KKR Insights 111017

8/2/2019 KKR Insights 111017

1/24

InsIghts

Global Macro

TrendsOctOber 2011

8/2/2019 KKR Insights 111017

2/24

2 KKR InsIghts: global Macro trends

Phase III:The Last Stage o aBumpy JourneyThe bear run that began in 2000 has played out like

a triptych, with the third and final act now upon usthat will, in our view, be marked by uncertain fiscalsustainability, shorter economic expansions andheightened capital-markets volatility. We believe thisthird actwhich we dub Phase IIIwill requiremore opportunistic approaches to asset allocation andintroduce a host of possibilities for such approaches.

Introductiona pyii n Pi u y m f ni b i

pii i vy iffiupiy if i i u fuu.

n u, i f u b yi quip: fi i mw f

y vi i ivm ui, iv ii p u

pi i qui w m wy mk y ii u

mw. bu v i iv impv i

f u. W fu .

Fi, w y u uii i i mki pii u

iy f p, mi w k m i

m-i m-u impy jump fm pi

ju u i my upp u ii i.

s, w mp my u p-w pp wi m-up k

y wki y wi KKr i-u iuy p, i vi-

, pfi mpi ky ui iip. ti p f p

p y kp ii i u up--, u

w .

ti, w y vp i-v ppiy ii y vi KKr

fi u v. civy, KKr piv-quiy pfi mpi

i f $200 ii i u vu, mpy v 900,000 pp

y p i 14 iff iui. ti ifm u iki, wi w p wi, i u, ufu u pfi mpi u iv.

KKR global MacRo & asset

allocatIon teaM

henRy h. McVey

Head of Global Macro &Asset Allocation

+1 (212) [email protected]

DaVID R. McnellIs


FRances b. lIM


Rebecca J. RaMsey


MaIn oFFIce

K Kvi r & c. l.P.9 W 57 ssui 4200nw Yk, nw Yk 10019+ 1 (212) 750-8300

coMPany locatIons

Usa nw Yk, s Fi, Wi,d.c., M Pk, hu eURoPe l,Pi asIa h K, biji, dui, tky,Mumi, su aUstRalIa syy

2011 K Kvi r & c. l.P. ari rv.

8/2/2019 KKR Insights 111017

3/24

KKR InsIghts: global Macro trends

s w w fm u p y? I i ppw mm u w mw mi k ik mk um f vi mmi.

1. We Have Entered an Investment Period

(Phase III) That Will Require a More Op-

portunistic Approach. ou i-piu

if i w v i

fi p f -iv v-

i y uy i 2000.P I f g d Uwii

u f uy

w xiv vui

p vi, wi xmp

i fm e Wm

ty. P II m i 2007

ii i x ui-

v W s andMi

s, mii u fim b

s, lm b, cuy-

wi. P III, wi i y up u,

i ixiy ik muiu

v f vi w w ii vp mi ik

f eup Ui s. dui

P III w xp mi

xpi (3040 uiv m,

pp 100 m uiv

m f xpi wi i

1990 y 2000) i

viiy i pi mk ( s&P

500 ix vu i f 1050

1350 i iiv). W f

iv P III wi qui m p-

puii pp i.

2. We Believe Economic Growth ShouldContinue to Slow in 2012. W f i f i m s&P 500

mpi i 2012, i wi u f f -i w f up 14%. ei f

y fii-vi mp-iwi, i f-

i u, xp uf 48% f 2012 im iwpp ik m. W

uy iip iv w i w x y. Fm

gdP ppiv, w ik 1.25%w i U.s. i

f 2012. ou im f iiw u ww, u im vy y i.

3. Which Will Keep May Idices i

Flx. Ui y, w v i

i-iv u mk,

i, upi, uiky i-

y um i upw jy

ui i y Iiu f suppy

Mm (IsM) v i

vii u piiv i. Mv,

w iv w ii mwi f k pi

i eup iki--p i-

fi i ciu iu v-

i ik pmium i m.

4. After a Decade of De-Ratig, Log-

term Vale Has FinallyBee Created i

Eqities. Fm m y v pi

w i, quii w quify

-m ivm. W

mk i m iy, w v

ju u f im u

i pui quii. bu y upi: y, wi i vi-

iy i k i m, u w

ppi vui v wi

fiy mk ui f

-m pi f k.

5. Iflatio Shold Remai i Check, Bt

the Eviromet Will Reward Compa-

ies With Pricig Power. I i wi

p vi y, w iv

pp -m

ik f fi if-

i. hwv, uu umpi

w m mi mk i-

fm u u quwi iu i 2012, wi U.s. i

ifi f u 2% pu pi

ipu f 3% m. If w i,

iiy ui mii pi-

i pw u iiuii

fu f m y p mk-

p y i mi qu.

6. Spicier Fixed Icome Cold Emerge

as the Asset Class of Choice i 2012.

opi twi fu fim

u viw -m U.s.

iky y w f m im

M imp, u, i w

iifi i fi

im mkp. spifiy, i

u, w ik m ik-f

wi m m y i

wi p-

vi-i,

f w piv iifippuiy ui

u i k , i-yi,

mi mk. aiiy, w

piiv pi-iui

i- ivi.

7. Crrecies Have Become a Key Dif-

feretiator. I i f im

y i, w iv

i mi ifui i

w up: wi have f

iiiy i ui

ui ( v), wi not have u fiiiy (

v-). aiiy, ui

mi ii u

ui. I 2010, f mp, u

i u f fu 33%

u mi-mk

quii.

8. Allocatios to Commodities Shold B

Doe with a Fresh Perspective. W

f w i im ik m

iiy uviy u

mmiy i. ci

w ii mmiy ii m quii i

piu w ii i

piv; v

iy i ui. tu, w mm

fui -ii i

i i mmiy pu

a wi i w, u

w u

pfm p wi mmii

ffiv ifi .

1

2

3

4

5

6

8

7

The last decade or so has seen a movemento debt rom corporations, to U.S. nancial

institutions, to governmental entities

8/2/2019 KKR Insights 111017

4/24


Phase III: Here and Nowa ami m w f w uy, aol w

quii tim W i $350 ii i, biy sp

w iv f pp, dVd w ju ii ppuiy, s&P

500 1527 ppimy 25.7 im p i,

10-y yi w 6.19%. F fw y-o-

f 2011, F, bi, lumu vm

quii i k di i 4 ii i, Jui

bi i w ki f pp, iP , s&P 500 ii 1160 ju 10.5 im p i, 10-y

yi ppimy 1.80%.

