kkr insights 120408
TRANSCRIPT
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InsIghts
GLOBAL MACRO
TRENDS
InsIghts
GLOBAL MACRO
TRENDSApril 2012
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2 KKR InsIghts: global Macro trends
The Twin Roles oReal AssetsEconomic, geopolitical and demographic factorshave combined to create a compelling environment
for investments in real assetsespecially realestate, energy production, infrastructure and softcommodities. Such exposure may entail relinquishingsome liquidity, and is also susceptible to the risk of apullback in global economic growth. Yet, we believereal assets can still serve twin objectives: hedgingagainst the potential effects of easy monetary policyand possible consequences of a Mideast conflict; andgaining exposure to attractive incomeas well as yield
and growthin a low-rate environment.
KKR global MacRo & asset
allocatIon teaM
henRy h. McVey
Head of Global Macro &
Asset Allocation
+1 (212) [email protected]
DaVID R. McnellIs
+1 (212) [email protected]
FRances b. lIM
+1 (212) [email protected]
Rebecca J. RaMsey
+1 (212) [email protected]
MaIn oFFIce
K Ki 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
2012 K Ki r & c. l.P.a ri r.
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KKR InsIghts: global Macro trends
bk i Juy 2012, w ui wi -
i f 10% u mk wi f 5%
f, uy fu m i y, w mi fi i
u uk. I f, i u u wiw, w wu iky
u y wk m .
Wy? bu, w wi pi i m i i fwi
p, w ii i m m
w i fi iiy ui pii
i -m:
1. Additial Cetral Bak Liidity Ijecti Cld Drie Ee
Mre Mey Tward Real Aet. t f -
p mk k i pp-
i u f i my pii i
miimi imp f w w, i fii i
uy wi. I , -k
f fu p mi ( Ui s,
eu, Jp, U.K.) 25% f i -
i gdP 37% f i mi quiy mk pii-
i. Fum, i i f i mui ,
m y mii i u
u i w mi f gdP
w f pi f im. hiy w iu f i i f ifiy i u.
2. We Wat t Frther Hedge Agait Rbt Cmmdity Price.
c u i uk f 2012 u
Phase IIIfmwk1 f u imi u
iw p i m i ii
f pi i m fii-i-
miy . hw, mp m ii (i
fm f fi imuu) w pii i
my w fui pi u f my mmiii i
piu. tf, w f mp mii ui
pu y ipu-
i f p pfiiiy.
3. Real Aet Are Icreaigly Pridig the Yield Cmpet
That Chagig Demgraphic Reire i Tday Lw Rate
Eirmet. My m iiy im-
i f i yi u f pi m mpi
if i i pf u y i by bm-
. W w-y ui i y. af , i
im f w mi u ui m
iquiiy, u w up ik ifi
i im my m m u. M,
i u iw i mpi f i
mk, w ik i iifi pi f upwui f yp f im pi i-
wi yi w mp.
lki i piu, w i u u --
i fmwk f my f ky m m w
pyi u. W mii i w w yi
ff m i yi u pii-
fi-im pu mi, i-yi mi-
1 s u pp i Phase III: The Last Stage of a Bumpy Journey,o2011, i KKr.m.
mk i i mpi. n upiiy, w iu
uwi m y fu 15%u u-
wi pii y f (Exhibit 1). a m im, u wi
pii i ii i i u ii pu
upi f ui umpi i ai, i uii i
eup ppuii i Ui s.
Fiy, w mi i w, w i-
iy f mi y i uy
f fw ff ffi fi
ii i y iiy iquiiy-i m m.
exhIbIt 1
KKR Global Macro & Asset Allocation Suggested PortoAllocation
AssET CLAss KKRGMAA
TARGET
AssETAL-
LoCATIon
(%)
BEnCH-
MARK(%)
DIFFER-
EnCE(%)
PuBLIC EquITIEs 50 53 -3
U.s. 20 20 0
eUroPe 12 15 -3
all asIa 12 12 0
latIn aMerIca 6 6 0
ToTAL FIxED InCoME 25 30 -5
global governMent 5 20 -15
MezzanIne 5 0 5
hIgh YIeld 5 5 0
hIgh grade 5 5 0
eMd 5 0 5
REAL AssETs 10 5 5
real estate 3 2 1
energY/InFrastrUctUre 5 2 3
gold/corn/other 2 1 1
oTHER ALTERnATIvEs 15 10 5
tradItIonal Pe 5 5 0
dIstressed & sPecIalsItUatIon
5 0 5
other 5 5 0
CAsH 0 2 -2
su: KKr g M a ai api 6, 2012.
