KKR's Investment Strategies Amid Volatility: Equity, Credit, Real Estate

The Facts -

Private Equity Remains Robust Amidst Market Fluctuations

Alisa Amarosa Wood, a Partner at KKR, challenges the prevailing narrative of a decline in private equity activities. Contrary to the headlines, KKR's Private Equity teams have been actively making investments, with about 30 new deals completed this past year across various regions, including North America, EMEA, and Asia. Their focus encompasses digital transformation, health and wellness, and corporate carve-outs, an approach allowing subsidiary businesses to become independent and potentially thrive.

“Markets are going to go up; markets are going to come down…you can’t time it,” Wood commented, emphasizing their strategy of enhancing promising businesses despite market volatility. She also addressed concerns about private equity exits, noting that strategic or corporate sales, rather than IPOs, account for two-thirds of KKR's exit strategies.

Private Credit: A Surge in Activity as Interest Rates Decline

Dan Pietrzak, KKR's Global Head of Private Credit, describes a resurgence in credit, highlighted by a significant increase in direct lending activities in recent months. “We’re busier than we’ve been in the last two or three years,” Pietrzak stated, referencing a boom in deal evaluations. Falling interest rates, leading to reduced yields and the cost of capital, are expected to further boost M&A and deal activities.

Amid high-profile bankruptcies, the importance of strong underwriting standards and careful credit selection has been reinforced. “Taking a bit of the steam out” of competitive lending, according to Pietrzak, may refocus the market on disciplined practices. KKR's strategy encompasses diversification across different types of private credit, providing exposure from corporate lending to asset-based finance involving tangible assets like aircraft and student loans.

Infrastructure: Energy and Digital Transformation Drive Investment

James Cunningham, Co-Head of KKR's Infrastructure strategies, highlights the convergence of energy demand and digital transformation as key investment drivers. The U.S. power needs are projected to grow 4%-5% annually in the next two decades, driven by electrification and data center expansion. Additionally, tech giants are set to spend $325 billion on digital infrastructure by 2025.

“The uncomfortable reality is that power is becoming a big bottleneck,” Cunningham noted, pointing to the investment opportunities in energy infrastructure necessary to support growing demand and related digital infrastructure like data centers and fiber networks.

Real Estate: Market Rebound Offers Strategic Buying Opportunities

Julia Butler, CEO of KKR's Real Estate strategy, observes stabilization in real estate markets following a significant valuation reset. “We’re able to buy right now below replacement cost,” she mentioned, identifying this as a rare strategic chance. With renewed transaction activities and strengthened fundamentals, KKR focuses on logistics, housing, and mission-critical properties with steady tenant demand.

The Broader Perspective: Portfolio Resilience in Private Markets

KKR's leaders across asset classes agree that market volatility should not be feared. In private equity, credit, real estate, and infrastructure, they stress long-term investment perspectives, diversification, and risk management. Pietrzak notes that volatility can advantage private lenders, while Cunningham highlights infrastructure's historical resilience. Butler emphasizes real estate as an inflation hedge through property appreciation and rent growth.

Wood underscores the growing diversification within private markets as companies postpone public offerings, presenting more growth opportunities beyond public equities. “If you’re only investing in the public markets, you’re missing a huge part of the opportunity set,” she stated. KKR's leadership advocates for patience, pragmatism, and diversification, turning current complexities into potential opportunities.

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