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July 17, 2012
CONFIDENTIAL AND PROPRIETARY
For One-on-One Use by
Investment Professionals Only
Balance Sheet and Corporate
Development Robert Lewin
James Rudy
Why Do We Have Such a Large Balance Sheet?
1
• KKR inherited a sizable balance sheet by virtue of its merger with KKR Private Equity
Investors (KPE) in October 2009, the transaction by which we became publicly-traded
– KPE was a $5bn permanent capital vehicle we raised in 2006 on the Euronext Amsterdam that was
invested almost exclusively in KKR private equity funds and individual deals
• Our balance sheet is significantly larger than those of our peers and provides us with a
number of competitive advantages
– Ability to make sizable GP commitments to funds that we are raising, particularly 1st time funds
(Infrastructure, Mezzanine, Special Situations)
– Seed capital for new strategies that we are incubating (hedge funds, real estate, royalties/PUDs)
– Funding source for broker-dealer underwriting activities (KCM, NBFC India)
– Anchor co-investments to support large private equity transactions (Samson)
– Flexibility to invest in new businesses (Prisma)
– Fundraising / Alignment of interests with LPs (we are our own largest investor)
B/S Investments
■ PE Funds ■ PE Co-Invest
■ Energy/Infra ■ KAM ■ Other
Segment Balance Sheet (March 31, 2012)
Balance Sheet Snapshot
• KKR currently has a $6.1 billion balance sheet ($8.67/unit)
• Balance sheet is essentially unlevered
– $350mm net cash position
– A/A- rated by Fitch/S&P
• Investment portfolio is heavily weighted to private equity due to legacy KPE investments, but
has diversified since the combination
– Just over 80% private equity today vs. 97% at the time of the combination
Cash and Short-Term Investments $856
Investments 5,023
Unrealized Carry 600
Other Assets 297
Total Assets $6,775
6.375% Notes due 2020 $500
Other Liabilties/Noncontrolling Interests 198
Partners' Capital $6,077
Book Value/Adjusted Unit $8.67
31%1%
8%
52%
8%
$856
$185
$750CorporateRevolver
Liquid SeedCapital
Cash
Sources of Liquidity Uses of Liquidity
Current Liquidity Profile
$1.8bn $2.3bn
• The B/S has ~$1.8bn of liquidity and outstanding commitments of $2.3bn (expected to be
drawn over 5 years)
– We have over $4bn of funded PE investments (~50% public stocks)
$1,650
$300
$100
$250
MinimumCash Balance
Other Items
KCM CapitalUsage
UnfundedCommitments
Determining What Makes a Good Balance Sheet Investment
4
• Strategic vs. Opportunistic Investments
– Strategic investments are those that generate fees and/or carry income for the firm. That’s where our
focus remains
– Given current liquidity and significant opportunities to deploy strategic capital, opportunistic investments
have a high hurdle rate
• How does the Balance Sheet measure return on equity for new investments?
– Risk adjusted by asset class
– Tax-affecting returns
– Place a premium on investments that meet following criteria:
1) ‘40 Act compliant
2) Generating a current yield
3) Investment is liquid
4) Diversification
• Developed capital framework for all new commitments that seeks to capture above
considerations from a returns perspective
Current Mandate of Balance Sheet
1) Maintain liquidity to fund existing KPE/GP commitments
2) GP commitments to new funds
3) Seed capital for new strategies
4) Support KCM in its capital commitments (both Underwrites and Holds)
5) Flexibility to provide bridge / hold capital for large transactions sourced by our investment teams
6) Create optionality to pursue inorganic growth opportunities
Long-Term Vision for Balance Sheet
6
• Leverage balance sheet to generate 20+% after-tax ROE over long-term
• Further diversification across asset classes
– Will reduce volatility of balance sheet earnings (largest component of ENI)
• Continue to drive a higher component of our investments into liquid securities
– Will allow us to be more nimble in taking advantage of market opportunities
• Generate a much larger percentage of our return in current yield
– Benefits include rating agency considerations, servicing of debt and providing optionality around
public company distribution policy
• Comfortably ‘40 Act compliant
Corporate Development
7
• The Corporate Development function at KKR was created in 2011 in order to centralize
our efforts focused on M&A, strategic projects and corporate development initiatives
• The Corporate Development team works in close coordination with each of KKR's
business units as we continue to look for opportunities to leverage our people, platform
and capital in order to accelerate growth
• Over the past year, we have looked at a number of opportunities across nearly all of the
different business units within the firm
• Last month, the firm announced its first ever acquisition of Prisma Capital Partners, an
$8 billion hedge fund of funds platform
• Acquisitions and lift-out/bolt-on transactions will continue to be an important part of
our growth strategy going forward as we seek to scale many of our newer businesses
and enter new asset classes