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Transcript : KKR & Co. Inc. Presents at Goldman Sachs 2022 US Financial Services Conference, Dec-06-2022 08:40 AM

06/12/2022 | 14:40

Presenter Speech
Alexander Blostein (Analysts)

[Audio Gap]

Earnings from pre-COVID levels, and management continues to have fairly robust growth targets, aiming to double earnings again over the next several years. So welcome, Joe, it's your first time at Goldman Sachs Financial Conference. So we're really excited to have you here and looking forward to this discussion.

Presenter Speech
Joseph Bae (Executives)

Thanks, Alex.

Question
Alexander Blostein (Analysts)

Great. So I was hoping we could start with an outlook for private markets. It's a topic that I'm assuming is going to be one of the key areas of focus over the next couple of days as we get to speak with you and many of your peers.

And I guess when you pull the layers back, given the year is almost over, despite a fairly challenging market backdrop, the private market actually hung in relatively well. Fundraising was pretty robust. Realizations slower, but sort of still coming.

But at the same time, the liquid fixed income markets are now offering over 5%. So given this regime change, what do you hear from clients? How do you think that's going to impact private market allocations as we go forward?

Answer
Joseph Bae (Executives)

Great. Thanks, Alex, first, for having me here. It's great to be with all of you today. This macro market is obviously very different than what many of us have experienced in the last decade. So if you are a large asset allocator, a CIO in that seat, you're looking at persistently high inflation, rising rates, the prospect of a recession, both here and in Europe. So I think everyone is taking a very, very hard look at this moment in time as to how they want to change or shift asset allocation in the years to come.

Just coincidentally, right now in Washington, D.C., we are having our Annual Chief Investment Officer Conference, which is really the top CIOs from all of our large institutional clients in North America. So we get this group together on an annual basis. We send out a survey in advance of that to really measure this sentiment. How are you thinking about adapting your allocations or shifting where you're seeing the best risk reward in the marketplace.

And this is over $3 trillion of AUM in the room right now somewhere in Washington, D.C. And I think the key takeaway from the survey in terms of asset allocation is really this insight around rates, where the number one shift, I would say, that the CIOs have articulated is more exposure to private credit and to liquid credit, to both participate in the dislocation with spreads widening and obviously, the increase in interest rates in the marketplace as a relatively interesting risk reward today versus several years ago.

Number two in that survey was really around inflation protected investment strategies. So most large pension funds, institutional investors are still underweight, underexposed to infrastructure in particular.

Infrastructure is obviously a very defensive asset class. It has meaningful cash flow profile to it. And many of these investments in infrastructure are contractually protected and hedged against CPI. It's built into their contracts and pricing.

So we're seeing much, much more interest around infrastructure and real assets. And the good news for us at KKR is if you look at our fundraising this year, 2/3 of our total AUM in terms of new fundraising have come from those categories, right? So that's private credit, liquid credit as well as real assets. We're meaningful players in all that. Our credit business today is roughly $200 billion of [Audio Gap] $200 billion in alternative credit. So rising rates is actually very good for that business in terms of returns that we can generate there. And I would say the areas that probably seem more challenged in today's market in terms of allocations from pension funds and institutions is different parts of the private equity complex.

The most impacted, I think, are certainly the growth equity, technology. And venture capital actually came in at the very bottom of the allocation that CIOs are looking to allocate towards right now. I think that's natural with the sell-off in tech and the frothiness there.

We don't participate in venture capital. We certainly have a very strong growth equity business, and those funds have actually raised capital in a meaningful way in the past 12 to 18 months.

Question
Alexander Blostein (Analysts)

Great. So speaking of private equity, KKR was fortunate in a way with the timing of your flagships. When you kind of look at the amount of capital you raised over the last couple of years, I think you're sitting next to $65 billion, $70 billion of dry powder in private equity alone. How are you thinking about the pace of deployment within private equity, again, considering the general macro uncertainty and some of the more challenging kind of financing conditions that we've seen over the last year?

