KKR has just published its 2016 Global Macro Outlook authored by Henry McVey, KKR’s Head of Global Macro and Asset Allocation. The paper is titled “Adult Swim Only,” and in it Mr. McVey cautions investors on the year ahead while noting that there are still pockets of investment opportunities.
“In laymen’s terms, today’s market conditions are somewhat akin to swimming at the beach when there is a strong undertow that could pull a less experienced swimmer out to sea. It might not happen, but the probability is certainly higher than under normal circumstances,” said Mr. McVey. “As such, we think that the mantra “Adult Swim Only” seems to be a prescient catch phrase for the current macro investing environment. That said, the current macro backdrop does not mean that there are no good investment opportunities. Rather, one just needs to think through how to embrace current market volatility to one’s advantage.”
Mr. McVey joined KKR in 2011 and in addition to his role as head of asset allocation he also serves as the firm’s Chief Investment Officer. Prior to joining KKR, he was a managing director, lead portfolio manager and head of global macro and asset allocation at Morgan Stanley Investment Management.
According to Mr. McVey some key investment opportunities for 2016 include:
- Private Credit Appears to Be a Huge Opportunity in 2016. Recent gyrations in the financing markets are providing non-bank lenders a significant opportunity to leverage the market’s illiquidity premium to earn compelling risk-adjusted returns. In particular, private financing opportunities linked to real estate, infrastructure, corporate take-overs, and equipment currently appear to be the best risk-adjusted opportunity in the market today.
- Liquid Markets Favors Credit. Within liquid markets, we currently favor credit over equities, and within credit, we see strong relative value across credit particularly in high quality levered loans. In equities, we argue for multiple contraction, driven by China’s shift in currency policy, heightened geo-political tensions, and the lengthy duration of the cycle.
- Global Consumer. The outlook for certain segments influenced by the global consumer is positive. A high priority, we believe, would be to find opportunities around key trends like improving household formation, increasing Internet penetration, and an intensifying focus on healthcare/beauty/wellness.
- Debt-Driven Restructurings. China’s ongoing slowdown in fixed investment could lead to new and exciting opportunities for Distressed/Special Situations investors. We are also bullish on the dislocated credit opportunities that we see in Europe (largely financial institutions).
- Infrastructure/Real Estate. Within Real Assets, the current environment favors investments that can provide yield and growth versus owning outright commodity positions.
In addition to the above five items, the report details some other key macro influences that factor into the Global Macro and Asset Allocation’s updated asset allocation model for 2016. To download a free PDF version of KKR’s 2016 Global Macro Outlook click HERE.
KKR (NYSE:KKR) makes private equity, fixed income and other investments in companies in North America, Europe, Asia and the Middle East. The firm has $90 billion in assets under management. KKR was founded in 1976 and in addition to its New York headquarters the firm has offices in Menlo Park, San Francisco, Houston, Washington DC, London, Paris, Hong Kong, Tokyo, Beijing, Mumbai, Dubai and Sydney (www.kkr.com).
© 2016 PEPD • Private Equity’s Leading News Magazine • 1-13-16