1
2
3
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4 KKR InsIghts: global Macro trends
The Macro Case or Real Assets
Germet stiml i nw oerized. o f fi fim I
w i mi w s spi 1975
i, Jaws. a mm fm fim m mi i
wi pi if Mi by, py y ry si, i
w wu qui u w miy k im:
W i i !
I m wy, i m if w k iy
cif by 37 y i im, iwi pui f fii ii. I, i pp
my f m iiiy pu ii my fi
wi fm f g ri. bu f -
ii ii mu w u ui
mi y, y py my f i
.
hw i i k pi y? I
Ui s, my fi imuu i w 38% f
gdPfu f im w m p ui
g dpi (Exhibit 2). t eup c bk (ecb)
w 34% y--y f Fuy 2012,
i w i F i u i m. a, Exhibit 3 w, -k f fu
p mi w 25% f i -
i gdP (fm 20% y 11% i dm 2006)
37% f i i mk piii (fm 29% y
13% f 2006).
exhIbIt 2
Unprecedented Amount o Stimulus:The U.S. Government Has Already Injected 4.5x
What it Did in the Great Depression
PeaK
gdP
troUgh
gdP
length
(Months)
declIne
In
realgdP
MonetarY
FIscal
coMbIned
aUg-29 Mar-33 43 27.0% 3.4% 4.9% 8.3%
MaY-37 JUn-38 13 3.4 0.0 2.2 2.2
nov-48 oct-49 11 1.7 -2.2 5.5 3.3
JUl-53 MaY-54 10 2.7 0.0 -1.4 -1.4
aUg-57 aPr-58 8 3.2 0.0 3.2 3.2
aPr-60 Feb-61 10 1.0 0.7 1.0 1.7
dec-69 nov-70 11 0.2 0.3 2.4 2.7
nov-73 Mar-75 16 3.1 0.9 3.1 4.0
Jan-80 JUl-80 6 2.2 0.4 1.1 1.5
JUl-81 nov-82 16 2.6 0.3 3.5 2.8
JUl-90 Mar-91 8 1.3 1.0 1.8 2.8
Mar-01 nov-01 8 0.2 1.3 5.9 7.2
dec-07 JUn-09 18 5.1 18.3* 19.2* 37.5
d Juy 31, 2012. *eim i 2011 gdP f $15 i isu: F r, ci bu offi, g Ir o. KKr g M a ai.
exhIbIt 3
Central Banks are Osetting Austerity with LooseMonetary Policy
0
5
10
15
20
25
30
35
2006 2007 2008 2009 2010 2011 2012
Central Bank Balance Sheet % GDP
Fed BoE ECB BoJ
%
d Fuy 29, 2012. su: F r b, buuf emi ayi, eup c bk, bk f e, bkf Jp, swi ni bk, sii offi f eupcmmuii, UK offi f ni sii, ci offi f Jph.
We eel compelled to maintain
outsized exposure to an assetclass that can act as a hedge toany input-cost related erosion o
corporate protability.
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KKR InsIghts: global Macro trends
There is signicant potential oran upward revaluation o assetsthat can provide investors with
both yield and growth.
t w i pmpiuy ecb
ltro i pm ffi i mpi iiy2.
hw, i m pi: r- pi imi
fii imy . Exhibit 4 iu
i i y w i i -m
i i pi f mmii iui ,
u i . W iw i f -m
i py f k iquiiy, iui
pmi f iu w piy i fuu, quii
i, uy ii, -m fii f
piy iky (.., ltro).
