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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by and welcome to KKR's Fourth Quarter and Full Year 2019 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the management’s prepared remarks, the conference will be opened for questions. [Operator Instructions] Also this call is being recorded.
I would now like to hand the call over to Craig Larson, Head of Investor Relations for KKR. Craig, please go ahead.
Thank you, Krystal. Welcome to our fourth quarter 2019 earnings call. I'm joined by Scott Nuttall, our Co-President and Co-COO, and for the first time on one of these calls, I'm pleased to be joined by Rob Lewin our CFO. As you know, Rob was named CFO in connection with Bill Janetschek's retirement.
We'd like to remind everyone that, we'll be refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at KKR.com. The call will contain forward-looking statements, which do not guarantee future events or performance, so please refer to our SEC filings for cautionary factors related to these statements. And like previous quarters, we've also posted a supplementary deck on our website that we'll be referring to over the course of the call and I'm going to begin by referencing Pages 2 and 3 of that deck.
Focusing first on Page 2. Most importantly, the earnings power of the firm continues to grow nicely as you can see from the charts on the left hand side of the Page. Our AUM is a $218 billion while book value is $19.24 per adjusted share. As you know, we're big believers in the power of compounding and we've been seeing that power through our book value. Over the last year, book value per share grew 24%, that's one of the largest increases we've seen over any 12 month period as a public company. And over the last three years, we've compounded book value per share 17% each year. And remember, in addition to this compounding, dividends are being paid out alongside.
Looking at the right hand chart of Page 2, management fees have been growing steadily, up 15% year-over-year given our asset growth and after-tax distributable earnings, totaled $1.4 billion for the trailing 12 months, down from last year, partly due to realized gains being lower in 2019. Rob and Scott are both going to talk about your visibility here in a few minutes.
Page 3 of the supplementary deck provides a snapshot of some of the headline numbers for the quarter as well as for the year. After-tax distributable earnings came in at $375 million for the quarter or $0.44 on a per adjusted share basis. Fee related earnings for the quarter were $271 million, and on a full-year basis, were just over a billion. Year-over-year, our AUM and fee paying AUM were up 12% and 14% and both increased 5% compared to 9/30.
Looking at organic fundraising activity, we had our most active fundraising quarter of the year in Q4, driven by number of our younger platforms and strategies. In Private Markets, we held the first close in our Asia infrastructure strategy and had inflows across four real estate strategies. We also raised capital for the second iteration of our next-generation technology growth strategy, and with our final close here early in 2020, the second fund is over three times the size of the first.
In Public Markets, we've raised in Australia listed permanent capital vehicle and saw inflows in the several credit products, including our leverage credit and CLO businesses. And also off note during the quarter, we closed on the final 5% of our partnership with Marshall Wace, bringing our total ownership to 40%. Since we announced the first step of our partnership here in September 2015, AUM of Marshall Wace has increased from $22 billion to $45 billion.
And from an investing standpoint, Q4 was our most active deployment quarter of 2019 as we invested over $4 billion in both Private and Public Markets. In Private Markets, investment activity reflects really two things, the global nature of our footprint as well as the increasing diversification across our strategies. Private equity investment activity was mostly out of Europe and Asia. This was true in the fourth quarter as well as for the year. Investment activity outside of private equity continues to grow in significance.
PE represented a little less than half of the $4.5 billion of capital invested in Private Markets for the quarter and a little more than half of the $14 billion of capital invested over the year. As our core equity, infrastructure, real estate, and growth equity platforms are scaling, we're seeing the impact of this through the deployment figures.
Public Markets investment activity also exceeded $4 billion in the quarter with activity here driven by the opportunities in our private credit business in the U.S. as well as European. And for the year, Public Markets deployment was $10 billion, an increase of 45%. As with Private Markets as our credit platform is scaling, you're seeing the impacts of that through these deployment statistics.
And with that, I'm pleased to introduce everyone to Rob Lewin. Rob joined KKR 16 years ago and for the first half of his career worked in a private equity business as an investment professional, both here in the U.S. as well as in Asia. And for the second half of his career, when Rob and his family returned to the U.S., he's held a series of positions across our other businesses co-heading KKR Credit and Capital Markets and also serving as a Treasure and Head of Corporate Development. Most recently, Rob has headed Human Capital and Strategic Talent for us. Rob?
Thanks a lot, Craig, and hello everyone. It's a pleasure to be on the call this morning and I hope to have the opportunity to meet and get to know many of you over the months and quarters ahead. I'd also like to thank Bill for his leadership of KRR's finance function over the last 20 years. Our finance team has a tradition of operational excellence and first rate controls. I have every intention of continuing that focus and tradition.
Turning to our financials for the quarter. Management fees, as Craig noted, continued to trend very well, up 13% compared to the fourth quarter of 2018 and up 15% for the year. In Capital Markets, transaction fees for the quarter totaled $107 million and $410 million for the full year. These are very solid results for us, but both numbers are down from our record results in Q4 2018 and full year 2018. I will circle back to our Capital Markets business in a moment.
Turning to monetization activity in the quarter. We had $245 million of realized performance income and $226 million of total realized investment income. Carry generating exit activity this quarter was driven by a number of European and Asian investments. These exits were accomplished at a blended multiple of approximately 2.8 times of our cost.
