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00:00KKR, a $700 billion plus platform, very diverse in its assets.
00:06Why bring on Arctos?
00:08Yeah, well, Danny, first, thanks for having us this afternoon, Ian.
00:10Awesome to be here with you.
00:12You know, anytime we look at strategic M&A, Danny, we're going to have a really high bar, as you can imagine.
00:17And for us, there's really three attributes that we look at, in a lot of ways, non-negotiables.
00:22Let me take you through them quickly.
00:23Number one, need to be really big addressable markets that move the needle for us,
00:27and we've got to believe we can be world class.
00:29Let's look at Arctos.
00:30In the sports business, big asset class in its own right today, growing at double-digit rates.
00:36Arctos is by far the world leader.
00:38Second part of the business, GP solutions, both providing liquidity and growth capital to other alternative asset managers.
00:44Arctos already a top player there, big space.
00:47And then finally, what I think we can create together in secondaries, the credibility,
00:51the relationships that Ian and his team have in that marketplace,
00:55combined with our industry expertise, our access to capital,
00:58we think that we can build a world leader there over time as well.
01:01I've got to just say, just if I can jump in, just because I'm listening to Rob,
01:05and I'm like, what a successful business you've got there, Ian.
01:08It's not like you're stressed.
01:09You don't need to sell yourself.
01:10You're young.
01:10Succession isn't a problem.
01:12So why not stay independent?
01:13Why become part of KKR?
01:15You and I have talked about the complexity of the private markets industry,
01:19how that industry is changing and maturing.
01:22When we started Arctos five and a half years ago,
01:25our goal was to serve the best operators and owners in sports,
01:30and then to serve the best operators in private markets.
01:34And to really do that, we have to have capabilities that span insurance, wealth, data, global perspective.
01:46And as a five-and-a-half-year-old firm, we've done a really good job,
01:49and we've built a really innovative platform.
01:52But the potential that our team has to really help transform and innovate in these markets
01:57is really only unlocked in a partnership like this.
02:01So we're really excited about the vision that we're going to be able to create and build together
02:05that wouldn't be possible for either of us on our own, for sure.
02:09Yeah, I was going to say also off the back of that,
02:12I mean, people have looked at this deal, and they're like, KKR is adding sports.
02:14That tends to be the big headline.
02:16Of course, you're a leader in this space.
02:17But I wonder how much of that, Rob, goes beyond sports into secondaries and into GP solutions, too.
02:23For sure.
02:23It's all three.
02:24And what we told our shareholders this morning is we believe together
02:28we're going to be able to build a $100-plus billion business.
02:31And frankly, if we didn't believe that, we wouldn't have done the transaction.
02:34I think I speak for Ian.
02:35He would agree with that.
02:36If he didn't think that we can do that, I don't think he'd be interested in this partnership either.
02:40Is there something in the water right now?
02:41Because just in the past week, there's this combination.
02:44There's EQT and Collar.
02:46There was also CVC buying Marathon.
02:48What's happening right now?
02:49Ian, you and I have spoken about this, about this idea of zombie firms,
02:53of people looking to tie up, kind of what you were getting into in your first answer.
02:57Is there something about this moment right now that consolidation seems to be picking up steam?
03:01Well, you and I have talked about what the two themes that we think are driving private markets.
03:06We call them the twin scarcities.
03:08For 99% of the managers in private markets, they're facing a scarcity of capital
03:13and a scarcity of alpha or deal origination.
03:18And the market has never had that dynamic before.
03:22So if you're a generalist private equity firm, even just a great middle market firm,
03:27it's really hard to see your role in the end state.
03:33We think that as this industry matures, there will be 10 to 12 incredibly large,
03:38diverse, high-quality financial services platforms,
03:42and probably 100 to 150 true specialists.
03:46And that's probably all that the client base needs.
03:50And that, when you talk about 6,000 firms,
03:53that's a pretty stressful moment of time for everyone.
03:56So if you are a great originator of capital
04:00and you can partner with a great originator of deal flow,
04:05there's synergy there.
04:05And so the biggest firms in the world are partnering with specialists
04:09and broadening out what they can offer to the client,
04:12and they're capturing those synergies together.
04:14And so that's really what's driving it.
04:16And clearly, as represented by this deal,
04:18KKR represents one of those platforms for you.
04:20I mean, Rob, have you gotten just inbounds daily
04:23of maybe middle market firms looking to you and saying,
04:26please, please let us come join under this roof?
04:28As said, our bar for M&A is really high,
04:31and there's a number of things that need to fit.
04:34The Arctos business really accomplishes
04:37a number of different things for us,
04:39and I think it's unlikely you're going to see us
04:41do a ton more strategic M&A.
04:43We're going to do it where it makes a ton of sense for us
04:44and where we think we can build really big businesses.
04:47That's what you see here,
04:48and that's what we're looking for going forward.
04:49How long was this in the works for?
04:52It's a good story.
04:53So we first got to know each other over 10 years ago
04:56working on a deal.
04:56We were trying to solve for having liquidity
05:01and seed capital to build out growth businesses,
05:03which today represents $17 billion of capital for us.
05:06We talked to Ian.
05:07He was working at a secondaries firm at the time,
05:09and he had by far the most creative solution
05:11to be able to accomplish that.
05:13Important deal for us to get done,
05:15and over time, we've stayed in touch.
05:17He's gotten to know a number of senior people here at KKR,
05:19including spending a lot of time with Joe Bay
05:21and Scott Nuttall, our co-CEOs.
05:23And I don't know, Ian,
05:24maybe every 18 months or now,
05:25we dreamed of being able to partner together
05:28and what it would look like.
