The Exchanges

Q How did you define what that landscape looked like eight years ago?

A It's interesting when people say wealth, it means something different to different people. In my book, there are really three components to the wealth market. There is what I would call the ultra, ultra high net worth family office component. Those are typically professional buyers of investment solutions. They tend to have their own infrastructure, their own CIOs, And in a lot of ways, make decisions like institutional investors. The second category that we think about in wealth is the wealth that's financially intermediated. So we think of those individual investors that utilize financial advisors or financial consultants or some type of platform to help with investment management. And then the third category that I would consider is the self-directed individual investor. So those investors don't use any Formal financial advice. Obviously, in the asset management business, for the most part, the focus is usually on the first two categories, but over time, you might see different people focusing on different parts of that market.

AI assessment note: “In my book, there are really three components to the wealth market.”

Q So there are other ways your mother could access what you're doing, most notably KKR stock. So how do you think about that as a potential solution for this channel?

A Anyone could buy our stock, which is certainly one way to get exposure to some of these investments. But if you think about it, the investment in KKR stock trades at a multiple to earnings and reflects the number of things that we do here at KKR, which includes asset management. It also includes the insurance company that we own, Global Atlantic. So it would not be as a pure play exposure to say private equity or infrastructure or real estate or credit. And obviously as an investor, you're customizing your portfolio to Based upon your goals and objectives. So for my mom, she'd probably be allocating more to, say, private credit or real estate than likely a larger exposure to PE.

AI assessment note: “it would not be as a pure play exposure to say private equity”

Q If you start with the off-the-shelf target date funds that are in the hands of an asset manager, what asset managers are involved in that space?

A There are really six managers that dominate the market, probably have 85 plus percent of the assets. That's Vanguard, Fidelity, BlackRock, State Street, T. Rowe, and Capital Group. So they have a really important strategic decision on how they want to think about incorporating alternatives. One important piece of information which is helpful to have which will inform their decision-making processes is how they originally sold those off-the-shelf custom target date. If you think about the decision-making process, for most companies that choose off-the-shelf target date funds, the individuals that are making those decisions Are either someone from their finance teams or someone from their human resources teams. They're not professional investors, and it's not their full-time job to actually administer the four one K plan and do manager selection, manager due diligence. And historically the single most important factor in picking a target date fund lineup or fees. That's one of the reasons why you see the majority of target date funds today Are in passive, very low cost strategies. And as a matter of fact, there was really an incentive for plan sponsors to pick the low fee option because in the DC market, there's a lot of litigation risk. So there was a view that by picking the lowest cost, it would potentially shield you from litigation that you could have from plan participants.

AI assessment note: “That's Vanguard, Fidelity, BlackRock, State Street, T. Rowe, and Capital Group.”

Q So you've alluded to these two challenges of liquidity and daily pricing, which are not things that are typically characteristic, particularly of private equity. How do you incorporate those needs into an investment in one of those strategies?

A The For One K market and broadly DC market have all been built on a chassis that's really created for public markets and daily pricing and daily liquidity. Today, not all, but most For One K plans enable participants to allocate dollars by week, by monthly, or at the end of each month, and the plans can accept them and invest them right away. It also gives plan participants the ability to reallocate or change their allocation and even withdraw On some sort of more periodic basis than just month end. Maybe it's daily, maybe it's weekly, and so we all know that private markets are not daily liquid. However, there is the ability to incorporate private markets into target date funds where the funds can manage the liquidity. Maybe they have a liquidity sleeve, and so you can still have private markets in a target date fund and offer the ability for investors to invest or withdraw. So there is a solve there. The bigger challenge, which as an industry we can overcome, is you still need to be able to mark these strategies on a daily basis. If people are going to invest in a target date fund on a daily basis or redeem, even if you're not changing the underlying allocation to private markets, you still have to transact at a NAV. But we as an industry have actually already made progress. Historically, private markets were marked on a quarterly basis. Now with the advent of Of evergreen we…

AI assessment note: “incorporate private markets into target date funds where the funds can manage the liquidity”

Q So when you hear the numbers, 12 and a half trillion dollars in these DC assets, and all it takes is one percent or two percent or five percent, then it's going to be hundreds of billions of dollars. How does it work? So if you break down the DC category into the different investment options that an employee could pursue, how do you get from here to there?

