How Asset Owners Are Adapting Investment Strategies

We continue to advocate that investors think differently about their asset allocation strategies, especially given the higher nominal GDP environment in the United States. Specifically, our Regime Change thesis focuses on four key inputs (bigger deficits, heightened geopolitics, a messy energy transition, and stickier services inflation) that we think necessitate a new approach to traditional asset allocation strategies for investors. What do investors need to know? 1: 𝐖𝐞 𝐚𝐭 𝐊𝐊𝐑 𝐞𝐱𝐩𝐞𝐜𝐭 𝐟𝐥𝐚𝐭𝐭𝐞𝐫 𝐫𝐞𝐭𝐮𝐫𝐧𝐬 𝐚𝐧𝐝 𝐢𝐧𝐜𝐫𝐞𝐚𝐬𝐞𝐝 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧𝐬 𝐭𝐨 𝐧𝐨𝐧-𝐜𝐨𝐫𝐫𝐞𝐥𝐚𝐭𝐞𝐝 𝐚𝐬𝐬𝐞𝐭𝐬 𝐢𝐧 𝐩𝐨𝐫𝐭𝐟𝐨𝐥𝐢𝐨𝐬. The five-year forward median return across asset classes we forecast is fully 180 basis points lower than what we saw over the last five years (meaning there will be less differentiation between the best- and worst-performing assets in a portfolio, on average). At the same time, ‘old’ #portfolio correlations are breaking down, so asset allocation – not single asset volatility – has a much bigger impact on overall portfolio volatility. Our message is to seek out – all else being equal – more uncorrelated assets in one’s portfolio. 2. 𝐎𝐰𝐧 𝐦𝐨𝐫𝐞 𝐜𝐚𝐬𝐡-𝐟𝐥𝐨𝐰𝐢𝐧𝐠 𝐚𝐬𝐬𝐞𝐭𝐬 𝐥𝐢𝐧𝐤𝐞𝐝 𝐭𝐨 𝐧𝐨𝐦𝐢𝐧𝐚𝐥 𝐆𝐃𝐏 𝐠𝐢𝐯𝐞𝐧 𝐭𝐡𝐞 𝐡𝐢𝐠𝐡𝐞𝐫 𝐫𝐞𝐬𝐭𝐢𝐧𝐠 𝐡𝐞𝐚𝐫𝐭 𝐫𝐚𝐭𝐞 𝐟𝐨𝐫 𝐢𝐧𝐟𝐥𝐚𝐭𝐢𝐨𝐧 𝐭𝐡𝐢𝐬 𝐜𝐲𝐜𝐥𝐞. This includes building flexibility across mandates and carefully considering duration. As such, we strongly believe that an overweight to modestly leveraged Infrastructure and certain Real Estate investments with yield is prudent for adding ballast to one’s portfolio. We are also quite constructive on Asset-Based Finance, which provides numerous shorter duration opportunities with good cash flowing characteristics and sound collateral. 3. 𝐎𝐰𝐧 𝐦𝐨𝐫𝐞 𝐚𝐬𝐬𝐞𝐭𝐬 𝐰𝐡𝐞𝐫𝐞 𝐲𝐨𝐮 𝐜𝐨𝐧𝐭𝐫𝐨𝐥 𝐲𝐨𝐮𝐫 𝐝𝐞𝐬𝐭𝐢𝐧𝐲, 𝐩𝐚𝐫𝐭𝐢𝐜𝐮𝐥𝐚𝐫𝐥𝐲 𝐢𝐧 𝐚 𝐰𝐨𝐫𝐥𝐝 𝐰𝐡𝐞𝐫𝐞 𝐭𝐫𝐚𝐝𝐞 𝐛𝐚𝐫𝐫𝐢𝐞𝐫𝐬 𝐚𝐫𝐞 𝐢𝐧𝐜𝐫𝐞𝐚𝐬𝐢𝐧𝐠. We suggest tilting portfolios towards domestic consumption stories. We also favor more control situations, especially in the private markets, where operational improvements or strategic consolidation can, at times, drive robust profit growth, especially in #PrivateEquity. We continue to favor political changes that drive corporate reforms, hence our optimism around investing in #Japan. Still, as the convergence and blurring of the lines between national and economic security gains momentum, we expect to see more policies that encourage domestic savings, higher profits, and a lower cost of capital. Read more on asset allocation and portfolio construction in our Outlook for 2025: https://go.kkr.com/3v0WI7Q

