Welcome to KKR's First Quarter 2017 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following management's prepared remarks, the conference will be open for questions. As a reminder, this conference 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. Craig Larson - KKR & Co. LP: Thank you, Nova. Welcome to our first quarter 2017 earnings call. Thanks for joining us. As usual, I'm joined by Bill Janetschek, our CFO; and Scott Nuttall, Global Head of Capital and Asset Management. We'd like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release and our supplementary presentation, both of which are available on the Investor Center section of kkr.com. The call will contain forward-looking statements which do not guarantee future events or performance. And please to refer to our SEC filings for cautionary factors related to the statements. And with that, I'm going to begin on page 2 of the supplement. This morning, we reported strong first quarter results, and importantly, these results reflect many of the themes and business drivers that we've been reviewing with you over the last several quarters. In terms of our financial performance, we've had a strong start to the year, reporting after-tax economic net income of $550 million in the quarter, which equates to $0.60 of after-tax ENI per adjusted unit, and over the trailing 12 months, we generated $1.7 billion of after-tax ENI. After-tax distributable earnings were $346 million for the quarter, and we've also generated over $1.7 billion of after-tax DE on a trailing 12-month basis. Now, while these results are strong, we actually think the performance of…

Thank you. Craig Larson - KKR & Co. LP: And, Nova, just before we begin, I'd like to say it looks like we do have a lot of people in the queue, so if we could please ask people to ask one question and a follow-up, that would be great.

Thank you. And if you would please limit your questions to one. And our first question comes from Glenn Schorr of Evercore ISI. Glenn, your line is open.

Hi. Thanks very much. I like the big list of pending transactions on slide 3. In the past, you've helped us kind of frame it in terms of potential DE. I wonder if you could do that. William Joseph Janetschek - KKR & Co. LP: Hey, Glenn. This is Bill. How are you?

Hey, Bill. William Joseph Janetschek - KKR & Co. LP: Yeah. When you take a look, there are some small, some large investments in that category pending. And back of the envelope, that will produce roughly about $250 million of cash earnings, either in the second quarter or the third quarter. There's a couple of investments here that might actually slip to the third.

Okay. Cool. And then, just a bigger one is I want to get your perspective on what's going on in retail land in terms of both direct exposure to retail and retail malls related to commercial real estate and then more how you're thinking about that as an opportunity to pull some of that dry powder? Scott C. Nuttall - KKR & Co. LP: Thanks, Glenn, it's Scott. Well, I guess, first, let me answer the question on exposure. So if you look across our different larger pools of capital, private equity we have about 8% of the portfolio in retail to broadly define retail and credit, it's about 6%. And on the whole, we're underweight relative to the indices. And I think if you look under the hood of the different types of exposures we have, you'll see a lot of what we're doing is in the value-oriented space. As you know, we kind of did Dollar General several years ago. We're now out of that investment but have made other investments in this value-oriented part of the retail space which we continue to like. So, we are spending time. We do see it as a potential opportunity in different parts of the firm's investment activities, but I think you'll probably see it more in the value-oriented side. And in real estate, we have some exposure to retail but we think we've created attractive valuations and are upbeat about the return opportunity. So, we actually see it as a net opportunity and we're underexposed today.

Okay. Great. Thank you. Scott C. Nuttall - KKR & Co. LP: Thank you.

Our next question comes from the line of Mike Carrier, BOA Merrill Lynch. Your line is open, sir.

All right. Thanks, guys. Maybe just a question on deployment, just given the robust pace that you guys saw in the first quarter. I just wanted to get a sense, Scott, you kind of went through some of the opportunities that you're seeing, but how are you thinking about like the multiples that you're putting the capital to work in the return profile for these investments going forward? Scott C. Nuttall - KKR & Co. LP: Sure. Happy to take that, Mike. So, if you sit back for a second, the deployment in the first quarter was $5.4 billion and it's all detailed on page 5 of the slide deck. If you really break that into its component parts, you see about $900 million of that was in alternative credit. About $3.5 billion, $3.6 billion, give or take was in private equity. And then, if you look within private equity, you'd see almost $2 billion of that $3.5 billion was in Asia. And so the story has really been for us a meaningful tick up in Asia deployment with a particular focus on corporate carve out transactions in Japan. And if you look more broadly and say where are we net buyers versus net sellers? In Asia, we're net buyers in private equity. In Europe and the U.S., we've been net sellers. In terms of your question about multiples, it really varies across the different markets. I would say a lot of the transactions that we're doing in Asia where we've seen a lot more deployment as of late had been in the 7 to 9 times EBITDA range with very low cost financing. So, we think we're actually creating very attractive capital structures and attractive post-financing cash flow for ourselves in these carve-outs. And if you look at the…