A There is reason to believe that over time, we're going to see a really meaningful allocation to private markets in DC. But you're right to ask the question of how is it going to happen? I would point to two different things that have to happen. There are some structural things which we can talk about as it relates to daily pricing and NAVS and the way these things are set up in terms of liquidity. But then, and you're getting to this, is how do people actually access the target date funds? I should mention, north of 60% of all new flows in DC are going into target date funds. It's a really important part of the market. The way to think about these investment solutions are there's three ways that you can get exposure to a professionally managed investment solution. The first is off-the-shelf target date funds. So think of in a . . . a corporation wanting to offer a . . . . . . . . . . . . . . . . . . . . . . . And that investment lineup is in funds or CITs, which is just a different type of vehicle that incorporates and is managed by an asset manager. That is the majority today of target date fund exposure and investment solution exposure. So there's four and a half trillion dollars in these investment solutions. Three and a half are in these off the shelf custom target dates. For alternatives to be incorporated into those, you would look to the asset managers. The second catego…

AI assessment note: “The way to think about these investment solutions are there's three ways”

Q So in that segment of off the shelf target date funds, how do you move off of that and get into a higher fee alternative?

A There are two potential options. One is you can have these asset managers use their existing target date funds and add alternatives to them. I personally think that's highly unlikely, and as a matter of fact, as you talk in the industry, it's pretty apparent that that's not the avenue. Part of the reason why is, is if you're a company and you've made a decision to invest in a certain investment strategy that had a certain risk exposures, certain fees, It's hard to imagine that someone is going to unilaterally change that strategy without you opining on it. Imagine you were subscribing to cable, and you looked at all the different cable providers that may cover your house, and you looked at all the different packages, and you said, you know what, I just want the lowest basic package. It's unlikely that that cable company is going to be able to go to you and say, hey, Ted, I've got great news for you. I'm adding all of these great channels, but I'm going to really increase your fees. It's probably not going to work. You may not want all those channels. You may be happy with the fees you're paying. What's much more likely is that asset managers that offer these off-the-shelf target date strategies are creating new target date funds that incorporate private markets. Now, what will have to happen then is the asset managers through intermediaries and advisors will have to engage with…

AI assessment note: “What's much more likely is that asset managers... are creating new target date funds”

Q How do you go about doing that? Making sure you're not a tree falling in the forest.

A When I first got here about five years ago, we actually didn't have a marketing department. I remember I got here and it was really excited to be on the ground and meeting lots of my new colleagues. And I remember asking someone, Hey, can you introduce me to someone in our marketing department? And they turned to me, they said, isn't that you? And I said, well, yes, we are sales and product strategy, but no, we need to build out a skillset around digital marketing, channel marketing, product marketing brand. So the firm said, Hey, if we need it, Let's go build it. And so we ended up building out a fully staffed marketing effort. And through that effort, we are engaging in so many different ways to connect and reach out to advisors and ultimately make sure that the KKR value proposition is well known in the marketplace. We've got about 25 people here at KKR that are dedicated to focusing on engaging and delivering that broader client experience.

AI assessment note: “we ended up building out a fully staffed marketing effort”

Q Let's turn to this concept of customization. What's changed from the traditional structure that private equity had been delivered to institutions to make it more accessible?

A Sure. Well, I think it's a combination of two things that have happened. It's a combination of innovation on the vehicle front and then also technology, right? If you think about it, these historical drawdown vehicles, number one, they're only eligible to qualified buyers. So there's a limited universe of investors that would even be eligible to invest. The second part is it's a very challenging administrative burden to actually allocate capital to a drawdown vehicle. The subscription documentation process is pretty extensive, and there's a lot of hoops that individual investors would need to go through. If you're a large sovereign wealth fund or public pension plan that is used to doing these things and obviously an eligible investor, No problem. But if all of a sudden you're a financial advisor and you work with 300 clients and maybe only a couple of them are eligible and they've got lots of accounts and it's complicated, all of a sudden that's a pretty huge barrier to allocate to an alternative investment solution. Over the last several years, however, innovation in vehicles has really made a huge difference. Through whether it's an interval fund, a tender offer fund, a non-traded BDC, an operating company, there are now a number of new vehicles that asset managers can utilize, which really widen the aperture for investors to invest. And that includes not just qualified buye…

AI assessment note: “It's a combination of innovation on the vehicle front and then also technology”

Q Let's turn to that next leg, which is relationships and boots on the ground. What have you had to do to be able to reach as much of this market as you can?

