Ladies and gentlemen, thank you for standing by. Welcome to KKR's Second 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 turn the call over to your host for today Mr. Craig Larson, Head of Investor Relations for KKR. Craig, please go ahead. Craig Larson - KKR & Co. LP: Thanks, Nova. Welcome to our second quarter 2017 earnings call. Thanks for joining us. As usual, I'm joined by Bill Janetschek, our CFO; and Scott Nuttall, our newly appointed Co-President and Co-COO. 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 the supplementary presentation which are available on the Investor Center section of kkr.com. And the call will also contain forward-looking statements, which do not guarantee future events or performance. And please refer to our SEC filings for cautionary factors related to these statements. And with that, I'm going to begin on page two of the supplementary deck. This morning we reported strong second quarter results with record after-tax economic net income and record book value per unit. Investment performance was strong and we've continued to have success from a fundraising perspective. In terms of our financial performance, we reported after-tax economic net income of $753 million for the quarter, which translates into $0.89 cents of after-tax ENI per adjusted unit. And over the trailing 12-months we've generated over 2.2 billion of after-tax ENI. After-tax distributable earnings were $322 million for the quarter and we've generated over $1.5 billion of after-tax DE on a trailing 12-month basis. Also of note, as you…

[Operating Instructions] Our first question comes from the line of Alex Blostein of Goldman Sachs. Alexander Blostein - Goldman Sachs & Co. LLC: Great. Hi, good morning everybody. And, Scott, congrats to you guys as well. So, wanted to kick off with a question around Capital Markets, obviously a very powerful growth driver for you over the last couple of quarters. Could you guys spend a minute on kind of what the next leg of growth here will be from? And I guess, how are the economics shifting between you guys and just kind of the various members of the syndicate, and how much that's been a helper in kind of the recent growth? Scott C. Nuttall - KKR & Co. LP: Great, thanks Alex. This is Scott. So, I'd say a few different things are going on. One is, we've been doing a more effective job using the business model of Capital Markets and balance sheet across more parts of the firm. This year in particular, I'd focus you on infrastructure and Asia. Is two areas of the firm where we're starting to do larger transactions where we've been able to underwrite both equity and debt, and syndicate both of those and generate fee economics for the firm. And so I'd say the first leg to the growth has been greater penetration of KKR's businesses and using the model with more frequency and effectiveness around the world. So that's part one. Part two would be around our third-party business, in particular linked with our credit investing platform. So we've spent a lot of time building out origination capabilities across areas like private credit in particular, where we're doing transactions with other financial sponsors and underwriting debt deals for them to help fund their transactions, either new deals or refinancings…

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

Good morning. Thank you. Could you walk through the underlying kind of revenue and EBITDA growth of the Private Equity portfolio? Scott C. Nuttall - KKR & Co. LP: Sure, Patrick. It's Scott. I'd say overall continuation of the positive trends we discussed the last couple of quarters, so revenue growth 8%, 9% type level, EBITDA growth 10%, 11%. It's continuing to be quite strong, so just think generally speaking high single-digits for both. And I'd say the only underlying trend I'd point you to is, Europe has been – just from an operating fundamental standpoint, very, very strong. So, overall very happy with the portfolio company performance, and particular strength in Europe.

Great. That's helpful. And then you guys have been one of the more active firms in China over the years and had some very successful investments. Are you seeing any shift in the opportunity and/or in ground (21:05)? Particularly within ground (21:08) JVs given kind of the crackdown on the large conglomerates there and within more wealthy families? Scott C. Nuttall - KKR & Co. LP: I'd say the big trend we've seen, Patrick is the opportunity for us to start doing larger transactions. There is a significant amount of competition at the lower end for kind of growth deals with relatively small equity checks. We're starting to move to larger sized opportunities in China and that's where we're starting to spend our time with a much greater concerted focus on a going forward basis. The crackdown you mentioned is going to lead to some opportunities, we think over time, but it's generally speaking on the larger end is where we're spending time today.

