KKR Co-CEOs on Growth Target, Opportunities in Japan

Summary

The transcript discusses the importance of maintaining a small staff size while expanding asset size for a firm's success. The culture of collaboration and empowerment at KKR is highlighted as a key factor in its growth, with a focus on long-term value creation and strategic capital allocation. The firm's ambition to double its market cap and its approach to redeploying cash for growth, particularly in Asia and Japan, is emphasized. The conversation also touches on the complexities of investing in China amidst geopolitical tensions and KKR's strategy to focus on consumer services.

Takeaways

• 🌟 Maintaining a strong company culture is crucial for success, especially when expanding asset size while keeping a small number of staff.
• 🚀 Business growth should be strategic, with new hires made in anticipation of business expansion, understanding that it takes time to reach scale.
• 🔄 Retaining morale and preventing staff from feeling overburdened is a challenge as assets grow, but it's essential to keep the culture intact.
• 🤝 Empowering employees and promoting collaboration without silos is a key element of KKR's entrepreneurial culture and success.
• 🎯 KKR has ambitious goals across three platforms: asset management, insurance unit, and strategic holdings, aiming to be a 'mini Berkshire Hathaway'.
• 💡 The power of long-term ownership of assets, smart capital allocation, and compounding are central to KKR's strategic holdings approach.
• 💰 KKR plans to redeploy generated cash into growing its insurance platform, strategic M&A, strategic holdings, and share buybacks.
• 🌏 KKR's focus on Asia, particularly Japan, is driven by the region's rapid growth and exciting consumer trends, as well as Japan's economic recovery.
• 🇨🇳 Despite geopolitical complexities, KKR remains committed to China, focusing on consumer services and avoiding sensitive high-growth areas.
• 👬 The long-standing partnership at KKR, spanning 28 years, is characterized by a deep, familial bond and seamless collaboration without the need for routine check-ins.
• 📈 KKR's long-term value creation mindset, as evidenced by its growth from a $7 billion market cap to $90 billion, is aimed at further doubling and maintaining a high growth rate.

Q & A

Why is maintaining a small number of staff important for the firm's success?

Maintaining a small number of staff is crucial for preserving the firm's culture and ensuring efficient collaboration. The firm's success is attributed to its connected and supportive culture, where ideas and relationships thrive, and people help each other globally. Keeping the staff size small helps to sustain this culture and agility as the firm scales up its asset size.

What does the firm mean by 'North Star' and 'DNA' in the context of their success?

The 'North Star' refers to the guiding principle or the ultimate goal that the firm aims to achieve. The 'DNA' represents the core values, beliefs, and characteristics that define the firm and its approach to business. These elements together form the foundation of the firm's strategy and operations, leading to its success.

How does the firm plan to maintain morale and prevent staff from feeling overburdened as they expand assets?

The firm focuses on retaining its entrepreneurial culture and empowering employees. It encourages collaboration and operates as one global team without silos. This approach helps maintain a positive morale and prevents staff from feeling overburdened, even as the firm grows its assets and expands its operations.

What is the significance of the firm's strategy of adding people before business growth?

The strategy of adding staff before business growth allows the firm to be proactive and prepared for expansion. It ensures that the firm has the necessary human resources in place to support growth when it occurs, which is expected to take 10 to 15 years to reach scale.

How does the firm's approach to avoiding silos contribute to its success?

By avoiding silos, the firm promotes cross-functional collaboration and a unified approach to problem-solving. This encourages the sharing of ideas and resources, leading to more innovative solutions and better decision-making, which ultimately contributes to the firm's overall success.

What are the three platforms KKR has ambitious goals for, and how do they relate to the idea of a 'mini Berkshire Hathaway'?

The three platforms are asset management, the insurance unit, and strategic holdings. The comparison to 'mini Berkshire Hathaway' comes from the firm's long-term investment strategy, focusing on the power of compounding and smart capital allocation within businesses, similar to Berkshire Hathaway's approach.

How does the firm's Strategic Holdings segment align with the principles of long-term value creation?

The Strategic Holdings segment is built around a portfolio of 19 great businesses that the firm intends to own for a very long time. This aligns with the principles of long-term value creation by focusing on the power of long-term ownership of assets, the benefits of compounding, and effective capital allocation within these businesses.

What is the firm's strategy for redeploying the cash generated from its business?

The firm plans to redeploy the cash into growing its insurance platform, strategic mergers and acquisitions, expanding its strategic holdings, and share buybacks over time. This strategy aims to maximize the value of the cash generated and support the firm's continued growth.

How does the firm differentiate itself from a traditional financial buyer in the private equity space?

The firm differentiates itself by bringing a range of capabilities beyond financial resources, including operational professionals, public affairs, sustainability focus, and geopolitical insights. This allows the firm to act more like a strategic buyer, helping to improve and globalize the companies it invests in.

Why is Japan a key focus area for the firm's expansion?

Japan is a key focus area due to its significant growth potential and the firm's strong position in Asia. Japan's economy is emerging from a long period of deflation, presenting opportunities for corporate governance reform and acquisition of non-core businesses from large conglomerates. Additionally, the life insurance and annuity market in Japan is large and presents further expansion opportunities for the firm.

How does the firm navigate the complexities of investing in China amidst geopolitical uncertainties?

The firm maintains a consistent approach by focusing on the consumer segment and avoiding areas that are geopolitically sensitive. It has invested in retail, branded consumer goods, and healthcare, which align with the growing middle class and urbanization trends in China. This strategy allows the firm to capitalize on the expanding consumer market while minimizing exposure to geopolitical risks.

What is the nature of the working relationship between the two executives who have worked together for 28 years?

The executives have a close working relationship that resembles a family bond. They have been integral parts of each other's lives, working together for more than half of their careers. Their interaction is natural and constant, with no set routine, reflecting their deep understanding and trust in each other.