A When it comes to boots on the ground, we've had to hire a number of people. When I started here at KKR, we had five people that were focused on wealth globally. All of those individuals were really just focused on engaging with the home office platforms. Today, we have a whole sales team in the US that is out in the field that are wholesalers. We've got external wholesalers, internal wholesalers. We have folks that focus on the wire channel, the IBD channel. The RA channel. We have folks sitting in London, in Zurich, in Hong Kong, Singapore, Tokyo, Australia. We've really had to build out an on-the-ground sales team, and their goal, each of them wake up every day engaging with advisors and meeting with them, oftentimes one-on-one in small groups. It's a really important effort. At the end of the day, advisors want to hear from their asset manager and their relationship manager coverage. If you look across KKR, roughly a third of all of the folks that are in distribution are focused on our wealth business, and that includes a home office coverage team, that includes a wire sales team, an independent broker-dealer sales team, an RIA sales team, and it also includes individuals that are in Europe and in Asia on the ground covering clients. So it's gone from being a very small part of our overall distribution effort to being, frankly, one of the biggest groups that we've got within…

AI assessment note: “When it comes to boots on the ground, we've had to hire a number of people.”

Q How do you think about risk in the space? The one that people raise a lot is how do you bring liquidity when underlying assets are less liquid?

A you The reality is this. There's no magical wand that you can wave over a private market investment and make it liquid. That's the reason why, in my mind, the wealth solutions that take advantage of these limited liquidity vehicles are the way to get exposure. The interval fund, the tender offer fund, the operating company. There are parts of the market that are contemplating trying to wrap private markets in daily liquid, whether it's a mutual fund or an ETF. If you're going to do that, then you need to have some liquidity function, and that always is going to come at a cost. It could be an explicit cost, it could be an implicit cost, but at the end of the day, you can't magically say something that's illiquid is liquid, and if it does become liquid, then the illiquidity premium likely is going to go down or go away.

AI assessment note: “There's no magical wand that you can wave over a private market investment and make it liquid.”

Q As you look at trying to service that client base, you mentioned the intermediaries and then self-directed, two can be very different decision-making units. How do you think about putting that together and trying to figure out what they want and need?

A Today, our focus is on the intermediary part of the market, so we don't engage directly with investors. There are a lot of really great companies that have built out direct To investor models. We want to participate in that by simply having our investment solutions available on those platforms. But in terms of us at KKR engaging directly with individual investors, it's just not our value proposition that we can deliver. Our focus really is on that intermediary part of the market. To be successful in that part of the market, you really need five things. You need to have a brand. Make no mistake, Brand's important no matter where you are, but within the wealth space, brand is really important. At the end of the day, that financial advisor is going to be sitting across the table with an individual investor, and he or she needs to understand all the different things that are in his or her portfolio, and so brand matters. The second thing is it's really important to have real quality investment solutions that are customized for wealth. Historically, this industry had taken some of the institutional investment strategies and just plugged them into the wealth channels. And that's okay, and for some individual investors, those drawdown or institutional vehicles might make sense, but for the large majority of individual investors and the financial advisors with whom they work, you reall…

AI assessment note: “Today, our focus is on the intermediary part of the market, so we don't engage”

Q That leads into this whole concept of education. You mentioned the academy. There's a couple examples there. What level of sophistication do you find the advisors have when you're trying to make sure you're educating them properly about this fit in their portfolios?

A Yeah, Ted, that is one of the things that I love about wealth is that there is such a wide range of advisors. We work with some advisors that I think are more sophisticated than some of the big sovereign wealth funds and pension plans we work with. On the flip side, we work with some advisors that have never allocated to anything other than public equity and public fixed income. The knowledge difference Is wide, but that's great because what we've done is we've developed content that supports each of those different levels. We'll have content and education that talks about what is private equity? How does it work? Why would you invest in private equity? We also have content that goes much deeper that talks about the J curve. It talks about what the difference between gaining exposure to private equity and a drawdown vehicle versus an evergreen vehicle. And then we have a whole series about, okay, well, how do we add value in private equity? And we take clients through our value creation toolkit. And so we really try and meet advisors where they're at. But what I would say is this, advisors are building knowledge. We're seeing it every single day. That's one of the reasons why the allocations to alternatives are going up, because more and more advisors are getting more comfortable with the asset class, with private markets, and understanding the role and the potential benefit wi…

AI assessment note: “there is such a wide range of advisors. We work with some advisors that I think are more sophisticated”

Q What are some of the ways you've done that differently, clearly hadn't been done in the past?