Moving to our expenses. Compensation and benefits, which included the equity based comp, came in at $358 million for the quarter or 37% of our total revenue. For the year, total compensation was 39% of revenue, both figures are below our low 40s compensation ratio target. Occupancy taken together with other operating expenses came in at $122 million.
Other operating expenses were more elevated in the fourth quarter, primarily due to $20 million of non-recurring expense related to the Australian-listed permanent capital vehicle that Craig mentioned earlier on the call. Putting this all together, including a 12% tax rate for the quarter, after-tax distributable earnings were $375 million or 40% per share. I thought I would pause here and spend a minute on our Capital Market business.
We have worked very hard over the last decade to diversify this business from a small U.S. based team that was focused primarily on KKR private equity deals. Today, our Capital Market business has meaningful breadth across asset class, product, and [audio gap] that diversification resulted in over 60% of our Capital Markets revenue coming from outside the U.S. in 2019 and around a quarter of our revenue coming from non-KKR clients.
As a result of this increase rack, we now have the business to a point where baseline quarterly revenue should be in the $50 million to $70 million range. This was driven by ordinary course financing and refinancing activities, assuming reasonable capital market conditions. In addition to that base line revenue, we have also positioned ourselves to be a meaningful participant in several large transactions a year, which is why the business has exceeded $100 million of revenue in six of the last eight quarters, and also averaged almost $500 million of revenue over the last three years.
In short, our business now has a more baseline revenue component, which we think we can grow overtime together with upside from larger deal activity. As we look forward to Q1 2020, we don't have any of those large transactions in the pipeline. So, the expectation from here is that our Capital Market revenue in Q1 is more likely in that $50 million to $70 million range, which is consistent with Q1 of 2019.
Now, most important, as we think about the growth of our distributable earnings over the next several years, really all of the core fundamentals in our business are at record levels. Our fee paying assets under management, they're up 14% this year and currently stand at a $161 billion. That's the highest it has ever been and that is in to advance of some our larger strategies that are set to raise funds over the next 12 to 18 months.
Our net unrealized carried interest is up 62% year-over-year. This is driven by both robust performance across our various strategies and the significant increase in our carry eligible AUM that is above its respective hurdle. You can see that on Page 4 of the supplemental deck. Two years ago, around half of our carry eligible AUM, was in a position to pay carry as over $55 billion with seasoning and still working its way through preferred returns. Fast forward two years, the amount of capital in a position to pay carry has now increased 60% to $93 billion.
And finally, our balance sheet is stronger today than it is ever been. Over the last several years, our balance sheet has been accruing significant gains, which you're clearly seeing come through in book value compounding, but we are not yet realizing those gains through distributable earnings. If you look at the last three years, our balance sheet investments have averaged a 15% return and our realized performance has averaged 7%.
In 2019, this difference was even more extreme. As we generated 25% return, but our realized performance was 6%. This has generated a record few billions of embedded gains on our balance sheet, which create significant visibility for us around our long-term distributable earnings trajectory. Let me now pivot from the numbers themselves and spend some time on our investment performance. We saw a very strong performance across our major investing platforms in 2019.
Looking at Page 5 of the supplemental presentation, our recent private equity flagship fund depreciated by 29% this year, and the PE portfolio in its entirety appreciated by 27%. Our flagship real estate and infrastructure funds appreciated 24% and 13%, respectively. Energy income and growth did decline for the year, given the volatility in the asset class, but this is a relatively small strategy for us today at about 1% of our assets under management. Our credit business had solid performance with our alternative and leverage credit strategy returning to 8% and 9% on a blended basis.
And finally, as you've likely seen in the press release, we've announced an increase in our dividends. We set our current annual dividend of $0.50 per share when we converted through a corporation in the middle of 2018. For 2020, we have increased our dividends of $0.54 for the year, an 8% increase. This is consistent with our stated intention to grow the dividend overtime while still retaining most of our earnings to invest back into the firm and also to support our share buyback activities.
Focusing on buybacks, since we initiated our share repurchase program, in total, we used over $1 billion to retire shares at a weighted-average cost of just under $18 per share, that's $1.30 below our current book value per share.
And with that, let me turn it over to Scott.
Thank you, Rob, and thank you everybody for joining our call today. I'm going to touch on 3 topics this morning. The first is 2019. As you heard from Craig and Rob, we finished the year well. Most important is the progress we made over the course of the year. Management fees were up 15% while book value per share grew 24%, and our return on equity which we look at on a month basis, was 24% for the year.
Our model of third-party assets plus capital markets plus our balance sheet is working. And in 2019, we grew virtually all our businesses and launched several new platforms, including a number of strategies in Asia as well as our global impact effort. So, we're pleased with the year and view our progress as an important bridge to the opportunity we have ahead of us. This brings me to my second topic, visibility.
We have more visibility now than I can recall in our 10 years as a public company. As introduced on this call last quarter, we expect to launch fundraising for our three largest flagship funds over the next several months. And over the next 3 years, we expect to be fundraising for over 20 additional strategies, many of which are now between fund 2 and fund 5 with strong track records on top of a growing investor base.
