Finance

Private credit fundraising has surged more than 150% over the last decade as new banking regulations paved the way for other #lenders to step in, among other factors. Looking ahead, we believe private credit can be an attractive way for #investors to generate higher #yields and further diversify portfolios. Direct lending strategies, for example, can help mitigate interest rate risk due to their floating-rate nature, and are typically secured by collateral which can provide downside protection in the case of default. Their private nature and quarterly marked-to-market valuations also tend to reduce price volatility which can lead to smoother and better returns. Read more about the opportunities and risks in our intro to private credit report.

We often hear that there is no value in the equity markets. We are not so sure. No doubt that on the surface, the S&P 500 appears expensive relative to history, trading at 19.4x times NTM earnings versus a trailing 10-year average of 17.7x. However, as our macro work often focuses on getting beneath the headline numbers, just consider that the top 12 mega-cap Tech / AI-related stocks, which have now appreciated 56% YTD (from $7.3 trillion to $11.5 trillion), and are trading at fully ~28x NTM P/E, while the rest of the index (i.e., 488 stocks, or about 98% of constituents) in aggregate is actually reasonably valued at ~17x, modestly below the 2017-21 average of 17.3x (and not out of line with the current interest rate environment). To be sure, an acceleration of AI means that there will likely be some massive longer-term winners in the growth arena on which one should focus. However, at KKR specifically, we are primarily focused on the segment of the market with solid cash flow and reasonable valuations, including the S&P 600. The good news is that the S&P 600 appears quite compelling from a valuation perspective relative to the S&P 500, and as such, is where we are most active from a potential deployment perspective. In addition to more reasonable valuations, we think there are significant opportunities in this segment to use our entire KKR tool kit, including #employeeownership, strategic direction, and operational improvement, to partner with leading businesses to create value. So, our bottom line is that, while the overall headline index may not be trading at attractive levels across many asset classes, there are opportunities for those who are willing to look beyond the macro headlines to the micro opportunities. Read more about where we see the best risk-adjusted opportunities https://go.kkr.com/3qaiRyB.

Private Thoughts from my Desk……………#22 We just published our annual Global Private Equity Report, and this year we call attention to one of the smallest – but most dynamic – corners of this industry…… Secondaries. Secondaries is a catchall term these days for all kind of “liquidity solutions”. Most of the capital is deployed in either traditional LP-led secondaries or GP-led continuation vehicles, which have surged in recent years to account for around half of Secondaries transaction volume today. But there are also strip sales, NAV-based lending, preferred equity solutions, etc. The industry has gotten quite creative! I mentioned that Secondaries is a smaller market………… so why care? The fact that Secondaries is small is a big reason why people should care! To give a sense of scale, with global Secondaries transaction volume of around $120B annually, the market provides only ~1% liquidity for the ~$20T AUM alternatives industry. By comparison, the US public equity markets turn over more than $200B in assets daily. Of course, most alternatives strategies are inherently illiquid. Investors can’t expect to get liquidity with the same ease as public markets. But is there a reasonable place between the current 1% private markets liquidity and public equities for investors to cash out when they need or want to……..? Demand for Secondaries would suggest that the market could indeed be much bigger. LPs feeling the current ‘liquidity squeeze’ or proactively rebalancing their portfolios are increasingly selling stakes. GPs looking to hold onto their best assets while providing LPs liquidity (and securing some DPI) are driving demand for continuation vehicles– 2024 is poised to be the biggest year ever for these transactions. And, as more private wealth comes into alternatives, investors are finding Secondaries are a great way to gain exposure. Secondary funds offer diversification, an accelerated J curve, and an attractive risk/return profile. In fact, Secondaries is the only alternatives asset class where even the bottom quartile delivers a positive return (see the chart below). Read about Secondaries and more in Bain & Company’s 2024 Global Private Equity Report here https://lnkd.in/ejheN_sf. #privateequity #privatemarkets #privatethoughtsfrommydesk

