KKR Releases “The Uncomfortable Truth”
New Macro Report Emphasizes Portfolio Repositioning in Current Low Rate Environment
“It is not business as usual in the capital markets. While we have
high conviction that rates are likely to remain lower for longer, both
debt issuance and deficits continue to soar across many areas of the
private and public sectors. Such backdrop highlights the need to own
more cash flowing assets linked to nominal GDP, build more flexibility
across mandates, and shorten duration where appropriate,”
In this latest report, McVey and his team outline the following conclusions for consideration in repositioning one’s portfolio to outperform without taking on undue risks in this new environment:
1. Beyond just central bank intervention creating downward pressure, aging demographics, excess capacity, and technological innovation are expected to continue to put a lid on interest rates with the overall global interest rate curve remaining low relative to historic levels.
2. Governments are trying to boost nominal GDP by holding down nominal interest rates. As such, investors should consider shortening portfolio duration and owning more collateralized assets linked to nominal GDP.
3. Holding nominal GDP above nominal interest rates also argues for investors to own some form of an overweight to longer duration Real Assets, especially those investments with upfront yield. Consistent with this view, Infrastructure remains one of KKR’s larger overweight positions in its target asset allocation.
4. We also favor Real Estate. Specifically, our call to arms is still to
own Real Estate Equity via
5. We continue to advocate flexibility across mandates in the Fixed Income arena, Liquid Credit in particular. Given our view that the shift from monetary stimulus towards fiscal stimulus is likely to create periods of heightened uncertainty, we now heavily favor increasing flexibility across all the mandates that we oversee, including Actively Managed Opportunistic Credit.
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KKR is a leading global investment firm that manages multiple
alternative asset classes, including private equity, energy,
infrastructure, real estate and credit, 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
Kristi Huller or Cara Major, 212-750-8300