exhIbIt 4
Strong Relationship Between Lower Real Interest Rates and Higher Commodity Prices
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0600
800
1,000
1,200
1,400
1,600
1,800
2,000
Apr-07
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Gold Px (Left)
US/EZ/UK/JP Real Yield,% (Right, Inverted)
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.020
40
60
80
100
120
140
Apr-07
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
WTI Crude Px (Left)
US/EZ/UK/JP Real Yield,% (Right, Inverted)
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0300
400
500
600
700
800
900
1,000
1,100
Apr-07
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Dow Jones REIT TR Index (Left)
US/EZ/UK/JP Real Yield,% (Right, Inverted)
d Fuy 29, 2012. r yi mpi i gdP-wi f i Ui s (10y tIPs), Ui Kim (10yIfi-lik gi), gmy (bcp gmy Ifi lik, 5y+ Muii), Jp (bcp Jp Ifi lik, a Muii). su:bm, KKr g M & a ai yi.
ou u iw i pm mpy;
, w k mmi kpi i
w iquiiy i i f fuu. a u, w ik
u i up m y F i
p f my iu fi wi pii
i u , ifuu, i-pui
.
sme Iflati Will Eetally Be Reired t Brig Debt Le-
el Dw. J My Ky i y iui
p f ifi, m fi, y
u, imp p f w f i ii. Wi w i i 1919 i p p-W W I mi
pii, w ik i mm mi i y, i
p w i i w i imu f i -
m- i pp mu f ifi u
w u m pi. Impmi
2 ltro: l-m fii pi. c k i py imp i mpi i iiy. ecb ltro wimpi iiy i eup mk y 20% i i u imi-dm i b Mk oi, bnY M Fuy 2012.
ifi p i Ky fii
f w wu f mk , w i.
a i w, U.s. uy u 339%
gdP, w ju iy fm pk f 349% i M 2010 (Exhi
5). Pp m i i mi w m
m p p i. I i
1950, Ui s imy k m f
y im f gdP w (Exhibit 6). eup, , w
um , u i f wi f
fi uiy.
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6 KKR InsIghts: global Macro trends
exhIbIt 5
The Elephant In The Room: US Debt % o GDP
Households
Corporates
GSE
Government
Financials
Mar-32, 298%
Dec-11 339%
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 = gm spepi. su: bea, F r, M sy r t sii hiy f Ui s y b W.d u 4Q2011.
exhIbIt 6
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 Debt
Per Incremental Dollar of GDP
gdP = g dmi Pu. 2000 = 1999 2009. su: bea,F r, bm.
au w i m uiy mu
pi- i i eup Ui s u
uy iifiy i m, w if-
iy piy my uimy p ik u
u umu f . rmm m
i u i gdP i y w m:
(i) ui pimy upu y i ip pym f -i p, iui im; /
(ii) i mi i w f mi
gdP w. Exhibit 7w iu mu
ii pimy upu i Ui s i mi
y ( wiu qui, w ik eup f imi, if
, ). nmy, ii - im pi
piy i pu pi
iiy up i gdP3. Mwi,
3 s u p i Brave New World: The Yearning for Yield Across AssetClasses, dm 2011, i KKr.m.
Ui s iy f i u
u 18% f gdP, i w mii i
20% f gdP f p pi f im
exhIbIt 7
Challenging Outlook or U.S. Primary Budget DecitCould Eventually Lead to Infationary Policies
14%
15%
16%
17%
18%
19%
20%
21%
22%
23%
24%
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014e
2017e
2020e
2023e
2026e
2029e
2032e
2035e
Revenues % GDP
Primary Spending % GDP
U.S. Federal Revenues and Primary (Noninterest) Spending
= im. ru im um f u % fgdP ii f 18%. Pimy (i.., i)pi im p cbo -m f pui Ju22, 2011. su: ci bu offi, KKr g M &a ai yi.
exhIbIt 8
Holding Interest Rates Below GDP Growth Would AidU.S. Debt Dynamics, But Could Rekindle Infation
19793.7%
1982-4.6%-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
1956
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
U.S. Nominal GDP Growth, Surplus/(Deficit)Relative to Interest Rate* (3yr Rolling Average)
End of
Stagflation
Headed
Higher?