In addition, our unrealized carried interest is up to 62% over the last 12 months, and our cash carry eligible AUM is up 60% over the last few years. Given all this visibility, our confidence is high. Assuming the fundraising environment continues to cooperate and we continued investment performance, we believe, we can grow our management fees by at least 50% over the next 3 years.
And about 18 months ago, at our July 2018, Investor Day, we shared with assumptions more conservative than our actual experience. We felt, we could double pre-tax distributable earnings and book value per share over the next 5 years, and then roughly do it again, over the subsequent products. Given our progress and visibility, our conviction in being able to exceed these numbers is higher today than it was 18 months ago.
Finally, I want to discuss our shareholder base. As you know, we've converted to a C-Corp about 18 months ago. We felt changing our corporate structure would make our stock easier to buy and easier to own, greatly expanding the universe of investors that could own our stock. That has proven to be the case. We've seen a significant change in our investor base with many more mutual funds and index funds owning our stock, and we've been added to several indices.
We're still introducing ourselves to investors that are new to the space and new to KKR. So, the full impact of the C-Corp conversion we believe is not yet in our stock. As we've been out meeting new investors, we have learned that many are benchmark indices that we are not in today and they are less likely to be shareholders of ours as a result.
One of the largest index families where we are not included is the Russell. We believe being part of Russell's indices would allow us to further our goal of broadening our shareholder base and is the sensible next step on our journey to getting proper price discovery and a proper valuation for our stock. So, we're discussing with our Board taking the steps necessary to be included in the Russell indices when they rebalance this spring. We will keep you posted on the details.
We thank you for your partnership and we're happy to take your questions.
And Krystal, we could ask everybody, I just going to say, ask everyone in the queue, if they wouldn't mind asking one question a follow-up. That would just let us to make sure we work our way all through the queue. Thanks in advance.
Thank you. And we will take our first question from Craig Siegenthaler from Credit Suisse. Your line is open.
So, Scott, really appreciate the commentary around the Russell 1000 at. We think you'll get a nice benefit from that in terms of the shareholder base on evaluation, but as you look at what you need to do in terms of corporate governance and moving a small amount of voting rights in flow? From your side of things, what really is the big thing you have to give up, like, why wouldn't you do it?
Let me just take the first part of that and let Scott add -- Craig, it's as Craig, look. First, we actually like to thank you for your thoughts and persistence on this issue. I know you've asked us as well as their peers about this for a few earnings cycles in a row now. But look, I think overall as it relates to incremental buying that can come from two places. First, our ETFs and strategies that are linked directly to the Russell 1000, 2000; and the math for that's pretty straightforward, I know you and most of your peers have done that. And the second piece really relates to mutual funds that are benchmarks to those indices, and our ability to market ourselves through those institutions and increase our mindshare.
And so, as we look at it, it's really the second piece that to us, we think we can be more powerful than the first. Now, it's not going to be immediate, it's going to take elbow grease and some fortitude, but that's okay. So, as we put those two pieces together and gain conviction, it just felt like that was a sensible next step for us and trying to get proper valuation.
Yes, Craig. It's Scott. Look, I think what you should take from this is that we're working with our Board to take the steps required for Russell inclusive. So, the answer to your question is that we are in that process right now and that's our expectations.
Thank you. Our next question comes from Patrick Davitt from Autonomous Research.
I thought I missed this, but could you give the pipeline of announcement not closed carry and investment income?
It's Rob. We think we have -- yes. So, based on where we are today, we have either closed or signed approximately 700 million worth of deals across our realized carried interest and realized investment income. We would expect that 700 million to be realized through the first half of 2020. As a point of comparison, it's probably helpful. This number was roughly 400 million at this time last year. So, we feel pretty good at this stage of the year as it relates to what our exit profile looks like.
Awesome, thank. And then, I think it's widely known that KKR is more exposed to China than some of cops. Could you please update us on the PE portfolio's exposure there? And any broader thoughts you have on your view of the exposure to the coronavirus?
Yes, thanks Patrick. It's Craig and we have been asked by a number of folks, if we could quantify our direct presence in China. So, the largest part of our business in China is within Private Equity. And when you look at the fair value of investments the companies based in China as a percentage of our AUM, it's a low single-digit percentage of our AUM. So, it's between a 1% and a 1.5%. Just to answer, now again, there is obviously a very large human element as it relates to what everyone is experiencing, but in terms of the specific question, that's the exposure.
Thank you. Our next question comes from Gerry O'Hara from Jefferies. Your line is open.
Great, thanks, maybe one for Scott. You've touched sort of those 20 strategies that are coming to market over the next 12 to 18 months perhaps even sooner. But I think kind of going back to the Investor Day comments, you talked about some of them being perhaps closer or coming up on respective inflection points. I don't know if there is some that have made more progress since then than others or some of these perhaps would highlight is kind of nearing that quarter-on-quarter inflection point that might be worth highlighting? Thank you.
Thanks Gerry. I'm going to ask Craig to do the first part and I'll give some thoughts on the back end.
Yes, sure. So, and Gerry, thanks for the question. So last quarter, as I know, you will remember, we highlighted the three benchmark strategies that we expect to be launched over the coming 12 months that's Asia PE, Americas PE and Global Infra; and we're fundraising for our Asia PE strategy currently.
