Global Wealth Investment Playbook

KKR argues that global markets have entered a 'Regime Change' of persistent inflation and geopolitical instability, primarily driven by the Iran conflict and supply chain pressures. They recommend 'high-grading' portfolios and increasing allocations to private markets (Private Equity, Infrastructure, and Credit) to offset the declining efficacy of the 60/40 model.

Key Takeaways

• 1.The 'Regime Change' thesis is reinforced by higher inflation, geopolitical uncertainty (Iran conflict), and supply-driven volatility.
• 2.Traditional 60/40 portfolios are underperforming; investors should incorporate alternatives like Private Equity and Real Assets for diversification and inflation resilience.
• 3.Quality (High-Grading) is currently underpriced; investors can upgrade portfolio quality at relatively low cost in both Equities and Credit.

Table of Contents

• The Most Important Things to Know In 2Q26
• We Believe the Iran War Reinforces a Macro Regime Change—Requiring a Rethink of Asset Allocation
• Geopolitics Are Amplifying Supply Chain Stress and Creating New Price Pressures Across Energy, Food, and Semiconductors
• Impacts Are Uneven—Asia and Europe Face Greater Exposure, While Lower-Income Households Bear the Brunt Globally
• 'High Grading', or Creating a Higher-Quality Portfolio at Minimal Additional Cost, Continues to Be Our Theme of the Year...
• Investor Expectations Are High In Equity Markets, While Credit Is Normalizing
• Private Credit Has Grown Meaningfully, But Is Still Not a Major Segment of the Global Fixed Income Market
• AI Job Displacement Has Thus Far Been Modest, But We Believe Now Is the Time to Assess Long-Term Durability of Business Models
• Structural Offsets Remain—Productivity Gains Are Limiting Recession Risk In Major Developed Markets
• Deploying Capital Steadily and Increasing Diversification Through More Control Positions Can Help Boost Returns in Many Instances
• Making Our Own Luck by Leaning Into High-Conviction Themes and Rethinking Portfolio Construction
• Upfront Yield, Non-Correlation, and Operational Alpha Will Drive Performance in the Narrower Return Environment
• Investors Should Consider Adjusting Asset Class Exposure to Align With Their Portfolio Objectives
• Alternative Asset Classes Have Historically Helped Investors Generate Income, Preserve Capital, and/or Boost Returns
• The Case for Private Markets
• The Value of the Illiquidity Premium in Private Equity Often Increases When Public Equity Returns Are Less Robust
• Private Infrastructure Can Often Provide Downside Protection With Inflation-Hedged Upside
• As for Real Estate, We Are Beginning to Turn More Positive
• In Direct Lending, We Advocate Sheltering in Quality
• In a World Where Spreads Are Tighter, the Mix And Quality of Risk Now Matter More than the Quantity of Risk One Takes
• Disciplined Manager Selection Matters More Than In the Past

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