The liability is estimated using current assumptions that
include mortality, morbidity, lapses, and expenses. These current assumptions are based on judgments that consider Global
Atlantic’s historical experience, industry data, and other factors, and are updated quarterly and the current period change in
the liability is recognized as a separate component of benefit expense in the consolidated income statement.
As of December 31, 2025 , the liability for future policy benefits totaled $14.3 billion , net of reinsurance, split between
$12.4 billion associated with payout annuity products, and $1.9 billion of life and other insurance products (including assumed
long-term care insurance where Global Atlantic retroceded mortality and morbidity risks to a third-party reinsurer). The
increase (decrease) as a result of hypothetical changes in interest rates, credit spreads, expected mortality, and expected
surrenders and lapses are summarized in the table below. This sensitivity considers the direct effect of such changes only and
not changes in any other assumptions used in or items considered in the measurement of such balances.
As of December 31, 2025($ in thousands)Payout Annuities
Other
Balance
$ 12,403,341
$ 1,866,615
Hypothetical Change:
+50 bps Interest Rates
(218,356)
(435,230)
-50 bps Interest Rates
234,370
469,003
+50 bps Credit Spreads
(166,860)
(317,644)
-50 bps Credit Spreads
172,941
330,598
95% of Expected Mortality (1)
77,428
45,734
105% of Expected Mortality (1)
(73,528)
(43,528)
90% of Expected Surrenders/Lapses
—
(9,715)
110% of Expected Surrenders/Lapses
—
8,744Note: Hypothetical changes to the liability for future policy benefits balance do not reflect the impact of related hedges.(1) Includes decrements for terminations of disability insurance.
Additional Liability for Annuitization, Death, or Other Insurance Benefits: No-Lapse Guarantees
Global Atlantic has in-force interest-sensitive life contracts where it provides a secondary guarantee to the policyholder.
The policy can remain in-force, even if the base policy account value is zero, as long as contractual secondary guarantee
requirements have been met. The primary risk to Global Atlantic is that the premium collected under these policies, together
with the investment return Global Atlantic earns on that premium, is ultimately insufficient to pay the policyholder’s benefits
and the expenses associated with issuing and administering these policies. Global Atlantic holds an additional reserve in
connection with these guarantees.
The additional reserves related to interest-sensitive life products with secondary guarantees are calculated using
methods similar to those described above under “—Critical Accounting Policies and Estimates – Insurance—Policy Liabilities—
Market Risk Benefits.” The costs related to these secondary guarantees are recognized over the life of the contracts through
the accrual and subsequent release of a reserve which is revalued each period. The reserve is calculated based on
assessments, over a range of economic scenarios to incorporate the variability in the obligation that may occur under
different environments. The change in the reserve is included in policy benefits and claims in the consolidated statements of
operations.
As of December 31, 2025 , the additional liability balance of primarily interest-sensitive life totaled $6.2 billion , net of
reinsurance. The increase (decrease) to the additional liability balance, as a result of hypothetical changes in interest rates,
equity market prices, annual equity growth, expected mortality, and expected surrenders are summarized in the table below.
This sensitivity considers the direct effect of such changes only and not changes in any other assumptions used in or items
considered in the measurement of the interest-sensitive life no-lapse guarantee liability balance.
143Table of ContentsAs of December 31,
2025($ in thousands)Interest-Sensitive Life
Balance
$ 6,168,750
Hypothetical Change:
+50 bps Interest Rates
1,690
-50 bps Interest Rates
(1,689)
+10% Equity Market Prices
(1,365)
-10% Equity Market Prices
1,211
1% Lower Annual Equity Growth
6,942
95% of Expected Mortality
(51,329)
105% of Expected Mortality
50,561
90% of Expected Surrenders
22,909
110% of Expected Surrenders
(22,410)
Note: Hypothetical changes to the interest-sensitive life additional liability for annuitization, death, or other insurance benefits balance do not reflect the
impact of related hedges.
Embedded Derivatives in Policy Liabilities and Funds Withheld
Global Atlantic's fixed-indexed annuity, variable annuity, and indexed universal life products contain equity-indexed
features, which are considered embedded derivatives and are required to be measured at fair value.
Global Atlantic calculates the embedded derivative as the present value of future projected benefits in excess of the
projected guaranteed benefits, using an option budget as the indexed account value growth rate. In addition, the fair value of
the embedded derivative is reduced to reflect instrument specific credit risk on Global Atlantic's obligation (that is, Global
Atlantic's own credit risk).
Changes in interest rates, future index credits, instrument-specific credit risk, projected withdrawal and surrender
activity, and mortality on fixed-indexed annuity and interest-sensitive life products can have a significant impact on the value
of the embedded derivative.