*W u U.s. 5-Y tuy Yi py f mfui . t muiy f U.s. ui mk u 60 m. su: buu f emi ayibm, KKr g M & a ai yi.
s, if ui iifi pimy upu i iky ui
m y mii i u
my i w mi f gdP w
f pi f im. Exhibit 8 w wu
up mu, U.s. gdP uipp i
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KKR InsIghts: global Macro trends
I May Itace We Are nw Gettig Paid t Wait a Real Aet
Are Icreaigly Tied it r Yield-ad-Grwth Theme. W
mk my im piy mpi i u
iw i my f y im i w f-
f y ppiiu i u f pi
wy. I w wy i wy.
F mp, y w wi um f i
pui im i uu u i
ii im f 48% upf, i ii ifi i
pi f pi ppii. t im mp wy m pui im u
(reIt), u w w iiy im m i pi-
puui i ii yi i i-
i pi f pi ppii. Py m imp
u, i ppuiy f m uy i pui
pi i pi, ui i w, u
p i ii m f i.
exhIbIt 15
Rapidly Aging Populations are Global in Nature
18.4
25.3
2050
26.6
2010
30.5
2030
37.1
2050
41.5
2010
12.3
2030
24.4
33.9
21.8
29.0 33.6
5
10
15
20
25
30
35
40
45
2000 2010 2020 2030 2040 2050
Percentage of Population Age 60+
US
Japan
China
Europe
d My 31, 2011. su: Ui ni W PpuiPp
exhIbIt 16
Retirees Have a Strong Appetite or Dividend Yield
1.5
2.8
Under 65 Over 65
Estimated Dividend Yield of Equity Portfolios, By
Age of Head of U.S. Household - 2007 (%)
d dm 6, 2011. dii yi u ui iiim p y Irs sii f Im diii quiyi p y F r suy f cum
Fi. ou im iu umpi uy f fpiy ui py m fm f ii. su: Irs,F r, KKr g M a ai im.
W iw u f pi ii mp f u m
iw -i y, i w i
ffi yi w iky u upw i
mi y u f mpi m i
ppui. t p y f upp
f ii pf uqu u. a
Exhibit 15w, m y mj p my i
i f ppi imp mpi ifi pi. t
ii i imp u, Exhibit 16 w, my i
piuy m by bm, pi miy i
yi i pfi y w .
t i ju puu yi i ii; y k yi
mi wi pi f w , if pi, ifi
. gi i f iu,
w ik i pi f upw ui f u
. aiiy, i ifi-pi ium
ik tIPs w i yi (mi i w
py f ifi pi y i), w i
yi mp f i y
ifuu im i f m mpi i y mk
(Exhibits 17 and 18).
We think that recent aggressive
moves by the Fed and other centralbankers will continue to beneftoverweight positions in such real
assets as real estate, inrastructure,and oil-producing assets.
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10 KKR InsIghts: global Macro trends
exhIbIt 17
U.S. TIPS Yields Are at All Time Lows
-0.27
-1.42
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
1997 2000 2003 2006 2009 2012
U.S. 10 Year TIPS Yield (%)
U.S. 5 Year TIPS Yield (%)
tIPs = tuy Ifi Pi suii. d M 12,2012. su: bm.
exhIbIt 18
I We Do Experience Infation, Government Bonds Maybe at Signicant Risks
-1.6-1.1 -1.1 -0.9
-0.3
0.81.2
2.6
6.4
-3
-2
-1
0
1
2
3
4
5
6
7
U.K.
U.S.
China
Euro
Germany
France
Japan
Italy
Brazil
Real 10 Year Yield Percentage
(Nominal 10 Yr Yield - CPI yy)
r yi u u mi yi miu u ifi.ti yi my pi f yi y fii wi my uj i (.., bi IoF Fii opi t f 6% i ium).
d Juy 31, 2012. su: bm.