Wi w m w p, uy m

imiii. a viu i Vimi Pui i i

imi Pi f rui. a k---fuu

mm i w f y mj v, wi

ii iff: w 2000 v m fm -

p , u i y vm-iu. a

Exhibit 1 w, mvm f

fm pi (P I) U.s. fii iiui (P II)

vm ii (P III).

exhIbIt 1

The Three Phases o This Debt Overhang:From Corporates to Wall Street to Sovereigns

0

20

40

60

80

100

120

0

5

10

15

20

25

30

35

2000 2007 2011

GovernmentLeverage%

CorporateandWall

StreetLeverage

Corporate Leverage

Wall Street

Government

Phase I Phase II Phase III

cp lv = s&P 500 -Fii n d---%-f-a; W s lv = av a--equiy f gms M sy; gvm lv = Ui s:g gvm g d % f g dmi Pu (gdP).su: IMF Weo, F, s&P. a spm 30, 2011.

exhIbIt 2

Expect Shorter and More Volatile Economic CyclesWhen Government Debt Load is Higher

1954-1957

2009-Current

1949-1953

1945-1948

1958-1960

R = 0.5253

0

20

40

60

80

100

120

140

0 20 40 60 80 100 120 140

DurationofEconom

icExpansion(months)

U.S. Government Debt % GDP

emi pi fm 1900 2011; d g dmiPu (gdP) i f pi. su: nber, bea, Ustuy, KKr. a spm 30, 2011.

Without more robust corporate-led

hiring and investment, the U.S.aces the prospect o relying on

an overly levered government oroverreaching consumption to healthe current economic malaise

8/2/2019 KKR Insights 111017

5/24


a w mp fiu u w w mi , w ik i

mk k k i m ppiv. W ui

ui f uy u y cm ri

K rff y vi1. ti fii

w mi m ufu ui p

v m im. I f, y mi up f

22 ui i ju imi i v-

wi i wi i miv 30-y pi

(19702000). W y fu w ju uy f

22 w uy ufu i i : m afi i f

swi. W wi imii swi ivm i 1985,u i u i py iy ppi mi

i f Ui s eup i pi i y.

exhIbIt 3

Debt Loads Aect Equity Valuations Too

Greece

Italy

United States

France

United Kingdom

Mexico

China

Indonesia

Spain

India

New Zealand

5x

6x

7x

8x

9x

10x

11x

12x

13x

14x

15x

0 50 100 150 200

ForwardNTM

P/E

2011E Gross Government Debt % GDP

Gross Government Debt % GDP Versus Forward P/E

gdP = g dmi Pu; P/e = Pi ei ri;

e = eim. su: IMF Weo, F. ntM = n 12 M. a spm 30, 2011.

hiy w v

p mi y w w v pi u-

i mu f 20 y. a Exhibit 2 w, i P III w

wu p mi pi f mi pi

k 3040 uiv m, i wi

mu pi pi f 75 m m

U.s. jy ui 1980, 1990 2000. W w imi

mi p py u i U.s. fm 1945 1960, w

vm iy i 60%. a P III

vim m eup U.s. iky f i pii u i i y y

imu w u m im.

1 ri, rff, ti tim i diff: a Pmi Viw f eicui f Fii ci, api 2008

exhIbIt 4

The Typical Atermath o Secular Bear Markets ImplyWide Trading Ranges or Many Years

Next

Correction

-25%,

13 Mths

Trading Range,

52% Wide,

5.6 Years Long

Rebound

Rally

+71%,

17 MonthsBear Market

-57%, 30

Months

c p ypi u mk Msy r mp f 19 u mk. d f 9/19/1929 3/25/2010. su: M sy r.

exhIbIt 5

Post-Crash Perormance Characterized by a WideTrading Range

32%

13%

30%

20% 22%

-25%

-15%

-30%-27%

-18%

-2.2% -5.3%

0.5%2.2%

-8%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

1931-1940 1991-2000 1991-2000 2002-Current* 2009-Curren

Dow Jones Japan Nikkei Taiwan Taiex Nasdaq BKX Bank Ind

Post-Crash Performance for the Following DecadeAverage Up Year Average Down Year Index Performance for the Decade

* cu u o 4, 2011. su: bm.

I kpi wi m i mi , w iv

y iv u p wi i p mi

i viiy. a Exhibits 4 5w, iifi

mk w ( 2008) fw ypi p f u, m i. W iv w w i

p, wi i f i y vi mk vi.

t w i , wi -ff, s&P 500

w y fufi i p. W qui

u, i m im f i y u i u, i

i pi ui apio f 2011 p j

i m, vu v ii i pi f 13

m.

8/2/2019 KKR Insights 111017

6/24


I viw, vim w fi iifi-

impii f m y w pi. dm

f i fu wi m iy iu i i

f fuu, wi iiy ufuy i

imi f pi pym ii m i-

iy ii uii superior-m u i P III

vim. I m ivm u pi

uu ivm y wu iky v iv,

i u pi ppii i f u-

i. bm i: wi i iifi ppuiy

vu i y mk, w py vi ivu um m ppuii mi i -m.

hw w m fm i u pi f i? t

i ufi my, u w w pi y

mi w. Fi, w kw cp ami i

i quiv i eup, ai, li ami mu

iv f w ivm i my. Uik

vm um i vp mk, pi

fu wi , v w , pii

ii puiviy. I iv w, vm

wwipiuy U.s. p k pm

ui-fiy ui uy vim

u w f pi v fi m pi-iiy i ii py i .

Wiu m u p- ii ivm, U.s.

f pp f yi vy v vm

(mif i vm p f gdP 98.0%)

vi umpi (wi, p f gdP,

71.1%) u mi mi (Exhibits 6 and 7).

exhIbIt 6

Government Cant Be the Driver o Growth

2012, 102%

2013, 103%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

CBO Gross Federal Debt % GDP

Based on Baseline Budget Projections

gdP = g dmi Pu. su: ci bu offi.d fm 1960-2013.

exhIbIt 7

Nor Can the Consumer

20%

40%

60%

80%

100%

120%

140%

1952 1962 1972 1982 1992 2002

Household Debt % Personal

Income

Household Debt % Disposable

Personal Income

su: F rv. tu 2Q2011.

Unlike governments and

consumers in developed markets,corporations are fush with cash,have low debt balances, and areexperiencing rising productivity.In order to achieve strong growth,governments worldwide need to

step back and promote a business-riendly and less uncertain

regulatory environment that couldallow or corporations to have

condence and more predictabilityto begin hiring and deploy thecash on their balance sheets

8/2/2019 KKR Insights 111017

7/24


ri i ky mi w: w

wu fi fm i i ci umpi p-

f ci gdP immi f ami umpi

f U.s. gdP (Exhibit 8). Pi f ump-

i fm U.s. ci i pmu y f i

u mi wu f i mu f

pi u i iifi upu fi-

i uu w. a Exhibit 9y ii, ci

v v u i v U.s. um-

pym i iu v ui v.

exhIbIt 8

China And the U.S. Need to Rebalance Their Economies

33%

48%

13%

27%

71%

12%

21%

13%

0%

20%

40%

60%

80%

Consumption Investment Government Exports*

2010 GDP Components as a % of Total

China US

*ep i u, gdP wi 100%. gdP = g dmi Pu. su: ci ni buuf sii, buu f emi ayi.

exhIbIt 9

China Reserves Now at Outsized Levels

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

China

US

Japan

Russia

Total Reserves Minus Gold in US$m

su: IMF, bm. a spm 20, 2011.

