Insights from KKR’s Second Global Wealth Investment Council

Earlier this month we convened the second meeting of KKR’s Global Wealth Investment Council (GWIC), bringing together ten experts from leading wealth and asset management firms from across the U.S., Europe, and Asia. The GWIC serves as a forum for open dialogue on the topics of macroeconomics, capital markets, asset allocation, and the role of private markets in individual portfolios. As both chair and a member of the Council, I think it is terrific and highly additive to engage with an esteemed and experienced global group on topics around public versus private markets, or the impact of elections on asset allocation. When we surveyed members in February on the macroeconomic environment and trends they were seeing among high-net-worth individuals ahead of our inaugural meeting, concerns about sticky inflation and slowdowns in consumer spending and job growth were top of mind. We surveyed the Council again right before our most recent gathering in October and had the following takeaways:

#1 Macroeconomic Outlook

While we remain cautiously optimistic about global economic growth, we are closely tracking pockets of weakness, especially in consumer segments across geographies. In fact, our October survey revealed broad consensus that weak job growth and consumer spending continued to be the most salient risks globally. Remarkably, outside of China, solid labor markets—upheld by labor shortages—and healthy balance sheets have shielded many consumers from major distress. However, the burdens of prolonged elevated prices and higher borrowing costs are likely to induce some weakness in consumer spending over the coming quarters. That said, falling interest rates should offer some support for consumers who face the burdens of elevated borrowing costs. 

At KKR, our view is that the current global growth cycle is asynchronous with the U.S. and Japan positioned more favorably than Europe and China in the near term. The GWIC voted that Europe is likely to face the greatest challenges in 2025 largely driven by higher energy costs relative to other regions. Anecdotally, European manufactures are experiencing electricity costs that are 3-4x higher than their U.S. counterparts. On the other hand, North America was again voted to be the best positioned region by 70% of respondents.

In February, most members anticipated a ‘soft landing’ for the U.S. economy and by our October meeting, there was no doubt that this was the highest probability outcome. Survey respondents were unanimous in their expectation for slow—yet positive—growth in 2025 (full year real GDP 1-3% y/y). Opinions were mixed, however, on the timing of potential rate cuts: 37.5% anticipated the Federal Reserve to cut 3-4 times before the end of 2025, with 37.5% expecting 4-6 rate cuts, and 25% penciling in 7-9 cuts. However, consistent with our New Regime thesis defined by elevated inflation volatility and higher rates compared to pre-pandemic average, the Council overwhelmingly believes that the long-term 10-year Treasury rate will average between 3.5% and 4.5%, significantly above the 2014-2019 mean of 2.3%. Looking beyond the U.S., all survey respondents were expecting higher rates in Japan, though how much higher is up for debate. The GWIC was divided with half of the council expecting 0-1% and half of the council expecting 1-2% 10-year JGB yield at the end of 2024.

#2 Geopolitics

After consumer health, GWIC members identified geopolitical headwinds as a top concern. History suggests that conflict is inflationary and induces volatility, necessitating portfolio construction solutions that offer investors multiple ways to win. Importantly, members believe that geopolitical dynamics also offer investment opportunities. In fact, the “security of everything” and “onshoring” were voted top themes to get right over the next 12 months, second only to AI.

#3 Asset Allocation

In our prior survey in early 2024, council members believed that high-net-worth investors were most overweight in Cash. Fast forward to October, and half of the members believe that investors are overweight Public Equities, closely followed by Cash. With rates coming down, the return on Cash will decline from today’s levels. Given elevated valuations in the large cap segment of the S&P 500 as well as strong returns of late, the outlook for Public Equities over the next five years is likely less rosy as compared to the impressive double-digit returns over the last two years.

How might investors rebalance? As we saw in February, most GWIC members believed that high-net-worth individuals were underweight Alternatives. Heading into 2025, the council members view Private Equity and Public Equities as the most attractive asset classes, compared to Public Equities and Bonds in the previous survey. The group expects Cash and Treasuries to look stressed during the next six months, echoing results from the February survey. At KKR, we believe that in the current phase of the cycle, as growth bottoms and rates decline, investors should tilt portfolios to favor equity-based strategies, extend duration within credit to lock in yields, and lean into structures that mitigate volatility, such as downside protection through infrastructure. ​

In “An Alternative Perspective: Past, Present, and Future” KKR’s Global Head of Macro and Asset Allocation, Henry McVey, estimated that there are now more than $15 trillion of assets under management in the Alternatives space. Interestingly, though, while $15 trillion may sound large in absolute size, it is less than 11% of total global GDP and only 2.4% of total financial assets. We see this trend likely surpassing the current level of investment, reaching at least an estimated $24 trillion by 2028.

#4 Investor Goals

When it comes to helping high-net-worth individuals meet their goals, generating income remains the top priority – a focus unchanged since February. Other goals cited by council members include materially ramping up exposure (i.e., reducing Cash holdings as many clients have 20-30% of their portfolio in Cash), maximizing returns, and preserving capital. Nearly 90% of GWIC members noted they expect to increase allocation to private market investments when working with financial advisors. Their rationale: They understand the role the illiquidity premium can play in compounding capital in a tax efficient manner, building wealth for future generations. Importantly, innovative fund structures and technology solutions, including the introduction of evergreen vehicles, are expanding access to Alternatives for individuals worldwide.

Conclusion

By bringing together these leading minds in wealth management, we look forward to stress testing solutions to help individuals meet their goals against this complex backdrop.