AUGUST 27, 2024

CUSTOM REPRINTFINANCE/PRIVATE EQUITYKKR’s co-CEOs want to reach $1 trillion in assets
by 2030. It will require the PE firm to operate very
differently than its founders envisioned.
By Shawn Tullyn November of 1996, Joe Bae had been working at buyout shop Kohlberg Kravis Roberts& Co. for six weeks as an analyst doing spadework on deals when Scott Nuttall, anotherrecruit, moved into the office next door. Both Bae andNuttall, who had each worked at big Wall Street firms,
soon relished the freewheeling small-group vibe over,as Bae puts it, “feeling like a cog in a large, sophisticated machine.” KKR had just two dozen employees
and lacked even an HR department. Their bosses were
PATRICK JAMES MILLER FOR FORTUNE
already legends, courtesy of their epic purchase of RJR
Scott Nuttall (left) and Joe Bae met as 24-year-old analysts at KKR. Now they’re unleashing a
Scott
Nuttall(left)
andJoe
Bae
met as 24-year-old
Nabisco. “Back then, Henry Kravis and George Roberts revolutionary plan to grow the firm.
analysts
at
KKR.
Now
they’reunleashinga revoluwere the de facto investment committee,” says Bae.
PatrickJames Miller
for Fortune
tionary
plan
to
grow
the
firm.
The process was that after studying the transactions,“you walk into Henry’s office, then you call George,
and then you talk about the deal.” Recalls Nuttall,CEOs of KKR, the world’s third-largest alternative as“We’d have lunch every day with Henry at the end of
set manager that boasts the industry’s hottest stock
the table. He’d walk around handing out checks to theand biggest ambitions. They’re perpetuating the “twoassistants when we sold a company, because everyone
parent” household model that Kravis and Roberts folowned a piece of everything.”
lowed for 45 years. During most of that span, their“It was an apprenticeship culture,” adds Nuttall. “Thepredecessors ran a narrowly focused private equity
place was so tiny that whichever one of us was less(PE) purveyor that famously leveraged up troubled
busy that week would get staffed on the deal. I was theenterprises, hammered costs, streamlined operations,mini–M&A department, trying to sell different pieces
and sold its targets in whole or parts a few years later,of Borden, such as Cracker Jack and Elmer’s Glue.”pocketing big fees and a fat slice of the profits on exit.
Bae and Nuttall, both 24 and recently married, beBut Bae, 52, and Nuttall, 51, in the three years sincecame inseparable. Each evening, they’d walk to thethey
ascended, and beforehand as co-COOs, have radinearest McDonald’s for takeout and unpack their Big
callyreshaped the machine that Henry and George
Macs in a conference room while watching the TV news.
built.
In the rearview mirror
One summer, the two couples rented a weekend housearethe slash-and-burn leveraged-buyout (LBO)in Woodstock, N.Y. Since the down-market place camedays
immortalized
in the famous book Barbarians
sans trash pickup, they’d schlep the refuse to Manhatat
the
Gate.
They’ve
expanded KKR into every realm
tan on Sunday nights for disposal.
of
the
alts
universe,
fromfinancing housing projects
Today, Bae and Nuttall are still locking arms. Onlyin
Irelandtoowningwireless
networks in Chile andnow they have a slightly loftier perch: They are co-Icell phone towers across America. That type of work,
though it greatly augments traditional PE, simply can’t
grow fast enough at highly profitable rates to get where
they want to go.
Instead, the firm that’s dreaming bigger than any outfit on Wall Street is embarking on a remarkable journeythat few could have seen coming. Bucking the famously“capital-light” approach their industry was built on,
they’re aiming to fashion the next Berkshire Hathaway—in other words, channeling the cash flows from alternative money-spinning franchises to acquire a rosterof strong, stable businesses they own outright for a long
period of time.
That unorthodox “ownership” approach, they claim,
will drive the firm’s valuation to levels never before
witnessed in asset management. Another major legof the strategy that’s also Warren Buffett–like: KKR’s
100% position in a giant insurer that’s not only a big
profitmaker in its own right, but provides multiple billions a year in premiums for KKR’s fixed-income arm tomanage.
