KKR Releases “Regime Change: The Benefits of Private Credit in the ‘Traditional’ Portfolio”December 14, 2022
New Macro Report Reiterates the Need for a New Approach to
“We continue to believe that, in the new macroeconomic regime we have entered, the positive correlation between stocks and bonds will likely be problematic over the long-term for the traditional 60/40 portfolio. Now is the time to rethink approaches to asset allocation, including expanding more into Private Credit, given the most recent pullback by traditional lending institutions,” said McVey and Allouani.
McVey and Allouani offer the following investment conclusions:
- While the traditional 60/40 portfolio could snap back in the short-term, a longer-term breakdown in the correlation between equities and bonds puts investors in a different regime for asset allocation.
- A 40/30/30 equities-bonds-alternatives allocation offers more diversification and inflation protection for the macroeconomic environment ahead.
- Now is a particularly attractive time to allocate capital to Private Credit, which is benefitting from a variety of factors, including traditional lenders pulling back, improved lending terms, higher absolute yields and access to higher quality counterparties.
- Because building a 10% position in Private Credit could take multiple quarters, we believe that investors should consider the current value offered in Liquid Credit, including CLO liabilities.
- Institutional and individual investors may look for different ways to implement this view, including through drawdown funds, business development companies, interval funds, loans and CLO liabilities exchange traded funds.
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About Racim Allouani
Racim Allouani joined KKR in 2015 and oversees
KKR is a leading global investment firm that offers alternative asset management as well as capital markets and insurance solutions. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and supporting growth in its portfolio companies and communities. KKR sponsors investment funds that invest in private equity, credit and real assets and has strategic partners that manage hedge funds. KKR’s insurance subsidiaries offer retirement, life and reinsurance products under the management of
The views expressed in the report and summarized herein are the personal views of
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