Balance Sheet and Corporate

Development
Robert Lewin
James Rudy
July 17, 2012

CONFIDENTIAL AND PROPRIETARY

For One-on-One Use by
Investment Professionals Only

Why Do We Have Such a Large Balance Sheet?

KKR inherited a sizable balance sheet by virtue of its merger with KKR Private Equity
Investors (KPE) in October 2009, the transaction by which we became publicly-traded
KPE was a $5bn permanent capital vehicle we raised in 2006 on the Euronext Amsterdam that was
invested almost exclusively in KKR private equity funds and individual deals

Our balance sheet is significantly larger than those of our peers and provides us with a
number of competitive advantages
Ability to make sizable GP commitments to funds that we are raising, particularly 1st time funds
(Infrastructure, Mezzanine, Special Situations)
Seed capital for new strategies that we are incubating (hedge funds, real estate, royalties/PUDs)
Funding source for broker-dealer underwriting activities (KCM, NBFC India)
Anchor co-investments to support large private equity transactions (Samson)
Flexibility to invest in new businesses (Prisma)
Fundraising / Alignment of interests with LPs (we are our own largest investor)

Balance Sheet Snapshot

KKR currently has a $6.1 billion balance sheet ($8.67/unit)
Balance sheet is essentially unlevered
$350mm net cash position
A/A- rated by Fitch/S&P

Investment portfolio is heavily weighted to private equity due to legacy KPE investments, but
has diversified since the combination
Just over 80% private equity today vs. 97% at the time of the combination

Segment Balance Sheet (March 31, 2012)

Cash and Short-Term Investments
Investments
Unrealized Carry
Other Assets
Total Assets
6.375% Notes due 2020
Other Liabilties/Noncontrolling Interests
Partners' Capital
Book Value/Adjusted Unit

$856
5,023
600
297
$6,775
$500
198
$6,077
$8.67

B/S Investments
8%
8%
1%

31%

52%
PE Funds
Energy/Infra

PE Co-Invest
KAM

Other

Current Liquidity Profile

The B/S has ~$1.8bn of liquidity and outstanding commitments of $2.3bn (expected to be
drawn over 5 years)
We have over $4bn of funded PE investments (~50% public stocks)

Sources of Liquidity

$2.3bn

$1.8bn

$750

Uses of Liquidity
$250
$100

Corporate
Revolver

$300

Minimum
Cash Balance
Other Items

$185

Liquid Seed
Capital
$1,650

$856

Cash

KCM Capital
Usage
Unfunded
Commitments

Determining What Makes a Good Balance Sheet Investment

Strategic vs. Opportunistic Investments
Strategic investments are those that generate fees and/or carry income for the firm. Thats where our
focus remains
Given current liquidity and significant opportunities to deploy strategic capital, opportunistic investments
have a high hurdle rate

How does the Balance Sheet measure return on equity for new investments?
Risk adjusted by asset class
Tax-affecting returns
Place a premium on investments that meet following criteria:
1) 40 Act compliant
2) Generating a current yield
3) Investment is liquid
4) Diversification

Developed capital framework for all new commitments that seeks to capture above
considerations from a returns perspective
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Current Mandate of Balance Sheet

1) Maintain liquidity to fund existing KPE/GP commitments
2) GP commitments to new funds
3) Seed capital for new strategies
4) Support KCM in its capital commitments (both Underwrites and Holds)
5) Flexibility to provide bridge / hold capital for large transactions sourced by our investment
teams
6) Create optionality to pursue inorganic growth opportunities

Long-Term Vision for Balance Sheet

Leverage balance sheet to generate 20+% after-tax ROE over long-term
Further diversification across asset classes
Will reduce volatility of balance sheet earnings (largest component of ENI)

Continue to drive a higher component of our investments into liquid securities

Will allow us to be more nimble in taking advantage of market opportunities

Generate a much larger percentage of our return in current yield

Benefits include rating agency considerations, servicing of debt and providing optionality around
public company distribution policy

Comfortably 40 Act compliant

Corporate Development
The Corporate Development function at KKR was created in 2011 in order to centralize
our efforts focused on M&A, strategic projects and corporate development initiatives
The Corporate Development team works in close coordination with each of KKR's
business units as we continue to look for opportunities to leverage our people, platform
and capital in order to accelerate growth
Over the past year, we have looked at a number of opportunities across nearly all of the
different business units within the firm
Last month, the firm announced its first ever acquisition of Prisma Capital Partners, an
$8 billion hedge fund of funds platform
Acquisitions and lift-out/bolt-on transactions will continue to be an important part of
our growth strategy going forward as we seek to scale many of our newer businesses
and enter new asset classes
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