How healthy is the U.S. consumer? So far through 2023, consumers’ spending has defied expectations and remained robust despite high rates of inflation. This then raises the question: how much will the consumer spend at retailers as we move into the critical Q4 period? The chart below attempts to provide some guidance by adjusting the monthly retail sales data for inflation using the CPI for commodities (a permanent FRED link to the data used in this chart can be found at https://lnkd.in/gDADwQSD). Data run through August of this year. Thoughts. •In this chart, I’ve plotted seasonally and inflation adjusted retail trade sales and included the 2014 – 2019 trendline (estimated using SOLVER in Excel using Ordinary Least Squares). •Looking at the pattern, we see the surge above the trendline starting June 2020 when consumers came out of COVID-19 lockdowns with stimulus money and fewer chances to spend on services, so America goes shopping. That behavior was supercharged starting March 2021 with stimulus round 3. Subsequently, retail sales have flatlined since about July 2021, which is a substantial change from the upward pre-COVID trendline.  •In terms of forecasting Q4 2023, my expectation would be for inflation adjusted sales to come in around the levels we saw last year given the flat trend (and possibly down a percent or two given the economic uncertainty, resumption of student loan payments, and higher interest rates). •There is no evidence yet of a collapse of retail sales like we saw in Q4 2008, where inflation adjusted retail sales dropped ~8% from Q4 2007 levels (see https://lnkd.in/gFWeC9fm). •These data likely explain, in part, why containerized imports remain above 2019 levels (https://lnkd.in/gcacg7Kf). Implication: there are no signs yet that consumer spending at retailers is set to fall sharply (certainly nothing like we saw in 2008). All data points towards this holiday season having sales volumes around where they were last year (and maybe down one or two percent). #supplychain #supplychainmanagement #shipsandshipping #ecommerce #freight #trucking

The Family Office investment landscape in 2024 is marked by a decisive shift toward private markets. According to Goldman Sachs, private equity claimed a significant portion of Family Office portfolios in 2023 – representing 26% of their assets. This keen interest in private equity is further substantiated by the UBS Global Family Office Report, which reveals that a remarkable 86% of Family Offices are planning tactical overallocations within this asset class over the next 12 months. In 2023, Family Offices have shown a growing appetite for private debt as a component of their investment portfolios. The BlackRock Global Family Office Survey highlighted that despite a challenging economic outlook, less than a quarter of these offices intend to make material changes to their asset allocation. However, there has been a noted shift in investor sentiment towards private debt. Historically, allocations to private debt have been low, with 87% of Family Offices allocating less than 10%, but two-thirds now indicate their intent to increase their exposure, drawn by the potential returns from dislocated markets. This strategic shift underscores Family Offices' belief in the potential of private equity markets to deliver superior returns, both via investing in private equity firms, but also the direct investment in companies in the mid-market segment. Indeed, Family Offices have been increasingly investing directly in companies – over the past decade, there's been a noted rise in such direct investments due to factors like asset accumulation, talent acquisition, robust networks, and the desire for greater control and decision-making ability. Campden Wealth and FINTRX reports highlight that 76% of Family Offices invest directly in companies, with 83% of Family Offices worldwide considering direct investments. The willingness to take on more risk reflects their confidence in identifying pockets of value within the private equity landscape. As Family Offices pivot toward private equity, they are positioning themselves for long-term growth and the preservation of generational wealth. While private equity takes center stage, Family Offices are also recognizing the value of secondaries investments. The UBS Report highlights a notable trend: nearly half of surveyed Family Offices (45%) plan to over-allocate their portfolios to secondaries. This surge in interest can be attributed to the narrowing valuation gap between public and private markets. As public markets rebounded, secondary markets became increasingly attractive. The ability to transact LP interests in this environment has encouraged higher deal volumes. Secondaries funds raised a staggering $34.66 billion in 2023, surpassing the previous year's total and on track to exceed 2021's record. Some alternatives fund managers, such as Morgan Stanley Alternative Investment Partners and Blackstone, have raised capital for secondaries strategies in 2023. #familyoffice #tiger21 #privateequity

