European private equity and space/defense opportunities (with Lizzy Burden)

Are you less optimistic about Europe given political instability around Number 10?

Lizzy Burden

Philip Freise

Not at all less optimistic. As long-term investors, direction of travel matters. KKR is well-versed in dealing with different administrations; it's their 50th anniversary this year.

Why is Europe relevant when the US benefits from the AI boom?

Lizzy Burden

Philip Freise

Long-term investors need diversification. Europe is the second-largest economy, large and diversified, and needs a lot of change. Private equity helps Europe change. European public indices lack tech content, so private markets offer exposure to exciting sectors. In private markets you can affect change more patiently through partnerships. Starting from a lower base offers opportunity for marginal improvement.

Today's market action (Korea data point) shows the AI boom doesn't go in only one direction.

When will we see losers in private equity fail or disappear?

Lizzy Burden

Philip Freise

We are in an era of differentiation. KKR is raising $2.5B of capital every week, raised $130B in the last 12 months, invested $15B, and exited companies sending $25B back to investors. This is not a bad time for private equity; it's a time to lean in.

What's exciting in the European space sector?

Lizzy Burden

Philip Freise

Space is an example of a long-term trend: sovereignty and security of everything. KKR bought MTU Aero Engines and the defense/electronics segment of Airbus, making them European champions. The theme of sovereignty will play out in Europe over the next few years.

How do you think about government involvement in space companies and kill switch concerns?

Lizzy Burden

Philip Freise

It's very positive that Europe has made the resolve to invest in critical infrastructure. Europe needs €750B of capital per year, only about a third is public money. Private capital needs to be drawn in. The partnership of private equity and public money requires experience, which KKR has (e.g., sole supplier to German Air Force).

What regulatory changes do you expect from Bank of England stress tests on private markets?

Lizzy Burden

Philip Freise

Premature to comment; it's an exploratory exercise. Private credit represents only 1% of the total lending market, doesn't take deposits or short-term funding, so doesn't have the same systemic issues as the GFC.

Is Apollo's move to more frequent pricing on credit funds genuine transparency or illusion?

Lizzy Burden

Philip Freise

KKR has always been at the forefront of transparency and educating investors. The way to address concerns is more transparency. There will be differentiation between those who have done their job in underwriting and portfolio construction and those who haven't.

Advice for someone nervous about AI threat in private equity?

Lizzy Burden

Philip Freise

Don't be nervous; AI is extremely empowering. Learning tools will be easier with AI. What becomes more important is EQ—convincing family owners who have done this for 50 years.

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