KKR released its 2025 Global Macro Outlook by Henry McVey, CIO of KKR’s Balance Sheet and Head of Global Macro and Asset Allocation (GMAA).

McVey and his team retain a Glass Half Full mentality heading into 2025, though they believe the bar is now higher to achieve strong absolute returns. They also note that while investors should expect lower returns and more volatility, the combination of stronger U.S. productivity, favorable technicals, robust nominal earnings growth, and lack of net issuance elicit confidence that more gains lie ahead for investors in 2025.

Against this backdrop, McVey and his team suggest that investors own more assets that are linked to nominal GDP, such as Infrastructure, Real Estate and Asset-Based Finance. They are also positive on investments linked to domestic consumption stories, control positions where operational improvements can drive robust growth, investments that stand to benefit from political changes, and the private sector, which is positioned to benefit from the general desire for “less government” amid rising deficits.

The following key points underpin the team’s latest thinking:

• Recent election outcomes around the world put an exclamation point on our Regime Change thesis for investing, which is driven by bigger deficits, heightened geopolitics, a messy energy transition, and stickier U.S. inflation.

• We envision a blurring of economics and national security across all regions, likely encouraging political leaders to develop ways to expand investment, including increased savings, more private sector involvement, and a focus on driving down the cost of capital.

• We are experiencing an asynchronous recovery. For the first time, the ECB is cutting earlier and faster than the Fed this cycle, while in Asia, the Bank of Japan is raising rates. At the same time, Chinese bonds now yield less than those of Japan.

• We finally believe that the more aggressive GDP and EPS growth estimates for the U.S. by the sell-side to start the year will set a higher bar for an 'upside surprise' in 2025. In this context, we think earnings growth now matters more than multiple expansion.

• U.S. productivity is surging, elevating both earnings and growth. This backdrop should give a boost to the U.S. dollar as well as U.S. equity and credit markets again in 2025.

• We are focused on currency volatility, as tariff wars and big fiscal imbalances could create volatility shocks that differ from recent cycles.

• We are below consensus on our near-term outlook for oil. At the same time, however, as AI scales, we believe energy security will become even more entwined with national security.

McVey and his team also identify the following key mega-themes that can serve as compelling investment opportunities in today’s more complicated environment:

• Improved Capital Efficiency – We’re seeing more companies shift from capital heavy to capital light. This playbook opens a major opportunity for credit providers to make a compelling economic rent by providing an ‘off ramp’ for the assets being sold.

• Private Sector Market Share Gainers – We believe the combination of rising deficits and the desire for ‘less’ government will lead to a larger private sector role in key growth markets. Areas such as digital infrastructure, space exploration, retirement savings, and defense are likely to see outcomes shaped by increased private investment.

• Worker Retraining/Productivity – We think the opportunity set for lifelong learning and worker retraining may be as large as it has ever been amid rapid technological changes and post-COVID educational disengagement.

• Security of Everything – We remain maximum bullish on this theme. Against a background of rising geopolitical tensions, cyberattacks, and shifting global supply chains, there is demand for resiliency in key inputs such as energy, data, transportation, and pharmaceuticals.

• Intra-Asia – We think Asia is becoming more Asia-centric, with increased trade within the region versus with developed markets in the West; we also see more countries in the region participating in Asia’s global growth engine. We’re focused on key areas including transportation assets, subsea cables, security, data/data centers, and energy transmission.

• Demographic Challenges to Retirement Security – We are bullish on domestic retirement savings, especially as the working-age population is peaking in many parts of the world and more governments begin to appreciate the importance of keeping local flows in their own markets.

• AI/Energy Infrastructure — For AI to scale, massive investment will be required in the picks and shovels as well as the energy infrastructure required to support growth. We also expect more global expansion linked to AI in the coming years, especially in Asia.

In addition to these insights and themes, the report details the GMAA team’s updated views on the geopolitical landscape, global economic forecasts, capital markets, interest rates, commodities, and asset allocation.