KKR's McVey Sees ‘Extremely Low’ Rates Through at Least 2021

(Bloomberg) -- KKR & Co., one of the biggest private equity firms in the U.S., sees interest rates staying low for at least another two years -- and probably longer.

Aging demographics and technological innovation as well as central bank intervention will help to “put a lid on” rates, Henry McVey, KKR’s head of global macro and asset allocation,
said in a report released Tuesday. He later told Bloomberg Television that there’s a better chance the Federal Reserve won’t cut interest rates this year.

“We have high conviction that rates are likely to remain extremely low through the end of at least 2021 -- and most likely well beyond this time frame,” McVey wrote in the report.

Even as U.S. unemployment hovers near the lowest level in decades, Fed officials have signaled that an increase in rates is on hold this year as inflation remains weak. Globally, predictions for growth have also waned.

Last week the International Monetary Fund cut its forecast for global expansion to the slowest pace since the financial crisis a decade ago, but played down the risk of recession and predicted growth will pick up in the second half of the year to stabilize at about 3.6 percent in 2020.

The stimulus in China is starting to work but won’t likely be felt until the third quarter, McVey told Erik Schatzker in the interview. The Chinese government has strengthened spending to support the economy with tax cuts and more bond sales for local governments.

Other highlights from KKR’s report include:

• The firm maintains an overweight position on the real estate side of real assets.
• KKR favors shorter-duration, collateralized private investments, particularly in areas such as housing in Europe and the U.S.
• It’s constructive on senior living and health-care facilities.
• McVey says “we like the rising demand that we are seeing for affordable housing and student housing in both developed and developing markets.”

To contact the reporter on this story: Melissa Karsh in New York at mkarsh@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Vincent Bielski, Josh Friedman

©2019 Bloomberg L.P.