Capital Markets Recovery and Major Transactions Will Shape Alternative Asset Finance

Key Takeaways

• Accelerating fundraising and diversification into credit and asset-based finance are driving stable, long-term earnings growth and expanding fee-related revenues.
  
• Strong positioning in private markets, tech investment, and a marked-up portfolio support higher future performance revenues, efficient scaling, and enhanced margins.
  
• KKR faces heightened earnings and margin risks from rapid alternative asset expansion, market competition, and regulatory or geopolitical headwinds undermining investment performance and fee stability.

Catalysts

A private equity and real estate investment firm specializing in direct and fund of fund investments.

• Strong and accelerating fundraising momentum across asset classes-especially with institutional investors and the fast-growing private wealth/retail segment-are expanding fee-paying AUM and supporting double-digit management fee growth, with further upside from new distribution initiatives (e.g., partnership with Capital Group and insurance third-party capital). This is likely to positively impact future revenue and management fees.
  
• Expansion of credit and asset-based finance platforms, with KKR now a leader in a $6 trillion+ market poised for further growth, provides a broader and more durable base of fee-related earnings while also increasing the potential for performance fees as these businesses scale. This diversification reduces earnings volatility and supports long-term earnings growth.
  
• Secular shift towards private markets (less reliance on public markets by both companies and investors), together with KKR's global platform-particularly in Asia and alternative assets-positions the company to capture outsized deal flow and investment opportunities, enhancing both revenue growth and potential future carried interest income.
  
• Large embedded unrealized carried interest ($17B+ in gains, a record high) and a highly marked-up portfolio mean KKR is well-placed for significant future monetization activities, which could drive realized performance revenue and EPS as exits occur over the next several quarters and years.
  
• Ongoing investments in technology, digitization, and origination platforms (e.g., data analytics, AI adoption, 35 origination platforms in ABF and real estate) help KKR to scale efficiently, improve cost discipline, generate differentiated returns, and protect margins-contributing to higher net margins and return on equity over time.

KKR Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming KKR's revenue will decrease by 13.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.3% today to 39.6% in 3 years time.
• Analysts expect earnings to reach $5.4 billion (and earnings per share of $5.96) by about September 2028, up from $2.0 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.7x on those 2028 earnings, down from 61.2x today. This future PE is greater than the current PE for the US Capital Markets industry at 26.7x.
• Analysts expect the number of shares outstanding to grow by 0.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.22%, as per the Simply Wall St company report.

KKR Future Earnings Per Share Growth

Risks

• KKR's rapid growth in asset-based finance (ABF) and private credit exposes it to potential asset quality and liquidity risks, especially if secular tailwinds slow or riskier deals underperform; this could lead to investment write-downs and impair earnings, impacting both net margins and realized returns.
  
• The fundraising momentum referenced in private markets and wealth channels may become challenged by heavy competition and potential fee compression as more asset managers enter alternatives and democratized products, putting long-term pressure on fee-related revenue and operating margins.
  
• Heavy reliance on performance income (carried interest) from monetizations and unrealized gains could lead to earnings volatility, especially if capital markets or strategic buyer appetite cools due to macro or regulatory changes, reducing the stability of net income.
  
• KKR's aggressive expansion into global and emerging markets, particularly through partnerships and joint ventures (e.g., with Energy Capital Partners and Japanese institutions), could face political risk, geopolitical instability, or regulatory tightening-potentially slowing AUM growth and reducing future management fees.
  
• Ongoing industry-wide growth in alternatives (private credit and ABF addressable markets expanding rapidly) risks fueling asset bubbles, overvaluation, and lower future returns, which could lead to disappointing long-term investment performance and lower carried interest and incentive fees for KKR.

Valuation

• The analysts have a consensus price target of $164.472 for KKR based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $187.0, and the most bearish reporting a price target of just $135.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $13.7 billion, earnings will come to $5.4 billion, and it would be trading on a PE ratio of 35.7x, assuming you use a discount rate of 9.2%.
• Given the current share price of $137.39, the analyst price target of $164.47 is 16.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.