KKR Releases “Regime Change: The Role of Private Real Assets in the ‘Traditional’ Portfolio”
September 06 2023 - 7:00AM
Business Wire
New KKR Report Explains Why Investors Need to
Look Beyond Traditional Inflation Hedges to Protect Returns and
Enhance Portfolio Diversification
KKR, a leading global investment firm, today announced the
release of Regime Change: The Role of Real Assets in the
‘Traditional’ Portfolio by Henry McVey, CIO of KKR’s Balance Sheet
and Head of Global Macro and Asset Allocation (GMAA) and Racim
Allouani, Head of Portfolio Construction, Investment Risk
Management and Quantitative Analysis at KKR. This latest Insights
piece is the fourth installment in a series dedicated primarily to
portfolio construction. While the prior portfolio construction
pieces delved more into the roles of Private Credit and Private
Equity in a diversified portfolio, this note focuses more heavily
on Private Real Assets exposure.
McVey and Allouani explain that, despite record monetary
tightening around the globe, persistent inflationary trends across
many developed markets, including sticky wage pressures, heightened
geopolitics, and repositioning of global supply chains, have
strengthened their conviction in their original thesis for
investors to consider diversifying beyond the traditional stock and
bond 60/40 portfolio. A major underpinning of their view is that
stocks and bonds are becoming increasingly more correlated, an
important structural change for asset allocation. Against this
backdrop, McVey and Allouani assert that Private Real Assets can
offer diversification benefits that can help many investors better
protect their returns in this new investing regime. Moreover, in
this cycle, many Private Real Assets have outperformed traditional
inflation hedges, including Inflation-Protected Notes (TIPS) as
well as Public REITs.
This conviction is reflected in investment allocations on KKR’s
balance sheet, where Private Real Assets have increased from 18% in
2018 to nearly 25% by the second quarter of 2023.
“Real Assets have delivered both strong upfront yield as well as
a compelling total return during one of the fastest increases in
both interest rates and inflation that we have seen in 50 years.
Importantly, though, we still see more opportunities ahead for this
asset class, given today’s complex macroeconomic environment. As
such, for investors who have the liquidity budget to spend on
potentially enhancing returns, we think that there is an
opportunity to benefit from allocations to Asset-Based Finance
(ABF), Real Estate Credit, and Infrastructure,” said McVey and
Allouani.
Links to access this report in full as well as an archive of
Henry McVey's previous publications follow:
- To read the latest Insights, click here.
- To read prior installments in our portfolio construction
series, click here, here and here.
- For an archive of previous publications, click here.
About Henry McVey
Henry H. McVey joined KKR in 2011 and is Head of the Global
Macro, Balance Sheet and Risk team. Mr. McVey also serves as Chief
Investment Officer for the Firm’s Balance Sheet, oversees Firmwide
Market Risk at KKR, and co-heads KKR’s Strategic Partnership
Initiative. As part of these roles, he sits on the Firm’s Global
Operating 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). Learn more about Mr. McVey
here.
About Racim Allouani
Racim Allouani joined KKR in 2015 and oversees Portfolio
Construction, Investment Risk Management and Quantitative Analysis
across KKR Private and Public Markets. Prior to joining KKR, he
spent five years at the hedge fund of Lombard Odier as a senior
quantitative portfolio analyst and risk manager, covering equity
and credit long/short strategies. Prior to that, he was at Arden
Asset Management, a fund of hedge funds, in the portfolio
optimization group. Mr. Allouani also previously held positions at
Deutsche Bank in equity research and Bank West LB in fixed income
research. Learn more about Mr. Allouani here.
About KKR
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 Global Atlantic Financial Group. References to KKR’s
investments may include the activities of its sponsored funds and
insurance subsidiaries. For additional information about KKR &
Co. Inc. (NYSE: KKR), please visit KKR’s website at
www.kkr.com.
The views expressed in the report and summarized herein are the
personal views of Henry McVey and Racim Allouani 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 KKR, Mr.
McVey and Mr. Allouani do not assume any duty to update such
statements except as required by law.
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Media Contact: Julia Kosygina 212-750-8300
media@kkr.com
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