Bloomberg Talks Sep 18, 2026
With Henry McVey, Partner at KKR
For the 20 years before this one, a stock selloff came with a bond rally. Henry McVey said that relationship has flipped, and he expects the new version to last.
The standard answer to a higher-correlation world is to hold more of everything. His is narrower: private equity for the operational work, real assets for the inflation, and credit taken higher up the capital structure so the position is not a fixed claim.
"So a couple of things I'd say at the heart of what we're talking about is that stocks and bonds are now positively correlated."
McVey is a partner at KKR and the author of the firm's regime change framework, which he began publishing in 2022 and which a host called the most sophisticated report of its kind; this is KKR's 50th year.
The full segment is covered here so you can skip it.
Here are the 8 principles that matter.
Key Takeaways
Stocks and bonds are now positively correlated, and he expects that to hold rather than revert
KKR's portfolio answer is operational improvement, real assets and credit higher in the capital structure
Private equity buys alpha through company improvement, not market beta, across roughly 200 companies at a time
The 2021 vintage of buyouts, especially software deals at high prices, is where he expects trouble
The illiquidity premium only pays over five to 10 years, and six-month money does not belong in it
He was there for the 401k build-out in the 1990s, and says a 35-year-old has 25 to 30 working years to compound over
Putting private assets into retirement accounts does not have to happen overnight
His warning case is 1999, when a fund manager took in too much money too quickly
1. The Regime Change
A host asked what the old playbook was and why it no longer applies. McVey started before the pandemic.
The old world was one where inflation would not appear
So pre-COVID, if you think about it, coming out of the GFC, we had secular stagnation, right? The central banks could not engender inflation in the system.
Henry McVey
The mechanism then was rates down, borrowing up, consumption up. What broke it was fiscal policy rather than monetary policy.
Fiscal stimulus made the money multiplier work again
When COVID hit, you had a huge amount of fiscal stimulus come in the system. The money multiplier started to work, and we went into what we call a regime change. Bigger deficits, governments are spending more, more geopolitics, messy energy transition, and more things that get a bump.
Henry McVey
A host read out the framework's own summary phrase, productivity-driven growth alongside increasing economic choke points used for political gain, and noted the report is built on history rather than forecasts.
2. Why PE in an IRA
Pressed on why an individual saver needs private equity in a retirement account, McVey gave two reasons and no market call.
The first reason is compounding
Well, ultimately, I think if you believe in compounding, which we think is the eighth wonder of the world, you guys talk about it all the time, that's what private equity does. The second big point is that it actually lends itself to operational improvements in companies.
Henry McVey
The second reason is what distinguishes the return from an index fund's. Buying the market gets the market's return; buying a company you then run differently is a different source of return.
The return comes from improving companies, not from the market
So you're not buying beta of the market, you're actually buying alpha that's generated by making companies better. We typically own, at any time, 200 companies.
Henry McVey
Owning 200 companies at once is also, on his account, an information advantage: the firm can move practices that worked at one holding into another. A host interjected that mentioning a third Greek letter would open a trap door, and let it pass because it was a Friday.
3. The 2021 Vintage
Asked what higher borrowing costs do to private equity, given how hard exits have been, McVey declined to treat rates as decisive.
Rates are one lever and not the main one
Look, I'd say there are a couple of things, which is interest rates is not your only lever, right? Your best thing is how you run the business.
Henry McVey
He then named the cohort he expects to have problems, which is the deals struck at the top of the market.
The 2021 software deals are where the trouble is
There's going to be a vintage of private equity that came through 2021. And you see this in some of the software deals where you paid high prices. That will be a little bit of a bump in the night. But that's ultimately why you need to diversify where you invest.
Henry McVey
On his own firm's record he pointed at the disclosure rather than arguing the point.
He pointed at KKR's own reported exits
And I know this catches the media's attention all the time. But if you look at our exits and we're publicly traded, you can see we've had pretty substantial exits of late.
Henry McVey
4. The Illiquidity Premium
A host asked what individual investors most often get wrong when they allocate to private markets, since the option is new to them. His answer was about holding period.
The whole return depends on not needing the money
Private equity is predicated on an illiquidity premium.
Henry McVey
An illiquidity premium is the extra return an investor is paid for accepting that the money cannot be withdrawn on demand. Asked what long term means in years, he gave a range.
Long term is five to 10 years
Somewhere between five and 10 years.
Henry McVey
Money that is needed in six months, he said, does not belong in the asset class at all.
5. Guardrails for 401ks
A host raised the retirement plan rules directly: whether sensible guardrails are needed inside ERISA programs to make a five-year wait workable. McVey answered from having been in the room for the previous structural change.
