KKR, the global investment firm, released its 2025 Mid-Year Global Macro Outlook on July 17, where it signalled a strategic pivot: investors should take a more deliberate, outcomes-focused approach to portfolio construction as the investment landscape shifts.
Titled “Make Your Own Luck,” the report builds on KKR’s earlier “Glass Still Half Full” thesis but recognises that the new era of geopolitical fragmentation, fiscal excess, and rolling market shocks demands tactical precision and proactive risk management.
According to the report, in the first half of 2025, capital markets remained resilient despite a series of macro and geopolitical headwinds, including a US airstrike in Iran, a sovereign credit downgrade by Moody’s, and a dramatic tariff escalation under President Trump.
Notwithstanding these disruptions, risk assets, particularly outside the United States, delivered solid returns, thanks to a weakening dollar, falling global interest rates, and historically low net new issuance across both debt and equity markets, the report said.
Against this backdrop, KKR argues that financial conditions remain looser than widely believed, and valuations are being supported by technical tailwinds even as fundamentals remain mixed.
Still, KKR is adjusting its positioning.
Rather than leaning into broad beta exposure, the firm recommends emphasising “control” in portfolios, whether through private equity investments with operational levers, senior slices of credit benefiting from relative value, or real assets offering inflation-linked cash flows.
“We want to tilt our portfolios to gain more exposure to operational leverage stories and macro tailwinds that help us to better control investment outcomes than in the past,” said Henry McVey, CIO of KKR’s Balance Sheet and Head of Global Macro & Asset Allocation.
The report reiterates KKR’s thesis of a “Regime Change”, a fundamental shift from an era defined by globalisation, low inflation, and abundant liquidity to one marked by strategic competition, fiscal overreach, and inflation volatility.
In this environment, the firm has identified several high-conviction investment themes, including the “Security of Everything,” the shift from capital-heavy to capital-light models, collateral-based cash flows, worker retraining and productivity, and intra-Asia connectivity.
Notably, the outlook sees continued strength in US and global equities supported by productivity-driven earnings growth.
KKR’s proprietary earnings growth model has revised its S&P 500 EPS forecast upward from 4 percent to 8 percent, citing stabilising credit spreads and lower oil prices. Meanwhile, the firm downplays fears of a hard landing in the US economy, arguing that private sector leverage remains well-behaved, and excesses in housing and inventories are absent.
Geopolitics, however, remains a central risk.
KKR highlights the ongoing convergence of economic, political, and security priorities, pointing to developments such as Europe’s new 5 percent defence spending target and the US Congress’s move to permanently enshrine corporate tax cuts. The outlook also flags emerging pressure on the US dollar and long-end yields, driven by growing deficits and a shift in global capital flows.
Regionally, the firm is increasingly constructive on Europe and India.
The former benefits from low valuations, defense sector momentum, and capital market reforms, while the latter is seen as a scalable, consumer-led growth story relatively insulated from global trade tensions. Japan also remains a key focus, particularly as companies unwind cross-shareholdings and increase shareholder returns through buybacks. Among asset classes, shorter-duration CLO BB tranches, Asia real estate, and infrastructure-linked private assets are flagged as attractive opportunities.
KKR also notes that AI-driven capital expenditure is becoming a larger share of GDP, with potential upside to productivity but also heightened risk of misallocated capital. As such, the firm warns against overexposure to momentum trades in AI and levered consumer sectors like autos and food.
The firm further advises investors to reduce dollar overweight positions, avoid excessive duration risk, and build portfolios that prioritise resilience, income, and optionality. “We expect the cycle to run longer than many believe, but the low-rate, low-volatility beta trade is over,” McVey wrote.
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