Bae and Nuttall unveiled their daring predictions at
KKR’s investor day in April. The plan calls for raising assets under management (AUM) in five years by at least
two-thirds to over $1 trillion, and posting an almost
fivefold gain in earnings per share from $3.42 to $15.00
in 10 years or less. The co-CEOs say that the pieces arein place for KKR to double its market cap in a first phaseto over $200 billion, followed by a further doubling to$400 billion. Although they don’t give a timeline, theearnings target and the kind of returns they’re now seeing, by Fortune’s estimate, suggest a path to $200 billion by 2030. The $400 billion goal is almost four times
KKR’s current valuation of $111 billion, and nearly two
and a half times the cap of today’s leader Blackstone (at$167 billion). We’re talking uncharted territory. If Baeand Nuttall hit the mark, KKR would be worth one-third
more than Bank of America’s value today, and almost
70% that of JPMorgan.
To be sure, their strategy entails huge risks, including
the threat that a pending recession could delay or hammer the capital gains from sales of portfolio PE companies that are still a KKR staple; the risk that its leaders
don’t prove nearly as good at picking winners as the Oracle of Omaha (a pretty high bar); and that huge expansion will undermine its famously cooperative culture.
But skeptical investors seem to be gaining confidence.
The evidence? Over the past five years KKR provided
annual shareholder returns of 36.5%, beating Apollo(32.7%), Blackstone (29.0%), and Carlyle (18.2%), as
well as TPG (25.2%, from January of 2022). In the past
12 months, KKR’s stock has doubled.
Notes Ted Pick, CEO of Morgan Stanley and longtime
friend and observer of both generations of co-CEOs: “Insome ways the job’s an even steeper climb for Joe andScott as heads of a publicly traded company that’s nolonger the old buyout shop but a $100 billion market
cap enterprise working towards $1 trillion in assets.
The paradox or solution is that they’re keeping theethos and trust of a partnership yet running a global
financial services firm.”
What KKR’s leaders learned from the firm’s
founders
Seated side by side in a 79th-floor conference roomat their Hudson Yards headquarters on this June afternoon, the co-CEOs are smoothly describing their plans.
Framing the twosome are floor-to-ceiling windows offering panoramic views encompassing the Freedom
Tower and the Statue of Liberty. They’re both attired
in what’s practically the KKR uniform: blue suits andopen-collared white shirts.
“Philosophically, the firm’s culture is to under-promise and over-deliver,” says Bae. “We wouldn’t put out
those long-term targets if we didn’t have a hell of a lotof confidence we could get there and exceed them overtime.”
Nuttall and Bae each grew up in hardworking, firstgeneration middle-class families, and were born abroad.
A New Zealander, Nuttall’s father met Scott’s mom as ahigh school exchange student in a Pennsylvania farming
town. They wed in his dad’s picturesque homeland after he returned to finish college, and welcomed Scott as
an infant Kiwi. The Nuttalls settled in the Chicago suburbs, where Scott’s dad worked at a real estate financeboutique, arranging sale-leasebacks for such clients as
Walmart. His mother earned a degree in computer science and enjoyed a long career at Bell Labs. “The deal
excitement was part of the household,” he recalls. His
early affection for finance guided him to the Wharton
School, where he graduated in 1994.
Bae’s parents were child refugees who fled during the
Korean War from North Korea to South Korea, where
his father was a chemistry professor. After the family
moved Stateside, eventually making their home in New
Jersey, his dad worked his way up from lab assistantto specialist in developing automotive plastics for large
chemical companies. His mother became an ordained
Presbyterian minister who counseled victims of domestic abuse. “You heard no deal talk in my household,”Bae declares. The music of Chopin and Mendelssohn
filled the Bae residence: Young Joe was a piano prodigy
who practiced long hours after school on the family’s
baby grand.

