KKR is anticipating a pick-up in private markets’ deployment, especially in core and core-plus real estate.
During the New York-headquartered asset manager’s first quarter earnings call, Scott Nuttall, co-chief executive officer, spoke about how the firm is looking to invest Global Atlantic’s portfolio into real assets. KKR acquired a majority of Global Atlantic in 2021 and since then has served as the investment manager of the insurer’s portfolio. In January this year, the firm acquired the remaining 37 percent of the insurer.
“We are going to see Global Atlantic also starting to do more across asset classes like real estate and infrastructure, especially on the core side. As we mentioned last November when we announced that we’re going to 100 percent ownership of Global Atlantic, that’s one of the opportunities that we saw,” he said.
Explaining the firm’s strategy for the Global Atlantic portfolio, Rob Lewin, KKR’s chief financial officer, added that over a 12-18-month period, the firm has modeled the redeployment of the insurance company’s assets into higher yielding investments.
“We’re seeing a really interesting opportunity in core and core plus real estate right now. There is just almost no core and core plus real estate capital out there, and we’re able to create really attractive unlevered returns, by leaning into that asset class,” he said. “But one of the downsides of leaning into that asset class is a near-term downside in that the running yields on those investments tend to be in the 4 to 4.5 percent range. But we think those investments will certainly more than pay off, in terms of the longer-term ROEs that they could generate.”
KKR’s overall assets under management for real assets, which include real estate and infrastructure, reached $135 billion in Q1 2024. The firm did not provide a specific AUM number for real estate. Total capital invested in real assets during the quarter was $5 billion, with deployment primarily being driven by real estate equity in Asia and real estate credit in the US, as well as core-plus infrastructure.
The firm is currently investing its latest opportunistic real estate fund, the $4.3 billion Real Estate Partners Americas III fund, of which $2.8 billion has been deployed to date, according to its Q1 2024 earnings release. One recent transaction KKR made via the fund was the acquisition, announced in April, of a $1.64 billion US student housing portfolio from Blackstone. The deal is expected to close by the third quarter.