KKR’s Henry McVey Says We Have Entered a Pivotal Period for Endowment and Foundation CIOs

Rhea-AI Summary

KKR has released a new report titled “The Times They Are A-Changin,” by CIO Henry McVey, analyzing asset allocation strategies among endowment and foundation CIOs amid a changing macroeconomic environment. The report indicates that due to substantial asset growth, there is a pressing need for enhanced investment infrastructure and diversification. CIOs aim to boost illiquid investments to 55% of total assets, acknowledging the impact of ESG considerations and the importance of adapting to high inflation and low growth. Key sectors of focus include Real Assets, Private Credit, and technology-oriented investments.

Positive

• Substantial asset growth and inflows necessitate enhanced investment infrastructure.
• CIOs plan to increase illiquid investments to 55% of total assets within three years.
• Growing focus on ESG considerations, with 70% of CIOs incorporating them into investment processes.
• CIOs are targeting high-conviction themes such as AI efficiency and cybersecurity.

Negative

• CIOs may be over-allocated to higher beta equity investments, risking lower performance.
• Concerns over the potential impact of inflation on investment returns.

New Macro Report Based on Proprietary Survey Highlights the Potential Need for a New Approach to Asset Allocation and Business Development

NEW YORK--(BUSINESS WIRE)-- KKR, a leading global investment firm, today released “The Times They Are A-Changin,” a new Insights piece by Henry McVey, CIO of KKR’s Balance Sheet and Head of Global Macro and Asset Allocation (GMAA).

Based on a proprietary survey as well as interviews with Chief Investment Officers (CIOs) who oversee hundreds of billions of dollars in assets under management, the report examines how endowment and foundation (E&F) CIOs are approaching asset allocation in today’s complex and evolving macroeconomic environment. McVey explains that an impending macroeconomic and geopolitical regime change will require CIOs to reassess their approach to asset allocation in order to maintain the strong performance that they have been able to deliver over the past several years:

“Now is the time for all of us with ties to the E&F community to take a step back and recognize that, ‘the times they are a-changin’,” said McVey. “To maintain the superior investment performance their boards desire and constituents need, especially given their new heft and scale, we believe that CIOs will need to consider a new approach that involves increasing diversification across investment products, including Real Assets, as well as implementing a more holistic emphasis on portfolio construction, technological prowess, and risk management.”

Key takeaways from the report include:

• Substantial asset growth, fueled by strong performance and inflows has created a need for more investment “infrastructure”, including additional staffing.
• Many E&F CIOs are likely over-allocated to earlier-stage, higher beta, longer duration equity investments at a time when performance and realizations are poised to slow.
• There is a growing focus on illiquid investments, and particularly those that provide more upfront yield, including Real Estate, Private Credit and select Private Equity. All told, surveyed CIOs planned to boost illiquid investments to 55% of total plan assets within three years, compared to just 34% for many of the benchmark E&F industry studies we reviewed.
• CIOs are considering meaningfully growing their Real Assets portfolios as they look to position themselves for a high inflation, lower real growth environment.
• Hedge Funds and Private Equity remain the E&F community’s favorite illiquid and semi-liquid asset classes.
• CIOs are focused on incorporating ESG considerations throughout their investment processes and 70% acknowledged that ESG considerations were impacting their current and future investments.
• CIOs believe that we are in an era of innovation and are investing behind high conviction themes including AI efficiency, automation, cybersecurity, biotechnology and crypto/blockchain.
• Inflation is the number one macroeconomic concern for CIOs.

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 as well as 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 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220928005277/en/

Media:

Julia Kosygina

212-750-8300

media@kkr.com

Source: KKR

FAQ

What insights does KKR's report provide regarding asset allocation strategies for CIOs?

KKR's report suggests CIOs must reassess asset allocation strategies due to changing macroeconomic conditions, emphasizing diversification and a focus on illiquid investments.

What percentage of total plan assets do CIOs plan to allocate to illiquid investments according to KKR's report?

CIOs plan to increase illiquid investments to 55% of total plan assets within three years.

How are ESG considerations impacting investments according to KKR's report?

The report indicates that 70% of CIOs are incorporating ESG considerations into their investment processes.

What are the key sectors of focus for KKR's surveyed CIOs?

Key sectors include Real Assets, Private Credit, and technology-related investments such as AI and cybersecurity.

What challenges do CIOs face according to KKR's report?

CIOs face challenges related to over-allocation in higher beta, longer-duration equity investments, and concerns about inflation affecting returns.