He was there when 401ks arrived
I was around when we actually introduced the 401ks into the public markets in the 1990s when we took a lot of these asset managers public. If you think about somebody who's 35, they're going to be in the workforce for 25 to 30 years.
Henry McVey
The size of the allocation is what makes the illiquidity tolerable, on his account, rather than any rule about when it can be sold.
A small slice removes the liquidity problem
Taking some small proportion of your savings and having that compound over time where you don't have a threat of illiquidity
Henry McVey
Asked whether savers actually behave that way or sell at the first sign of stress, he did not claim they will.
His answer to behavior is education, not a lockup
I think a lot of this gets to investor education, which is what's the right vehicle?
Henry McVey
6. Positively Correlated Now
A host noted that a great deal has changed since he started publishing the framework in 2022, listing the AI boom, a new administration and policies the host described as inflationary, and asked how those fold in. McVey went to the correlation first.
Stocks and bonds no longer offset each other
So a couple of things I'd say at the heart of what we're talking about is that stocks and bonds are now positively correlated. So if you think about Liberation Day, what happened? The dollar went down, bonds sold off and stocks sold off. For the prior 20 years, you had when stocks sold off, bonds rallied. And that's how you diversified yourself. Our view is that is a more sustainable trend.
Henry McVey
Two of the framework's foundations have run faster than he expected. Geopolitics is one, and government borrowing is the other.
Deficits accelerated and inflation has a higher floor
The second is the deficits have accelerated. We have not left the call that you're in this higher resting heart rate for inflation.
Henry McVey
A higher resting heart rate for inflation means a base rate of price increases that does not return to the pre-pandemic level even in calm conditions. What follows from it is a portfolio built differently.
The portfolio response is three specific shifts
And so if you think about what KKR has done, more operational improvement in private equity, more real assets in the portfolio, and then credit be up in the capital structure where you're not stuck in just a fixed investment.
Henry McVey
7. Selling It to the Public
A host went to a chart in the report showing private equity's Sharpe ratio, a measure of return per unit of risk, and asked why the case is a hard sell to individuals if the ratio is that clear.
It belongs in the wealth channel, but not at speed
I think we think that it should go into the wealth business, individual investor business, but it doesn't have to be accomplished overnight.
Henry McVey
He described the firm's own framing of its purpose in terms of savers rather than funds.
How he defines what KKR sells
But when you think about long-term retirement savings, that's the business KKR is in.
Henry McVey
The client base should widen, with a limit
And if you can extend that beyond just pensions and sovereign wealth funds and family offices, it makes sense for individuals to have some portion of their portfolio in that. But I don't think you want to do this irresponsibly.
Henry McVey
8. The 1999 Lesson
His caution has a precedent attached. He reached back to 1999 and a fund manager that took in far more money than it could deploy well.
The failure mode is gathering assets too fast
It's like taking way too much money in way too quickly.
Henry McVey
The cohort that learned it
That happened in the dot-com era. Everybody learned a lesson.
Henry McVey
Against that he set the firm's own age as the argument for pace.
Fifty years is the case for going slowly
And so just slow and steady wins the race. This is our 50th year at KKR.
Henry McVey
The segment closed on three discipline rules he said carry across from public markets without modification.
The three rules do not change in private markets
Ultimately, concentration — all the things that apply to the public markets apply to the private markets, which is: have linear deployment, think about concentration, think about leverage.
Henry McVey
Linear deployment means investing at a steady rate rather than committing a fund's capital into one favorable window.
Bonus Insights
The report is history, not forecasting
A host introduced the framework by pointing out that McVey read history at the University of Virginia, and said the report is built on historical evidence rather than projection. The same host pressed twice on whether individual savers will behave well under stress, and got education rather than a mechanism as the answer both times.
The banter had a target
A host greeted two competitors by name while asking the liquidity question, and later joked that McVey's 1999 reference was aimed at a fund management firm in Denver. McVey did not name the firm again or expand on the comparison.
McVey's bottom line is that a world where stocks and bonds fall together leaves diversification to be found in what a manager does to a business rather than in the mix of public assets, and that moving that into individual retirement accounts is right but has to be done slowly enough to survive the first drawdown.
Products, Companies & Tools Mentioned
KKR (Owns around 200 companies at a time, is in its 50th year, publishes the regime change framework, and reports its exits as a listed company)
Books & Resources Mentioned
KKR's regime change report (The framework under discussion, begun in 2022, including the Sharpe ratio chart a host raised and the summary phrase about productivity-driven growth and economic choke points)
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