A There are lots of different ways. One of the ways is we've built out a real robust digital marketing effort. There are 300,000 financial advisors. The sales team can never touch every single one of them. But if we can take some of the content that we have and we could package it and leverage digital marketing to reach at scale a number of different individual financial advisors, that's one great way. The second thing that we've done is we've really elevated the client events and client experience that we offer. For example, we do a KKR Academy, where we bring advisors to KKR, and we talk to them about our capabilities and our investment solutions. The marketing component of that is really important. It's the brand, it's elevating the experience that advisors have. And then there is all kinds of other marketing techniques, paid search, and all these other ways that we can really elevate KKR. One last thing that we're super proud of Is that we've created a digital education experience. It's called Alternatives Unlocked. And that's a fully multimedia digital experience that advisors could come on, get continuing education credit. It's accessible also to individual investors as well. And we think that's a really great way for us not only to help educate the market, but also elevate the brand.

AI assessment note: “One of the ways is we've built out a real robust digital marketing effort.”

Q It's easy to see why that switch could be challenging. There's also the question of flows. So there's a certain amount of money in the ground. What does that picture look like of the money that's coming in to the DC world each year, and then the money that's going out?

A Good question, Ted. So there is a tremendous amount of new money going into the DC space, but we also have to acknowledge that there's actually a fair amount of money coming out each year as well. And think about it. It's coming out in two different ways. One is because people are retiring and they need to draw on their savings to support their spending. But as people change roles, change jobs, it does also create pivot points for them to roll money out of their Into a rollover IRA. So while there is huge dollars going in, there's a meaningful amount of those dollars that is ending back up in IRAs that are professionally managed by wealth platforms and financial advisors.

AI assessment note: “there is a tremendous amount of new money going into the DC space”

Q What is the one thing that you've found that most people misunderstand about what's happening now with this money in the private markets?

A Most people don't understand the decision-making processes around how a target date fund gets on a platform and how the evolution and change would happen. Most people will say, oh, this is great. All of a sudden, all the target date money is just going to drop an allocation to private markets, and the reality is there's structural reasons why that are real barriers that have to be overcome, and so that's why I don't see this as a massive revolution. I see this as a normal Natural evolution as these alternatives become available as legislation changes, but it is going to take one by one engaging with plan sponsors to make them understand the value of incorporating private markets, understanding the value that you're receiving on a net of fee basis, and I think the industry doesn't fully embrace and understand the decision-making process to get there.

AI assessment note: “Most people don't understand the decision-making processes around how a target date fund gets”

Q processes that have to work through some of the obstacles, some of the logistical challenges, when people think of, oh, there's 40 trillion, or there's 13 trillion in DC plans, and if only 10% of it's in the private markets, there's 1.3 trillion dollars coming in. How do you take those crazy large numbers and distill it to what you think may actually happen over the next, say, five years?

A It's not an if, it's really a when. There's no doubt in my mind in a decade from now, we will see very meaningful allocations within that DC market to private markets. Whether it's 10%, 15%, it's going to be really, really big. I would say over the next three to five years, the off-the-shelf is going to take the longest time to get adoption to move, but in the meantime, you're going to see a lot of allocations through managed accounts and custom target date. It will be a hockey stick, but it's not going to be a hockey stick in the next couple of months or couple of quarters. It really is going to take years for this to play out. But you think about that North Star of what the benefit of private markets is into a longer dated, longer horizon investment pool. That leads to not if, but really when.

AI assessment note: “over the next three to five years, the off-the-shelf is going to take the longest”

Q How do you think about how big this opportunity is, this movement of private wealth assets into alternatives?