Answer
Joseph Bae (Executives)

Yes. So when you think about our private equity business, there were 2 risks, right? One is raising the capital. As you say, we got lucky on timing. We raised most of our flagship funds prior to this current downturn. So we're very well positioned with dry powder to the marketplace.

The second challenge is how do you deploy that capital in an increasingly volatile macro environment. And I think if you look at our history in the last 5 decades of investing in private equity, I think the one thing you will consistently see not just for KKR, but for our industry writ large is that the best investments from a vintage standpoint typically come in these periods of dislocation, where capital is harder to get, where competition has lessened, where valuations in the equity markets come down dramatically.

These are the best vintages to putting money to work. The hard part is human nature, right? When there's a lot of risk out there, the tendency is to be more conservative and knock the capital out. When things are very frothy, when the markets are ripping, people tend to be procyclical and overinvest capital at the top of the market.

So I think what we try to do at KKR with all of our investment teams, particularly in private equity, is to maintain a much more disciplined pacing in both good times and bad. And I think you could see that most prominently probably on how we thought about navigating the last couple of years during COVID.

Coming out of 2019, I don't think anybody knew that COVID was going to be upon us in 2020. But when that market froze, when we were in lockdown in the United States, when everyone is basically on the sideline, we actually increased our investment in private equity by around 33% in 2020.

And that's when the market was basically flat to down in terms of private equity activity in the marketplace. And that was by design, right? Things were dislocated. Valuations have come down dramatically in the first half of 2020. And that was the window to really lean in and take advantage of areas where you had conviction, companies, sectors, themes that you've been following for years and years and years.

So the exact opposite was true in 2021, right? The government stimulus responses in the market then was lowering interest rates to virtually zero. You saw the stock markets rip. The capital markets were wide open and flushed. And you saw private equity activity in 2021 across our industry in the U.S. more than doubled in terms of deployment.

At our firm, our deployment in 2021 was flat basically to 2020. So we saw an incredibly frothy market in 2021, and we're trying to pull in the reins in terms of risk taking in that period of time.

2022 and beyond where we are now, obviously, feels more like 2020 in terms of the risk, in terms of the volatility we're seeing in the market. And I think this is actually a very constructive time for firms like ours, where we have a lot of dry powder, where we have very, very patient capital.

And the traditional sources of capital are not there today. The IPO window is shut for the most part, down 90% this year. The capital markets are still healing. Banks, bond market is still healing. So if you have -- private capital is much more valuable today than it was last year or 5 years ago.

So that's going to create some really, really interesting buying opportunities Equity valuations have, obviously, come down materially in the past 12 months and likely to come down even further in the next 6 to 12 months, we believe.

So our attitude is these are the moments in time where we have conviction, where we have the right thematics that we've identified that we should be leaning in.

I think what's new a little bit is public to private. It's really a function of the market we're in and where public valuations are. We have been the most active private equity firm this past year in privatizations. So we've completed 6 globally. We have 2 more that have been announced that are pending, and this is truly global. It's U.S. It's U.K. It's Germany, France, Netherlands, Australia and 2 in Japan.

So where we see equity market dislocations that overlap with the thematics that we like, we want to lean in to take advantage of that in the marketplace. We're also using this market opportunity. We have over 100 portfolio companies around the world.

When valuations are down, this is a great time for bolt-on acquisitions, for consolidation opportunities to use our existing platforms around the world to deploy incremental capital at really, really interesting prices with a lot of synergies and cost savings potentially.

The thematics we like are still pretty true in this market. All things digital we love, and a lot of them have gone a lot cheaper. Think about software, enterprise software, vertical software, you think about cyber.

And that's across private equity, growth equity, our real estate and infrastructure complexes. That's a mega theme that we're looking to deploy against around the world.

The things that we like less today and have probably always like less, so negative free cash flow businesses, big tech valuations with no EBIT positive EBITDA. We've never really been a big investor in that space. I don't think you'll see us go back to that space.