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

Our next question comes from the line of Chris Kotowski of Oppenheimer. Chris Kotowski - Oppenheimer & Co., Inc.: Yeah, good morning. I'm looking at page 12, where you give the balance sheet detail and there are a couple of new big investments that appear in the significant investments section and I wonder, if you could just flush them out a little bit. One is USI and I'm curious on that one whether that's a – I know that's with the Case, but is that also in funds or just on the balance sheet? And is it a strategic investment or is it just an investment, investment? And then also, PortAventura, which I thought was owned in one of your funds, is now on the balance sheet. How did that come about? Craig Larson - KKR & Co. LP: Thanks for the Chris. I'd say first on USI, it is like I guess an investment, investment either way to think about it. We have made the decision to invest some of the balance sheet capital in some longer hold opportunities. It's often referred in the market as core investing. And USI is the first of those investments that we're making. You're right, we did do that transaction in partnership with the Case. And so, that shows up for the first time this quarter on our significant investments table. You should expect that to be a long-term hold. In terms of how we will be accounting for that on the go forward basis, it's going to be equity method, so we will be taking our share of the net income of USI to the earnings of the company that shows up in the balance sheet. So, that will remain on the table I would guess for some period of time. And…

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

Hey, guys. Are you seeing a lot of competition out there right now for deals? It just seems like the pace of investing is still quite strong and it seems to fly in the face a little bit of what I would imagine to be a pretty competitive environment for transactions. So maybe you can talk a little bit about that. Scott C. Nuttall - KKR & Co. LP: Hey, Chris, it's Scott. Look, there is definitely competition for transactions. Valuations, generally speaking are pretty high. I'd say that if you look at where we're investing capital, it's really in a few places. One is kind of portfolio company add-ons where we're acting more like a strategic buyer. So, a good example of that is earlier this week the Internet Brands acquisition of WebMD was really done through an existing company that we own. So, where we have an angle like that, we find we're able to be competitive by acting like a strategic with synergies. The other thing, in terms of a recent theme you've seen in terms of where we're deploying capital is kind of more late cycle sectors, health and wellness as an example. Both transactions we announced earlier this week kind of fit within that definition. So, we're spending time on themes like that. Our healthcare team is particularly busy right now on the Private Equity front. If you look more broadly at deployment for the firm, infrastructure continues to be incredibly active, U.S. and Europe. And so that is an area where, while there is competition, we are finding some very interesting opportunities with the contracted cash flow dynamic. And our credit areas continue to be deploying a lot of capital into the bank dislocation theme. So, we are deploying capital. But, if you really…

Got it. Thank you guys. Scott C. Nuttall - KKR & Co. LP: Thank you.

Our next question comes from the line of Craig Siegenthaler of Credit Suisse. Craig Siegenthaler - Credit Suisse Securities (USA) LLC: Thanks. Good morning. And Scott, congrats on your promote. Scott C. Nuttall - KKR & Co. LP: Thank you Craig. Craig Siegenthaler - Credit Suisse Securities (USA) LLC: So, just starting with the drop in oil prices, that didn't have the same impact on KKR's returns or the ENI results that we're expecting at some of your peers. I'm just wondering, how did you weather this latest volatility in the energy prices better than your competitors? William J. Janetschek - KKR & Co. LP: Hey, Craig, this is Bill. We probably brought this up on a call in prior quarters, but when we do our valuations for energy and when you think about energy, about 50% of what we hold is in oil and about 50% is in gas. When you look out over the forward curve and you go three years out, the drop in futures prices from an oil standpoint was less than 2%. And as a matter of fact, on gas it was actually up a little. So when you run a DCF model, you're not going to see much of an impact. Now clearly, if you look at spot, you saw a 10% drop. Also, we've been investing quite strategically in our oil and gas properties over the last couple of years, and we're happy to report that performance has actually been quite robust and that's why, if you take a look, the Energy Income Growth Fund is now actually above cost. Scott C. Nuttall - KKR & Co. LP: I'd say the only other thing I'd add on, Craig, is, if you look at energy exposure we have as a firm, there's absolutely –…

Our next question comes from the line of Gerald O'Hara of Jefferies. Gerald E. O’Hara - Jefferies: Great. Thanks guys. You obviously have a sizeable amount of capital here with Asia III, and you talked a little bit about writing larger equity checks in China. But are there perhaps some other themes you might be able to elaborate on as to how you might be looking to deploy some of that capital over the next 12 to 18 months? Scott C. Nuttall - KKR & Co. LP: Sure, Gerald, happy to take a shot. We remain busy, I'd say, across Asia. Japan, India, we announced a transaction in Korea this morning, Australia we've been busy, and those are just a few of the areas that I'd mentioned. We have quite an attractive pipeline of new deals. In terms of themes, deconglomerization would be a big one. We're finding, in particular in Japan, larger corporates looking to sell non-core subs. We've now done several of those transactions in Japan. I think you'll continue to see more corporate carve outs as a theme across the region. Another theme I'd point you to is kind of in the more emerging parts of Asia in particular, we're investing behind food safety, environmental safety, rising middle class, health and wellness, kind of more the growth of the consumer type trends and the growth of these economies. So, we see opportunities on a broad-based fashion across the region, and it's actually in multiple countries. So, we're quite optimistic about our ability to deploy the $9 billion plus fund and generate attractive returns. William J. Janetschek - KKR & Co. LP: And, Jerry, just one other thing to add. Scott mentioned pipeline. As we sit here today, with deals that have been signed and closed or deals…

Our next question comes from the line of Michael Carrier of Bank of America Merrill Lynch.

