KKR expects to see increased private market developments, particularly in core and core-plus real estate.
During the New York-based asset manager's first-quarter earnings conference call, co-chief executive officer Scott Nuttall spoke about the firm's plans to invest Global Atlantic's portfolio in real assets. KKR acquired a majority stake in Global Atlantic in 2021 and has served as investment manager for the insurer's portfolio since then. In January of this year, it acquired the remaining 37% of the insurer.
“Global Atlantic will become more engaged across asset classes such as real estate and infrastructure, particularly in its core areas. As we said when we announced in November last year that we were acquiring 100% ownership of Global Atlantic, this is one of the opportunities we saw,” he said.
Explaining the firm's Global Atlantic Portfolio strategy, KKR Chief Financial Officer Rob Lewin added that the firm has been developing a model over the last 12 to 18 months to reallocate insurance companies' assets into higher-yielding investments.
“We see some very interesting opportunities in core and core-plus real estate right now. There is very little capital in core and core-plus real estate and by leaning into this asset class we can generate very attractive unleveraged returns,” he said. “However, one of the drawbacks of leaning into this asset class is the short-term downside that the investment yields on these investments tend to be in the 4-4.5% range. However, we believe these investments will definitely be well rewarded in terms of the long-term ROE they can generate.”
KKR's total assets under management in real assets, including real estate and infrastructure, reached $135 billion in the first quarter of 2024. The firm did not disclose specific figures for real estate assets under management. Total capital invested in real assets during the quarter was $5 billion, with the allocation primarily driven by Asian real estate equity and U.S. real estate credit, as well as core plus infrastructure.
The firm is currently investing in its newest opportunistic real estate fund, the $4.3 billion Real Estate Partners Americas III fund, which has committed $2.8 billion to date, according to its earnings release for Q1 2024. One of KKR's most recent transactions through the fund is its $1.64 billion acquisition of a U.S. student housing portfolio from Blackstone, announced in April. The deal is expected to close by the third quarter.