A There are so many numbers that are painted out in the marketplace in terms of what the opportunity set could look at. Here at KKR, we're really focused on just delivering investment solutions to our clients. We don't measure success like in AUM perspectives, but if you were to try and size the market, here's the way I think about it. If you look at the typical institutional investor, you can see that they are allocated to alternatives and private markets anywhere from 20 to 30 to even 50% of their portfolios. If you look at the wealth market today, that number is two to three percent. Maybe there are some good reasons why, on average, it's not going to reach 50%, but most individual investors can give up some liquidity. And for those investors that have longer horizons, they should be able to benefit from exposure to private markets. Based upon our conversations with wealth platforms and advisors, we think that two to three percent should ultimately be 10, 15 plus percent. And if you were to do the numbers, that just means that there's literally trillions of dollars of money that's in motion. And that doesn't even incorporate some of the other pockets of wealth that you might see, for example, in defined contribution and for one case space. Hard to put a number on it, but I would tell you that it's an enormous opportunity over the next five to 10 years.

AI assessment note: “we think that two to three percent should ultimately be 10, 15 plus percent”

Q So you get all these benefits, get liquidity, get ease of access, ease of tax treatment. What are the tradeoffs?

A Investors need to understand that these vehicles typically have quarterly liquidity up to a certain maximum threshold. There's never a get without a give. So if you want to benefit from the illiquidity premium, you have to be willing to give up some liquidity. There is some complexity from a tax reporting perspective. There is some time that advisors need to take to understand the investment solutions. Most advisors that are new to this, they have to understand What's in the portfolio, the risks, how the vehicles are structured, and they have to spend the time and explain it to investors. Once you understand the liquidity and you understand the risk profile of the investment and how it could play into a portfolio, I think there are a lot of really strong benefits.

AI assessment note: “if you want to benefit from the illiquidity premium, you have to be willing”

Q If you look across the different strategies that you offer, private equity, credit, infrastructure, what's changed that goes into these vehicles compared to what you delivered in the past?

A That's a really important question. Every asset manager has approached their wealth effort differently. I can speak to what we do at KKR. All of our evergreen investment solutions have the same investments that you would find in our drawdown vehicles, and that's a really important differentiator. When we decided five plus years ago to really build a wealth effort, we had two options. Option one was to go and create investment solutions that invest in things other than what we have already been doing, or go through the Really complicated challenge of structuring these vehicles, both the drawdown vehicles and the wealth vehicles, so that they can invest peri passu. And we said, look, we've had this time-tested investment process for five decades. We would love to be able to offer the investment capabilities that we built and honed to our wealth investors. So we went ahead on all of the investment solutions we offer. They all essentially share deals and share transactions with the institutional vehicles.

AI assessment note: “have the same investments that you would find in our drawdown vehicles”

Q From the seat you're sitting in with all of this activity happening, and you see it accelerating and fund flows. What could go wrong?

A I think the biggest thing that could go wrong is that these products are not sold appropriately. We saw a little bit of that in the past, but I think the biggest risk here is that advisors don't spend the time to fully understand the liquidity profile, the risk profile of these investments, so that in some type of more challenging market environment, investors expect liquidity when they shouldn't. Having said that, I do think that we as an industry have come a long way in educating investors on how these vehicles work, but nonetheless, it's really important for us to all make sure that we're constantly reminding the intermediaries, advisors, and the advisors are engaging proactively with their individual investors to fully understand the liquidity profile of these vehicles.

AI assessment note: “biggest thing that could go wrong is that these products are not sold appropriately.”

Q What happened as you dove into that that led you to move from Pemko to KKR?

A Gosh, I had been at PIMCO for 17 years. I never thought I was ever going to leave, but I got a call to meet some of the folks here at KKR. Part of my decision making process was this idea that within the asset management and specifically within the wealth space, the demand for alternative investment solutions was only going up. So having an opportunity to work at a pure play asset manager that focused on alternatives was pretty exciting. Also, what was really exciting was if you looked at KKR five years ago, the firm really had built out world-class private equity infrastructure, real estate, and credit investment capabilities. But the firm really hadn't built out distribution to really take those investment solutions and deliver them to a broad array of investors. The opportunity was to come here and really help build out distribution, which included wealth management. It was pretty exciting to come here. The people here are exceptional. Just really amazing culture, collaboration, and just some really talented folks here.