Now, alongside of that, we also have noted that there were over 20 additional strategies that we expect to be fundraising over the next three years. So, I think overall from a scaling aspect, there are actually a few prongs to this. The first is that, moving from fund 1 to fund 2, to 3 to 4, I think that piece is pretty easy to understand. This quarter, the growth that we've seen in our next-gen tech fund with its final close, this quarter being three times the first is a great example.
Second part of the geographic expansion, again, we talked to the first close this quarter of our global infrastructure strategy, relative -- excuse me, our asia infrastructure strategy as a geographic expansion alongside of our global infrastructure presence. Third would be adjacencies for fundraising for core real estate strategy that fits nicely within the suite of strategies we have within real estate.
And that's alongside of the growth and scaling we have from our distribution channels, insurance and retail or both topics we've touched on historically as well as our PE expansion. So, I think you've combined all of those things and we see certainly a lot of upside, and as Scott had referenced on the call the conviction that we have in our ability to at least see management fees for at least by 50% again over the next 6 years.
Now, in terms of your question on scaling and timing, we don't have any specific guidance on when you would see that. Again, we've launched fundraising for one of those three benchmark strategies. We haven't launched fundraising for the other two benchmark strategies. So, I think in that three year timeframe, reasonable to think that again that run rate number really you would see the back end of that period, but we feel very good about the opportunity we have and the first steps we're taking.
Gerry, the one thing I'd add is that, the Investor Day and subsequently, we have shared slides on kind of showing where we are for some of these platforms relative to where the largest player is in. As a reminder, we only want to be in business is where we think, we are on a path to be top 3. And so, the point we've been trying to make is there's a ton of opportunity for us to meaningfully scale a number of these businesses that we started. I think the short answer of your question is, we are on track or ahead today and where we thought we would be.
When we put that slide up for the first time in 2018 and that's everything from infrastructure, real estate equity and credit growth, core equity, and then our broader corporate credit business, which we're focused on doubling again from here. So, I feel really good about it and several of those are right in that inflection point today or nearing it. So, that's one of the reasons you hear us speaking with such conviction on the visibility that we have for the firm.
And then just a follow-up around the dividend and the decision to increase it, perhaps some of the inputs or metrics that you kind of look to, clearly, FRE is probably one of them, but kind of just, if you could help us understand how you're comfortable increasing that dividend, I think it's a percent in the coming year? Thank you.
No problem. There's not one specific metric that we take a look at. Really, we're focused on what the overall growth of our business profile looks like. What we have said and continued to believe is that, we want to increase our dividends overtime as the business scales, but we also want to share that we're ensured that we're retaining a significant amount of our capital to reinvest back into our business where we continue to see a ton of opportunity and also have additional capital available for share buyback activity.
Our next question comes from Mike Carrier from Bank of America.
Scott, first, just on the visibility. So you went through fundraising even that makes sense the net accrued on the realizations, tough to predict, but it sounds like the outlook is pretty good there. I guess just your comments on the balance sheet. Like how should we be thinking about the appreciation that we see relative to the realization pace? And how does that maybe shift or pick up? Like, will it just be in line with realization activity, anything that's more nuanced there?
Thanks Mike. Look, I think the message on the balance sheet is that it's been performing really well. As you can see from the charts in the deck, we've continued to see very attractive compounding over the course of the last year, which is just continuing what we've seen since we changed the dividend policy at the end of 2015. So, the message is that we're really pleased with the underlying performance of the balance sheet. I think we've been very happy with the repositioning that we've made it and we're getting closer to our asset allocation targets.
So, it's all going according to plan. In terms of how do you think about how much of that we're going to realize that is going to be very hard to give you any specific guidance, but what I will tell you that we watched is, what is the embedded unrealized gains that we have within that balance sheets. And the point is that we're trying to make, if you look at some of the slides and you look at Slide 6 in particular in the deck. It's the unrealized gains continues to increase.
We're now at a record level. So embedded within that 22 billion of balance sheet assets is a $2 billion unrealized gains that we think will be realized over the next several years. And that's on top of the regular way dividends and other investment income that we received from the balance sheet. So what I would tell you is, expect to see a general upward bias as we continue to execute our balance sheet strategies. So that upward bias would not only be on book value per share, but also overtime unrealized gains and investment income.
And then just on a follow-up. Rob, you've mentioned the comp ratio coming in a little bit better the quarter and then even a full year below that 40. Just trying to understand like, should we read something into this in terms of you seeing that trend down, as you're going to continue to scale the business or is it a little too early to be thinking that the comp ratios had lower?
Sure, as a starting point, I'd focus on the annual numbers and less the quarterly numbers and so we're at 39% this year and 40% last year of what we communicated. As you know, is that we're targeting a low 40% level that is build a target. But we certainly hope to continue to scale our revenue and be in a position where we can bring that number down over time. And as we think about comp margin, we also do keep a close eye on overall operating margins, which were at 50% for the year and other target for us, and I do think it's fair to say that as we thought about our Q4 comp margin, we certainly had an eye towards that 50% overall margin and wanted to try and achieve that.
Our next question comes from Glenn Schorr from Evercore. Your line is open.