84% of institutional investors expect their sustainable allocations to grow in the next 2 years 🌍 Sustainable investing is gaining strength. Investors are responding to more consistent performance data and clearer evidence of financial value. The new Sustainable Signals survey shows that 84% plan to increase the share of sustainable assets in their portfolios. Asset owners show the strongest change, supported by a more established track record. Climate risk is now a major driver of investment decisions. More than 75% expect physical climate impacts to affect asset prices within 5 years. This is directing capital toward data and analytics, water infrastructure, and grid upgrades. Energy efficiency and renewable energy remain the top 2 themes. Climate adaptation has moved into the top 3 for the first time, showing a broader focus on preparing assets for climate related disruptions. Investors also highlight practical challenges. Limited data, regulatory uncertainty, and political volatility continue to shape how they allocate capital. Still, more than 80% see sustainability as an essential tool for managing portfolio risk. Together, these trends point to a more structured approach to sustainable investing. One that links financial performance with exposure to climate and policy risks. How quickly do you see adaptation becoming a standard expectation in mainstream investment strategies? #sustainability #sustainable #esg #investment

What’s forcing Family Offices to rethink where and how they invest in real estate? In recent months, we’ve seen a marked shift from traditional, “safe” asset classes into sectors once considered secondary. Industrial remains strong, especially with nearshoring boosting demand for logistics and warehousing across the US Mexico border. But what’s capturing Family Office attention even more are sectors that combine resiliency with real world utility: medical office, cold storage, and workforce housing. These aren’t just buzzwords. In fact, according to the Family Office Real Estate Institute’s latest analysis, allocations are moving sharply away from single family homes, hospitality, and even assisted living. Instead, capital is rotating into areas that align with long term wealth preservation: durable income, lower volatility, and assets that perform through economic cycles. We’re also seeing the emergence of more direct investing strategies. Family Offices are bypassing funds and going deal by deal, often preferring club deals or co investment structures with aligned operators. Besides control, Family Offices want to be closer to the asset, to better manage risk, to reap the full benefits of depreciation and tax efficiency. One clear example: A $250M West Coast SFO recently exited its allocation to retail REITs and redeployed into four off market medical office properties in secondary cities at cap rates nearly 200 basis points higher than what they were getting in core markets. The rationale? Recession resilience, essential services, and better yield. At the same time, Family Offices are continuing to prefer long holds. Over 50 percent look at 10 plus year timelines. The contradiction is that many of the most attractive investment strategies, value add, opportunistic, and development that typically come with 3-5 year cycles. The workaround? Stabilize, refinance, and hold. But that takes the right partner. And patience. Real estate remains a cornerstone for generational wealth, but it appears the playbook is changing. Family Offices are doubling down on asset classes with staying power, shifting into more hands on structures, and aligning capital with long term vision rather than market timing. So their challenge now is not whether to invest, but how to find opportunities that match the Family Offices goals, risk profile, and values. Those waiting for the perfect market are already behind. From my experience, the families who win are the ones who play the long game with the right partners, the right assets, and a plan that looks 20 years out, not just two.

