Ladies and gentlemen, thank you for standing by. Welcome to KKR's First Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference may be recorded. I would now like to hand the call over to Mr. Craig Larson, Head of Investor Relations for KKR. Craig, please go ahead.

Thank you, Tanya. Welcome to our First Quarter 2014 Earnings Call. Thank you for joining us. As usual, I'm joined by Bill Janetschek, our CFO; and Scott Nuttall, Global Head of Capital and Asset Management. I'd like to remind everyone to begin that we will refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release. This call will also 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. On the call, we will also be providing estimates on cash carry, and its impact on future distributions. These estimates are based on March 31 valuations, as well as unit counts prior to the KFN closing. And for anything about the KFN transaction, please do refer to the proxy statement and other SEC filings that both KFN and KKR have made because they contain important information about the transaction. This morning, we reported first quarter economic net income of $630 million, which equates to $0.82 of after-tax economic net income per unit. Fee related earnings for the quarter were $152 million, which is the highest we've ever reported as a public company, representing approximately a 26% increase from last quarter, and an increase of over 70% from the same time last year. This growth was driven by higher management fee revenue across the firm, as well as strong transaction fees that were generated in our capital market segment. We do continue to be active on the realization front. So I'd like to highlight some of our cash metrics. Total distributable earnings were $447 million, which is up over 50% from the first quarter of 2013. This growth was driven both by the jump in fee related earnings I just…

Thanks, Craig. We ended the first quarter with assets under management of $102 billion, up 8% from last quarter and 30% from the same time last year. Distribution to our fund LPs offset investment appreciation and new capital rates, which was true for both our private and public market segments. The majority of our AUMs have been in the first quarter was due to the closing of the Avoca acquisition, which brought $8.4 billion of AUM online. As of March 31, our fee paying assets under management were $84 billion, also an increase of 8% from last quarter and 34% from last year. Similar to AUM, the addition of Avoca drove the increase in our fee paying AUM. In the first quarter, total fee revenue of $328 million was up almost 50% year-over-year, and the majority of this increase was organic, with only $5 million of fee income coming from Avoca. Fee related earnings were a record $152 million, up 25% from last quarter and over 70% from the first quarter 2013. The quarterly increase was driven by higher management transaction fees across all of our segments. Total distributable earnings were $447 million in the first quarter, up over 50% from the $291 million we reported in the first quarter of 2013. Turning to our segment results. Private Markets, our private equity portfolio appreciated 4.5% in the first quarter, outperforming the MSCI World and S&P 500, which were up 1.4% and 1.8%, respectively. This was less than the 8% appreciation we had in the fourth quarter of 2013 though. So despite higher fee revenue in the first quarter, the $241 million of ENI was down from the $369 million we reported last quarter. Moving to Public Markets. ENI in this segment was $68 million, down 7% from last quarter, but…

Thanks, Bill. We had a good start to the year. I'm going to briefly hit on 3 items: monetizations; the level of activity in Europe; and KFN. Let's start with monetizations. We've been active on the private equity exit front, returning cash to our fund investors through the Public Markets, strategic sales and dividends. In Q1, we took Pets at Home and Santander public. We also did secondary to Jazz, KION, ProSieben, NXP and Neilsen at a blended multiple of 2.4x our cost. In 2014, we continue to see a pickup in strategic exit activity. We recently agreed to sell 2 businesses, Avincis, a European helicopters services firm, at 2.3x cost, and Ipreo, a capital markets services provider, at approximately 3x cost. These combined with the strategic exits of Oriental Brewery, U.S. Foods and Sunrise Senior Living will provide a strong pipeline of cash carry in the distribution over the next 2 quarters. Year-to-date, we had over 12 realized or pending private equity monetization events out of 6 different funds across the U.S., Asia and Europe. Together, these exits generated over $5 billion in actual and expected distributions to our fund investors so far this year. And we've had additional good news this morning, as we agreed to sell Biomet. Biomet is a 2006 fund investment, and we have an additional co-investment on our balance sheet. The implied transaction value would suggest around a 40% to 45% improvement in Biomet's valuation relative to where we held it as of March 31. Now let me discuss Europe for a few minutes. We think it's a great time to be investing in Europe, as the recovery continues. First, in European private equity, we had strong results, with our portfolio up about 50% in 2012 and 25% in 2013 and off to a…

[Operator Instructions] And our first question comes from Christian Bolu of Crédit Suisse.