05:29And this last discussion just felt really right.
05:33They were at the appropriate moment in their business.
05:35And I think from our perspective,
05:37we're just thrilled that we were able to be at this point
05:40because we know we're going to be able to build
05:41something really special together.
05:43Ian, when it comes to league approvals,
05:46because one of the elements that makes Arctos unique
05:48is your presence in all of the major North American leagues.
05:51How has that looked?
05:52What have conversations been like?
05:53Well, the complexity of navigating the approvals
05:57in each of those premium sports leagues
05:59is it's really, really challenging.
06:01That's why the competitive landscape we have
06:02in our sports business is so limited.
06:05And we love that moat
06:07as we think about generating alpha for the client.
06:10But that moat can be pretty challenging
06:12in a partnership like this.
06:14We've had great collaboration with our league partners.
06:17KKR has really embraced the uniqueness of this ecosystem.
06:22And together, we've had some really collaborative,
06:25commercial discussions with the leagues.
06:27And they're very excited about what this combination means
06:30for their owners, for the business that is the league.
06:34And I think it unlocks tremendous potential
06:37across everything that we're doing.
06:38So it sounds confident you're going to get those approvals,
06:40or maybe you already have?
06:42We probably wouldn't be sitting here talking to you
06:44if you didn't feel pretty good about that.
06:45Fair enough.
06:46If we can take a step back,
06:48I'd be remiss if I didn't ask what's happening in markets.
06:50And I'm very aware that both of you
06:52are private market participants for a reason,
06:55and you don't care about day-to-day market flow.
06:56But it does feel like there's this real concern.
06:59KKR has been hit.
07:00To be clear, it's not just you.
07:01It's all of your private capital players.
07:03It seems to be concerns about software exposure.
07:06What do you think that narrative is getting wrong?
07:09Danny, you know, we tell our people here
07:12that they've got to focus on things that they can control.
07:14Short-term trading in our stock is not one of them.
07:17We reported earnings this morning.
07:19As you know, we had record results
07:21across our three core profitability measures.
07:23And importantly, we communicated to our shareholders
07:25we expect meaningful growth
07:26in each one of those profitability measures.
07:28in 2026.
07:30And I think the Arcos acquisition
07:32will only help us be able to accomplish that
07:34and exceed those targets.
07:36So we feel really good on the things that we can control.
07:39And if we go in and execute as a management team,
07:42the share price will follow.
07:43What does your exposure to software look like?
07:45Do you think the market's also over-egging that?
07:47I think, well, across the firm today,
07:51about 7% of our AUM is in software.
07:53Now, software gets painted with a really broad brush.
07:56And we've tried to be pretty expansive
07:58for how we've thought about that software definition as well.
08:01We feel really good about our exposures.
08:04This isn't something that has become front of mind
08:06in the past couple of days.
08:07This is something that we've been thinking about
08:09for a number of years now.
08:10In fact, it's about portfolio construction.
08:12We've sold a number of assets
08:13that we thought were ripe for disintermediation
08:15over the years.
08:16And so that's really how we think about software exposure at KKR.
08:22It is not necessarily where we are today,
08:25but it's what we've been able to accomplish
08:26and build over the past several years,
08:28not just buying, but also selling.
08:30I do just wonder if this adds to the divergence
08:32we're already seeing in the industry.
08:34Because software used to be just such a loved part
08:36of private equity, and it makes sense.
08:38During COVID, it wasn't exposed to supply chains.
08:40Margins look really good.
08:41Entire firms built their business on software.
08:43Ian, do you think that there does need to be
08:46maybe software, maybe otherwise,
08:48but just some real big rethinks
08:49that need to happen in this industry?
08:51Well, I think the rethink is happening already
08:54in the industry.
08:55There have just been sectors or sub-strategies
08:59with massive tailwinds that you could latch onto
09:02and have a positive narrative around.
09:04Software is one of them.
09:06Secondaries is another.
09:07What is really happening under the surface
09:11is the business is maturing.
09:13And it's getting harder.
09:16Leverage, the cost of leverage is not astronomical,
09:20but it's higher than it has been
09:22for the 10 prior years.
09:24Entry prices are high.
09:27But the combination of the entry price
09:28and the cost of capital means that
09:30to really generate the rates of return
09:32investors are expecting,
09:33you have to have differentiated skill
09:35and deliver alpha.
09:37And not every manager actually can do that consistently.
09:41And so the industry is just going through
09:43this period of change
09:45where the client is trying to find the managers
09:48that can really generate that alpha consistently.
09:50And the managers are trying to figure out
09:52which client base can they serve most effectively.
09:55And the complexity in that transition
09:57is really hard and disruptive
09:58for people that don't have a strategy.
10:00And if you have a strategy,
10:03KKR has a strategy,
10:04Arctos has a strategy,
10:05you can win in that environment.
10:07We're almost out of time,
10:08but I kind of have to ask.
10:09It's the Super Bowl this weekend.
10:11Oh, man.
10:12Don't do this to me.
10:12The rumors, Ian, you know what's coming.
10:14The rumors are that the Seahawks
10:15might put themselves up for sale post-Super Bowl.
10:18Is that something you'd be interested in?
10:19Something Arctos would be interested in
10:21and KKR now?
10:22We are interested in partnering
10:24in each of the leagues that we focus on
10:27with great operators
10:29and great markets with great brands.
10:30And if we can help them unlock the vision
10:32that they have for that asset
10:33and they're willing to take us on as a partner,
10:36that's something we get really excited about.
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