Economic Growth Will Continue to Slow in 2012

ai u my, w iv p

i w wi i i iv iy ui 2012 v

u f f up y 14%. Impy, w m

m m ui v if eup ii ui

. divi i viw i u 7-f m, wi w u

pi s&P 500 i w. ti m w u

i i f u 12% y (Exhibit 11), iv

y k f u i m pi. ou fum

wv, pi iy um, wi i wu 5%. av ePs w f u 30%

m ui ypi -viy i, u i

u quiiv mi u fum yi u

i f miu i im. Wy? bu i wu

f ui- iviy pumm pipiuy fm u

v (Exhibit 10). a , w ik gdP im f piiv

1.25% f 2012 i f yp f p

i vim w vii y.

exhIbIt 10

U.S. Housing Transaction Volumes Remain Weak

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

1980

1981

1983

1984

1986

1987

1989

1991

1992

1994

1995

1997

1999

2000

2002

2003

2005

2006

2008

2010

Housing Starts Y/Y%

US New 1-Family Houses Sold Y/Y%

su: bm. tu auu 1, 2011.

exhIbIt 11

Our Analysis Shows Slower than Expected Growthin 2012

Jun-11a22.6%

Dec-11e9.3%

Dec-12e-11.5%

-40%

-20%

0%

20%

40%

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

S&P 500 EPS Growth: 12-Month Leading Indicator

Actual

Predicted (3mo MA)

t ei gw li Ii (eglI) i ii yif v imp i ii s&P 500 ei P s.hy MVy m vp m i y 2006. a = au;e = eim. a f spm 23, 2011. su: KKr, bm.

8/2/2019 KKR Insights 111017

8/24


F ii m-up ppiv, w wu mk fwi w pi. Wii U.s., u im um

y 50% f im w i i i iky m fm fii y (Exhibit 12). giv wk i vum,

ii i w i pi, f m pimii u. s, Exhibit 13 w, 37% f w

i upp m fm ai (wi ci i iu) im w k i ivi mp m

ifi. ti, , i f mi i.

exhIbIt 12

48% o 2012 Consensus EPS Growth From Financials & Energy Appears Aggressive

2012E EPS Y/Y COnTRIBuTIOn TO 2012 EARnInGS GROWTH

consUMer dIscretIonarY 13.6% 9.1%

consUMer staPles 10.2% 7.1%

energY 10.9% 12.1%

FInancIals 32.0% 35.5%

health care 4.9% 4.7%

IndUstrIals 15.2% 11.1%

InFo tech 11.2% 15.8%

MaterIals 16.3% 4.4%

telecoM serVIces 9.1% 1.6%

UtIlItIes -5.0% -1.3%

s&P 500 13.6%

ePs = ei P s; e = M cu eim. su: F, s&P. d spm 21, 2011.

exhIbIt 13

2012 Global Growth Is A Bet On Asia ex-Japan

2011EnOMInAL GDP

2012EnOMInAL GDP

2012-2011nOMInAL GDP

2012 nOMInALGDP GROWTH

COnTRIBuTIOnTO 2012 WORLDGDP GROWTH

Us 15,065 15,495 431 2.9% 12%

JaPan 5,855 6,126 270 4.6% 7%

eUro area 13,355 13,681 326 2.4% 9%

other eUroPe 4,605 4,862 257 5.6% 7%

asIa 13,296 14,666 1,370 10.3% 37%

lataM 5,630 5,895 265 4.7% 7%

eMea 8,356 8,981 625 7.5% 17%

other adVanced econoMIes 3,850 4,036 186 4.8% 5%

World 70,012 73,741 3,730 5.3%

gdP = g dmi Pu; e = IMF eim. nmi gdP i Us$ bii. su: IMF W emi ouk spm 27, 2011, KKr.

8/2/2019 KKR Insights 111017

9/24


Equity Valuations Are Reasonable, but Global Imbalances Are

Likely to Keep The Risk Premium High In The Near Term

W w if u fu fm i fii-vi

mpi m pfi i i 2003, w

mii my f u mk, w w fu w

y w yp f u: i-iv vui-

iv. t fm fi fm m w i i (vu

fi i ), v u i

vui-iv , uuy i i. o

vyi ii f i Exhibit 15. F wkp , w v ui yi i-

iv u mk. hwv, Exhibit 14 ii, i

vii w iv, p wi iky v

ui upw vm i k.

exhIbIt 14

S&P 500 Perormance Tends to Follow Earnings Revisions

(80%)

(60%)

(40%)

(20%)

0%

20%

40%

60%

80%

S&P 500 EPS Revisions

S&P 500 Index Performance Y/Y%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

n: ei P s (ePs) rvii u : num fUpw rvii im miu um f dww rvii im ivi y t um f im. su: F,s&P. d o 5, 2011.

exhIbIt 15

Anatomy o a Bull Market

s&P 500PerForMance

aVeragebUll

P/eled

earnIngsled

annUalIzed PrIcePerForMance

36.6% 43.8% 24.9%

annUalIzed P/eexPansIon

26.2% 39.6% 4.5%

annUalIzed realearnIngs groWth

6.0% 1.0% 14.2%

annUalIzed cPIInFlatIon

3.2% 2.1% 4.8%

annUalIzed IndIVIdend YIeld, basIsPoInts

-72 -106 -17

length (Years) 2.0 1.6 2.6

P/e = Pi-ei ri; cPI = cum Pi I. b y w 1928 2007, fi u mk w w m f 12 m pi f -i. su: s&P, bls, F rv, F, sk Mk dU i Ii eu y r J. si.

Consumption in emerging marke

is overtaking developed marketsand we see no reason or thistrajectory to change course

8/2/2019 KKR Insights 111017

10/24


a uppi u viw quii k -m y

p y Iiu f suppy Mm (IsM). t

IsM Mufui i i 51.6 i spm vu pk f

61.4 i Fuy i y, i i w piy wi i

f i. I p y, quii u w

IsM ii w w 50. Ui Exhibits 16

17 mp, w w iv w iii fm

i i.

exhIbIt 16

We Are in the Later Stages o the ISM Cycle

ExpansionShift of focus from P/E

growth to earnings growth

RecoveryMultiple

expansion

DecelerationEarnings growth coupledwith multiple compression

ContractionMarket

correction

ISM = 50

su: KKr

exhIbIt 17

Headline ISM Cycles: Average Change P/E and EPSGrowth

12.34

3.74

-10.35

5.71

-6.92

11.11 11.58

-5.70

Average Change P/E and EPS Growth

Annualized EPS% Change in P/E

Troughto 50

50 toTrough

50 toPeak

Peakto 50

Troughto 50

50 toTrough

50 toPeak

Peakto 50

P/e = Pi ei ri; ePs = ei P s. hi IsMy fm 1949 2011. su: Iiu f suppy Mm,s&P, F, bm, KKr.

ai wi w i U.s., w w m i

u wy f iv i i -m:

Sticky Infation In EM Is Keeping Central Bankers rom

Stimulating Growth

dpi wf, w mi iv i m

i-mk w u pi. a i Exhibit 18, -

umpi i mi mk i vki vp mk,

w f i jy u. hwv, w

wy yi ifi i ui ik ci Ii mi i w vm k i i

m. a w u f ifi iffiu

i mi mi u i i mu m iy i

vi mmiy ipu. I ci, f xmp, f u

f 30% f um pi ix (cPI), wi pk ui f

y f f . I U.s., y mpi, f

15% f v cPI ui (Exhibit 19).

exhIbIt 18

EM Consumption is Now Surpassing DM Consumption

7,185

8,332

5,106

8,509

2005 2010e

Household Consumption Expenditure $B

US ex Health Care Emerging Markets

eM = emi Mk; dM = dvp Mk; e = eim. d spm 9, 2009. su: M sy r.

exhIbIt 19

Dierent Ination Drivers in Dierent Economies

30.3

14.818.9

41.5

0

5

10

15

2025

30

35

40

45

China US

WeightinCP

IIndex(%)

Key Components of CPI

Food Housing

cPI = cum Pi I. su: ceIc, bls. ci wi auu 2011, Us wi Fuy 2011.

8/2/2019 KKR Insights 111017

11/24


exhIbIt 20

Money Supply Growth at Near-Low Levels in China

0%

10%

20%

30%

40%

50%

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

China M1 Money Supply Y/Y%

d auu 31, 2011. su: t Pp bk f ci, bm-.

exhIbIt 21

China Cant Promote Growth Until Ination Dissipates

-4

-2

0

2

4

6

8

10

0

5

10

15

20

25

30

35

40

Jan-97

Oct-97

Jul-98

Apr-99

Jan-00

Oct-00

Jul-01

Apr-02

Jan-03

Oct-03

Jul-04

Apr-05

Jan-06

Oct-06

Jul-07

Apr-08

Jan-09

Oct-09

Jul-10

Apr-11

China Financial Institutions Loan Growth Y/Y% (LA)

China CPI Y/Y % (RA)%

?

la = lf ai; ra = ri ai; cPI = cum Pi I. su:bm. d auu 31, 2011.

t cPI i ci i uy ui 6.1%, w fm 6.5% i

Juy, u i v f 5% f y. Wy i m

mu i k i ci pm w

i ui ifi i iip. I iim,

vm i f u my uppyuquy wi ff u ifi, u f,

ifi v mi piy i (Exhibits 20 and

21). a mm, u i ci wi if w

u piy mim i 2012, u w iv i

wi mv w my piy wy i i f 2008.

W w impyi i ci w i

ui im f w i ui ifi ui

mifuy.

exhIbIt 22

5-Year Sovereign CDS Spreads

0

1000

2000

3000

4000

5000

6000

2007 2008 2009 2010 2011

Portugal

Ireland

Italy

Greece

Spain

US$

cds = ci dfu swp. su: bm. d spm28, 2011.

exhIbIt 23

2011E Nominal GDP Growth Minus 10-Year GovernmeBond Yield, Basis Points

-2737

-1292

-740

-298 -271

22 88 173 243 300

G

reece

P

ortugal

I

reland

I

taly

S

pain

F

rance

N

etherlands

G

ermany

B

elgium

A

ustria

e=IMF im. gdP = g dmi Pu. su: IMF Weo,bm. d spm 27, 2011.

Within equities, we ocus onareas o extreme undervaluationand secular growth to capture

value during Phase III

8/2/2019 KKR Insights 111017

12/24


The European Debt Crisis: Banks Need More Capital

W y i w ami u hy Mi w

fi w i i up wi -

iy i wi, u i mm iy fi w w -

i i eup y. Fi uiy, wki -i-

wi fi f ui, i iiy ii

fi f i fi eup Ui. I u

um pii, eup ii m i

i m i mkp. nuy, i i iy

i wi u P III wviw u vm ai f w (Exhibits 22 and 23).

a i pi, w ik eup i u y

uwy, u p iu iv upfm

i -m. Fu, w ik i pi mp

f ui fim y vi ii,

w v f eup k f m pi.

ai M sy, 205 eup k i y

k v mi $23.7 ii i upp y ju $1

ii i quiy pi. t i ju i i f --

quiy, piuy w i w pp U.s.

fii ym i 2008 w v w imi v.

ou if i pi iji i eup k i p-

y my m fm vm /

eup Fii siiy Fiiy (eFsF). W wu ik

eFsF wk wi piv v up, uy

i p mk m fi i i v f .

Uimy, w mii i pigk i

piumu mk w m ii v, wi

i-f p (Exhibit 24). ti p

f i wu y p f w i eup, u w

f i u pvi u -m iiy pi

ippi i.

exhIbIt 24

Greek Financial Services System Under Stress

0

20

40

60

80

100

120

-15

-10

-5

0

5

10

15

20

25

Jan-02

Aug-02

Mar-03

Oct-03

May-04

Dec-04

Jul-05

Feb-06

Sep-06

Apr-07

Nov-07

Jun-08

Jan-09

Aug-09

Mar-10

Oct-10

May-11

Greece Deposits Households and Businesses Y/Y

Bank of Greece Intra-Eurosystem Liabilities B% B

su: bk f g. tu Juy 31, 2011.

exhIbIt 25

Stocks Getting Structurally Cheaper

0

1

2

3

4

5

6

0x

5x

10x

15x

20x

25x

2000 2007 Current

Year End Trailing P/E (LA)Year End 10 Year US Treasury Yield (RA) %

Year endtraIlIng P/e

Year end 10 YearUs treasUrY

YIeld (%)

2000 23.5 5.11

2007 17.4 4.02

cUrrent 12.6 1.98

la = lf ai; ra = ri ai; P/e = Pi-ei ri. cu spm 27, 2011. su: F, bm.

I the 1930s were a period

o extreme defation and the

1970s were a period o extremeinfation, we think that thenext ew years could allsomewhere in the middle

8/2/2019 KKR Insights 111017

13/24


Long-term Value in Equities Is Finally Emerging

Wi fmi m iu p imp -

ii, w iv w fiy w f i

w vii f P III. Ui s&P 500 py, w

wu mm ivy quii k w i

v f 1050, , w iu , w ik 1250 wu

v f y fi vu f k (Exhibit 25). W

mk i m iy, w v ju u

f im u i pui quii. bu u pi i w

fiy ui im f k f u, m ii-y i y W pf Jmy si i 1994. t

v f pi i viw.