I think you're also seeing an opportunity for us in markets like Japan. Our macro team led by Henry McVey produces a chart of our investment teams, a relative valuation across 20 different asset classes, and we look at that pretty regularly. And when you look at that globally, on a 20-year valuation average, Japan is trading at 8%, right?

So 92% of the time, it's traded more expensive than that. It's really, really cheap right now. So I think we're trying to pivot our resources, our focus, our efforts both thematically, geographically sectors to where we're seeing real dislocation and where access to capital is pretty limited today.

Question
Alexander Blostein (Analysts)

Great. Let's pivot a little bit, and I would love to spend a couple of minutes with you on fundraising. One of the things that really stood out this year for KKR is that you guys raised $65 billion of capital year-to-date, the second best year of fundraising already.

And that's, again, without any major flagships in the market because you guys have done those over the last couple of years. So as the investor community thinks about sort of the bridges between flagship cycles for KKR, how do you envision the next 18 to 24 months unfolding in terms of the biggest areas of fundraising for you?

Answer
Joseph Bae (Executives)

Sure. I mean, a couple of general comments. I think while it's gotten more difficult to fundraise within the alt space today, just given the volatility in the marketplace, at the end of the day, it all comes down to performance and relative performance to your peers and your competitors.

I think in markets like this, what everyone should expect to see happen is it's going to be more challenging. And I think the larger firms with consistent track records, really attractive returns are going to have an opportunity to consolidate share in a market like this.

It's going to be much more difficult for first-time funds to get launched, smaller players to try to scale. So it all starts and ends with performance in terms of how successful you're going to be in fundraising.

For our business in particular, I think the dynamics have really changed in the last 10 years. We used to be heavily weighted towards private equity. And these 3 flagship funds you've referenced, the U.S., European and Asian private equity funds, used to dominate our fundraising calendar.

In the last year, 2/3 of all the capital we raised, right, which has been, again, the second best fundraising year we've ever had were away from our flagship strategies. These were in infrastructure, private credit, liquid credit, real estate.

So our business has diversified dramatically in the last decade. We are no longer just one dominant asset class in private equity. We have a $200 billion credit complex. We have $100 billion infrastructure real estate complex.

So our ability to raise capital continuously across all these different pools of capital is very different. And the other statistic, which I think is quite interesting, is if you look at the capital we raised last year, again, a very good fund raise -- for this year, a very good fundraising year for us, over half of those funds were products that were not in existence 5 years ago at KKR.

So as we thought about new ways to enter the real estate space in both the equity and credit side, new infrastructure product, new growth product in technology, health care growth and impact, these are all products that 5 years ago were not even part of the fundraising equation. And in the next 12 to 18 months, we have 30 different strategies that will be in the marketplace away from our flagship PE products. So we think it's still going to be a very attractive fundraising market for us.

Question
Alexander Blostein (Analysts)

Great. And as you're thinking about the timing for your next flagship cycle, and I guess you guys feel like you've just raised them. But if you're right about the deployment opportunity potentially accelerating, especially in the public to private space, which some of those deals could be on the larger side, how are you thinking about timing for the next flagship then? And how are you thinking about sizing them, how different could that look?

Answer
Joseph Bae (Executives)

Listen, it's very, very difficult to be super precise. But again, we raised and closed our flagship U.S. and Asia fund within the last 12, 18 months. So we have plenty of dry powder there.

And again, I think we're going to be very disciplined around more linear pacing. We don't want overexposure to any one vintage. We don't want to have too much vintage risk. So while we think it's going to be active next year in terms of deployment, it's not like we're looking to overdeploy. Our typical funds, we get invested in a 4- to 5-year time frame is a way to think about that.

Question
Alexander Blostein (Analysts)

Great. Let's talk about some of the specific businesses. One of the areas that I think you try to shine a little bit more light on is real assets and in particular, infrastructure accounted for 25% of management fees combined at this point.

There is a number of structural and get cyclical tailwinds to the infrastructure business, as you mentioned earlier. Feels like LP is still quite underallocated there.