Got it. That's helpful. And then a quick follow-up. Just on the returns that you guys generated this quarter and even over the last couple, we've definitely seen improvement like year-over-year. And just trying to get a sense, when you look across the portfolio of companies, what's the key driver that you're seeing? Meaning, are you seeing better revenue trends, EBITDA improving? Just any color on that, because we're seeing it kind of throughout the industry but what we see on the headlines out there, it's relatively mixed when you look at the macro backdrop. Scott C. Nuttall - KKR & Co. LP: Great question, Mike. I think what we continue to see is the value creation being driven by improved operating fundamentals in the portfolio of companies themselves. So, if you look at our private equity portfolio broadly, last 12 months, high single-digit revenue growth, high single-digit EBITDA growth, which translates given the capital structures into meaningful net income growth, well ahead of what you'd see in the public markets. And so, that trend continues. And we're seeing attractive growth U.S., Europe and Asia with particularly strong operating fundamentals in Europe over the last 12 months. So, it's really driven by making the companies better post investment and the growth in the portfolio themselves as opposed to multiple expansion or anything else.

Okay. Thanks a lot. Scott C. Nuttall - KKR & Co. LP: Thank you.

Our next question comes from the line of Devin Ryan of JMP Securities.

Hey. Thanks. Good morning. Just wanted to ask a question on the transaction fee strength. Appreciate the examples that you gave that helped this quarter. Also appreciate they can be lumpy. But it does sound like positive momentum is continuing there. And so, I'm just curious is it normal to see a spike up in kind of some of the activity there just after capital markets have been locked up so maybe there are some pent-up type of business that's working its way through, or is there something else kind of internal where you're maybe putting more of an emphasis on pushing stuff through that channel? Obviously, you mentioned the economics are very good there. So, I'm just curious just given how strong it was could you be a little more granular. Scott C. Nuttall - KKR & Co. LP: Hey, Devin. It's Scott. I'm happy to get more granular. There's nothing that I'd point to in terms of pent-up opportunity or anything with respect to the response to the capital markets which have been open the last, I think, several quarters. It's really, I think, a few different things. One is, as you can see on slide 5, we had pretty broad-based deployment around the world and across our businesses in the quarter. And that's the first thing is a lot of the capital markets business, 70%, 80% typically is going to be driven by KKR-led investments. So, we were particularly active in the quarter, and that's kind of contributing factor number one. Contributing factor number two is we're using the model better. And I think we're using the model more consistently. So, a lot of the drivers this quarter for example, were on the infrastructure side. Which would not have been the case a couple of years ago. It was quite broad based across the different businesses that were using balance sheet and capital markets more consistently. The third-party business especially around our credit franchise, where we're speaking for larger debt transactions, holding what we want and syndicating the rest, that model is working quite effectively today and I'd say more effectively than even a couple quarters ago. So, that would be the second contributing factor. And the third contributing factor is really what's happening in Asia. Our private equity business in Asia over the last several years has been heavier on the minority growth investment side, where there's less opportunity frankly to use the entire model and machine. And what we're seeing more recently is more control buyout transactions especially as I referenced in Japan, we're really able to use the whole model. And if you look in the first quarter between Calsonic and Hitachi Koki, those transactions were ones where we're able to use balance sheet, capital markets, speak for significant portions of capital and syndicate them. And so, the expansion and evolution of the Asia private equity business would be the third piece of the evolution I'd point you to.

Okay. William Joseph Janetschek - KKR & Co. LP: And, Devin, just to give you more color around the transaction piece in the capital markets business, when you slice through the numbers, roughly about 55% of that revenue came from outside the United States. And equally as important, about 20% of that revenue was generated from our third-party business.

Okay. Terrific. That's great color. Appreciate it. Quick follow-up here. Just on the balance sheet just given how strong the performance was there, can you give us a little bit more background on some of the drivers this quarter? William Joseph Janetschek - KKR & Co. LP: Devin, this is Bill again. The punch line is that it was a good quarter on every single platform that we manage. And so, when you look at the assets, private equity was up. Real estate was up nicely. Infrastructure was up. On the alternative credit side, I mentioned earlier in prepared remarks, we had a very nice quarter on the balance sheet in Special Sits. And so, it's great when things are working.

Yeah. Okay. Terrific. Thanks, guys. Scott C. Nuttall - KKR & Co. LP: Thank you.