Real Aet May Help Hedge Agait Riig Geplitical Tei.
am my wi f y m im,
w ik Mi e i m m iifi
p i i ik my. by ii-
iy uiy wu y a spi, ff
I u pm pi
fi (Exhibit 19), i wi u
i kyki y pi mi
pui qu p i I
i w i uppy (Exhibit 20).
exhIbIt 19
Geopolitical Tensions Enhance the Appeal o Real Asse
March 8, 2012
W Pw P I f tk
March 8, 2012
I I P a f nu Ip
March 9, 2012
Wii imp f I iki I
March 10, 2012
t iw fm t
su: Puii i, KKr g M a aitm.
hiy i u : I p uppy iupi,
u i pi f 62%, pi mi
u f k uppy. aiiy, i w
pk uppy pk f i pi i 91%,
uppy , i pi i (Exhibit 21).
liy w w i i pu f
upii u i m6. t liy im
f 1.8 mii f i-pui piy, pi
u 35%. bu uik liy, I i w i
iqui fu pu, wi pui f 3.6 mii p
ywi f liy. If w I 3.6 mii- uppy
ii p u u i pi u i
85% fm u , u $190 p . ti i u
, u i my pi wy i pi up f
f fi ii I i u impf i m wi pi i f pii
k u y imp i uppy.
6 su: ey Ifmi amiii Ii sii.
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KKR InsIghts: global Macro trends
exhIbIt 20
Iran Still Produces 3.6 Million Barrels o Oil Per Day
toP 10 crUde oIl and lIQUId FUels sUPPlY/ProdUctIon (MIllIons barrels Per daY)
1 UnIted states 10.5
2 rUssIa 10.3
3 saUdI arabIa 9.8
4 chIna 4.3
5 canada 3.8
6 Iran 3.6
7 MexIco 2.9
8 brazIl 2.8
9 IraQ 2.7
10 Uae 2.6
other 35.5
World 88.7
m/ = Mii b P dy. su: ey Ifmiamiii s-tm ey ouk M 2012.
exhIbIt 21
Geopolitical Events Tend to Lead to Oil Price Surges
Six Day War
Arab-Israeli War
& Arab Oil Embargo
Iranian Revolution /Iran-Iraq War
Iraqi Invasionof Kuwait
Venezuelan Strike
War in IraqHurricanesKatrina/Rita
Libya Civil War
Suez Crisis
Iran 2012??
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
0 2 4 6
RiseinWTICrudeOilPriceFromT
roughtoPeak(%)
Crude Oil Gross Peak Supply Loss (Millions of Barrels Per Day)
d Fuy 29, 2012. su: Ii ey ay,bm.
Emergig-Market Grwth Appear t Far Real AetCm-
mditie i Particlar. W f im
py ii umpi p f mi-mk
ppui. a i ppui ui ik ci i
uii pi i i p im,
m f u mmii , , i my iu
i. ci fwi: I 2010, U.s. i um
22.5 f i uy p p, mp ju 2.5
i ci; U.s. i um 907 kim f u
p p, mp 123 kim i ci7. M imp
ci ify i ii wi ppi f u
u wi mi uppy, if fm i
p f u imp, i my i. F
mp, ci pi u f imp f u
i iuu mmiipiuy i y
(Exhibit 22).
exhIbIt 22
China has Gone rom a Net Exporter to Importer androm Minor Consumer to Major Consumer in a Numbeo Categories
ExPoRTER
In 2005IMPoRTER
In 2011 unITs
road vehIcles 9516 -5503 Us$M
corn 3665 -3800 1000 Mt
sWIne Meat 454 -290 1000 Mt cWe
beverage andtobacco
395 -1412 Us$M
Wheat 268 -500 1000 Mt
cattle anIMals 4 -65 1000 heads
CHInA % WoRLD ConsuMPTIon
2000 2010
ceMent 35.7% 56.2%
PorK 46.9% 49.9%
coal 30.7% 48.2%
steel 15.1% 44.6%
lead 10.2% 44.0%
cotton 25.0% 40.2%
alUMInUM 13.4% 39.8%
coPPer 12.4% 38.3%
nIcKel 5.1% 37.2%
oIl 6.2% 10.4%
d dm 30, 2011. su: ci cum, Ui sdpm f aiuu, h. a f 2010. su: Usda, Usgs,W s aii, ci ni buu f sii, eIa, Iea,bP sii riw, W buu f M sii, bm,h.
7 su: bP sii riw, Un W Ppui Pp.
