Key highlights from this interesting read:
KKR believes the traditional relationship between the bonds and stocks have changed.
Private equity similar to private credit and real assets can be quite additive to the traditional investment portfolio.
New economic regime is driven by non-traditional supply shocks, labor shortages, rising political tensions and realignments, and global energy transition.
Instead of a 60/40 portfolio, KKR suggests a 40/30/30 portfolio. Where 30% is dedicated towards alternatives and is equally divided between private credit, real estate and infrastructure.
Various CIO's have increasingly replaced their public equities exposure with PE, thanks to the illiquidity premium.
PE is mainly suitable to those investors willing to give up liquidity for potentially higher returns in the long run.
Over 3 decades PE has delivered an excess return of 4.3% on a net annualized basis.
PE outperforms public equity in almost all environment except low inflation, low growth environment.
A higher resting rate for inflation should be expected.
Sector weightage of tech as 5 of deal volume has increased from 175 in 2017 to 45% in 2022 in the US.
The largest sector focus for PE is industrials, due to its strong cash flows.
The purest form of PE alpha is from company value creation.
PE backed companies often experience faster and more stable EBITDA growth compared to public equities.
PE is very much younger than Public equity, originating around 1980s, therefore there is not alot of data.
Alternatives enhanced portfolios perform best when in high inflation periods exist generating around 5%pts more than the 60/40 portfolio.
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