KKR & Co

KKR's announced sale of USI to Aon late last month highlights the fact that the company continues to outperform our expectations, which have arguably been suppressed by concerns about the private credit market.

Why it matters: During a period where we have seen many private equity firms struggle to monetize assets, KKR has offloaded quite a few holdings this year, including the recent sale of USI to Aon for $17 billion in an all-cash transaction, which has overcome some of the concerns we've had about the firm's credit operations. KKR, along with other co-investors, including USI's management and employees, acquired the middle-market insurance broker from the private equity firm Onex in 2017 for $4.3 billion, and during 2020, 2023, and 2025 made additional investments to increase its ownership stake, becoming the largest shareholder. The transaction, which is slated to close in the fourth quarter of 2026, is expected to generate around $2 billion in adjusted net income for KKR (which we had previously projected to reach $7.5 billion) this year, adding just over $2.00 per share to the company's bottom line.

The bottom line: While increased uncertainty about the equity and credit markets tied to fiscal, tariff, and monetary policies, as well as economic growth, and increased concerns about the private credit market have pressured the businesses and share prices of most of the alternative asset managers, we envision more stable market conditions over time boosting KKR's private market activities. Given the boost to this year's earnings from the USI deal, as well as our expectations for a somewhat quicker return to more stable market conditions (especially on the private credit side) than we previously forecast, we've raised our fair value estimate for narrow-moat KKR to $116 per share from $105. The company's shares are slightly to modestly undervalued right now relative to our fair value estimate.

Given all of the consternation that surrounds the private credit markets, we feel it is important to highlight the fact that just 42% of the fee-earnings AUM in KKR's credit and liquid strategies segment is tied to what would be considered private credit markets—with asset-based finance accounting for 26% of the segment (and just 12% of KKR's total fee-earning AUM) and corporate credit, also known as direct lending, accounting for 16% (7%). 

The rest of the company's credit operations are focused on leveraged credit (45% of segment fee-earning AUM and 21% of total fee-earning AUM), liquid strategies (11%/5%), and KKR's strategic investment group (2%/1%), which provides partnership capital solutions to high quality mid- to large-cap companies, typically in situations requiring customized financing or strategic capital support, which can be lumped in with its private credit offerings. 

So, despite generating 46% of its fee-earning AUM and 28% of its base management fees from its credit segment, the part most at risk from the turmoil in the private credit markets amounts to just 20% of its fee-earning AUM and a smaller portion of its base fees. 

While fundraising for the company's credit segment fell short of our expectations (for $11.9 billion in inflows) during the second quarter of 2026, management did note that the fundraising headwinds have been more acute with all of the hysteria surrounding the private-credit market but that it still expects to see record levels of third-party credit fundraising this year. 

Management also noted that despite all of the concern about software being disrupted by artificial intelligence, which would impact both its private equity and private credit operations (where software accounts for around 6% of fee-earning AUM), it is still seeing high-single-digit revenue and EBITDA growth on a trailing-four-quarter basis and actually sold one software business earlier this year for 4.5 times the cost of the investment. 

For more insight into the trends and other issues affecting the alternative-asset managers, which influence our long-term forecasts for firms like KKR, please see our latest Industry Pulse, "US Alternative-Asset Managers: 2026 Q2," which was published on June 30, 2026. We also have a broader industry primer available for all of the US-based asset managers in our annually updated Industry Landscape, "US Asset Managers," which was last published on Dec. 18, 2025. 

On top of that, our special report, "Financial Services Observer: US-Based Alternative Asset Manager Moats Remain Solid; Largest Firms Should Continue to Capture Bigger Share of Market," published on Dec. 2, 2025, provides deeper insight into the seven alternative asset managers we cover, including our take on KKR & Company.

Our fair value estimate for KKR is $116 per share, which implies multiples of 13.8 and 15.5 times our 2026 and 2027 EPS estimates, respectively. For some perspective, during the past five (10) years, the company's shares have traded at an average of 21.3 (17.5) times trailing adjusted net income, with the highest (lowest) multiple during the past decade being 33.8 (8.3) times. We use a 21% US statutory corporate tax rate and a 12.0% (8.7%) cost of equity (weighted average cost of capital) in our valuation.

