00:00KKR has been out in front with monetizations, but the industry as a whole is still experiencing that indigestion.
00:06What happens if it continues?
00:07Well, I think you've got to step back.
00:09The way we look at it is you've got to go back in history a little bit, right?
00:12So we came out of the financial crisis as an alternative asset management industry.
00:16The whole space was roughly $3 trillion.
00:20So we've seen growth now from $3 trillion, and that's excluding hedge funds, to about $15 trillion from the course
00:27of 2010 to 2025.
00:30Okay, that sounds like a lot of growth, but it's about 11%, 12% a year.
00:34And so we went through this period of time, 2010 through 2020, pretty benign environment, right?
00:39Rates were low, inflation was low, multiples were going up.
00:43We said to our firm, do not confuse a bull market with brains, right?
00:48We saw a lot of growth during that period of time.
00:50And you're right, 2020 to 2025, pandemic, wars, inflation, rates up, tariffs.
00:57Very different period of time.
00:59And so what's starting to happen is you're starting to see the decisions that people made over the last five
01:04to 10 years become more clear in terms of whether those were good decisions.
01:09Our industry periodically over-deploys.
01:12And that's what happened in 2021.
01:15People put a lot of money to work in 2021.
01:18And so to some extent what's happening now, and some of the noise I think you're hearing in the market,
01:23is some of those deals are now getting to their five-year mark.
01:26They've got to refinance their capital structures.
01:29But not everybody's painted with the same brush.
01:31You know, this is a very U.S.-centric dialogue so far.
01:34You know, for us, we have more than half of our investment professionals outside the United States, right?
01:40We have learned these lessons, and I can say this with a lot of humility.
01:44We made the over-deployment mistake as a firm in 2006 and 2007.
01:50And so we learned you've got to be focused on linear deployment.
01:54It sounds boring, but if you have five years to invest money, do about 20% per year.
01:59It's a very low-tech chart to see how you're tracking.
02:02Don't over-deploy.
02:03Don't under-deploy.
02:05You've got to focus on portfolio construction.
02:07And critically, you've got to be diversified.
02:10And there's nothing that kind of beats those three things.
02:13And what we found, I thought it used to just be my teenage sons, but it turns out everybody's an
02:18experiential learner.
02:20You know, people learn by doing.
02:22We learned these lessons a long time ago.
02:24And so I think where we're heading now is, you know, we talk about K-shaped economy all the time.
02:30I think we're headed toward a K-shaped industry where you're going to see a bunch of winners
02:35and some folks that have more lessons that they have to learn as they come out of this period of
02:41time.
02:41But is everyone going to be like KKR, learn the lesson, and go on?
02:45Or is it a shakeout that's going to happen in this industry?
02:47Far too soon to answer your question.
02:48Okay.
02:49I think there's going to be some consolidation.
02:51As sure as we're sitting here, there's some firms that will not be around.
02:55There's some firms that will do the apology tour and the apology fund.
02:59So the next fund will be 0.3 times the size of the last fund, but their investors will decide
03:03to give them another chance.
03:05How that breaks down, far too early to tell.
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