PATRICK JAMES MILLER FOR FORTUNE

The first generation: Henry Kravis (left) and George
Roberts at KKR’s offices in 2013. “Henry and George
modeled how a really good partnership can work for
50 years,” says co-CEO Joe Bae.

Bae had spent two years at Goldman Sachs and was
unpacking his dorm room at Harvard Business Schoolin September 1996 when a headhunter called to say that
Kravis wanted to interview him in New York. Bae drove
the next day to KKR’s Manhattan offices, and flew thatnight to meet with Roberts in Palo Alto.
Bae was two weeks away from starting classes. Kravis
went into a comedy routine about needing Bae at KKR
ASAP, even if it meant sacrificing his deposit at Harvard. “Joe said he needed a couple of days to get hismoney back from the registrar, and I said, ‘You’d better
get here right away!’” recalls Kravis. Bae relates that his
future boss was jesting.
The cofounders turned their teasing technique on
Nuttall as well: “Henry and George have a funny senseof humor, at least with me,” Nuttall says. “And they
tortured me [by saying], ‘Before we make a final decision we ask everyone this math question’—something
silly like, ‘What is 323 to the 98th power? We justwould like to see if you know that answer.’ And thenthey’d just sit there and stare at you for a long time.
I’m a 23- or 24-year-old kid, and they’re just cracking
themselves up.”Today, Bae is a self-declared “foodie” who delights inthe elevation of Korean cuisine to fine dining—he loves
the 10-course tasting menu at Manhattan’s Atomix, andrelishes red Burgundy.
Nuttall married his high school sweetheart, Amie; Bae
met his wife, Janice Y.K. Lee, in his first year at Harvard. She’s the Hong Kong–born novelist who penned
bestsellers The Piano Teacher and The Expatriates, thelatter adapted as the hit series Expats. Joe and Janicehave four kids; Scott and Amie share five. The families
frequently unite for vacations. Bae recalls a trip to Israel and Jordan just before COVID: “We did all the greatsights with 13 of us traveling in a little bus.”
The Bae and Nuttall personal and professional kinship echoes that of their mentors. Kravis and Roberts

are first cousins who grew up together. When they werechildren, the Kravis family would drive from Tulsa tovisit the Roberts clan in Houston on holidays, and viceversa. “We’re told that our parents took us on our first
trip together, to Marblehead, Mass., when we were 2
years old,” Roberts told Fortune. “According to theiraccount, we as toddlers visited the battleship Missouri that hosted the World War II surrender ceremony
for Japan.”In the early 1970s, Kravis and Roberts worked at Bear
Stearns, where they detested the system that paid employees on the profits they generated individually. “Itwas ‘eat what you kill,’” says Kravis. “Everyone wasrunning around saying, ‘That’s my deal, that’s my idea.’It’s a mindset that killed teamwork.” Convinced that aculture fostering trust and cooperation would prove far
more profitable in the long run, they, alongside Jerome
Kohlberg—who departed in 1987—famously launched
KKR on $120,000 in capital.
Kravis and Roberts huddle with Bae and Nuttall every
other Monday afternoon at 4 p.m. ET for what’s known
as the G-4 meeting, and are present at the private equity
investment committee conclaves, chaired by Bae and Nuttall, where the firm makes the final decisions on whether tomake or reject transactions under consideration.
Kravis is renowned as a dealmaker-statesman, andRoberts as a granular investor famed for his deep understanding of businesses. In these settings, their divergent approaches are clearly evident, according to KKR
employees who attend. Quips Alison Mass, chairmanof investment banking at Goldman Sachs: “Ask anyone
who takes a deal to the investment committee if George
is retired!” Roberts tends to press the deal teams on financial details; Kravis focuses more on the big picture,posing such queries as “Where’s the romance?” Bothwant KKR to think big, aim at candidates offering huge
possibilities, and fire from a classic list of questions:“What can this become? Why should we own this business versus a competitor buying it? What are the angles
we can use to make it better?”
One wrinkle with the handoff: In early August, Kravis
and Roberts got a blast of negative headlines when thepension fund for a local of the steamfitters’ union sued
KKR for illegally granting the pair a “windfall” of $650
million when they passed the reins to Bae and Nuttall in
2021. The action alleges that KKR deployed a complex
transaction that handed the cofounders a tax benefit
that should have gone to the company. Plaintiffs havebrought similar suits against Apollo, Carlyle, and GoDaddy, and in the latter two cases, judges have allowed
the actions to proceed. (KKR has said the deal offered
substantial benefits to shareholders and that it expects
to move to dismiss the suit.)
For Mass of Goldman Sachs, who’s presented potential transactions to Nuttall, he’s anything but a WallStreet pirate for whom price is all. In assessing acquisition candidates, his priority is finding a like-minded
team, say colleagues and M&A bankers. “Scott has always been focused on preserving KKR’s culture,” notes