So as you think about the opportunity set for KKR in infra, where do you expect client demand to look like? And how do you think the competitive landscape to evolve? Because it's an asset class that it feels like it's increasingly becoming pretty popular with your competitors?

Answer
Joseph Bae (Executives)

Yes. Listen, I think the macro investment opportunity in infrastructure is incredible. Some of the biggest tailwinds from a trend standpoint really impact this space quite dramatically.

So again, if you think about digital infrastructure around the world, right, all the data consumption that's happening. Fiber, it's towers, it's data centers. That's still going to be a massive area of deployment and need for the world as technology continues to advance.

You think about what's happening right now around energy transition and climate, the trillions and trillions of dollars that need to be invested around decarbonization around the world. In the last 10 years alone, we've already invested close to $25 billion around renewable themes and sustainability themes, and that's just scratching the surface in terms of what the world needs in terms of infrastructure capital.

So as a destination for investment, there's some massive tailwinds in terms of demand, I think, that the private sector is going to be able to supply. And that's against the backdrop where most governments around the world are quite constrained in terms of financial capacity, right? Given all the stimulus that's happened in the world, they don't have really a lot of budget excess to really fund and invest in critical infrastructure for growth in these economies.

So the private sector is going to have to step up and play a bigger role. And I think that's part of the reason why you're seeing the alternative space really grow dramatically in infrastructure.

At our last investor conference when we did this case study on infrastructure to kind of showcase what we're trying to build, that was in April of 2021. At the time, we had $17 billion of AUM in our infrastructure complex, and we had guided investors that by the end of this year, 2022, we thought that would be $30 billion, up from $17 billion.

As of the end of the third quarter, as you saw in our earnings release, we were at $50 billion of AUM in the third quarter. So we really have 3 big pillars of our platform today. We have our global infrastructure fund, which is really U.S. and European-centric.

We have now our Asia Infrastructure Fund, which is the largest infrastructure fund in the Asian markets. Our global fund is top 3 in U.S. and Europe. And we have a diversified core infrastructure fund, which is an open-ended institutional vehicle for large institutional clients, lower risk, more stable, but open-ended and permanent in nature. And that's $7 billion to $8 billion in size right now. So that's what's gotten us to the $50 billion of AUM today.

Going forward, what's really interesting is I think there are 2 other pillars that we're going to be able to staple on to our infrastructure platform.

one is clearly around climate. In the next 5 years, there's going to be literally trillions of dollars of need and demand for capital to support energy transition around the world. We've got the toolkit. We've got the investment expertise to be a meaningful player in that space, and that's going to be a big focus of ours in the next couple of years.

And the second, which we'll talk more about is these democratized vehicles for retail investors. In many ways, this is a product that a lot of people want. It's safe. It's defensive. It's cash flow-oriented and yield-oriented and it's inflation protected in many ways in terms of the contractual protection against CPI. So we think there's a huge opportunity within the retail channel for product and infrastructure.

Question
Alexander Blostein (Analysts)

Great. Let's shift gears a little bit and talk about another one of the sort of unique elements of KKR's model, which is your Asia footprint. It's been, again, a meaningful area of growth. I think you guys have over $50 billion in assets under management in that market, one of the largest private market managers in the region.

With Asia still fairly early, I guess, in adopting private strategies, private market strategies, how do you expect that market to evolve over the next couple of years? Where is the incremental uptake coming from? And again, similarly the way you described your position in infrastructure, maybe talk a little bit about how your competitors positioned in Asia market specifically differs versus some of the other?

Answer
Joseph Bae (Executives)

Sure. I mean, I know there's a lot of news flow, obviously, with geopolitical conflict and a lot of risk sentiment around Asia. But when you take a step back, what drew us to Asia, I went to Hong Kong in 2005 to actually start building this business and spent a decade living in Asia, again, the core of it set up.