Consistent with other alternative-asset managers, we view fundraising, deployments, realizations, fee-earning AUM, base management fee levels, realized performance fees, and compensation costs as key drivers of our valuation. Total fundraising at KKR during 2025 was $129.4 billion, above full-year efforts of $113.6 billion in 2024, with the firm's credit and liquid strategies segment accounting for more than half of the haul. Inflows of $62.1 billion during the first half of 2026 sets the firm up for $110 billion-$120 billion in fundraising this year. We expect KKR to raise $115 billion-$130 billion in new capital on average annually during 2026-30.

KKR deployed $94.6 billion of capital during 2025. While above full-year deployment efforts in 2024 of $83.6 billion, deployments were skewed toward the firm's credit business. Despite first-half deployments of $45.9 billion putting the firm on pace to match last year's deployment levels, we expect KKR to put just $90 billion-$100 billion to work on average annually during 2026-30. As for realizations, the firm does not disclose these details, but distributions averaged around $40 billion annually during the past five years, and should be $60 billion-$80 billion annually during 2026-30.

KKR exited June 2026 with $638.4 billion in fee-earning AUM, up 14.8% year over year, and had total managed assets of $796.5 billion, up 16.1% year over year. Over the next four and a half years, we see KKR's fee-earning and total AUM expanding to $891.1 billion and $1.025 trillion, respectively. We expect modest fee compression, with base management fees increasing at an 8.6% CAGR during 2026-30. Realized performance and incentive fees will continue to be constrained, though, with total revenue expanding at an average annual rate of 5.5% over the next five years.

Compensation costs averaged 22.4% of revenue during 2021-25 and we envision them at 20%-25% of revenue during 2026-30. We also expect the insurance operations to be breakeven from an underwriting and earned income perspective over the long run. As such, we see adjusted net income averaging $14.5 billion annually during our five-year forecast. Our current 2026 and 2027 EPS estimates for KKR of $8.40 and $7.49, respectively, are based on our expectations for adjusted net income of $9.6 billion and $10.6 billion.

We project a bull-case fair value estimate of $180 per share and a bear-case valuation of $70 per share. Our upside case implies P/E multiples of 16.5 and 18.5 times our 2026 and 2027 EPS estimates, respectively. This scenario assumes more substantial capital-raising efforts, deployments, and realization levels than in our base case. Base management fee revenue should increase at a 9.5% CAGR during 2025-29, with total revenue expanding at a 5.9% average annual rate. The net result is a 20%-25% higher level of adjusted net income over our five-year forecast.

Our downside scenario implies P/E multiples of 10.4 and 11.7 times our 2026 and 2027 EPS estimates, respectively. This scenario assumes lower levels of capital raising, deployment, and realization due to unfavorable market conditions and continued stress in the private credit markets. Base management fee revenue would increase at a 7.5% CAGR during 2025-29, while total revenue expands at a 4.7% average annual rate. The net result is a 20%-25% lower level of adjusted net income over our five-year forecast.

Unlike the more traditional asset managers, like Invesco and T. Rowe Price, which focus on traditional asset classes like equity, fixed-income, balanced, and money market funds, alternative-asset managers like KKR deal with less-liquid alternative investments like private equity, credit alternatives, real estate/real assets, and hedge funds. Even so, we think that the alternative-asset managers, much like the traditional asset managers, benefit from switching costs (the core moat source) and intangible assets, which include organizational attributes—such as product mix, distribution channel strength, and geographic reach—and true intangibles—like strong and respected brands and manager reputations.

We believe that KKR's alternative-asset management business has a narrow Morningstar Economic Moat Rating. The company has, in our view, built a solid position in alternative asset management, using its reputation, broad product portfolio, investment performance/record, and a cadre of dedicated professionals to not only raise capital but maintain its reputation as one of the go-to firms for institutional and high-net-worth investors looking for exposure to alternative assets. KKR is currently the fourth-largest stand-alone alternative-asset manager in the world with $796.5 billion in total managed assets, including $638.4 billion in fee-earning AUM, at the end of June 2026.