Our next question comes from the line of Alex Blostein of Goldman Sachs. Alexander Blostein - Goldman Sachs & Co.: Hey, everybody. Good morning. I recognize it's still pretty early, but I was wondering if you guys could comment on the new administration's proposed tax reform with the 15% corporate level and, obviously, 15% on pass-through income, what it sort of could potentially mean for your thinking about a potential conversion to C corp? Again, I understand not a whole a lot of details, but just high level. Was wondering if you could provide some color. William Joseph Janetschek - KKR & Co. LP: Hey, Alex. This is Bill. The only thing I could tell you is stay tuned. We're doing the same thing you're doing. We are watching what's going on down in Washington as these proposals or potential proposals come up. We certainly analyze every single one. But until we get more concrete information, there's really nothing to comment on. Alexander Blostein - Goldman Sachs & Co.: Yeah. Fair enough. And I guess when I think about the balance sheet strategy, I guess just extrapolating from some of the numbers given the 5 or so percent mark, it looks like the co-invest from your guys' side was somewhere in the $400 million to $500 million, which I guess is a high-single-digit rate given the $5 billion plus of total deployed capital. Is that ultimately still kind of the right way to think about how much of the ultimate co-invest you guys are willing to do over the longer-term basis? Obviously, I understand it could vary quarter-to-quarter, but kind of high-single digit of total capital deployment is kind of how we should think about it? William Joseph Janetschek - KKR & Co. LP: You're talking about co-investment in private…

Our next question comes from the line of Bill Katz of Citi Group. Your line is open.

Okay. Thank you very much. Good morning, everyone. Thanks for taking the question. Just short of wondering on the back of the strong growth in both America 12% and Asia 3%, and you look forward over the next 6 to 12 months, where do you see the greatest opportunity to generate incremental fee-paying AUM? Scott C. Nuttall - KKR & Co. LP: Hey, Bill, it's Scott. Look, I think we have a lot of different strategies and funds in the market. So, we got to finish the loop on Asia III and finish the fund-raising there over the course of the next few months. In real estate, I'd point you to, because we've got both our global opportunistic equity funds in the market and we're raising capital for our credit strategies within real estate. So, that's another area where we see opportunities. Our healthcare growth fund is still in the market, so new opportunities there. And then on the public market side, we've got our private credit opportunistic fund which is our successor to our mezz fund. Our third direct lending fund is in the market. And then over time, you'll see a third infrastructure fund and ultimately you're a private equity. So, a lot of line of sight on the more episodic fund front. And then we've got good flows on CLOs, leverage loans, high yield and the our hedge fund efforts have also been bringing capital. So, I'd say it's pretty broad based in terms of where you're going to see more scale. It's in more of those episodic funds, which as you know tend to have more of these lumpy closes. The other trend I would point you to is we continue to find that larger institutional investors are interested in consolidating their relationships. So, they want to do more investing with fewer firms like ours. And so this trend, we've discussed in the past to strategic partnerships, which can be long term and large scale continues. And I think that's another thing that I think we'll keep you posted on. But there's increasing conversations on that front.

Okay. That's great. And as a follow-up, I supposed you're going to take my next question. I guess there's been some news back and forth with some bigger LPs around pricing. Its seems the amount of money you're raising, there may not be an issue at the margin. But can you talk a little bit about how the economics, if at all, are changing in terms of some incremental growth that's coming in the door? Scott C. Nuttall - KKR & Co. LP: Yeah, sure. Look, I think there's lots of puts and takes in these kinds of discussions, but just take the recent private equity funds as an example. The economics are at least as good, if not better in aggregate and the fund sizes are bigger. So, there's absolutely the case that there is discussions with investors about value for service. But we sounded if you keep your returns high, there's an opportunity to kind of the keep the terms in place for the most part. And frankly, we will if someone wants to give us large size or long-term visibility on capital. We'll consider reducing economics but it's in the service of a better revenue picture overall.

Okay. Thank you for taking my questions. Scott C. Nuttall - KKR & Co. LP: Thank you.