But what brought our firm to Asia was really the fundamentals, right? You have the fastest growing part of the global economy there, 3 of the 4 largest countries -- GDPs in the world, in China, India, Japan, Anywhere between 55 and 2/3 of global GDP growth is coming from that region.

You've got over 1 billion millennials in Asia. So when you think about consumption trends, the adoption of technology, the need for better housing, education, health care services, these are all going to be massive, massive opportunities for investment.

If you're long term in nature and you're able to navigate the complexity of doing business in Asia, and it is very complex. There is more risk for sure, investing in Asia. But the prize and the TAM, the addressable market there is absolutely enormous. And that's why we wanted to build a long-term platform in that part of the world in a very differentiated way, which I'll get to in a second.

But today, we've gone from a standing start in '05. We have around $60 billion of AUM in the region. We are, by far, the largest private equity investor across the Asia Pac region today with a $15 billion flagship fund.

We are the largest infrastructure investor in Asia today. It's going to be the epicenter of infrastructure capital in many ways. You think about even energy transition. Other than the U.S., the 2 other large carbon contributors are India and China. We can't solve climate without making massive investments in China and India around energy transition.

So we're the #1 player in infrastructure. We're a top 3 in real estate today. We just bought a publicly listed REIT in Japan with $14 billion, $15 billion of permanent capital, which is going to be an incredible advantage for us in penetrating the Japanese real estate market.

And we just launched our first Asia private credit fund, which is off to a great start. So that $60 billion of AUM positions us as the largest alternative manager there.

We have 300 executives on the ground. We have 8 offices in Asia. We're very localized, which is a big part of the secret sauce is we're not expat-driven, we're not Western -- report everything to the New York headquarters. It is very, very empowered in the region and very localized in the countries we're trying to do business in.

So it allows us to be nimble. It allows us to have great insight into what's happening on the ground in each of these markets. And it's not just about investing in Asia. Having that footprint across the Asia region has given us great advantage as we think about investing in the U.S. and in Europe.

You think about supply chain complexity that we're all talking about. You think about geopolitical complexity, not just what you hear coming out of Washington, but what you hear coming out of Beijing or in China or other regional partners we have, Korea, Japan. You think about the early days of COVID, where China was dealing with COVID in 2019.

We had offices -- office managers on the ground trying to figure out health protocols, how to think about what we're going to do if COVID actually comes to Europe and the United States. But it's given us an incredible window in terms of the connectivity around the globe, both economically, politically and risk-wise.

And I think what's interesting about -- this is a little detour, but while China obviously has gotten its share of issues right now with the U.S., it's the only major economy in the world that's lowering interest rates right now, where everyone's raising rates. It's the only major economy that's in still full COVID shutdown. That's starting to relax and loosen.

So when you think about where you're going to see a rebound in the next couple of years, it's not the U.S. or Europe in terms of economic growth. There's a real chance you could see a meaningful rebound in China based on the relaxation of COVID, the lockdowns and obviously, the stimulus that they're pumping into the economy right now, both fiscal and monetary.

Question
Alexander Blostein (Analysts)

Great. Let's talk a little bit about retail. It's obviously been an area of significant focus for yourself and for many of your peers. It's also an area that's gotten more controversial I would argue for the last couple of weeks.

So as you think about the sentiment you're hearing from the distribution channel, whether it's the wire houses or any of your other distribution partners, are there any second thoughts around their commitment to private markets when it comes to retail and what is KKR's strategy ultimately when it comes to the sort of democratized products?

Answer
Joseph Bae (Executives)

Yes. I mean, this is one of the top priorities for our firm today. Again, when you think about the big picture, the near term right now in the moment, it's not surprising that there is volatility, right? Just given what's happening in the macro, there's going to be volatility, short windows of time where inflows may be more muted. But that doesn't take away from the big picture, which is why I think our firm and others are really focused on this.