Your pricing strategy continues to pay off very nicely. You generated almost $193 million. I feel like cash carry, just to be curious and some more color around exactly what you sold or just more color to understanding what drove that?

Chris, this is Bill Janetschek. As it relates to balance sheet earnings, we had several co-invest positions like Nielsen and KION that were sold through secondary offerings that participate alongside our funds. And so, for the most part a lot of the realized gains in the first quarter of our balance sheet came from those co-invest positions.

Okay. And any thoughts on trajectory going forward?

Well, it's really hard to predict what the earnings and the cash earnings more importantly are going to be off the balance sheet. We did give you some color as to what we expect in the second quarter. I will tell you that, of that $0.40, I gave you, a predominant amount of that amount is coming from cash carry and not so much cash earnings off the balance sheet because of those secondaries or exits that I mentioned, we don't have significant co-invest off the balance sheet. But again, it's really hard to predict what that number will be next quarter or the remainder of the year.

Okay. Just in terms of your retail strategy. You closed down 2 retail funds a couple of months ago, I just appreciate some -- a bit more color on decision to close those funds. And then more broadly, just could you update your thoughts on just go forward strategy, with regards to retail?

Sure, Christian, it is Scott here. I guess, what I would do is bring it to our strategy in terms of distributing our products to individuals, broadly. And if you look last year, we raised about $21 billion in aggregate. About 23% of that, about $4.7 billion, actually was distributed to individuals across a number of different strategies. And if you look at thus far this year, it's been 1/3 of the capital raised was actually raised from individuals. And that's across a number of different approaches. We have a direct kind of net worth effort. We have a relationship with a number of platforms through whom we distribute our products. We also have our BDC, which is Corporate Capital Trust that raises money from individuals. So just to give you a sense of the $4.7 billion we raised last year, those 2 funds that got a little attention were about $33 million. So it continues to be a significant component of our strategy to continue to reach out the individuals. But I wouldn't get too distracted by those 2 funds. We've got several other vehicles. I think, we raised capital through 15 or 16 vehicles last year across most of the major strategies we raised capital for. So it continues to be an area of focus. I'll tell you that $4.7 billion we raised last year from individuals is up from virtually nothing 3 to 5 years ago.

Our next question comes from Matt Kelley of Morgan Stanley.

I'm hoping, you can tell -- help me with understanding some of your -- Scott, you mentioned the second generation fund. So just curious, if we kind of go down the list of real assets and even some of your Public Markets vehicles where you are kind of more in the market consistently. Where are you seeing strong enough opportunity to invest? Do you think you may be back in the market relatively soon, whether it's real estate or some of the other strategies?

Sure. Matt, I guess, I pointed a few different areas. One of our situations where we're nearly out of capital today, and somewhere in the press release, we got our commitment schedule, which shows you kind of -- gives you a sense of how much is committed versus invested. But if you look there what it will tell you is, we're obviously in the market with our European IV fund, on the private equity side, but Infrastructure 2 is vehicle that we're actively out working to raise direct lending to, is also a vehicle that we're actually fund-raising for. And then private capital, more broadly, and our mezzanine fund is nearly fully invested. So those 3 would be kind of more in the very near-term or right now. And then, you got other strategies like special situations, where we recently raised capital, but frankly that money is getting to work quite quickly. So we continue to see opportunities perhaps over time to get to a successor fund faster than perhaps we have initially anticipated. So a variety of different strategies, both on the public and the private market side. It really spans real estate, which is relatively younger, but at the pace we're going right now, we get to work quite quickly. Real assets and credit, so I think, there's a lot of different areas.

Okay. And then following-up on that, so within credit with the Avoca transaction closing, anything you're not doing in Europe and Avoca is not doing either that you think this will help you from a distribution or kind of getting into that market whether it be NPLs or anything else over in Europe that we should be thinking about?

