KKR is expanding its private equity, credit, insurance and real estate business in Japan, encouraged by the country’s corporate governance overhaul and sustained inflation, the chief investment officer of its balance sheet said.
The plan comes despite Japan’s reliance on imported fuel and its vulnerability to an energy price shock from the war in Iran.
“There’s been a real commitment to corporate reform across multiple administrations, and this kind of structural reform will generally overcome cyclical macro headwinds,” said Henry McVey, who is also head of global macro and asset allocation at KKR.
“There are opportunities up and down the capital structure,” McVey said, declining to say how much KKR might invest in Japan.
McVey does, however, anticipate higher commodity prices in coming quarters as a result of the U.S.-Israeli conflict with Iran which has spread and blocked the Strait of Hormuz.
“There’s a lot of focus on oil, but I think some of the supply disruption that we’re seeing extends into fertilisers, LNG, helium, and other commodities that are not getting as much airtime.”
Real estate, private credit
A period of sustained inflation in Japan after decades of deflation has opened up opportunities, McVey said, adding that real estate is one of those opportunities as companies come under increasing pressure to offload real estate assets that are not core to their businesses.
Another potential growth area for KKR is private credit as inflation encourages the movement of assets out of bank deposits to achieve higher yields, McVey said.
“Money is moving out of the traditional banking system and that will probably slow the rate of credit creation through the normal channels. There’s going to have to be some form of credit that steps in to help fill that gap.”
Japan’s private credit market is in its infancy but in the U.S. market a rise in bad loans has precipitated a jump in redemption requests at major funds.
McVey declined to comment on U.S. private credit redemptions but said KKR‘s Asia credit strategy is performing well and the firm intends to build its presence in Japan and across Asia.
Earlier this week credit rating agency Moody’s downgraded the debt rating of a private credit investment company jointly managed by KKR and Future Standard to “junk” status.
Reuters
