KKR takes full control of Global Atlantic as it rearranges its finances

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US private equity group KKR is buying the remaining 37 per cent stake in Global Atlantic, the life insurer it took control of in 2021, for $2.7bn as it takes full ownership of a fast-growing business whose overall value has soared in recent years.

KKR said on Wednesday that it was purchasing the outstanding stake at an over-$7bn valuation: far more than the price it paid when buying a majority stake in Global Atlantic at a $4.4bn valuation in February 2021. The rising price of the life insurer comes as its overall assets have more than doubled to $158bn since 2020, causing its book value to rise.

During Global Atlantic’s initial sale to KKR, minority shareholders — predominantly wealthy clients at Goldman Sachs — had the option to hold on to their investment and be bought out by KKR at a later date.

Scott Nuttall, co-chief executive of KKR, in an interview with the Financial Times rejected the notion that the group was forced to buy its remaining stake in Global Atlantic as its value has crept higher.

“We are not doing this because we have to, we are doing it because we want to and this has been a home-run investment,” said Nuttall. He pointed to synergies KKR could garner with full ownership, such as selling private equity funds it had designed for wealthy individuals to Global Atlantic’s existing clients.

As part of the deal, New York Stock Exchange-listed KKR is also rearranging its finances so that public stockholders can better understand operations that have become increasingly broad and complex.

The group will change the way it reports quarterly earnings to focus on how quickly it is compounding its overall earnings and assets, versus a dividend yield.

In the years after KKR went public in 2009, it has stood apart from competitors like Blackstone in retaining most of its profits, instead of paying them out in dividends to shareholders. The strategy has allowed KKR to reinvest its profits in acquisitions and build an increasingly large pool of investment assets on its balance sheet.

KKR’s pool of directly owned assets has grown from under $10bn a decade ago to over $26bn currently, and is expected to pay large dividends to KKR in coming years, according to Nuttall.

KKR will divide its operations into three business segments: fee-related earnings from its asset management operations, insurance earnings, and balance sheet assets called “strategic holdings”.

It will create a new profit metric called “total operating earnings” to highlight its more predictable earning streams, such as base management fees, spread-related profits from its insurance operations, and dividends earned from its balance sheet investments.

KKR will also modify its finances by lowering the pay dealmakers earn from base management fees and increasing their participation in performance-based fees, a move that is expected to boost KKR’s overall earnings.

Nuttall said with the new financial structure he hoped KKR would draw an increasing comparison to investment conglomerates such as Berkshire Hathaway and Danaher, where shareholders have focused on the compound growth of their earnings and market capitalisations over long stretches of time.