Introduction
At KKR, we have been publishing forward-looking Capital Market Assumptions since 2017 to help investors think more deliberately about asset allocation, risk, and long-term portfolio construction. These assumptions have evolved over time alongside meaningful changes in the macroeconomic and market backdrop, including higher trend inflation, greater geopolitical uncertainty, and the shift away from the unusually supportive conditions that characterized much of the post-GFC period. In this note, we are taking a deeper dive into the CMA analysis that we originally published in ‘High Grading’, our Outlook for 2026.
Building on our long-standing investment framework, Christian Olinger, alongside members of the KKR Macro & Asset Allocation and Solutions teams, has brought together our latest assumptions for expected returns, yields, and volatility, correlations, and manager dispersion across both Public and Private Markets. The goal is to provide a coherent set of forward-looking inputs that investors can use to assess trade-offs, size exposures, and position portfolios across different time horizons and risk profiles.
In our view, the investing environment today differs meaningfully from the past decade. Cross-asset return dispersion has narrowed, starting valuations are less forgiving, and traditional diversification has become less reliable. As a result, incremental performance is increasingly driven by how portfolios are constructed, not simply by what they own. Against this backdrop, quality, selectivity, and implementation discipline matter more than ever, and Private Markets are playing an increasingly important role as core building blocks within diversified portfolios.
The following key data and assumptions underpin our Capital Market Assumptions:
- Term structure of expected returns across 5-, 10-, and 20-year horizons.
- Long-term expected yields by asset class.
- Expected volatility by asset class, including both reported and unsmoothed views for Private Markets.
- Cross-asset correlations to help investors evaluate diversification benefits under our assumptions.
- Private Markets manager dispersion to quantify the potential impact of manager selection.
Our interactive digital experience helps investors explore these assumptions by comparing expected returns with history, seeing how they change across horizons, and using our volatility and correlation estimates to gauge risk and diversification. The goal is to provide a clear, practical set of inputs that investors can use within their own portfolio construction frameworks to pursue incremental return and improve diversification in a world where broad market exposures are potentially less forgiving.
