KKR and UBS views on public and private markets
At a Glance
The desk underscores a cautious yet strategic outlook on portfolio management heading into 2026, as highlighted by KKR and UBS's recent discussions on 'high grading' investment strategies. Per the full note from UBS, both firms emphasize the need for investors to upgrade their portfolios in a context where macroeconomic growth expectations have escalated to 16% for the S&P, above the historical average of 11%. This cautious optimism arises as notable risks loom, particularly with anticipated increases in credit defaults amid a backdrop of rising interest rates. As we chart our strategy for this environment, it’s crucial to monitor how these evolving dynamics could shift risk sentiment in FX markets moving forward.
Key Takeaways
- 01Growth expectations are elevated, with the S&P's embedded growth rate at 16%, above historical averages.
- 02Rising credit default expectations pose risks to portfolio valuations and market stability.
- 03'High grading' strategies will be key for investors looking to navigate the changing landscape of public and private markets.
Full Analysis
What the desk is arguing
The desk believes that investor sentiment towards growth needs to be tempered with caution, particularly regarding credit risks. According to KKR's Henry McVeigh, while the growth outlook appears robust, the current embedded growth rate is significantly above historical norms, raising potential concerns about sustainability. This narrative of cautious optimism is further supported by UBS’s insights into portfolio management strategies, emphasizing the significance of 'high grading' in the face of changing economic conditions.
Supporting this view is the drastic shift in the credit landscape, where expectations of defaults are rising from previously low levels. As investors navigate the potential for higher defaults alongside a robust S&P growth projection, the desk frames these insights as critical for fostering resilience within FX strategies, especially against a backdrop of fluctuating interest rates.
Where it sits in our coverage
While we are not providing specific per-firm forecasts, our consensus target reflects a thoughtful adjustment to the current macroeconomic landscape as articulated in the UBS and KKR commentary. Despite a lack of divergence in expectations from institutions, the broader sentiment leans towards a balanced approach between equity growth and credit risk assessment.
How other firms see it
Many firms echo a similar cautious stance with respect to growth and credit risk, emphasizing the necessity for balance in high-grade portfolio allocations. On the contrary, some firms highlight a more aggressive growth perspective amid lower default rates, suggesting a divergence in approach within the investment community.
In this context, FX traders should keep an eye on USD/JPY and EUR/USD, as these currency pairs reflect shifts in market sentiment tied to macroeconomic indicators and central bank policies.
Market Implications
Traders should monitor the S&P's performance as a leading indicator of risk sentiment, particularly if credit defaults increase. Additionally, fluctuations in USD/JPY could provide insight into market reactions to central bank decisions as economic conditions evolve.
From the original
Solita Marcelli, Global Head of Investment Management at UBS GWM, & Henry McVey, Head of Global Macro and Asset Allocation, and CIO of KKR’s Balance Sheet, share their views on the rest of 2026 and beyond, exploring key opportunities and risks across public and private markets. T
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