Henry McVey: A Different Kind of Recovery

KKR, a leading global investment firm, today released its 2022 Global Macro Outlook piece by Henry McVey, Head of Global Macro and Asset Allocation (GMAA) and CIO of KKR’s Balance Sheet.

In “A Different Kind of Recovery,” McVey outlines his team’s perspective on entering a period of reflation that will look dramatically different from other recent economic recoveries and why this environment will favor investors who take a thematic top-down approach and are willing to lean into uncertainty.

In McVey’s view, the following five factors make this recovery unlike the prior cycle that unfolded after the 2008 downturn:

1. This recovery is being driven by the West, not the East.
2. It is heavily front-loaded, with the one-two punch of both monetary and fiscal stimulus.
3. Input costs, the team believes, will stay higher for longer, driven by rising wages and reconfiguration of global supply chains.
4. Periodic growth slowdowns will likely be more driven by supply constraints rather than demand issues, with COVID flare-ups and the global energy transition amplifying tightness in supply.
5. Outside of China, real rates generally will lag this cycle.

Against this economic backdrop, McVey and his team highlight the following top-down themes for investors to consider as they look ahead to 2022:

• Pricing Power: Higher input costs and supply chain pressures have created an environment that strongly favors companies with pricing power, which leads us to expect a major valuation differential to emerge between price makers and price takers.

• Collateral-Based Cash Flows: Given the unusual backdrop of rising cyclical inflation, more stimulus, and higher commodity prices, we believe that demand for collateral-based cash flows, including Infrastructure, Real Estate, and Asset-Based Finance, will accelerate more than many investors now think.

• Digitalization and Decentralization: We are in an “innovation boom” and the pace of disruption only continues to accelerate. In particular, we believe that blockchain-driven decentralization is a cross-industry development that investors should watch closely.

• Normalization and Return to Services: We believe that investors should consider increasing exposure to the service sector, which is likely to grow with consumers ramping up their exposure to “experiences” over the next 24-36 months. We are not bearish on goods, but some mean reversion in the services sector is likely to occur, we believe.

• The Energy Transition: Environmental considerations are a major investment opportunity, particularly amidst growing concerns about supply chain resiliency. This mega theme is broad-based, and as such, we think that almost all aspects of Environmental, Social and Governance (ESG) factors are worth considering, including climate action.

• Savings Bull Market: There are several important forces to consider that we think make savings an extremely compelling investment theme to pursue, including retirement products and financial planning linked to intergenerational wealth transfer.

In addition to the aforementioned insights and themes, the report details the GMAA team’s updated views on growth, interest rates, commodities, currencies, and asset allocation. It also provides a view on potential macro and geopolitical risks, as well as possible hedging strategies to mitigate downside risk.

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 download a PDF version, click here.
• For an archive of previous publications please visit www.KKRInsights.com.

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 Investment Management & Distribution 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 KKR

KKR is a leading global investment firm that offers alternative asset management and 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 The 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 and on Twitter @KKR_Co.

The views expressed in the report and summarized herein are the personal views of Henry McVey 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 neither KKR nor Mr. McVey assumes any duty to update such statements except as required by law.

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