No, I think that the integration of Avoca is proceeding quite nicely and the teams are working very well together. And as you know, what we had in Europe before Avoca was largely in the private side. So we had private capital side. We had special situations, mezzanine and Avoca, as you know, is largely more in the liquid credit side. But the teams working together are sourcing a number of interesting transactions. So we have capabilities to do rescue capital. We have capabilities to do NPLs. We can obviously do loan to own, working across our private equity and capstone teams. So we have significant capabilities there. The way I'd think about Avoca is it brings us a team that has covered about 1,300 credits across Europe for a long period of time, and the 2 teams working together is pretty powerful. So that's been proving out quite nicely in early days. There's not a lot that we are not capable of, given the opportunity set that we see today in Europe. One thing we're spending time on is European direct lending, which, as you know, our business in direct lending really started in the U.S. We do see an opportunity in Europe for direct lending, so that will be one strategy. I think, now with the combined capabilities, it's something we're likely to prioritize in the near-term.

Okay, great. And last one for me and I'll jump back in. On the real estate front, you mentioned significant opportunity to invest in -- may not be that long till you're back in the market. I'm curious, if there is any plan or thought behind doing real estate debt kind of separating equity and debt into different funds or doing more any debt in real estate going forward?

I'd say no immediate plans. We're focused on getting kind of Fund I invested. We had a nice recent exit there in getting that portfolio to perform. So no immediate plans, but we'll keep you up-to-date.

Our next question comes from Chris Kotowski of Oppenheimer. Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division: Couple of things. One is the realized cash carry on the private equity side, it was also larger than what we would have thought, looking at publicly announced transactions. Was there something else that either dividend recap or something like that our searches wouldn't have turned up?

Yes, Chris, this is Bill. I mean, just to give you a little more color on this, when you think about cash carry, during the first quarter, it was quite active. I mean, you probably knew about Santander and that going public and not participating in the secondary. We did announce secondaries in Nielsen and NXP and ProSieben and Jazz, as well as KION. And lastly, we did do a small dividend recap in academy in the first quarter, which added about a $0.01 or $0.02. And the one thing that you probably did not allow is, again, when I mentioned earlier in prepared remarks, on the Public Markets side, with that $25 million of cash carry, that actually equated to another $0.02 in that cash carry in the first quarter. Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division: Okay. Then next, I wonder if you can comment on the indicated value of the Biomet transaction. How does that compare with the March 31 marks?

Just to give you a high-level, Scott had mentioned earlier in his prepared remarks, based on where we're carrying it as of March 31, and what was the announced prices that's about a 40% uplift. And when you think about it, we really have Biomet in 2 places, one is through our fund and to give you a little color, that number is about $1.1 billion, of capital in our '06 Fund, plus you might remember that we have about $150 million on our balance sheet. And so those 2 will probably equate to an increase in ENI, based upon the announced price, June 30 of approximately $100 million. Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division: Okay. That's very helpful. Then next, as you mentioned that you have realizations out the real estate fund already. Is that something you can or are inclined to recycle or would you rather just distribute that funds and raise a new one?

That's a very good question, Chris. In real estate fund, we could have our cake and eat it too. Because we will actually have that realization. We will pay that out to investors, but because it's in the recycling period, because that investment is less than 18 months, we get to redeploy that capital again. Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division: Okay. And then lastly for me, it's -- it looks like you had just tremendous appreciation in Europe 3 this quarter, that's really seems to be the biggest driver of the appreciation. And I -- so that -- and that had been a fund obviously, that had struggled through aftermaths of the financial crisis. And I guess, I'm wondering does that kind of appreciation now give you -- have you sized what your goal for Fund IV is I guess is my question? I would've thought it to be tough fund-raising up until recently, but it looks like it's doing pretty well now.

As it relates to appreciation during the quarter, E3 performed quite well. And so we mentioned that in private equity the portfolio is about 4.5% in E3, that portfolio was actually up about 8%. And when you think about it, from where it is from cost to where we're carrying that right now, that fund is that 1.4x cost. And remember, it is -- it's a fund that's only been in existence for 5 years. And so, you really haven't seen the maturity or the write-up in that particular portfolio. As it relates to your second question, on fund-raising, Scott mentioned earlier that we were just starting to market E4 and we rather not comment on size of fund.

Our next question comes from Michael Kim of Sandler O'Neill. Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division: First, just wanted a follow up on the outlook for realizations. Just curious, if you're maybe starting to see any evidence sort of a decoupling between public opportunities versus strategic sales, just given broader market trends and the strength of corporate balance sheet. So maybe potentially entering a period when more of your exits are coming from M&A and less from IPOs and secondary offerings. And if that does in fact turn up to be the case, could that potentially drive maybe a quicker step up and carry as you're not selling down stakes and portfolio companies over the course of the quarters or years?

