Dream Big — KKR Insights, Global Macro Trends

Link: https://www.kkr.com/sites/default/files/Dream_Big_20211006.pdf



To compensate for the ongoing pressure on interest rates,
CIOs participating in our survey have made substantive,
structural shifts in their asset allocations. Why did they
make this transition? We believe that CIOs are embracing
complexity and the thoughtful use of illiquidity, as public
market assets roll off and excess cash builds up. Improved
asset-liability matching and more robust risk management
have also helped, we believe. Reflective of these shifts,
non-traditional investments, including Real Estate Credit
and Structured Credit, collectively experienced almost a
1,200 basis point increase in market share. As a result, total

non-traditional investments now account for 31.8% of total
portfolios surveyed, compared to 20.3% in 2017. As we
detail below and in Exhibit 21, our work shows that 100%
of the gain came at the expense of traditional public credit,
which fell to 48.5% of portfolios surveyed, compared to
60.7% in 2017. Meanwhile, the allocation to Liquid Equities
(predominantly by Property & Casualty and Reinsurers that
typically favor Public Equities for liquidity) slipped to 5.5%
from 9.1% over the same period. Cash as a percentage of
assets is now at 4.9%, which is almost double the level
it was the last time we did the survey. See below for full
details on this increase but we think high cash balances
are fueling thoughtful moves into longer duration assets.
However, there is obviously more work to be done, as the
supply of yielding, long-term assets remains limited.

Author(s): KKR

Publication Date:

Publication Site: KKR Global Institute