Thanks guys. First one, I guess, Scott, probably for you. But just, given the management announcements, just wanted to get your thoughts on, when the firm and the board is thinking about kind of succession and long term planning, besides those promotions, like what else is the firm focused on? Or what other steps are being taken for the long term, to make sure that the firm continues on the growth path and even accelerates over time? Scott C. Nuttall - KKR & Co. LP: Good question, Michael. Look, I'd say the focus is on our people. We don't make anything, it's all about making sure we've got the right people in the right seats aligned toward the right opportunities in the market. And so, where we spend a significant amount of our time is making sure that we have teams that are aligned against the opportunities we have to scale the firm. And as we've talked about over the last few years, as you know, we have begun a number of businesses at KKR, probably in the last five or six years, where we see a significant amount of opportunity for growth from here both on a organic basis in the U.S. and then kind of an expansion basis around the world and potentially in some instances, strategically as well in terms of things that we can do in the market. So, our focus as a firm is making sure that our people are able to use the model that we've built, that we are working as one firm on a global basis and ideas and relationships travel and that everybody is getting the help that they need to accomplish their objectives and really scale what we've started. If you look at any of the end markets that we're aligned against now, whether it's real estate or credit or infrastructure, we see opportunities to significantly grow these businesses multiples of their current size. And that's really our focus. And the way we do that is by generating investment performance and doing a great job for the people we work for, including ourselves and you. And if we do that, then those businesses will scale in time.

Okay. That's helpful. And then just as a follow-up, two of the areas that you guys probably have more history versus some of your peers is both on the Asia side and then in infrastructure. It seems like there's more interest in terms of launching new products in those markets, maybe on the institutional side, allocation of more capital to both of those areas. So, just wanted to get your perspective, given your history, it seems like that's going to be more of a tailwind for you, but you could face more competition. So, just how you're thinking about both of those opportunities over the next few years? Craig Larson - KKR & Co. LP: Why don't I do infrastructure first. Look, I think, we think we are in the early innings of opportunity within infrastructure. There is an estimated 1 trillion to 2 trillion of investment required globally over the next decade to accommodate growth and repair infrastructure, so the capital needs are enormous. And as Scott had said a moment ago, in terms of KKR, we look at it and it remains a big opportunity for us. We established our dedicated infra team, separate from PE in 2008, so you're right, it's for the better part of the last decade it's been a standalone effort of us. And as of June 30, with our two funds in SMAs, we have over $5.5 billion of AUM. And Infra has also been a significant contributor to our syndicated capital figures in Capital Markets, in particular given the size of recent transactions. We talked about Calvin Capital, last quarter and we have some pending investments like Telxius and Q-Park. First fund was $1 billion fund, it's full invested, performed quite well. We are investing the Infra II Fund, younger fund. Investments,…

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

Thank you. Our next question comes from the line of Bill Katz of Citigroup.

Hi. Thanks for taking my question. This is Jack Keeler filling in for Bill. First question, I want to circle back to something I think Chris asked earlier and then diving into holding and core Private Equity. Can you first kind of talk about the opportunity you see in separate accounts for core Private Equity? And then second, just as a devil's advocate question, why not raise a core Private Equity Fund? Some of your peers have done that. What leads you to focus to just on separately managed accounts? Scott C. Nuttall - KKR & Co. LP: Thanks for the question, Jack. Look, I'd say in terms of the separate accounts, we'll have more to share with you over the next couple of quarters. But, the way I would think about is, you can basically think of it as just a synthetic fund in terms of what it means economically for the firm. The partnerships we're talking about creating will pay us fee and carry economics that will be similar to what you'd see in a fund format. So, I wouldn't get too hung up in the semantics. What we decided to do was to do it in this basis where it's just a couple of partners and a significant amount of our own capital. As we look at the ability to driving value over the long-term, we think having a lot of our money invested alongside a couple of close partners is the right approach for us, for now and we'll see how it evolves in time. But, I think economically for the firm, it's kind of a push relative to raising a fund.