Fi, Exhibit 26 w, 10-y i u f k

u i qu f 2011 w 2.8%, 780 i pi

w v, iy p wi 1930. ay w

iv i m-vi ivi i u

i pi f quii mw iv. s,

ivi yi k i w fiy p wi 10-y v-

m yi (Exhibit 27). a i, pi--i muip

w w fiy pi f pi f ui

muip stability pi expansion, i wi 50%

i contraction w v pi i 2000.

exhIbIt 26

10-Year Rolling Average or Stock Returns is Nowat Historically Low Levels

-10%

-5%

0%

5%

10%

15%

20%

25%

1936

1941

1946

1951

1956

1961

1966

1971

1976

1981

1986

1991

1996

2001

2006

2011

Historic S&P500 10-Year Rolling Average

Annualized Returns

S&P 500 10 Yr Return

Average

a f o 4, 2011. su: Fs, s&P, sk Mk d U iIi eu y r J. si.

exhIbIt 27

Stocks Yielding as Much as Bonds

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

2010

0

2

4

6

8

10

12

14

16

18 S&P 500 Dividend Yield US 10 Yr Yield%

a f spm 30, 2011. su: Fs, s&P, F rv,sk Mk d U i Ii eu y r J. si

ou yi w w pi--i v wi

i pi k f i -m u. Exhibit 28ii ui u f uyi k wi i

pi--i (P/e) i f 1214 im, wi i w w

uy i, i 8.9% 1-y i, 6.7% 3-y

6.2% 5-y i, 7.4% 10-y i. t

w.

t ufu w i y f iifi

ui upw vii i vi-i i wu

outsizedquiy u m fm impv

m i vm v i gdP w . a

w w i i i p (Exhibit 3), quiy vui

viy ifu y vi . I ii, v

f sustainable gdP ff vui v . o i

iip i Exhibit 35. ry, w i f -

i w f u vm pi

i m vp mk i upw, wi i ik

kp w w i -m. If w y

, wv, w iv v u v

ui pi f mj ui P/e-iv u mk i qu

vui.

8/2/2019 KKR Insights 111017

14/24


I 2012, w ik s&P 500, wi w u pxy f -

mk, u ppximy 13% u quiy (roe).

b ii mpi, v f u quiy u

qu pi--k vui f u 2 im (Exhibit 29).

Ui $625 ii y- 2011 im f s&P 500 k vu,

w fi vu im f u 1250 f s&P 500.

exhIbIt 28

Stock Returns: Entry and Exit Points Matter

s&P 500 P/eentrY leVel

sUbseQUent aVerage annUalIzeds&P 500 PrIce retUrns (%)

1 Yr 2 Yr 3 Yr 5 Yr 10 Yr

24 -3.3 -2.5 -2.9 -0.7 -1.2

P/e = Pi-ei ri. d fm 1913 spm 2011. d spm 30, 2011. su: bm, Fs, s&P, sk Mkd U i Ii eu y r J. si.

exhIbIt 29

Our Analysis Suggests Modest Near Term Upsideto Stocks

S&P 500 ROE vs. P/BP/B

2012e

R = 56%

0

1

2

3

4

5

6

4% 6% 8% 10% 12% 14% 16% 18% 20%

ROE

PrIce-tobooK

1.8x 2.0x 2.2x

s&P 500 ForbVPs oF

$625 *

1125 1250 1375

roe = ru equiy; P/b = Pi--bk; bVPs = bk Vu Ps; e= KKr eim. tu spm 23, 2011. su: s&P,F, n dvi. eui ui pi u 1950 1980.*KKr eim bVPs y 2011.

Wii quii, u mmi i fu f -

m uvui i pu mimum vu i

u vi . by u mu, gmy k -

iy p (Exhibit 30) U.s. k iv (Exhibi

31), i mi mk (Exhibit 32). ou mp-

iv k-vu- m, wi f vu

v ii i mmum f k pi iv

pi, ii i k v

vu i U.s.u i f, w ik

(Exhibit 33).

exhIbIt 30

Germany Is Cheap

Avg

+1

-1

5x

10x

15x

20x

25x

30x

35x

1986

1987

1989

1990

1992

1993

1995

1996

1998

1999

2001

2002

2004

2005

2007

2008

2010

2011

Germany Forward P/E

P/e = Pi-ei ri. su: F. a spm 30, 2011

exhIbIt 31

Valuation o US Stocks Looks Reasonable Again

Avg

-1

0

5

10

15

20

25

30

35 S&P 500 Trailing P/E

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

2010

P/e = Pi-ei ri. a f spm 30, 2011. su: Fss&P, sk Mk d U i Ii eu y r J.si.

8/2/2019 KKR Insights 111017

15/24


exhIbIt 32

Certain EM Countries Beginning to Screen Attractivelyand Trade Below Historical Averages

Avg

+1

1

6x

8x

10x

12x

14x

16x

18x

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Emerging Market Equities

Forward Price - Earnings Ratio

a spm 2011. Ui s&P/ciiup bMI emi MkI f mi mk quii. su: bm, s&P.

exhIbIt 33

Near Term, Stocks are Oversold, Bonds are Overbought

Sep-74

Nov-81

Nov-87

Aug-98

Mar-01

Sep-02

Jan-08

Feb-09

Sep-11

-1.5

-4

-3

-2

-1

0

1

2

3

Jan-70

Jan-75

Jan-80

Jan-85

Jan-90

Jan-95

Jan-00

Jan-05

Jan-10

Stocks Versus Bond Indicator

-2

+2

Ppiy sk/b Mmum Ii. su: F. d spm 28, 2011. su: Fs.

W pip fu mpi pii

u w f v . F , i w-w

vim w vii f P III, w iv p-i i w wi . aiiy, U.s. iv

uy pyi i pmium f ui w iv

mk (Exhibit 34). ti wi f vui i

ppi f w iv w ui 1990 y

2000, pi w iv w wii py m y

pi f quii pii i -m-w. W iv

imi y u ui U.s. w.

exhIbIt 34

Valuation: Little Premium or Growth

Average

0

10

20

30

40

50

60

Jan-90

Jan-92

Jan-94

Jan-96

Jan-98

Jan-00

Jan-02

Jan-04

Jan-06

Jan-08

Jan-10

Jan-12

S&P 500 Valuation Spread Between Highestand Lowest Quintile P/E FY1

P/e = Pi ei ri. su: F, s&P. a o 5,2011.

exhIbIt 35

GDP Environment Matters or Valuation

11.4

10.7

13.0

17.9

16.7

16.0

14.3

8x

10x

12x

14x

16x

18x

20x

5

5-Year US Real GDP Annualized Growth Rate %

Median S&P 500 Normalized Price-to-Earnings

for Various Growth Environments

nmi Pi--ei vui i = Pi ivi y vf p 5 y ePs. suy fm 1900 2011. su: bea, hiisii f Ui s, F, s&P, bm, sk Mkd U i Ii eu y r J. si.

8/2/2019 KKR Insights 111017

16/24


Infation Outlook: Still Greater Downside Risks, but Focus on the

Pricing Power in the Interim

giv wi f f vi my imu-

u, u mk quy f ifi f-

i. hwv, w i w, w mii u uk f

m ifi wi wi ik.