So, thinking about your capital markets comments, and they're a little lower than the last time I think you talk to us. And what's interesting is your commentary about the forward pipeline and the 700 million worth of deals up from 400. Those two things don't have to be mutually exclusive, but they're interesting to me. So, I guess the question is. Is it feels like you're confident in your capital raising and your exits and your realizations, but yet the capital markets keeps coming down? Is it just less, a few less big chunky deals? Or is there anything to be said about pricing? And what you capture on those deals. I am just trying to square those two.
Yes, thanks for the questions, Glenn. I appreciate you're clarifying. So, let's take it in pieces. To be clear, the 700 million of unrealized gains that we expect to be coming through, sorry, in terms of carry and unrealized gains on the balance sheet, that's on the exit side. So, those are things that we are exiting from the portfolio. And for the most part, exits don't result in capital markets fees. Where the capital markets fees tend to come from is exits that may be related to things like IPOs, or secondary's. But the vast majority of the capital market fees are probably going to be from newer transactions or refinancings or activities in the portfolio on a regular way basis. So that's the first distinction I want to make.
The second thing I want to make clear is we are not guiding you down on capital markets. What we're trying to do is make sure that you understand how we see the capital markets business from quarter-to-quarter. And a lot of that is going to be driven by that new deal activity or that refinancing activity level that I referenced. And so it's purely us is trying to give you a sense for what we see in terms of how the business is beginning to function, which is a baseline, that even without large new deal activity, which we see a significant amount of confidence. And that's that 60 to 70 range that Rob mentioned.
And then on top of that, when we have large transactions, like we did in Q4, you will see some potentially meaningful upsides. And that's how you get to this kind of 100 million plus kind of numbers that we've been recording six over the last eight quarters. And that's why we've been averaging about $450 million, $500 million a year for the last few years. So we're just trying to do the build up with you so that we have a way of talking about it with you going forward. And hopefully can help you understand you know why the results are coming out the way they are.
Okay. Very helpful. Thank you. One more quickie. The press has somehow gotten a hold of the notion that the private equity business is starting to get more activist in nature and taking minority pieces and in public company and being more aggressive on that front. I'm just, one of your investments in one of the Argos, so I'm just curious, to get on your thoughts on, if you feel like there is anything different at all going on in terms of how you go about your PE business?
Short answer is no and we saw the articles too, I think just to be real clear on elaborating. So I think this is a Dave & Buster's investment that we made that got some attention. I think frankly, we got a quite a bit of attention because of the consumer services nature. But to be clear, there's nothing new here from our standpoint. We made 40 investments over the last several years. In public companies $3 billion and we're not activists in the traditional sense. We're working with the management teams of those companies in a constructive manner. I think that the press did a bit, frankly.
Thank you. Our next question comes from Alex Blostein from Goldman Sachs. Your line is open.
Great, thanks. Good morning everybody, and Rob welcome to the call. The follow-up on capital management I guess. Scott, you've underscored significant visibility in your growth, both from management fees and carries as well as balance sheet realization. And appreciated the dividend increase of 8%, but the dividend yield is around 2%, that's obviously below your peers and below financial broadly. I guess given the confidence in the business, what would it take for you guys to peruse more aggressive capital return strategy whether it's a bigger buyback given comments around valuation or high dividend? Thanks.
Alex, I think we're really happy with our strategy. So, I think the way we think about it is we changed dividend policy at the end of 2015, we basically, we're targeting a level that was at about S&P 500 or S&P Financials dividend yield. And, not to say that the hard and fast rule, but that's we have been in and around there since we made that change to bit below. And as you can see, what's been happening since we made that change and the book value per share has been compounding and we've bought back quite a bit of stock along the way.
I think you should expect us to continue that general capital management policy, which is a steady annual increase in the dividends, and then buybacks that really are used at a minimum offset share dilution from compensation. And so, those two elements of our strategy we are very pleased. We think that will allow us to compounded book value per share to very attractive rate, and also give us a capital we need to invest in growth.
And then my follow-up around management fee growth. If we look at this quarter, sequential growth, it was up modestly. But if you look at fee AUM is actually quite up a bit quarter-over-quarter, I think you talked about 5%. Can you help to reconcile I guess and just walk us through any timing dynamic that may have delayed some of the management fee recognition in Q4 that would help you guys to get it out in Q1, starting to see probably a higher ratio?.
Hi, Alex, this is Rob. It's a timing issue. We had a couple of fund strategies that closed at the end of the quarter. One that was meaningfully sized and so it shows in our U.S. asset under management and so we're not going start collecting management fees until Q1.
Our next question comes from Robert Lee from KBW. Your line is open.
First question, as it gets kind of made me a little more kind of, how you think of running the business. I mean, expanded, as you pointed out a lot over the last couple years, have 20, strategies are raising for in different in, most of which are comparatively newer to the firm, at least we're less than a 5 plus years. So I'm just curious how you've had to change or alter your investment process. How you're kind of decision making happening? And then with that, have you seen any kind of pressure to change what's your somewhat unique kind of comp structure compared to some of your peers?
So high level, you're right. We have created a number of new strategies over the course of the last several years. And as we talked about in the past, right, 18, the 22 investment strategies we have with the firm are new in the last decade, but the number of those businesses were started now multiple years ago. So 5, 6, 7, 8 years ago, it probably felt like there was a much higher percentage of brand new.