Michael, it's Scott. I think it's a great question. It's hard to predict but I think you'll continue to see a mix. If you look kind of going back to 2012 through today, about 60% of exits have been through the Public Markets, and about 30% strategic, and about 10% or 12%, somewhere in there in dividend recaps and other, just to give you a sense of where we've been. And if anything, I would say that given the M&A market has picked up more recently, that 60% in public side, it's quite a bit more than what we would normally expect. So recently, as we said, OB, Avincis, this morning, with Biomet, we are seeing more strategic activity. We sold Ipreo outright. It wasn't too strategic, but it was a sale of the company. So I think it's hard to be too precise. But I would expect that you're going to continue to see a mix of strategic and secondaries going forward. And as we've discussed in the past the strategic exits just tends to be bit more efficient and more of the carry shows up all at once or in a shorter period of time. I will say parenthetically that the at least from what we're seeing, color in the market would tell us that there is more strategic dialogue going on, and there does seem to be strategic interest in our companies, which we've been talking about for last couple of years and it's starting to come through. Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division: Okay. That's helpful. And then, maybe switching gears to fund-raising, it just seems like the breadth of products that you're currently marketing, you mentioned, E4 and infrastructure, direct lending, just seems pretty diverse. So wondering what the implications are for the pace and maybe more importantly, the consistency of your capital formation going forward?

Sure. I'd say there's -- if you look at kind of what's on tap, as I mentioned, on the episodic side, fund-raising side, there is E4, Infra 2, direct lending 2, private capital, maybe European direct lending. And then don't forget, we have the continuous strategies that we raise money for, hedge funds for Prisma direct, credit, high yields, loans, CCT, Avoca has a number of strategies that raise capital continuously. So you will see those vehicles continue to raise capital. An aside, I'd say that it's going to be a bit of different year this year on the capital raising front. Last year we had some of the lumpy big funds with Asia 2 and NAXI. This year we've got E4 but everything else is kind of successor funds that aren't going to be likely of the size of those 2. So we would expect to continue to see good growth in our fee paying assets subject to a couple of things. One, I would tell you that as we have discussed in the past, AUM we think, is a bit of a dangerous metric on its own, and quarterly AUM, I'd tell you we think is a very dangerous metric. So we tend to look over trailing 12 and 24 month period, and fee paying assets were up about 35% in the last 12 months. So this year, I think it's more likely to be more Fund II is coming online. But also a couple of things, one, we have about $4 billion of shadow AUM that we don't talk about that much. This is AUM that's committed, that will turn on when the capital is invested which will start to show up over the coming quarters. I'd also point you to if you're thinking about where we're heading, obviously with KFN, hopefully the transaction gets approved next week, that will actually reduce our fee paying assets but as we discussed in December, materially increase our cash flow and our recurring distribution. So that is something else for you to have in your thought process. But overall, I think, probably the most important thing to remember is that our AUM ignores our balance sheet and our Capital Markets business, which were over half of our earnings in Q1 and in the LTM period. So it's an interesting metric, but for us it's an interesting metric that has implications on about half of how we make money. Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division: Got it. And then, just finally to follow-up on KFN. Just be curious to get maybe your current thoughts on how you're thinking about reinvestment opportunities as the KFN CLOs wind down? And what sort of ROE expectations are you targeting both in the near term and over time as far as the underlying mix on the investments on the balance sheet continues to evolve?

I'd say there is no real change from last quarter on that, Michael. Our perspective is that we kind of view that we're going to run the balance sheet as a holistic balance sheet. And you know that ROEs we've been able to generate on the balance sheet the last couple of years which are materially higher than what KFN has been generating on its own. So we continue to see opportunities across all of our businesses and strategies. And perhaps in future quarters, we can dig into that a bit more.

Our next question comes from Devin Ryan of JMP Securities.

Thanks. My question has already been asked. I appreciate it.

Our next question comes from Patrick Davitt of Autonomous.

Could you give us an update on performance at Prisma and maybe break out the organic growth and how that's been tracking?

