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KKR & Co. Inc. (KKR): Prem Watsa’s Strategic Bet on Sustainable Growth Amid Sector Shifts

Philip CarterTuesday, Apr 22, 2025 9:14 pm ET

14min read

Prem Watsa, the renowned value investor and CEO of Fairfax Financial Holdings, has long been a barometer for contrarian opportunities in markets. His latest moves reveal a nuanced approach: while chasing explosive growth in AI-driven sectors, he remains anchored in long-term bets on firms with proven resilience. Among these, KKR & Co. Inc. (NYSE: KKR) stands out as a steady hand in a volatile landscape—a choice rooted in financial discipline and strategic foresight.

The Financial Foundation: Outperforming Expectations

KKR’s third-quarter 2024 results underscore its current strength. The firm reported Fee Related Earnings (FRE) of $1 billion, a 79% year-over-year surge, alongside Total Operating Earnings (TOE) of $1.3 billion, up 71% from 2023. These figures reflect KKR’s ability to capitalize on market volatility and its active portfolio management. Notably, FRE growth outpaced broader private equity peers, signaling superior fee-based revenue generation—a critical metric for sustaining profitability in fluctuating cycles.

Strategic Moves: Betting on Decarbonization and Digital Infrastructure

Watsa’s continued stake in KKR is not merely about short-term gains. The firm’s recent acquisitions and partnerships align with two megatrends reshaping global economies: climate transition and data-driven infrastructure.

First, KKR’s binding agreement to acquire Dawsongroup—a leader in decarbonization technologies—positions it to profit from the global shift to net-zero commitments. Dawsongroup’s expertise in carbon capture and industrial decarbonization directly supports KKR’s Global Climate strategy, which now accounts for over $20 billion in assets under management.

Second, its partnership with Gulf Data Hub to invest $5 billion in Gulf-region data centers taps into soaring demand for hyper-scale infrastructure. This initiative addresses a critical gap in regions prioritizing digital sovereignty, particularly as AI and cloud computing expand.

Portfolio Positioning: A Reliable, but Not Explosive, Holding

In Watsa’s portfolio, KKR ranks 13th among his top long-term picks, indicating its role as a stable, dividend-paying asset rather than a high-risk, high-reward play. As of April 2025, Fairfax held 23,500 shares of KKR, valued at $2.4 million, down slightly from its $3 million stake in Q3 2024. This reduction may reflect tactical adjustments—such as reallocating capital to AI-focused firms Watsa believes could deliver 10,000% returns over a decade—but does not signal a loss of confidence in KKR’s fundamentals.

The Watsa Factor: Value Investing Meets Structural Shifts

Watsa’s investment philosophy emphasizes undervalued assets with transformative potential, and KKR fits this mold. Its dividend yield of 5.8% (as of Q3 2024) provides steady income, while its strategic pivots into climate and tech infrastructure align with secular growth trends. However, KKR’s 0.00% stake in its own equity (a minor holding relative to its total float) suggests Watsa is not overcommitting—a hallmark of his conservative approach.

Conclusion: A Steady Hand in an Unsteady World

KKR’s inclusion in Watsa’s portfolio is a testament to its dual strengths: robust financial performance and strategic alignment with high-growth sectors. With $5 billion committed to Gulf data infrastructure and $20 billion in climate-focused assets, KKR is positioned to benefit from both regulatory tailwinds and corporate demand. While its $2.4 million stake in Fairfax’s $1.1 billion portfolio may seem small, it reflects Watsa’s preference for diversified, low-risk holdings to balance riskier bets.

For investors, KKR offers a compelling mix of income stability and exposure to structural shifts. However, those seeking explosive growth may need to look elsewhere—Watsa’s own focus on AI suggests as much. For the cautious, value-driven investor, KKR remains a reliable play on a firm that’s not just surviving but thriving in an evolving global economy.

Final note: KKR’s Q3 2024 results and strategic moves validate its place in Watsa’s portfolio. Monitor its climate and infrastructure initiatives for signs of sustained outperformance.

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