The Global Macro & Asset Allocation team led by Henry McVey recently published its Outlook for 2025: Glass Still Half Full sharing our comprehensive views on the macro and geopolitical backdrop and where we see attractive investment opportunities around the world. In this note we focus on five key takeaways for our financial advisor and individual investor partners that are complementary to our latest Global Wealth Investment Playbook.
We enter 2025 with contrasting narratives unfolding. On the one hand, many around the globe have been suffering from the effects of inflation, rising inequality, and/or political unrest. Governments are contending with soaring deficits and shifting demographics while grappling with the pressing need for substantial investment in infrastructure, security, workforce training, and supply chain resilience. Concurrently, the traditional divide between economic and national security is becoming more ambiguous as we move from an era of benign globalization to one marked by great power competition1. Yet, despite all the cross currents in this new regime, our investment outlook for 2025 still tilts positive. As in 2024, our 2025 mantra is still that the ‘Glass is Half Full’. To be sure, investors should expect lower returns and more volatility this year. Nevertheless, stronger U.S. productivity and earnings growth, loosening global financial conditions, and limited net issuance (which we measure as total proceeds from IPOs, Levered Loans, and High Yield issuance as a percentage of GDP) around the world bolster our belief that the cycle is far from over, with significant opportunity for investors to lean into major investment themes.
Against this backdrop, at KKR we have increased our focus on collateral-based cash flows backed by hard assets, particularly within Infrastructure, Real Estate, and Asset-Based Finance via our balance sheet. These income streams, or the assets backing them, are typically structured to keep pace with inflation contractually, serving as key drivers of the outperformance of many Real Assets in this new investing regime. Further the downside protection2 characteristics inherent in Infrastructure investments are particularly appealing. Meanwhile, Private Equity continues to be the asset class with the highest return potential—especially moving forward—amid pressures on Public Equities driven by elevated valuations, higher inflation volatility, and increased rates. We have observed a robust acceleration in deployment activity and monetization during an overall increase in global capital market activity. Moreover, we are still seeing several mega investment themes that will require trillions of dollars in private capital over the next decade to reach their full potential. In this context, we believe that investors aligned with our top-down Regime Change macro thesis have a compelling opportunity to achieve above-average returns. Our five key takeaways from the 2025 Outlook are as follows:
1. Our Regime Change Thesis Holds in 2025 and Beyond
2024 was what our colleague Ken Mehlman3 described as the ‘year of elections.’ This global wave of voters heading to the ballot box underscored a hunger for ‘change’ candidates, particularly amid the pressures of high living costs since the pandemic. These election results also revealed profound secular shifts reshaping the global landscape, driven by intensifying concerns over national security, technological competition, and control of critical materials and resources including power, semiconductors, and skilled labor. In the United States, the ‘Red Sweep’ reinforced our macroeconomic framework which suggests that the post-COVID era will be marked by a ‘higher resting heart rate’ for inflation, nominal GDP, and interest rates coupled with elevated price volatility.
In this changing macro regime, we anticipate that President Trump’s vision for America will center on fostering accelerated growth and tackling substantial deficits through a combination of reduced regulation and tax cuts. This approach will, we believe, place a significant emphasis on economic independence, prioritizing resilient supply chains, and enhancing local energy production from traditional sources, especially in response to the surging energy demands driven by AI—an essential focus for President Trump’s new team. Striking a balance between growth, deregulation, and the implementation of tariffs will be crucial and challenging, particularly in light of potential reaccelerating inflation, larger interest expense outlays, and an expanding economic divide across various cohorts. These dynamics are likely to amplify inflation volatility, potentially increasing the correlation between stocks and bonds and demanding a reassessment of traditional asset allocation. Such a backdrop could complicate the Fed’s easing efforts. Our expectation is that the Fed will cut rates only twice in 2025, likely in the back half of the year. Against this setting, the appeal of non-correlated assets (including less dependence on global sovereign bonds) will likely grow as investors seek diversification, downside protection, and inflation hedges in an era of compressed returns and heightened volatility. Alternatives, too, are increasingly becoming a cornerstone for institutional and individual portfolios, as they can offer a pathway to stronger returns and resilience in a rapidly changing world.
EXHIBIT 1: As We Exit a Low Growth, Tight Fiscal, and Loose Monetary Environment, We Think That a Regime Change Is Occurring