Sure. I guess, it's Scott. Performance has been good. We had a strong year last year. And I would say it is in line with or ahead of our expectations, frankly. AUM today is probably $10.5 billion give or take up from $7 billion or $8 billion when we closed the deal. So the performance has been strong both from the standpoint of the underlying investment performance. The financial performance has been very strong. And we had a good incentive year last year. And AUM is on or ahead of our expectations. So far so good. There's been a bit of choppiness in the markets as of late, which is going to bring down performance a little bit on the year-to-date basis, but tends to create investing opportunities as well. So far, continues to be ahead of our expectations overall.

Right and Patrick, this is Bill, just to give you a little color on performance. Remember the S&P was only up 1.8%, and Prisma actually outperformed their benchmark by a pretty nice delta. Also as it relates to first quarter when we're talking about the capital raised, $700 million of capital that was raised this quarter actually came from Prisma.

Were there any meaningful redemptions?

Less than the capital that was raised, it's their point. The total capital raised, as I said, was $700 million, the redemptions were about $350 million. But net-net AUM grows because of performance and new net capital raised.

Okay, great. And then finally, a broader question on Asia and China, given your success there over a long period of time and lot of dry powder obviously. I'm just curious as discussion has been percolating around a credit event there or more distress there. If you are seeing any opportunities starting to emerge from that, that kind of chatter and discussion?

Davitt, Patrick, this Scott. Yes, absolutely. I think the volatility creates good investment opportunity for us and good entry points. Recent example is we announced we were buying a stake in a company called Haier, which is a white goods manufacturer company in China. I think the EBITDA multiple is 3x or 4x EBITDA or something like that. So it is creating market and dislocations and opportunities for us. And so, we are investing into that dislocations and noise. And I'd say overall, the emerging market pullback both Asia also Latin America is creating some opportunities for us, and the good news is as you've said, we have capital at the ready. So it was good timing on the Asia fund raise, and now we're excited to put it to work.

And just a little more color around Asia just as far as capital deployment. Of the $4 plus billion that Scott had mentioned that we've either invested in the first quarter or we plan to invest in the second quarter, about $1.3 billion or about 35% of that is being deployed in Asia. So we're quite excited about the opportunities there.

Our next question comes from Brian Bedell of Deutsche Bank.

Most of them have been asked and answered, but maybe just an extension of Matt's question on Europe with Avoca closed. Maybe looking at longer term, Scott, if you could sort of comment what your ambitions are to further leverage your credit capabilities there? And I guess, what I'm getting at is really to scale them up and maybe if you could sort of give some color on the European marketplace and the opportunities that you think will be presented over the next say 1 to 2, maybe even 3 years, and whether there is interest or appetite to further acquisitions to scale up that opportunity?

Great. Thanks, Brian. One, I think in terms of let's talk about what the business looks like today. So in aggregate, we manage about $30 billion in our credit business, as I said about $12 billion of that is now in Europe. And I think we expect that, that number will continue to scale as we combine the private credit capabilities and the liquid credit capabilities that I referenced earlier. And in terms of the nature of the opportunity set, I'd say, it's very broad-based. It's everything from the liquid side where we're starting to see activity again in the European CLO markets where Avoca has been a meaningful player and the European CLO market's starting to come back much like the U.S. market did coming out of our crisis here. So there is opportunities to continue to print CLOs. It's an interesting potential investment for our balance sheet, and also a fee generating opportunity but there is also opportunities for the leverage loan separate account type vehicles, which continue to garner quite a bit of interest from investors looking to play the European recovery. Perhaps, most exciting as we sit here today is the opportunity to be on the private credit side in Europe. And that's very broad based. It's everything from direct lending, which I referenced earlier for companies that frankly the European banks are internally focused and they don't have access to funding any more. So we're able to, much like we did in the U.S., provide them with senior secured loans through the mezzanine part of the capital structure. The high-yield market in Europe is not as well developed and so it provides opportunities for us in our mezzanine business. And most of our mezzanine fund has actually been put to work in Europe. So we…

That's great. Maybe just one last one on Capital Markets. The activity was good this quarter, maybe just your outlook for the balance of the year. Certainly good year-on-year performance in cap markets and just maybe comments on seasonality versus your expectations for the balance of the year.

It's really -- this is Bill. It's really hard to predict what the rest of the year looks like, but I can certainly comment on the quarter. We had a pretty robust number, and quite interestingly, 45% of the revenue came from non-U.S. activity. So that is either in Europe or in Asia, and roughly about 25% came from our third-party business, which we only launched a couple of years ago. Activity was quite robust. We actually transacted with over 40 portfolio companies, either third party or KKR existing during that quarter. And so, we're optimistic, now that, that business has been online through 5 or 6 years, that we continue to just build traction.

