Donald Trump's election represented not just a big moment in politics but also a "paradigm shift" in investing, according to private equity giant KKR.
The influential firm with $120 billion under management told clients that events from 2016, including Trump's victory and Britons voting to exit the European Union, represent landmarks for a changing global environment. Years of focusing on boosting financial assets like stocks and bonds will give way to growth-oriented policies, more focus on domestic agendas and increasing volatility.
"Inspired by the aforementioned catalysts, we have entered into ... a 'political bull market,'" Henry McVey, head of global macro and asset allocation at KKR, said in a report for clients. "From 2008-2015, this 'political bull market' took the form of more regulation, higher taxes and heightened industry scrutiny. Many governments also promoted fiscal austerity, multilateral trade and aggressive monetary stimulus. However, last year's U.K. Brexit vote and U.S. election of President Donald Trump likely presage a new chapter in this bull market story."
For investors, the change means focusing on real assets including master limited partnerships, real estate and infrastructure. The firm's recommendations, however, do not include gold, which it is actively betting against in 2017 with short positions.
KKR also has moved away from its 2016 preference for credit over equity though it is a fan of private credit, or the growing market of nonbank lending. The dollar also is forecast to continue higher, and KKR has gone to a 3 percent cash position, which is 1 percentage point higher than normal.