Got it. Thanks. And then, as a follow-up, I saw in the press release that the change in carry forward allocation has shifted to 43% from 40%, but there seems like there's some netting against previous management fee refunds. So, Bill, I guess, if you could maybe just walk though some of the moving mechanics there and whether that should have an impact going forward on the P&L? William J. Janetschek - KKR & Co. LP: Sure. You did read the footnote correctly. The punch line is, it's really about geography. The net impact is a push. And so, if you actually take a look at what their performance compensation was for all of 2016, that number was 43%. What we had done when we started reporting publicly, is we used to actually have a separate line item called Management Fee Refund, as well as then a 40% comp load. Those two numbers together, equated to roughly 43%. It was confusing to explain to investors, and so we are just simplifying the process to exclude the Management Fee Refund on newer funds and just go with the 43%. But again, the bottom line is, there is no additional economics being paid to the KKR executives.

Got it. Thanks for taking my questions.

Our next question comes from the line of Mike Cyprys of Morgan Stanley. Michael J. Cyprys - Morgan Stanley & Co. LLC: Hey. Good morning. Thanks for the question. Just curious, if you could elaborate a bit more on the longer duration fund strategy. It sounds like you may be bringing that out in a fund format, but just broadly speaking, how are you thinking about the strategy there? And how many sort of these investments do you think you could do over time? Scott C. Nuttall - KKR & Co. LP: Good question, Mike. I'd say in terms of how we're thinking about it, the second part of the question in terms of how many investments, I'd probably say something in the 8 to 12 type investments range over the next five years or so is a decent way you think about it. It's hard to predict precisely how many and when that will happen. But, we are out looking for these opportunities, and I'd say they largely fall in the bucket of opportunities where the return parameters are a bit lower than what you'd normally see in a traditional Private Equity context. It is broader than Private Equity. It could be infrastructure, it could be real estate as examples, it could be credit. But these would be investments that we see as opportunities to hold for a very long period of time with attractive compounding characteristics. More recurring revenue in nature, not commodity exposed, just far more predictable in their general makeup. Michael J. Cyprys - Morgan Stanley & Co. LLC: And how do you think about the balance sheet component for this sort of business as you're building it out over the next couple of years? Would you expect the balance sheet to continue to take stakes…

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

Hey, great, good morning, guys. And thanks for all the details always. Just a couple quick ones here. So, I guess first, there's been couple of M&A transactions of smaller managers with maybe nichier strategies recently. You guys have obviously done some deals in the past that would add scale with maybe some expense stripping or incremental strategies that you could get into either through acquiring and also just with the contemplation of the stock prices has had a nice move here, so how that may be influences the appetite at all there? Scott C. Nuttall - KKR & Co. LP: Thanks, Devin. Look, I'd say in terms of the strategic acquisition potential, I think for the most part we're focused on growing organically. We've got the teams in place, we have the model built. As you can tell over the quarter, like this one and Q1, when the model is working it's incredibly powerful. So, we don't feel a need to go do any strategic acquisitions to add capabilities. We do look, from time-to-time, around some of the newer businesses as to whether there's an add-on that will bring us something that we think we could build ourselves, but it would take longer than we like. But there's nothing that I'd point you to that's imminent. So I'd say for the most part, you should expect us to do things organically, and then if there's anything strategic, it would be more the exception.

Okay. That's helpful. And then, appreciate all the detail on the infrastructure opportunity, and clearly that's been a place that you guys have had a good presence, and some of your peers are following. One area that is not as big for you, I mean the insurance space seems to be an area that firms are going after in different ways and there's a lot of maybe complementary opportunities, just with the types of products and strategies that some of the alternative firms have, that can, I think, really relate with that relationship. So I'm curious like, is this an area that you guys are looking at doing more, if there's a strategy to go after that? Or just not, given all the other opportunities right now to raise and deploy capital, is just not a big priority? Scott C. Nuttall - KKR & Co. LP: Look, we spend a lot of time investing in the insurance space, and the USI transaction is an insurance brokerage business as an example. I'd say, in terms of capital formation, there's a couple of things I'd point you to. One, we are spending far more time talking to insurance companies and reinsurance companies about investing with us. So we've actually hired some people that are dedicated to spending time in that space, and we're starting to see inflows into areas like credit, as an example, as a result of those investments that we made on the distribution side. In terms of the broader opportunity set to create affiliated companies, we do like the idea of creating permanent capital vehicles that invest with us. We've done that recently with our REIT KREF, which just went public. We have a BDC that we've talked about that's in the process of listing. And obviously with KFN and KPE, a lot of our legacy is around creating entities that can invest in our products. So, we like creative permanent capital ideas; we'll continue to look at it, including in the insurance space, and we'll keep you posted.