W k ifi/fi fm w ppiv: -

piy uiizi my vim. Exhibit 36 iu

x piy i U.s. mi i, wi i uiv w iv ifi. Mv, i w -

f w ifi i i, ui fu ww

pu um pi (Exhibit 37). I wi i

viw, u i im w, wi w m-

j f i ifiy pi f 1970, f

v 20 y: U.s. mi u im w $49,445 i 2010,

iy u fm $49,076 i 1989 (i 2010 m).

exhIbIt 36

Excess Capacity

65

70

75

80

85

90

1967

1971

1975

1979

1983

1987

1991

1995

1999

2

003

2

007

2011

US Capacity Utilization % of Total Capacity

tu auu 31, 2011. su: F rv, nber, bm.s ii i.

exhIbIt 37

Slowing Employment Growth Implies Lower Ination

0

1

2

3

4

56

7

8

9

10

0.5

1.0

1.5

2.0

2.5

3.0

% %

1958

1961

1964

1968

1971

1974

1978

1981

1984

1988

1991

1994

1998

2001

2004

2008

2011

Labor Force Growth (LA)

Long term Inflation (RA)

la = lf ai; ra = ri ai. l m ifi fw p 10-y ui w. su: buu fl sii. tu auu 31, 2011.

Fm my pi, w iv w up f

mj vi y. bi y mj uy vui

vi i m wy iifiy f fi-

y. giv U.s. p f gdP i

336% f Ju 2011 vu ii v f 280% v

p 20 y pi pk f 299% i 1932 (Exhibit 38),

w u v mu m w. U i py u

iffy i im, mi w vui

u ivy imp. a, mu f qui

f gdP pp uuiy i v

(Exhibit 39).

exhIbIt 38

The Elephant in the Room: US Debt % o GDP

Households

Corporates

GSE

Government

FinancialsDec-32, 299%

Mar -10, 349%

0%

50%

100%

150%

200%

250%

300%

350%

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

US Debt % GDP

gdP = g dmi Pu; gse = gvm sp e-pi. d u 2Q2011. su: bea, F rv, Msy r t sii hiy f Ui s yb W.

exhIbIt 39

Now, More Than Ever, it Takes Money to Make Money

1.4 1.51.7

2.93.1

5.6

1950's 1960's 1970's 1980's 1990's 2000's

US Economy: Incremental Dollars of DebtPer Incremental Dollar of GDP

gdP = g dmi Pu. 2000 = 1999 2009. su: bea,F rv, bm.

8/2/2019 KKR Insights 111017

17/24


t u ifi ii u f iv

my uppy (kw i mi M1, wi

iu uy k v) umiy i

ii pi. hwv, w ik iv u i

i i M1 (wi F i vi i

pu pm) iy i m

my i iui ( kw M2, my

) if my muipi i -iui y k f um

ui fi. I ii, Exhibit 40 w, v

pi M2 w i mii umi-

y i uwy ifi.

t , my fi imui p f gdP

x 30% i y, y 4 im w vm p

ui g dpi. hwv, y v y

i iifi w pi i. o y:

k v iu ik i piv- k wi

xpi i i f w-yii U.s. vm .

exhIbIt 40

Little Relationship Between M2 Growth andYear-Over-Year Ination

R = 0.0277

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

0% 2% 4% 6% 8% 10% 12% 14% 16%

USCPIyy(%)

US M2 Money Supply Growth yy (%)

cPI = cum Pi I. d fm Juy 1960 auu 2011.su: bls, F rv.

exhIbIt 41

Banks are Extending More Credit to The US Government,But Not the Private Sector

-10%

-5%

0%

5%

10%

15%20%

25%

30%Domestically-Chartered Commercial Bank Assets

Treasury and Agency

Securities, Y/Y %

Loans and Leases, Y/Y%

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

2010

2011

d spm 14, 2011. su: F rv.

a ii i ifi i u w

uy iu ifi i U.s. wy w ik ifi

wu iky i . a mm, y 31% f

U.s. ifi i mpi i ui ipu (-i,

.). t mi iv f U.s. cum Pi I (cPI) i

i w kw w quiv : mu

mw wu py fm i m i

mpiiv mk. si mk i i y

wi i i m wip, w u ifi p

i u i pi, u i i imi w

uwy ifi mi ui w w i mi ii. by mpi, f iu ppimy

14% f v U.s. cPI mpi, mp 30% m

mi mi ik ci.

I f u u ifiy pu i, w

wu wi m mii f fwi fu

pm:

1. a i i k tuy i i fv f piv-mk

, wi i ui ii f mi w

w (Exhibit 41 fim i y pp);

2. a i i w i mmu wi my uppy (Exhibit 42 ii i i y ppi

vy w ip);

3. a imiim f fy piy (w

, umpym i upy i piy uii

i mi w w v);

4. a p i , wi u u i pi f u-

wy ifi (u , w i p

i pu, u, y f imiif w

my fi wi U.s.)

1

2

3

4

8/2/2019 KKR Insights 111017

18/24


exhIbIt 42

M1 Up, But Bank Credit Growth Remains Weak

-10%

-5%

0%

5%

10%

15%

20%

25%

Jan-00

Aug-00

Mar-01

Oct-01

May-02

Dec-02

Jul-03

Feb-04

Sep-04

Apr-05

Nov-05

Jun-06

Jan-07

Aug-07

Mar-08

Oct-08

May-09

Dec-09

Jul-10

Feb-11

Sep-11

US Bank Credit Growth Y/Y%

US Money Supply M1 Growth Y/Y%

su: F rv. tu auu 30, 2011.

exhIbIt 43

Falling Margins Likely to Pressure Earnings GrowthAmid Rising Input Costs

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

1980

1981

1983

1985

1987

1989

1991

1992

1994

1996

1998

2000

2002

2003

2005

2007

2009

2011

2013

S&P 500 EPS Y/Y (LA)

CPI y/y minus PPI Y/Y shifted forwardby two years (RA)

la = lf ai; ra = ri ai; ePs = ei P s; cPI = c-um Pi I; PPI = Pu Pi I. s iipi f Us i. su: s&P, bm, F. a o 10, 2011.

W w ik ifi mi k ik i fuu? If

1930 w pi f m fi 1970 w

pi f m ifi, w ik fw y u

f mw i mi. Wi i i umpi u-

u mi-mk mi, w u iu upwpu pu pi m f mmii iu

i. a m im, p piy u

u um pi mp p mi. ay,

p w cPI PPI i U.s. i w.

(Exhibit 43).