Our next question comes from Bill Katz of Citigroup.

First question, maybe for Bill, just really curious -- thanks for all the updates into the second quarter. When you step beyond that and maybe pro forma the news of what you have already sold, can you give us an update on percentage of the portfolio of carry that are now cash eligible if you will, and then what percentage of the portfolio companies are publicly traded?

Sure, Bill. As it relates to when you take a look at the funds that we actually manage, right now, roughly 20% of those investments are in public security. And I'm sorry, what was your second question?

Just what percentage of eligible carry we have over now that fairly carry?

I'm happy to report that when you take a look at all of our mature funds, every single mature fund is in position to pay cash carry. There are a couple of immature funds, and so when you look at the total of about the $38 billion, 2 immature funds both China growth and Asia II, which just came online. Obviously, are not in a position to pay cash carry. So roughly about 95% of our funds, to the extent we have realization, would be in position to pay cash carry.

And Bill, it's Scott. One other interesting metric if you look at the unrealized value in our private equity portfolio, it's about $38 billion. About half of that is 2009 and prior. So as you think about a meaningful amount of the portfolio, nearly $20 billion is in more mature stage of its life cycle.

And away from the funds that we managed, because I'm sure you'll ask a follow-up question, so I'll try to beat you to the punch. As it relates to our balance sheet, roughly about 30% of that portfolio is in public liquid securities.

And the final though on that, Bill, is, when you think of whether it's Walgreens or the U.S. Foods transaction or certainly, the stock component from Biomet, those would all not be included as it relates to those percentage public statistics.

That's helpful. And then just coming back I apologize this is that type of question. But in the quarter, on the fee related earnings side you did benefit pretty nicely from a step up of monitoring -- net monitoring transaction fees. I guess, is the moral of the call here that with just a pickup in activity levels that maybe a little bit better run rate all else being equal or anyway to sort of think through what a more normalized level might be?

Bill, that's going to be hard to predict. You are right, the transaction activity was robust in this quarter, and you can see that the transaction fees both on the Private Markets side and just as importantly, on the Capital Market side were robust. You did see a little pickup in monitoring fees, and there I can give you a little color. We actually -- when we took Pets public, received a termination payment of roughly $8 million. And so that's a one-time number. So what you should think about as far as monitoring fees for your modeling is roughly in the $30 million range each quarter.

Okay. That's helpful. And then just final one certainly, it sounds like a lot of things are going well in a lot of different parts of the business. Scott maybe for you, just maybe an update in terms of LP penetration in terms of what you're seeing in terms of new growth versus existing LPs?

Yes, I'd say we continue to make progress. I think, we're at 735 investors now, up from 275 or so when we really began our focus on investing and building out our distribution team. Cross sell at about 1.6. As we've talked about in the past, there is a little bit of tension obviously, when you add a new investor, you add usually one product, but it stayed steady at 1.6 despite the growth in the number of investors that we have. I'd say, the interest hasn't been quite broad based. One of the things we look at, is if you look at the percentage of the capital we raise that comes from new investors versus those that have been with us for a long time. For example, the EIGF fund that we just closed. 52% by number of investors are new, and it was 37% of the capital we raised. And so we continue to see those types of statistics in these newer vehicles and the interest is broad based. I commented before on the individual investor market, but we're also seeing expansion in terms of what we're doing with pension plans, Sovereign wealth funds, insurance companies, endowments and foundations. So it's global and it's across multiple different types of investors.

And if I could just maybe ask one more. I think, there was an article on Bloomberg cite some unnamed sources that regulators might be looking into some of the economics on the private equity side. Specifically, I think, around some of the ancillary revenues and pricing dynamics. Is there any -- been any change in tone coming out of regulators in terms of looking at the business or is that story a little off base?

There's nothing that we're aware of that we would point you to as changing our view of the business or the outlook.

Our next question comes from Robert Lee of KBW. Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division: Just curious to know if that some of the last couple and putting aside the KFN transaction, whether it was in Prisma, Avoca, the investment in Nephila. And certainly your willingness and ability, willingness maybe to look outside for inorganic opportunities to expand and grow the business has picked up. So as we look forward, what are you thinking particularly as you bring on the assets from KFN, which gives you even more flexibility about where you see are there opportunity, or desire to deploy that in an organic way and accelerate growth?

