KKR Releases “The New Normal”September 24, 2020
New Report Delves into COVID-19’s Potential Long-Term Impact on
“Following a decade of relative prosperity, overlapping calamities in 2020 have brought economic activity to a near halt. The combination of longstanding political and social strife has met with an unforeseen health and economic crisis, which together have dealt a debilitating blow. As investors, some of the core questions with which we are wrestling surround future economic growth, the fate of our cities, shifts in the nature of work, and changes in consumer behavior that may persist post-COVID,”
In her analysis against this backdrop of heightened volatility that will likely persist, Roberts outlines long-term secular investment themes that she believes will gain momentum – those that reduce cost, increase convenience and improve quality of life, health and well-being.
Specifically, in Roberts’ view:
Dispersion: The locus of economic activity should disperse among multiple metropolitan nodes beyond gateway cities. Roberts affirms her pre-COVID conviction around Sunbelt migration as well as the above-average growth of medium-sized cities. Consumer spending should benefit. She believes that in real estate, multifamily, industrial and innovation offices are secular winners. Retail and older office spaces in larger central business districts are short-term losers.
Gatewaycities will face headwinds in the short term, but long-term budget reconciliation serves as a foundation for rebirth.
- Essentialism: In the context of in-person gatherings, essentialism should thrive. Specifically, Roberts expects in-person meetings to take place only when safe, necessary or highly valued. Essentialism has implications for a broad range of industries including healthcare (telehealth), personal care, retail, entertainment (online), travel (less business travel, more domestic leisure travel), apparel (casual) and real estate (single family rentals and purchases, industrial, HVAC/filtration upgrades).
- Bifurcation: Amid slower consumer spending growth, structural underemployment, and a focus on value and convenience, Roberts believes consumers will likely consolidate their commodity spend among large retailers who have omni-channel service and delivery capabilities and are able to offer competitive pricing. She also sees tailwinds supporting smaller manufacturers with differentiated products that are difficult to find elsewhere, particularly as larger brands scale back on SKUs. These could include goods with a specific health, ESG, ethnic or cultural significance. She believes losers are mid-sized retailers or manufacturers lacking a differentiated value proposition, product or service experience.
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KKR is a leading global investment firm that manages multiple alternative asset classes, including private equity, credit and real assets, with strategic partners that manage hedge funds. KKR aims to generate attractive investment returns for its fund investors by following a patient and disciplined investment approach, employing world-class people, and driving growth and value creation with KKR portfolio companies. KKR invests its own capital alongside the capital it manages for fund investors and provides financing solutions and investment opportunities through its capital markets business. References to KKR’s investments may include the activities of its sponsored funds. For additional information about
The views expressed in the report and summarized herein are the personal views of
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Cara Kleiman Major
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