I had a hard conversation with a friend recently. She’s a first-time biotech CEO, sharp, committed and operating in one of the toughest markets we’ve seen. For the past 18 months, she’s tried to raise $20 million to get her first-in-class, preclinical program to IND. So far, she’s raised $2.5 million. Her asset is based on a novel modality, supported by a team of consultants and aimed at an ultra-rare indication, a strategic choice to keep future clinical trial costs low. But that same strategy has limited investor interest. Aside from one disease foundation that wrote a check, the capital just isn’t coming. We talked through her options and I wanted to share those ideas with you, if you're in a same pickle. 1. The first was to pause. She could sit on the data, conserve cash, and wait for markets to turn while continuing to add value elsewhere (btw, only big pharma is hiring..). This preserves her control but halts the momentum and relevance. Success is only possible if she stays visible and ready to act. 2. The second was to merge with another small biotech team in the same modality and/or indication. It would offer a combined portfolio, stronger team story and a better pitch. But merging visions and cap tables is hard, still, in this market, it might be her best shot. 3. The third was to reposition. A broader disease indication could attract investor interested in larger markets. It would delay development and introduce new risks, but if feedback from her next pitches is positive, it may be worth it. She still has a couple of bucks that could support a few animal efficacy experiments. 4. Finally, we revisited a licensing interest from a mid-sized Asian pharma six months ago. Selling rights to her lead compound could provide cash or a clean exit, but she'd give up control of 'her baby'. It's the most concrete option, with a high likelihood, if she’s willing to let go. None of these are easy but in this market, founders need to stop confusing investor disinterest with personal failure. Being a great CEO doesn’t always mean pushing forward, it means knowing when to pivot, partner, or exit on your terms. Have you ever faced a similar moment? What helped you decide? #BiotechLeadership #StrategicOptions #FundraisingReality #RareDisease #FounderDecisions #MarketTiming

One investing framework: follow the money. Where are people spending money, & what can we learn from those patterns? Despite a rocky economy, consumer spending is going strong. Even amidst high inflation rates in 2022, even with the S&P 500 dropping -19.64%, people kept spending. A Bank of America study found that credit & debit card spending rose +5.9% in 2022. If we track household expenditures, a few categories stand out. This week's Digital Native dives into 4 key categories of spend & innovation happening in each one: 1) Housing Housing is the biggest bucket of household spend, 33% of total spend. There are interesting startups building in the housing swath of spend. Many help with home ownership—Summer with second homes, for instance, or Snapdocs with mortgage closing. But there are also startups tackling housing spend *beyond* homeownership. Bilt Rewards, for instance, lets people earn points while paying rent. 2) Experience Economy & Travel Social media in the 2010s powered the "experience economy"—the new Coach bag was a photo at Coachella. In a post-COVID world, experiences are back: Airbnb last-12-months revenue is up +23% year-over-year, and the Eras Tour is the hottest ticket of summer. Experiences are dominated by much-loathed incumbents: Ticketmaster, for instance, or OTAs like Expedia and Booking. Incumbent dominance (with a low NPS score) = startup opportunity. A-Rod and Marc Lore are taking on Ticketmaster with their new startup Jump, while companies like Safara are challenging the OTAs with a more user-friendly travel interface. AI will soon offer all of us a travel agent copilot for every aspect of our trips. 3) Pet Pet is consistently one of the best investment categories. Why? Well, people love their pets. And they spend *a lot* of money on them. Having kids later in life has given birth to the "fur baby" phenomenon: more US households have pets than kids (80M vs 35M) and Americans spend $137B a year on their pets (+11% year-over-year). We see innovation across sub-categories of pet spend. Companies like The Farmer's Dog have become giants in food, while companies like Modern Animal have reinvented vet care. What are also interesting: B2B businesses bringing pet into the 21st Century. Goose, for instance, is vertical SaaS for pet service providers (think daycare, grooming, pet wash) that digitizes a large but archaic market. 4) Shopping Americans love to shop. The average U.S. household spends about $1,500 on clothing each year. There are few interesting trends in commerce—one is the rise of creator-led brands. SKIMS (Kim K), PRIME (Logan Paul & KSI), and Feastables (MrBeast) have become surprisingly-large businesses, quickly. We also see the rise of relatively brandless, discount products through ecomm sites like SHEIN and Temu. SHEIN or Temu is No. 1 in the App Store in half of the world's 50 largest economies. ---- The full piece dives deeper. You can read it & subscribe to get Digital Native here 👇