Today, in alternatives, you have a massive amount of AUM in private retail hands around the world. A low single-digit percent of that AUM is currently invested in the alternative industry, which is dramatically different than when you look at the institutional sector. You look at pension funds. You look at endowments. You look at insurance companies. Those institutional investors, which are also investing money for retail investors at the end of the day, these are pension funds or savings, they're 30%, 35% allocated to the alternative space.

So there's a massive mismatch in terms of exposure for retail. And the opportunity for us is to create a set of products that are more accessible to retail investors over time. So that low single-digit allocation to the alt space can grow over time to 10-plus percent.

You don't need it to get to 25% or 35% like the institutional space. Even if it gets to 10-plus percent, you're talking about tens of trillions of dollars of AUM flowing into the alt space. That's the prize.

It's complicated though. You need to create the right product. You need to create the right risk management around those products, the liquidity features in those products. So it's not something that every alternative manager is going to be able to do.

It requires a brand. It requires getting on distribution platforms with trusted partners. It requires a significant investment in the sales force and education. So again, the cost of entry here in this space is meaningfully higher than the institutional market space.

But it's clearly going to be a massive end market for us. And our focus is creating democratized access vehicles for each of the 4 major asset classes that we participate in. Clearly, private equity, infrastructure, real estate and credit.

And the good news is this is all upside for our firm. We have very little participation in it today. And when we think about the scaling of the firm over time, this hopefully will be one of the major drivers of that.

Question
Alexander Blostein (Analysts)

Great. Another interesting element of KKR's business is your capital markets business and the origination capabilities that you build around that over the years. KKR was probably one of the -- or not probably, was the earlier entrants kind of in that part of the model within the space, now contributing anywhere from $150 million to $200 million in quarterly revenues.

It's clearly been a bit of a challenging year for capital markets as we've seen. So maybe talk a little bit about your origination capabilities broadly and sort of the areas of the business that could be more insulated from market volatility in a way that's kind of within your control? And any sort of forward-looking thoughts you have on that business into '23.

Answer
Joseph Bae (Executives)

Great. Our capital markets business, I do think is misunderstood by The Street a bit. So maybe I'll spend just a second talking about what it is and what it isn't.

So we have 90-plus executives around the world in our capital markets team. And they are not a team focused on sales and trading. They are not market makers. They don't do any of that activity, which you might assume at a traditional investment bank or commercial bank.

Our capital markets team's core function is to provide advice, expertise and execution to our deal teams, to our portfolio companies and management teams and to the third-party clients on how best to raise debt financing and equity financing for their businesses or for their transactions.

It sits at the heart of every deal we do at KKR. So if we're doing a private equity deal, our capital markets team and executives are partnered with them on how do we think about the best, most resilient, responsible capital structure to put in place and where do we source that capital from.

There is extraordinary value in having this team in the market every day talking to accounts and investors, especially in a market like this, right, where the capital markets are so dislocated. How are institutional investors pricing risk? What kind of capital structure will clear the market?

If you want to get an IPO done in a market like this or a secondary, who are the buyers, who is interested in the sector? That's the value add. It's the execution. It's the strategic advice. It's the risk management piece of it that our capital markets team brings to our investment franchise around the world.

And because of that, it's a lot less volatile than businesses that are focused on sales and trading or market making. While the capital markets this year have been really, really dislocated on Wall Street, our capital markets in the first 9 months of this year is only down 14%.

It is a lot more resilient than people think. And the fundamental reason is it's tied to our core investment franchises in the private markets, private equity, real estate, infrastructure. So again, every financing, every refinancing, every monetization through the equity markets, we're leveraging our capital markets teams.

And increasingly, our third-party business, where we're advising and financing other sponsors has been growing pretty dramatically. And this market window is a great opportunity for us to take share there, right, because others are a bit dislocated and frozen. And if we can show up with our credit colleagues and our capital markets colleagues to provide a financing solution, that's really valuable to our third-party clients in a market like this.

Question
Alexander Blostein (Analysts)

Great. All right. Let's shift gears a little bit. I was hoping to hit on your financial targets. You set out fairly ambitious growth targets at your Investor Day again, kind of hoping to double the business over the next several years.