As we sit here today is we're getting on the fund 2, fund 3 for a number of these strategies. We actually don't feel as new as an enterprise as we did at that point, internally. And so in terms of the running of the business, the investment process, the short answer is we haven't had to change it. And what we have done is we've created investment committees that are relevant to each of those strategies, and portfolio committee that are relevant each of those strategies, which is how we run the firm a very long time.
We have hired people into the firm to help us fill those businesses alongside existing, taking our executives. And everyone was hired into the firm's one firm comp structure. So everyone signed up for the culture and the compensation structure that we've always operated under. So there's no change there either. And so as we built those around the world and across strategies, we've been very purposeful and trying to make sure that we do it the way we built all KKR businesses. And so it really hasn't been the things that we've had pressure on changing our process, or changing our comp structure away from what you would normally expect, given some of these businesses are a little bit more market facing than some others.
And maybe follow-up, being you've clearly highlighted the potential for realizations overtime with the building capacity there. But clearly is investors seem to be on a kind of concerned about the potential for you and your peers to kind of get those realizations over the, let's called the intermediate term. So understanding you can predict specifics and you gave the color on what you have and so far. But is there any color you can give on how we should be thinking about where you think most likely realizations is the U.S., Asia, kind of any kind of sense of for thinking of your potential in the next day year to, where you think that, what may dry that and a high level?
I think it's pretty broad base. But we're seeing inside of the firm is that a number of the businesses that we just talked about, that were created over the last 5 to 10 years and you understand that the management teams show up before the carry. But a number of those businesses are now maturing and a number of those pools of capital are getting into their carry earning and carry paying years.
And that's part of the reason you could see the Slide 4 of the deck that Rob walk through that 58 billion of cash carry paying AUM going to 93 billion. That is very broad base when you look beneath it. Is Asia, Europe and the U.S. and it is across multiple different businesses and strategies. And so this, when we think about the latent earnings power of the firm, part of the reason we have this confidence is we have been watching these investments mature and now would be a, these funds being above their hurdle rate and getting into the cash carry paying face.
And so it is really broad base, there's no specific team I would call out for you. And that's part of the reason that we continue to see our carry diversifying and continuing to increase.
Rob, one thing, it's quite one thing I would add, it is interesting when you look at the overall PE performance in 2019. The portfolio as a whole was up 27%. Our privates were up 17%. So certainly strong performance as relates to the private part of the portfolio. Our public's we're up over 60%. And so often as it relates to those companies that are our public, those often are more mature investments for us. And you've seen some of the benefits of that even in the second half of the year with investments and monetization, as we've seen in companies like SoftwareONE and Trainline. Such as, again, I think that's another interesting data point.
Yes. So I guess what I would say, Rob, is I wouldn't get too worried about what happens in any one quarter. Well, we keep an eye on those two embedded gains on the balance sheet as we referenced, and then the unrealized carried within our underlying AUM and both of those are at record levels and up significantly over the last 12 months. And so that's we're keeping an eye on for both the near-term and the intermediate term.
Our next question comes from Chris Harris from Wells Fargo. Your line is open.
A few questions on your incentive fees, I guess the first part is. Why were Marshall Wace incentive fees so low this quarter? It sounds like the growth has been pretty good over there. And then also, I think that that line item is being impacted by lower BDC fees. So how much revenue is attributable to that, and what needs to occur for the BDC incentive fees to be recovered?
Hey, Chris, this is Craig. Let me take the first crack to that. So, as it relates to incentive fees, they were about 1.5% of our total revenues in 2019, a little less than that in terms of Q4. And the answer to the first part of your question does really relate principally to timing. So, our largest hedge fund partnership incentive fees crystallized on 9.30. And we report those results on a one quarter lag. So we see those through our financials in Q4. So broad markets, in broad markets even think back to the fourth quarter of last year's I'm sure you remember was a very volatile. The S&P was down about 14%.
So the impact of this actually had no bearing on the incentives fee and recognized in Q4 a year ago. And instead, we felt that impact in our Q4 results for this year given the timing of when that incentive fee crystallizes. So, that's what you see as it relates to that dynamic. And then overall in terms of where we're, again incentive fee is right, but we get incentive fees from our hedge fund partnerships. Those do tend to crystallize annually and you will tend to see that in the fourth quarter. And then the second place we see incentive fees is from a handful of credit-oriented strategies and platforms largest of which is BDC platform.
Now, in terms of the BDC platform, we actually a little cautious in terms of how you talk about this because again in this line item is a small topic for KKR. Again, it's a 1.5% of our total revenues. It's a more significant topic for our publicly listed BDC that hasn't reported their results yet. But in terms of that NAV FSK, FSK did said on our last earnings call that they expect incentive fees over the next few quarters to be muted and I think really consistent with that disclosure and that's what you saw in Q4. That's about 80% of the incentive fees for KKR in Q4 were driven by those hedge fund partnerships. Does that make sense?
Thank you. Our next question comes from Brian Bedell from Deutsche Bank. Your line is open.
A lot of my questions were answered, but maybe just to zoom in a little more on the capital markets in the $50 million to $75 million quarterly run rate. I think you mentioned, I think Rob you mentioned 25% of the revenue from the Capital Markets businesses outside of KKR. Just wondering if that also applies to that $50 to $75 million core run rate and then maybe you talk about the efforts to grow that revenue stream outside of KKR or is the 50 to 75 really just the KKR base?