Mass. “For instance, when KKR was beginning to build
their real estate business 15 years ago, we discussed
many platforms for KKR to consider. He passed on all ofthem, not because the price wasn’t right but because hedidn’t want to risk compromising KKR’s culture. That
was his number one focus; [so instead] he chose to groworganically.”

tors a big profit,” recalls Bisignano. Nuttall helped Bisignano negotiate First Data’s sale to Fiserv in 2019 at
a big premium, and KKR eventually tripled its original
investment.
But the pair had more in mind than just performing
rescue operations.

How Nuttall and Bae made their mark on KKR

The plan to grow KKR exponentially—and how
the team was inspired by Warren Buffett

These co-CEOs and fast friends rose to the top exhibiting extremely divergent strengths—and the threads of
KKR’s current strategy started to emerge years ago as
they were working their way up the ranks.
Kravis and Roberts recall that when Bae and Nuttall
worked side by side as junior analysts, both were constantly bubbling with ideas. “A common trait was thatthey weren’t afraid to throw up ideas, and never feared
whether we’d say yes or no, like a lot of their peers,”
says Kravis.
For Bae, it was the coup of fashioning an entirely new
business from scratch in Asia that propelled him toward
the summit. In 2005, Kravis took Bae on a three-weektour of the region to decide if KKR should launch an
Asia-Pacific arm. Kravis found the opportunity irresistible; Bae relocated to Hong Kong as KKR’s only employee in Asia. “I was living in my wife’s family’s house forthe first six months under crowded conditions, which
made it even harder,” he remembers.
Guided by the founders, Bae took an original route inassembling a team. “I talked to Henry and George every night at 10 or 11 p.m. Hong Kong time,” recalls Bae.
“They were so relationship-driven and focused. So theywanted people who were super-networked in these markets—local but had great reputations, great Rolodexes.
Who could get to the right families, the right people,
versus some financial wizard.” During his decade inHong Kong, Bae mounted what one colleague calls “adogged, blood sweat and tears offensive” that put all thepieces in place to make KKR the largest, most diverse
alts firm in the Asia-Pacific. Today, the firm’s AUM in
the region stands at almost $70 billion, over three times
the figure in 2018.
Interestingly, what most impressed Kravis and Roberts about Nuttall was how he performed when deals
he’d advocated went bad. His biggest rescue operation
was First Data, originally a misbegotten transaction thatonce stood as a symbol of private equity gone wrong.
Nuttall took the lead when KKR teamed with coinvestors to acquire the payments giant for $27 billion justas the market peaked in 2007. The LBO saddled First
Data with a gigantic debt load just before the global financial crisis, and the slowdown in the shift from cash
to credit cards, pounded its cash flow. A parade of four
CEOs all failed to steer First Data back on a profitablecourse till Nuttall found JPMorgan executive Frank
Bisignano, whom he persuaded to take the job. “Scottand Henry put in more of KKR’s money to save First
Data. No other company with $24.5 billion in debt and
10 times leverage ever survived, let alone made inves-