So maybe just update us on where you are in that progress. And importantly, as you think about both the magnitude and the timing of you achieving those goals, what does that look like now?

Answer
Joseph Bae (Executives)

Yes. So despite the volatility this year and the volatility we expect going into 2023, I think there's really no new updates on the targets or the timing. We articulated $4-plus of fee-related earnings and $7-plus of after-tax distributable earnings by 2026. We still feel very good about those targets. So there's really nothing new to share here other than we are on a path to meet or exceed those targets.

The one tidbit maybe that is different, I think Scott mentioned this on our third quarter earnings call, those targets were set before we were thinking about launching our private wealth platform and really those -- the contribution of private wealth was not inclusively picked up in those targets. So in many ways, private wealth is a true upside to us in every way.

Question
Alexander Blostein (Analysts)

Great. Well, we have a couple of minutes left, so I want to make sure we give the room opportunity to ask questions as well. So if you have a question, just raise your hand and we have a mic come around. There's one up here, please.

Question
Unknown Analyst (Analysts)

Can I come back to where you started, which was the benefit of rising rates in the credit portfolio? And just thinking about it from the other side, which is highly levered investee companies that have to pay higher interest rates, I'm guessing like maybe 6x net debt-to-EBITDA. Like how comfortable are you that portfolio is not going to come under stress with higher interest rates, especially as it's I think predominantly floating rates?

Answer
Joseph Bae (Executives)

Yes. So I would say there are 2 things. So in our credit franchise, right, which is a lending business, higher rates, higher spreads, it's good for that business and making better returns.

The question you're asking, I think, is in private equity with our existing investments and the levered capital structures they have, how much risk is there. And again, in private equity, I'd bifurcate this into our existing portfolio deals that we've made in the past 3, 4 years, let's say, and then the new investments we're looking to make.

On the existing portfolio, again, a big part of how we operate our firm around risk is to be thinking about capital structure risk, interest rate risk, given our global, our businesses currency risk.

And that's centrally managed at KKR. We have a centralized risk team. Henry McVey, who's our head at macro, sits on top of that and works with our CFO. So what you have seen in our existing portfolio of private equity, real estate and infrastructure investments is a very aggressive, proactive fixing of interest rates, floating rate exposure over the last several years, right?

Rising rates was always a big risk to the capital structures, especially when rates went so low. And we've been very proactive in mitigating a lot of that risk, extending maturities. And again, that's a big part of what our capital markets team does.

When there's windows like in 2021, where the capital markets are wide open and we could refinance, extend maturities for our portfolio companies at really attractive rates, we will jump through that window and be very, very aggressive and do that to mitigate that risk. So we actually feel very, very good about what we have in the ground today.

On new deals, this is the financing challenge for new buyouts. The quantum of leverage in today's market is going to be lower, spreads are wider and rates are higher.

So what does that mean? It means you got to pay less for the businesses you're acquiring on a go-forward basis and price in that higher cost of capital. And again, when you are financing with floating rate, making that judgment, where do you want to fix that at that point in time. But we're able to price that risk into the price we're paying for assets on a go-forward basis.

Question
Unknown Analyst (Analysts)

[indiscernible]

Answer
Joseph Bae (Executives)

I'm sorry?

Question
Unknown Analyst (Analysts)

Why did that not apply to your credit value?

Answer
Joseph Bae (Executives)

Because the credit risk on the portfolio companies are on the credit side of the business. The credit risk, right. Yes. Well, listen, the counterparties are not necessarily the same counterparties when you hedge out, right?

So you may have a group of lenders to you on the bank [indiscernible] side who are floating rate lenders, right, and you're hedging from floating to fixed with a different set of counterparties. So it's not exactly the same group of lenders.

Question
Alexander Blostein (Analysts)

Well, I think we're at time. So Joe, thank you so much for being here, pleasure having you and see you again.

Answer
Joseph Bae (Executives)

Wonderful. Thanks, Alex. Appreciate it.

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