KKR Releases “Regime Change: The Role of Private Real Assets in the ‘Traditional’ Portfolio”

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New KKR Report Explains Why Investors Need to Look Beyond Traditional Inflation Hedges to Protect Returns and Enhance Portfolio Diversification

NEW YORK–(BUSINESS WIRE)–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.

Exposure To Private Real Assets 

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 herehere 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.

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.

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.