KKR’s Henry McVey Publishes “Rethinking Asset Allocation”
October 23 2018 - 6:45AM
Business Wire
New Report Addresses Common Questions from CIOs
and Offers ‘Rules of the Road’ for Investors Who Oversee
Multi-Asset Class Portfolios with Exposure to both Liquid and
Illiquid Investments
KKR today announced the release of Rethinking Asset Allocation,
the firm’s latest Insights report by Henry McVey, Head of Global
Macro and Asset Allocation (GMAA). The report specifically
addresses several commonly asked macro-related questions from
global chief investment officers (CIOs), including in regards to
ongoing growth in the Alternatives arena. The report also offers
several ‘Rules of the Road’ linked to portfolio construction,
particularly as there is an increasing blurring between liquid and
illiquid investments within the various investment mandates that
the Firm now serves.
“Low bond yields, a surge in geopolitical tensions, and a shift
towards fiscal stimulus have all fueled a rethinking of how to best
generate strong risk-adjusted returns,” McVey says. “Against this
backdrop, we have tried to articulate actionable solutions to many
of the most complex investment questions that we are increasingly
fielding from clients who – like us – use a rigorous, top-down
approach to asset allocation.”
He continues, “An important message, we believe, is that –
amidst lower expected returns – the traditional relationship
between stocks and bonds is now mean-reverting after a 20-year
hiatus. As such, we think that the lion’s share of multi-asset
class portfolios likely need to be properly restructured for the
new environment that we envision.”
McVey and his team offer detailed analysis, backed by nearly 75
data exhibits, around the following multi-asset investment
trends:
- Beyond traditional diversification
techniques, KKR believes that there are at least four long
duration, macro-oriented investment themes that may help portfolio
managers generate significant out performance during the next 5- to
10- years. While each theme is different, there is common thread
amongst all of them: Buy Complexity and Sell Simplicity.
- Both the definition of Private as well
its drivers of value have changed meaningfully in recent years. At
this point in the cycle, Private Equity will likely outperform
Public Equity, though manager selection remains a key performance
variable.
- Given the significant decline in
interest rates in recent years, the value of the illiquidity
premium in Private Credit has increased materially. However,
competition is intensifying in this market, and we now favor
Private Credit more closely linked to nominal GDP.
- As quantitative easing is transitioning
towards quantitative tightening, many governments are shifting
their focus towards fiscal stimulus in an effort to boost nominal
GDP. In the U.S., interest rates have tended to run moderately
below the level of nominal GDP growth as long as the Fed was not
actively trying to suppress run-away inflation. We maintain this
view, but we are keenly mindful of rising deficits, particularly in
the United States and Europe.
- In terms of portfolio construction,
KKR’s ‘Rules of the Road’ articulate the toolkit that can be
implemented to create better risk-adjusted outcomes, particularly
as more and more CIOs seek new and innovative ways to deliver
returns by way of differentiated opportunities across both private
and public markets. While there are many aspects of portfolio
construction to consider, the ‘Rules’ focus on four key portfolio
construction metrics: pacing, correlations, proper comparisons for
private market assets, and liquidity.
Links to access this report as well as an archive of Henry
McVey's previous publications follow:
- To read the latest Insights: click
here.
- To download a PDF version: click
here.
- To download the KKR Insights app for
iOS click here, and for Android click here.
- For an archive of previous publications
please visit www.KKRinsights.com.
About Henry McVey
Henry H. McVey joined KKR in 2011 and is Head of the Global
Macro and Asset Allocation team. Mr. McVey also serves as Chief
Investment Officer for the Firm's Balance Sheet and oversees
Firmwide Market Risk at KKR. As part of these roles, he sits on the
Firm's Investment Management & Distribution Committee and the
Risk & Operations Committee. Prior to joining KKR, Mr. McVey
was a managing director, lead portfolio manager and head of global
macro and asset allocation at Morgan Stanley Investment Management
(MSIM). Earlier in his career he was a portfolio manager at
Fortress Investment Group and chief U.S. investment strategist for
Morgan Stanley. While at Morgan Stanley, Mr. McVey was also a
member of the asset allocation committee and was the top-ranked
asset management and brokerage analyst by Institutional Investor
for four consecutive years before becoming the firm's strategist in
January 2004. He earned his B.A. from the University of Virginia
and an M.B.A. from the Wharton School of the University of
Pennsylvania. Mr. McVey is a member of the TEAK Fellowship Board of
Trustees after previously serving as co-chair of the board for five
years. Henry is also a member of the Pritzker Foundation Investment
Committee, a board member of the University of Virginia Investment
Management Company (UVIMCO), a member of the national advisory
board for the Jefferson Scholarship at the University of Virginia,
and a member of the Council on Foreign Relations Corporate Leader
Program.
About KKR
KKR is a leading global investment firm that manages multiple
alternative asset classes, including private equity, energy,
infrastructure, real estate and credit, with strategic manager
partnerships 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 KKR & Co.
Inc. (NYSE: KKR), please visit KKR's website at www.kkr.com and on
Twitter @KKR_Co.
The views expressed in the report and summarized herein are the
personal views of Henry McVey of KKR and do not necessarily reflect
the views of KKR or the strategies and products that KKR offers or
invests. Nothing contained herein constitutes investment, legal,
tax or other advice nor is it to be relied on in making an
investment or other decision. This release is prepared solely for
information purposes and should not be viewed as a current or past
recommendation or a solicitation of an offer to buy or sell any
securities or to adopt any investment strategy. This release
contains projections or other forward-looking statements, which are
based on beliefs, assumptions and expectations that may change as a
result of many possible events or factors. If a change occurs,
actual results may vary materially from those expressed in the
forward-looking statements. All forward-looking statements speak
only as of the date such statements are made, and neither KKR nor
Mr. McVey assumes any duty to update such statements except as
required by law.
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