OREANDA-NEWS. KKR today released a new outlook piece by Henry McVey, Member & Head of Global Macro and Asset Allocation. In "Getting closer to Home", McVey outlines key global trends that he believes will impact asset allocations for the year.

"While the general backdrop for risk assets remains favorable, we are no longer advising folks to "Stay the Course" as we did in our January 2014 Outlook piece," McVey writes. "Rather, given where we are in the cycle and the magnitude of gains in recent years, we have begun the inevitable process of "Getting Closer to Home" in terms of our asset allocation targets. In particular, we do advise folks to raise some cash and to tilt the invested part of the portfolio to become more opportunistic in 2015."

In the piece, McVey also outlines key themes that make compelling "arbitrages" in the global macro landscape that CIOs and portfolio managers should pursue this year. These include:

  • China's slowing is not an aberration. As such, its role in the global economy is materially shifting, which means that McVey expects to see sizeable restructuring and recapitalization opportunities in sectors that previously over-earned and/or overstretched their footprints.
  • Many corporations still have inefficient capital structures, including too much cash and too little debt, in his view. As such, investors can still benefit from corporate and/or shareholder actions to lower companies' cost of capital and/or improve growth, including buybacks, dividends, capital expenditures and acquisitions.
  • Despite a slew of liquidity in the system, many companies across both emerging and developed economies still can't get proper access to credit. Hence, McVey still sees a compelling illiquidity premium that is worth pursuing, particularly in today's low rate environment.
  • McVey suggests harnessing volatility in the liquid commodity markets. He continues to favor private real asset investments with upfront yield, growth and long-term inflation hedging relative to traditional liquid commodity notes and swaps.
  • Government deleveraging in the developed markets is disinflationary, which drives McVey's thinking about the direction of long-term interest rates as well as the relative value of risk assets against the risk-free rates.

Links to access the note as well as an archive of McVey's previous publications follow:

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KKR is a leading global investment firm that manages investments across multiple asset classes including private equity, energy, infrastructure, real estate, credit and hedge funds. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world?class people, and driving growth and value creation at the asset level. KKR invests its own capital alongside its partners' capital and brings opportunities to others through its capital markets business. References to KKR's investments may include the activities of its sponsored funds.