Letter to Unitholders

Dear Fellow Unitholders

After four decades as investors, we continue to find it remarkable how quickly the world and market sentiment can change. Two years ago, just about every measure of value and health in global markets was in freefall. Today, however, it appears that markets have started to recover, and while world economies have not fully rebounded, we have seemingly turned a corner.

While market stability remains uncertain in many parts of the world, 2010 proved to be a year of significant value creation for the investors across all of our businesses and for you, our unitholders. Our private equity funds increased in value by 33%, our credit strategies outperformed their benchmark indices, and the price of our publicly traded units increased by 72%, creating nearly $4 billion of market value.

2010 was a pivotal year for our firm. In July, we delisted from the Euronext Amsterdam exchange, where we had traded since our October 2009 combination with KKR Private Equity Investors (KPE), and began trading on the New York Stock Exchange. In August, we received investment grade ratings of A and A- from Fitch and S&P, respectively. In September, we completed a highly successful inaugural $500 million public bond offering. And during the course of the year, we raised over $5 billion of new capital, more than $4 billion of which was for our five new investment strategies: infrastructure, natural resources, special situations, China growth equity, and mezzanine. These strategies build on the core competencies of our firm and facilitate KKR’s diversification into areas where we can create scale and earn attractive returns for our partners.

Amid these new beginnings, we want to thank you for your partnership. We are grateful for the support you have shown us in our first full year as a public company. We have been energized by your eagerness and patience in understanding our business. As a company whose public listing came without the benefit of a traditional IPO process, investor education is a critical area of focus for us. People often see KKR’s name and assume private equity is our sole business — after all, for 35 years, we’ve made a name for ourselves in that business. It is a franchise which remains and always will remain core to our company, and we continue to evolve and enhance our global private equity capabilities. Today, however, we provide much more than private equity to our partners, whether management teams, limited partners, or unitholders, and we believe that our broader capabilities enrich each of these partnerships.

Notably, our annual report is focused on the power of partnership. Our longevity in the investment business has convinced us that our most important assets are our partnerships — with companies and management teams around the world to whom we provide advice, capital, and solutions; with our limited partners and others who commit capital alongside our own as we make investments; and with the men and women we’ve been able to attract to KKR whose expertise drives the value we create. These partnerships are the lifeblood of our business; protecting and enhancing them over the long term is our highest priority.

Historically, because of the very low hit-rate nature of the only business we were in — private equity — we spent a great deal of time researching companies and building industry relationships that did not lead to investable opportunities. The result was that a lot of intellectual capital and effort went unused. We missed out on many attractive opportunities for all of our partners, from management teams to investors, because our private equity capital was not sufficiently flexible to act on all of our good ideas.

To mitigate this trend, we organically built new businesses such that today, we are able to convert more of the ideas and relationships generated by our “sourcing engine” into investments. As we move forward, our vision for KKR is to convert all of our ideas and relationships into opportunities for our partners. This means enhancing our offerings and evolving our approach based on changes in the economy and capital markets, the needs of our partners over time, and investable trends in the markets in which we operate. Of course, the success of these endeavors will ultimately be judged by the returns we can deliver to our partners.