They were learning from Berkshire Hathaway. “WhenScott and I joined KKR, Berkshire’s market cap was $40
billion,” says Bae. “Now it’s $875 billion.” Adds Nuttall,“Buffett’s at 12 and a half, 13% [yearly gains] for 27 or
28 years, that’s how you get that,” noting the success ofsuch long-term Buffett holdings as American Express
and BNSF. “One of the things we learned: invest in great
businesses; let them continue to compound so they pay
you cash flow; and allocate that cash back [to] new investments. That’s one of those insights [from] looking
at what Buffett’s done.”For years, KKR would pass on buying just the kind ofcompanies Buffett prizes, those in stable industries thatconsistently generate strong cash flows. The reason?
They didn’t promise the 20%-plus returns of the fixeruppers targeted by PE funds.
It was Nuttall who almost two decades ago put thescaffolding in place that enabled KKR to become notjust an asset manager, but a major owner of businesses.
“Scott was always bugging us with new ideas,” recalls
Roberts. “Some we didn’t try, some we tried that didn’t
work.” But, he adds, a bunch of Nuttall’s visionary plays
proved big winners. The one that set the foundation fortoday’s KKR: In 2006, Nuttall structured a freestanding new company called KPE that raised $5 billion in
an IPO held on the Euronext exchange in Amsterdam.
KPE used the cash to take big stakes alongside the regular KKR funds in companies including Dollar General,
HCA, and Alliance Boots.
Then the financial crisis struck, and KPE’s sharestanked. But Nuttall saw an opportunity for KKR to
exploit the meltdown, transform its model, and, overtime, rescue the KPE shareholders as well. In Octoberof 2009, he orchestrated a “reverse merger” where thepartnership combined with KPE to form today’s KKR.
The KPE shareholders got 30% of the combined entity’s
stock, and the KKR partners received 70%. The deal
made KKR the second of today’s alt giants to become apublicly traded enterprise, after Blackstone.
The genius of that gambit: Instead of just earning fees andcapital gains on the holdings in its funds, KKR itself, the previous private partnership, now owned 100% of sundry companies, the ones inherited from KPE. And it had effectively
purchased most of KPE when those companies were selling ataround 20% of the prices KPE bought in at. Over the next several years, KKR unloaded that fully owned portfolio, mostly
at multiples of what it had effectively paid. “We paid between$500 million and $1 billion for our controlling stake in KPE,
and sold the companies for roughly $15 billion,” exclaims
Roberts.