Wi kw ku i mmi, w mp

f ifi u fu 1) i i iffiu w;

2) u f wu iky pv w f

y i. I piu, emi cy r Ii-

u (ecrI) Fuu Ifi gu (FIg) pv qui ffiv

v im. cuy i u ifi wi mi w

v fw y, i 1.52.0% (Exhibit 44). W

kw m upi ik ifi v -m

u i p i w iu k i

my (Exhibit 45). Y w ik ff wi i

i w p w w mifuy y.

exhIbIt 44

ECRI US Future Ination Gauge Points to Core CPIin the 1.5-2.0% Range

70

80

90

100

110

120

130

0.5

1.0

1.5

2.0

2.5

3.0

Jul-99

Aug-00

Sep-01

Oct-02

Nov-03

Dec-04

Jan-06

Feb-07

Mar-08

Apr-09

May-10

Jun-11

Jul-12

US Core CPI Y/Y% (LA)

ECRI FIG (RA, Leading 18 months)

la = lf ai; ra = ri ai; cPI = cum Pi I; ecrIFIg = emi cy r Iiu Fuu Ifi gu. dfm Juy 31, 1999 u auu 31, 2011. su: ecrI, buu f lsii, bm.

exhIbIt 45

Corporate Earnings Growth Leads Ination

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

0.5

1.0

1.5

2.0

2.5

3.0

Jul-99

Sep-00

Nov-01

Jan-03

Mar-04

May-05

Jul-06

Sep-07

Nov-08

Jan-10

Mar-11

May-12

Jul-13

US Core CPI YoY% (LA)

S&P 500 EPS Y/Y% (RA, Leading 18 months)

la = lf ai; ra = ri ai; cPI = cum Pi I; ePs =ei P s. d i ii KKr f. d fmJuy 31, 1999 u Ju 30, 2014 (eim). su: s&P, F,bm.

8/2/2019 KKR Insights 111017

19/24


Spicier Fixed Income Could Emerge as the Asset Class o

Choice in 2012

ou f u i iky y w f m

im i my f w mk, iui U.s. t-

ui (Exhibit 47). ti viw, wi w v , mp

wi u uk f w ifi ( pviu i i

Ifi ouk: si g dwi rik, u Fu o t

Pii Pw i t Iim). a, iv imu

impvm i ui mk, w p vm-

ivi fu i w -m i iiy w v. I eup, y mpi, w ik

m f m v ui iky f i fu-

i iffiui. suppi u iki i gdP

pji f 2012 i i i. cui

ik spi Iy i ik mu i w / -

u v vi f f m f i wk .

a Exhibit 47w, ui w uy

6% fui ipp v ui ik g,

I, Pu w mu m iffiu m-mi

vim.

exhIbIt 46

Government Debt No Longer Looks Risk Free

0

50

100

150

200

250

300

United

States

Euro Area United

Kingdom

Japan

Gross Government Debt % GDP

2005

2012E

%

gdP = g dmi Pu; e = IMF Weo eim. su: IMFWeo. a spm 22, 2011.

exhIbIt 47

At Some Point, Defcits Do Matter

0

5

10

15

20

25

-15 -10 -5 0 5 10 15

10 Year Yield (%)

2010 General Government Net Lending/(Borrowing) % GDP

Greece

Switzerland

NorwayUS

Spain

Germany

Italy

Sweden

Portugal

Ireland

UK

Yw i p 6% fui . gdP = g dmiPu. su: IMF Weo, bm. a spm 30, 2011.

We believe rates are likely to

stay lower or some time in manyo the worlds largest markets,

including U.S. Treasuries

8/2/2019 KKR Insights 111017

20/24


I m, w ik p f ik-f wi -

m iiy i wi p v-

ii, i k y f pi

pp i u fii p, vi iifiy v

f 20012002 wu, wi vm i eup

n ami v iu v up. o mi-

u f iff v ji i Exhibit 48.

exhIbIt 48

Government and Corporate Balance Sheets HaveHeaded in Dierent Directions

40

50

60

70

80

90

100

10

12

14

16

18

20

22

24

26

28

S&P 500 ex-Financials Net Debt-as-a-%-of-Assets (LA)

United States: General Government Gross Debt % of GDP (RA)

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

la = lf ai; ra = ri ai; gdP = g dmi Pu.su: IMF W emi ouk, F, s&P. d dm- 31, 2010.

exhIbIt 49

Average Expected Returns and Discount Rate SuggestThere is Opportunity in Non-Traditional Fixed Income

7.4

6.1

5.3

9.2

8.07.7

4

5

6

7

8

9

10

2000 2007 2010

S&P 500 Pension Discount Rate (%)

S&P 500 Pension Expected Return Rate (%)

d spm 30, 2011. su: s P.

ci wi u i f P III wi u viw w

iky u m i w i 2012w

ik i iifi ivm ppuiy i -

p fi im mk, iui k , , i yi

mi . W i pi

iui iv u v py f piiii i

k, vm, p v ui P

Upii u fv uk f fi im

f. Fi, iu w w iv

i p f p pi uu iv ikf quii m i, i u pii. If w k

u ik-f f u 2% quiy ik pmiu

f 4%, impi u k i u 6%

bu iv 9-13% u i i p f fi

im mk, piy wi viiy (Exhibit 51). I

w, w ik iiquiiy pmium i wi m f

pii fi im pu y 30080

i pi v quii 7001100 v ik f .

s, Exhibit 49ii, iu u -

umpi m pi-p p u i w w i

u m i ff m f wi pi i

, i yi, mi , v if i m if pi u fu.

We think there are noteworthyinvestment opportunities in thecorporate xed income market,

including bank loans, high yielddebt and mezzanine debt

8/2/2019 KKR Insights 111017

21/24


ti, my f v-mi u i-

ifi mu f pi iv y i fm f

up pym, wi i ii uppi u

pi i mmim i pi i y.

exhIbIt 50

Banks Will Need to Shed Assets

0

5

10

15

20

25

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Italy

Spain

Portugal

Greece

Ireland

ECB Lending to Commercial Banks (% of Banks Assets)

ecb = eup c bk. su: ecb d u Juy 31, 2011.

exhIbIt 51

Corporate Market Appears to Oer Better Yieldsand Potentially Less Risk

1.9 1.9 2.3

3.5

5.2

6.7

9.710.8

13.0

GermanyGovt Bond10 Year

US GovtBond 10

Year

UnitedKingdom

Govt Bond10 Year

EMU CorpBond 10+Year AAA

Moody'sBAA

Corp Bond

U.S.BankLoans

GlobalHighYield

EmergingMarket

Corp HighYield

Mezzanine*

Yield (%) as at 9/30/2011

* = KKr eim. d spm 30, 2011. su: F,KKr.

Currencies Have Emerged As an Important Dierentiator

I ii vi yi, ui v m

imp vv, f iifyi, i m

i, my f im w i w

y. If w i ( w iv w ), iv

ip ui i i -m -

i i. o k fu Exhibit 52

fi uy ff u mu

i f i u i m y.

Wii uy mk, w v fiy imp i. a Ex

hibit 53 w, w i ifui i v (i.., ui

wi iiy i -m pi)

v- (ui pp y w , wk mi

ui im). of u, w wu pi m k

i v m f u -m fvi iu si

p , Mi p, ci yu.

exhIbIt 52

Currency Impact on Emerging Market Equity ReturnsFrom a US Investor Perspective

13%

19%16%

26%

33%

0%

5%

10%

15%

20%

25%

30%

35%

2006 2007 2008 2009 2010

Percentage of Returns from

Currency Movement

cuy Imp = (MscI eM g Usd ru - MscI eM g l- ru) / MscI eM g l ru. su: MscI, bmtu d 31, 2010.

exhIbIt 53

Haves Versus Have Nots

0.10

0.25

0.50

1.50

3.25

4.50

4.75

6.75

5.75

12.00

JPY

USD

GBP

EUR

KRW

PLN

AUD

IDR

TRY

BRL

Policy Rate (%)

Have Not's

Have's

brl = bii ; trY = tuki i; Idr = Ii upi; aUd aui ; Pln = Pi y; KrW = su K w; eUr =u; gbP = bii pu; Usd = Us ; JPY = Jp y. d spm 20, 2011. su: bm.