No, Brian. That's 50 to 70 range that we gave would include our third-party Capital Markets business and we pay those at decent role of sum. So, right now, that's going to be roughly a quarter of our business going forward. In terms of being able to grow that baseline I think that comes from two areas. I think that comes from a continued growth of the KKR platform across different asset classes and continued penetration of our third-party Capital Market that has a lot of momentum right now. S, those will be the two areas that we think will help to get that base line number up overtime.
Okay.
Just to be really clean Brian, just to jump in. So, the 50 to 70 again, excludes what we seeing from the larger transactions. Last two years, we deployed and it's indicated a sum total about $30 billion per year. So, we expect to have large transactions over the course of any given year and the messages in some quarters, they close and in some quarters they don't and that's over time to clarify. But, to be clear, the 15 to 70 without those and something like Q4, which is a $107 million we have one of those close. So, we're just trying to be transparent with it.
Yes, totally and they could be lumpy within KKR and the third-party as well. And then it's a lumpy part of that would have been the addition to the addition to the 50 to 70 really could be anywhere and then there also much more heavily skewed just the KKR deals.
I'd say the larger deals are going to be likely more skewed, especially the ones where we make 30 to 70 million per transaction, they tends to have an equity and debt syndication element. You can have A larger third-party deal as well, but they tend to top out in the 10 of $20 million range just to give a sense.
And then may be Scott, just if you want to comment a little bit on the deployment environments given obviously market have moved quite nicely this year and valuations you know are stretched. You know, where do you guys see better opportunities? Where you are more cautious or you in general about the deployment environment, you know, more questions overall or continue to see plenty of opportunities to give your finances investment capabilities.
Yes, let me just give the high level and I like Craig run through kind of what we're seeing around the world. I'd say on the whole, the average is live. So when you're looking at a market multiple, we're finding that that really is a very, very misleading statistic. The markets are incredibly bifurcated. And so, we're seeing significant dispersion and multiples, it's the half have not dynamic, we talked about the last few quarters where you got growth in simplicity, valuation multiples, incredibly high, if you've got complexity or less growth, you can be left behind by the market.
So, we're really seeing this dynamic around the world of a bifurcated market and in the U.S., certainly, and in other parts of the world, a bifurcated economy. And so within all of that you have a lot of complexities and refining a lot to do, but it is not stuff that would be apparent reading the popular price. It's very much on the ground type work and the overall theme, I would say is we're continuing to buy that complexity and sell into the market what the markets want, which is that simplicity. And so with, all that is kind of a global overarching kind of all product area statement. Craig, when you run through what some of the themes are most focused on?
I'd say, Brian, let me touch on private markets, first, few things to know. First, as it relates to private equity. We have been seen more opportunity better risk reward outside of U.S. And part of that is valuation related if you look at total returns over the last 5 years returns of the S&P has exceeded the MSCI Asia-Pacific by almost 2 times. So I think we have been seeing that risk reward and you see that in some of the deployment figures.
And some of that is secular, so we talked about cause for some time of the drivers of our activity in Japan, in that continues. Activity in Europe almost has three prongs. So there are corporate partnerships. There are growth and tech opportunities. And we're making investments alongside of families. We've done this recently Germany as well as Sweden. Asia again, we talked about the partnerships in Japan. We acquired Campbell's international as a carve-out from Campbell Soup company for our core strategy, another example of a carve-out transaction.
And I think in an area like infrastructure, we've been leaning into mid-stream. So over the course of the year, we closed out of Western Canadian midstream joint venture in all the pipeline investment in Abu Dhabi. So that's been inactive area as well. And again, as I think as it relates to public markets. I think what, and we touched on this in the prepared remarks. The activity that we saw in private credit, both here and in Europe was interesting.
The syndicated market in the second half of last year was very unfriendly to new issuers in a something whether well-known to the market recession was very poor, again goes back to now this Scott. Now, this backdrop will be great for private credit solutions and that's really what you saw in the back half from deployment standpoint.
Our next question comes from Chris Kotowski from Oppenheimer & Company. Your line is open.
This was the second quarter in a row where your interest and dividend income was over 180 million and that line used to run like 60 million, 70 million. So I assume it's either some kind of dividend recap and/or margin on. And I'm wondering, does that relate just to your balance sheet investment? Or could you have margin loans against the carried interest receivable as well? Or does it?
So, that number is specifically around our balance sheet. In both cases, we did a dividend, a large dividend in both Q3 and Q4 out of Fiserv. I'd say on a run rate basis, well, they're not going to get a specific number. But your run rate, interested dividend line item is going to be closer and more in the ballpark of what it was in Q4 of 2018 and what has been in Q3 or Q4 of 2019.
Okay. When you say you did a dividend out of Fiserv?
Basically what we did, Chris, is we did a second draw on the margin loan that we talked about last quarter against our Fiserv position. And so that was, but we shows up as a dividend as opposed to some kind of sale that's all.
Okay. And it relates only to the balances position not to anything in the carried interest receivable that you've got a target.
That's correct.
And when you reference the 700 million before that is in terms of carry or in terms of, I assume that's in terms of carry not in terms of transaction value?