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12 KKR InsIghts: global Macro trends
exhIbIt 23
EM Consumption is Now Bigger than U.S. Consumption
8.89.3
9.810.0 9.9
10.2
8.0
9.2
11.0 11.0
12.1
13.3
6
7
8
9
10
11
12
13
14
2005 2006 2007 2008 2009 2010
Private Consumption
United States
Emerging Markets
US$ Trillion
emi mk iu mi pi mi fi y IMF, K, tiw, sip. d fm 2005-2010.su: IMF, KKr g M a ai r.
emi mk i i i: ti mi -umpi i w y f Ui s, u
i wi f (Exhibit 23). a ky y i w i
uii f ui ik ci Ii (Exhibit 24). t
ppi f ci ppui ii i ifi u
y 45%, Ii i , 30% (Exhibit 25). a
uii p i f y ppu u-
i, w p m f u u, iui i f
mmii, mii i y upw .
exhIbIt 24
Urbanization is a Strong Driver o Growth
China
US
Indonesia
Japan
Vietnam
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
-10% 0% 10% 20% 30%
ChangeinNominalGDPUS$2010
vs2000
Change in Urban Population % Total 2010 vs 2000
Urbanization Versus Growth
d dm 31, 2010. su: IMF, W bk.
exhIbIt 25
...And China and India Have A lot More to Go
28.8
30.1
34.0
44.9
53.7
61.7
66.8
69.5
69.6
72.8
73.8
77.8
77.8
80.6
81.9
86.5
0 20 40 60 80 100
Vietnam
India
Thailand
China
Indonesia
South Africa
Japan
Iran
Turkey
Russia
Germany
France
Mexico
Canada
Korea, Rep.
Brazil
2010 Urban Population % of Total
d dm 31, 2010. su: IMF, W bk
Bt We need t Be Midfl f the Rik, T. e m
pui im i ik w ii,
wi w i wi pii i wi
ii, w wy pif kp y
. Fi, u mk f m
We think theres an opportunity
or managers to buy older oilproduction operations at
attractive prices, resuscitate their
wells, and use the proceeds tocreate a sizeable dividend stream
or investors.
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KKR InsIghts: global Macro trends
fii quii i piuw
ui. F-fw y, yu wi fi k
iy w , wi up
474%, i i 269%, reIt i im 200%8.
t u mp, w my i i iiu
w iy i fi.
I ii, i f pi mi i ,
y- im i piu. t i iui
y pi-ii, p 12 y, pi -
piu i iui w ui f16.7% $151.0 iiup fm ju $23.6 ii i 1999w
fi, -ii im (-i -) y w
ui f 1.7% m pi9. a u,
i- - pi piu w ui 9.9% f
-ii im, up fm 2.0% i 1999. Wi
py i mw f i i ii iiy,
u f y pi piu (wi
10% f -ii piu) iiy i
pk ui p y, iui i 1944 1981 (Exhibit 26).
hw, p f mk piii, y i p-
p ui upi f i wu pp p pk
f s&P 500 (Exhibit 27).
exhIbIt 26
Energy Capital Expenditures is Now 10% o Total Non-Residential Expenditures
1933, 9.61944, 10.3
1981, 11.9
1999, 2.0
2008, 10.32011, 9.9
0
2
4
6
8
10
12
14
1929 1949 1969 1989 2009
Oil and Gas Related Investment
% Non -Residential Fixed Investment
oi g r iu Mii epi, sf, W Mii & oifi Miy. d dm 31, 2011. su:buu f emi ayi, h.
8 su: bm. d fm dm 31, 2000 dm 31, 2011.
9 su: buu f emi ayi, h. d dm 31, 2011.
exhIbIt 27
Energy as a Percentage o S&P 500 is Still Well BelowPast Peak Cycles
Nov-80,31%
Nov-99, 5.3%
Jun-08
16.2%
11.8%
Nov-8023.8%
Mar-866.6%
Feb-00,6.5%
Sep-02
13.4%12.1%
0%
5%
10%
15%
20%
25%
30%
35%
1975 1980 1985 1990 1995 2000 2005 2010
Energy as a % of U.S. Market Cap
Energy as a % of Europe Market Cap
d Juy 31, 2012. su: F, M sy r
ly, mmii - pi miyii, i i wi ii 60/40 (quiy/
) pfi i ui mi wu10.
ti i piuy u f gm s cmmiy I
wi my ppu muu fu uy u iy
pu . W fu im m
f wi ik f mmii , m im, p
ppuiy pfi fm pui mk- i
a pi iipi i i f i i , m
u fii i imi.