8/2/2019 KKR Insights 111017

22/24


Wii f v-, w iv i pi

i m f i in the short-term, vi y f

my vp-mk mi w ii xii

imi mi wk U.s. Fu, i ik eup

w ii ui f pi i ju

m i. t i, wi u-k my i ,

U.s. f mj uu wi i P III vi-

m. I vm uff fm fi fii,

i k m m iv i m f i

mmim iu quiiv i pii. aiiy,

vi fu k i mi mk ivifywy fm , i i iky f i pu.

exhIbIt 54

Correlation o Asset Classes with Ination

-60%

-50%

-40%-30%

-20%

-10%

0%

10%

20%

30%

Inflation Change Expected

Inflation

Unexpected

Inflation

Stocks Bonds Commodity Futures

Ifi: Y/Y% cum Pi Ix (cPI); exp ifi: t-i pxy; Uxp ifi: Ifi - exp ifi. F iiifmi i i f w, p f P 19 t 6 wii F Fi u cmmiy Fuu. di quy fm Juy 1959 u 2004. su: g & ruw,F Fi u cmmiy Fuu df: Fuy 28, 2005.

Commodities Should Be Approached With a Fresh Perspective

M w kw iu w i i

pu , mmii i piu. ti if

i i i i pu ifi ,

iv u i my uppy. tu w

immi f iifi ifiy pu, i

qui mmii i i

ifi . a w i eii 54, i f m-

mii wi ifi w i ifi i piiv; y

mpi, k ypiy v iv i

wi ifi i ifi pi. spy,

mmii imp ivifi, piuyui pi f i pii i.

n, mmii v i wk, iui i

pfm ui pi f mi wk. ti i

i im f mk i fm iy z wi

ii 60/40 (k/) pfi m 40%. ty v

m iiy wi , iu-

i m quii (Exhibit 55), iv w

mj wi w i i . tf,

wi w mmii imp p f y

ufuy u pfi, w ii 57%

m pppi, 10% m m iv-

pu. I ii, w mm fui -ii

i i i mmiy xpu, iui

wip f pyi i p f fuu.

exhIbIt 55

Commodities are Now Increasingly Correlatedto Equity Markets, Especially EM Equities

-60%

-40%

-20%

0%

20%

40%

60%

80%

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Rolling 60-month Correlation with Commodities

US Equities US Bonds EM Equities

a spm 30, 2011. su: bm, ui s&P 500 f Usquii, bcp Us a f Us , s&P gscI f mmii s&P emi Mk i f eM quii.

exhIbIt 56

Ination Hedging Power o Real Estate is Strongin a Low Rate Environment

0.68

0.11

0.35

0.78

-0.20 -0.14

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

0-4% 4-8% >8%

NCREIF Property Index Equity REITS (TR)

Initial US 10yr Yield

Correlation Between Real Estate Indexes and Inflation Rate Y/Y

Change in Various Yield Environments

Ifi mu y Us cum Pi I (cPI). d fmdm 31, 1978 dm 31, 2009. P pfm i u f fuu u. su: bm, MsIM.

a pi i i imp

ifi , umi w iky

mi w i U.s. f f fuu. o i

i ifi i 04% i vim (Exhibit 5

Iiy, if fi i, iiy f w

i mi w fii wu iv.

8/2/2019 KKR Insights 111017

23/24


Conclusionou m viw i w ky impiv: mk viiy yu fi, u i

w i wy yim . P III i i fi p f i

vi y, i m iv wi v ppuiy i fw

y mk iy uiv ivm wi ppui-

i ium w uu if.

I i f upmi pp, w wi mi m y

pifi i p u. F w, wmm pii wk i quii i i-

y i pii i gm, U.s. mi-

mk quii. W i fv vwi pii i fi

im uy iv k-, i-yi,

mi p my mpi

vu. n-m, w fv i pii i

pii i u. Wii mmii, w m-

m -ii ivm ffi y

v i f w pviuy iu.

lki , w ik piii f eup

kif ppyu qu, miimum, 5%

upwi i quiy vui v. l U.s. v-m ivi wi , y u ppiv, iu

piivy mk pfm, wi fi ifi i ci

mi ky vi wi fu.

Fiy, w p wk i mmii vi m ifi ,

w p vi i mmum. tu, w mi mf i u -

umpi fiy ik vw piiiy f ifi i 2012.

Important Inormation

t viw p i i pi p- viw f hy MVy f K Kvi r& c. l.P. ( wi i ffii, KKr) iy f viw f KKr if. tviw p f u viw f M. MVy f f i M. MVy KKruk vi yu f y i viwp i. I ii, viw p iy f pii f y ivmpfi KKr, my f i i pu KKr ff.

ti pi pp y f if-mi pup. t ifmi i ii y u f ii, my up y uqu mk v f . c p pvi i fiuiv pup y. t ifmi i i p-i vp iy / ifm u iv i; wv, iKKr M. MVy u uy, quy mp f u ifmi. ni i

i iu ivm, , vi i i i i mki ivm ii.

t u ivm ywi ufu. hii mk iii f u fuu mk vi fuu p-fm f y piu ivm wi my iffmiy, u i up u. tipi u viw u pmmi iii f ff uy y uii p y ivm y.

t ifmi i i pi my i pj-i fw-ki m ifuu v, , f xpi -i i i i, i y u f ii. t i u uv wi iv, my iifi-y iff fm w . t ifmii i pi, iui m ifii mk , i u mk -ii, wi wi fuu my up yuqu mk v f . Pf-

m f i ii i u i wi ivi iv. t ii iu y xp, f um u i ivm.

ni KKr M. MVy um y uy , uk up fw ki m. npi wy, p impi, i m iv y f f KKr, M. MVy y p uy mp fif ifmi i i i pi piiiy iiiy i p f y uifmi. by pi i pi, ripikw i ui p f fi m.

t MscI u ifmi i i um i uiv ppy f MscI I. (MscI). MscI mkp impi wi pi v iiiy wv wi p MscI i i. t MscI my fu iiu u i f i y uii fii pu. ti pi ppv, viw pu y MscI.

Real estate can also act as an

important infation hedge,assuming we are correct that rateare likely to remain low in the U.S

or the oreseeable uture

8/2/2019 KKR Insights 111017

24/24

www.kkr.com

Date post:	05-Apr-2018
Category:	Documents
Upload:	yamaha-rtz
View:	233 times
Download:	2 times

KKR Insights 111017

Documents