Robert, it's Scott. I guess, we do have a focused effort around identifying corporate development opportunities for the firm. It's primarily focused in a few areas. First, I'd say hedge funds. So you mentioned Nephila, where we bought a 25% stake. We now have a dedicated effort looking at stakes and potential feeding opportunities for hedge funds. And we created one unified hedge fund platform with the Prisma team to make sure that we've got the diligence in place, and kind of the brains behind the hedge fund business working all together. So it's -- that's a specific area. Those are opportunities we're not focused on raising a fund. That's something that we would do with the balance sheet. It's more of a strategic effort. The next major effort I would say, think of it as globalizing some of the newer businesses that we built. So as you look at real estate or energy or credit, obviously with the Avoca deal, but looking at opportunities, U.S., Europe, Asia, Latin America to expand those businesses globally. That's another area that we're focused on. And it's not so much adding new legs to the stool as expanding the legs that we've started and continuing to scale the businesses that we've begun in the last few years. Very hard to predict what's going to get done if anything. But we're focused on it, and we found that although, it's a bit of a needle in the haystack effort, over the last couple of years, we found some very interesting opportunities and I'd anticipate that we would continue to do so. Although, the precise areas is going to be a little bit hard to predict. Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division: Great. This is a maybe a follow-up to Bill's question. There was a few weeks ago that article talked that the FCC be looking at so-called hidden fees that they claim some firms are charging portfolio companies undisclosed LPs. So just -- how should we think about that in the context of KKR or your thoughts on that?

Well, again, Scott mentioned this earlier, we really haven't heard much about this. Other than what I do want to comment on is, I have read some of the articles and it is talking about fees charged to portfolio companies. And when we think about it, especially in private equity space, and especially as it relates to KKR, we've got a fee sharing agreement with our LPs, where they get 80% of the economic and we get 20%. And so at the end of the day, it's for the most part very interesting but really not applicable.

Rob this is Craig. The other thing on that, just to bear in mind, we have been registered as an investment advisor now for several years. And, our legal and compliance area also has probably been a growth area within the firm. So just as you think about those factors, I think, those are other things you should also bear in mind. Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division: Just one last question. Thinking about the hedge fund platform. Just kind of curious you started the long/short equity effort couple of years ago, seeding that and kind of curious how that's been. Where that is at this point in terms of fund-raising or ability to fund-raising.

Yes, sure. I would point you more broadly. We've got 3 and more direct hedge fund efforts inside the firms. So you got the long/short equity which you referenced, Robert, but we've also got 2 credit vehicles. We have a credit long/short vehicle that's more global and then with Avoca, actually, they have nice credit long/short business in Europe that's focused on investing in that part of the world. So all 3 of those efforts continue to scale, I'd say, our long/short equity effort as I mentioned last year we had pulled back on the fund-raising side. We were up 18% gross last year in that business. The performance has been good. Managed a bit over $500 million of capital there. And the 2 credit vehicles are also beginning to scale nicely. So we'll give other updates over time. You can see in our disclosure on our balance sheet that the money that we invested there from the balance sheet is up quite a bit since we invested it.

And our next question comes from Mike Carrier of Bank of America.

Bill, just on the distribution outlook, I think you mentioned $0.40. I just want to make sure you're just talking about the cash carry into the balance sheet not looking at the fee earnings. And then, you mentioned 2 exits, Ipreo and then U.S. Foods, that you didn't include, and given the timing of those, just I guess, any indication whether it's in the back half of the year, what that can contribute?

Sure, I'm glad you brought this up. Just to be clear, the $0.40 that I was referencing is cash carry or realized balance sheet income with the majority of that coming from cash carry. It does not include any fee related earnings, and if you take a look at what our fee related earnings are over the last 5 or 6 quarters, that number has not been below $0.10 a quarter. And so if you added that to the $0.40, we would be looking at for the second quarter a $0.50 number. As it relates to Ipreo, that transaction which obviously isn't in that $0.40, we expect to close in the third quarter. And we're cautiously optimistic on U.S. Foods that, that would close probably in the fourth quarter. It could be in the third quarter, but more likely than not in the fourth quarter. And last but not least with Biomet which we just announced this morning, we're not actually going to see that hit in 2014 and we expect that to come through in the first quarter of 2015.

