KKR’s McVey: Slow & steady still wins the yield race

December 15, 2011, 11:16 PM UTC

It's still a Brave New World...
A lot has changed for macro manager Henry McVey in the past seven years. He left Morgan Stanley (MS), joined Fortress Investment Group (MS), rejoined Morgan Stanley and then joined Kohlberg Kravis Roberts & Co. (KKR) as head of global macro and asset allocation.

But through it all, McVey has maintained a recommendation that investors should focus on stable growth companies with consistent dividends, as opposed to high-flying telecom and tech issuers. He first published the thesis in a 2004 report called Brave New World, and today reiterated it in an update available on the KKR website:

Fast forward to today’s environment of very low yields and a renewed emphasis on return of capital, and now we find ourselves asking a totally different question: Has this yield-and-growth story played out fully? Our answer… is an unequivocal no. In fact, despite strong performance in recent years, we are ready to give this story a tremendous, Churchill-inspired “whack” because we actually expect our thesis to hold up and even potentially gain momentum against a backdrop of low rates and more uneven growth that define a Phase III environment. At the risk of being neither “subtle nor clever,” we think investors would be wise to appreciate that demographic forces remain extremely supportive of the yearn for yield, even as real yields have turned negative in many parts of the world.

Moreover, McVey is now expanding the application of Brave New World beyond public equities, and into certain types of credit securities (namely mezzanine debt and emerging market sovereign debt) and alternative investments (KKR’s bread-and-butter). Within alternatives, McVey recommends traditional private equity in the U.S., growth capital in Asia and special situations in Europe. It’s these types of deals, McVey believes, that provide the best prospects for long-term growth, at the expense of short-term liquidity.

Sign up for my daily email newsletter on deals and deal-makers: GetTermSheet.com