AI assessment note: “The opportunity was to come here and really help build out distribution”

Q If you look across the different strategies that you offer, private equity, credit, infrastructure, what's changed that goes into these vehicles compared to what you delivered in the past?

A That's a really important question. Every asset manager has approached their wealth effort differently. I can speak to what we do at KKR. All of our evergreen investment solutions have the same investments that you would find in our drawdown vehicles, and that's a really important differentiator. When we decided five plus years ago to really build a wealth effort, we had two options. Option one was to go and create investment solutions that invest in things other than what we have already been doing, or go through the Really complicated challenge of structuring these vehicles, both the drawdown vehicles and the wealth vehicles, so that they can invest peri passu. And we said, look, we've had this time-tested investment process for five decades. We would love to be able to offer the investment capabilities that we built and honed to our wealth investors. So we went ahead on all of the investment solutions we offer. They all essentially share deals and share transactions with the institutional vehicles.

AI assessment note: “All of our evergreen investment solutions have the same investments that you would find in our drawdown vehicles”

Q So you get all these benefits, get liquidity, get ease of access, ease of tax treatment. What are the tradeoffs?

A Investors need to understand that these vehicles typically have quarterly liquidity up to a certain maximum threshold. There's never a get without a give. So if you want to benefit from the illiquidity premium, you have to be willing to give up some liquidity. There is some complexity from a tax reporting perspective. There is some time that advisors need to take to understand the investment solutions. Most advisors that are new to this, they have to understand What's in the portfolio, the risks, how the vehicles are structured, and they have to spend the time and explain it to investors. Once you understand the liquidity and you understand the risk profile of the investment and how it could play into a portfolio, I think there are a lot of really strong benefits.

AI assessment note: “if you want to benefit from the illiquidity premium, you have to be willing to give”

Q From the seat you're sitting in with all of this activity happening, and you see it accelerating and fund flows. What could go wrong?

A I think the biggest thing that could go wrong is that these products are not sold appropriately. We saw a little bit of that in the past, but I think the biggest risk here is that advisors don't spend the time to fully understand the liquidity profile, the risk profile of these investments, so that in some type of more challenging market environment, investors expect liquidity when they shouldn't. Having said that, I do think that we as an industry have come a long way in educating investors on how these vehicles work, but nonetheless, it's really important for us to all make sure that we're constantly reminding the intermediaries, advisors, and the advisors are engaging proactively with their individual investors to fully understand the liquidity profile of these vehicles.

AI assessment note: “biggest thing that could go wrong is that these products are not sold appropriately”

Q How did you define what that landscape looked like eight years ago?

A It's interesting when people say wealth, it means something different to different people. In my book, there are really three components to the wealth market. There is what I would call the ultra, ultra high net worth family office component. Those are typically professional buyers of investment solutions. They tend to have their own infrastructure, their own CIOs, And in a lot of ways, make decisions like institutional investors. The second category that we think about in wealth is the wealth that's financially intermediated. So we think of those individual investors that utilize financial advisors or financial consultants or some type of platform to help with investment management. And then the third category that I would consider is the self-directed individual investor. So those investors don't use any Formal financial advice. Obviously, in the asset management business, for the most part, the focus is usually on the first two categories, but over time, you might see different people focusing on different parts of that market.

AI assessment note: “In my book, there are really three components to the wealth market.”

Q How do you think about how big this opportunity is, this movement of private wealth assets into alternatives?

A There are so many numbers that are painted out in the marketplace in terms of what the opportunity set could look at. Here at KKR, we're really focused on just delivering investment solutions to our clients. We don't measure success like in AUM perspectives, but if you were to try and size the market, here's the way I think about it. If you look at the typical institutional investor, you can see that they are allocated to alternatives and private markets anywhere from 20 to 30 to even 50% of their portfolios. If you look at the wealth market today, that number is two to three percent. Maybe there are some good reasons why, on average, it's not going to reach 50%, but most individual investors can give up some liquidity. And for those investors that have longer horizons, they should be able to benefit from exposure to private markets. Based upon our conversations with wealth platforms and advisors, we think that two to three percent should ultimately be 10, 15 plus percent. And if you were to do the numbers, that just means that there's literally trillions of dollars of money that's in motion. And that doesn't even incorporate some of the other pockets of wealth that you might see, for example, in defined contribution and for one case space. Hard to put a number on it, but I would tell you that it's an enormous opportunity over the next five to 10 years.

