KKR’s global and Asia macro heads remarked in an October report that no matter if it's China, India, or Japan, industrial services is the region's main advantage in the present day. That conclusion was established following New York-based Henry H. McVey’s visit to the area; McVey is not only KKR's chief investment officer, but the head of KKR Balance Sheet as well. When speaking to CNBC on Thursday, McVey voiced that, in Japan, there are two main pieces: automation and industrialization, and a current capex cycle not seen in some time.
According to the heads of global and Asia macro at KKR, the region's competitive advantage has shifted away from relying on cheap labor, and now focuses on providing industrial services, such as logistics, waste management and data centers. This was the investment conclusion drawn after a trip to Singapore, China and Japan by Henry H. McVey, chief investment officer of KKR Balance Sheet, and managing director Frances Lim, head of Asia macro and asset allocation. The KKR report states that there is potential to invest significantly in infrastructure and logistics in countries such as India, China, Indonesia, the Philippines, Vietnam, and even Japan. Around 20% of KKR's balance sheet is allocated to Asia, as the region requires more fixed investment. Notably, KKR's biggest recent deals have been in Japan, such as the $2 billion acquisition of a Mitsubishi-backed real estate manager in the spring of 2022.
According to KKR's McVey, two major themes have been emerging in Japan: automation and industrialization, which will lead to Japan breaking records in domestic investment to the tune of more than 100 trillion yen ($673.58 billion) this year; and corporate reform that is driving up shareholder returns. McVey expects that these changes are causing Japan to come out of deflation. U.S. billionaire Warren Buffett recently visited Japan to announce more investments into several Japanese businesses, cementing Japan as an attractive investment spot amidst uncertain times in China.
In March, KKR announced finalizing its acquisition of Hitachi Transport System, which has now been renamed Logisteed. Furthermore, they noted that early 2020 marked their first hotel investment in Japan with the acquisition of the Hyatt Regency Tokyo, in collaboration with Gaw Capital Partners. KKR's statement said that they view Japan as a country one should have a presence in and that there is great potential in the country that is not being fully recognized in the present market. As of June 30, the private equity giant has $519 billion in assets under management.
McVey and Lim mentioned in their co-authored report that their dialogue with company executives validated the positive outlook for investments in India. According to the paper, public capital expenditure in the country has grown 200% in the span of four years, with exports on the rise. McVey highlighted that opportunities to gain from GDP per capita expansion can be more easily obtained in private areas as opposed to from capital markets in emerging economies. "There's finally some investment going into infrastructure which contributes to increased productivity and also helps with controlling inflation and economic growth," he commented.
On Wednesday, KKR declared the establishment of a fresh office in Gurugram, with Nisha Awasthi, formerly of BlackRock, as its Managing Director. The company expects to have 150 new staff by early 2024. This extension to northern India is in addition to a current office in Mumbai and other Asia-Pacific offices situated in Beijing, Hong Kong, Seoul, Shanghai, Singapore, Sydney, and Tokyo.
McVey and Lim wrote in their October note that, following their third trip to China this year, growth in the country appears to be bottoming. They cited a forecast of 4.5% real GDP growth and 1.9% inflation for the country in the upcoming year. KKR have invested around $6 billion in China. McVey, having recently been to China, acknowledged a transition taking place, with the digital economy and decarbonization contributing to a growth rate of around 40%. Although these two areas only represent a small portion of the country's GDP, their rapid growth is an encouraging development.
He has been making regular trips to Asia since 1995, and has spent more than thirty years in the finance sector. The most noteworthy developments during this period are global integration, increased central bank activism, and a rise in global competition, he said. "No matter where I go, there is some governmental agenda that has to be taken into account. That doesn't stop us from investing, though."Future prospects such as automation will require considerable time to bear fruit. "It is a gradual process," McVey commented about the situation in Japan, a country where his team's research has uncovered that the former overabundance of workers is no longer present.
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