Everyone knows that Buffett loves insurance, and in 2020
KKR decided it did, too, plowing some of the KPE winnings
into a majority position in insurer Global Atlantic, thenpurchasing the balance in January of this year, for a total
of $7.4 billion (Apollo made a similar move with insurer
Athene). Already, Global Atlantic accounts for around onefifth of KKR’s overall operating profit.
To reach their giant goals, Bae and Nuttall are banking
on three growth engines: asset management, insurance
via Global Atlantic, and the “ownership strategy.” On
the asset management side, over the past two decades,
KKR has made massive moves into three booming areasof alternatives: real estate, infrastructure, and credit.
The firm is now a major force in everything from data
centers to student housing to LBO loans for midsize
companies. Though old-line PE is still growing briskly,
it’s these newer franchises, plus the Global Atlantic
acquisition, that have turbocharged KKR’s growth inassets from $218 billion in 2019 to over $600 billion
today. The ever-creative Nuttall has also launched new
ventures that build on KKR’s strengths by offering services to outside firms, including competitors. A primeexample: a capital markets group that if independent
would rank among America’s top 20 investment banks,
and last year generated nearly $600 million in fees, thevast preponderance of it profit.
The pair believe that the asset management and insurance pieces are already in place to propel KKR to clinching the first half of its goal: doubling its market cap to$200 billion-plus in the years ahead. Bae says that allof these businesses are just starting to hit “escape velocity,” all at the same time.
But in the years that follow, they’re counting on the
Buffett playbook to provide stage two of the blastoff. In
the past several years, KKR has raised around $30 billion in what’s called the “core” private equity fund—under a new profit center dubbed Strategic Holdings—that
purchases these Berkshire-style steady growers, andaims to hold them for two decades or longer. KKR provided 30% of the funding, and hence holds a like shareof each company on its balance sheet. Over time, thefirm plans to increase its stake in many of these holdings by providing equity infusions for acquisitions andnew growth projects.
Today, the core fund owns 19 companies, a roster thatencompasses such highly reliable profit-spinners as
America’s biggest online seller of contact lenses, 1-800
Contacts; and London-based ERM, the world’s largest
player in sustainability consulting.
Pete Stavros, co-head of global private equity, notesthat the same dealmakers who identify candidates forthe regular PE deals find the super-dependable performers for “core.” Hence, KKR garners significant savings versus the expense of paying a separate core team.
In the deck for its April investor day, KKR forecaststhat the fund holdings will be paying KKR over $1 billion in annual dividends by 2030, and garner a valuation of $28.6 billion. That’s a staggering $20 billion

addition from its estimated cap of $8.6 billion today.
KKR stands alone among the big alts players in breaking decisively from the industry’s long-standing religion, the capital-light mantra. But it’s courting big risks
by taking that revolutionary stance. KKR is transforming the former highly profitable model where it kept alean balance sheet, banked fees and carry, and returned
almost all profits to shareholders. That template generates extremely high returns on equity, and the asset
management business will continue to do that. Under
the new Buffett-like approach, it’s constantly accumulating new billions in assets for everything from adding companies to its “owner” portfolio, to raising fresh
capital for expanding Global Atlantic. KKR has built a
mountain-and-rising $23 billion in shareholder equity
that far exceeds that of its rivals Apollo ($12.6 billion)
and much larger Blackstone ($17.7 billion).
As the capital load expands, KKR will reach its goals
only by generating mid-double-digit returns on eachnew dollar it invests. And that’s a new and daunting
challenge. Will Bae and Nuttall really succeed in choosing winners on the scale of Warren Buffett, the genius
whose record has never been equaled? So far, the “owner” approach is still too new and undersized to show decisive signs that it will prove the powerhouse the copilots are promising.
As for their partnership, it might not be conventional,
but they have some pretty solid role models.
“Henry and George modeled how a really good partnership can work for 50 years,” says Bae. “They had arelationship coming up much like George’s and mine,”says Kravis. “When we named them copresidents in
2017, they came to us and said, ‘Whatever we’re paid,
we want you to pay us absolutely equally.’ That was another thing that showed they wanted to help each otherand not compete.” Kravis adds that the tendency to battle each other for power is the undoing of most co-CEO
experiments. Adds Pick of Morgan Stanley: “Many of us
would question if their arrangement is doable, exceptthat they’ve been together from the earliest days, with
Joe playing the role in extension of products and Scottin innovation. They can speak from the same hymnbook
on what KKR should look like in 10 years.”
According to an insider, Bae and Nuttall honor an informal code that prevents bottlenecks and clashes. If either one strongly favors a project and the other is moderately negative or neutral, the proposal goes forward.
But if one is passionately pro and his fellow captain adamantly con, they agree to scrap the proposed program.
Most of all, Bae and Nuttall are joining hands on a journey into territory where no other asset manager has ventured before. More than three decades ago, Kravis andRoberts put private equity on the map as rebels laying siege
to an American institution. In their way, the warriors they
mentored are swashbuckling adventurers as well. Their
audacious foray that Bae pledges “will get us to the promised land” isn’t another instance of barbarians laying siege,
but still a Wall Street spectacle for the ages.

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