Okay, that's helpful. And then last, you guys gave a lot of color on, I guess, the portfolio, the percentage of the funds that are in carry, so you're well-positioned there, and then also the percent that's public. So it seems like from an exit standpoint in distributions things are relatively well positioned. I think, just on the fund-raising side, and Scott, you hit on this, with kind of the bigger funds that are out there, but I think a lot of the smaller opportunities that can obviously add up to something significant over time. When you guys are thinking over the next 12, 24 months, despite pretty good like exit backdrop, are you still looking at whether it's organic or inorganic? You still being able to, on a net basis, grow your assets over time? I understand the quarterly variabilities and that kind of stuff.

I guess it's a little bit hard to predict, Mike. And I'd say that it's a little bit of good news bad news, right? When we sell something and generate a big carry payout, our AUM goes down. So by virtue of the investment capital behind that investment, and so that's just something to keep an eye on. I mentioned KFN. That's going to reduce our fee paying AUM, but meaningfully increase our cash flow. And our recurring distribution, which we said in December, we said, that would be up 28% a unit pro forma for KFN. So that's -- that's good news. But fee paying AUM will be down. And so I really do think that for us, AUM is a pretty dangerous metric to get too fixated on. You can't eat AUM. You can spend cash flow, you can spend dividend per share, and that's what we're focused on generating. So we're not going to predict outcomes, but as I mentioned, we have got a lot of different funds in the market. We do have as Bill said a 50% or so increase in our fees year-over-year, and so we continue to see these newer businesses scale and new funds come online. But what I would focus you on more is our distributable earnings and our distribution. And AUM, we may choose to strategically bring down if things like KFN come up where we can make more money for all of our shareholders per share by doing it. But we're not going to predict there. But we'll keep you updated on the individual fund-raises along the way.

Our next question comes from Luke Montgomery of Sanford Bernstein. Luke Montgomery - Sanford C. Bernstein & Co., LLC., Research Division: So the big picture on European credit was helpful but maybe establish some specifics. On the Italian nonperforming loan deal with Intesa and Unicredit. Are you able to maybe help us size a potential for that transaction? I guess, it's EUR 2 billion in loans from those 2 banks, but could this special-purpose vehicle be expanded to include loans from other banks? And then, will you be initially funding that with your own balance sheet or require AUM? Or will maybe the vehicle issue CLO through Avoca and if so approximately what kind of yields, funding costs and spreads could we be talking about there?

That's a lot of specificity. I'd say, the Italian NPL deal which was briefly mentioned in the press the other day, not going to be able to give you a lot of color on that. Those conversations are ongoing. Whatever we do in European credit will be a combination of our balance sheet and third-party capital. So it could be funds and balance sheet. And depending on how much of the assets we like it could be a very significant opportunity for the firm over time. But it's just too early to be able to say. But obviously we're, as I mentioned, excited about what's going on in European credit and have a lot of resources focused and dedicated there. And they're trying to bring as much creativity to it as we can. So sorry to not to give you more specificity, but that's about all we can say at this point. Luke Montgomery - Sanford C. Bernstein & Co., LLC., Research Division: Okay, fair enough. Then just on that tax overhaul in front of Congress right now. I guess, it's author, David Camp, has announced that he is going to retire. I don't think that was a surprise, but even though I think he would like to make his swan song it sounds like he probably lacks support from his own party and he has less than 9 months to get it done before he leaves. So I am just curious how you're feeling about the threat of tax changes near term? And then if you share the longer term view that momentum is slowly building toward a tax change for how the BTPs are taxed?

On the former, I agree with your comment. The probability of anything probably going through in short-term is probably not there. Long-term, it's hard to predict. We have all talked about the taxation of carried interest. Since we've been public, it continues to come up down in Washington episodically. And I hate to put it back to you, but your guess is as good as mine.

And our last question comes from Matt Kelley of Morgan Stanley.

My question was already answered when you guys said that portion of the portfolio that was public was not pro forma for the recent exit.

I'm showing no further questions at this time.

Okay, great. Thank you everybody for joining us. Look forward to chatting with you next quarter. If you have any follow-ups in advance, please feel free to give either me a call or Sara.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.