Our next question comes from the line Craig Siegenthaler of Credit Suisse. Your line is open. Craig Siegenthaler - Credit Suisse Securities (USA) LLC: Thanks. How should we think about the phase of remaining $290 million of share repurchase authorization? William Joseph Janetschek - KKR & Co. LP: Hey, Craig. This is Bill Janetschek. As we have mentioned on the last couple of calls, we're mindful of our share count as far as compensating people who will issue shares on a pretty regular basis, and we'll use that buyback to make sure that that we do not have share creep. We didn't use the buyback plan this particular quarter technically. But if you might have seen the press release, we ended up cancelling about 1.9 million shares after quarter end and we used about $35 million of cash off the balance sheet to retire those shares. Craig Siegenthaler - Credit Suisse Securities (USA) LLC: Got it. And then can you update us on your appetite for C corp conversion and what changes are you looking for in terms of changes on the tax front that would make that option more attractive for you guys? William Joseph Janetschek - KKR & Co. LP: As we mentioned on a couple of calls, we were mindful of what's going on in Washington. We'll be excited to see if there is any tax legislation that is passed. And based upon what comes out of Washington to the extent that it might make economic sense, we're always open-minded as to what we might do with our corporate structure. Craig Siegenthaler - Credit Suisse Securities (USA) LLC: Thank you. Scott C. Nuttall - KKR & Co. LP: Thank you. Craig Larson - KKR & Co. LP: Nova, we'll take the next question.

Thank you. Our next question comes from the line of Chris Kotowski of Oppenheimer & Company. Chris Kotowski - Oppenheimer & Co., Inc.: Yeah. Good morning. Looking at your 2006 fund, there's still almost $10 billion of remaining fair value there, and the fund is now 11 years old, And we understand that all the, like, pre-crisis funds have kind of an extended life cycle. And there are obviously some big chunky positions in that. And I wonder, can you remind us exactly how patient can you be in realizing those remaining investments before you have to jump through hoops with your investors in that? And, I mean, do you have a couple of years left so that you can really manage for realizing full value there? William Joseph Janetschek - KKR & Co. LP: Hey, Chris. This is Bill. You are right. The 2006 fund, we started investing in 2006. We went into the post-investment period in 2012. Typically, from that end of the fund life, we usually try to monetize those investments over the next five to seven years. So, just doing broad math, you should see some monetization certainly from that fund because they are a mature assets over the next few years. Scott C. Nuttall - KKR & Co. LP: Yeah. But I think the short answer, Chris, is we don't have a gun to our head in terms of anything forcing us to create outcomes in terms of exits. And we still see value creation opportunities in a number of those investments, which is why we still own them. I think if you look at our portfolio overall, 35% or so of our private equity fair market values over 5 years sold, 33% of its marked it over 2 times cost and almost 50% over…

Our next question comes from the line of Patrick Davitt of Autonomous.

Hey. Thanks, guys. Scott, you kind of touched on this in one of the first questions, I think. But as we think broadly about how active you and some of your competitors have been as we continue to reach new market highs. I think the bad memories from some of the deals before the last time markets were reaching new high has kind of come back. Could you kind of compare and contrast the deals you're doing at these market peaks versus those you were doing in 2006 and 2007? And in that vein, what gives you personally comfort that you aren't making some of the same mistakes? Scott C. Nuttall - KKR & Co. LP: It's a great question. Well, Patrick, I'd say – I'd point you to a couple of different things in terms of what's different. One, the multiples that we are paying for assets as an industry have crept up. But if you look at what we're doing as a firm around the world, it's lower now than it was before the crisis, the 2006-2007 type of timeframe. If you look at the multiples, they're higher than what we're doing on the average now, would be the first thing I would say. The second thing is the leverage is lower. And so, leverage in transaction has crept up quite meaningfully. Pre-crisis, we're seeing transaction overall, debt to EBITDA lower than we had at that time, so less financial risk than at that time. The other thing I would say is the mix geographically, entirely different. A lot of those larger transactions were U.S.-based, some Europe. As I mentioned, most of our deployment as of late is coming out of Asia. Newer market for us, lower multiples, different macroeconomic considerations, opportunities for global growth. So, significantly different…

Great. That's helpful. And then there's some news on the tape that's stealing a bit of your thunder. Just curious to what extent you guys have had interactions with ValueAct and if you have any sense of how passive or active they intend to be. Scott C. Nuttall - KKR & Co. LP: We have had interactions with them, and they've been great. We like having smart, long-term investors as shareholders. We welcome ValueAct ownership in our stock and on their partnership. We've had discussions. I think they understand and share the vision we have for the business of the firm. And so it's been a good set of interactions so far, and quite positive in a shared perspective on where we can go.

Great. Scott C. Nuttall - KKR & Co. LP: Thank you.