Jon Gray (President of Blackstone) was interviewed on Bloomberg this morning. Here are the key take-aways: - A potential risk is that central banks don't want to move too quickly to stimulate the economy and will be patient in reducing rates, which could cause a slow down. - A potential risk for investors is waiting too long, particularly in sectors where there’s been a bigger decline in value and people are more cautious. - In CRE, the sentiment is quite negative and the fundamentals feel like they’re bottoming. The risk is you miss it by being overly cautious. Now is a good time to move before rates come down. - Good sectors include: a) Fixed income - spreads in certain asset classes are still wide by historic stands and base rates are high, b) Capital solution provider - helping people get liquidity e.g. investors who need to deleverage or working with banks to give them capital relief and c) CRE sectors like digital infrastructure, green energy, life sciences, etc. - CRE was hit by two primary factors: WFH trend and rise in interest rates. In this environment, you want to look through that. - Seeing cost of capital start to come down, spreads are starting to tighten, new construction is coming down dramatically, so they see opportunities in sectors like logistics, digital infrastructure, student housing, and hotels. - Don’t think there’s a systemic risk in the financial sector. There are some financial institutions that will have issues like New York Community Bank. It’s not 2008/2009 in scale, but there will be some issues. That’s what creates opportunity. - The perception and headlines are so negative in CRE, but the value decline has already occurred. This bottoming period is when you want to move. - In CRE, there were assets financed in a different environment and there’s a profound impact particularly in the office sector. That will create opportunities. For example, they bought a $17B mortgage loan portfolio with the FDIC from Signature Bank. - BREIT – basic premise was to create a product for individual investors to invest in private real estate. Wanted to deliver returns in excess of the public market in a semi-liquid vehicle. Over the last 7 years since starting, they have doubled the returns of the public REIT market. For 6 of those years, they gave monthly liquidity. In the last 12 months, it took about 4 months to fulfill redemption requests. Most recently, they’re meeting the needs of monthly redemptions. - CRE market bottoming, rates coming down, and lack of new supply should all be positive factors for CRE and BREIT. - What’s happening in AI is creating a ton of demand for new data centers. It's also going to raise interesting questions about power and those will have longer term societal impacts. But for now there’s a race to build these and an opportunity to deliver great returns. 

Founders - Why Monthly Investor Updates Matter 📈 Of all of the challenging tasks on your plate, sending these updates is probably the easiest thing you can do to keep your company moving forward. Great founders shine through their communication rituals – with teams, customers, and investors. Crafting world-class investor updates is a high-value skill that can set you apart. How often do founders send updates? 👉 60% communicate monthly 👉 21% prefer weekly updates 👉 3% opt for daily communication 👉 16% stick to quarterly updates The Goldilocks Zone: Daily updates may not be the norm, but in extreme situations, they can be a game-changer. Quarterly updates, however, might be too infrequent. Monthly updates strike the perfect balance, with the flexibility to adjust frequency during crises or major changes. Key Takeaways: - Monthly updates are a must – consistency builds trust. - Be transparent; never dissemble. - Back your updates with data – numbers tell the story. - It's a narrative over time, not a one-shot report. - Make updates easy to scan and act upon. - Consider using a template (see photo) – simplicity is key. Feel free to use this template or create your own – the key is to keep the conversation alive and your investors engaged and informed on what's happening. #founders #startups #venturecapital #entrepreneurship

A $996K hospital bill ballooned to $11M so the carrier could earn a "savings" fee. The carrier made nearly 3x as much money as the hospital through a common profiteering scheme that employers are signing off on. Employer paid more than 4x the original hospital bill. Ever wondered why they call them carriers? Because they carry your money from one place to another and grab huge wads of cash along the way. It's the law (CAA 2021) that employers have unfettered access to their claims data but most aren't following the law so they're allowing their members to get fleeced. In fairness, carriers make it hard for them to follow the law. It's why you see suits like the Kraft Heinz v Aetna case. Wise employers realize that they'll be sued if they don't find alternatives so they can follow the law. On the latest The Benefit Whisperer episode, I joined Ralph Weber REBC®, GBA®, CFP®, CLU®,ChFC®, AEP®, ChSNC®, CAP® to break down how hidden contract terms, PBM rebate games, and anti-steerage clauses are costing employers millions, and how #HealthRosetta is helping them fight back. If you’re responsible for your company’s health plan, you need to know where the money’s really going. [Spoiler alert: It's not going to the true value creators in healthcare -- nurses, doctors and other clinicians] #TheBenefitWhisperer #HealthcareContracts #EmployerBenefits #PBMTransparency #HealthcareReform