KKR's Kravis on 'Sticky' Inflation, Europe and Private Credit

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00:00There's a lot of talk, well, globalization is ending. I don't buy that. I just think it's being

00:06rewired. It's being rewired around security. It's being rewired around resilience and obviously

00:14regional blocs. Asia is a perfect example of that. We are very big believers in Europe.

00:22A lot of our competitors and others, they're rushing off to Asia. We're big in Asia too.

00:27But don't give up on Europe. Europe has a lot to offer. And just this year alone,

00:35we put over $25 billion to work in Europe. There's been a structural shift. The rules-based

00:43global economy is giving way to very much of a transactional, great power competition in my view.

00:52And so what does that mean? That creates opportunity. We come back to what is the U.S. trying

00:59to accomplish? I think they're trying to, from their point of view, this administration,

01:04not in the administration, to come up with a more level playing field from their perspective.

01:12Private activity is going to play a very big role. And in large part, if you think about the need for

01:19capital for energy, the need for capital for data infrastructure, for data centers,

01:27national security is now playing a very important role. So that creates huge opportunities. The

01:34governments cannot pay for all of this themselves. Germany, we're in Berlin.

01:38Chancellor Mertz just came out in the end of July with Made for Germany. Terrific idea, great program.

01:48But it's going to take capital. And it's going to take a lot more capital than what your 65 or so

01:55large companies can supply. It's going to take outside capital to tie in with the government here.

02:01And so what areas today? Okay. Security of everything. Number one. Defense and dual technology. They tie

02:10together. And so I would say that's number two. Critical resources is three. And you have to think

02:19about resilience. What areas will be able to withstand those shocks? But think about this. If inflation is,

02:30in fact, sort of 3% right now, and you have a 10-year treasury at a little over 4%, you only have really

02:39a 1% real rate. Now, is that too low or too high? You'll all be the judge of that. But we see that inflation

02:52will be, I think we're going to have stickier inflation around the world. I don't know what happens in the long

02:59term with tariffs, but they have to at some point have. And somebody's got to pay for it. You know,

03:04either the company that's absorbing those or the customer. It's got to go somewhere. And what we're

03:10seeing right now in the US is very much a K economy. Think about it. You have the K. You got the upper

03:19short leg is maybe 30% of the economy. Those people that have capital. If you had any assets during COVID,

03:27you did really well because inflation started kicking in, appreciation in real assets, appreciation

03:33in stock market, bond market, et cetera. But if you were going hand to mouth and you were strictly on a

03:41fixed salary and you didn't really have any chance to take advantage and didn't have any savings,

03:46you were hurt. And so what's happened today is that we have broadened the spread, in my view,

03:54between the haves and have nots. That's not good. That's not good at all. We have to figure out what

03:59are we going to do to make sure that all people are able to benefit from that. We have a big private

04:05credit business at KKR. So do many other firms have private credit. Even banks have a sleeve of private

04:11credit. Everybody's talking about, oh my God, private credit is going to go bad. I do worry

04:16about one thing. I worry about those firms that don't have a driver's license, that have decided

04:20they want to get into private credit, have no way to drive, haven't passed a test or anything.

04:25And yeah, will they have problems? They could. I don't find it systemic. We don't take deposits.

04:30You know, that's, that, this is just really what it is. It's private credit. Two big bankruptcies,

04:36uh, last week, last 10 days. Not one penny of private credit was in them. But the market

04:44hit all of us that are in private credit because they assumed that was it. And then finally, once

04:49they figured out, well, this is really all banks, it was UBS and Jefferies were the two big banks that

04:55were, uh, the big lenders in that. I am not worried about a systemic risk issue in private credit.

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