Our next question comes from the line of Rob Lee of KBW. Robert Lee - Keefe, Bruyette & Woods, Inc.: Great. Thanks, guys. I appreciate you taking my questions. I'm just curious, I mean – and this is the same thing last quarter. The cash balances on the balance sheet are certainly significantly higher than they were just a year ago. And then obviously, you've had some realizations and maybe some debt offerings in there. But can you maybe talk to us a little bit with your thoughts around your balance sheet liquidity? How purposeful is it that you're trying to build cash balances maybe in an attempt to be more opportunistic should the opportunity arise? I'm just trying to get a little bit more color on your thoughts around that. William Joseph Janetschek - KKR & Co. LP: Hey, Rob. This is Bill. You are right. When you take a look at the cash balance, it's pretty much in line with where we closed at the end of the year. I would say it's slightly more elevated than the cash balance we want to run our business at. But you can't look at this quarter to quarter. Things come in episodically, and so, we continue to have fortunately some monetizations, which are putting that cash on the balance sheet. The one thing to note is that, and Scott mentioned this earlier, we are making large-size commitments now to our funds. So, we committed $1 billion to Americas XII. We just committed $500 million to Asia III. So, we're sitting right now with total commitments of roughly $3 billion-plus, and we're going to need to fund that. Now, that won't have to happen over the next year, but we're cautious with deploying capital and knowing that we have some significant…

Our next question comes from the line of Chris Harris of Wells Fargo.

Thanks, guys. A question on your management fees. The $208 million that you reported this quarter, how much of Americas XII and Asia III are in there? And then, I guess, maybe a better question would be how much more incremental do you expect on that $208 million once you're fully taking in those two funds? William Joseph Janetschek - KKR & Co. LP: All right. Well, to break it down, let's talk about Americas XII first. Americas XII management fee is in that first quarter because we had a closing on that fund and that fund went live on January 1. So, we have a full quarter of management fees in that number. As it relates to Asia III, we did have a first close on March 31, and $5.3 billion of that capital is now subject to a management fee. And so, you're not going to see that in the first quarter. You'll see that uplift in the second quarter. If you'll turn to the supplement on page 4, it will give you a little bit of guidance. On the far right, we have the Asian II only and what that fee would be. Now, Asia II going from the investment to the post-investment period and Asia III coming online. And assuming we hit that $8.5 billion hard cap, which we're quite comfortable we're going to do, you're going to see an increase in management fees from Asia II and III of roughly about another $55 million. So, you'll see that, long-winded way of me telling you Asia III in the second quarter.

Okay. So, you could potentially see all that of incremental in Q2 is what you're saying. William Joseph Janetschek - KKR & Co. LP: It could be possible if we have a final close on Asia III by June 30, yes. If not, then it will peak in the third quarter. Scott C. Nuttall - KKR & Co. LP: If not, it's the $5.3 billion divided by the $8.5 billion hard cap, times that number.

Okay. Thanks, guys. Scott C. Nuttall - KKR & Co. LP: Thank you.

Thank you. Our next question comes from the line of Michael Cyprys of Morgan Stanley. Your line is open. Michael J. Cyprys - Morgan Stanley & Co. LLC: Hi. Good morning, everyone. Thanks for taking the question. Just curious how you're thinking about M&A at the management company. If you could update us on your thoughts there. You did the Marshall Wace transaction maybe about a year ago, something like that. Just maybe your thoughts on how that's been progressing relative to your expectations and what could make sense next for KKR? Scott C. Nuttall - KKR & Co. LP: Thanks, Michael. So, a couple of things. First on the Marshall Wace part of the question. The partnership is off to an excellent start. Assets are up 50% since we announced the partnership and we've found lots of ways to work together and create value across both organizations. So I'd say, fantastic partnership thus far and ahead of expectations. In terms of M&A at the management company, I'd just tell you that our ambitions are limited. We are not focused necessarily on M&A as a growth tool. We see a lot of opportunity to grow organically. We'll look from time to time at opportunities across some of our newer businesses, so I think maybe infrastructure, real estate, and we'll look in different markets around the world where we're newer entrant. But for the most part, we've determined that growing organically is a more attractive approach for us. We will consider in these opportunities from time to time. In the hedge fund space, I would tell you that Marshall Wace is likely our swan song at least for the time being. We really enjoy that partnership. We're looking to build in hedge fund through Marshall Wace, and the partnership that we…

Thank you. And our next question comes from the line of Glenn Schorr of Evercore.

It's been answered already. Thanks. Scott C. Nuttall - KKR & Co. LP: Thank you.

Thank you. And I would now like to turn the conference back to you, sir. Craig Larson - KKR & Co. LP: Okay. Thank you, everybody, for joining the call this quarter. If you have any follow-up questions, please feel free to connect with us after the call. Thanks, everybody.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may now disconnect. Everyone, have a wonderful day.