AI assessment note: “we think that two to three percent should ultimately be 10, 15 plus percent.”

Q As that team is having conversations with all these advisors, what are you hearing about what solutions they're looking for?

A In three broad categories, we hear some advisors that say, hey, I'm really trying to deliver a more resilient income stream. Some advisors say, my clients really want to diversify and dampen volatility. And then we've got other clients that say, look, we're really trying to enhance returns overall. Once we understand what that advisor is looking for, we can customize the investment solutions. If someone's really focused on enhancing yield, enhancing income, we'll talk a lot more about credit, And real estate. If they're really focused on maximizing returns, we'll talk a lot more about our private equity solution. We're really trying to figure out what outcome they're trying to generate, and then deliver investment performance, investment solutions back. Another real important theme we hear all the time is, how do alternatives work? For many advisors, alternatives are really new to them. So explaining to them how the vehicles work, how the liquidity works, where they fit in a portfolio construction, It's really important because we not only want to make sure the advisors understand, but we want to make sure the advisors are equipped to then turn around and have conversations with their clients on it.

AI assessment note: “In three broad categories, we hear some advisors that say, hey, I'm really trying”

Q As you look at this space from a sense of competitive landscape, how do you think about who the winners and losers are likely to be on the manager side?

A There are these five things you need to do really well. Brand, customized products, platform relationships, sales team, and then marketing and analytics and data. It's interesting. When I got here to KKR, we had a really great brand and we had this really great investment capabilities. We did not have a huge investment in platform relationships or sales or marketing. But my view was, is that the harder things are brand and investment capabilities and products. My gut tells me that over time, it's the alternative managers that have brand and have real investment capabilities that are willing to and are going to invest in the other three areas that are likely going to win. The other thing is this. Larger alternative firms that have multiple investment solutions have a greater ability to build out the capabilities on the distribution front to win. For example, we have a sales team that goes out to the market, and we've built out a team that is going out and spending time with a financial advisor. The advisors are called all the time by asset managers, by wholesalers, and they're going to pick and choose which investment managers they're going to spend time with. If you're an asset manager like KKR that has capabilities across PE, infra, real estate, credit, we also have capabilities across macro thought leadership and asset allocation and portfolio construction. The value that we …

AI assessment note: “There'll be a handful of winners... and they'll likely be the larger, well-branded alternative firms.”

Q So that leaves the DC plan. Where are we today?

A The DC market asset allocation has been, in my mind, one of the most interesting evolutions that I've ever seen in the marketplace. DC plans have been around for a century, but the reality is, given some changes in regulation and legislation, DC plans were really created in the early eighties. Back then, there were investment lineup options that were public equity funds, public fixed income funds, something called stable value, Which we can, by the way, spend an hour on, but the reality is they're really just a conservative, principally protected type of investment. But what was also interesting was back in the eighties and nineties, companies would provide a four or one K match using company stock. And so by the end of the nineties, more than 25% of all DC assets were in company stock. Now, interestingly enough, if you Go to 2001, 2002, 2003, there were some pretty meaningful defaults. And so there was legislation that made it much easier for plan participants to diversify out of their company stock. And by the way, many four one K plan sponsors, virtually all of them stop matching contributions and company stock and rather matched in cash. And so you saw a really meaningful change in allocation away from company stock ownership. And it's around that time that the creation of target risk and then target date funds emerged. Just to give you a little bit more background, so thes…

AI assessment note: “If you look at where we are today, roughly 40% of all DC assets”

Q If you go to the next group, the custom target date funds and the managed accounts, how does that decision process work?

A That is where we would expect to see much faster adoption curve. In custom target date, you have professional investors at these companies that have created multi-manager, best-in-class target date strategies. Many of them use investment consultants, the same ones that they use potentially for their DB assets. They're very familiar with private markets. We at KKR work with a lot of those plan sponsors and have conversations with them all the time about their DB assets. So it's super easy and natural for them to start thinking about, okay, I can incorporate these into the DC glide path as well. Also keep in mind that these professional investors, they understand the value of private markets. They understand the value of net of fee returns. And so again, it's a lot easier to envision that that happens sooner.

AI assessment note: “In custom target date, you have professional investors at these companies”