KKR operates with reasonable amounts of scale in each of its segments—private markets, which includes its private equity ($254.7 billion in total AUM and $168.1 billion in fee-earning AUM) and real assets ($210.9 billion/$175.3 billion) offerings, and credit and liquid strategies ($330.8 billion/$295.0 billion), which includes the bulk of its credit offerings and investment/hedge fund products—and distribution channels where it competes. Much like its peers, KKR has also built out a large base of employees—including in-house executives, consultants, and advisors—with decades of industry experience that can successfully revitalize a company through cost-cutting, acquisitions, or other strategic maneuvers, increasing the chances of producing a successful private equity or real estate investment.

All these attributes have provided KKR with the ability to not only gather but retain assets in various market conditions, as well as a means of differentiating itself from peers. While the barriers to entry are not particularly significant for the industry, the barriers to success are extremely high as it not only takes time and skill to put together a long enough record of investment performance to start gathering assets but even more time to build the scale necessary to be competitive (exemplified by the fact that BlackRock is the only legitimate traditional asset manager of size competing in this part of the market despite the fact that most of our coverage has been focused on building out alternative-asset manager offerings during much of the past decade).

On the switching cost front, alternative-asset managers like KKR (unlike their traditional brethren) have not had to rely heavily on investor inaction to keep annual retention rates high, as the products they offer tend to have lockup periods, which prevents investors from redeeming part or all of their investment for a prolonged period. These types of arrangements have allowed KKR's asset management business to post an annual retention rate of 90% (89%) on average annually for the past five (10) years.

We expect competition for new investor capital—which has traditionally centered on manager reputation, fund size, and investment performance—to only increase, especially with more traditional asset managers like BlackRock increasing their exposure to alternatives and showing a willingness to be fungible on fees. We suspect that this may have been part of the reason KKR acquired Global Atlantic (an insurer focused on retirement/annuity and life insurance lines), as well as KJR Management (one of Japan's largest real estate asset management companies).

While we generally view life insurance as a no-moat business, there is some benefit provided for KKR's asset management arm, which has access to more or less permanent capital—referred to as "perpetual capital" in the industry—that exists in life insurance, reinsurance, and retroactive insurance, allowing for more stable management fees as well as the ability to seed annuities and private wealth funds with its own alternative-asset offerings. The acquisition of Global Atlantic provided KKR with a massive balance sheet that should help fuel its growth as well as compete for larger deals in a consolidating industry.

At the end of June 2026, KKR had $334 billion in perpetual capital, up 16% year over year, with the growth driven primarily by the organic growth of Global Atlantic and by inflows into the firm's K-series private equity and infrastructure vehicles run by KJR Management. Perpetual capital represented 42% of total AUM and 52% of fee-earning AUM at the end of the second quarter of 2026.

KKR's adjusted returns on invested capital have averaged 12.5% annually during the past decade, with excess returns of 380 basis points on average relative to our estimate of the company's cost of capital of 8.7%. While the firm's ROICs have historically trailed peers, owing to KKR investing a lot of its own capital in its funds, the purchase of Global Atlantic, an insurer focused on annuities, life insurance, and reinsurance, in a series of equity stake purchases during 2021-24 has also weighed on returns.

Looking out over the next decade, and assuming that the insurance business remains a breakeven operation from an underwriting and investment income perspective, we see the firm generating adjusted ROICs of 14.8% on average annually, with excess returns of around 600 basis points annually.

KKR, with $638.4 billion in fee-earning AUM at the end of June 2026, is a go-to firm for institutional and high-net-worth investors looking for exposure to alternative assets.

The company's ever-increasing scale, diversified product offerings, long record of investment performance, and strong client relationships leave it well positioned in a variety of market conditions.

KKR's large capital commitment to its own funds is an attractive selling point to new limited partners and contributes additional levels of income to earnings.

Private equity and real estate are both highly cyclical and heavily reliant on elevated market returns and regular exits to generate incentive income.

Competition for new investor capital is likely to increase as more traditional asset managers like BlackRock increase their exposure to alternatives and are willing to be more fungible on fees.

KKR's large capital commitment to its own funds only adds to its balance sheet risk, with the company already onboarding all of the assets and liabilities of its insurance operations.