Valuation of Embedded Derivatives – Fixed-Indexed Annuities
Fixed-indexed annuity contracts allow the policyholder to elect a fixed interest rate of return or a market indexed strategy
where interest credited is based on the performance of an index, such as the S&P 500 Index, or other indexes. The market
indexed strategy is an embedded derivative, similar to a call option. The fair value of the embedded derivative is computed as
the present value of benefits attributable to the excess of the projected policy contract values over the projected minimum
guaranteed contract values. The projections of policy contract values are based on assumptions for future policy growth,
which include assumptions for expected index credits, future equity option costs, volatility, interest rates, and policyholder
behavior. The projections of minimum guaranteed contract values include the same assumptions for policyholder behavior as
are used to project policy contract values. The embedded derivative cash flows are discounted using a risk-free interest rate
increased by instrument-specific credit risk tied to Global Atlantic's own credit rating.
Valuation of Embedded Derivatives – Interest-Sensitive Life Products
Interest-sensitive life products allow a policyholder’s account value to grow based on the performance of certain equity
indexes, which results in an embedded derivative similar to a call option. The embedded derivative related to the index is
bifurcated from the host contract and measured at fair value. The valuation of the embedded derivative is the present value
of future projected benefits in excess of the projected guaranteed benefits, using the option budget as the indexed account
value growth rate and the guaranteed interest rate as the guaranteed account value growth rate. Present values are based on
discount rate curves determined at the valuation date or issue date as well as assumed lapse and mortality rates. The discount
rate equals the forecast treasury rate increased by instrument-specific credit risk tied to Global Atlantic’s own credit rating.
Changes in discount rates and other assumptions such as spreads and/or option budgets can have a substantial impact on the
embedded derivative.
144Table of ContentsValuation of Embedded Derivatives in Modified Coinsurance or Funds Withheld
Global Atlantic's reinsurance agreements include modified coinsurance and coinsurance with funds withheld
arrangements that include terms that require payment by the ceding company of a principal amount plus a return that is
based on a proportion of the ceding company’s return on a designated portfolio of assets. Because the return on the funds
withheld receivable or payable is not clearly and closely related to the host insurance contract, these contracts are deemed to
contain embedded derivatives, which are measured at fair value. Global Atlantic is exposed to both the interest rate and
credit risk of the assets. Changes in discount rates and other assumptions can have a significant impact on this embedded
derivative. The fair value of the embedded derivatives is included in the funds withheld receivable at interest and funds
withheld payable at interest line items on our consolidated statement of financial condition. The change in the fair value of
the embedded derivatives is recorded in net investment-related gains (losses) in the consolidated statement of operations.
As of December 31, 2025 , the embedded derivative liability balance totaled $7.4 billion for fixed-indexed annuities, and
$485.0 million for interest-sensitive life. The increase (decrease) to the embedded derivatives on fixed-indexed annuity and
indexed universal life as a result of hypothetical changes in interest rates, credit spreads, and equity market prices are
summarized in the table below. This sensitivity considers the direct effect of such changes only and not changes in any other
assumptions used in or items considered in the measurement of such balances.
As of December 31, 2025($ in thousands)Fixed-Indexed
Annuities
Interest Sensitive Life
Balance
$ 7,355,480
$ 485,025
Hypothetical Change:
+50 bps Interest Rates
(114,795)
(4,764)
-50 bps Interest Rates
120,381
4,962
+50 bps Credit Spreads
(147,200)
(4,764)
-50 bps Credit Spreads
152,548
4,962
+10% Equity Market Prices
699,869
27,081
-10% Equity Market Prices
(751,468)
(61,947)Note: Hypothetical changes to the market risk benefits liability balance do not reflect the impact of related hedges.As of December 31, 2025 , the embedded derivative balance for modified coinsurance or funds withheld arrangements
was a $2.4 billion net asset ( $78.9 million in funds withheld receivables at interest, and $(2.3) billion in funds withheld payable
at interest). The increase (decrease) to the embedded derivatives on fixed-indexed annuity and interest-sensitive life products
as a result of hypothetical changes in interest rates and investment credit spreads are summarized in the table below. This
sensitivity considers the direct effect of such changes only and not changes in any other assumptions used in or items
considered in the measurement of such balances.
As of December 31, 2025($ in thousands)Embedded Derivative
on Funds Withheld
Receivable
Embedded Derivative
on Funds Withheld
Payable
Balance
$ 78,858
$ (2,275,854)
Hypothetical Change:
+50 bps Interest Rates
(3,602)
(1,327,612)
-50 bps Interest Rates
8,729
1,403,934
+50 bps Investment Credit Spreads
(43,570)
(1,377,343)
-50 bps Investment Credit Spreads
43,570
1,453,665
Note: Hypothetical changes to the funds withheld receivable and payable embedded derivative balances do not reflect the impact of related hedges or trading
assets which back the funds withheld at interest.Recently Issued Accounting PronouncementsFor a full discussion of recently issued accounting pronouncements, see Note 2 "Summary of Significant Accounting
Policies" in our financial statements included in this report.
145Table of Contents