KKR Releases “The Art of Learning”

May 20, 2025 at 07:00 AM EDT

New Report Outlines Key Learnings for Asset Allocation Post Liberation Day

KKR, a leading global investment firm, today released “The Art of Learning,” a new Insights piece by Henry McVey, CIO of KKR’s Balance Sheet and Head of Global Macro and Asset Allocation (GMAA).

While Henry McVey and his team continue to believe that we are still in a Regime Change for investing, they explain that the introduction of a potentially weaker dollar, coupled with their longstanding conviction in the correlation between stocks and bonds moving from negative to positive, could have significant implications for asset allocation.

They specifically note that the depreciation of the U.S. dollar, sell-off in equities and decline in bond prices seen following the April 2^nd Liberation Day announcement have challenged the following two fundamental underpinnings of modern-day asset allocation theory:

During risk off days, government bonds are no longer fulfilling their role as the ‘shock-absorbers’ in a traditional portfolio, upending the theory that when stocks sell off, bonds will always rally both in the U.S. and in other developed markets.

While bonds and stocks were selling off together, the U.S. dollar was also weakening, raising a fear that local currency liabilities could be a more severe drag on performance than expected, especially during periods of volatility.

In light of these changes, McVey and his team posit that the traditional role of U.S. government bonds in 60/40 portfolio structures may diminish and that investors could benefit from incorporating international bonds to provide diversification benefits.

The report also examines the relative importance of goods versus services to the U.S. economy, estimating that the gross profitability of U.S. services exports currently surpasses the ‘lost profits’ on goods that the U.S. imports instead of manufacturing domestically. This points to the fact that, contrary to the popular interpretation of the ‘America First’ agenda, U.S. businesses have actually been outsourcing the production of low margin goods to help facilitate activity in relatively more profitable and productive areas. With that in mind, McVey and his team believe that more work needs to be done around extending America’s competitive advantage in higher-profitability, higher return services sectors of the economy, and that this would be a boon not only for businesses but also for workers.

In addition to these insights, the report discusses how partial tariff relief has arrived faster than originally anticipated. The team has lowered their effective tariff rate from 18% to 15% and revised GDP forecasts in the U.S., Europe, and China accordingly. The report also addresses key questions that the team has been receiving from clients following the Liberation Day announcement, including the outlook for capital markets, particularly outside the United States.

Links to access this report in full as well as an archive of Henry McVey's previous publications follow:

To read the latest Insights, click here.
For an archive of previous publications please visit https://www.kkr.com/insights.

About Henry McVey

Henry H. McVey joined KKR in 2011 and is Head of the Global Macro, Balance Sheet and Risk team. Mr. McVey also serves as Chief Investment Officer for the Firm’s Balance Sheet, oversees Firmwide Market Risk at KKR, and co-heads KKR’s Strategic Partnership Initiative. As part of these roles, he sits on the Firm’s Global Operating Committee and the Risk & Operations Committee. Prior to joining KKR, Mr. McVey was a Managing Director, Lead Portfolio Manager and Head of Global Macro and Asset Allocation at Morgan Stanley Investment Management (MSIM). Learn more about Mr. McVey here.

About KKR

KKR is a leading global investment firm that offers alternative asset management as well as capital markets and insurance solutions. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and supporting growth in its portfolio companies and communities. KKR sponsors investment funds that invest in private equity, credit and real assets and has strategic partners that manage hedge funds. KKR's insurance subsidiaries offer retirement, life and reinsurance products under the management of Global Atlantic Financial Group. References to KKR's investments may include the activities of its sponsored funds and insurance subsidiaries. For additional information about KKR & Co. Inc. (NYSE: KKR), please visit KKR's website at https://kkr.com. For additional information about Global Atlantic Financial Group, please visit Global Atlantic Financial Group's website at https://www.globalatlantic.com/

The views expressed in the report and summarized herein are the personal views of Henry McVey of KKR and do not necessarily reflect the views of KKR or the strategies and products that KKR manages or offers. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment decision or any other decision. This release is prepared solely for information purposes and should not be viewed as a current, past or future recommendation or a solicitation of an offer to buy or sell any securities or to adopt any investment strategy. This release contains forward-looking statements, which are based on beliefs, assumptions and expectations that may change as a result of many possible events or factors. If a change occurs, actual results may vary materially from those expressed in the forward-looking statements. All forward-looking statements speak only as of the date such statements are made, and neither KKR nor Mr. McVey assumes any duty to update such statements except as required by law.