KKR is pushing a narrative on portfolio construction that could benefit an industry already in pursuit of larger allocations from high net worth individuals. The characters in this story are all the same—inflation, geopolitical risk, interest rates—but the plot contains a twist. Rather than advising investors to avoid this cast by steering clear of markets, KKR’s Global Head of Macro Henry McVey says investors should diversify into alternative assets. ‘Place your money with us’ is not exactly a novel sales pitch, but it comes at a time when portfolio managers might be likely to listen.
Money managers are eager to place capital in inflation-proof assets, if the fundraising prowess of recent real estate and infrastructure-focused funds is any guide. KKR’s central argument, that investors should look to these assets to capture inflation-adjusted returns, would appear to resonate with capital flows. So too does its pitch on private credit, a similarly popular strategy for many firms formerly focused on private equity exclusively. McVey argues that portfolios with larger private credit exposure would hedge against loss of income from a fall in the face value of the alternative, bonds.
Should investment advisers get sold on this logic, private equity investors of all stripes stand to benefit. The additional source of capital could buoy PE fundraisings encountering intermediate market saturation from typical limited partners.
A potential relaxation of regulations that would allow retail investors to participate in private funds is eagerly anticipated industrywide, from Blackstone’s frequent quarterly refrains about the potential of the high net worth market, to technological platforms like CAIS’ recent $225 million Apollo Global Management-led funding round.
KKR is also pivoting to increase fundraising from private wealth, which historically constituted 10 to 20 percent of total hauls, to far higher. “We believe over time that it should be 30 to 50 percent of the money that we raise,” CFO Rob Lewin told investors in the company’s February earnings call.
The note released earlier from KKR might prove persuasive, helping sponsors crack an important growth market.