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

Our next question comes from the line of Robert Lee of KBW. Robert Lee - Keefe, Bruyette & Woods, Inc.: Great, good morning guys, and congratulations Scott. Just a couple of quick questions, just kind of curious, one, I mean obviously, you've raised a lot of capital in PE and – as have many of your peers who are in the process of it. One of the things – given all the concerns about the ability to deploy, and I know you addressed a bunch of that, but if we get into an environment, let's say, where the wind blows, to use the reinsurance phrase, and maybe asset values start to come down. I mean historically, your PE hasn't really been as much of a distressed or opportunistic strategy. Is that evolving or changing, if you look out ahead in terms of deploying dry powder and if a more difficult environment was to come about? Scott C. Nuttall - KKR & Co. LP: Look, I'd say – I'd point you to a couple things. One, if valuations come down, it's great to have $43 billion put to work. So, just from a straight Private Equity standpoint alone, we think that that will yield more opportunities for us. And part of the reason that we're pleased to be raising the capital we have been is that we're kind of viewing it as getting ready if there were a valuation dislocation. So, that would be net good news from a deployment standpoint. We also have a distressed business at KKR that (53:05) somewhere between $8 billion and $9 billion in our special situations area that works very closely with our Private Equity teams. So we have those capabilities in-house as well, and if those opportunities turn into more distressed format, or you…

And our next question is a follow-up from the line of Chris Kotowski of Oppenheimer. Chris Kotowski - Oppenheimer & Co., Inc.: Yes. Just a follow-up on the balance sheet. Two things. One is that last quarter there were two investments listed there, an oilfield service investment and a natural gas midstream investment, both around $160 million. They're not there now. Is that just because they dropped out of the top five? Or is it that you divested them? And then secondly, you made the investment in WMIH quite some time ago, now two years. It's my understanding that's just kind of a shell company and is there a time limit on when and how you can deploy that money, that shell? William J. Janetschek - KKR & Co. LP: Chris, this is Bill. With regard to the first question, those investments are still held by us and actually were up a little this quarter. But, you are right, we are disclosing top five, so because of PortAventura and USI, which we brought up earlier, they dropped off the list. Chris Kotowski - Oppenheimer & Co., Inc.: Okay. William J. Janetschek - KKR & Co. LP: As it related to WaMu, that is its own public company and we don't really delve into the particulars around a particular portfolio company. So, that's really not for us to answer. Chris Kotowski - Oppenheimer & Co., Inc.: Okay, fair enough. Thank you. Scott C. Nuttall - KKR & Co. LP: Thank you, Chris.

Our next question comes from the line of Glenn Schorr of Evercore ISI.

Hi. This is Kaimon Chung in for Glenn Schorr. I just had a question related to the leadership team. I just want to get some color on the departure of your Head of Americans Private Equity. Maybe some comments on Alex's contribution to the company and maybe your plans for filling that spot? Scott C. Nuttall - KKR & Co. LP: Thanks for the question. Look, I'd say on an overarching basis, Alex ran our Americas Private Equity business and that business is performing great. Just to give you one data point, the NAXI Fund has been up 33% in the last 12 months, so he's been a fantastic partner and leader and friend to a bunch of us in the firm for a very long time. Having said that, we do run KKR as one firm where everybody helps each other and so we've got institutionalized processes, sourcing, value creation, overall portfolio monitoring. And as Bill mentioned, we've been in that business for 41 years. So, we've got a really deep bench. 70 dedicated people give or take with 1,100 of us alongside and behind them. So, the place is about more than any one person regardless of who that person is. And so, we've got a lot of great people around that business, a number of partners, leading industry teams. And Henry, George and Joe have been on that investment committee. And Henry and George have been on that investment committee for 41 years and they're not going anywhere. So, Alex has done a great job, but we'll keep unplugging (59:19).

Thank you. I'm showing no further questions in the queue at this time. I'd like to turn the call back to Craig Larson for closing remarks. Craig Larson - KKR & Co. LP: Nova, thanks for your help, and thank you everybody for joining our call. We look forward to speaking with everybody next quarter.

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