Opinion: A Quiet Revolution is Underway in Institutional Investing 👀 Insurers, pension funds, and sovereign wealth funds are rethinking traditional strategic asset allocation (SAA) models and exploring a more dynamic methodology: The total portfolio approach (TPA). Institutions like Singapore’s GIC, CPPIB in Canada, and Manulife have led the way. Pension funds are following, abandoning rigid allocations and instead managing all public and private assets in a single, integrated portfolio. Each position is evaluated based on its marginal contribution to risk and return, not by filling predefined “asset class buckets.” Why the shift? TPA proponents point to the resilience it offered during recent shocks and the rapid rise of private markets. The ability to act quickly, flexibly, and holistically across asset classes has clear appeal. The Unspoken Challenge: Operational Readiness TPA is not just an investment philosophy. It demands a fundamental operational shift. Asset owners must modernize the front, middle, and back office to support it. Front office: A unified investment book of record (IBOR) to manage cross-asset workflows and multi-entity portfolios. Risk & performance: Real-time analytics at the total-fund level, measuring factors like volatility, downside risk, liquidity, and marginal contributions of each holding. Accounting & reporting: Daily, reconciled positions with multi-basis accounting and flexible cash flow projections, integrated with risk and performance, and agnostic to asset type or geography. Without modern, cloud-based infrastructure, many institutions will find themselves unable to deliver the speed, transparency, and integration that TPA requires. Legacy systems built for SAA will not keep pace. Strategy is the Cart. Operations is the Horse. SAA is about long-term allocation targets. TPA is about continuous optimization. The danger lies in adopting TPA strategies without matching operational capabilities. If strategy is the cart, operations must provide the horsepower. Otherwise, in the race to modernize, many institutions risk loading up the cart before the horse. At Clearwater Analytics, our mission is to help asset owners and managers recognize and embrace these new strategies and approaches at scale, and to ensure they have the operational readiness to put them into action.

A quiet revolution — or a quiet reawakening. Either way, institutional investors are changing how they allocate capital. Morgan Stanley’s latest institutional investor survey sends a clear message to public company boards: sustainability is now a capital allocation and risk-pricing issue, not a communications topic. Over 80% of institutional investors plan to increase sustainable investment allocations within two years. This shift is driven by performance and risk. A key driver is climate adaptation - preparing assets and operations for the physical consequences of a warming, less stable world: stronger storms, rising heat, flooding, and supply-chain disruption. Investors are increasingly asking: Will this company’s assets and business model still perform under harsher and more volatile conditions? To respond credibly, companies must understand two things: 1. How their operations contribute to a changing physical environment through energy use, emissions, and resource intensity. 2. How that same environment will impact their assets, costs, insurance availability, and supply chains - now and over the next 5-10 years. More than 75% of investors expect physical climate risks to affect asset values within five years. Over half already embed resilience into investment decisions, especially for infrastructure and real assets. This is already reshaping capital flows. Nearly 90% of asset owners factor sustainability capabilities into manager selection because they see them as proxies for long-term operational and financial resilience. Notably, North American asset owners were the most likely to plan increased allocations to sustainable investments at 90%, compared with 82% of European and 85% of Asia Pacific asset owners. For boards, this isn’t about having an ESG narrative. It is about ensuring your company stays operable, financeable, and investable as the physical world becomes more volatile. Capital is moving accordingly. Boards should govern with that reality in mind. #sustainability #capital #strategy #BusinessTrends #finance #competitiveadvantage #leadership https://lnkd.in/ejgSP3bh

💵 Is the Dollar’s Primacy in Jeopardy? For decades, the U.S. dollar has been the bedrock of global finance — dominant in trade, reserves, and capital markets. But in 2025, that foundation is showing signs of erosion. 📉 The dollar has fallen nearly 9% year-to-date, marking its worst performance in over two decades. What’s more concerning? U.S. stocks and Treasuries are declining together, presenting an unusual and alarming signal of waning confidence in American financial leadership. 🌍 Global investors are actively reducing U.S. exposure. Many are bracing for further dollar depreciation, citing concerns over fiscal sustainability, geopolitical tensions, and unpredictable trade policy. 🔁 Meanwhile, central banks are hoarding gold. Large institutional allocators are beginning to diversify currency exposure. And digital assets are creeping into mainstream allocation discussions. The dollar’s dominance isn’t collapsing overnight, but the trajectory is clear. A multipolar currency world is emerging and asset allocators will need to adapt. 🧭 How are Investors Responding? 1. Diversifying Currency Exposure Reducing exposure to USD by increasing allocations to other major currencies and hedging strategies. 2. Adding Gold & Real Assets Gold continues to be a preferred hedge against currency debasement and inflation shocks. 3. Revisiting Total U.S. Exposure U.S. assets may no longer offer the same safe-haven characteristics. Investors are increasingly returning to home country allocations. 4. Considering Digital Assets Bitcoin and tokenized assets are increasingly viewed as part of the future reserve landscape. 5. Planning for a Fragmented Reserve Regime Preparing for a world where global trade and finance is not as dollar-dependent and is more regionally anchored. The shift is gradual, but the implications are massive. Investors that stay anchored to the old order may find themselves behind the curve as these trends play out. #Macro #DeDollarization #CurrencyRisk #InstitutionalInvesting #AssetAllocation #GlobalMarkets #PortfolioStrategy

