Investors should boost their exposure to real assets as U.S. economic growth will be stronger than expected this year while inflation remains elevated in 2024, according to KKR & Co.’s Henry McVey.
U.S. real GDP growth will “surprise to the upside” at 2.4% in 2023, outpacing the 2% consensus of economists in an August survey, McVey, chief investment officer of KKR’s $28 billion balance sheet, wrote in a report with Racim Allouani and Drew Golicz.
Although inflation has eased, KKR forecasts that it will clock in at 2.7% next year, exceeding the Fed’s 2% target.
Investors should look beyond traditional hedges such as gold, Treasury inflation-protected securities and real estate investment trusts, according to the report, set to be published Wednesday. Asset-based finance and real assets such as real estate and infrastructure — particularly data centers and fiber optics — offer better return potential regardless of the inflationary environment, according to KKR.
“For those who have a liquidity profile that can handle longer-term investments, there is some real value to considering an allocation to private real assets,” McVey said in an interview.
Over time, KKR has shifted the composition of its balance sheet toward real assets, boosting holdings in infrastructure, real estate and energy to 24% as of Dec. 31, compared with 18% at the end of 2015.
KKR’s vast operations, with $519 billion of assets under management as of June 30, give the firm a broad window into the state of the economy. It owned stakes in 127 businesses at year end, including health care, real estate, payments and pipelines, as well as a mail-order contact lens company and TikTok owner ByteDance.