So yes, that's right. That's both carry and as I realized carry, and a realized balance sheet investment income, and we think the first half of 2020. And we can see today and it's the end of January, I think, is the important point. So this, we will, that's why we got a lot of visibility even and it's not even February yet.
Our next question comes from Michael Cyprys from Morgan Stanley. Your line is open.
Just wanted to circle back on the deployment levels, they were up nicely year-on-year especially in the Public Markets segments. So I just curious how you would characterize the pace of deployment in 2019? Is this elevated in your view at all and how to think about the right pacing and run rate of deployment into 2020?
I don't think Michael, I would call it elevated, I just say one place, we probably did see it elevated over the course of the year, as Craig mentioned around private credit in the fourth quarter, which, if you look at our alternative credit strategies, we deployed 4 billion, that's a big number. If you were to analyze that I don't think, I think that would be a bit misleading. So when I look at the year as a whole, as I kind of mentioned over the last couple years, we've been in and around $30 billion of deployment and syndicated capital. And given our growing capital base and the growing activity we have all around the world. I think all else equal you would expect to see that number continue to go up.
And just a follow-up maybe, to some retail initiatives, maybe if you could just update us on how much you raise in 2019 versus '18? And maybe talk about some of the new strategies you're introducing, the overall sort of approach to the retailed channel? And there's been some recent regulatory proposals out there, I guess, just how meaningful are you thinking about that for growth?
Mike, it's Craig. Let me take the first part. So on the retail and high net worth side, the high net worth excuse me. Look, we've gone from about 9 billion of AUM in 2015 to 37 billion today. And so that CAGR is approaching 60%. And on the one hand, while those numbers are significant, and that dollar value is significant, it still feels to us like we're just getting started. But when you look at the capital that we raise from individuals, that's high net worth, ultra high net worth platforms, that number was about 20% of new capital raised in 2019 which is actually a little higher than that. So, it's a significant number and I think as we think about the opportunities in this channel, we do think our brand is something that is really helping for us. It's a great asset.
Now, in terms of the end of the question as it relates to the definition of an accredited investor, a couple of thoughts there. Look, I think we're encouraged by the SEC's efforts to expand that definition in standard. Now in terms of activity to-date, almost all of our structures are private CCC 7 funds, which can only be offered to qualified purchasers as opposed to accredited investors. So, the impact of this in terms of what we've been doing is actually a little muted. However, looking forward, we have several initiatives for retail high network and development that we focus on the space. And so, I think the proposed amendment, if it's adopted would expand that pool of investors.
The only thing I would add Michael is a high level. We're going to be introducing multiple products into the retail space and we're hiring more people as we're staffing up to do even more retail over the next several years. And so, you will continue to hear us talk about that and my expectation is over time the number Craig mentioned, which is about 20% of last year's capital raised, that 20% I think is kind of going up.
Thank you. Our next question comes from Bill Katz from Citi. Your line is open.
Okay. Thank you very much for getting me on and Rob congratulations on the promotion. Just maybe to follow up on and I think maybe of these plans are embedded in your discussion about the outlook over the next couple of years. So, how you think about the impact on margins comes here? Obviously, you have a lot of things you're investing in, but at the same time you're scaling some of these very significantly. Can you continue to margin that margin up from here? Or is it more just sort of tow back in, sort of hold where you are as the asset scale?
Hey, Bill. It's Scott. Our expectations is, right, we are going to be continuing to scale our businesses and that will allow us to bring margins up. We're going to be in reinvesting some of that back into growth in distribution, technology and a number of other areas. Our view is that, net of all that will allow us to increase our margins over the next several years. And so, that should be your general expectation is that you will see that margin gravitate upward. We're not going to give any guidance per se by period, but that is what we are working to continuing that of the reinvestment.
Great, that's helpful. And just one more conceptual coming back to like, what you might look like a couple of years from now. So, if you continue to scale your platform, a part of your balance sheet strategy has been to accelerate that scaling. And as you ultimately scale to where you think you can get, does the balance sheet just in general become a little less solid in that longer-term you might look to reconsider your payout ratio notwithstanding the fact you said in the near term no major changes?
I think your expectations should be that we continue to grow our balance sheet while we continue to grow our feed paying AUM. I think that should be your general expectations. From a capital management standpoint, I think our investors should expect that we're going to continue to compound book value, while we compound AUM.
And Bill, it's Craig. The only thing I'd add on that is, remember, employees own roughly 40% of the stock. So, there is great alignment in terms of the stock price, and that is something that from IR standpoint, we feel everybody when you go to lunch room. So, just kick that up in mind at the same time.
And we do have a follow-up from Michael Cyprys from Morgan Stanley. Your line is open.
Just wanted on the balance sheet, wonder, how much was deployed and realized off balance sheets in the quarter?
We deployed off the balance sheet of roughly a $1 billion of capital through the year and then we monetize roughly 350 million of capital through the quarter. So 1 billion of deployment and 350 monetization.
And that's for the quarter, right?
Yes.
And that does conclude our question-and-answer session from today's conference. I'd now like to turn the conference back over to Craig Larson for any closing remarks.
Thank you, Krystal. Thank you, everybody for joining the call. Please, of course, follow-up with us with any additional questions. We look forward to chatting next quarter.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a wonderful day.