In the last six years, I've watched investors shift from seeing climate as a transition risk to confronting the reality in front of us: physical risk, hitting portfolios now. Chris Hall, editorial director of Sustainable Investor, captures this shift brilliantly in a new two-part piece, one of the clearest analyses I've read on where institutional investors are and where they need to go. $224bn in losses from natural disasters in 2025. Less than half are insured. And fewer than 1% of companies disclose capital expenditures for adaptation and resilience despite specific requirements under the CSRD and ISSB standards. Asset owners own the risk. What they don't have is decision-useful information: where the real exposures sit, what resilience actually costs, and who is genuinely prepared. And here’s the part that still gets missed. It’s not the flood that breaks a portfolio. It’s everything around it: no access, no power, no staff, no supply chain. Because this is no longer a one-off shock. It’s a cycle. Flood before Easter. Drought by June. Flood again in autumn. Then repeat. Global temperatures, energy imbalances and ocean heat absorption have set new records for 11 consecutive years (WMO). As UN Secretary-General António Guterres put it: “When history repeats itself 11 times, it is no longer a coincidence. It is a call to act.” This is locked into the calendar. The conversation has to move beyond measuring risk to building resilience. 👉 Adaptation Risks Push Asset Owners Beyond Traditional Boundaries Worth 10 minutes of your time. https://lnkd.in/eQ7aQ9cH #ClimateRisk #InstitutionalInvestors #Resilience #LongTermInvesting

How are Family Offices navigating global trade wars and geopolitical tensions? Family Offices globally are reshaping investment strategies in response to increased global trade tensions and geopolitical uncertainty. According to the UBS Global Family Office Report 2025, 70% of Family Offices rank global trade wars as their top investment risk, with major geopolitical conflicts (52%) and inflation (44%) also significant concerns. Over the next five years, geopolitical issues are projected to become even more critical. To manage these risks, Family Offices increasingly favor active management, selecting skilled managers to maintain stability during market volatility. About 40% prioritize active management, while 31% rely on hedge funds known for mitigating downside risks. Additionally, 27% are boosting their holdings in illiquid assets for market resilience. Precious metals have also regained popularity, now chosen by nearly 20% of Family Offices. Asset allocations have shifted notably toward developed market equities, currently averaging 29%, while developed market bonds have gained attention for their stable returns during uncertain periods. Interest in emerging markets like India and China remains cautious due to geopolitical unrest (56%) and political instability (55%). Additional concerns such as currency volatility and regulatory challenges further complicate investment decisions in these regions. Private market allocations are adjusting as well. Typically strong in private equity, Family Offices are moderately reducing their exposure from 21% to a projected 18% by 2025, driven by rising interest rates and slower exit opportunities. Regionally, investments continue to favor North America and Western Europe, while exposure to Asia-Pacific and Greater China is modestly declining, reflecting evolving perceptions of risk. Succession planning is another key area for Family Offices. While over half (53%) have formal plans, significant challenges remain in tax efficiency (64%) and preparing the next generation effectively (43%). These strategic adaptations offer broader considerations for investors of all types. How might Family Office strategies inform individual and institutional approaches to investing? Could these strategic changes reshape overall market dynamics? Most importantly, how will ongoing geopolitical developments shape future investment opportunities?

