KKR puts out nice perspectives pieces every so often, and they just released their 2022 mid year update. Instead of summarizing what I think is interesting, I’m posting their front page conclusion in its entirety with the bolding my own:
As we have highlighted for some time, our macro viewpoint remains that this cycle is different. Specifically, we see uneven supply constraints, higher levels of interest rates, and heightened geopolitical risks against a backdrop of slower real economic growth and sticky inflation. Overall, we believe that we have entered a regime change, where structural forces now warrant a different approach to portfolio construction. What is so challenging today for macro investors and allocators of capital alike is that the traditional relationship between stocks and bonds — where bond prices rise when stock prices fall — has broken down. Looking ahead, we are now firmly of the view that the macroeconomic narrative will soon shift from a singular focus on the impact of inflation on the global capital markets to one where investors are surprised by how unwelcome inflation adversely affects corporate profits. Importantly, we see inflation from food, oil, and services remaining robust, despite our forecast for deflation in the goods sector by 2023. Against this backdrop, our models suggest that Credit feels cheaper than Equities, and Public Equities appear more attractive than peer-to-peer Private Equity. Meanwhile, in Infrastructure and Real Estate, we do not expect prices to correct too much. Across all our portfolios, we think that a thematic bent continues to be required. Security, pricing power, de-carbonization, collateral-based cash flows, and innovation are all areas where we see significant opportunity to invest behind the ‘signal’ while many today are being swayed by the ‘noise’ of unsettled markets. Finally, from a deployment standpoint, we think that we remain in a walk, not run stance, until the Fed has inflation more under control and/or corporate profit estimates look more achievable.
KKR 2022 Mid Year Update