KKR & Co.'s Henry Mc Vey suggested investors should shift to private markets as the traditional stock-bond diversification model breaks down under geopolitical tensions and growing fiscal deficits. "At the heart of what we are talking about is that stocks and bonds are now positively correlated," Mc Vey said Friday on Bloomberg Television. That undermines the classic portfolio hedge of balancing equities and debt. The Wall Street rout after President Donald Trump's tariff announcement in April 2025 was a case in point. "The dollar went down, bonds sold off, and stocks sold off," Mc Vey said. "For the prior 20 years, when stocks sold off, bonds rallied, and that's how you diversified yourself. Our view is that is a more sustainable trend."

Mc Vey, KKR's head of global macro and asset allocation, spoke a day after he and his team raised their forecast for long-end US government bond yields, projecting a 5.1% reading at the end of 2026 for 10-year Treasurys, up from a prior prediction of 5%. KKR also expects the Federal Reserve to hike rates in December and March, and keep them there into early 2029.

Pivoting to private markets isn't for everyone, Mc Vey said, and needs investor education first. "It doesn't have to be accomplished overnight," he said. "We want to be thoughtful stewards," he added, noting private equity's long-term premium requires a five- to 10-year horizon. Investors needing liquidity within six months have no business entering the asset class, he added. Mc Vey likened the opening of private markets to more individual investors to the surge in popularity of 401(k) plans in the 1990s. Today, he said, a 35-year-old with 25 to 30 years to go in the workforce could compound a small proportion of savings in private markets without facing a meaningful illiquidity threat. KKR's ambition is to extend the private markets model — currently dominated by pensions, sovereign wealth funds and family offices — to individual investors in a measured way, with retirement savings as the natural entry point, Mc Vey said.