10 s eii 54 f Phase III: The Last Stage of a Bumpy Journey, o 20i KKr.m.
Beyond the instability and
uncertainty wrought by the ArabSpring, the stando over Irans
nuclear program has the potentiato escalate to a broader confict, iwhich case real assets could serv
as a hedge against skyrocketingenergy prices and relatedeconomic repercussions.
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14 KKR InsIghts: global Macro trends
Summary
I u iw, m kp i my mpi f i-
m i . W i iifi wi
pii i i iui , y pu-
i, ifuu, f mmii fi
ffi y.
dfiy pki, w mm i i iy
my piy pi fu fm pii i
mmi fm Mi e. W iw mmii, p-iy i , ffi i p pu,
f wi w p fi mu i u i.
o ffi i, w f im-pui mp
, y ifuu, pui-
im pi piuy ppi fu u i
y w- im.
thr ar, of our, rik o our ar poiion. to puru wha
w advoa, an invor nrally mu forfi om liquidiy in
ordr o ain xpour byond nri ommodiy wap. evn o,
i i a b w ar willin o mak in lih of h poor prforman
faur ha many wll-known indx provid. Ju onidr ha
bwn 2004 and 2011, on an abolu bai, h gscI Indx ha
rurnd ju 8.5% vru 147.5% for h undrlyin po ommodiy.
a ik i w my w py umi
u f my . ti ik i iuy
w ik y puk i - pfm, w
mj, u mpy. ou if i u i uyi
umpi i mi mk pp uu
u yii u.
Fiy, y fuu ii y k wwi i
i i my m pi. W u
mf miii wi pii i -
piy pi yi
w.
We suggest ocusing on
investments that hedge some othe downside risks o commoditie
and, at the same time, presentan opportunity to prot rom
production or market-share gains
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KKR InsIghts: global Macro trends
Important Inormation
t iw p i i pi p- iw f hy Mvy f K Ki r& c. l.P. ( wi i ffii, KKr) iy f iw f KKr if. tiw p f u iw f M. Mvy f f i M. Mvy KKruk i yu f y i iwp i. I ii, iw p iy f pii f y impfi KKr, my f i i pu KKr ff. KKr i f-fii my pii ( ) i
uii i i wi ifmi iw p i i pi.
this peseaio has bee pepaed solely foifomaioal puposes. the ifomaio oaiedheei is oly as ue as of he dae idiaed, admay be supeseded by subseque make ees ofo ohe easos. chas ad gaphs poided heeiae fo illusaie puposes oly. the ifomaio ihis peseaio has bee deeloped ieally ad/oobaied fom soues belieed o be eliable; howee,eihe KKr o M. Mvey guaaees he auay,adequay o ompleeess of suh ifomaio. noh-ig oaied heei osiues iesme, legal, axo ohe adie o is i o be elied o i makig a
iesme o ohe deisio.
t u im ywi ufu. hii mk i ii f u fuu mk i fuu pfm f y piu imwi my iff miy, u iup u. t i i i uj . t i u i wi i, u i my iifiy iff w . tipi u iw u pmmi iii f ff uy y uii p y im y.
t ifmi i i pi my i p-ji fwki m -i fuu , , f pii i i i, i yu f ii. t i u u wi i, my iifiy iff fm w . tifmi i i pi, iui mi fii mk , i umk ii, wi wi fuu my up y uqu mk f . Pfm f i ii i u u i wi ii i. tii iu y p, f
um u iim.
t im y m iu my uui f i pi ipifi im ji fii iuiP i f f uy my ff u, pi im f im y.
ni KKr M. Mvy um y uy , uk up fw ki m. npi wy, p impi, i m i 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, i kw i ui p fi m.
t MscI u ifmi i i um i ui ppy f MscI I. (MscI). MscI mkp impi wi pi iiiy w wi p MscI i i. t MscI my fu iiu u i f i y uii fii pu. ti pi pp, iw pu y MscI.
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