When central banks reduce interest rates, it’s more than just an economic adjustment—it’s a catalyst for seismic shifts in real estate investment strategies. The Federal Reserve’s recent 50-basis-point cut has set the stage for a series of changes that savvy investors are already leveraging. But, what this means for the market? 𝐋𝐨𝐰𝐞𝐫 𝐑𝐚𝐭𝐞𝐬, 𝐇𝐢𝐠𝐡𝐞𝐫 𝐁𝐨𝐫𝐫𝐨𝐰𝐢𝐧𝐠 𝐏𝐨𝐰𝐞𝐫 Rate cuts have a direct impact on investors’ purchasing capacity: → With lower rates tied to benchmarks like SOFR, mortgage and loan costs decrease, enabling investors to acquire higher-value properties without stretching monthly budgets. → Reduced financing costs allow investors to diversify or expand their holdings with less financial strain. For real estate investors, this means access to more capital and greater flexibility in strategy. 𝐓𝐡𝐞 𝐑𝐢𝐩𝐩𝐥𝐞 𝐄𝐟𝐟𝐞𝐜𝐭 𝐨𝐧 𝐏𝐫𝐨𝐩𝐞𝐫𝐭𝐲 𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧𝐬 Lower rates drive up property values in three key ways: Cheaper financing attracts more buyers, raising competition for assets. Higher capital flows push property prices upward, especially in high-demand markets. Assuming stable net operating income, lower cap rates translate directly into higher valuations. Investors need to act quickly to capture value before the market adjusts further. 𝐇𝐨𝐰 𝐋𝐞𝐧𝐝𝐞𝐫𝐬 𝐀𝐫𝐞 𝐀𝐝𝐚𝐩𝐭𝐢𝐧𝐠? Traditional lenders are responding to rate cuts by recalibrating their strategies: → To maintain profitability, banks are scrutinizing creditworthiness more closely. → Changes in credit spreads and deposit rates reflect the evolving lending landscape. This shift demands a proactive approach from investors to secure favorable financing terms. 𝐒𝐭𝐫𝐚𝐭𝐞𝐠𝐢𝐜 𝐎𝐩𝐩𝐨𝐫𝐭𝐮𝐧𝐢𝐭𝐢𝐞𝐬 𝐢𝐧 𝐚 𝐋𝐨𝐰-𝐑𝐚𝐭𝐞 𝐄𝐧𝐯𝐢𝐫𝐨𝐧𝐦𝐞𝐧𝐭 Certain investment strategies shine brighter in this scenario: → Locking in fixed, low-rate financing ensures long-term stability and higher ROI. → Increased buyer demand creates opportunities for faster sales and higher margins. → Lower hedging costs open doors to lucrative cross-border deals. Smart investors are using these strategies to stay ahead in a competitive market. 𝐖𝐡𝐚𝐭 𝐋𝐢𝐞𝐬 𝐀𝐡𝐞𝐚𝐝? With mortgage rates expected to stabilize in the low-6% range, a window of opportunity emerges for strategic investments. However, it’s not without challenges: → Lower rates attract more participants, driving up demand. → Vigilance is key to navigating changing market conditions. For those ready to adapt, the opportunities far outweigh the risks. The question is, are you prepared to capitalize on this evolving landscape? #RealEstateInvesting #RateCuts #MarketTrends

🌎 Climate risk isn’t a future scenario — it’s already a financial reality reshaping the built environment. Hamoda Youssef and I recorded this during Greenbuild because we’re seeing the same pattern across portfolios everywhere: climate risks are accelerating faster than owners are able to implement mitigation and adaptation strategies. We fully acknowledge the challenges owners are facing today: 📉 a capital-constrained market, 📊 competing priorities across portfolios, 🏗️ limited bandwidth for project delivery, and 💵 rising costs of debt, insurance, and operations. But the message throughout the Sustainable Finance and Investing Forum was clear: • Insurance markets are repricing risk — premiums are spiking, coverage is shrinking, and many assets are becoming uninsurable. • Transition risk is now a balance-sheet issue — carbon-intensive and inefficient buildings face escalating fines, energy volatility, and valuation pressure. • Delay is the highest-cost strategy — stranded assets, climate-driven capex shocks, and preventable downtime are already eroding returns. • Capital is available for the right projects — from resilience-linked loans and C-PACE to incentives, structured finance, and the new generation of performance-based funding models. And most importantly: 💡 Owners do not need to solve everything at once. Practical steps — from operational optimization and climate risk screening to electrification planning, BPS compliance prep, and resilience upgrades — can be staged, sequenced, and financed over time. 💸 Every $1 invested in adaptation saves up to $10 in avoided losses. The ROI is real, measurable, and happening now. Even in a tight market, inaction is simply too risky — financially, operationally, and competitively. Resilience is no longer optional. It’s risk management. It’s fiduciary duty. And it’s the smart business move. Greenbuild showed that the momentum, tools, and capital are here. Now the industry needs leaders ready to move from intention to implementation. Resiliency now.